Rising Rates will Reduce Demand, but won’t Eliminate Affordability

Esther Cho, DSNews.com, June 18th, 2013

The increase in mortgage rates coupled with rising home prices may dampen demand, but the recent upward movement in rates is not enough to make housing unaffordable to median income earners, according to Freddie Mac’s economic and housing outlook for June.

In fact, the GSE’s analysis showed mortgage rates would have to climb to nearly 7 percent before a median priced home is no longer affordable to median income earners in most parts of the country.

From May to early June, the 30-year fixed-rate mortgage spiked more than 40 basis points, ending just below 4 percent last week after staying at or under 3.5 percent for most of this year, according to the Freddie Mac.

The GSE’s report also pointed out that rates are still near 60-year lows.

“[W]ith the exception of high-cost markets, primarily San Francisco south to San Diego, and Washington, DC north to Boston, which are already challenged with affordability, house prices in most of the country are very affordable,” said Frank Nothaft, Freddie Mac VP and chief economist.

In San Francisco, the median income is $91,000, while the median price for a home is $643,000. Even if interest rates stayed at 3.5 percent, a median income earner could afford a home that is $362,000, well below the median price of a home, according to Freddie Mac.

Housing in Detroit, on the other hand, would stay extremely affordable even if interest rates were to rise to 8 percent. With a median income of $64,000 and a median home price of $67,000, a homebuyer in Detroit could still afford to buy a home that costs $177,000 if interest rates increased to 8 percent.

Even though rising rates won’t eliminate affordability in most major metros (at least until they rise to 7 percent), the GSE expects demand to be reduced.

“[W]hile rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial. Nothing in the recent trends suggests that we need to fear a major slowdown. A gradual rise in interest rates will not derail the recovery, and are an indication that the overall economic situation is improving,” Nothaft added.

During the second half of 2013, Freddie Mac expects the 30-year rate to land around 4 percent. This upturn in rates is forecast to cause refinance volume to fall sharply to about $1.1 trillion later this year, down from $1.5 trillion in 2012.

OCC: Housing Market Shows Strong Growth

6/18/13 Housingwire.com

Treasury yields have posted historical lows for the past several years, implying strongish economic growth and the potential for higher inflation, the Office of the Currency of the Comptroller said.

In the OCC Semiannual Risk Perspective from the National Risk Committee, the yield curve has stayed positively sloped and relatively steep, which shows higher household and corporate income and revenue growth.

However, for banks, the possible negative effects of higher rates include a decline in the value of investment securities, including many mortgage-related securities, the OCC said.

Meanwhile, net income for 2012 increased 12% year over year to more than $94 billion, with banks of all sizes experiencing improvements in operating performance.

Part of the growth was attributed to the largest banks reporting a 21% reduction in provisions for loan losses.

In addition, mortgage refinance activity helped boost system revenue, but that source of strength may ease in 2013.

Overall, the OCC said, “The housing market showed signs of improvement in 2012 due to increased investor demand and the limited supply of new and existing homes for sale.”

Is It a Good Time to Sell?

RealtyTimes.com, June 19th, 2013
Whether it is a good time to sell is always, ultimately, an individual question. What would be the reason for selling? Would it entail another purchase? Whether one is planning on moving on to a larger house or to a smaller one, one factor in answering the question will depend on whether or not that can be accomplished.
Full Story:
http://realtytimes.com/rtpages/20130619_goodtimetosell.htm

Builder Confidence at 7-Year High

Associated Press, The Boston Globe, June 18th, 2013

For the first time in seven years, most US home builders are optimistic about home sales, a sign that construction could help drive stronger economic growth ahead.

The National Association of Home Builders/Wells Fargo builder sentiment index, released Monday, leaped to 52 this month from 44 in May.

It was the largest monthly increase since 2002.

A reading above 50 indicates that more builders view sales conditions as good, rather than poor.  The index has not been that high since April 2006.

Measures of customer traffic, current sales conditions, and builders’ outlook for single-family homes sales over the next six months also soared to their highest levels in seven years.

The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts.

Steady hiring and low mortgage rates have encouraged more people to buy homes.

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Report: Risk of Mortgage Default at Lowest Level in Nearly 10 Years

Esther Cho, DSNews.com, June 17th, 2013

The risk of default for more recently originated mortgages is close to levels seen 10 years ago, according to the findings from the University Financial Associates (UFA) of Ann Arbor, Michigan.

In the second quarter of this year, the UFA Default Risk Index stood at 106, up from 97 in the previous quarter. A score of 106 suggests that under current conditions, investors and lenders should expect defaults on recently originated loans to be 6 percent higher than similar loans originated in the 1990s. Between 2006 and 2008, the index peaked well above 200.

