Month: June 2013

Rise in rates, home prices threaten affordability

Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.

The yields on benchmark U.S. Treasurys soared to their highest level in almost two years, climbing to more than 2.5% on Friday, an article in the Financial Times reported.

Yields increased as investors bet that the Federal Reserve would soon start winding down its emergency bond-buying program.

The article cited two top fund managers warning that the rise in rates threaten the sustainability of the housing economy.

Jeffrey Rosenberg, chief fixed-income strategist at BlackRock, commented in the article saying higher payments made new mortgages less affordable.

He added, “Housing has been held up by falling rates, not by rising incomes. Without rising incomes, this puts some concern into the sustainability of the housing recovery.”

According to the report, the global financial market experienced a rocky week due to the Federal Reserve deciding to scale back purchases, with stocks as well as bonds tumbling.

Home prices are skyrocketing through the roof, causing some concern for a potential price bubble, a CNBC article stated.

Tight inventories, investor appetite and cheap money made home prices soar in most big cities.

The article explained that even though home values are still far from their peak in 2006, they still have risen too far too fast.

Homeowners spent three times their annual incomes on homes at the end of last year compared to pre-bubble norms of 2.6 times.

Bidding wars escalated home prices well above the asking price, with one house in New York City selling 10% above the asking price, the article said.

Economists fear today’s prices are not sustainable and if investors do not back down, a bubble is bound to happen.

But these violent swings are not happening everywhere.

According to the report, parts of the country like Los Angeles and Phoenix are posting gains of almost 20%, compared to areas such as Chicago and Philadelphia rising only 3%.

Meanwhile, other markets show prices are flat or declining in some cases.

The governor of New Jersey continues to battle the state’s commitment to affordable housing, an article in The New York Times said.

Most recently, Governor Chris Christie tried to seize up to $165 million from housing trust funds held by municipalities and earmarked for affordable housing.

However, according to the article, a state appellate court ruled that the state could not take the money unless local governments and nonprofit developers were given a chance to challenge the action.

Additionally, the court said it expected the state’s affordable housing agency to create and promote the development of affordable housing.

Previously, Christie has attempted to dismantle the independent state agency that oversees affordable housing development.

In addition, he tried to weaken the state law that prohibits local governments from using zoning to exclude housing for poor and working-class people.

The Massachusetts housing crisis is waning, with the number of homeowners facing foreclosure falling to its lowest level last month since 2005, an article in the Boston Herald said.

According to the report, statewide, 248 foreclosure petitions were filed in May, plummeting 86% from the 1,779 filed at the same time last year.

As a whole, 2,698 petitions for foreclosure have been filed, decreasing 66% from the 7,877 filed for the same period in 2012.

The significant improvement is attributed to median home prices escalating 11% so far this year.

Additionally, the state passed a law last year requiring banks to notify borrowers of their rights to pursue a loan modification before foreclosing.

The Federal Deposit Insurance Corp. did not close any banks for the week ending June 21.

Motivated home buyers skip the bidding wars,0,4463414.story

Southern California real estate agents are using reconnaissance and back-channel networks to find houses that haven’t yet hit the market. Some even offer bizarre gifts.

Real estate agent Ryan Mathys points out a view.Real estate agent Ryan Mathys, right, talks to the Snyder family about the view from a home in Solana Beach, Calif. The house hadn’t been listed for sale, but his client liked the street it was on, so Mathys sent letters, knocked on doors and used social media to find prospective sellers. (Don Bartletti, Los Angeles Times / June 21, 2013)
By Alejandro Lazo, Los Angeles TimesJune 22, 2013

Ryan Mathys spent weeks prospecting.

He drove up and down the little avenue in Solana Beach, taking notes and knocking on doors. He scoured public records. He blanketed the seaside neighborhood in northern San Diego County with inquiries.

All the detective work had a dollars-and-cents purpose: to find homes the owners would be willing to sell.

Southern California housing prices are rising sharply, and there’s a shortage of houses available for sale.

So agents like Mathys are resorting to reconnaissance and back-channel networks to find homes that haven’t yet hit the market. They’re cold-calling homeowners with offers and targeting specific neighborhoods with direct mail. Some come bearing bizarre gifts in return for a listing. One agent offered a seller the use of his exotic car; one of his clients offered free dogs.

