Month: December 2014

Home price growth will stabilize around 4% through 2015

Capital Economics: Lower LTV will offset any drags

House prices have regained fresh upward momentum in recent months, which looks set to be extended into the early part of 2015, but price gains will likely stabilize around 4%, according to a client note from Capital Economics.

The reason, analysts say, is because existing homeowners and homebuilders will respond to higher prices by increasing supply.

“The outlook for real economic growth was looking up even before the collapse in energy prices,” says Paul Diggle, property economist for Capital Economics. “The boost from easing credit constraints and the fading fiscal tightening is more than offsetting any drag from slower economic growth overseas. While inflation is not rising as quickly as we expected, employment growth has outpaced our earlier expectations.”

Besides increased employment, there is the issue of likely interest rate hikes in the first part of 2015.

“A March rate hike is not out of the question. Thereafter, we expect the Fed to continue raising rates more aggressively than the markets expect, with the Fed funds rate reaching 3% by the end of 2016,” he says. “In turn, that means that 30-year mortgage rates will increase from 4.1% now to 5.5% by the
end of 2015 and 5.8% by the end of 2016. Housing affordability will deteriorate, but even by end-2016 affordability will be more favorable than the historical norm.”

Capital Economics doesn’t think that rising interest rates will affect home sales.

“With credit conditions loosening, negative equity falling and buyer confidence increasing, we expect total home sales to rise from 5.4m this year to 5.8m next year and 6.0m in 2016,” Diggle says. “New home sales will provide the bulk of the impetus for this gain.”

Southern California November Home Sales Fall Sharply; Median Sale Price Holds Steady Again

December 15, 2014

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released its November Southern California housing market report. Home sales dropped to the lowest level for the month of November in seven years, the result of a relatively low number of days for recording deals, as well as fewer investor purchases and other market factors. There were also more signs of home prices flattening out: The region’s median sale price has changed little over the last three months and November marked the sixth consecutive month in which the median had a single-digit year-over-year gain, following 22 months of double-digit increases.

A total of 15,643 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in November 2014. That was down 18.8 percent from 19,271 sales in October, and down 9.5 percent from 17,283 sales in November 2013, according to CoreLogic DataQuick data.

On average, Southern California sales have fallen 8.4 percent between October and November since 1988, when CoreLogic DataQuick data began. It’s likely that this November’s sales decline from October was especially sharp because of a calendar issue: There were only 17 days on which home sales could be recorded at county recorders’ offices this November, compared with 22 or 23 days in October, depending on the county. Over the last decade, there has been an average of about 19 days for such recordings in the month of November.

November home sales have ranged from a low of 13,173 in 2007 to a high of 31,987 in 1988. November 2014 sales were 26.7 percent below the November average of 21,340 sales. Between January and November of this year, home sales were down 9.8 percent from the same 11-month period in 2013.

“Southern California home sales are closing on a low note in 2014,” said Andrew LePage, data analyst for CoreLogic DataQuick. “Inventory still lags demand in many markets and traditional buyers haven’t filled the void left by the investors who’ve pulled out. Among would-be buyers, affordability and mortgage availability remain as hurdles, as do concerns about job security and the direction of the housing market. But there are reasons to expect more housing demand ahead. According to recent data from the federal government, job and income growth has improved. Many people who became renters after a foreclosure or short sale over the past seven years will want to buy again. And potential home buyers sitting on the fence might be tempted to jump off if they see evidence that mortgage rates will spike from today’s exceptionally low levels.”

The median price paid for all new and resale houses and condos sold in the six-county region in November 2014 was $412,000, up 0.5 percent from $410,000 in October and up 7.0 percent from $385,000 in November 2013. The median hasn’t moved much since September this year, when it was $413,000. The median’s peak for 2014 was $420,000 in August.

Southern California’s $412,000 November median sale price was 18.4 percent below the peak $505,000 median reached in March, April, May and July of 2007. Among the region’s six counties, the November 2014 median in Orange County ($585,000) was the closest – within about 9 percent – to its peak of $645,000 in June 2007.

