Market Conditions


New-home construction posted its largest percentage decrease since April, a big fall after last month’s surge, the Commerce Department reports. Housing starts dropped 9.8 percent in December to a seasonally adjusted annual rate of just under 1 million units.

The drop follows a sharp rise in November, in which new-housing starts had accelerated to the fastest pace since February 2008.

Single-family home construction, which makes up the largest segment of starts, dropped 7 percent in December to a seasonally adjusted annual rate of 667,000 units. However, total single-family housing starts still mark the highest monthly total in 2013, except for November. Multifamily starts fell 14.9 percent for the month.

Regionally, housing starts dropped the most in the Midwest, falling 33.5 percent, which most economists say recent frigid weather likely was to blame.

Housing permits, a sign of future home construction, dropped 3 percent in December, mostly weighed down by a 4.8 percent drop in permits for single-family homes, the Commerce Department reports.

Despite December’s drop, housing starts were up year over year. Housing starts jumped 18.3 percent in 2013 over 2012 data, the Commerce Department reports.

“Last year was a good year for home building,” says David Crowe, National Association of Home Builders’ chief economist. “As pent-up demand is unlocked and the labor market improves, we anticipate that 2014 should be an even better year for home construction. That’s good news for economic growth, as each new home that is built creates three full-time jobs and contributes to the tax base of local communities.”

Source: “U.S. Housing Starts Fall Less Than Expected, Weather May be a Factor,” Reuters (Jan. 17, 2014) and National Association of Home Builders

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Last year, the foreclosure crisis began dissipating. Foreclosure filings — including default notices, scheduled auctions, and bank repossessions — were down 26 percent in 2013 compared to 2012, and were down 53 percent from the peak in 2010, according to RealtyTrac’s Year-End 2013 Foreclosure Market report.

The 1.4 million properties with foreclosure filings in 2013 marked the lowest amount since 2007.

During the year, one in every 96 homes — or about 1.04 percent of U.S. housing units — received a foreclosure filing. That’s down from a peak of 2.23 percent of housing units in 2010.

The following states had the highest foreclosure filing rates in 2013:

  • Florida: 3.01% of all housing units received a foreclosure filing
  • Nevada: 2.16%
  • Illinois: 1.89%
  • Maryland: 1.57%
  • Ohio: 1.53%

The average estimated value of a property receiving a foreclosure filing in 2013 was $191,693 at the time of the foreclosure filing — a 1 percent increase from the average value in 2012, according to the RealtyTrac report. What’s more, the average estimated value of properties that received foreclosure filings in 2013 rose 10 percent since the foreclosure notice was filed.

The national average time to complete a foreclosure rose 3 percent in the fourth quarter of 2013 to a record high of 564 days. The states that face the longest times to foreclose are New York (1,029 days), New Jersey (999 days), and Florida (944 days), according to the RealtyTrac report.

“Millions of home owners are still living in the shadow of the massive foreclosure crisis that the country experienced over the past eight years since the housing price bubble burst — both in the form of homes lost to directly to foreclosure as well as home equity lost as a result of a flood of discounted distressed sales,” says Daren Blomquist, vice president at RealtyTrac. “But the shadow cast by the foreclosure crisis is shrinking as fewer distressed properties enter foreclosure and properties already in foreclosure are poised to exit in greater numbers in 2014 given the greater numbers of scheduled foreclosure auctions in 2013 in judicial states — which account for the bulk of U.S. foreclosure inventory.”

Source: RealtyTrac

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With rising mortgage rates, fewer people are refinancing their mortgages, which means big banks are seeing a dip in mortgage lending.

Wells Fargo funded $50 billion in residential mortgages during the fourth quarter, a 60 percent drop from $125 billion a year earlier. Wells Fargo, the largest mortgage lender in the country, is also losing some of its market share. It controls about 19 percent of the U.S. mortgage market, which is a decrease from 30 percent a year ago, according to Mortgage Finance.  The last time the bank issued such few home loans was during 2008 in the midst of the financial crisis.

Still, No. 2 J.P. Morgan did about half of Wells Fargo’s business, funding $23.3 billion in mortgage loans in the fourth quarter, a 54 percent drop from a year earlier. That is also the bank’s lowest amount in originations since before the financial crisis.

“This is something we expected,” says Tim Sloan, Wells Fargo’s chief financial officer. “Originating $50 billion of mortgages in a quarter is a good feat. It just happens to be a little less than it was in the prior quarter.”

Wells Fargo says that about two-thirds of its loan volume was coming from refinancing and now two-third of its business is being driven by applications for home purchases instead.

With a shrinking refi business, however, some lenders may look to generate extra mortgage revenue by easing up credit standards to try to attract more loan applicants, The Wall Street Journal reports.

Source: “The End of the Mortgage Party? Home Lending Plummets at Wells Fargo, JP Morgan Chase,” The Wall Street Journal (Jan. 15, 2014)

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Borrowers will likely see an increase in mortgage costs next spring, particularly those who lack a sizable down payment or have less-than-perfect credit scores. Mortgage giants Fannie Mae and Freddie Mac are raising the fees they charge lenders, which is expected to get passed on to borrowers.

According to Fannie Mae’s web site, here are some of the increases that borrowers can expect:

  • A borrower with a 30-year fixed-rate mortgage, a credit score of 735, and a 10 percent down payment will see fees rise from the current rate of 0.75 percent to 2 percent of the loan amount.
  • For those borrowers making a 10 percent down payment and who have a 750 credit score, fees are to increase from 0.5 percent to 1.5 percent of the loan amount.
  • Borrowers with credit scores of 775 and a 10 percent down payment will see fees rise from 0.5 percent to 1 percent.

