Aug192013
Typical sources of housing demand largely absent
For a true recovery in housing, the market needs resurgent demand from first-time homebuyers and move-up buyers. These two groups are typically the largest source of housing demand. The first-time homebuyer is the bedrock of the housing market. Without first-time homebuyers, no move-up market exists.
The first-time homebuyer market is driven by job growth and household formation. When the economy is strong and creating good-paying jobs, young people form new households and use their new income to bid for real estate. This displaces existing homeowners who then execute a move-up trade and often buy a nicer home.
That’s how the market is supposed to work, but the collapse of the housing bubble destroyed the fundamentals underpinning a strong housing market. Household formation dropped from 1.5 million households per year to 500,000 per year. The first-time homebuyer market dried up, and as a result, rather than comprising 40% of sales, today they only make up 29%. Further, with 25% of existing homeowners underwater and another 20% effectively underwater and unable to sell and execute a move-up trade, demand from the move-up market is also down by a third or more. Only investors are keeping the market afloat. Without the manipulation of inventory by desperate bankers, the housing market would almost certainly see a dramatic downturn.
Repeat Buyers Drive Home Sales Needing to Broaden: Economy
By Jeanna Smialek – Aug 9, 2013 1:28 PM PT
… a growing share of repeat purchasers driving the U.S. housing recovery, as appreciating property values and low mortgage rates give many the wherewithal to relocate. The same forces are also benefitting longer-term homeowners who had wanted to move and didn’t want to sell until prices improved.
This is an erroneous way to look at a move-up purchase. Rising property values doesn’t give a buyer the means to relocate unless they were underwater. The properties a move-up buyer wants to buy is also appreciating, probably at the same rate as their existing house. Unless the potential buyer has increasing income and can borrow more money, the quality of housing will not be higher. It may be different, but it won’t be better.
Homeowners returning to the market accounted for 54 percent of sales of existing properties in June, up from 49 percent a year earlier, according to data from the National Association of Realtors. First-time buyers were 29 percent, a decline of 3 percentage points in the past year and compared with a typical share of 40 percent amid strict lending conditions and a lack of lower-priced properties.
First-time homebuyers are not absent from the market due to stricter lending conditions and a lack of properties. That is realtor spin and nonsense. First-time homebuyers are absent due to lack of jobs and excessive debt burdens. These are deep structural problems that are not solved quickly. First, these potential buyers must find a job, then they must save money for a down payment, and finally, they must retire enough student loan, credit card, and car debt to qualify to buy a house. That doesn’t happen overnight.
Repeat buyers will remain a crucial element of the real-estate rebound until a better-heeled economy also opens the way for more first-timers to rejoin the market.
“What we’re seeing are these buyers who’ve waited around and who have finally realized – this is a good time to move,” said David Crowe, chief economist for the National Association of Home Builders in Washington. “They will feed the demand until our economy gets a little more solid.”
Wishful thinking.
“If they have built up equity in their homes, in the last year of so, home values have risen much more than the value of lots of other investments,” said Jed Kolko, chief economist at real estate website Trulia Inc. in San Francisco. “That helps them put down a larger down-payment or not need a mortgage in the first place.”
The prudent homeowners who didn’t Ponzi borrow during the housing bubble are being rewarded for their prudence right now. They are the only ones capable of a move-up trade.
“The economy looks to be on a sounder footing, home prices are rising, and expectations are that they’ll continue to increase,” said Michelle Meyer, a senior economist at Bank of America Corp. in New York. “Not only would they be able to sell their current property, but also in terms of purchasing their larger home, they’ll feel that their homes will appreciate with time.”
Bankers celebrating the return of kool aid intoxication. Revolting.
In Rancho Santa Fe, California, increasing buyer confidence has helped K. Ann Brizolis’s luxury home real estate business to “crawl back” from the bust.Now that homeowners can sell their current residences at less of a loss or at a gain, more are able to move up to the $2 million to $3 million average price point of homes Brizolis sells. “It’s sort of a trickle-up environment.”
The key word being “trickle.” With so many homeowners raiding the home ATM machine during the bubble, the equity that ordinarily fuels the move-up market has been greatly depleted.
