In an article that appeared recently in CoreLogic's blog, Popping the Housing Bubbly Theory, CoreLogic's Chief Economist Dr. Mark Fleming presents a different take on current home prices and whether recent gains are sustainable. Current thinking maintains that a housing bubble may already exist because home price appreciation has substantially outpaced the rate that rents have grown. Renting and owning are generally considered to be "economic substitutes," so Fleming says, "A significant difference in pricing should draw more demand to the less expensive option, therefore driving up pricing and removing the significant difference. This constant reversion to equilibrium between the two substitutes means any significant difference must be due to irrational exuberance on the part of the homeowner or renter."
But he argues for an alternative view. Because most homeowners use their income to pay their mortgage it follows that an established relationship exists between income and home prices. This relationship means that home price growth cannot be sustained at higher levels than income growth because housing would become unaffordable, demand would decline, bringing price growth back into alignment with income growth....(read more)
2013 was a "strong year" for both commercial and multi-family debt holdings the Mortgage Bankers Association (MBA) said today and the fourth quarter continued in that vein. The amount of commercial and multi-family mortgage debt outstanding at the end of the year increased by 3.7 percent or $90.5 billion compared to the end of 2012. Multi-family debt alone increased by $37 billion during the year, an increase of 4.3 percent.
The largest increases in the dollar volume holdings of overall commercial/multi-family debt was with commercial banks and thrifts which expanded theirs by $62 billion or 7.4 percent. The largest increase on a percentage basis was in the holdings of non-life insurance companies, up 29.9 percent. Finance companies decreased their holdings by $5 billion or 10.0 percent and state/local government retirement funds had the largest percentage decrease at 29.7 percent....(read more)
The strong uptick in mortgage applications during the week ended February 28 faded quickly and the Mortgage Bankers Association (MBA) said today that application volume has resumed the downward trajectory that has prevailed since late last fall. According to MBA's Weekly Mortgage Applications Survey the Market Composite Index, a measure of mortgage volume decreased 2.1 percent on a seasonally adjusted basis from the week before and down 1 percent on an unadjusted basis.
The Refinance Index fell 3 percent week-over-week and refinancing garnered a 57 percent share of mortgage activity, down from 57.7 the previous week. The refinancing share is off 6 percentage points from the level at the beginning of the year and is at the lowest point since April 2011....(read more)
Relatively speaking, one might say that the distressed housing market in California has virtually evaporated. The California Association of Realtors® (C.A.R.) said today that more than two-thirds of home sales in the state five years ago were short sales and bank owned real estate (REO). Those properties now make up only 15.6 percent of the market. The statewide share of equity sales hit a high of 86.4 percent in November 2013 and has been above 80 percent for the past seven months. C.A.R. did not provide figures on what would constitute a distressed/equity split in a "normal" market....(read more)
Reuters and Bloomberg are reporting that the Chair and the Ranking Member of the Senate Banking Committee have agreed on the outline of a plan to wind down Fannie Mae and Freddie Mac. Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) said the bill would build on a bill submitted earlier by Senators Bob Corker (R-TN) and Mark Warner (D-VA).
Details of the new agreement will be announced soon Johnson and Crapo said, in the meantime Reuters is reporting that the bill would provide for gradually phasing out the two government sponsored enterprises (GSEs), replacing them with a new government insurer, the Federal Mortgage Insurance Corporation. The new guarantee would be funded by a user fee like the existing guarantee issued by the GSEs....(read more)
Investors slightly expanded their loan offerings and switched to longer-term products in response to new mortgage regulations the Mortgage Bankers Association (MBA) said today. As a result, credit availability expanded slightly in February.
MBA's Mortgage Credit Availability Index (MCAI) increased 0.44 percent from 113.0 in January to 113.5 in February. This follows an increase of 1.85 percent in January as the Consumer Financial Protection Agency's (CFPB) Qualified Mortgage (QM) and Ability to Repay (ATR) regulations went into effect. A decline in the MCAI indicates that lending standards are tightening, while increases in the Index are indicative of a loosening of credit....(read more)
Americans expectations regarding home prices ticked up decisively in February, both in terms of anticipating continued price increases and in the size of such gains. Fannie Mae's National Housing Survey results released on Monday showed an increase of 7 percentage points to 50 percent in the share of survey respondents who expect home prices to rise over the next 12 months, more than bouncing back from a 6 percentage point downturn in January. Among that 50 percent, the average size of the expected price gain jumped to 3.2 percent from 2.0 percent in January....(read more)
The February edition of the Obama Administrations Housing Scorecard was released late Friday by the Departments of Treasury and Housing and Urban Development along with the monthly report, for January, of the Making Home Affordable (MHA) program. The scorecard notes that purchases of new homes rose, foreclosure completions continued their downward trend, and house prices were stable.