And they’re chasing so-called pocket listings, homes privately marketed among those in the know. The low-profile nature of the listings makes them hard to quantify. But agents and other real estate experts say they’ve become common in the booming Southland market, where the median home price shot up nearly 25% in the last year.

Mathys — a 10-year veteran who, with his partner Tracie Kersten, specializes in high-end San Diego properties — said he’d never before seen the market this tight or felt the need to get this creative.

His hunt in Solana Beach began this year when Marc Snyder, a technology executive from the East Coast, called him looking for a future retirement home. Snyder, 46, was selective. He fell hard for a particular house on a narrow street. He made an offer but lost out to an all-cash buyer.

So Mathys sent a letter to every home on the ocean-view side of the street to see if someone else was interested in selling. He outlined his client’s personal story and qualifications. Mathys knocked on doors. He searched property records for the names of homeowners and reached out through social media and email.

He finally persuaded the owner of a three-bedroom, two-bathroom ranch home with a panoramic view of the Pacific. Snyder offered $2.15 million for the home, which is set for closing soon. He plans to remodel. The price means a hefty commission for Mathys. (Agents for the buyer and seller typically split a percentage of the sale price.)

Mathys finds his approach worthwhile. “You feel more proactive than sitting there waiting for the next one to come up — and then watching 10 other people swarm all over it,” he said. “It gives you a little bit more of a feeling of control in this market, where buyers don’t have that much control.”

Sellers, by contrast, need only hint at a desire to sell, and a line will form.

“They are spreading the word through whisper campaigns or pocket listings, through the broker network and the Web,” said Nick Segal, a real estate agent who estimates that 30% of the deals at his Partners Trust firm are secured without a listing. “You say, ‘I have got something coming on the market; it’s quiet.'”

Many of the low-profile deals involve investors, who have swarmed Southern California in recent months, closing deals quickly with cash. Whether agents rake in big commissions or go hungry depends on their savvy and network of contacts.

“It is a market where the strong survive,” said Michael Gray, a real estate agent in La Cañada Flintridge.

Pocket listings have been common for some time among celebrities, primarily because of privacy concerns. Now they’re proliferating across the economic spectrum because of the mismatch between supply and demand.

Some sellers want to keep a low profile because of a divorce or a job loss. In other cases, the home may need some work or be undergoing repairs. Marketing it quietly can be a way to test the waters or to secure a hassle-free sale from an investor. Some sellers simply don’t want a lot of strangers traipsing through their homes.

Michael Kerwin, 65, sold his Altadena home this month without ever listing the two-bedroom, one-bathroom bungalow. His agent, Addora Beall, found an investor who snapped up the property within days for more than the asking price. The all-cash purchase closed in seven days, faster than it would have with a buyer who needed a mortgage.

“I could have waited for more money. But I told her the price I wanted to get … and she got just a little bit more,” Kerwin said in a phone interview from Amarillo, Texas, on his way to Pittsburgh to live with his new bride. “I was a motivated seller … but I didn’t think it would happen quite this fast.”

Agents representing investors often waive their half of the commission to sweeten the pot for the seller’s agent.

Real estate investor pullback continues to rise


Some investors are dropping out of this year’s resurgent housing market due to rising home prices and an increased competition for housing in many parts of the nation.

The investor share of home purchases tumbled from 22% in April to 20.2% in May, based on a three-month moving average, according to theCampbell/Inside Mortgage Finance HousingPulse tracking survey.

Similarly, rising interest rates and growing home prices are pushing investors to grow weary and are beginning to back away from the market.

Meanwhile, both current homeowners and first-time homebuyers increased their participation in the home purchase market month-over-month.

For instance, current homeowners accounted for 43.8% of home purchases in May, while first-time homebuyers represented 36% in May, HousingPulse noted.

In recent years, investor home purchase activity has been concentrated among foreclosed properties and short sales, since these property types offer discounted pricing and provide more profitable opportunities such as flipping or renting.

However in May, investor purchases of both real estate-owned properties and short sales has fallen significantly due to profit margins being squeezed by rising prices, reducing incentives for investors to buy.

The drop in investor interest in both the REO and short sales sectors has correlated with a drop in the sales-to-list price ratios for these properties, HousingPulse results show.

