Pending Sales of U.S. Existing Homes Rise Most in Four Years

REAL ESTATE NEWS

By Jeanna Smialek June 30, 2014

A townhouse for sale in New York. Photographer: Craig Warga/Bloomberg

The number of contracts to purchase previously owned U.S. homes jumped in May by the most in more than four years, a sign the residential-real estate market is rebounding after a slow start to the year.

The pending home sales index climbed 6.1 percent, the biggest advance since April 2010, after a revised 0.5 percent increase in April, the National Association of Realtors said today in Washington. The gain exceeded the most optimistic projection in a Bloomberg survey of economists, whose median forecast called for a 1.5 percent gain.

Housing demand is benefiting from cheaper borrowing costs, a stronger employment outlook and easier access to credit for some households. At the same time, higher prices and limited income gains are keeping the improvement in the residential real estate from becoming more broad-based.

“We’re still seeing somewhat of a rebound from the exceptionally bad weather in the first quarter,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “I’d definitely expect to continue to see long-term improvement trends. It will still take some time for the labor market to influence people’s decisions of what they will do with their housing, but we’re getting there.”

The gain in May was the biggest since first-time buyers rushed to sign contracts before the expiration of a tax credit four years ago. Estimates in the Bloomberg survey of 37 economists ranged from a decline of 0.5 percent to an advance of 4 percent after a previously reported 0.4 percent April gain.

June Manufacturing

Another report showed manufacturing cooled in June from a month earlier. The Institute for Supply Management Inc.’s business barometer fell to 62.6 from 65.5 in May. The median forecast called for the gauge to fall to 63. Readings above 50 signal expansion.

Stocks rose after the data, with the Standard & Poor’s 500 Index advancing 0.1 percent to 1,962.86 at 10:04 a.m. in New York. The S&P Supercomposite Homebuilding Index increased 1 percent.

Purchases fell 6.9 percent from the year prior, on an unadjusted basis, after a 9.3 percent decrease in the 12 months that ended in April, the association reported.

The pending sales index was 103.9 on a seasonally-adjusted basis, the highest since September. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

By Region

Pending home sales climbed in all four regions, led by an 8.8 percent gain in the Northeast. Contract signings increased 7.6 percent in West, 6.3 percent in the Midwest and 4.4 percent in the South.

Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.

“Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable,” NAR chief economist Lawrence Yun said as the report was released.

Home sales have been slowly emerging from a slump early this year. Purchases of new homes rose in May by the most in 22 years, increasing 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed.

Home Prices

Gains in home prices have started to cool, which will help bring more properties within reach of those prospective buyers with access to credit.

The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported last week.

Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.

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“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4.

Household formation will be the primary driver of long-term housing demand, he said, and “the creation of well-paying jobs will go a long way” toward it. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery.”

Home-improvement retailers including Lowe’s Cos. also remain upbeat about the housing recovery.

“We’ve seen a bit of a downturn in housing turnover, but home prices continue to appreciate,” Chief Financial Officer Robert Hull said at a June 24 consumer conference. “As we think about the drivers of our business, both housing and income is constructive.”

Housing Isn’t Overvalued, Except in These 10 Spots

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And under valued....

• By
 
• STEVEN RUSSOLILLO

Getty Images

A deluge of U.S. housing data this week point to a sector that is bouncing back from the winter doldrums, but experts say the real estate market is still far from the bubble-like conditions it reached before the financial crisis hit.

That’s the takeaway from online real-estate marketplace Trulia TRLA +4.86%, which on Tuesday released its quarterly “Bubble Watch” housing data. The firm found that home prices across the U.S. appear to be 3% undervalued compared to long-term trends. Trulia looks for potential bubbles using price-to-income and price-to-rent ratios, and compares home prices to historical trends.

