Jul232015
National home prices reach housing bubble peak nine years later
Restoring peak housing prices required record low mortgage rates during a period of weak growth and a falling home ownership rate.
It’s time to celebrate! National home prices reached the peak of 2006. Surviving homedebtors are regaining equity, surviving lenders have collateral backing behind the bad debt they’ve preserved for the last decade, and new homeowners are stretched to the max to repay the bad debts of previous generations, albeit at lower rates.
Since the housing market peaked in 2006, the powers-that-be resisted the price decline with a variety of government relief programs, and most importantly, record low mortgage rates. The recession caused by the 2006-2009 housing market crash left many people unemployed and underemployed, removing their demand from the housing market, and millions of foreclosures caused the home ownership rate to plummet — not the conditions one would expect to cause a robust price rally in house prices.
However, house prices did go up — a lot. When the market manipulations finally worked in 2012, house prices went nearly vertical. While economic fundamentals were slowly improving in the background, there was no significant fundamental support for the rally that reflated the housing bubble, certainly not a level of economic improvement commensurate with the dramatic increase observed in prices.
The entire rally was fueled by record low mortgage rates engineered by the federal reserve. Plus, changes in policy at the major banks held back the tide of foreclosures and greatly restricted the MLS inventory. Demand was up slightly, mostly due to investors as owner-occupants remained absent from the market, and first-time homebuyer participation fell to very low levels.
The small uptick in demand, fueled by record low interest rates, and the dramatic decline in for-sale inventories caused prices to bottom in 2012. It isn’t how the bottom callers thought it would happen (most predicted a surge in demand), but being right for the wrong reasons is good enough. It certainly beats being wrong for the right reasons like the bears were.
Homes are officially being sold at the highest prices, ever
Existing-home sales also reach highest pace in 8 years
Ben Lane, July 22, 2015 11:19AM
Thanks to rising demand and shrinking supply, the median existing-home price for all housing types reached an all-time high in June.
According to the latest data from the National Association of Realtors, the median existing-homes sales price rose to $236,400, which exceeds the previous peak median sales price set in July 2006 of $230,400. …
Despite record prices, existing-home sales also reached their highest pace in more than eight years.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.2% to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May.
Sales are now at their highest pace since February 2007 (5.79 million), have increased year-over-year for nine consecutive months and are 9.6% above a year ago (5.01 million).
Those are good numbers. A steady increase in both sales volumes and prices are a clear sign of an improving market.
Logan Mohtashami said, “One of my 2015 housing predictions was that we would see 5%-10% total growth in mortgage purchase applications due to the low bar set last year.” He got that right.
Lawrence Yun, NAR chief economist, said that buoyed by June’s solid gain in closings, this year’s spring buying season has been the strongest since the crisis began.
“Buyers have come back in force, leading to the strongest past two months in sales since early 2007,” Yun said. “This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.”
Not really, but that’s certainly how the realtors will spin the data.
“Limited inventory amidst strong demand continues to push home prices higher, leading to declining affordability for prospective buyers,” said Yun.
When the housing market bottomed, prices were undervalued, but the price rally from 2012 removed the excess affordability from the market, and in tight-supply markets like Coastal California, house prices are inflated to the degree possible with record low mortgage rates.
“Local officials in recent years have rightly authorized permits for new apartment construction, but more needs to be done for condominiums and single-family homes.”According to NAR’s report, the percent share of first-time buyers fell to 30% in June from 32% in May, …
This is a problem (See: Reflating housing bubble pricing out first-time homebuyers)
NAR President Chris Polychron said that Realtors are reporting “drastic imbalances” of supply in relation to demand in many metro areas — especially in the West.
“The demand for buying has really heated up this summer, leading to multiple bidders and homes selling at or above asking price,” Polychron said. “Furthermore, tight inventory conditions are being exacerbated by the fact that some homeowners are hesitant to sell because they’re not optimistic they’ll have adequate time to find an affordable property to move into.”
The demand is not the problem or the story. The oft ignored truth is that a significant percentage of normal supply is caught up in Cloud Inventory.
All-cash sales dropped to the lowest share since December 2009, reaching just 22% of transactions in June, down from 24% in May and 32% a year ago.
Back in 2012 and 2013 when inventory depletion was even more significant, all-cash buyers ruled the market. Single-family rental investors began pulling back in 2014, and by mid 2015 the flow of cash slowed further, and some rich oligarchs began liquidating their holdings.