California REO sales hit lowest level in six years

By Christina Mlynski

• June 24, 2013 •

May sales of real estate-owned properties in California fell into the single digits for the second straight month, descending to the lowest level since October 2007, analysts claim.

The share of REO sales in the state hit 7.2% in May, down from 9.2% in April and also down 22.8% from a year ago, according to the California Association of Realtors.

Meanwhile, the share of equity home sales continued to grow in May, making up nearly four of every five home sales.

The combined share of distressed property sales was 21.8% in May, down from 24.4% in April and also down 44.2% from last year.

The share of all distressed sales in 31 of the 36 reported California counties also declined significantly from the previous year, with Contra Costa, Marin, San Diego, San Mateo and Santa Clara recording single-digits in May, CAR explained.

The share of non-distressed property sales increased further in May and now makes up more than 75% of total sales, the highest share since January 2008.

For instance, the share of equity sales increased to 78.2% in May, up from 75.6% in April and also up more than 55.8% from last year.

Of the distressed properties, the share of short sales dropped to 14% in May, down from 14.8% in April and also down from 21% a year ago.

The continuing decline in short sales indicates more previously underwater homes are moving into positive equity, indicating the lowest figure since July 2009.

The available supply of homes remained tight in May, but was relatively unchanged from April.

For instance, inventory for REOs was unchanged at a 1.7-month supply.

Additionally, the supply of short sales dripped from 2.7 months in April to 2.3 months in May.

Meanwhile, the supply for equity sales was 2.8 months in May, down from 2.9 in April.

Pending home sales edged up 0.3% in May to 122.1, rising from 121.7 in April, but was down 3.1% from the 125.9 index recorded a year ago.

Refinancing into shorter mortgages appears to grow more popular

Some community banks say 10-year mortgages, once an insignificant niche option, are accounting for increasingly large chunks of their business.

By Kenneth R. Harney LA TimesJune 14, 2013

WASHINGTON — The refinancing boom may be cooling down, but the move to shorter mortgages — especially 10-year loans among pre-retirees — appears to be accelerating.

Some community banks say 10-year mortgages, once an insignificant niche option, are accounting for increasingly large chunks of their business. For example, Rockville Bank in South Windsor, Conn., reports that 10-year loans represented a surprising one-fifth of its total residential mortgage originations in dollar terms last year.

Plus in a survey released this month, Freddie Mac, the giant federal mortgage investor, found that 28% of all refinancings in the first quarter of 2013 involved shortening of terms. Among refinancers with 30-year mortgages, nearly one-third switched to shorter-term replacement loans.

Though 15-year mortgages have been popular for years among homeowners who want to pay off their balances quickly, lenders say the 10-year loan — targeted directly at the demographic tsunami of baby boomers who are still employed but planning to retire in the coming decade — is on the upswing.

“There’s a lot of interest in this [10-year] product,” said Victoria Stumpf, a loan officer with Third Federal Savings and Loan in Cleveland.

Why the growing attraction to going short? Start with interest rates.

With an almost-certain increase in rates on the horizon when the Federal Reserve begins to taper its purchases of mortgage bonds and Treasury securities, fixed rates on 10-year loans remain enticingly low. According to, which surveys 7,000 lenders nationwide on rates and terms, the average 10-year fixed-rate mortgage goes for 3% with a fifth of a point. (A point equals 1% of the loan amount.)

But many community banks and smaller lenders quote much lower than that. Rockville Bank’s current rate for a 10-year, whether for refinancing or a home purchase, is 2.375% with no points. Third Federal’s quote for a $200,000 10-year mortgage is 2.79% with a closing fee of $450.

For community lending institutions such as these around the country, 10-year loans tend to be portfolio investments. Rather than selling the mortgages to Freddie Mac, Fannie Mae or other investors, lenders retain them in-house. Partially as a result, rates can be lower. And since lenders who specialize in 10-year mortgages want to keep risks as low as possible on their in-house investments, they typically require borrowers to have solid credit histories and significant equity or down payments.

Picture this: You’re in your prime pre-retiree years — anywhere from the mid-50s to early 60s. You’ve got a good income, significant equity in your home, good credit scores and you want to refinance to a lower rate. Your home is worth $250,000 and you need a $150,000 loan that will leave you mortgage debt-free — or close to it — once you’re into retirement. You don’t want to risk potential interest rate spikes along the way, so adjustable-rate loans are out of the question.

