Good News for the Housing Market

The housing market’s been giving mixed signals, flashes of hope mixed with sudden bad news. There’s no sign yet that a real recovery has taken hold, but some new data are optimistic.

Home prices and sales are on the rise. DataQuick says the average sale price for the past 30 days was $189,500, up $7,000 from a month earlier. Sales are also up 8.2 percent during this time. In Southern California, for example, DataQuick says the market is continuing its “step-by-tiny-step trek back toward normalcy.”

Shadow inventory is shrinking quickly. The so-called shadow inventory refers to distressed properties that aren’t listed for sale but probably will be—homes on which borrowers are grossly delinquent or already in foreclosure, or that banks have already repossessed. CoreLogic says in April, 1.5 million homes were in the shadows, which equates to a four-month supply, down from a six-month supply a year earlier. A smaller shadow inventory can be positive for prices because it means there are fewer distressed homes poised to come on the market.

Foreclosures are up. In the fall of 2010, the robo-signing scandal erupted over how banks were using faulty paperwork to evict borrowers. They cut back on processing foreclosures, building up a backlog of distressed properties. In March, banks agreed to a $25 billion robo-signing settlement, and new data show banks are restarting the foreclosure machinery. In May, banks filed to foreclose on 205,990 properties—a 9 percent increase during April, according to RealtyTrac. The foreclosure pickup hurts the people who are losing their homes but helps the housing market in the long run because it lets banks get through the backlog and eventually move on.

Borrowers are building more equity in their homes. Our colleagues at Bloomberg News report that homeowners have made the biggest jump in home equity in more than 60 years. Half of borrowers who are refinancing are paying down some of their debt and reducing their loans. They’re also refinancing into shorter-term loans that have higher monthly payments but let them pay down principal quicker. Overall, mortgage debt is down 7 percent since 2007—a small consolation for the decline in home values, which are down 23 percent over the same period.
Finally, if you’re looking for more data and a big-picture view, check out Harvard’s annual State of the Nation’s Housing report that’s out today. It also sees signs of recovery in the market and says unless something comes along to dent the broad economy, the housing picture should become even brighter.

Weise is a reporter for Bloomberg Businessweek.

Americans Sees Biggest Home Equity Jump in 60 Years: Mortgages

Americans are digging themselves out of mortgage debt. 

Home equity in the first quarter rose to $6.7 trillion, the highest level since 2008, as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The 7.3 percent gain was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data. 

t’s the strongest sign yet that Americans’ home-loan debt burden is beginning to ease after the record borrowing that created, and ultimately popped, the housing bubble, leaving almost a quarter of homeowners with mortgages owing more than their properties were worth, said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer. 

“The willingness of homeowners to carry housing debt has been radically altered,” said DeKaser, former chairman of the American Bankers Association’s Economic Advisory Committee. “When the market was booming, a mortgage was used as a leveraging tool, and now it’s seen as a risk.”

Measured as a share, rather than in dollars, homeowner equity was 41 percent of U.S. residential property value in the first quarter, including homeowners who don’t have mortgages, according to the Fed study released last week. The last time the share was that high was in the third quarter of 2008 when it was 43 percent.

‘Bubble Burst’

“People got too overleveraged in the boom years, and that left them with too much debt when the bubble burst,” said Paul Miller, a managing director with FBR Capital Markets in Arlington, Virginia. “Now, they’re trying to put themselves back on solid ground.”

Residential mortgage debt peaked in 2007 at $10.6 trillion, doubling in six years, according to Fed data. Since then, it has fallen 7 percent as the value of all residential property has dropped 23 percent.

Americans aren’t just bringing money to the table when they refinance their mortgages. Many also are choosing to shorten the term of their loans, which increases monthly payments. The average mortgage term fell to 27 years in March and April from 29 years February. Almost all U.S. mortgages have either 30-year or 15-year terms. When the average falls, it shows more people are choosing the shorter period.