Distressed sales, which are foreclosures and short sales, fell to 8% in June (matching an August 2014 low) from 10% in May, and are below the 11% share a year ago.
House prices depend on bank policies toward delinquent borrowers, so
lenders are forgoing distressed property sales in favor of loan modifications, denying short sales, and tolerating squatters.
“June sales were also likely propelled by the spring’s initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher,” Yun concluded.
realtors expound shoddy analysis to create a false sense of urgency, and the rising-rate bogeyman is the manipulation technique currently in vogue.
Now that we’ve reached the peak, what happens next?
In Summer of 2014, B of A predicted the reflated mini-bubble would peak in 2016.
I recently asked Is Coastal California housing at the peak of another bubble? I don’t think so.
I believe the Loan modification entitlement will be rescinded as prices near the peak. This will help bring the missing supply back to market if prices move higher.
The problem is that Potential buyers can’t afford peak prices at higher interest rates. When interest rates go up, sales volumes will fall, and house prices may follow.
It’s not unusual to see inflated prices move higher: that’s how bubbles form. It’s entirely possible prices will rally from here, but I rather doubt it. The math favors a plateau as more inventory comes to market at the same time rising mortgage rates make the large balances of today harder to finance. Perhaps fundamentals will catch up as the job market improves, but that will take a while. In the meantime, expect prices to remain near housing bubble peaks for the foreseeable future.
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Republican Lackeys Pander to Financial Donors
New Bill Proposed by Texas Lawmakers to Completely Eliminate the CFPB
Various legislation has been introduced by Republicans in an attempt to reduce the power of the Consumer Financial Protection Bureau (CFPB) in the last year, but there has not been any law proposed to completely eliminate the Bureau – until now.
During a week in which the Bureau celebrates the fourth anniversary of its creation, U.S. Representative John Ratcliffe and U.S. Senator Ted Cruz, both Republicans from Texas, have combined to sponsor a bill that would completely abolish the CFPB, according to announcements on both lawmakers’ websites.
Republicans believe the CFPB, which was created from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has had the opposite effect of its intended purpose of protecting consumers from predatory financial activity; rather, they believe the Bureau has made big banks bigger and limits options for consumers.
“Don’t let the name fool you, the Consumer Financial Protection Bureau does little to protect consumers,” said Cruz, who is a GOP candidate for the presidency in 2016. “The agency continues to grow in power and magnitude without any accountability to Congress and the people. The only way to stop this runaway agency is by eliminating it altogether. The legislation that Representative Ratcliffe and I are introducing today gives Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth. While there’s much more to do to scale back the harmful regulatory impositions of Dodd-Frank, this legislation takes a critical step in the right direction. So today let’s celebrate the CFPB’s fourth and final anniversary.”
Republicans believe that Bureau is unaccountable to the American people because unlike most federal agencies, the CFPB is not subject to Congressional appropriations despite being funded by the Federal Reserve. Cruz and Ratcliffe believe this situation “invites regulatory excess and abuse.”
[Actually, it insulates them from legislative abuse, which is why the CFPB is independent.]
Sickening pandering from the Crazy Right. We’ll see if this political pressure chills some of the goals of the Bureau. They’re currently involved in taming (eliminating?) the payday loan industry, and that industry’s lobbyists are very active because of it. The Bureau plans to tame the auto industry too. Should creditors be allowed to give 7+ year auto loans to subprime borrowers with no CLTV restrictions and carrying over negative equity from prior auto loans?
It is the CONSUMER PROTECTION Bureau, and it’s doing just that. Protecting consumers from themselves and from predatory creditors.
It makes me angry to see these politicians advocate for an industry bent on continuing and extending their slave claim on foolish and desperate people.
The 7+ year auto loan with carry over is a classic example. It’s just like the payday perpetual debt cycle. Once they get people in the system, they can’t break out, and they end up giving a percentage of their income to lenders forever. Disgusting.
You don’t understand it’s preventing credit worthy (can fog a mirror) borrowers from access to the credit (debt slavery) they need to provide a comfortable life.
When I think about how paternal my attitude has become about this kind of regulation, it surprises me. I used to be a free-market, deregulation, Reagan kind of guy. But when I see the stuff these lenders do today, it makes me believe in regulation. There are many in lending that have no ethical standards, and they have no problem subjecting people to all manner of financial chicanery. We need an aggressive regulator to keep this industry in check. The bad behavior of the fringe of this industry is what demand regulations on them all.