While the country as a whole may be in fine shape, prices in California aren’t nearly as restrained. As the chart below shows, eight of the 10 most overvalued U.S. housing markets are in the Golden State. Orange Country, Los Angeles and Riverside-San Bernardino are in the top four.

Trulia

Jed Kolko, chief economist at Trulia, says even those markets aren’t yet repeating the mistakes of the recent past.

“These California markets are much less overvalued than they were at the height of the bubble,” Mr. Kolko says. ”Even in the bubbliest markets, it’s not 2006 all over again.”

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The only market on the list above that is more overvalued today than it was in 2006 is Austin “and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust,” he added.

By comparison, here’s a look at the 10 most undervalued U.S. markets right now and how they stack up to 2006.

Trulia

Trulia’s data come as yearly growth in home prices across the U.S. slowed more than expected in April, according to the S&P/Case-Shiller Home Price Index report. Still, sales of newly built U.S. homes surged 18.6% in May to their highest level in six years, the Commerce Department said Tuesday. Those reports hit one day after news that sales of existing homes rose strongly in May but remain shy of last year’s pace.

“We’d be at greatest risk of heading toward a bubble if price gains were still accelerating, but they’re not,” says Jed Kolko, chief economist at Trulia. “The good news for bubblephobes is that price gains are now slowing down.”

TALKING POINTS...

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TALKING POINTS …

• Higher home values continued to fuel more equity home sales, which have made up more than 80 percent of all home sales for the past 11 consecutive months.  Meanwhile, pending home sales fell in May as investors pulled out of the market due to higher home prices, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

• The share of equity sales – or non-distressed property sales – rose further in May, rising to 89.2 percent, up from 88.4 percent in April.  Equity sales have been rising steadily again since the beginning of this year.  May marks the 11th straight month that equity sales have been more than 80 percent of total sales.

• Twenty-seven of the 41 reported counties showed a month-to-month decrease in the share of distressed sales, with 11 of the counties recording in the single-digits, including Alameda, Marin, San Diego, San Luis Obispo, San Mateo, and Santa Clara counties — all of which registered a share of five percent or less.

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WHERE IS THE U.S. HOUSING MARKET HEADED?

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Source: Wall St. Journal

Signs point to a housing market that may slowly be gaining some balance and entering more normal territory as a variety of recent housing reports paint an improving picture.

Making sense of the story

• While there was buzz about a potential bubble, Home prices aren’t going up as fast as they were a year ago.

• Furthermore, according to the Commerce Department, sales of new homes, which have struggled to increase from relatively low levels of a year ago, posted huge gains in May.

• A key takeaway is that in May, sales of new homes were at their highest levels in six years with a figure of 504,000 sales at a seasonally adjusted annual rate.

• Also, new home sales are now running 1 percent ahead of last year’s January-through-May level, as the spring-selling season made up for difficult winter conditions in much of the country.

• However, sales have also been deterred by the fact that builders have been slow to ramp up production. While inventories are still very low, they are up 16 percent from last year.

• Overall, home prices aren’t rising as briskly as they were last year. And as for the large yearly increases over the past year, they have reflected continued declines in the share of homes selling out of foreclosure.

• As more supply comes to market, prices are likely to cool down further. It will be a positive sign for the recovery if builders are able to sell more homes and if more traditional owner-occupant buyers dominate the market rather than investors.

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EXISTING HOMES SALES HEAT UP IN MAY

REAL ESTATE NEWS

NATIONAL EXISTING-HOME SALES HEAT UP IN MAY
Existing-home sales rose strongly in May and inventory gains continued to help moderate price growth, according to NAR. All four regions of the country experienced sales gains compared to a month earlier.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 4.9 percent to a seasonally adjusted annual rate of 4.89 million in May from an upwardly-revised 4.66 million in April, but remain 5 percent below the 5.15 million-unit level in May 2013. The 4.9 percent month-over-month gain in May was the highest monthly rise since August 2011 (5.5 percent).

