Home prices remain on the rise

REAL ESTATE NEWS

NEW YORK (CNNMoney)

U.S. home prices remain on the upswing at the start of 2014, as a slow recovery from the bust that led to the financial crisis continues.

In the first three months, prices rose 10.3% on an annual basis, according to the S&P/Case-Shiller report. In March, an index of 20 large housing markets gained 12.4% year-over-year.

The year-over-year gains are likely to moderate, according to Stan Humphries, chief economist for Zillow, because current prices are being compared with months when many markets were at or near their post-bust bottoms. Coming comparisons will be against less depressed prices.

There are several other factors that continue to boost prices, however, including unusually low mortgage rates and the diminishing number of foreclosures and short sales on the market, which tend to sell for less. Those factors will take time to disappear.

"We're still several years away from a housing market driven purely by fundamentals like income growth and rising household formations," said Humphries.

Prices remain about 18% below their peak, which was reached in the summer of 2006.

Trends in the housing market have been mixed, with a bounce back for housing starts in April and better new home sales. Buyers have been able to take advantage of very low mortgage interest rates, but tight loan underwriting still keeps many potential homebuyers out of the market.

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Even though price gains have moderated, all the cities in the 20-city index recorded gains year over year, led by Las Vegas at 21.2%. Prices in San Francisco, San Diego and Los Angeles also rose faster than average.

On a monthly basis, New York was the only city with a decline in March.

The price increases will have a positive impact on mortgage borrowers, according to Bill Banfield, Quicken Loans vice president.

"While the increase in home prices is slowing, homeowners have still gained a significant amount of equity in the last year, " he said.

That will push some of the 9 million borrowers who are still underwater on their loans, owing more than their homes are worth, above water for the first time in years. That will make them less likely to lose their homes to foreclosure and help stabilize prices. 

30-Year Fixed Mortgage Rates Fall Below 4 Percent for First Time Since October

REAL ESTATE NEWS

AUTHOR:ALEXA FIANDER

Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 3.99 percent, down from 4.05 percent at this same time last week.

The 30-year fixed mortgage rate steadily declined last week, dropping to as low as 3.98 percent on Sunday before rising slightly to the current rate Tuesday morning.

“Rates continued to drift lower last week, falling below the 4 percent threshold for the first time in months,” said Erin Lantz, vice president of mortgages at Zillow. “In this holiday-shortened week, we expect rates will remain fairly stable unless economic data or Federal Reserve speakers surprise markets with meaningful insights into the health of the U.S. economy.”

Additionally, the 15-year fixed mortgage rate this morning was 2.98 percent, and for 5/1 ARMs, the rate was 2.71 percent.

What are the interest rates right now? Check Zillow Mortgage Marketplace for mortgage rate trends and up-to-the-minute mortgage rates for your state.

*The weekly mortgage rate chart illustrates the average 30-year fixed interest rate in six-hour intervals.

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VA Loans for Veterans Rise Exponentially

REAL ESTATE NEWS

May 25, 2014 | By: Anne Miller | 

Veterans keep our American Dreams safe — they deserve to own a part of it, too. And a Department of Veterans Affairs loan program seeks to do just that. 

Through the program, servicemen and women can obtain home loans with no down-payment and no private mortgage insurance.

The VA doesn’t offer the loans itself. Rather, the department sets guidelines for the loans, and insures the loans — which gives the lenders more confidence to lend, and less likelihood that they’ll be holding the keys if a veteran has difficulty making payments.

Such mortgages have become a smoking hot commodity. In 2007, 133,000 such loans were issued. In 2013, the number hit 630,000. That’s more than a 300 percent increase for a program that began in the wake of World War II and celebrates its 70th anniversary this spring.

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Chris Birk, author of The Book on VA Loans, attributes the rise to a confluence of several trends: the rising number of qualified veterans, and the tightening of loan qualification requirements, not to mention the shaky economy.

The U.S. has been considered at war, for the sake of defining military service, since the Gulf War — more than 20 years, Birk says. Veterans only have to serve 90 days active duty to qualify, as opposed to 180 days during peacetime.

Meanwhile, by early 2014, the average credit score needed to obtain a conventional mortgage was 725, according to Ellie Mae.

The average VA loan score: 620. And military members often have more credit dings, Birk said, due in part to the nature of their jobs.

“They’re in service but they have to tackle credit card payments… that can get sidetracked and lost,” he says. “We’ve seen veterans who’ve been shut out of the conventional housing market flock to this market because they can get into a home without a down-payment and they don’t need sterling credit.”

