A surge in foreclosure filings suggests that the housing market is headed for the feared "double dip," with some analysts predicting a further decline in Las Vegas home prices of up to 20 percent.
Nevada continues to lead the nation with one in every 17 households receiving a foreclosure notice in the first half of the year, Irvine, Calif.-based RealtyTrac listing service reported.
The state was hit with 5,140 notices of default in June, 4,736 notices of trustee sale and 2,963 real estate-owned properties that have gone back to the bank for a total of 12,839 foreclosure filings. That brings the six-month total to 64,429 filings, down 6.2 percent from the year-ago period and down 13.2 percent from the second half of 2009.
Nationwide, more than 1.65 million properties received foreclosure notices from January through June, an 8 percent increase from the year-ago period, RealtyTrac reported.
The "shadow inventory" of foreclosed homes being held by banks could grow as more borrowers enter into strategic default, walking away from homes with negative equity. Some 75 percent of Las Vegas homeowners are underwater, owing more than their home is worth, according to First American CoreLogic.
These numbers paint a bleak picture for Las Vegas and other cities engulfed by the subprime mortgage crisis that sparked a wave of foreclosures. Analysts foresee home prices declining throughout the rest of this year and possibly for years to come.
"I would not deny the possibility of a double dip," said Larry Murphy, president of Las Vegas-based SalesTraq research firm. "I would not deny the possibility of prices going down some more. We still have a lot of inventory out there, a lot of vacant inventory, and the economy is just not cooperating."
SalesTraq reported a median existing-home price of $122,847 in May, a 1.4 percent decrease from a year ago. It's down from a peak of $285,000 in 2006.
"I hate to say it, but we could see prices decline another 10 percent," Murphy said.
Kaye Cuba, senior director of valuation services for Cushman & Wakefield in Las Vegas, set the number a little higher, at a 15 percent to 20 percent further decline on the residential side.
After offering a glimmer of hope that home sales were picking up and prices were stabilizing, the housing market took a turn for the worse after the homebuyer tax credit expired in April.
Purchase applications fell for the ninth time in the last 10 weeks, the Mortgage Bankers Association reported for the week ending July 9. The seasonally adjusted purchase index dropped 3.1 percent and now stands at the lowest level since December 1996.
"This unprecedented slide in the purchase index further confirms that homebuyers largely remained on the sidelines through the month of June and now, it appears into July as well," the bankers' report said. "While we believe the relatively modest index declines over the past few weeks suggest sales are no longer in free fall, it appears homebuyers have yet to re-emerge to any significant degree post the tax credit, as we believe many consumers sense home prices still have further to fall."
Most housing analysts were expecting a surge in home closings in June as buyers rushed to get the federal tax credit. Instead, sales fell 11.2 percent in Las Vegas to 3,360 in June, the Greater Las Vegas Association of Realtors reported.
"Looking ahead, given the moderation we are currently witnessing in sales activity, we would not be surprised to see sales tail off further in the wake of the tax credit expiration," Raymond James analysts Buck Horne and Paul Puryear wrote in a June report. "Thus, while the Las Vegas resale market has demonstrated signs of stabilization, we are becoming increasingly concerned about the potential for renewed price declines."
With 14 percent unemployment and a 51 percent decline in home prices, Las Vegas is one of 13 housing markets that will never recover, 24/7 Wall St. website said.
"Most cities with sharp drops in home values are also the hardest-hit by the recession's impact on employment," the website said. "These areas may take years to get back to normal employment rates of 5 percent. In the meantime, home prices will continue to stagnate or worse, continue to fall because of lack of buyers."
Murphy said the Las Vegas economy must show substantial improvement for housing to recover, including a significant drop in the unemployment rate, a push toward higher room rates and a return of free-spending visitors. Also, population growth has stalled or even declined, taking away demand for new homes.
"I thought we'd hit bottom when median prices hit $120,000 last year and stayed between $120,000 and $125,000," Murphy said. "It really hasn't recovered. It just stopped bleeding. Given the state of the national economy and Nevada's economy, it's entirely possible we could see prices go down again."
SalesTraq showed repossessed homes dropping below 1,000 in December, January and February, then climbing back to 1,248 in March, 2,146 in April and 1,688 in May. There were 6,932 foreclosures through May, compared with 8,714 in the year-ago period.
Some housing experts see short sales as a panacea for the foreclosure crisis, even though the short-sale process can take four to six months to complete. Two years ago, short sales accounted for about 8 percent of Las Vegas existing-home sales. That figure had doubled to 16 percent by late last year and has increased by 2 to 5 percentage points a month.
David Brownell of Keller Williams Realty in Las Vegas sees a fundamental shift in the local housing market as short sales catch up with and maybe surpass foreclosures.
