Month: May 2015 Waiting to buy a home could cost tens of thousands

Almost $20K lost for waiting just one year, far more in hottest markets

With interest rates and home prices expected to climb in the next year, the financial penalties of delaying or forgoing a home purchase in today’s market have become very steep, according to the inaugural Opportunity Cost Report released today by

The report examines a wide range of factors, including the long-term financial impact of owning versus renting a home, the likely monetary gain renters forego in waiting to buy and the financial benefits of homeownership by market.

“Current market conditions give buyers the opportunity to build substantial wealth in the long-term, compared with renters and later buyers, in advance of the projected increase in mortgage rates and continuing price appreciation,” said Jonathan Smoke, chief economist for  “The problem is inventory is low, which has many would-be home buyers –especially first timers – standing on the sidelines and missing out on potentially material financial gains.”

Nationally, the estimated wealth an average buyer would accumulate over a 30-year period based on today’s dollars totals $217,726.

Although some markets are more buyer-friendly than others, national data shows homeowners see significant financial benefits as compared to lifetime renters. In 88 percent of MSAs, buying a home produces a financial benefit of at least $100,000 over 30 years.

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Ten markets offer an especially considerable upside to owning, with estimated 30-year financial gains above $500,000, and opportunity costs of waiting three years as high as $200,000.

These MSAs, in California and other Western states, are relatively expensive markets with strong housing demand and limited supply. The potential long-term wealth in these areas is the greatest nationwide, and likewise, the long-term financial penalty for delaying ownership is substantial, due to price appreciation, escalating rents, and higher mortgage rates on the horizon.

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“This analysis looks solely at the financial reasons to buy a home, based on assumptions about rising mortgage rates and changes in home values,” Smoke said. “It’s important to remember that a home purchase decision is deeply personal. Potential buyers need to consider factors such as upcoming life events, job security and potential relocation, in addition to financial benefits, because they too can have a significant impact on ownership.”

Pending home sales rise to highest in nine years in April

Index rises for all four major regions

Pending home sales rose in April for the fourth straight month and reached their highest level in nine years, according to the National Association of Realtors.

Led by the Northeast and Midwest, all four major regions saw increases in April.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 3.4% to 112.4 in April from a slight upward revision of 108.7 in March and is now 14.0% above April 2014 (98.6) — the largest annual increase since September 2012 (15.1%).

The index has now increased year-over-year for eight consecutive months and is at its highest level since May 2006 (112.5).

“The only time since then that we’ve come close to this level of home contracts written was in April 2010 when the new home tax credit expired (part of the stimulus program),” says Jonathan Smoke, chief economist “This level of demand is no surprise to us. Our activity this spring has been predicting strong sales. And we are seeing the trend continue solidly into May.

“Sales would be even higher if inventory was growing as quickly as demand, but instead we’ve had 32 straight months of the supply of existing homes on the market under 6 months,” he said. “That’s why we’re seeing higher levels of price appreciation this year. That higher level of price appreciation is encouraging more people to consider buying and/or selling and levels of reported foot traffic by Realtors reinforce that.  All this bodes well for continued momentum into May and June.”

Lawrence Yun, NAR chief economist, says the steady gains in contract activity each month this year highlight the fact that buyer demand is strong.

“Realtors are saying foot traffic1 remains elevated this spring despite limited — and in some cases severe — inventory shortages in many metro areas,” he said. “Homeowners looking to sell this spring appear to be in the driver’s seat, as there are more buyers competing for a limited number of homes available for sale.”

Following April’s decline in existing-home sales, Yun expects a rebound heading into the summer, but the likelihood of meaningful gains will depend on a much-needed boost in inventory and evidence of moderating price growth now that interest rates have started to rise.

“The housing market can handle interest rates well above 4% as long as inventory improves to slow price growth and underwriting standards ease to normal levels so that qualified buyers — especially first-time buyers — are able to obtain a mortgage,” he said.

After falling four straight months, the PHSI in the Northeast bounced back solidly (10.1%) to 88.3 in April, and is now 9.4% above a year ago. In the Midwest the index increased 5.0% to 113.0 in April, and is 13.3% above April 2014.

Pending home sales in the South rose 2.3% to an index of 129.4 in April and are 14.8% above last April. The index in the West inched 0.1% in April to 103.8, and is 16.4% above a year ago.

Total existing-home sales in 2015 are forecast to be around 5.24 million, an increase of 6.1% from 2014. The national median existing-home price for all of this year is expected to increase around 6.7%. In 2014, existing-home sales declined 2.9% and prices rose 5.7%. Are investors growing wary of flipping?