Lawrence Yun, NAR chief economist, said current sales activity is rebounding after the lackluster first quarter. “Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” he said. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.”

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HOME EQUITY NEAR 90%

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EQUITY HOME SALES NEAR 90 PERCENT OF ALL HOME SALES 
Higher home values continued to fuel more equity home sales, which have made up more than 80 percent of all home sales for the past 11 consecutive months.  Meanwhile, pending home sales fell in May as investors pulled out of the market due to higher home prices, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.  

Distressed housing market data: 

•    The share of equity sales – or non-distressed property sales – rose further in May, rising to 89.2 percent, up from 88.4 percent in April.  Equity sales have been rising steadily again since the beginning of this year.  May marks the 11th straight month that equity sales have been more than 80 percent of total sales. Equity sales made up 78 percent of sales in May 2013.

•    The combined share of all distressed property sales continued to decline in May, primarily due to a drop in REO sales. The share of distressed property sales was down from 11.6 percent in April to 10.8 percent in May.  Distressed sales continued to be down by more than 50 percent from a year ago, when the share was 22 percent. 

Pending home sales data: 

•    California pending home sales fell in May, with the Pending Home Sales Index (PHSI)* dropping 3.4 percent from a revised 114.1 in April to 110.1 in May, based on signed contracts.  

•    Pending sales were down 10.6 percent from the revised 123.2 index recorded in May 2013.  The year-over-year decline in the PHSI was the first double-digit decline in three months.  Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

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CALIFORNIA FAST FACTS

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FAST FACTS

Calif. median home price: May 2014:

• California: $465,960
• Calif. highest median home price by region/county May 2014: San Mateo, $1.13 million
• Calif. lowest median home price by region/county May 2014:
  Glenn, $152,500

Calif. Pending Home Sales Index:
May 2014: Decreased 3.4 percent from 114.1 in April to 110.1 in May.
 
Calif. Traditional Housing Affordability Index: First Quarter 2014: 33 percent (Source: C.A.R.)

Mortgage rates: Week ending 6/12/2014 (Source: Freddie Mac)

• 30-yr. fixed: 4.17% fees/points: 0.6%
• 15-yr. fixed: 3.30% fees/points: 0.5%
• 1-yr. adjustable: 2.41% Fees/points: 0.4%

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Mortgage Marketplace: 30-Year Rates Drift Down

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By Alexa Fiander

Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.03 percent, down from 4.06 percent at this same time last week.

The 30-year fixed mortgage rate hovered around 4.08 percent for the majority of the week, before dropping modestly to the current rate on Tuesday morning.

"Last week, mortgage rates remained stable as the Federal Open Market Committee's policy statement contained few surprises," said Erin Lantz, vice president of mortgages at Zillow. "With little anticipated economic news this week, we expect rates will remain steady, similar to the pattern they've held for the past few weeks."

Additionally, the 15-year fixed mortgage rate this morning was 3.0 percent, and for 5/1 ARMs, the rate was 2.79 percent. 

Mortgage Application Activity: Zillow predicts tomorrow's seasonally adjusted Mortgage Bankers Association Weekly Application Index will show activity for both refinance and purchase loans to rise by 7 percent from the week prior. Refinance volume for the week ending June 20, 2014 is predicted to rise by 27 percent while purchase volume is predicted to fall by 2 percent.

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Sales Pickup Shows Healing U.S. Real Estate Market

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By Shobhana Chandra  Jun 23, 2014 3:02 PM PT

Americans snapped up previously owned homes in May in the biggest monthly sales gain in almost three years, a sign the residential real estate market is regaining its footing after a stumble early in the year.

Purchases climbed 4.9 percent, the biggest increase since August 2011, to a 4.89 million annualized rate, figures from the National Association of Realtors showed today in Washington. The level was the strongest since October. The report also showed price appreciation is slowing as more homes become available.