He counted 1,550 foreclosure sales in June, or 38 percent of total sales, compared with 1,403 short sales, or 34 percent of the total. That's the closest they've ever been.
"At the end of last year, I predicted that short sales would become the majority of the Las Vegas market for closed units," Brownell said. "This may be the last month that REO closings finish in first place. I feel a new market developing, another shift is occurring, and I think we are settling into a market dynamic that will exist for three, five, maybe even 10 years."
Inventory of homes for sale on the Multiple Listing Service has also started to climb after falling from a peak of more than 23,000 in 2006. It's up to 21,361 in June, the Realtors association reported.
Source
July 18, 2010
Record-low mortgage rates sparking home "refis," but not new sales
Despite creating happy homeowners, record-low mortgage rates have done little to grease the real estate market locally or nationally.
According to Bankrate.com, an average 30-year fixed residential mortgage is 4.63 percent, and a 15-year loan is at 4.13 percent. Plenty of people are taking advantage of those numbers, but for home refinancing - not home purchasing. Of all mortgages being issued, between 75 and 80 percent are for refinancing existing mortgages, according to the Mortgage Bankers Association.
So even as the costs of a homes - from the purchase price to the financing costs - are at lifetime lows, double-digit unemployment, consumer uncertainty, and falling real estate sale values are forcing people to hunker down and stay put.
The number of transactions in Lackawanna County increased about a fourth from May to June to 240 closings for the month. But an increase is typical for this time of year, and the volume of transactions still not enough to flush out the inventory of homes.
Tougher credit standards and stricter underwriting has made getting a mortgage more difficult than just a few years ago, said Christian Saunders, a Lewith & Freeman Real Estate agent.
"Gone are the days when you could breathe on a glass and if it fogged up, get a mortgage," he said.
The difference between rates now and rates in April equate to about a $60 per month savings on an average priced home, and mortgage rates aren't the only reason people buy a home, said Bankrate.com chief economist Greg McBride. "Any more than people get married because of a sale at the bridal shop," he said.
That's not enough to get buyers to set aside their lack of confidence or certainty about the economy.
"If an $8,000 tax credit couldn't get people off the sidelines, $60 per month won't do it, either," he said.
Source
According to Bankrate.com, an average 30-year fixed residential mortgage is 4.63 percent, and a 15-year loan is at 4.13 percent. Plenty of people are taking advantage of those numbers, but for home refinancing - not home purchasing. Of all mortgages being issued, between 75 and 80 percent are for refinancing existing mortgages, according to the Mortgage Bankers Association.
So even as the costs of a homes - from the purchase price to the financing costs - are at lifetime lows, double-digit unemployment, consumer uncertainty, and falling real estate sale values are forcing people to hunker down and stay put.
The number of transactions in Lackawanna County increased about a fourth from May to June to 240 closings for the month. But an increase is typical for this time of year, and the volume of transactions still not enough to flush out the inventory of homes.
Tougher credit standards and stricter underwriting has made getting a mortgage more difficult than just a few years ago, said Christian Saunders, a Lewith & Freeman Real Estate agent.
"Gone are the days when you could breathe on a glass and if it fogged up, get a mortgage," he said.
The difference between rates now and rates in April equate to about a $60 per month savings on an average priced home, and mortgage rates aren't the only reason people buy a home, said Bankrate.com chief economist Greg McBride. "Any more than people get married because of a sale at the bridal shop," he said.
That's not enough to get buyers to set aside their lack of confidence or certainty about the economy.
"If an $8,000 tax credit couldn't get people off the sidelines, $60 per month won't do it, either," he said.
Source
July 17, 2010
On the House: Renting may be the way to go
A seminar sponsored by the Federal Reserve in May at which a couple of speakers urged that, while the nation's financial system remains in disarray, Americans consider alternatives to buying houses.
One alternative mentioned was renting with an option to buy, which Stephanie Selden of Philadelphia VIP, a group that provides legal counseling for low-income people, countered was prone to scams, leaving "many of our clients with nothing."
Another was renting until things get better. Fannie Mae chief economist Doug Duncan said a recent survey showed that "public awareness of mortgage problems" had made current renters wary of buying now, and that "most believe it will be harder to buy in the future."
The suggestion that we find alternatives to buying won't sit well with real estate agents and builders. Though the tax credits made a dent in the supply, there are still a lot of houses for sale - and still not many buyers.
Traditionally, summer is a slow time, and the tax credits pushed a lot of people who might have bought houses now to buy them in late winter and spring instead.
In an e-mail, reader Doug Waymer of Chalfont went as far as to suggest that the credits were "a costly taxpayer handout to folks who were already going to buy a home," resulting in "no improvement to the housing market."