The loans may not work for everyone. A family who can afford to put 20 percent down might do better trying their fortune with a conventional mortgage, Birk says. But if their credit scores fall below pristine, the VA loan could still serve as a better option. And while FHA loans might be an option, the VA loans don’t require that private mortgage insurance that can drive up monthly payments.

The Department of Veterans Affairs also backs other programs, for refinancing at a lower rate, loans to adapt a home to the needs of a disabled vet, even some property tax deductions.

U.S. new home sales rise, but momentum lacking

REAL ESTATE NEWS

* New home sales rise 6.4 percent in April

* Home inventories rise to 192,000 units

* Median price falls 1.3 percent from year-ago

* Sales gains fail to mark clear break from slump (Adds details, new analyst comments)

By Lucia Mutikani

WASHINGTON, May 23 (Reuters) - Sales of new U.S. single-family homes rose in April and the stock of houses on the market hit a 3-1/2 year high, but economists said the market was still not clearly gaining steam.

Sales increased 6.4 percent to a seasonally adjusted annual rate of 433,000 units, the Commerce Department said on Friday.

The rise ended two straight months of declines and beat Wall Street expectations, but sales remained in line with their sluggish first-quarter average.

"The data have yet to show a meaningful pickup in activity early on in the spring following the unusually harsh winter," said Daniel Silver, an economist at JPMorgan in New York.

But investors welcomed the report and snapped up homebuilder shares, such as Lennar Corp and D.R. Horton Inc.

A run-up in mortgage rates and home prices over the last year has weighed on the market. Sales have also been hampered by a shortage of properties and the brutally cold winter.

The slump has caught the attention of the Federal Reserve, which is scaling back the amount of money it is pumping into the economy through monthly bond purchases.

Minutes of the Fed's April 29-30 policy meeting released earlier this week showed officials citing a range of factors for the weakness, including "higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input cost pressures, or a shortage in the supply of available lots."

GLIMMERS OF HOPE

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But there are glimmers of hope.

Sales of previously owned homes rose in April, with the inventory of houses for sale reaching the highest level in nearly two years, a report showed on Thursday.

And, according to Freddie Mac, rates on fixed 30-year mortgages fell to an average of 4.14 percent this week, a near seven-month low, which should help to improve affordability.

"We're still digging ourselves out of the soft patch we saw last fall and this winter," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

In the Midwest, new home sales jumped to their highest level since November 2007 last month. Sales also rose in the South. But they were flat in the West and recorded their largest decline since October 2012 in the Northeast.

The inventory of new houses on the market increased 0.5 percent to 192,000 units, the highest level since November 2010. Nevertheless, the stock of new houses on the market remains more than 50 percent below its pre-recession level.

At April's sales pace it would take 5.3 months to clear the supply of houses on the market, down from 5.6 months in March. With inventories rising, the median price of a new home fell 1.3 percent to $275,800 from April last year. 

U.S. HOME SALES COME OUT OF DEEP FREEZE

REAL ESTATE NEWS

By Michelle Jamrisko  May 23, 2014 10:27 AM PT 

Photographer: Patrick T. Fallon/Bloomberg

New homes ales increased 6.4 percent, the most since October, to a 433,000 annualized... Read More

Sales of new U.S. homesclimbed in April for the first time this year, allaying concerns of an extended setback in the residential real-estate market.

The 6.4 percent increase to a 433,000 annualized rate was the biggest in six months and followed a 6.9 percent March decline, Commerce Department data showed today inWashington. The advance was spurred by a surge in demand in the Midwest.

Last month’s gain brought the sales pace in line with the first-quarter average, indicating housing’s contribution to economic growth will be muted. An increase in the number of available homes, slower price gains and easier lending standards would help encourage prospective buyers to take advantage of falling mortgage rates.

“The deep freeze is over, and I think we can expect new home sales to continue to rise,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, who projected a 432,000 rate of April sales. “It’s better; it’s still not strong.”

Figures yesterday from the National Association of Realtors painted a similar picture of the housing market. Sales of previously owned homes climbed 1.3 percent, helped in part by an increase in the supply of properties.

New-home sales account for about 7 percent of the residential market and are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes, which are based on closings.

Lacking Momentum

“You’re not seeing renewed upward momentum yet,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who projected an April sales rate of 435,000. Still, “I don’t think there’s a downtrend here of any consequence.”