The average U.S. rate for a 30-year fixed mortgage has tumbled since early 2011 to 3.71 percent this week, rising from last week’s record-low 3.67 percent. Refinancing applications, meanwhile, are at a three-year high.

Lackluster Recovery

DeKaser of Parthenon attributes the reduction in mortgage debt to a “fear factor.” A lackluster recovery that still has one of every 15 people unemployed has persuaded some borrowers of the wisdom of thriftiness, he said.

“People are worried about falling home prices and they’re worried about the economy,” said DeKaser. “If they can afford it, they’re paying down their mortgages instead of buying things because it makes them feel like they’ll sleep better at night.”

Home prices tumbled for six straight months through March to the lowest level in a decade, 35 percent below the peak prices of the housing boom, according to the S&P/Case-Shiller price index of 20 U.S. metropolitan areas. A 3.4 percent increase in home sales last month may signal prices are beginning to stabilize, according to Eric Belsky, managing director of Harvard University’s Joint Center for Housing Studies, in its “State of the Nation’s Housing” report issued today.

Economic Growth

The U.S. economy probably will grow at a 2.2 percent pace in 2012, the third year after the end of the recession, according to the median forecast of 93 economists surveyed by Bloomberg. That compares with a 3.9 percent average expansion rate in the third-year period following the 1982, 1994, and 2001 recessions. In 2013, the growth rate probably will be 2.4 percent, according to the economists’ average estimate.

Homeowners who are able to shorten the terms of their loans or reduce their balances when they refinance are the lucky ones, said Chris Christopher, a senior economist at IHS Global Insight in Lexington, Massachusetts.

“Homeowners who are paying down mortgage debt are the survivors,” said Christopher. “They probably didn’t lose their jobs, so they’re in a better position to do that.”

About 23 percent of mortgage holders are underwater on their loans, meaning they owe more than their homes are worth, according to CoreLogic Inc., a mortgage data and software firm in Santa Ana, California. About 2.1 million properties were in foreclosure in April, according to Lender Processing Services, a mortgage data firm in Jacksonville, Florida.

‘Bubble Days’

“Consumers’ view of the housing market clearly has been radically changed since the bubble days,” said Dean Maki, chief U.S. economist at Barclays Plc in New York. “We saw what happened to people who were way overleveraged.”

“Paying down mortgage debt is bad for economic growth -- putting your money into your house usually means you’re spending less,” said FBR’s Miller. “It’s good for our economic health in the long run, though, because it improves household balance sheets.”

Retail sales in the U.S. fell in May for a second month, prompting economists to cut forecasts for economic growth as limited job growth and income gains hold back consumers. The 0.2 percent decrease matched April’s drop that was previously reported as a gain, Commerce Department figures showed yesterday in Washington.

National Income

Annual increases in national income slowed to $581 billion in 2011 from $693 billion in the prior year, according to the Bureau of Economic Analysis. The first quarter’s $127.7 billion gain puts 2012 on course for a $510.8 billion increase, the lowest since income dropped in 2009.

“People are looking around them and seeing people they know getting their salaries cut or losing their jobs,” said Miller, a former examiner with the Federal Reserve Bank of Philadelphia. “If you want security, you can put your money in a savings bank for half a percentage point, or you can pay down your mortgage.”

FBR’s Miller said when he refinanced his home loan last year, he “brought a big check to the table” to reduce his mortgage balance. The reason?

“So my wife would leave me alone,” said Miller. “Just like a lot of people, she wants to have no mortgage debt.”

To contact the reporter on this column: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net

U.S. Housing Market Finally Reaches a Turning Point

RISMEDIA, Saturday, June 02, 2012— Home valuations will start to climb again while adjacent consumer industries will capture significant new growth opportunities in 2012 and beyond as the U.S. housing market finally turns the corner, concludes a major new study released today by The Demand Institute. The recovery of the housing market will have far-reaching impacts in the coming years across the United States and international markets as U.S. consumers increase their spending on buying, renovating, furnishing and maintaining their homes.