The tax credits simply stole from future sales, Waymer wrote, "and with the expiration, sellers now need to lower prices." He added he had "pleaded with my sister and brother-in-law to close the deal on their Connecticut house sale April 30."
Though his kin were fine with the price they were getting, they didn't want to settle by the required deadline. "They lost their buyer and are having to paint the exterior, as well as drop their price again," he said.
Waymer makes a good point, especially when you consider that even though fixed mortgage interest rates remain below 5 percent and home prices have been reduced by short sales and foreclosures, there are relatively few real buyers out there.
In the last month or so, mortgage rates have dropped almost half a percentage point on a conventional 30-year loan.
Long & Foster vice president Art Herling says half a percent may not seem like much, but it can have a huge impact on the ability to buy a home.
At 5.375 percent, a $300,000 30-year conventional mortgage obtained in March would have a monthly payment of $1,679.91. At today's average rate of 4.875 percent, that same mortgage would cost $1,587.62 - a saving of almost $93 a month. "You would save $33,224 over the life of the loan," Herling said, and "that is a much bigger saving than an $8,000 tax credit."
In its outlook for housing published June 14, the Joint Center for Housing Studies at Harvard wasn't encouraging.
"Many factors are still weighing heavily on the market," said the center's director, Nicolas P. Retsinas. "Elevated vacancy rates, record foreclosures, the expiration of the tax credit, and high unemployment are all causes for concern."
Despite falling home prices, loan modifications, and softening rents, the downturn has not lowered the number of households spending half or more of their income on housing, which stood at 18.6 million in 2008. Instead, the share of those with severe housing-cost burdens climbed to a new height.
So, should you buy or rent?
The American Bankers Association recommends that you think about these things:
* The monthly costs, and whether you can afford them. Mortgage payments under 30 percent of your monthly income is a good rule of thumb.
* What the total rent or mortgage payments, plus other credit obligations, will be. No more than 40 percent of monthly income is advised.
* Whether you have the credit score to qualify for a good interest rate.
* The cost of taxes, monthly maintenance, or other fees.
* The number of years you plan to live in the house.
Source
One alternative mentioned was renting with an option to buy, which Stephanie Selden of Philadelphia VIP, a group that provides legal counseling for low-income people, countered was prone to scams, leaving "many of our clients with nothing."
Another was renting until things get better. Fannie Mae chief economist Doug Duncan said a recent survey showed that "public awareness of mortgage problems" had made current renters wary of buying now, and that "most believe it will be harder to buy in the future."
The suggestion that we find alternatives to buying won't sit well with real estate agents and builders. Though the tax credits made a dent in the supply, there are still a lot of houses for sale - and still not many buyers.
Traditionally, summer is a slow time, and the tax credits pushed a lot of people who might have bought houses now to buy them in late winter and spring instead.
In an e-mail, reader Doug Waymer of Chalfont went as far as to suggest that the credits were "a costly taxpayer handout to folks who were already going to buy a home," resulting in "no improvement to the housing market."
The tax credits simply stole from future sales, Waymer wrote, "and with the expiration, sellers now need to lower prices." He added he had "pleaded with my sister and brother-in-law to close the deal on their Connecticut house sale April 30."
Though his kin were fine with the price they were getting, they didn't want to settle by the required deadline. "They lost their buyer and are having to paint the exterior, as well as drop their price again," he said.
Waymer makes a good point, especially when you consider that even though fixed mortgage interest rates remain below 5 percent and home prices have been reduced by short sales and foreclosures, there are relatively few real buyers out there.
In the last month or so, mortgage rates have dropped almost half a percentage point on a conventional 30-year loan.
Long & Foster vice president Art Herling says half a percent may not seem like much, but it can have a huge impact on the ability to buy a home.
At 5.375 percent, a $300,000 30-year conventional mortgage obtained in March would have a monthly payment of $1,679.91. At today's average rate of 4.875 percent, that same mortgage would cost $1,587.62 - a saving of almost $93 a month. "You would save $33,224 over the life of the loan," Herling said, and "that is a much bigger saving than an $8,000 tax credit."
In its outlook for housing published June 14, the Joint Center for Housing Studies at Harvard wasn't encouraging.
"Many factors are still weighing heavily on the market," said the center's director, Nicolas P. Retsinas. "Elevated vacancy rates, record foreclosures, the expiration of the tax credit, and high unemployment are all causes for concern."
Despite falling home prices, loan modifications, and softening rents, the downturn has not lowered the number of households spending half or more of their income on housing, which stood at 18.6 million in 2008. Instead, the share of those with severe housing-cost burdens climbed to a new height.