Stocks rose, with the Standard & Poor’s 500 Index poised for a record close as Hewlett-Packard Co. rallied. The S&P 500 increased 0.3 percent to 1,898.67 at 1:20 p.m. in New York. The S&P Supercomposite Homebuilding Index advanced 1.9 percent.

Elsewhere, German business confidence declined more than economists forecast amid signs that growth in the euro area’s largest economy will slow this quarter.

The median forecast of economists surveyed by Bloomberg called for a 425,000 annual rate of U.S. home sales. Estimates ranged from 395,000 to 460,000. Sales in March ran at a 407,000 pace, stronger than the previously reported 384,000.

The increase in new-home sales last month was led by a 47.4 percent surge in the Midwest to an 84,000 annual rate, the fastest since November 2007. Purchases also climbed 3.1 percent in the South. They fell in the Northeast and were unchanged in the West.

Home Prices

The regional data were reflected in the price figures. The median selling price in the U.S. fell 1.3 percent from a year earlier to $275,800. Homes are typically more expensive in the Northeast, where sales declined, and in the West.

There were 192,000 new houses on the market at the end of April, representing 5.3 months of supply at the current sales pace after 5.6 months in March.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.

The slowdown hasn’t gone unnoticed at the Federal Reserve. Policy makers cited a potential “persistent slowdown” in housing as a downside risk for growth, according to minutes of the April 29-30 policy meeting.

“We’re still looking for a modest recovery in housing,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. The April rebound helps reduce “fears that we have an overall stalled housing market.”

Builder Sentiment

Builder optimism has eased as well, reflecting still-tight credit conditions and limited availability of lots. Confidence dropped in May to the lowest level of the year, according to a gauge of builder sentiment from the National Association of Home Builders/Wells Fargo.

“I think that through the rest of the year, we’ll see an improvement, albeit maybe a little bit slow, but I do think that we’re on the right track,” Larry Nicholson, president and chief executive officer at Westlake Village, California-based Ryland Group Inc., said during a May 14 presentation.

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Some relief may be in store for potential buyers as borrowing costs decline. The average rate on a 30-year, fixed mortgage dropped to 4.14 percent in the week ended yesterday, the lowest level since October, according to Freddie Mac in McLean, Virginia.

Builders are gradually adding to the supply of single-family homes. A report last week from the Commerce Department showed construction starts of one-family properties increased for a third straight month, to 649,000 at an annual rate in April.

Home appliance maker Whirlpool Corp. in Benton Harbor, Michigan, is upbeat about demand.

“We are, I would say, still in the early stages of a rebound in the housing market,” Chief Financial Officer Larry Venturelli said at a May 14 homebuilding conference. Underlying demand in the housing markets “continue to be very strong.”

Housing Crisis Was Overlooked

REAL ESTATE TOPICS

Amir Sufi is the Chicago Board of Trade professor of finance at the University of Chicago Booth School of Business. He and Atif Mian, who blog together, are co-authors of "House of Debt, How They (and You) Caused the Great Recesssion, and How We Can Prevent It From Happening Again." He is on Twitter.

UPDATED MAY 21, 2014, 1:40 PM

The collapse in house prices combined with excessive household debt burdens sent the United States economy into a tailspin, resulting in a full-blown banking crisis and the worse U.S. recession in almost 80 years. Failure to more adequately address the housing crisis was the biggest policy mistake made by the Department of Treasury under Secretary Timothy Geithner’s leadership.

Geithner writes in his book that unsuccessful housing policy was in part due to housing being “an impossibly complex issue that didn’t lend itself to easy solutions,” and “a thorny policy problem.” But there were straightforward policies that were on the table, and they would have helped.

Letting bankruptcy judges write down mortgages and providing an ambitious mortgage refinancing plan would have reduced foreclosures.

For example, Geithner could have pushed for a policy to give bankruptcy judges the ability to write down mortgage debt in a Chapter 13 bankruptcy – “mortgage cram down.” He could also have put forth an ambitious plan to allow solvent underwater homeowners to refinance into lower interest rates.

Geithner says that cram down was not a wise strategy because it would have further stressed a crowded bankruptcy system. This argument shows a failure to understand that the threat of cram down would have induced more out-of-court renegotiation of mortgages, obviating the need for more bankruptcy hearings.