Launched in February 2012 and jointly operated by The Conference Board and Nielsen, The Demand Institute is a non-profit, non-advocacy organization with a mission to illuminate where consumer demand is headed around the world.
The new report, The Shifting Nature of U.S. Housing Demand, predicts that average home prices will increase by up to 1 percent in the second half of 2012. By 2014, home prices will increase by as much as 2.5 percent. From 2015 to 2017, the study projects annual increases between 3 and 4 percent. This recovery will not be uniform across the country, and the strongest markets could capture average gains of 5 percent or more in the coming years.

"In these initial years, the prime driver of recovery won't be new home construction, but rather demand for rental properties," said Louise Keely, Chief Research Officer at The Demand Institute and a co-author of the report. "This is a remarkable change from previous recoveries. It is a measure of just how severe the Great Recession has been that such a wide swath of Americans had to delay, scale back, or put off entirely their dreams of home ownership."

"In the long-term, we don't expect home ownership rates to change," said Bart van Ark, Chief Economist at The Conference Board and co-author of the report. "Over 80 percent of Americans in recent surveys still agree that buying a home is the best long-term investment they can make. What will be intriguing to watch is how their aspirations around home ownership are affected by this period of extended austerity."

Between 2006 and 2011, some $7 trillion in American wealth was wiped out when home prices dropped 30 percent after dramatic climb in valuations during the housing bubble. Looking forward, the moderate growth expectations for coming years suggest a return to normalcy. As home prices continue to drop and interest rates fall further, first-time buyers and others who remained relatively cautious will be drawn back into the housing market. And, as the market recovers, so too will consumer spending. 

"As the U.S. housing market strengthens, almost every consumer-facing industry will be impacted in the coming years," said Mark Leiter, Chairman of The Demand Institute. "Business and government leaders will benefit by fully understanding the nature of this recovery. In doing so they will be better able to anticipate how consumer demand will evolve, and to formulate critical business and policy decisions to lead their organizations."

Key Findings in the Report 
In addition to the projected gains in home prices, the report discusses in detail the dynamics at work in the U.S. Housing market and the impacts across industries. What follows are highlights from the report:

• The recovery will be led by demand from buyers for rental properties, rather than, as in previous cycles, demand from buyers acquiring new or existing properties for themselves. More than 50 percent of those planning to move in the next two years say they intend to rent. 
• Young people—who were particularly hard hit by the recession—and immigrants will lead the demand for rental properties. Developers and investors will fulfill it, developers by building multifamily homes for rent (that is, buildings containing two or more units, such as apartment blocks or townhouses), and investors by buying foreclosed single-family properties for the same purpose. 
• Rental demand will help to clear the huge oversupply of existing homes for sale. In 2011, some 14 percent of all housing units were vacant, while almost 13 percent of mortgages were in foreclosure or delinquent—increases of 12 and 129 percent respectively over 2005 levels. It will take two to three years for this oversupply to be cleared, and at that point home ownership rates will rise and return to historical levels. 
• The housing market recovery will not be uniform across the country. Some states will see annual price gains of 5 percent or more. Others will not recover for many years. The deciding factors will include the level of foreclosed inventory and rates of unemployment. 
• There will also be vast differences within states. Here, additional factors count, such as whether local amenities, including access to public transport, are within walking distance of homes. By examining seven factors that influence house prices at a local level, the report identifies four categories of cities and towns in which prices will behave differently. 
• The average size of the American home will shrink. Many baby boomers who delayed retirement for financial reasons during the recession will downsize. They will not be alone. The majority of Americans have seen little or no wage increase for several years, and many will scale back their housing aspirations. The size of an average new home is expected to continue to fall, reaching mid-1990s levels by 2015. 
• Consumer industries including financial services, home furnishings, home remodeling will all experience shifts in demand and new growth opportunities. Part of this spending is linked to increases in wealth from improving home valuations, while an even bigger part is tied to the "transaction" of buying or selling the home which sets in motion increased demand for a wide range of products and services. 
• Despite the number of Americans who have been hurt financially by the housing crash, the desire to own a home remains strong. We do not expect to see a long-term drop in ownership rates. Indeed, one survey has revealed that more than 80 percent of Americans recently thought buying a home remained the best long-term investment they could make.