A more balanced market, including a wider selection of properties, smaller price gains and still-low borrowing costs, may encourage more Americans to buy as employment strengthens. Improving demand will probably spur a pickup in construction, and builders such as Hovnanian Enterprises Inc. (HOV) are optimistic.

“The housing recovery is going to continue,” said Tom Simons, an economist at Jefferies LLC in New York, who projected sales would rise to a 4.8 million pace. “Income levels are going up, rates are at least not going up anymore, and prices are stabilizing, so all that blends into a good picture for affordability.”

Stocks fell, with the Standard & Poor’s 500 Index dropping for the first time in seven sessions, as General Electric Co. led industrial shares lower to offset gains among energy producers. The S&P 500 declined less than 0.1 percent to 1,962.61 at the close in New York.

Factory Gains

Another report today showed manufacturing was also strengthening. The Markit Economics preliminary June U.S.factory index increased to 57.5, the highest since May 2010, from 56.4 a month earlier, the London-based group said. Readings exceeding 50 in the purchasing managers’ gauge indicate expansion.

The news abroad was less upbeat. Euro-area manufacturing and services activity weakened in June amid a further slowdown in France’s economy, underscoring the fragility of the recovery in the 18-nation region, other reports showed.

The median forecast of 70 economists surveyed by Bloomberg projected U.S. sales of existing houses would climb to a 4.74 million rate. Estimates ranged from 4.63 million to 4.9 million. The prior month’s pace was revised to 4.66 million from a previously reported 4.65 million.

The median home price rose 5.1 percent from May 2013 to reach $213,400, today’s report showed, matching the April increase as the smallest 12-month gain since the year ended March 2012.

Compared with a year earlier, purchases decreased 8.2 percent before seasonal adjustment.

Growing Supply

The number of previously owned homes on the market increased 6 percent from a year earlier to 2.28 million, the most since August 2012. At the current sales pace, it would take 5.6 months to sell those houses compared with 5.7 months at the end of the prior month.

The month’s supply is consistent with a balanced market, Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released.

First-time buyers accounted for 27 percent of all purchases and are still having trouble getting into the market, Yun said.

Distressed sales, comprising foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 11 percent of the total, the fewest since records began in October 2008.

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Mortgage Rates

The slump in sales that began about a year ago when mortgage rates shot up “is pretty effectively over,” Yun said at the news conference. Given gains in employment, it is “hard to foresee how sales could slide back now.” He projected sales will soon top the 5 million pace and stay around those levels for the rest of the year.

For all of 2014, sales will total 4.93 million, down from 5.09 million last year, Yun said. The drop reflects the slump at the beginning of the year as unusually frigid temperatures kept prospective buyers indoors, he said.

Sales of existing single-family homes increased 5.7 percent to an annual rate of 4.3 million. Purchases of multifamily properties -- including condominiums and townhouses -- held at a 590,000 pace.

Purchases improved in all four regions, led by an 8.7 percent increase in the Midwest. Yun said some of the advance represented transactions that had been delayed by the poor weather earlier in the year.

Timelier Gauge

Existing home sales, tabulated when a purchase contract closes, account for more than 90 percent of the residential market. New-home purchases, (ETSLTOTL) which make up about 7 percent and are tabulated when contracts are signed, are considered a timelier barometer.

The housing recovery still has a ways to go. Existing-home sales had plunged to a 13-year low of 4.11 million in 2008, three years after a record 7.08 million houses were sold in 2005.

Borrowing costs, which climbed in the second half of 2013, have retreated recently. The average 30-year, fixed-rate mortgage was 4.17 percent in the week ended June 19, down from 4.41 percent at the beginning of April, according to data from Freddie Mac in McLean, Virginia. Overall, mortgage costs are still near historically low levels.

Residential construction is picking up this quarter after a weather-induced slump at the start of the year. Builders broke ground on homes at a 1 million annualized pace in May following 1.07 million in April, the best two-month reading since late 2013, a Commerce Department report showed this month.