“These readings on the Index are the lowest in almost 10 years, but we may not be able to declare the mortgage crisis over yet,” said Dennis Capozza, business professor at the University of Michigan and a founding principal of UFA.

Capozza warned the current situation is not “typical” or “normal.”

“In today’s market the negative effect of high unemployment rates is being offset by very low mortgage rates and accommodative monetary policy. In most recoveries there is usually a short transitional period similar to the current situation; but it is not ‘common’ or ‘typical,’” he explained.

The UFA evaluates how economic conditions will impact defaults, prepayments, loss recoveries, and loan values on prime and nonprime loans.

Home Prices, Sales Spike in 19 Major Metros in May

Esther Cho , DSNews.com, June 17th, 2013

Gains in home prices and sales surged in May, while inventory increased for the second straight month, according to Redfin’s most recent housing market report based on 19 markets across the country.

In May, home prices surged 17.4 percent year-over-year, while prices in all 19 markets tracked showed yearly gains, the brokerage found. From April to May, prices increased 4.3 percent. Redfin also reported the median price per square foot stood at $208 last month. However, the median price per square foot ranged greatly, with a median of $92 in Las Vegas compared to $451 in San Jose.

According to data from Redfin, home prices in San Francisco experienced the biggest annual increase at 34.7 percent, while Baltimore saw the smallest increase—3.2 percent.

At the same time, home sales climbed 15.8 percent from April to May, reaching their highest level since January 2010, which is when Redfin began keeping track.

Year-over-year, home sales shot up by 13.7 percent. Out of the 19 markets followed, five saw sales decline compared to a year ago.

Four of the five markets where sales were down from last year were in California: San Francisco (-7.7 percent), San Jose (-6.3 percent), Inland Empire (-5.4 percent), and Ventura (-2.1 percent). Las Vegas was the exception, where sales fell by 2.6 percent.

Although for-sale housing inventory decreased 21.9 percent year-over-year, Redfin reported inventory inched up by 4.3 percent from April to May, marking the second straight monthly increase. According to data from Redfin, inventory in 13 of the 19 markets tracked experienced monthly increases in inventory.

Chicago and Denver led with double-digit gains at 16.8 percent and 10 percent, respectively. Other metros that posted strong monthly improvements were San Jose (8.4 percent), Washington (6.3 percent), and Seattle (5 percent).

Selling a House? Five Reasons You Should Do It NOW

Posted: 17 Jun 2013 KCM Crew 

Many are talking about why now is a great time to buy a home. Today, we want to look at why it might also be an opportune time to sell your house. Here are the Top 5 Reasons we believe now may be a perfect time to put your house on the market.

1.) Demand Is High

Homes are selling at the fastest pace since November 2009 when the market spiked in response to the home buyer tax credit. The most recent Existing Home Sales Report by the National Association of Realtors (NAR) showed that monthly sales increased 9.7% over the same month last year. Total sales have been above year-ago levels for 22 consecutive months. There are buyers out there right now (buyer traffic is 31 percent stronger than a year ago) and they are serious about purchasing.

2.) Supply Is Beginning to Increase

Total housing inventory last month rose 11.9% to 2.16 million homes for sale. This represents a 5.2-month supply at the current sales pace, compared with 4.3 months in January. Many expect inventory to continue to rise as more sellers escape the shackles of negative equity. Selling now while demand is high and before supply increases may garner you your best price.

3.) New Construction Is Coming Back

Over the last several years, most homeowners selling their home did not have to compete with a new construction project around the block. As the market is recovering, more and more builders are jumping back in. These ‘shiny’ new homes will again become competition as they are an attractive alternative for many purchasers.

4.) Interest Rates Are Rising

According to Freddie Mac’s Primary Mortgage Market Survey, interest rates for a 30-year mortgage have shot up to 3.98% which represents a jump of more than ½ point since the beginning of the year. Even those trying to be the voice of reason on this issue are projecting higher rates. For example, Polyana da Costa, senior mortgage analyst at Bankrate.com said:

“Rates are unlikely to keep going up so quickly and should remain below 5%.”

Whether you are moving up or moving down, your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

5.) It’s Time to Move On with Your Life

Look at the reason you are thinking about selling and decide whether it is worth waiting. Is the possibility of a few extra dollars more important than being with family; more important than your health; more important than having the freedom to go on with your life the way you think you should?

You already know the answers to the questions we just asked. You have the power to take back control of your situation by putting the house on the market today. The time may have come for you and your family to move on and start living the life you desire. That is what is truly important.