The new report, The Shifting Nature of U.S. Housing Demand, can be downloaded at The Demand Institute's website: www.demandinstitute.org.

Freddie Mac: 15-Year Fixed Falls Below 3%, 30-Year Fixed Hits New Low

BY: ESTHER CHO

Following lower bond yields, the 15-year fixed fell below 3 percent, while the 30-year fixed set a new record-low as well, according to Freddie Mac’s Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage dropped to 3.75 percent (0.8 point) for the week ending May 31. Last week, it averaged 3.78 percent, and last year, it was 4.55 percent.

The 15-year fixed slid into new territory, averaging 2.97 percent (0.7 point), down from 3.04 percent. A year ago at this time, the 15-year fixed stood at 3.74 percent.

The 5-year ARM averaged 2.84 percent (0.6 point), up from last week’s average of 2.83 percent. A year ago, the 5-year ARM averaged 3.41 percent.

The 1-year ARM remained unchanged from last week at 2.75 percent (0.4 point). The previous year, it averaged 3.13 percent.

Frank Nothaft, VP and chief economist for Freddie Mac, pointed to market concerns over the Eurozone, which led to a decline in long-term Treasury bond yields, as one reason for the drop in fixed rates.

“Compared to a year ago, rates on 30-year fixed mortgage rates are almost 0.9 percentage points lower which translates into nearly $1,200 less in annual payments on a $200,000 loan,” said Nothaft.

Bankrate.com also reported record-lows for fixed rates.

The 30-year fixed dropped to a new low of 3.94 percent, down from 3.97 percent last week. The 15-year fixed averaged 3.15 percent, also a record low. Last week, it was 3.19 percent.

The 5-year ARM slipped from 3.02 percent last week to 3.01 percent this week.

Bankrate’s national weekly mortgage survey includes data from the top 10 banks and thrifts in the top 10 markets.

-DSNews.com

Home prices rise in most major U.S. cities

By Christopher S. Rugaber, Associated Press

WASHINGTON – Home prices rose in March from February in most major U.S. cities for the first time in seven months. The increase is the latest evidence of a slow recovery taking shape in the housing market. 

Please click here to read the entire USA Today article.

Zillow: Home Values See Highest Monthly Increase Since 2006

By: Tory Barringer

Zillow issued a released Friday reporting that both national home values and rents rose in the month of April.





According to the April Zillow Real Estate Market Reports, national home values rose 0.7 percent in April to a Zillow Home Value Index of $147,300. This is the largest monthly increase in home values since January 2006, and it makes April the second month in a row in which home values climbed up.

Zillow also reported that rents rose from March to April, increasing by 1.6 percent, according to the Zillow Rent Index. Of the 178 markets covered by Zillow, 78 percent experienced a rise in rents.
The Miami-Fort Lauderdale and Phoenix metro areas saw the biggest increases in home values, rising 1.6 and 1.9 percent, respectively. Values continued to decrease in hard-hit markets like Atlanta, where home values fell 0.7 percent.

“The housing market continues to show positive signs, with home values increasing significantly in April,” said Dr. Stan Humphries, chief economist at Zillow. “The recovery is moving in the right direction, but we caution that negative equity will cast a long shadow over the housing market. With almost one-third of homeowners with mortgages underwater and unable to sell their homes, inventory is having a hard time keeping up with increasing demand in many areas. We’ll continue to watch this signal as increasing home values turn from a blip into a trend.”
Foreclosures also continued to decline in April, with 6.8 out of every 10,000 homes being foreclosed across the U.S. That figure was down from 8 out of every 10,000 in March.