“We are seeing a decent amount of first-time home buyers, and unfortunately for those people, the competition in the market for cheap houses is crazy,” said Jennifer Ames, who has worked as a real estate agent in Chicago for 19 years. She said one client wrote five contracts before winning a bid.
Five contracts? That’s not very many by California standards. She actually had to work for that commission.
To be sure, the housing rebound cannot be sustained without first-time buyers, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
“You can’t sell your house and move to a bigger one if you can’t find someone to sell your house to in the first place, and often that person is a first-time homebuyer,” said Hoffman. “First-time homebuyers are still a very important part of the market.”
With home prices being higher, first-time homebuyers will find it more difficult to enter the housing market. Many of these were marginal buyers using FHA financing, and with rising borrowing costs and rising prices, many of these buyers are being priced out of the market.
Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said the fact that first-time buyers are a smaller share of sales isn’t a major concern for now, since inventories are too low to accommodate demand as is.
Unfortunately, he’s right. The manipulation of MLS inventory engineered by the banks is working, and it will probably continue to do so.
As the job market improves, young people who now lack the financial security to buy a home will re-enter the market, he said.
“We simply need to see the employment conditions mature,” he said, predicting that more first-time buyers will enter the market next year, and the share will increase even more the following year, helping to keep up the speed of the housing recovery. “We’re at a pace right now that can be maintained for the intermediate term, I think it’s a healthy pace.”
Who is he kidding? It’s a dismal pace. And although the number of first-time homebuyers will likely increase, it won’t improve at a rate typical of a durable housing recovery. What do we make of an economy where the second largest employer is a temp agency? They aren’t buying homes.
Both first-time homebuyers and move-up buyers are largely absent from the housing market. Their share of home sales is much less than historic norms. Investors are carrying the market right now, and their numbers are projected to dwindle. With higher home prices, more move up buyers may enter the market, but higher prices will also be a headwind to first-time homebuyers who can’t afford higher prices. Lenders can force prices to go up by restricting inventory, but sales volumes will likely weaken because this recovery is not built on strong fundamentals.
A little help from his friends
The owner of today’s featured property is selling it in the face of a foreclosure proceeding. He bought it ages ago, and over the years, he put $2,500,000 in debt on the property from a variety of private parties. Apparently, he isn’t paying them back. On three occasions since 2007, he has been served with notices of default. The latest one was pushed to a notice of trustee sale. Given his $10M+ asking price and only $2.5M in debt, if he doesn’t sell it in time, he stands to lose a lot of equity.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”S724190″ showpricehistory=”true”]
518 HARBOR ISLAND Dr Newport Beach, CA 92660
$10,428,000 …….. Asking Price
$975,000 ………. Purchase Price
2/2/1988 ………. Purchase Date
$9,453,000 ………. Gross Gain (Loss)
($834,240) ………… Commissions and Costs at 8%
============================================
$8,618,760 ………. Net Gain (Loss)
============================================
969.5% ………. Gross Percent Change
884.0% ………. Net Percent Change
9.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$10,428,000 …….. Asking Price
$2,085,600 ………… 20% Down Conventional
5.02% …………. Mortgage Interest Rate
30 ……………… Number of Years
$8,342,400 …….. Mortgage
$2,173,391 ………. Income Requirement
$44,886 ………… Monthly Mortgage Payment
$9,038 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$2,173 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$50 ………… Homeowners Association Fees
============================================
$56,146 ………. Monthly Cash Outlays
($5,442) ………. Tax Savings
($9,987) ………. Principal Amortization
$4,079 ………….. Opportunity Cost of Down Payment
$1,324 ………….. Maintenance and Replacement Reserves
============================================
$46,120 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$105,780 ………… Furnishing and Move-In Costs at 1% + $1,500
$105,780 ………… Closing Costs at 1% + $1,500
$83,424 ………… Interest Points at 1%
$2,085,600 ………… Down Payment
============================================
$2,380,584 ………. Total Cash Costs
$706,900 ………. Emergency Cash Reserves
============================================
$3,087,484 ………. Total Savings Needed
[raw_html_snippet id=”property”]
The problem with the first time buyer is the new mortgage lending guidelines brought to you by your socialist Democratic government has forced too many people into the low end of the housing market. There are not enough investible decent properties at the low end of the market.