So, should you buy or rent?
The American Bankers Association recommends that you think about these things:
* The monthly costs, and whether you can afford them. Mortgage payments under 30 percent of your monthly income is a good rule of thumb.
* What the total rent or mortgage payments, plus other credit obligations, will be. No more than 40 percent of monthly income is advised.
* Whether you have the credit score to qualify for a good interest rate.
* The cost of taxes, monthly maintenance, or other fees.
* The number of years you plan to live in the house.
Source
July 16, 2010
Low mortgage rates just got lower
Home buyers and homeowners seeking to refinance now can lock in the most affordable home-loan deals in nearly four decades, economists say.
“Home loan interest rates for all but traditional 1-year adjustable-rate mortgages (ARMs) hit all-time record lows in our Primary Mortgage Market Survey,” noted Frank Nothaft, Freddie Mac vice president and chief economist.
Benchmark 30-year fixed mortgage rates dipped to a record-low 4.69 percent in late June from 4.75 percent a week earlier, according to Freddie Mac.
It is the lowest average 30-year fixed loans have been since April of 1971 when President Richard Nixon was in the White House. Last year at this time, the 30-year fixed loans averaged 5.42 percent.
Fifteen-year fixed mortgages dipped to an average of 4.13 percent in late June from 4.20 percent. It is the lowest average 15-year fixed loans have been since September of 1991, when Freddie Mac began surveying this mortgage type.
A year ago at this time, the 15-year fixed loans averaged 4.87 percent.
However, if you are planned to buy a home or refinance, better hurry. The record low rates likely will not last.
Economists with the Mortgage Bankers Association (MBA) predict 30-year fixed mortgage rates are likely to rise to 5.4 percent during the fourth quarter of 2010, reach 6 percent in late 2011 and skyrocket as high as 6.6 percent range by late 2012.
Although the world of mortgageland is unpredictable and volatile, the MBA predictions are likely to come true. Few of today’s novice borrowers remember that 11 years ago in August of 1999, lenders were quoting 8.15 percent on a 30-year fixed mortgage.
To appreciate today’s historically low rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging in the early 1980s.
According to Freddie Mac, benchmark 30-year mortgage rates peaked at a whopping 18.45 percent in October of 1981 during the last Great Recession. Rates fell below 10 percent in April of 1986, then bounced in the 9-percent to 10-percent range during the balance of the 1980s.
Along with record low mortgage rates, economists note that there is increasing evidence that the housing market is stabilizing in many parts of the country as sale increase. Home resale prices have remained stubbornly low, but that could change.
The RE/MAX Northern Illinois real estate network noted that the market for larger move-up homes priced from $300,000 to $700,000 is rebounding in the Chicago area.
This year, move-up homes are selling in greater numbers, with sales during the January through May period 37 percent higher than last year, noted Jim Merrion, regional directory of RE/MAX.
Illinois Association of Realtors is forecasting that median home prices in the Chicago area soon will start to rise, and so will apartment rents.
“Evidence of some upward pressure on rental prices may provide some longer-term benefit for the housing market,” predicted Geoffrey J.D. Hewings, an economist at the University of Illinois.
“With little or no [construction] funding available for new apartment units, rent increases may provide some incentives for renters to consider house purchases over the course of the year,” Hewings said.
Source
“Home loan interest rates for all but traditional 1-year adjustable-rate mortgages (ARMs) hit all-time record lows in our Primary Mortgage Market Survey,” noted Frank Nothaft, Freddie Mac vice president and chief economist.
Benchmark 30-year fixed mortgage rates dipped to a record-low 4.69 percent in late June from 4.75 percent a week earlier, according to Freddie Mac.
It is the lowest average 30-year fixed loans have been since April of 1971 when President Richard Nixon was in the White House. Last year at this time, the 30-year fixed loans averaged 5.42 percent.
Fifteen-year fixed mortgages dipped to an average of 4.13 percent in late June from 4.20 percent. It is the lowest average 15-year fixed loans have been since September of 1991, when Freddie Mac began surveying this mortgage type.
A year ago at this time, the 15-year fixed loans averaged 4.87 percent.
However, if you are planned to buy a home or refinance, better hurry. The record low rates likely will not last.
Economists with the Mortgage Bankers Association (MBA) predict 30-year fixed mortgage rates are likely to rise to 5.4 percent during the fourth quarter of 2010, reach 6 percent in late 2011 and skyrocket as high as 6.6 percent range by late 2012.
Although the world of mortgageland is unpredictable and volatile, the MBA predictions are likely to come true. Few of today’s novice borrowers remember that 11 years ago in August of 1999, lenders were quoting 8.15 percent on a 30-year fixed mortgage.