Home prices in Southern California have been rising at different rates depending on price segment. In November, the lowest-cost third of the region’s housing stock saw a 12.9 percent year-over-year increase in the median price paid per square foot for resale single-family detached houses. The annual gain was 6.3 percent for the middle third of the market and 2.3 percent for the top, most-expensive third.

The number of homes that sold for $500,000 or more this November fell 3.3 percent compared with November 2013. Sales below $500,000 fell 16.9 percent year-over-year, and sales below $200,000 dropped 35.4 percent.

Other Southern California housing market highlights from November 2014:

•Foreclosure resales represented 5.3 percent of the Southern California resale market in November. That was up from a revised 4.9 percent in October and down from 6.3 percent a year earlier. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that had been previously foreclosed upon in the prior 12 months.

•Short sales made up an estimated 6.2 percent of resales in November, up from a revised 6.0 percent in October and down from 10.5 percent in November 2013. Short sales are transactions in which the sale price fell short of what was owed on the property.

•Absentee buyers – mostly investors – bought 23.5 percent of the homes sold in November. That was up slightly from a revised 23.2 percent in October and down from 26.8 percent in November 2013. The October 2014 level was the lowest for any month since October 2010, when 22.1 percent of homes were sold to absentee buyers. The peak absentee share was 32.4 percent in January 2013, while the monthly average since 2000, when the CoreLogic DataQuick absentee data begin, is about 19 percent. Absentee buyers include those who purchase vacation homes or other properties that public property records suggest are not used as primary residences.

•Cash buyers accounted for 23.9 percent of November home sales, up from 23.5 percent in October and down from 28.1 percent in November 2013. The October 2014 cash level was the lowest for any month since January 2009, when 22.0 percent of homes were bought with cash. The peak was 36.9 percent in February 2013, and since 1988 the monthly average is 16.7 percent.

•Southern California home buyers committed a total of $3.28 billion of their own money in the form of down payments or all-cash purchases in November. That was down from a revised $4.09 billion in October. The out-of-pocket total peaked in May 2013 at $5.41 billion.

•Jumbo loans, or mortgages above the old conforming limit of $417,000, accounted for 31.0 percent of purchase lending in November, down from a revised 31.7 percent in October and up from 27.9 percent in November 2013. The July/August 2014 level of 32.3 percent was the highest since the credit crunch struck in August 2007. Prior to August 2007 jumbo loans accounted for around 40 percent of the home-loan market. The jumbo level dropped to as low as 9.3 percent in January 2009.

•Adjustable-rate mortgages (ARMs) represented 12.3 percent of home purchase loans in November, down slightly from 12.9 percent in October and up from 11.2 percent in November 2013. The ARM share dropped to as low as 1.9 percent of home purchase loans in May 2009. Since 2000, a monthly average of about 30 percent of purchase loans have been ARMs.

•All lenders combined provided a total of $4.78 billion in mortgage money to Southern California home buyers in November, down from a revised $6.1 billion in October and down from $4.93 billion in November 2013.

•The typical monthly mortgage payment Southern California home buyers committed to was $1,560 in November, down from $1,574 in October and up from $1,517 in November 2013. Adjusted for inflation, the November 2014 typical payment was 35.9 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was also 47.5 percent below the current cycle’s peak in July 2007.

To view the county-by-county home sale chart, please visit

Monday Morning Cup of Coffee: New lending standards could kickstart mortgages

Clarification to GSE guidelines could give lenders new confidence

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.

New, easier lending guidelines from Fannie Mae andFreddie Mac go into effect today, and most mortgage lenders plan to take advantage of them, hoping to offset the long-term slowdown in mortgage activity.

The new standards offer clarification on when lenders can be penalized for making mistakes in the mortgage they sell to the government-sponsored enterprises.

Many lenders say the lack of clarity in requirements have made them tighten their own lending rules too much, making it harder for the average buyer to qualify for a home mortgage.

Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, tells the Wall Street Journalthat the changes are “going to be big,” but that it will take time to assess the full impact of the changes.

Analysts say that this move could open the door for hundreds of thousands of new mortgages to be written, or as many as 1.2 million, according to an Urban Institute estimate which compared current standards to historical norms.

Mike Heid, president of Wells Fargo (WFC), the nation’s largest mortgage lender, said the industry would welcome this change.

“It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” Heid said. .

Heid said even though the changes officially start today, mortgage applicants should begin to see faster processing times, reduced credit score requirements, and greater leeway in a few weeks.

“We will be able to be looser and open up the net wider,”Mason-McDuffie Mortgage CEO Bill Godfrey, saying that they will be able to lend to borrowers with credit scores as low as 620 now.

Some lenders don’t expect to loosen credit standards, though, worrying about being on the hook later.

“Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times…we are simply going to stay on the sidelines,” U.S. Bancorp head Richard Davis said previously.

On Monday, we’ll see consumer spending for November, ahead of the official start to Christmas season. The self-reported consumer spending is a new behavioral economics measure is based on the individual reports of a random sample of American, and gives a clue to as to the direction of the overall economy. The focus is on consumer discretionary spending, including on basics such as gas purchases at the pump and more optional impulse purchases online or in stores. Excluded are routine spending, including the consumer’s monthly bills, and big purchase items such as automobiles and housing.

On Tuesday we’ll see construction spending for October. Construction spending unexpectedly declined in September on public outlays and somewhat on the private nonresidential component.

Private residential spending was a positive for the month. Construction spending declined 0.4% in September after a 0.5% decrease in August. September’s decrease was led by public outlays, which fell 1.3% after a 1.0% drop in August. Private nonresidential spending dipped 0.6%, following an easing of 0.3% the month before.

On a positive note, private residential construction spending rebounded 0.4%, following a decrease of 0.3% in August. And strength was in the new one-family component which advanced 1.1% in September, following a 1.2% gain the month before.

Everyone’s favorite, the Beige Book, comes out on Wednesday. Each Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts. This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy.

These meetings occur roughly every six weeks and are the single most influential event for the markets.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace.

And on Friday we’ll see the all-important employment situation report for November. Nonfarm payroll employment advanced 214,000 in October after gaining 256,000 September and 203,000 in August, well below market expectations.

Net revisions for August and September were up 31,000. The median market forecast for October was for a 240,000 boost.

The unemployment rate dipped to 5.8% in October from 5.9% in September. Expectations were for 5.9%. The U-6 underemployment rate declined to 11.5% from 11.8% in September.

This rate is one of Fed Chair Janet Yellen’s favorite labor market indicators.
Going back to the payroll report, private payrolls grew 209,000 after advancing 244,000 in September. Average hourly earnings edged up 0.1% after no change in September. Average weekly hours ticked up to 34.6 hours versus 34.5 hours in September.

No banks failed the week ending Nov. 28, according to the Federal Deposit Insurance Corp.

More homeowners using HELOCs to increase home value

Consumers regain confidence in America’s economy

Not only are home equity lines of credit one of the fastest growing segments in the mortgage market, but borrowers are also wisely investing their money, an article in the LA Times said.

The article explained that HELOC volume during the first half of 2014 was up by 21% compared to the same period a year ago.

Which makes sense, since home prices have been steadily rising over the last year. While the pace of home-priceappreciation may not be as drastic, it is still growing.

So where is all the newly acquired cash going?

Most people aren’t spending their home equity line money on dumb stuff. There’s no evidence of a repeat of the wacky days of the last decade when houses morphed into ATMs and credit lines paid for groceries and nights out on the town.

Slightly more than half of current borrowers say they are using or have used their draw-downs for projects that are likely to increase the market value of their properties — updating kitchens, adding bathrooms, putting on a new roof and similar remodelings.

Other examples included consolidating debts, creating some form of insurance for unforeseeable circumstances and buying new cars.