The lack of an ambitious mortgage refinancing plan is especially disappointing. It was not a policy associated with progressives seeking “Old Testament justice,” but by Glenn Hubbard, the primary economic adviser to the Republican presidential nominee Mitt Romney. Aggressive refinancing proposals were made as early as 2008, and yet the second iteration of the Home Affordable Refinance Program that eventually helped some homeowners refinance only came into full force in 2012. It was both too little and too late. It is hard to find a single sensible economic rationale for preventing solvent underwater homeowners from refinancing into lower rates. And yet Geithner did not get it done.

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So why did Treasury under Geithner drag its feet on housing policy? Extensive articles on housing policy in the Obama Administration showed that an obsessive focus on saving banks kept homeowners from being helped For example, Clea Benson wrote for Bloomberg that housing policy in the administration “lacked broad and aggressive measures. Relief programs have tinkered around the edges of the housing finance system because Obama’s advisers chose early on not to expend political capital forcing banks to forgive mortgage debt.”

The government must play a role in stabilizing the financial system during a banking crisis. But a narrow focus on saving banks led to unwise decisions on housing and household debt. Doing more to help write down mortgage debt and allowing underwater homeowners to refinance into lower rates would have helped the economy, and therefore helped banks. Saving the banks will not save an economy if households are left drowning in a sea of debt – this is the painful lesson we have learned from a failed housing policy.

The salary you must earn to buy a home in 27 metros

REAL ESTATE TOPICS

May 14, 2014

Tim Manni    HSH.com

How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area?

The salary you must earn to buy a home in 27 metros

How much salary do you need to earn in order to afford the principal and interest payments on a median-priced home in your metro area?

To find out, HSH.com took the National Association of Realtors’ first-quarter data for median home prices and HSH.com’s first-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home--the principal, interest, taxes and insurance--in 27 metro areas.

We used standard 28 percent "front-end" debt ratios, and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. The results are ranked from the lowest to highest salaries.

New for spring 2014: We've incorporated information on property taxes and homeowners insurance costs to more accurately reflect the income needed in a given market. We also included data on Detroit and Pittsburgh for the first time. Read more about the methodology and inputs on the final slide of this slideshow.

While overall, the NAR reported continued year-over-year price growth in the nation’s metro areas, the increases were smaller and a bit more sporadic. On a quarterly basis, more metros on our list experienced home price declines than increases. The price declines, as well as those metros that experienced minimum-price gains, were partially balanced out by a quarter that saw higher mortgage rates. Only three metro areas on our list had mortgage rates fall during the first quarter of 2014 compared to the previous quarter.

Overall, buying a home remained very favorable during the first quarter of 2014. It was nearly a 50-50 split between the areas which saw the required salary increase or decrease from the fourth quarter of 2013 to the first quarter of 2014.

Here’s a current look at how much salary you would need to earn in order to afford the principal and interest payments on a median-priced home in your metro.

San Francisco: $137,129.55

Mortgage rate: 4.39 percent (jumbo rate)

• Quarterly change: no change

Home price: $679,800

• Quarterly change: -0.38 percent
• YOY change: +14.5 percent

Monthly payment: $3,199.69

Salary: $137,129.55

• Quarterly change: -$447.58

If it seems odd that the San Francisco metro area, the king of unaffordable housing, has the lowest mortgage rates on our list two quarters in a row, it’s for good reason. The mortgage rate you see here is a jumbo mortgage rate. The jumbo market is so competitive in California that jumbo mortgage rates have actually helped to offset some of those higher costs.  

San Diego: $98,534.22

Mortgage rate: 4.56 percent

• Quarterly change: +0.03 percent

Home price: $483,000

• Quarterly change: +1.30 percent
• YOY change: +17.1 percent

Monthly payment: $2,299.13

Salary: $98,534.22

• Quarterly change: +$1,378.56

San Diego, the middle child of the expensive California metros, was even less affordable than usual during the first part of the year. With a median home price of $483,000 and positive home-price growth over the previous quarter and past year, the required salary to afford a home in this southern California metro area is inching toward $100,000.

Los Angeles: $85,964.88

Mortgage rate: 4.52 percent

• Quarterly change: +0.06 percent

Home price: $406,200

• Quarterly change: -3.99 percent
• YOY change: +17.6 percent

Monthly payment: $2,005.85

Salary: $85,964.88

• Quarterly change: -$2,424.18

The state of California is one of the most interesting real estate markets in the country currently, mainly because demand is as hot as ever. Despite home prices that would be out of reach for most in this country, Los Angeles had the second-best improvement in required salary (behind Sacramento, of course).