Back in the 90s, when I was in my early 20s, if you had a six figure income, subprime loans opened up higher end properties for your first purchase. Not now. I know young people with six figure incomes who are struggling to get a decent property.
For example, I know of a 27 year old making 150K with a 20% down who had a problem purchasing for 759K. First, the loan was difficult, but not impossible. What killed the deal was the appraisal. Most recent purchases in the area were all cash. But, the appraiser refuses to use all cash purchases, or even large downpayment deals as comps. The appraiser found a few 20% down deals which were older comps in terrible locations … these deals ruined the appraisal and the deal bombed. Soon after, someone grabbed the property with all cash for a much higher price than the appraisal. This just happened last week. The 27 year old does not feel like making any more offers. Seems to me this will end with the wealthy owning too many great properties that will be rented to the majority.
“Back in the 90s, when I was in my early 20s, if you had a six figure income, subprime loans opened up higher end properties for your first purchase. Not now. I know young people with six figure incomes who are struggling to get a decent property. ”
Perhaps that should shed some insight on why people complain about inflated house prices. The main reason people with good incomes can’t buy homes they should be able to afford is because house prices are inflated to unrealistic multiples of income through bank manipulation.
“Seems to me this will end with the wealthy owning too many great properties that will be rented to the majority.”
While that is possible, it doesn’t seem very likely. Eventually, the wealthy have to sell these properties to someone, either that or their heirs will. That “someone” who buys this overpriced home has to raise the money somehow, most likely through borrowing. Restricting inventory can make the small slice of all-cash buyers have a bigger impact, but eventually, the inventory must open up, and financed buyers will help set the prices. When that happens, housing must be affordable, or nothing will sell.
Interest rates are centrally planned. The suppression of such has forced cash into real estate. The herding of money, via monetary policy, into any asset class is never a good thing.
They can suppress inventory and interest rates for only so long. 2008 part deux is coming, bigger and badder.
Sorry “jimmy”…..the lending guidelines you are referring to are NOT new; simply a return to what was the case for the 50 or more years prior to the Republican/Wall Street led overturn of Glass-Stegal and they had many years afterward to realize there was trouble brewing and declined to do anything about it. During the Clinton Administration, Brooksley Borne then head of the Commodities and Exchange Commission, went to Congress and laid out the case of how very dangerous “mortgage backed securities” were and exactly what would happen with them. She was shouted down by Alan Greenspan, who was backed by Larry Summers, Richard Rubin and others. That would have been the time to return to banking regulation…..1992
Hi Jimmy,
As a capitalist, you’re free to lend to your 27 year-old friend at 3% down, interest only–or whatever terms you both agree to. So is any lending institution willing to hold the note.
Why not help your young buddy go deeply in debt on a beach property he can’t afford, and that will not rent for nearly enough to cover it’s expenses? Loan him the money yourself.
Your entire bet is one of using maximum leverage to capture hoped for appreciation on coastal properties. Taxpayers, via the GSEs, are under no obligation to help you or your pal make that bet.
I’m not surprised the person in your example had a “difficult time” getting financed- I’m surprised and disgusted that he could get financed at all for a house at this price.
$759K is far too much for someone making $150K a year, given a 20% down payment. Figure a mortgage payment of $3, 317 a month BEFORE taxes and BEFORE insurance, maintenance, and utilities. Perhaps I’m being too conservative here, but, given the tax load on an income of $150K a year, plus the likely expenses of two or more nice cars, food, medical insurance, clothing, and school expenses for the kids, such a borrower would be very tightly squeezed on an income of less than $250K a year. Property taxes alone would likely add another $1200 a month at least and most likely much more, depending on the location. Utilities and maintenance will be other big items.
It’s not as unreasonable as you make it out to be. At today’s rates, it would be a 31% DTI for this individual, assuming 151k down payment and a 608k loan amount. Sure, it’s stretching a little, but it’s not setting him up for failure if he has financial discipline, which he seems to have demonstrated by saving up 150k in the first place.