Borrowers with higher down payments aren’t likely to escape some rises in mortgage costs either. For example, borrowers who have a down payment of 25 percent but a credit score of 690 will see fees rise from 1.5 percent to 2.25 percent.

Analysts predict that higher fees combined with rising interest rates and new mortgage rates could further tighten mortgage credit in the new year.

“It’s another headwind for housing on top of other headwinds that, individually, might have been manageable,” says Ivy Zelman, chief executive of Zelman & Associates, a housing research and advisory firm.

Source: “Why Mortgage Costs Could Rise in 2014,” The Wall Street Journal (Dec. 17, 2013) andFannie Mae

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The number of underwater homes continues to slip, with 791,000 properties regaining equity during the third quarter, CoreLogic reports.

Currently, about 13 percent of all homes with a mortgage — or 6.4 million — remain in negative equity compared to 14.7 percent — or 7.2 million — at the end of the second quarter.

An estimated 42.6 million homes in the U.S. have positive equity. About 20 percent– or 10 million — of those homes, however, have less than 20 percent of equity or what is considered “under-equitied,” according to CoreLogic.

What’s more, about 1.5 million properties have less than 5 percent and are considered near-negative equity. They are the most at risk if prices happen to fall, CoreLogic reports.

The following states have the highest levels of negative equity and account for 36.4 percent of all the negative equity in the country:

  • Nevada: 32.2% of properties have negative equity
  • Florida: 28.8%
  • Arizona: 22.5%
  • Ohio: 18%
  • Georgia: 17.8%

The majority of the homes that have positive equity are in the high-end housing market. Ninety-two percent of homes valued at more than $200,000 have equity compared to 82 percent of homes values at less than $200,000, CoreLogic found.

“We should see a further rebound in consumer confidence and economic growth in 2014 as more homeowners escape the negative equity trap,” says Anand Nallathambi, president and CEO of CoreLogic. “Home price appreciation has helped more than 3 million property owners regain equity since the first quarter of 2013.”

Source: “Negative Equity Will Continue Declining in 2014: CoreLogic,” Mortgage News Daily (Dec. 17, 2013)

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Economists are predicting housing prices to continue to rise next year — but only at about half the rate that they did in 2013, Money Magazine reports.

However, “for a sustainable recovery, you want to see more balance between buyers and sellers,” says David Stiff, chief economist at CoreLogic Case-Shiller.

Home sales will likely see modest growth next year, says Lawrence Yun, chief economist at the National Association of REALTORS® . Strict underwriting practices by lenders, rising interest rates, and tight inventories in many markets will moderate sales growth. NAR has predicted home sales of about 5.12 million for 2014, which is close to the same level forecasted for 2013.

Meanwhile, inventory levels are expected to see some improvement in 2014. In September, they rose 1.8 percent compared to a year earlier, according to NAR data. That marked the first increase in inventory levels since late 2011.

Still, expect 2014 to continue to be a seller’s market while inventory levels remain tight, analysts say.

Fewer distressed homes on the market also will likely mean investors will take a step back, leaving more room for home buyers to step in. Investors’ share of residential home purchases dropped from 23 percent earlier this year to 17 percent in September, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking survey.

But buyers will likely be greeted by higher mortgage rates. The 30-year fixed-rate mortgage is expected to increase from a 4.5 percent average to more than 5 percent in the new year.

Also, buyers will still face tight underwriting standards. While real estate professionals are reporting that qualifying for a loan is getting easier, the speed of processing the loan has not improved. Virginia real estate professional Rob Wittman told Money Magazine that buyers might want to consider using local lenders with ties to nearby appraisers for faster closings.

And sellers shouldn’t underestimate buyers in the new year, either.

“Buyers are smart these days — they know where the market is and know that rates are higher. They aren’t going to bite on a list price above recent comparables,” says Sara Fischer, an agent with San Diego-based Redfin.

Source: “Real estate: Look for value in 2014,” Money Magazine (December 2013) and “NAR: Price Gains, Not Sales, to Drive Housing Growth,” REALTOR® Magazine Daily News (November 2013)

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A year ago, the Federal Housing Administration was projected to face a $16.3 billion shortfall, but the shortfall now has fallen to $1.3 billion, a new independent audit shows.

FHA received $1.7 billion in funds from the U.S. Treasury in September to help cover projected losses. The agency also raised the amount it charges borrowers to insure mortgages against default six times, and has tightened its underwriting standards in an attempt to prevent future defaults on mortgages.

The FHA insures more than $1 trillion in mortgages. The number of mortgages it insures increased during the housing crisis, and it now insures more than one-third of all U.S. mortgages—that’s an increase from about 5 percent in 2006, Reuters reports. Many loans it insured from 2007 to 2009 had gone bad and had chipped away at its cash reserves. Loans made since 2010 are expected to remain profitable, according to the audit.

The FHA is required by law to maintain a 2 percent capital ratio. It has failed to meet that ratio since 2009. The audit found FHA will likely meet it in the 2015 fiscal year.

The National Association of REALTORS® is a strong supporter of FHA and what it calls the agency’s “vital role in the mortgage marketplace.”

“These promising gains are the result of strong leadership and a commitment to policies that balance risk with FHA’s mission of making mortgage insurance available to qualified home buyers,” NAR said in a statement. “In light of this report, NAR believes that Congress should not dramatically change the FHA or redefine its purpose. We will continue our work with FHA to help make the dream of home ownership a reality for millions more Americans.”

Source: “U.S. FHA Faces $1.3 Billion Capital Shortfall,” Reuters (Dec. 13, 2013)

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