If the credit application required a math problem involving the calculation of interest prior to being accepted that would also solve the problem.
I believe in education too. If I didn’t, I probably wouldn’t keep writing this blog because I wouldn’t enjoy writing as much. I don’t see education alone being effective. I’ve seen ads for programs where lenders teach you how to manage their products, but is that the kind of financial education we want people to have? I don’t think so.
The credit debacle of the 00s has made me more a supporter of free markets than ever before.
The truth is that if it were not for guaranteed government support and rescue, from the time of the S&L bailouts, forward into the 00s, lenders would have pulled in their horns much sooner, and the Great Rampage of the 00s would never have happened.
When we bailed out the S&Ls in the 80s, we set a dangerous precedent. And when Long Term Capital, a hedge fund whose failure would have had NO effect on the economy whatsoever, was bailed out, the die was cast. It was then very clear that a major financial institution would be protected from its own malfeasance and gambling at any cost to the taxpayer. It was off to the races at that point, and the repeal of Glass-Steagall was icing on the cake.
If we had let the chips fall where they may in the early 80s, the fallout would have been painful, yes. There would have been a massive credit crunch as a result, and we might even have been spared the stock and real estate mini-bubbles of the late 80s. But we would have restored our financial system to soundness, and we would have conveyed an important message to markets, which would be that if you, a financial institution, engage in unsound practices, you and you alone will pay the price of that.
Research Shows Signs of Mortgage Credit Loosening
After years of post-crisis credit tightening, the availability of mortgage credit has slowly edged up from Q3 2013 to Q1 2015.
The Urban Institute’s (UI) Housing Finance Policy Center reported that 4.6 percent of purchase loans that are likely to default increased to 5.7 percent, according to the Housing Credit Availability Index (HCAI). This was mostly caused by loans backed by the government-sponsored enterprises (GSEs)—Freddie Mac and Fannie Mae—and also through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture’s Rural Development (RD) program, jointly called FVR loans.
“Despite the recent uptick, very significant space remains to safely expand the credit box: even doubling the default risk would keep the level well within the pre-crisis standard of 12.5 percent,” the report said.
“GSE and FHA lending dominates the postcrisis mortgage market, the report said. “Today’s tight credit box is largely the result of lender reluctance to lend to the full extent of credit box allowed by the GSEs and the FHA. One key reason has been deep uncertainty about when and why those entities will force lenders to take back the credit risk that they thought they were transferring to the GSEs and FHA, otherwise known as the put-back risk.”
RealtyTrac: Single-family home sales reach highest level since 2006
Adding another layer of confirmation onto the prevailing thought that 2015 is a healthy year for housing, single-family and condo sales reached the highest level since 2006, according to a new report from RealtyTrac.
RealtyTrac’s June and Midyear 2015 U.S. Home Sales Report showed that there were 914,291 single-family and condo sales through April 2015, which is the most recent month with complete sales data available.
Those figures mark the highest level through the first four months of a year since 2006.
The number of single family homes and condos sold in the first four months of 2015 were at the highest level in the first four months of any year since 2006 in 43 out of 264 (16%) metropolitan statistical areas with sufficient home sales data. Markets at nine-year highs included Tampa, Denver, Columbus, Ohio, Jacksonville, Florida, and San Antonio.
There were 23 markets where sales volume in the first four months of 2015 was at 10-year highs, including Denver; Columbus, Ohio; San Antonio; Tucson, Arizona; and Palm Bay-Melbourne-Titusville, Florida.
Foreclosure Inventory Below Pre-Crisis Levels, But Still Three Times the ‘Normal’ Rate
The foreclosure inventory percentage dropped by 22.5 percent year-over-year in June down to about 1.46 percent of all residential mortgages nationwide, according to Black Knight Financial Services’ First Look at June 2015 Mortgage Data released Thursday.
The number of loans in some state of foreclosure as of June 2015 dropped to about 739,000 year-over-year, the lowest number since 2007, prior to the financial crisis. Even with the decline, however, the foreclosure inventory rate is still three times its “normal” rate, according to Black Knight.
Housing Markets Continue Slow But Steady Ascent Into Stable Range
In the latest Freddie Mac Multi-Indicator Market Index (MiMi), which measures the stability of the U.S. housing market, three additional metro areas entered the “stable” range in May while the overall index value pushed its way up to slightly below stable at 79.2.