How does a 10-year loan stack up? Consider this comparative scenario using current rates and terms for 30-year, 15-year and 10-year loans provided by Jeff Lipes, vice president for mortgages at Rockville Bank:

•Interest rates: The 10-year’s 2.375% rate is the lowest by far. The rate on the 30-year fixed is 3.99%; on a 15-year, it is 3.25%.

•Monthly payments. Here’s where the shorter term and faster payoff of principal available through the 10-year mortgage can be a budget issue for some borrowers. The monthly total for principal and interest on the 30-year loan is just $715. On the 15-year it’s $1,054. But on the 10-year it’s nearly double what you’d pay on the 30-year — $1,406. Though over the term of the loan you pay substantially less in total interest charges, on a monthly basis the 10-year requires the most out of pocket of the three.

Frank Nothaft, chief economist for Freddie Mac, says that as part of a retirement planning process designed to leave you with lower debts at a predetermined point, a 10-year mortgage “could be an ideal product,” provided you’ve got the resources to handle the higher monthly payments. Ditto for a 15-year loan.

Bottom line: If you’re looking ahead, want to lock in what may be once-in-a-lifetime low rates and like the idea of getting rid of all home-loan debt for your retirement years, check out the mortgage shortening trend. A 10-year just might be a fit.

Redfin: Boost in inventory pushes sales volume


Home prices and sales volumes increased across all of the 19 major U.S. cities in May, according to the latest data from Redfin. This is the second consecutive month where all 19 cities saw an improvement in home prices.

In May, home prices rose 17% year-over-year and 4% since April. Sacramento documented the highest price gains with a 39% year-over-year rise.

Home sales were up 14% from 2012, and 16% from April.

Long Island posted the largest yearly sales volume increase, with home sales up 74.7% from May 2012. Boston had the largest monthly increase in sales volume, up 38% from April.

Although inventory dropped 22% year-over-year in May, it increased 4.3% from the previous month.

The increase in inventory was likely a contributor to the rise in home sales volume, which reached the highest level since 2010, with more than 79,000 home sales closed in the 19 markets covered in this May report.

Six of the 19 markets saw monthly inventory shrink in May and five of those were in California, including the Inland Empire (-7.3%), Las Vegas (-1.4%), Los Angeles (-1.3%), Ventura (-1.0%), and San Francisco (-0.5%).

California May Home Sales

June 13, 2013

An estimated 42,293 new and resale houses and condos sold statewide last month. That was up 8.3 percent from 39,051 in April, and up 1.2 percent from 41,790 sales in May 2012, according to San Diego-based DataQuick.

Last month’s sales count was the strongest for a May since 54,099 homes were sold in May 2006. California May sales have varied from a low of 32,223 in 1995 to a high of 67,078 in 2005. Last month’s sales were 9.0 percent below the average of 46,471 sales for all the months of May since 1988, when DataQuick’s statistics begin.

The median price paid for a home in California last month was $340,000 – the highest for any month since the median was $354,000 in April 2008. Last month’s median rose 4.9 percent from $324,000 in April and rose 25.9 percent from $270,000 in May 2012. May marked the 15th consecutive month in which the state’s median sale price has risen year-over-year. In March/April/May 2007 the median peaked at $484,000. The post-peak trough was $221,000 in April 2009.

Of the existing homes sold last month, 11.4 percent were properties that had been foreclosed on during the past year – the lowest level since foreclosure resales were 9.4 percent of the resale market in August 2007. Last month’s figure was down from 13.5 percent in April and from 28.5 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 17.7 percent of the homes that resold last month. That was the same as in April and down from an estimated 23.7 percent a year earlier.

The typical mortgage payment that home buyers committed themselves to paying last month was $1,227. That was up from $1,157 in April and up from $1,006 a year earlier. Adjusted for inflation, last month’s typical payment was 46.7 percent below the 1989 peak of the prior real estate cycle, and 56.8 percent below the 2006 peak of the current cycle.

DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached several years ago. Financing with multiple mortgages is low, while down payment sizes are stable, DataQuick reported.