Analysis: Higher prices sap foreign interest in U.S. real estate
NEW YORK (Reuters) – Foreign investors, who rapaciously scooped up U.S. real estate during the 2007-2009 recession, are backing away from the same markets they so eagerly jumped into a few years ago.
Real estate brokers say demand from international investors has flagged in locations that have been most attractive to overseas buyers – markets such as San Francisco, Phoenix, Las Vegas and Miami.
Many of those markets are back on solid footing after stumbling during the housing crisis. Property prices have risen, while the dollar – against the Indian rupee in particular, and to a lesser extent the Canadian dollar – has appreciated over the past year, despite hitting a speed bump in recent weeks.
As a result, real estate is no longer the bargain it once was for foreigners. That is discouraging new sales, while many foreigners who already own property – especially those who bought strictly as investment – are turning into sellers.
Kevin Kieffer, a broker who sells property in San Francisco for Keller Williams Realty, said in that area buying from foreigners has dropped by at least 30 percent in the last few months.
“That is partly due to the fact that prices escalated so quickly in the San Francisco area,” he said. “But some of my foreign clients have also mentioned the value of the dollar as another reason they decided not to buy.” At the same time, domestic demand for real estate held steady, he said.
Calamitous declines in many of the nation’s housing markets during the economic crisis had attracted droves of international investors seeking to cash in on a weak U.S. dollar and rock-bottom property prices. Many were attracted to Sun Belt markets that had been battered by the crisis.
The opposite trend is now gathering steam, and that will likely spell the end of the double-digit price gains seen recently in markets such as San Francisco and Miami, say people in the real estate business community.
More evidence that the investor cohort supporting the market will start to pull back.
If most people (myself included) are buying based on monthly payment, is it better to have a lower principle amount and a higher interest rate, or vice versa?
A higher interest rate means more of the payment NOT earning equity, but alternatively a higher principle amount can never be renotiated like the interest rate.
Lower rates = higher cost basis = higher prop tax
Higher rates = lower cost basis = lower prop tax
Re profit; object: buy low sell high
This is the reason why everybody who bought an OC house prior to y2k has benefited. There’s no fairness, or equality in home ownership today due to the egregious policies of cheap money.
“If most people (myself included) are buying based on monthly payment, is it better to have a lower principle amount and a higher interest rate, or vice versa?”
It depends on what “better” is. Often a lower principal amount results in a lower rate, which is certainly better than a higher rate. So if you put 25% down instead of 20% down you can usually shave a quarter point off the entire loan. You can accomplish the same thing by paying 2 points interest and saving the extra 3%, but you will also be paying interest on the 5% not paid to principal. If you need the extra 3% as a cushion, or don’t need it, but think you can get a better return elsewhere, then it might be better to keep the money.
Since rates are rising, you aren’t going to renegotiate the rate lower unless you drop the term from 30 to 20 or 15 yrs. You could renegotiate the rate higher, but why? If rates are historically low, and not likely to head lower, then, financially speaking, you should maximize your loan amount while avoiding PMI. 20% down, conventional, 30yrFRM is the best bet. This is better than a 15yr mortgage, since the payments are lower. You can turn your 30 yr into a 15yr by paying an extra principal payment every month and increasing the extra payment 10% every year. You’ll pay a little more in interest over a 15yr, but you also have the flexibility of a lower payment if you have a job loss, etc.
The best time to buy, in my opinion, is when rates have hit a peak, and are likely to fall during the duration of the loan term. This will allow you to refinance the principal at ever decreasing interest rates. The high rates decrease buying power and keep prices down at the time of purchase and property tax basis low. So if you have a time machine, go back to 1982… otherwise, finance 80%, buy a house you can live in for at least 15 years.
US 10 Year Treasury Note up again this morning.
http://finance.yahoo.com/q?s=^tnx
Wells Fargo FHA now above 6%
https://www.wellsfargo.com/mortgage/rates/
Let’s see if the 30 year fixed rate crosses 5% this week. This is all rumor driven market now.
Is this change due to market demand decreasing?
Navy Federal adjusts jumbo mortgage rates
Navy Federal Credit Union is offering lowered jumbo mortgage rates in response to rising home prices and mortgage rates, the credit union announced.