“Buy and hold” strategy becoming more prevalent

Real estate investors interested in making money on a home are becoming less likely to flip the home and more likely to hold the property and rent it out, according to a new report from’s 2015 Real Estate Investor Activity Report for April found that the gap between investors who are flipping a home and investors who are holding a property to rent is shrinking.

In’s Real Estate Investor Activity Report for the first quarter, 53.5% of investors were looking to flip their purchase, while 44.8% were planning on renting the home out.

But in April, the share of investors looking to flip a home fell to 50.4%, while the share of investors planning to rent grew to 48.3%. Executive Vice President Rick Sharga said that the shift in the national numbers may be due in large part to Texas.

“Most of the country and most investor segments performed in a manner very consistent with what we’ve seen over the past year, but investment strategies in Texas appear to have shifted pretty dramatically,” Sharga said. “Investors probably realize that without oil fueling Texas’ growth, it’s unlikely that home prices will continue to appreciate rapidly, and it’s very likely that home purchase demand will weaken. Given those considerations, a buy-and-hold strategy may suddenly be much more attractive.”

However, investor intent varies considerably by the type of auction (live event versus online auction) and by investor profile.

Investors bidding at live events appear to be more likely to flip the properties they purchase based on survey responses collected in April,’s report showed.

According to the report, respondents indicated a “strong preference” toward flipping over holding to rent in nearly every state where conducted live events, with the exception of Texas, where lower oil prices have resulted in fewer energy related jobs in four of the past five months.

“It will be interesting to see if this trend spreads to other states where energy-related jobs have generated economic gains, or whether we’ll begin to see a boom in home purchases stimulated by these lower energy prices across the country,” Sharga said.

On the other hand, investors at online auctions in April continued to say that they are more likely to hold the properties they purchase – except in the West, where the pendulum has swung toward flipping. This shift, while slight, is likely due to the region’s higher purchase prices negatively impacting rental property returns, said.

Existing home sales to finish 2015 at record level

Housing starts struggle to keep up

Existing home sales are expected to finish the year at their highest level since 2006, the National Association of Realtors’ economic forecast forum revealed at its 2015 Legislative Meetings & Trade Expo.

However, accelerating price growth and rising mortgage rates have the potential to change this.

Both Lawrence Yun, chief economist of NAR, and Robert Dietz, vice president of tax and market analysis at theNational Association of Home Builders, shared their perspective on what’s going on in the housing market.

In the most recent existing-homes sales report, sales surged to their highest annual rate in 18 months, showing a promising beginning to the spring homebuying season.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 6.1% to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February — the highest annual rate since September 2013 (also 5.19 million).

“Sustained job growth and interest rates below 4% have been the catalyst behind the improvement in sales,” said Yun. “The demand for buying is especially strong in parts of the country where jobs gains and economic activity have outpaced the rest of the nation — particularly in states like Utah and Florida and cities such as Denver.”

“Housing supply needs to increase measurably to meet the pent-up demand for buying,” said Yun. “To put it in perspective, there were 37 million more people in the U.S. last year compared to 2000, yet existing-home sales that year were higher (5.2 million) than last year (4.9 million).”

Meanwhile, Dietz added that unlike the existing-home market, demand for single-family new home construction remains weak, and the homebuilding industry is acting accordingly by focusing on multifamily rental housing.

“According to our data, new home construction for first-time buyers is about half of the long-term average and the reason is simple: the decline in homeownership and marriage rates among young adults,” Dietz said.

And things are not projected to return to normal levels for the building market until at least 2017, Dietz added.

Yun is forecasting housing starts to come in around 1.1 million this year and reach 1.4 million in 2016, which is still below the 1.5 million needed each year to keep up with the underlying demand. New-home sales are likely to total 570,000 this year, and increase to 720,000 next year.

Monday Morning Cup of Coffee: Setting the stage for higher interest rates

Delinquencies drop, call to delay TRID grows, and housing metrics

Monday Morning Cup of Coffee takes a look at news across HousingWire’s weekend desk, with more coverage to come on bigger issues.

The pressure will be on for the Federal Reserve to boost inflation expectations to set the stage for higher rates despite the general weakness of the overall economy.

How will that and other factors affect rate volatility? Glad you asked. Because Chris Flanagan at Bank of America/Merrill Lynch has the answer in note to clients.