To appreciate today’s historically low rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging in the early 1980s.
According to Freddie Mac, benchmark 30-year mortgage rates peaked at a whopping 18.45 percent in October of 1981 during the last Great Recession. Rates fell below 10 percent in April of 1986, then bounced in the 9-percent to 10-percent range during the balance of the 1980s.
Along with record low mortgage rates, economists note that there is increasing evidence that the housing market is stabilizing in many parts of the country as sale increase. Home resale prices have remained stubbornly low, but that could change.
The RE/MAX Northern Illinois real estate network noted that the market for larger move-up homes priced from $300,000 to $700,000 is rebounding in the Chicago area.
This year, move-up homes are selling in greater numbers, with sales during the January through May period 37 percent higher than last year, noted Jim Merrion, regional directory of RE/MAX.
Illinois Association of Realtors is forecasting that median home prices in the Chicago area soon will start to rise, and so will apartment rents.
“Evidence of some upward pressure on rental prices may provide some longer-term benefit for the housing market,” predicted Geoffrey J.D. Hewings, an economist at the University of Illinois.
“With little or no [construction] funding available for new apartment units, rent increases may provide some incentives for renters to consider house purchases over the course of the year,” Hewings said.
Source
July 14, 2010
Home-Efficiency Program Takes Hit
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, suggested the mortgage finance titans should avoid participating in the program or should tighten their lending standards where the initiative moves forward.
Workers for Namaste Solar install solar panels at a home last year in Boulder, Colo. A federal program aiding such firms may be endangered.
The move could effectively torpedo the fledgling program that lets homeowners borrow money from their local governments to finance the high upfront costs of energy-efficient upgrades, like solar panels or efficient furnaces.
City and state leaders say the decision could put at risk a program they had hoped would boost jobs and conservation efforts.
The development is a setback to the Department of Energy, which had championed the program, called Property Assessed Clean Energy, or PACE.
It also marks a rare instance in which Fannie and Freddie, through their regulator, have refused to adopt a policy directive from the Obama administration.
PACE lets homeowners use special property-tax assessments to pay off, over 15 to 20 years, the cost of new improvements. Local governments sell municipal bonds to fund it.
While PACE enjoyed White House support, it raised concerns of Fannie and Freddie and their regulator because PACE liens are senior to existing mortgage debt. That helps cities sell bonds more easily, but it means that in the event of a foreclosure, PACE liens are paid off before the mortgage lender gets any money.
In May, Fannie and Freddie said the liens violated the terms of their contracts to purchase loans from lenders and said they would require borrowers to pay off the liens before refinancing or selling their properties. The announcements, which raised concerns that borrowers would have to pay off their mortgages early, led most municipalities to suspend their PACE programs.
In Tuesday's announcement, the Federal Housing Finance Agency directed Freddie and Fannie to let participating borrowers keep their liens without penalty.
But it also instructed Freddie and Fannie to resolve the problems created by a first-lien loan. To do that, mortgage giants could require municipalities to have borrowers seek permission from lenders on each lien. Or, the regulator said they could tighten lending standards for all borrowers in jurisdictions that have PACE programs, an unlikely proposition.
Any of the steps outlined by the agency could severely limit PACE programs that rely on the first-lien status.
PACE backers said they could turn to Congress to pass legislation or to state attorneys general take legal action.
"They're basically saying they'll redline communities that move forward with PACE financing," said Will Toor, a commissioner in Boulder County, Colo. The county funded 600 liens since starting its program last year, but suspended it in May and notified 168 property owners last week their applications couldn't be funded because of the program's uncertain future.
PACE backers say the program is no different from other property-tax assessments used to fund sewers and roads that are usually senior to existing debt.
Critics say PACE liens are different because they are electively used for upgrades to individual properties. They also say there aren't sufficient safeguards to ensure that homeowners have the ability to repay the new debt. Fannie and Freddie "need to protect their operations and, in my view, to protect homeowners," said Alfred Pollard, the FHFA's general counsel.
In a statement, a spokeswoman for the Department of Energy said it would work with communities to design programs "to meet the concerns of independent federal regulators while delivering significant savings for homeowners." The scenario highlights the awkward position created by federal control of the Fannie and Freddie, which were taken over by the government nearly two years ago. The Treasury has injected $145 billion into the companies to keep them afloat.
As privately-run companies, the companies could have decided long ago not to purchase loans with PACE liens. But as wards of the state, the companies can't lobby or take positions on public policy and instead it fell to their regulator to handle the matter.
Tuesday's announcement followed a letter from Reps. Henry Waxman (D., Calif.) and Barney Frank (D., Mass.) calling on government agencies to seek an outcome that would allow the programs to continue without putting taxpayers or mortgage investors at risk.