“Rising home prices, especially in our core markets, are making it more difficult for creditworthy homebuyers,” said Katie Miller, vice president of mortgage products at Navy Federal. “We are responding to our members’ needs by keeping our jumbos in line with our conforming mortgage rates.”
Navy Federal’s new rates on a jumbo, 30-year fixed-rate mortgage are as low as 4.125%, which compares to its previous interest rate of 4.375%. This change will save members looking to purchase a $700,000 home $1,236 on an annual basis.
Some thoughts on the latest interest rate spikes. It seems like this week it will be all about the rates.
Here’s why global interest rates are up
Thanks, Jens Wiedman, President of the Bundesbank. You just raised global interest rates.
Despite the taper talk from the Federal Reserve, most central bankers have been trying to pour cold water on the idea that they would be raising rates any time soon.
The ECB even began providing forward guidance stating they would keep rates down for an extended period.
But the German Bundesbank apparently didn’t get the memo. This morning, in their monthly statement, the ECB said the forward guidance was not an “unconditional commitment” and indicated that the ECB may have to raise rates “if greater inflation pressures emerge.” Huh? What inflation pressures?
This is one reason why global bond rates have risen. Here in the U.S., 10-year yields this morning hit 2.87 percent, another two-year high.
Also, over the weekend there was more chatter that Larry Summers has a better chance than he had a few weeks ago to become Fed chairman. Many believe Summers would accelerate the pace of Fed tapering, which is also causing problems for yields this morning.
Mortgage rates on march to 5 percent
Long Treasurys broke upward, out of the trading range of the last eight weeks. Not by much, but out, the 10-year T-note above 2.8 percent for the first time in more than two years — 2.86 percent at this moment. Mortgages are stickier, the rise negligible (investors have lost fear of another refi wave), but the march toward 5 percent is underway.
Two patterns are helpful, one 24 hours old, the other a 60-year vintage.
Before discussing those, dismiss a false lead: The 17-nation eurozone enjoyed positive gross domestic product (GDP) in the second quarter, ballyhooed in the U.S. press as an “end to recession.” A positive quarter is the technical definition of a recession’s end, but not even the Europeans believe this is anything more than a passing moment of stabilization.
Yesterday’s trading was instructive. News that should have helped long-term rates did not: Egypt’s descent into civil war; 200 points off the Dow; and zero-gain industrial production in July. News that overwhelmed all else and pushed up rates: New claims for unemployment insurance last week fell to a six-year low: 320,000.
Thursdays’ market calculus is now persistent: Jobs override all. If employment is strengthening, the Federal Reserve will taper quantitative easing to zero within six months. Thus stocks traded down on good economic news. I have never found a direct conveyor of QE cash to stocks, except running through the vacant minds of stock boosters. Whether real or imaginary, the mind prevails, but it does not say much for the investment-value underpinnings of stocks that good economic news is bad news.
The trading-desk shorthand for unemployment insurance applications is “claims.” Every U.S. recession since the big war has ended in the same pattern: Credit-sensitive housing and autos rebound as soon as the Fed cuts rates. The job market is the last to recover, often lagging housing by two years. …
Another historical pattern: When the Fed appears to be turning, long-term rates always rise. And people like me always warn that the rise may abort the recovery, and it never has. This time is different in two ways (maybe). First, the panicked runup in long rates since May is not justified by Fed statements or implications, or by economic data — especially inflation. Too far too fast. Second, can it be that a still-impaired and misregulated financial system has been more dependent on QE than we or the Fed have known? Despite falling mortgage production and Treasury issuance, the Fed has been the only buyer, and rates must go much higher to find another.
Then there is the world. As U.S. markets and the Fed conspire to jack long rates, they are rising everywhere. The U.S. economy is better, but everywhere else is slowing or in trouble one way or another. Fainting elsewhere is our best chance for lower rates.
I’m beginning to wonder if there will actually be a tapering. I can just imagine the FOMC meetings with a bunch of the Feddie’s sitting around wondering WTF has already happened with just the *whiff* of less bond bonding.
I can just imagine Bernanke coming out in front of Congress, and saying “Look, Bill Gross is right. If we don’t buy bonds, no one will, and we’ll have 10% yields and the whole game is over. So I lied, and I’m announing QE 5”.
