Home Equity Increasing

The Mortgage Corner

Home Equity Increasing

CoreLogic, a real estate analytics firm, today released new analysis showing approximately 791,000 more residential properties returned to a state of positive equity during the third quarter of 2013, and the total number of mortgaged residential properties with equity currently stands at 42.6 million.

This is helping November home sales in the South Coast, with closed transactions holding strong and huge price increases year-over-year, reports Gary Woods for MLS. 

“Year over year sales are up just slightly from 2012 with the median sales price up to about $940,000 for approximately a 19 percent rise. The average sales price is also up going from about $1.36 million in 2012 to approximately $1.43 million in 2013 for a 5 percent rise while the numbers of escrows are down with 1,203 in ’12 to 1,168 in ‘13 with the median list price on those escrows up about 15 percent to approximately $960,000.

The CoreLogic analysis indicates that nearly 6.4 million homes, or 13 percent of all residential properties with a mortgage, were still in negative equity at the end of the third quarter of 2013. This figure is down from 7.2 million homes, or 14.7 percent of all residential properties with a mortgage, at the end of the second quarter of 2013.

Graph: Calculated Risk

This is a result of the sharp rise in housing values this year.  Of the 42.6 million residential properties with positive equity, 10 million have less than 20 percent equity. Borrowers with less than 20 percent equity, referred to as “under-equitied,” may have a more difficult time obtaining new financing for their homes due to underwriting constraints.

Under-equitied mortgages accounted for 20.4 percent of all residential properties with a mortgage nationwide in the third quarter of 2013, with more than 1.5 million residential properties at less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are considered at risk should home prices fall.

“Rising home prices continued to help homeowners regain their lost equity in the third quarter of 2013,” said Mark Fleming, chief economist for CoreLogic. “Fewer than 7 million homeowners are underwater, with a total mortgage debt of $1.6 trillion. Negative equity will decline even further in the coming quarters as the housing market continues to improve.”

California has the twelfth worst negative equity with 13.2 percent of those homes holding mortgages.  Nevada had the highest percentage of mortgaged properties in negative equity at 32.2 percent, followed by Florida (28.8 percent), Arizona (22.5 percent), Ohio (18.0 percent) and Georgia (17.8 percent). These top five states combined accounted for 36.4 percent of negative equity in the U.S.

 

Harlan Green © 2013

Case-Shiller Home Prices Take Off

The Mortgage Corner

 Case-Shiller Home Prices Take Off

The S&P Case-Shiller home price index shows home prices are in full recovery mode.  Over the last 12 months, prices rose 12.3 percent and 12.4 percent as measured by the 10- and 20-City Composites, which are a 3-month average of same-home increases. And because the Fed still in full credit easing mode with its September decision to maintain QE3 securities’ purchases at $85 billion per month, interest rates are beginning to decline

Graph-Calculated Risk

Data through July 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices showed increases of 1.9 percent and 1.8 percent from June for the 10- and 20-City Composites. For at least four months in a row, all 20 cities showed monthly gains. Phoenix posted 22 consecutive months of positive returns. Although home prices in all the cities increased, 15 cities and both Composites those increases slowed in July versus June.

“Home prices gains are holding their 12 percent annual rate of gain established by the two Composite indices in April,” says Chairman David M. Blitzer, of the S&P Dow Jones Indices. “The Southwest continues to lead the housing recovery. Las Vegas home prices are up 27.5 percent year-over-year; in California, San Francisco, Los Angeles and San Diego are up 24.8, 20.8 and 20.4 percent, respectively. However, all remain far below their peak levels.”

The result of lower mortgage rates is mortgage applications are also increasing, after falling sharply in May when the Fed first hinted it would begin to tighten credit in the fall. Mortgage applications increased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 20, 2013.

The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 7 percent from one week earlier.  The Purchase Index was at its highest level since July 2013.

Graph-Calculated Risk

The HARP share of refinance applications increased to 41 percent from 40 percent the week before, and is the highest since MBA started tracking this measure in early 2012.  So there is the feeling that many home owners with negative home equity are only now taking advantage of refinancing their underwater mortgages at current interest rates.  The HARP program allows mortgage holders to refinance when debt can be as much as 150 percent of their home’s value.
            So the Federal Housing Finance Authority has stepped up its campaign to encourage more homebuyers to apply for HARP refinancing.  Acting FHFA Director Edward J. DeMarco said that 2.8 million homeowners have refinanced through HARP but with mortgage rates still historically low and HARP eligibility requirements expanded, other qualified homeowners could reduce their monthly mortgage payments or build their equity faster with a shorter term mortgage through the program.

DeMarco told Bloomberg News in an interview this weekend that FHFA used focus groups to find out why borrowers with high rates hadn't yet tried to refinance through HARP. They found many didn't realize they were eligible. They thought they had to be delinquent on their mortgages before the government would help them. DeMarco said he hoped the educational outreach would bring in an additional 2 million HARP borrowers.

This is while total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July, and are 13.2 percent higher than the 4.84 million-unit level in August 2012, reported the National Association of Realtors.