Builder Sentiment

Sentiment is also rebounding. The National Association of Home Builders/Wells Fargo confidence index climbed to 49 in June from 45 the prior month, the biggest gain since July 2013. The gauges for current sales, the outlook for future purchases and prospective buyer traffic all improved to the highest level since January.

Increasing property prices hurt affordability for prospective buyers trying to get into the market, at the same time they also help homeowners feel wealthier and may keep boosting profits for developers.

Hovnanian Enterprises, New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.

“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4.

Household Formation

Household formation will be the primary driver of long-term housing demand, he said, and “the creation of well-paying jobs will go a long way” toward boosting the market. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said.

Some industry groups are growing concerned about the rebound. The Mortgage Bankers Association last week lowered its forecast for combined new and existing home sales in 2014 to 5.28 million -- a decline of 4.1 percent that would be the first annual drop in four years. The group also cut its prediction on mortgage lending volume for purchases.

NAR: Sales of existing homes post strong gains

REAL ESTATE NEWS

Purchases up 4.9 percent month over month

Jun 23, 2014

Total sales of existing U.S. homes posted strong gains in May, as increasing inventory continued to temper price growth and the market bounced back from a lackluster first quarter, the National Association of Realtors reported.

Existing-home sales in May rose 4.9 percent to a seasonally adjusted rate of 4.89 million from an upwardly revised 4.66 million in April, but were still down 5 percent compared to a year before, according to the trade group.

Growth in real estate image via Shutterstock.

“Homebuyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” said NAR Chief Economist Lawrence Yun in a statement. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.”

Total housing inventory in May continued to trend upwards, but the amount of time it would take for home supply to sell out decreased thanks to a faster pace of sales.

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The supply of homes in May rose 2.2 percent month over month to 2.28 million existing homes for sale, and was up 6 percent year over year. That represents a supply that would clear in 5.6 months at the current sales pace, down from 5.7 months in April.

“Rising inventory bodes well for slower price growth and greater affordability, but the amount of homes for sale is still modestly below a balanced market,” Yun noted. “Therefore, new-home construction is still needed to keep prices and housing supply healthy in the long run.”

The median price of an existing home increased 5.1 percent year over year in May to $213,400.

BUILDERS’ SHIFT TO MORE HOME CONSTRUCTION...

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BUILDERS’ SHIFT TO MORE HOME CONSTRUCTION MIGHT TAKE 1-2 YEARS
Source: Wall St. Journal

Potential home buyers faced with a market that is low on inventory are likely wondering when the construction industry will fully shift to constructing a greater volume of homes. Home starts remain below their average, and many experts predict that it could be at least a year before volume picks up for more affordable homes.

Making sense of the story

• Builders are starting homes at a rate of about 60 to 65 percent of the industry’s annual average of 1 million. The shift to building a greater volume of homes at lower prices is critical to U.S. home construction getting back to its annual average rate of construction starts since 2000.

• Builders have focused mostly on building expensive homes to pad profit margins by selling fewer, more expensive homes. This has created an additional deterrent for many first-time and entry-level buyers, who are already facing tough mortgage qualification standards.

• Housing economists and builders say the shift to production volume over price will take time, with a timeframe of roughly one to two years. There are still concerns about demand from first-time buyers and their ability to finance a mortgage.

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• Builders are also facing constraints on the supply side due to a shortage of labor and lots.

• Also, many homes that builders are starting are on land that builders paid top-of-the-market prices for in recent years, meaning those builders have little latitude to lower prices.

• For the first five months of this year, builders started 396,000 dwelling units, not adjusted for seasonality. That’s up 6.6 percent from the same period last year. While home starts have exceeded last year’s tally, the growth has slowed considerably.

• Notably, there are signs lately that the market is in the very early stages of making a turn back toward its lower end. Some regional builders that cater to entry-level buyers are reporting surging sales.