The spring rally is over.
Every year prices and sales volumes increase from January through August, then they decline for the remainder of the year generally hitting bottom on the last business day in December. The pattern repeats every year, and it’s not new or surprising. realtors generally take advantage of this phenomenon to call the bottom every year and to stoke fears of being priced out to generate more spring and summer sales. By fall, many buyers stop looking, particularly those with families who don’t want to disrupt their children by moving during the school year. Over the last five years, sales volumes have been extraordinarily low due to the collapse of the housing bubble and the resulting unemployment and trashed credit from millions of foreclosures. During that period, the spring sales peaks have barely matched the previous winter lows. Any increase in sales off these low levels will look impressive on a percentage-change basis.
Housing pundits were eager to call the bottom of pricing this spring, but they have been less eager to call the top of the spring rally. I will. We are seeing the top of sales and perhaps pricing for this year’s cycle. Since interest rates are so low and inventory is so low, we may have carry-over activity into the fall and winter which may make the season decline in pricing less dramatic. Prices may even appreciate if interest rates keep setting record lows although declines are more likely as buying interest wanes.
30 Year Fixed Rate Mortgages in U.S. Hit New Record Lows; Now Below 3.2%
Posted by Michael Gerrity 09/26/12 8:00 AM EST
According to Zillow, 30-year fixed mortgage rates are currently at 3.18 percent, down 16 basis points from 3.34 percent at this same time last week. …
After peaking at 3.35 percent on Wednesday, the 30-year fixed mortgage rate dropped to 3.28 percent and hovered between 3.32 and 3.35 percent over the weekend, dropping to the current rate this morning.
“Mortgage rates saw a significant drop this week, reaching an all-time low, as the market continued to digest the significant and sustained impact of the Federal Reserve’s decision to offer a new round of stimulus which unlike prior stimulus plans, does not carry a preset expiration date. The Federal Reserve’s commitment to keep the federal funds rate close to zero into the middle of 2015 also affected rates,” said Erin Lantz, director of Zillow Mortgage Marketplace.
The key difference between this stimulus and the previous tax credit stimulus is the lack of an expiration date. Also, interest rates have room to move even further downward, so the stimulus may actually increase. An unlimited amount of new buying stimulus pledged to remain in place until house prices rebound is going to impact prices eventually. 
It’s only a matter of time. Given those circumstances, it’s difficult to construction a good bearish argument. Unless the banks lose control of their shadow inventory dispositions, any further price declines will be small.
New Home Sales in U.S. Remain Flat in August Over July Sales
Posted by David Barley 09/26/12 10:49 AM EST
According to the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), sales of new single-family houses in August 2012 were at a seasonally adjusted annual rate of 373,000.
This is 0.3 percent (±9.3%) below the revised July rate of 374,000.
The flattening of new home sales is surprising, particularly in the face of such low MLS inventory. New home sales should be doing better. This is probably the result of the seasonal slowdown, but it warrants careful attention over the coming months to see how much sales weaken.
Pending Sales of Existing Homes in U.S. Fell 2.6% in August
By Michelle Jamrisko on September 27, 2012
Americans signed fewer contracts than forecast to purchase previously owned homes in August… .
The index of pending home resales dropped 2.6 percent after a revised 2.6 percent gain in July that was more than initially reported, figures from the National Association of Realtors showed today in Washington. The reading compared with a median forecast of a 0.3 percent gain in a Bloomberg survey of 40 economists. …
“It’s going to be really difficult for housing to gain much momentum here if the employment backdrop doesn’t cooperate, and that’s exactly what’s happening,” Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, said before the report. Limited labor market progress and tight lending standards also “will ultimately conspire to put a low ceiling on home sales,” he said.
It isn’t just unemployment. The lack of MLS inventory is prompting many potential buyers to give up. Also, as prices rise, affordability declines, and that will hurt sales as well.
Pending home sales are considered a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later, and made up more than 90 percent of the housing market last year.
The pending home sales drop signals the end of the spring rally.
The Fed has also committed to purchasing $40 billion of mortgage debt a month, which may underpin a housing market that Chairman Ben S. Bernanke said has been “one of the missing pistons in the engine.”
“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing,” Bernanke said in a Sept. 13 press conference after the central bank announced the debt-buying plans.
Bernanke is remarkably transparent in his statements about housing. There is no question that he intends to drive interest rates down specifically to encourage homebuying. Other Fed governors have signaled that the Open Market Committee intends to leave interest rates low until unemployment is greatly reduced. People with jobs buy homes, and lowered unemployment is the ultimate stimulus which will increase sales and put a durable bottom in the housing market.