Personally, I’m starting to believe they will taper, see the carnage, point to the GDP slowdown, wait until a quarterly GDP rate showing recession, the QE back on again!
I think your scenario of endless QE will certainly be discussed, and there will be pressure on the fed to do so.
In the credit cycle when interest rates must rise, the federal reserve is constantly choosing between economic growth and inflation. If they keep rates low, the economy does better, but we have a lot of inflation. If they raise rates, inflation comes under control, but the economy tanks. Ordinarily, this is just an interest rate phenomenon, but when interest rates are zero and the federal reserve can’t lower rates, they print money directly with quantitative easing. The same dynamic is in play, and it probably will be for the next 30 years as we ride the wave of rising interest rates back to another peak.
Jim Cramer was applying the pressure this morning, calling for stabilization of the lower rates so that we can stay on this path.
Tapering plan drives investors into riskier debt
The Federal Reserve’s plan to end quantitative easing, in part to prevent financial bubbles, is in fact driving investors into riskier corners of the debt markets.
While the safest bonds have sold off hardest since Ben Bernanke, Fed chairman, set a timetable for tapering its monetary stimulus, the best-performing fixed-income assets have been the lowest-rated junk bonds.
Money has also poured into loans in the past three months, with the result that many borrowers no longer have to provide customary investor protections.
“Investors are so afraid of rising rates that they are trading off rates risk by taking on more credit risk,” said Ashish Shah, head of global credit at asset management group AllianceBernstein.
Junk bonds rated triple-C, the lowest tier possible, are the only corporate bonds to have generated positive returns since Mr Bernanke’s June 19 press conference, when he said the Fed would most likely start scaling down its Treasury and mortgage purchases this year and wind them up by the middle of next.
Riskier bonds tend to offer higher interest rates and so repay their purchase price more quickly – a measure called “duration” – something that has become critically important in a rising interest rate environment. Longer duration bonds fall more sharply when market interest rates rise.
Remember the Bank of International Settlement (BIS) released a report earlier this year warning of the potential consequences to never ending QE. This was the pre “Taper” talk.
It is starting to look like the Fed jaw-bone-ing policy of understating the possibility of tapering, while overstating QE until they see an improving economy is having less impact on the bond market.
As I noted in the post, fundamentals of the housing market are weak.
Researchers Say Weak Job Growth to Slow Down New Housing
While new housing production is expected to see a healthy rebound later this decade, Fannie Mae’s Economic and Strategic Research (ESR) group believes “an anticipated slowdown in workforce expansion suggests more modest prospects for new housing demand and construction than witnessed historically.”
Although short-term cyclical factors have driven some of the recent workforce contraction, the group says longer-term forces—including the retirement of Baby Boomers—will “soon usher a prolonged period of slower labor force expansion.”
According to recent projections from the Bureau of Labor Statistics (BLS), annual labor force growth is forecast to average just 0.6 percent between 2012 and 2025—nearly one-third the 1.5 percent average annual growth observed 1948.
However, using the Census Bureau’s new projections for population growth over the coming years, Fannie Mae’s team says labor force growth could range from as high as 0.9 percent (under optimistic conditions) to as low as 0.4 percent (using a base scenario).
“[H]istorical data covering the last five decades show that new housing production is positively correlated with the labor force growth rate,” the group said in its latest commentary. “The anticipated deceleration in labor force growth suggests a slowdown in homebuilding activity to meet reduced demand for new housing.”
The fake nature of the price increases and lack of a fundamental underpinning is starting to worry other analysts
Low Property Supply Sends July Prices Soaring
A July monthly property intelligence report (PIR) conducted by DataQuick, a provider of real estate information solutions, reveals a monthly and annual rise in home prices for every single participating U.S. county out of the 42 evaluated.
In fact, home prices have hiked an average of over 13 percent versus this time last year. Per DataQuick’s data, this rise in price has been directly linked to fewer foreclosures, limited property availability, and an overall decline in total amount of July property transactions.
More specifically, 25 out of the 42 counties saw rises in home price tags well over the ten percent mark, with the counties represented running the gamut from mere one percent increases (Suffolk County, N.Y.), to peaking upwards of more than 30 percent (Sacramento County, Calif.).