Source
July 4, 2010
U.S. housing market remains fragile despite low mortgage rates
After showing signs of a fledgling recovery from the worst downturn in decades, the U.S. housing market appears to be heading back toward the doldrums, as the expiration of a lucrative tax credit for buyers and increased uncertainty about the economy cause home sales to plummet.
The sudden weakness in residential real estate has struck nearly every region of the country, according to recent government and industry data, driving down sales of new and previously owned homes alike in May. On Thursday, the National Association of Realtors said an index that measures sales contracts signed on existing homes plunged 30 percent in May, more than twice what analysts had forecast, to the lowest level since the group started tracking the numbers in 2001.
Those sharp declines come despite record-low mortgage rates and historically cheap home prices. The market's renewed fragility highlights concerns about whether the U.S. economy will hurtle back into recession and illustrates the impact of the nation's high unemployment rate, now at 9.7 percent. On Friday, the government will issue jobless figures for June that could signal what is in store for housing and economic growth.
As long as people are without jobs or fear losing their livelihoods, they are unlikely to commit to buying a home and saddling themselves with 30 years of mortgage payments.
"It sounds simplistic but it bears repeating: 'No job = No house,' " Mike Larson, an analyst with Weiss Research, wrote in a note to clients Thursday. "With so many Americans unemployed or underemployed, the housing market is going to keep hurting."
In a report last month, Harvard University's Joint Center for Housing Studies singled out high joblessness as "one of the biggest drags" on the market. Based on past downturns, the report concluded that job growth is highly correlated to a sustained housing recovery, even more so than falling mortgage interest rates.
Many housing analysts are rethinking their predictions for the market's performance for the year. More than half of the 106 economists and analysts surveyed by Macromarkets in June said they expect a dip in home prices; that's up from 40 percent in May.
Despite the flash of pessimism, many economists expect the market to stabilize, but they won't have a clean read on its direction until the fall or winter, when the lingering effects of the tax credit clear the system.
That credit, which expired April 30, heavily distorted normal home sales patterns by enticing people to buy homes earlier than they had planned, thereby eating into future sales, economists said.
"The tax credit was like a Band-Aid over the housing market," said Mark Vitner, a senior economist at Wells Fargo Securities. "Now that the Band-Aid has been ripped off, we've found that the wound has not quite yet healed."
Surprising drops
Home sales were expected to decline once the credit ended, but May's acute drops have surprised many analysts. If the trend continues through the rest of the year, it could upend the market's tepid rebound and undermine the broader economy.
The unsteadiness is further reflected in the fact that the average rate on a 30-year fixed-rate mortgage hit a record low of 4.65 percent this week, but applications for home-purchase mortgages were down for all but one of the past eight weeks, slipping 3.3 percent last week, according to industry data.
Complicating the recovery's prospects is an excess supply of unsold homes on the market, swelled in part by increasing numbers of foreclosed properties for sale. Even though the number of homes on the market is down significantly from its peak, the national inventory of vacant homes for sale or rent remains uncomfortably high at 6.5 million. That's 2 million units more than the market needs, Vitner said.
Mark Zandi, chief economist at Moody's Economy.com, said he expects the glut of unsold homes will rise because lenders are starting to sell more foreclosed properties to the public. The number of foreclosures for sale rose 11 percent in the first quarter from the previous quarter -- the first quarterly increase since mid-2008, Zandi said.
Many lenders have come under political pressure to delay foreclosures and modify troubled loans. But as they get a better handle on which loans are unsalvageable, they are starting to complete more foreclosures and put them up for sale, Zandi said.
Government data released last month show that the number of foreclosures completed by the nation's largest national banks and federally regulated thrifts jumped 19 percent in the first quarter from the previous one.
Pulling down values
Once those foreclosures hit the market, however, they sell at steep discounts and pull down the values of surrounding homes. If the share of these distressed sales rise, as many economists predict, prices will suffer.
The recently expired tax break may have diluted the impact of foreclosures by boosting the number of traditional sales, said housing economist Tom Lawler. It also encouraged anxious buyers to bid up prices so they could make their purchase before the tax credit program ended, he said.
The tax credit offered up to $8,000 to some first-time buyers and $6,500 for certain repeat buyers. To qualify, buyers had to sign a contract by April 30 and close by June 30. But lenders and real estate agents reported widespread delays in processing a crush of mortgage applications in time for the June deadline. The Realtors group estimates that as many as 180,000 could miss out on the credit as a result of the backlog.
To keep the momentum going, Congress week voted this week to extend the closing date on the tax credit to Sept. 30. President Obama is expected to sign the measure Friday morning.