“Most of what we have said in recent months remains our view for the near term (1-2 months). The 1.90-2.20% 10-year range should persist for the near term, enabling rate volatility to decline; although the yield curve should flatten modestly, it should remain steep enough to provide a favorable backdrop for securitized products” Flanagan writes. “Spreads should manage to grind tighter, with 3-5 basis points expected tightening of the current coupon spread providing some indication of how much more tightening is left (not much).

“Meanwhile, the reflationary effects of ECB QE should continue to take hold, while pressure remains on the Fed to acknowledge the weak US data,” he writes. “Ultimately, we think the combined central bank efforts are likely to be moderately successful in boosting inflation expectations, which will set the stage for higher rates and rate volatility. The past couple of weeks of market performance tell us that process may be more dramatic than we might.”

A new chart shows the 30-day delinquency rate for mortgage loans on one-to-four unit residential properties decreased to a seasonally adjusted rate of 2.56% of all loans outstanding at the end of the first quarter of 2015.

Lynn Fisher and Joel Kan at the Mortgage Bankers Association put together the chart below which shows the 30-day delinquency rates from the last two quarters are the lowest in more than four decades. They cite the state of the job market and growing home equity cushions. The bottom line? Inflows into “serious delinquency” are much reduced and the rate of new foreclosure starts has also fallen dramatically.

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(Source: MBA)

“Loans that are more than 90 days delinquent or in foreclosure (together, serious delinquencies) are still elevated relative to historic norms, as judicial states with long foreclosure timelines are still working through backlogs,” Fisher and Kan write. “Increased mediation and resolution efforts by servicers also contribute extra time until resolution of the distressed loans.

“Over 80% of the serious delinquencies portrayed above were originated in 2008 and earlier, and more recent loan vintages are seeing significantly better performance given higher overall credit quality and improving market conditions,” they find.

HousingWire will be keeping an eye on the goings-on at the MBA’s National Secondary Market Conference 2015 in New York City.

The conference features legendary NBC newsman Tom Brokaw as the keynote speaker. Brokaw will take the stage Monday morning with David Stevens, the president and chief executive officer of the MBA.

Last year, Stevens set off a firestorm with his remarks on minority borrowers. Soon after opening the conference last year, a Twitter war developed between Stevens and Josh Rosner, a well-known analyst at Graham, Fisher & Co. HousingWire publisher Paul Jackson recapped the Twitter war here.

Stevens is set to address the crowd at MBA Secondary at 8:30 a.m. Eastern Monday.

On Sunday, Stevens may have provided a small preview of his remarks when he posted the following on Twitter:

HausingWire reporter Ben Lane is on the scene in New York and will have reports on Stevens’ speech and the other happenings in and around MBA Secondary.The Housing Finance Policy Center at the Urban Institute has published two new blogs definitely worth a look.

The first blog, titled “Give lenders more time to implement new borrower disclosure rules,” summarizes the recent Congressional testimony of Center Director Laurie Goodman who urged policymakers to allow a grace period for the implementation of the new mortgage disclosure rules and, more importantly, to finalize GSE reform.

The second blog, titled “Ginnie Mae should correct the glitch in first-time homebuyer data,” reports on an error HFPC researchers found in Ginnie Mae data, which they say could mislead policymakers about how far the first-time homebuyers share has fallen

The housing market index, also known as the inexplicably popular “homebuilder confidence index” has long been signaling strength in the new home market that has never appeared.

Homebuilders have been very confident in the 6-month sales outlook despite unusually weak buyer traffic.

Monday’s release of the May reading will likewise likely show a gain in confidence. Builder confidence in the market in April rose four points to a level of 56 on the index

The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes.

Housing starts & permits have been some of the most disappointing data on the calendar, underscoring how weak the new home market really is. Excuses were abundant during the heavy weather of the first quarter but those excuses won’t apply to the latest report for April which comes out on Tuesday.

Privately owned housing units authorized by building permits in March dropped 5.7% on a monthly basis, coming in at a seasonally adjusted annual rate of 1,039,000. This is 2.9% above the March 2014 estimate of 1,010,000.

Privately owned housing starts in March dropped 2.5% on a yearly basis but rose 2% from February, coming in at a seasonally adjusted annual rate of 926,000.

The real bright spot in the housing sector, which, in total, is still struggling despite the onset of spring, has been existing home sales.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 6.1% to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February—the highest annual rate since September 2013.

But the comparison with the 6.1% sales jump March is difficult, meaning that Thursday’s release of existing home sales has a big hurdle to jump to come in high.

Existing home sales tally the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends.

No banks were closed the week ending May 15, according to the FDIC.