Such sudden and sharp spikes in home prices, paired alongside low sales volumes, could sound the alarm when it comes to a red alert regarding an overall housing market recovery. Gordon Crawford, Ph.D., vice president of analytics for DataQuick, agrees, stating that, “We are seeing a direct correlation between home price appreciation and sales growth, as markets with the largest decrease in overall sales are those experiencing the most rapid increase in home prices.”
Big problem: QE has pulled future home price gains forward to today, yet people are buying today with expectations of future price gains.
Orange County seems to be bucking the trend. Sales are up 43% in July even as prices increased by 20%.
http://www.dqnews.com/Charts/Monthly-Charts/OC-Register-Charts/ZIPOCR.aspx
Sales and price increases are generally a good sign. Of course, the percentage measure is overstated as we are coming off a brutally low sales volume figure from last year, but this is real progress. If this rate of sales growth can continue, we may see normal sales volumes (comparable to healthy times) by next year. However, if rising interest rates have the effect they should, these sales numbers will not look so good.
Interesting that Dataquick and Redfin show such drastically different numbers. Redfin shows sales up only 12% Y-o-Y with 3,512 sales. Perhaps Redfin is only picking up MLS sales whereas Dataquick is picking up all the foreclosure sales as well?
I think you’re right. Something is off here.
http://www.ocregister.com/tag/lansner/dataquick
Look at the June numbers reported by Dataquick – 3,350 sales with a 0% year over year change. That implies sales increased by 32% – 3,350 to 4,402 sales – in just one month!
Coincidentally… or maybe not… Dataquick was acquired by CoreLogic on July 1st. Maybe they went in and unilaterally changed the methodology overnight, or maybe they canned the old analysts and had a new imcompetent team running the numbers.
Either way… Looks like el O’s favorite metric of OC home prices can’t be trusted any longer!!
I just bought a large amount of data from Dataquick. Part of their package included monthly sales figures from 1988 through July 2013. I may break out that data, create some graphs, and see what we can deduce from it.
It is certainly a good sign that sales and prices are up, particularly if it can be sustained. While I have concerns and reservations, I am open to changing my mind if the data tells me to.
2.88% yields – a new high
Are those dark clouds on the horizon?
Mortgages rates are starting to spike again.
http://finance.yahoo.com/q?s=^tnx
Awgee is right – the fed will print. a spineless and brainless public will demand it.
How is that Ivy league educated politicians are so mentally deficient that they believe in “Lap Band Economics”?
“We are seeing a direct correlation between home price appreciation and sales growth, as markets with the largest decrease in overall sales are those experiencing the most rapid increase in home prices.”
Or is that: “The markets with the most rapid increase in home prices are those experiencing the largest decrease in overall sales.”?
The order matters. If the sales fall off a cliff, and then the prices rise, that is a boom; if the prices rise and the sales go POP!, then that is the anti-boom, i.e. bust.
What is it when prices increase by 20% and sales volume increases by 40% as it did in Orange County?
It may mean the interest rate spike caused everyone to accelerate their purchases before rates went any higher. If so, it will be reminiscent of the 2010 tax credit rally that died when the stimulus was removed.
It may also mean there is significant pent-up demand that bought as new supply came to the market, and this demand will carry forward into a sustained rally going on for years.
Only time will tell which scenario plays out. I suspect it’s a little of both. I think sales volumes will decline, but we won’t see the 18 months of falling prices that accompanied the expiration of the tax credits.
Simple. People who were ~20% underwater last year that couldn’t sell are flush YoY (at least on paper LOL) so now they can sell. Thus, inventory goes up along with sales volume.
In other words: people are getting out while ‘the getting’ is possible = smart money.
Next!
There were only 5 units for sale in complex for all of 2012. There are currently 8 for sale, 6 in the last 15 days.
A head fake? From what I am seeing in my area, July’s closed sales numbers jumped as a result of the FHA rule change, and interest rate hikes. Pendings peaked at 60 on July 8th, and are now down to 37, a MOM drop of 30+%. How much is going to exit the spout in September if the pipeline is empty? July and even August might show decent numbers based on prior contracts closing, but contract signings have fallen over the last month. Didn’t we see the same thing in 2010 after the tax credit expired?