California Pending Home Sales Down From Last Year; Equity
Posted by Michael Gerrity 09/25/12 12:15 PM EST
According to the California Association of Realtors (C.A.R.), … a continuing shortage of housing inventory sent pending sales lower from the previous year. Additionally, the lack of supply, particularly of REO properties, sent the share of equity sales to its highest level in four years.
C.A.R.’s Pending Home Sales Index (PHSI) rose 2.7 percent from a revised 115.8 in July to 118.9 in August, based on signed contracts. Pending sales were down 2 percent from the 121.4 index recorded in August 2011.
August’s year-to-year decline reversed a 15-month trend of higher pending sales than the previous year. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market. …
These are all signs of the end of the spring rally.
California distressed housing market data for August 2012:
- The share of equity sales – or non-distressed property sales – compared with total sales grew to its largest level in four years. The share of equity sales in August increased to 62.2 percent, up from 59.5 percent in July. Equity sales made up 51.7 percent of all sales in August 2011.
At some point, I will celebrate the increase of organic sales as a sign the housing bubble is behind us. Unfortunately, with the enormous overhang of shadow inventory, the increasing share of organic sales is a temporary phenomenon.
- The share of REO sales statewide contracted further in August, while the share of short sales crept up slightly. The combined share of all distressed property sales fell to 37.8 percent in August, down from 40.5 percent in July and down from 48.3 percent in August 2011.
- Of the distressed properties, the share of short sales edged up to 23 percent in August from 22.6 percent in July and from 20.2 percent a year ago.
- In August, the share of REO sales shrank to nearly half what it was a year ago to 14.4 percent, down from 17.4 percent in July and 27.8 percent in August 2011.
- The available supply of REOs for sale remained tight in August, with the Unsold Inventory Index standing at a 1.6-month supply in August 2012. The August Unsold Inventory Index for short sales was 3.7 months and stood at 3.3 months for equity sales.
Equity sales are up because the available REO is down. When REO processing resumes, the share of distressed sales, particularly REO, will increase.
Withholding inventory has created many of the signs of a recovering market. If lenders can continue the orderly disposition of their REO, and if the federal reserve keeps interest rates low, market prices will go up from here. In the meantime, we will see seasonal ups and downs and an uneven recovery as lenders struggle to manage their REO dispositions.
Livin’ the Ponzi life
Many people came to rely on their houses for income during the bubble. By 2006 88% of all refinances had cash out greater than 5% of the previous outstanding loan balance. In other words, people were raiding the housing ATM machine for some serious cash.
- This property was purchased for $176,000. The owners used a $174,591 first mortgage and a $1,309 down payment. When you look at how much money they extracted from this house, consider that they invested less than $2,000.
- On 9/17/2002 they refinanced with a $208,000 first mortgage and got their first $35,000 cash infusion.
- On 8/27/2003 they went back for their yearly payday and refinanced with a $239,044 first mortgage.
- On 11/19/2003 they needed another $13,297, so they obtained a new stand-alone second mortgage.
- On 10/7/2004 they got a new $31,413 stand-alone second mortgage.
- On 2/11/2005 they refinanced with a $320,000 first mortgage.
- On 7/5/2005 they opened a $14,850 HELOC.
- On 3/23/2006 they refinanced with a $360,000 first mortgage.
- On 7/20/2006 they obtained a $100,000 HELOC.
- On 3/30/2007 they refinanced with a $427,000 Option ARM.
- On 6/26/2007 they obtained their final $50,000 HELOC.
- Total property debt was $477,000 assuming the maxed out their final HELOC.
- Total mortgage equity withdrawal was $302,309 — on a $1,309 initial investment.
Apparently, the debt was too much for them. Considering they tripled their mortgage and obviously went Ponzi, it should be surprising that they quit paying their mortgage shortly thereafter. They were issued a NOD on 7/17/2009, and they were allowed to squat for over three years until the property was finally auctioned on 7/31/2012.
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Proprietary OC Housing News home purchase analysis
930 South FLORE St Anaheim, CA 92802
$349,000 …….. Asking Price
$176,000 ………. Purchase Price
4/29/1999 ………. Purchase Date
$173,000 ………. Gross Gain (Loss)
($14,080) ………… Commissions and Costs at 8%
============================================
$158,920 ………. Net Gain (Loss)
============================================
98.3% ………. Gross Percent Change
90.3% ………. Net Percent Change
5.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$349,000 …….. Asking Price
$12,215 ………… 3.5% Down FHA Financing
3.44% …………. Mortgage Interest Rate
30 ……………… Number of Years
$336,785 …….. Mortgage
$86,771 ………. Income Requirement
$1,501 ………… Monthly Mortgage Payment
$302 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$87 ………… Homeowners Insurance at 0.3%
$351 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,242 ………. Monthly Cash Outlays
($222) ………. Tax Savings
($536) ………. Equity Hidden in Payment
$13 ………….. Lost Income to Down Payment
$107 ………….. Maintenance and Replacement Reserves
============================================
$1,605 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,990 ………… Furnishing and Move In at 1% + $1,500
$4,990 ………… Closing Costs at 1% + $1,500
$3,368 ………… Interest Points
$12,215 ………… Down Payment
============================================
$25,563 ………. Total Cash Costs
$24,500 ………. Emergency Cash Reserves
============================================
$50,063 ………. Total Savings Needed
The property above is available for sale on the MLS.