With the government's incentives for buyers gone by early fall and a cloudy employment picture, economists seem more keenly aware of the fragile nature of the housing sector's health.
"We're kind of sitting here in low tide," said Stuart Hoffman, chief economist at PNC Financial. "We're not sure if the tide is coming in and we're about to drown, or if it's moving out and we'll be left standing there dry as a bone."
Source
The sudden weakness in residential real estate has struck nearly every region of the country, according to recent government and industry data, driving down sales of new and previously owned homes alike in May. On Thursday, the National Association of Realtors said an index that measures sales contracts signed on existing homes plunged 30 percent in May, more than twice what analysts had forecast, to the lowest level since the group started tracking the numbers in 2001.
Those sharp declines come despite record-low mortgage rates and historically cheap home prices. The market's renewed fragility highlights concerns about whether the U.S. economy will hurtle back into recession and illustrates the impact of the nation's high unemployment rate, now at 9.7 percent. On Friday, the government will issue jobless figures for June that could signal what is in store for housing and economic growth.
As long as people are without jobs or fear losing their livelihoods, they are unlikely to commit to buying a home and saddling themselves with 30 years of mortgage payments.
"It sounds simplistic but it bears repeating: 'No job = No house,' " Mike Larson, an analyst with Weiss Research, wrote in a note to clients Thursday. "With so many Americans unemployed or underemployed, the housing market is going to keep hurting."
In a report last month, Harvard University's Joint Center for Housing Studies singled out high joblessness as "one of the biggest drags" on the market. Based on past downturns, the report concluded that job growth is highly correlated to a sustained housing recovery, even more so than falling mortgage interest rates.
Many housing analysts are rethinking their predictions for the market's performance for the year. More than half of the 106 economists and analysts surveyed by Macromarkets in June said they expect a dip in home prices; that's up from 40 percent in May.
Despite the flash of pessimism, many economists expect the market to stabilize, but they won't have a clean read on its direction until the fall or winter, when the lingering effects of the tax credit clear the system.
That credit, which expired April 30, heavily distorted normal home sales patterns by enticing people to buy homes earlier than they had planned, thereby eating into future sales, economists said.
"The tax credit was like a Band-Aid over the housing market," said Mark Vitner, a senior economist at Wells Fargo Securities. "Now that the Band-Aid has been ripped off, we've found that the wound has not quite yet healed."
Surprising drops
Home sales were expected to decline once the credit ended, but May's acute drops have surprised many analysts. If the trend continues through the rest of the year, it could upend the market's tepid rebound and undermine the broader economy.
The unsteadiness is further reflected in the fact that the average rate on a 30-year fixed-rate mortgage hit a record low of 4.65 percent this week, but applications for home-purchase mortgages were down for all but one of the past eight weeks, slipping 3.3 percent last week, according to industry data.
Complicating the recovery's prospects is an excess supply of unsold homes on the market, swelled in part by increasing numbers of foreclosed properties for sale. Even though the number of homes on the market is down significantly from its peak, the national inventory of vacant homes for sale or rent remains uncomfortably high at 6.5 million. That's 2 million units more than the market needs, Vitner said.
Mark Zandi, chief economist at Moody's Economy.com, said he expects the glut of unsold homes will rise because lenders are starting to sell more foreclosed properties to the public. The number of foreclosures for sale rose 11 percent in the first quarter from the previous quarter -- the first quarterly increase since mid-2008, Zandi said.
Many lenders have come under political pressure to delay foreclosures and modify troubled loans. But as they get a better handle on which loans are unsalvageable, they are starting to complete more foreclosures and put them up for sale, Zandi said.
Government data released last month show that the number of foreclosures completed by the nation's largest national banks and federally regulated thrifts jumped 19 percent in the first quarter from the previous one.
Pulling down values
Once those foreclosures hit the market, however, they sell at steep discounts and pull down the values of surrounding homes. If the share of these distressed sales rise, as many economists predict, prices will suffer.
The recently expired tax break may have diluted the impact of foreclosures by boosting the number of traditional sales, said housing economist Tom Lawler. It also encouraged anxious buyers to bid up prices so they could make their purchase before the tax credit program ended, he said.
The tax credit offered up to $8,000 to some first-time buyers and $6,500 for certain repeat buyers. To qualify, buyers had to sign a contract by April 30 and close by June 30. But lenders and real estate agents reported widespread delays in processing a crush of mortgage applications in time for the June deadline. The Realtors group estimates that as many as 180,000 could miss out on the credit as a result of the backlog.
To keep the momentum going, Congress week voted this week to extend the closing date on the tax credit to Sept. 30. President Obama is expected to sign the measure Friday morning.