           

Harlan Green © 2013

Mortgage Delinquencies Continue to Decline

The Mortgage Corner

Mortgage Delinquencies Continue Decline

Mortgage delinquencies and foreclosures continue to decline.  According to Lender Processing Services (LPS), 6.08 percent of mortgages were delinquent in May, down from 6.21 percent in April, while 3.05 percent of mortgages were in the foreclosure process, down from 4.12 percent in May 2012.

This was the largest drop in delinquencies in 11 years, and gives a total of 9.13 percent delinquent or in foreclosure. It breaks down as:

• 1,708,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,335,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,525,000 loans in foreclosure process.

                                                               Graph: Calculated Risk

Delinquencies are down more than 15 percent since the end of December 2012, coming in at 6.08 percent for the month. As LPS Applied Analytics Senior Vice President Herb Blecher explained, much of this improvement is supported by the fact that new problem loan are approaching the pre-crisis average.

“Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak,” Blecher said. “In large part, this is due to the continuing decline in new problem loans -- as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline. New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 preceding.

It has to be why consumer spending is in effect soaring.  Consumers were out in force in May as consumer credit rose a huge $19.6 billion. Revolving credit jumped $6.6 billion for the largest gain since May last year and the second largest of the recovery. The gain points to a jump in credit card use which, if extended, would be a big plus for retailers.  It hasn’t increased at all for most of the year, until now.

Graph: Econoday

Non-revolving credit also jumped in the month, up $13.0 billion for yet another outsized gain that reflects both strong car sales but also gains in the student loan component that are tied in part to ongoing government acquisitions of student loans from private lenders, acquisitions that do not necessary reflect current student borrowing.

                So the wealth effect from more jobs and rising housing prices seems to be taking hold.  That is why delinquencies have been declining, in the main.  This is while the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) showing some 3.828 million new job openings in June, and 4.4 million new jobs created.

Graph: Econoday

Both hires and separations are oscillating upward with hires running a little higher than separations. In May, there were 4.441 million hires versus 4.395 million the month before. There were 4.323 million total separations in the month of May-slightly up from 4.287 million in April.  The separations rate was 3.2 percent. Total separations include quits, layoffs and discharges, and other separations.

Harlan Green © 2013

Pending Home Sales Soar as Well

The Mortgage Corner

Pending Home Sales Soaring As Well

Watch out, homebuyers! There may be few homes left on the market if the National Association of Realtors’ May Pending Home Sales Index is any predictor of future sales. This is even though mortgage rates have risen almost 1 percent in 3 weeks, as I said last week. 

The pending home sales index surged 6.7 percent in May to its highest level since 2006. This has to be because of those rising mortgage rates as prospective buyers want to act before rates could move even higher. The index posted double-digit percentage increases in the Midwest and West. The index level of 112.3 is the highest since the boom days of 2006. The year-on-year gain for the index is 12.1 percent, which is interestingly right in line with double-digit gains for many home-price readings.

Graph: Wrightson ICAP

To the extent that the surge reflected fence sitters jumping into action, there might be some payback in future months, says Wrightson ICAP. “Also, the big increase could partly reflect seasonal adjustment difficulties, as this is the third consecutive year of May gains in the 5-to-7 percent range. Nevertheless, this is a strong report, and it suggests that existing home sales could rise to around 5.5 million in June, which would be the strongest showing since 2007.” 

Another reason for the burst in pending home sales is the consumer sector made a comeback in May with income and spending improving. Personal income gained 0.5 percent after a 0.1 percent rise in April. Expectations were for a 0.2 percent increase. The wages & salaries component advanced 0.3 percent, following a 0.1 percent increase.

The latest inflation numbers contained in the PCE report confirm Fed officials concern that inflation is running too low. Year-on-year, PCE headline prices were up only 1.0 percent in May versus 0.7 percent in April, with the core was up just 1.1 percent. These numbers are well below the Fed's inflation target of 2.0 to 2.5 percent. And the savings rate increased to 3.5 percent, which means consumers are still holding on to much of their income, out of caution, no doubt.

Graph: Wrightson ICAP

It has to be why consumer confidence is in effect soaring. The Conference Board’s Director of Research Lynn Franco said why: “…Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year. Expectations have also improved considerably over the past several months, suggesting that the pace of growth is unlikely to slow in the short-term, and may even moderately pick up.” 

Expectations are also at a recovery best, up nearly 9 points to 89.5 and reflecting rising confidence in the long-term outlook for the jobs market. The outlook for income is likewise climbing with more now seeing an increase ahead vs. those seeing a decrease. This is an important indication that hints at gains for consumer spending including discretionary spending.

There could be a housing hiccup if mortgage rates continue to climb. But we don’t believe they will. There is no inflation, and interest rates did soften a bit this week after several Fed Governors, such as new Fed Governor Jerome Powell indicated the markets had overreacted.

“The reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the [Federal Open Market] Committee’s intentions, given its forecasts,” Mr. Powell said. “To the extent the market is pricing in an increase in the federal funds rate in 2014, that implies a stronger economic performance than is forecast either by most FOMC participants or by private forecasters.”

The economy isn’t growing fast enough to cause the Fed to begin downsizing it QE3 program, in other words, particularly with the huge downward revision just reported of first quarter GDP growth to 1.8 percent from 2.4 percent.

Harlan Green © 2013