While much of the data summarized in the Scorecard has previously been reported by MND there were a few bits of news. First, the Federal Reserve reports that homeowners' equity was up nearly $412 billion, or 4.3 percent, in the fourth quarter of 2013, reaching $10.026 trillion-the highest level since the fourth quarter of 2007. Homeowners' equity has risen sharply since the beginning of 2012, with equity up 60 percent, or more than $3.7 trillion, during this period. In last week's negative equity report CoreLogic had put the fourth quarter increase in equity at slightly under $3 billion and called the number of home affected virtually unchanged from the third quarter....(read more)
This morning's Employment Situation Report was stronger than expected. By historical standards, the "beat" isn't especially large (175k vs 149k forecast), but most market participants (at least those expressing opinions) are surprised there was a 'beat' at all. The great debate on the impact of uncommonly cold/snowy winter is at the heart of this expectation. In my conversations, even those who really don't think much of the weather impact are still willing to admit it exists in some small form....(read more)
Metropolitan areas considered leading markets on the National Association of Home Builders (NAHB)/First American index of that name increased to 59 this month, a net gain of one from the previous month. The 59 areas have returned to or exceeded their last normal levels of economic activity as measured by employment levels, housing permits issued, and home prices.
The Leading Market Index (LMI) had a nationwide score of 87, unchanged from February. This means that based on current permits, prices and employment data, the nationwide average is running at 87 percent of normal economic and housing activity. Thirty-two percent of the 350 metro areas tracked by the index had higher scores this month than last and 84 percent have shown improvement over the past year....(read more)
An additional 4 million homes regained positive equity in 2013 CoreLogic said today, leaving 6.5 million homes still underwater; about half the number that were in that position at the end of 2009. Homes still in a negative equity position constitute 13.3 percent of all residential properties with a mortgage while 42.7 million homeowners now have at least some equity.
While the negative equity problem has been slowly resolving CoreLogic said that the percentage of homes underwater was virtually unchanged from the end of the third quarter. This is due to a slowdown in the quarterly growth rate of CoreLogic's Home Price Index (HPI.)
While homeowners are seeing the net worth of their homes increase, many of the margins are still narrow. CoreLogic says that about 10 million of the homes in positive equity have less than 20 percent and may have a difficult time refinancing their homes. These "under-equitied" properties accounted for 21.1 percent of mortgaged homes nationwide. More than 1.6 million properties are referred to as "near-negative equity," that is having less than 5 percent equity and these remain in danger of slipping back underwater if home prices decline....(read more)
The venerable Freddie Mac Primary Mortgage Market Survey (PMMS™) is a cornerstone of mortgage rate data. It is both longstanding and highly accurate in capturing week-over-week movement. The only problem is that it is unavoidably backward-looking due to its methodology. There's no scandal here and Freddie does a good job of convey that methodology, saying
"The survey is collected from Monday through Wednesday and the results are released on Thursdays at 10 a.m. ET. Survey reminder emails are sent out on Mondays and lenders are asked to respond by close of business Wednesday. If we have received no response on Tuesday, we follow-up with a reminder email on Wednesday morning."
There's no harm in this if one of two conditions are met. Either rates need to be flat enough so that there's a minimal discrepancy between Thursday morning's rates and Freddie's (which will be most similar to Monday or Tuesday's rates) or mortgage rate watchers must be familiar enough with the methodology that they know it's backward-looking. The latter isn't going to happen on a broad scale and the former is hit and miss.
This week is a miss....(read more)
Even though they stated in a news release two weeks ago that institutional investment was waning, RealtyTrac has released a report on its impact on the housing market. Institutional investors are defined as those who have purchased ten or more residential properties in a calendar year and in January they accounted for 5.2 percent of home purchases, down from 8.2 percent one year earlier. In all of 2013 institutional investors purchased 354,000 properties or 7.40 percent and over the last three years their purchases have totaled 850,000 units. The January number was a 22 month low....(read more)
The volume of mortgage applications increased during the week ended February 28 for the first time since late January. This good news was muted slightly by the fact that the previous week had been a holiday for many with government offices and schools closed.
The Mortgage Bankers Association said its Market Composite Index increased 9.4 percent on a seasonally adjusted basis from the week ended February 21 and 11 percent on an unadjusted basis. The seasonally adjusted Purchase Index was 9 percent higher than the previous week but MBA noted that week was not adjusted to account for the President's Day holiday. The seasonally adjusted Purchase Index during the most recent week was 6 percent above the level during the last non-holiday week which ended February 14. The unadjusted Purchase Index was 19 percent lower than during the same week in 2013....(read more)
The Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund will have a positive capital reserve balance at the end of Fiscal 2014 estimated at $7.8 billion and will not require a draw from the U.S. Treasury. This news was contained in an overview of the FY2015 budget for the Department of Housing and Urban Development (HUD) released today by HUD Secretary Shaun Donovan. The announced improvement of the fund immediately triggered a call from a lending industry group for FHA to reduce the premiums it currently charges homebuyers.
FHA will introduce several features in the upcoming fiscal year designed to strengthen its insurance fund and provide increased access to credit. First, it is asking for authority to collect an administrative fee. This will help it further develop its quality assurance efforts with a greater capacity to monitor loans and transform its business processes. HUD will also conduct a pilot housing counseling program for first-time homebuyers called Homeowners Armed with Knowledge or HAWK and will increase its overall counseling budget by 33 percent or $60 million....(read more)