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17 Responses to “Despite record low mortgage rates, home sales volumes are weakening”
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[...] geopolitical strains – Reuters China slowdown hits services sector – Channel News Asia Despite record low mortgage rates, sales volumes weaken – OC Housing News Southland real estate forecast worse than nation – SGV Tribune Fed [...]
Can you imagine… the fed is now spending $40bb per month defending UST bonds and another $45bb per month defending prices in MBS-land (infinitas LOL) yet with regard to mort rates, ongoing negative repricing risk is still prevalent, and even rising.
What happens when the music stops?
The Fed will never stop the music. If they did, it would be a disaster, so they won’t. They can’t at this point. Our entire economy is becoming dependent upon printed money.
I agree, the fed won’t/can’t stop it. But, since bondholders are currently >2/3 of the total market vs the fed’s approx 1/3 stake + the fact that fiat is a 100% faith based system, you betcha the music could stop.
And none of this was mentioned in the debate last night about the economy. No wonder things are so bad….
The debates were more interesting for what they didn’t talk about than what they did.
Foreclosures Remain Eight Times Historic Norms
Foreclosure inventory continues to decline but remains more than eight times what it was in the decade prior to the housing crisis, according to the latest report from Lender Processing Services (LPS).
Noncurrent loans make up 10.9 percent of all loans as of August, demonstrating a year-over-year change of -7.6 percent, according to LPS.
As of August, the delinquency rate stands at 6.9 percent, and the foreclosure rate is 4.0 percent.
There remains a large gap in the foreclosure rate between judicial states and non-judicial states. In fact, in judicial states the rate remains near an all-time high of 6.49 percent, while the foreclosure rate in non-judicial states is 2.28 percent.
The amount of loans 90 or more days delinquent is near half of its January 2010 peak. The majority of these loans are more than nine months delinquent. About 43 percent are at least 12 months delinquent.
The overall delinquency rate declined 2.3 percent in August.
States ranking highest for non-current loans include Florida, Mississippi, New Jersey, Nevada, and New York.
States with the lowest percentages of non-current loans include Montana, Alaska, South Dakota, Wyoming, and North Dakota.
LPS noted prepayment activity was up “significantly” in August, nearing levels last reported in 2005.
The annualized prepayment rate at the end of August was almost 25 percent, according to LPS’ findings.
Prepayment was highest among loans with higher combined loan-to-value ratios (CLTVs). For example, among loans with more than 120 percent CLTV, prepayment increased more than 65 percent year to date.
According to LPS, this trend is significant because prepayments are an indicator of refinance activity.
In August, 2011 vintage loans experienced a 23 percent increase in prepayments over the month.
Loans with vintages from 2007 and earlier experienced a prepayment increase of just 9 percent, which LPS interprets as signs of a “refi burn out.”
“[I]t is also becoming evident that loans originated in 2007 and earlier have diminished prospects for conventional refinancing opportunities,” stated Herb Blecher, SVP of applied analytics at LPS.
“Fewer than 30 percent of these vintages remain both active and current, and on average, they are marked by larger negative equity positions and lower credit scores,” Blecher explained.
Interest rates are low, but it’s still hard to get a mortgage
WASHINGTON — With 30-year mortgage rates hitting new lows and recent borrowers’ payment performance the best by far in decades, you’d think that banks and other lenders might be loosening up on their hyper-strict underwriting standards.
But new national data from inside the industry suggest this is not happening. In fact, in some key areas, standards appear to be tightening even further, and the time needed to close a loan is getting longer.
The average FICO credit score on new loans closed in August was 750, 9 points higher than it was one year earlier, according to Ellie Mae Inc., a Pleasanton, Calif., mortgage technology firm whose software is used by many lenders. The survey sample represents about one-fifth of all new loans — roughly 2 million mortgages.
At Fannie Mae and Freddie Mac, the dominant players in the conventional mortgage market, the average FICO score was even higher. For refinancings in August, the average approved borrower had a 769 FICO score, up 6 points from August 2011. The average score for borrowers purchasing homes was 763, 1 point higher than the year before.