Considering that borrowing costs have since risen by 30% and inventory is more or less back where it was in August 2012, I wouldn’t be surprised if prices were under pressure going forward. Looking back to March when prices jumped up by 15% in my area, inventory is 120 vs 39. Rates are 4.5% vs. 3.375%. Why would prices continue to rise under those conditions?
I’ve always wondered how these forces are working in Orange County. What is the level of HH formation in Orange County and what kinds of HH are being formed. I would think the outlook is not good – students are graduating with more debt into a weaker job market, labor force participation is dropping, and wages are stagnant. These factors are certainly bearish for housing…but I wonder if Orange County follows these national trends or if it is an outlier – something that escapes the typical market forces.
Orange County has always been a little stronger than the rest of California and the nation, but it isn’t immune to the forces you describe.
I wonder if this signal the end of HAMP. It now has too much risk to the lender.
Ninth Circuit reverses Wells Fargo HAMP dismissal
The Ninth Circuit Court of Appeals for the United States is clearly displeased with the mortgage servicing activities of Wells Fargo (WFC).
Earlier this month, the court reversed a dismissal granted to the financial institution and, in doing so, condemned its practices in dealing with distressed homeowners hoping to participate in the Home Affordable Modification Program.
Earlier, a district court for the Northern District of California granted Wells Fargo a dismissal in a combined case brought by Phillip Corvello and Karen and Jeffery Lucia.
Both households believed they would receive a government-mandated HAMP mod, and sued when the process went South. Despite receiving a permanent mod, Wells Fargo foreclosed.
In the decision, the court states Corvello could prove he made his three necessary payments to his trial HAMP. Further, he had written proof, a promissory note, as evidence. Wells Fargo argued that, upon further review, Corvello did not meet the criteria in other places.
That argument from Wells was presented orally and the transcription is not yet available. The K&L Gates lawyer who presented the case for Wells, Irene Freidel, is on vacation currently and other attorneys declined to speak on her behalf.
Well, once hedge fund quarterly performance targets aren’t being met, those pesky redemptions, capital calls and/or margin calls begin to pile-up in email inboxes.
To cover, once they’ve sold most of their gold holdings (done; ie., see GLD 6 month price), next up, it’s the RE.
Happy house hunting.
I believe the best time to capitalize on an Orange County home sale just ended. Sellers that are not in escrow (beyond contingencies), will be forced to drop their prices in the coming weeks. Mortgage rates have increased by 30-40% within weeks. Buyers have lost about 15% – 20% of their purchasing power.
I think you are right, but I just wonder if someone is going to say Yellen or Yellen seen at the White House and then we are back to 2.50% US Treasuries. Or use the unemployment rates and inflation data as an excuse that we can’t start to Taper.
I believe they WILL taper for one quarter’s worth of bad data which will prove to everyone the effect of QE to justify a restart.
THEN we’ll begin to minic the Japanese Economy.
There haven’t been many comments since it occurred, but what have the lifetime PMI on FHA loans have had over the last 90 days? That took effect June 1st I believe.
On top of the rate increases, that makes a double payment shock to the lower-lower and first time buyer market compared to early 2013.
I think the issue is so esoteric, it went largely unnoticed. Further, since most people refinanced every few years with declining rates, few potential borrowers realize that in a rising rate environment, they may be keeping that 4% FHA mortgage for a very long time. A combination of ignorance and apathy likely made this a non-issue for most.
The 2013 increases to FHA MIP rates and drop-off periods, coupled with rising mortgage rates in mid-2013, caused the New York Dept of Financial Services to issue an emergency Order allowing lenders to ignore the 2013 FHA rate and drop-off increases for purposes of testing loans for Subprime Home Loan compliance (at least for a few months).
Bill Black – http://neweconomicperspectives.org/2013/08/obamas-fbi-channels-the-tea-party-partner-with-the-banks-and-blame-the-poor-for-the-crisis.html#more-6082
[…] (See: Most Millennials won’t qualify for a mortgage until 2019, Imprudent student debt debilitates home shoppers, and Typical sources of housing demand largely absent) […]