With the government's incentives for buyers gone by early fall and a cloudy employment picture, economists seem more keenly aware of the fragile nature of the housing sector's health.
"We're kind of sitting here in low tide," said Stuart Hoffman, chief economist at PNC Financial. "We're not sure if the tide is coming in and we're about to drown, or if it's moving out and we'll be left standing there dry as a bone."
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Pending Home Sales Plunged in May
Mixed results for two key economic statistics in May: Construction spending fell less than expected, but pending home sales plunged.
First the relatively good news: Construction spending dipped 0.2% in May, the U.S. Commerce Department announced Thursday, a reading that was considerably smaller than the 0.5% decline expected by a Bloomberg survey. Given April's 2.3% surge in construction spending, a mild pullback was expected. In May, private residential construction spending fell 0.4% and private non-residential construction spending fell 0.8%.
However, as in April, public construction spending, which includes fiscal stimulus infrastructure and related projects, bolstered the May total, rising 0.4% after a 1.6% jump in April.
Pending Home Sales Plunge After Tax Credit Expires
Now the bad news: Pending home sales plunged 30.0% in May, the National Association of Realtors announced Thursday, as the number of homes heading to a closing declined as the end of the homer buyer tax credit approached on April 30.
The May pending home sale swoon follows three strong months of pending home sale gains -- further evidence that the home buyer tax credit encouraged some prospective home buyers to buy a home sooner, and increased home sales. Lawrence Yun, NAR chief economist, argued that the May pending home sales plunge was expected, rational and natural.
"Consumers are rational and they rushed to meet the tax credit eligibility deadline in April," Yun said, in a statement. "The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June."
Yun added that, provided job growth ensues in the months ahead, the pace of home sales should pick up later this year and reach a sustainable level, due to "very favorable [home] affordability conditions."
In May, pending home sales plunged in every region. Sales plummeted 31.6% in the Northeast, plunged 32.1% in the Midwest, sank 33.3% in the South, and swooned 20.9% in the West.
In general, economists view existing home sales as a more-accurate indicator of housing sector activity than pending home sales, due to the number of pending home sales that fall through, as a result of mortgage problems, title issues, liens, and other complications that sometimes prevent signed housing contracts from being finalized.
In sum, May's construction and pending home sales data comprise a microcosm of the U.S. economy at this stage of the recovery. Fiscal stimulus, either in the form of infrastructure spending by federal and local governments or via the home buyer tax credit, have helped stabilize construction spending and home sales. However, it remains to be seen whether the U.S. economy has enough demand in the system to advance to a self-sustaining expansion in the quarters ahead.
Source
First the relatively good news: Construction spending dipped 0.2% in May, the U.S. Commerce Department announced Thursday, a reading that was considerably smaller than the 0.5% decline expected by a Bloomberg survey. Given April's 2.3% surge in construction spending, a mild pullback was expected. In May, private residential construction spending fell 0.4% and private non-residential construction spending fell 0.8%.
However, as in April, public construction spending, which includes fiscal stimulus infrastructure and related projects, bolstered the May total, rising 0.4% after a 1.6% jump in April.
Pending Home Sales Plunge After Tax Credit Expires
Now the bad news: Pending home sales plunged 30.0% in May, the National Association of Realtors announced Thursday, as the number of homes heading to a closing declined as the end of the homer buyer tax credit approached on April 30.
The May pending home sale swoon follows three strong months of pending home sale gains -- further evidence that the home buyer tax credit encouraged some prospective home buyers to buy a home sooner, and increased home sales. Lawrence Yun, NAR chief economist, argued that the May pending home sales plunge was expected, rational and natural.
"Consumers are rational and they rushed to meet the tax credit eligibility deadline in April," Yun said, in a statement. "The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June."
Yun added that, provided job growth ensues in the months ahead, the pace of home sales should pick up later this year and reach a sustainable level, due to "very favorable [home] affordability conditions."
In May, pending home sales plunged in every region. Sales plummeted 31.6% in the Northeast, plunged 32.1% in the Midwest, sank 33.3% in the South, and swooned 20.9% in the West.
In general, economists view existing home sales as a more-accurate indicator of housing sector activity than pending home sales, due to the number of pending home sales that fall through, as a result of mortgage problems, title issues, liens, and other complications that sometimes prevent signed housing contracts from being finalized.
In sum, May's construction and pending home sales data comprise a microcosm of the U.S. economy at this stage of the recovery. Fiscal stimulus, either in the form of infrastructure spending by federal and local governments or via the home buyer tax credit, have helped stabilize construction spending and home sales. However, it remains to be seen whether the U.S. economy has enough demand in the system to advance to a self-sustaining expansion in the quarters ahead.
Source
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