FICO scores are used by virtually all mortgage lenders to gauge the credit risk posed by a borrower. Scores range from 300 to 850, with low scores representing higher probability of default, high scores indicating low risk. Fair Isaac Co., developer of the FICO scoring model, says 78.5% of consumers have scores between 300 and 749. Barely 1 in 5 consumers, in other words, scores high enough to meet today’s FICO score averages at Fannie and Freddie.
This won’t help loosen standards any…
Government: We plan to sue more banks
WASHINGTON (CNNMoney) — Wall Street banks should be prepared for more lawsuits, a taskforce of federal and state investigators said Tuesday.
The warning came one day after New York Attorney General Eric Schneiderman sued JPMorgan Chase-owned Bear Stearns, alleging that bankers committed systemic fraud against investors. The suit was the government’s latest attempt to hold the big banks accountable for the financial crisis.
“There are more cases to come,” Schneiderman said in a news conference. “We’re investigating the misconduct of folks … that brought about the crash of 2008.”
The case against JPMorgan Chase (JPM, Fortune 500) is the first by President Obama’s Residential Mortgage Backed Securities working group, which was formed in January. It includes the Justice Department, the Securities and Exchange Commission, the New York Attorney General’s Office, as well as the Federal Housing Administration Inspector General.
Mortgage-backed securities are financial products of home loans pooled together and sold to investors. Many of those securities became worthless when the value of homes fell precipitously after the housing bubble burst in 2007 and 2008. Many people lost homes to foreclosure in the aftermath.
Investigations since then have revealed that many banks were aware of the risks associated with the housing bubble but continued to package poor quality home loans and sell them, collecting hefty fees along the way.
During the financial crisis, large Wall Street banks loaded with the bad securities received big government bailouts. Investors who lost their money from those securities have sued the banks and some have received payouts.
Hmmm….
Galante: FHA will not participate in REO-to-rental
By Jacob Gaffney October 4, 2012 • 9:14am
Acting Federal Housing Administration commissioner Carol Galante told a crowd of mortgage professionals her institution will not initiate an REO-to-rental program similar to Fannie Mae.
The Federal Housing Finance Agency recently completed many sales of REO and is now announcing winning bidders. HousingWire had that information more than one month ago.
“Looking at an REO-to-rental strategy, and while a rental strategy is very important, we decided it wasn’t the best solution for the FHA, servicers, borrowers and their communities,” Galante told the crowd at the HousingWire REperform conference underway in Dallas, Texas.
Galante added there are 700,000 delinquent mortgages in the FHA portfolio. A better solution to work through these loans, she said, is to sell the notes. DebtX will likely facilitate the transfers, she said.
For national buyers of the mortgages, the borrowers can not be foreclosed on in under six months.
Galante didn’t give a time frame on when the sales will take place. And the FHA has sold portfolios of mortgages in the past. Galante said the aim is to offload about 10,000 delinquent mortgages per quarter.
There are other conditions, Galante said. For example, no more than 50% of the properties can be put on the market as a vacant foreclosure. The buyer needs to put in place another solution, and in such a case leaving the homeowner as a renter would be acceptable.
“This is the most innovative strategy we’ve utilized in the past year,” Galante said, adding the FHA will announce more details soon.
jgaffney@housingwire.com
If they liquidate 10,000 per month, it will only take them 70 months to liquidate them all, assuming more bad loans don’t get added to the pile. That’s nearly 6 years worth of bad loans.
What will be percentage that will be discounted on a defaulted FHA Note that is underwater? If I purchase the note will I have proper title to facilitate a foreclosure?
I’m just thinking about these questions.
There are big players in the distressed note space. Carrington Mortgage, a local firm, will likely bid on a number of these.
As a rule, they will assume ownership of the note and all the rights that go with it. They will likely pay some portion of the current value of the underlying collateral. Lately, these bids have actually been quite high because there is so much competition.
Home sales will remain weak because new jobs replacing lost ones suck ass.
Wiping out a middle manager and replacing them with a clerk and Wal-Mart will not help the housing market.
Some of the foreclosures I bought in Las Vegas were occupied by former construction workers. Most of them left town. The jobs to replace those haven’t been as high paying.
I would have expected the share of short sales to be increasing due to the AG settlement. It appears they have remained flat with equity sales making up the difference for reduced REO sales. It would be interesting to see the same chart on a national level.
The source is CAr, so it’s accuracy is questionable. However, it is is correct, I too would have expected to see a higher increase in short sales. Perhaps there are fewer fence-sitting sellers than many believe. Either that, or the sales are just barely above water. Many underwater sellers have been able to sell without a loss as prices started going up again, particularly in neighborhoods where values haven’t dropped as much.