Sacramento: $58,113.87

Mortgage rate: 4.55 percent

• Quarterly change: +0.02 percent

Home price: $255,800

• Quarterly change: +2.17 percent 
• YOY change: +22.2 percent

Monthly payment: $1,355.99

Salary: $58,113.87

• Quarterly change: +$1,052.83

Sacramento marks the first of four metro areas in a row where affordability moved in the wrong direction. The story with the River City for the past few quarters has been its home prices. Sure, the quarterly gain doesn’t seem like much, but each quarter Sacramento’s YOY home-price gains are through the roof.  

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How did we come up with these salaries?

For the results presented on these pages, and incorporating the information discussed below, HSH.com calculated the income required to cover the mortgage's principal, interest, tax and insurance payment. We used standard 28 percent "front-end" debt ratios and a 20 percent down payment subtracted from the median-home-price data to arrive at our figures. Loans with less than a 20 percent down payment will incur mortgage insurance which would in turn increase the required salary figure.

We utilized the NAR’s 2014 first-quarter data for median home prices as well as our 2014 first-quarter average interest rate for a 30-year, fixed-rate mortgages to determine how much money homebuyers in 27 major metro areas would need to earn in order to purchase the median-priced home in their market.

The average mortgage rate information we utilized was for purchase-money mortgages made to borrowers with good to excellent credit.

We created metropolitan-area average property tax information from data made available from the Tax Foundation (http://www.taxfoundation.org), a non-partisan research think tank, based in Washington, D.C.

We utilized statewide average homeowner insurance premium costs made available by the Insurance Information Institute (http://www.iii.org), whose mission is to improve public understanding of insurance - what it does and how it works.

Note: Property taxes and insurance costs are specific to an individual property itself and will be different for any single property in which you may have an interest. Also, if other personal debts exceed 8 percent of a given monthly gross income, this will increase the salary needed to qualify.

Data for the Pittsburgh metro area was provided by RealSTATs (http://www.realstats.net/index.php), a locally owned and operated real estate information company. Home-price data for Detroit was provided by Realcomp II Ltd. (http://realcomp.moveinmichigan.com/), Michigan’s largest Multiple Listing Service.

WHY HOUSING ISN’T AS CHEAP AS IT LOOKS

REAL ESTATE TOPICS

Source: Wall St. Journal

While economists expect the housing industry to strengthen this quarter as improving weather releases pent-up demand, there are concerns about the underlying momentum of improvements in the housing market due to concerns about affordability. Despite the fact that sales of previously-owned homes edged up 1.3 percent in April to a seasonally adjusted annual rate of 4.65 million units, thereby reversing four straight monthly declines, many experts blame last summer’s increase in mortgage rates for a broad slowdown in housing activity that began last fall.

Making sense of the story

• While the NATIONAL ASSOCIATION OF REALTORS’® housing affordability index shows that housing is still more affordable than anytime between the early 1990s and 2008, sales were still 6.8 percent below their levels of a year earlier, despite an increase in April.

• Affordability could be enhanced by mortgage rates that are still below 4.5 percent, which is a rate that was unheard of before 2011, and home values are still well below their bubble-era peak. However, access to affordability assumes borrowers have down payments of at least 20 percent and that they’re able to qualify for the lowest mortgage rates.

• For marginal borrowers, including many first-time buyers, the picture of affordability is different. Since many of these marginal borrowers are obtaining loans from the Federal Housing Administration, they are paying higher insurance premiums because the FHA raised its rates.

• With the higher insurance premiums, the effective rate paid by FHA borrowers, once premiums and other costs are baked in, stood at around 5.65 percent. As a result, mortgage rates for these marginal borrowers are higher than those used to gauge affordability for the market as a whole.

• Goldman Sachs economists Marty Young and Hui Shan commented, “While focusing on the median family is one way of gauging housing affordability, another way is to focus on the marginal buyer who is arguably more relevant for determining house prices. Put differently, the prices that we observe should be determined by how much the marginal buyer is willing and able to pay.”

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• Goldman constructed a separate index to measure affordability for just marginal buyers, and it found that the payment-to-income ratio is closer to its historical average of 23 percent, thereby making a home less of a good deal than the 15 percent average experienced by overall buyers.

• While housing affordability has improved recently for the market as a whole, it’s actually gotten worse for marginal buyers.