“MiMi continues to deliver good news on the housing front as more markets continue improving,” Freddie Mac Deputy Chief Economist Len Kiefer said. “Likewise, it’s becoming clearer every month that after several years of local trends largely reflecting national trends, we are getting back to more normal times where local housing markets develop based on their own unique economies. For example, housing markets in the West and Southwest continue to be the bright spot of the recovery and spring homebuying season with strong purchase activity fueled by an improving local economy and job picture. Yet, even within these regions, MiMi shows noticeable differences. Meanwhile, markets throughout Florida showed significant improvement this month not because of robust home buying activity, but because more borrowers became current on their mortgages, with just a few showing better purchase activity. Florida markets, much like those in Nevada or Arizona, while improving rapidly, still have significant work to do to get back to their benchmark stable ranges.”
OC home sales top $11 billion this year so far
Orange County home sales topped $11 billion in the first half of 2015, the most since 2005, data from the California Regional Multiple Listing Service show.
Sales hit $2.37 billion in June alone, likewise a high not seen since the peak of the housing boom.
The latest CR-MLS report, based on home sales through the broker-run network, shows rising sales combined with rising home prices are fueling the strongest recovery since the housing bubble burst.
Highlights of the MLS’s June report for Orange County include:
• The combined value of all homes sold by brokers and agents totaled $11.03 billion in the six months ending in June.
• That was 14.9 percent, or $1.4 billion, more than the amount generated by home sales in the first six months of 2014.
• Sales in the first half of the year were the highest since local brokers closed $13.01 billion worth of home sales in 2005.
• The dollar volume of home sales are up 85 percent, or $5.1 billion, from the market bottom in 2009.
• A total of 15,087 homes were sold from January through June, a 10.4 percent jump. Of those, 3,128 homes were sold in the month of June, up 14.7 percent from June 2014.
• The average sale price was $731,181, up 4.1 percent over the first half 2014. June’s average of $756,972 was up 5.5 percent year over year.
• June’s sales volume of $2.37 billion was up nearly $412 million, or 21.1 percent, from the total revenue generated a year earlier.
• Last month’s total equates to approximately $142 million in real estate agent commissions (assuming the typical commission is plus or minus 6 percent). That’s roughly $25 million more than was generated in June of last year.
Gold Is Falling So Hard It Looks Like Capitulation
Gold is a falling knife. I am not advising investors try to catch it. The trend is down, and as of today a fairly sizeable technical pattern is broken to the downside.
But there is something intriguing now about the yellow metal, and it has everything to do with fear. Investors seem to be willing to dump their gold holdings en masse even at already depressed levels, following the perceived lead of China, which reported last week that it wasn’t holding as much gold as originally thought.
It is ironic that gold, recently trading at a 5-year-low just above $1,100, is supposed to be the hedge investors use when they are fearful about other things, such as the economy. But right now, the fear is for gold. Never mind that central banks around the globe have been selling gold for years.
From a technical point of view, gold broke down last Friday from a nine-month triangle-like pattern and arguably a two-year pattern of similar shape (see Chart 1). While gold futures are a better way to examine the nitty gritty in the technicals, most individual investors have access to the next best thing, the SPDR Gold Shares exchange-traded fund (ticker: GLD ).
The breakdown of the descending triangle does provide a new target for support.
Thankfully el O hedged his gold bets. That helps me sleep well at night.
“The math favors a plateau as more inventory comes to market at the same time rising mortgage rates make the large balances of today harder to finance.”
Job recovery, wage recovery, housing price recovery, sales recovery, rate recovery, in that order.
Once the Fed raises short-term rates, long-term rates may or may not rise. If foreign money flows into now stable MBS markets that provide a relatively high, safe-rate of return, long-term rates may not budge. We saw this in 2004-6.
With the 30yr at parity with the 1 yr, the GSEs will maintain or grow market share. Interest rate risk will encourage private lenders to move down the yield curve, making only short-term loans. The US recovery may also cause the US dollar to continue to appreciate, hitting corporate earnings and share prices/dividends. This makes treasuries more desirable raising prices and decreasing yields.
Everyone assumes that once the Fed tightens, that long-term rates will rise. I’m not sure that will happen. If it does, I’m not sure that would be such a good thing.
This is the way it should have been. I’ve called BS on this recovery many times because it put the cart before the horse. With financial engineering we started with housing price recovery out of order. This makes the sales recovery tougher.
We’ve had the job recovery over the last few years, and we should start to see wage recovery, but since house price recovery came out of order, we may or may not see prices rise further.