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July 1,2009

Pending Home Sales Rise Again
Pending home sales show a sustained uptrend, rising for four consecutive months with very favorable housing affordability and a first-time buyer tax credit boosting activity, according to the National Association of REALTORS®. The Pending Home Sales Index, a forward-looking indicator based on contracts signed in May, increased 0.1% to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7% higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.

Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he says. “Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”

The Effects of Appraisals
NAR President Charles McMillan spoke of the appraisal problem. “We see that distressed homes often are selling for 20 percent less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property,” he says. “In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise.” McMillan says sellers shouldn’t hesitate to speak with an appraiser about their home. “Sellers should feel free to tell an appraiser about improvements and renovations to their home, and how it compares with other homes in the neighborhood.... Also, if recent sales in the neighborhood were discounted, but not similar to your home in terms of quality or condition, that should be pointed out. It wouldn’t hurt to put all this in writing, especially if an appraiser is not familiar with your area. "

Affordability at a high
NAR’s Housing Affordability Index remains at historic highs. The affordability index fell to 171.6 in May from an upwardly revised 178.8 in April, which was the highest on record dating back to 1970. “Under these conditions the typical family would devote only 14.6% of gross income to mortgage principal and interest, which is one of the lowest percentages on record,” Yun says.

A median-income family, earning $60,800, could afford a home costing $296,700 in May with a 20% down payment, assuming 25% of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small down payments are roughly 80% of what a median-income family can afford. The affordable price was significantly higher than the median existing single-family home price in May, which was $172,900.

First-time buyer tax credits offers a boost
The first-time buyer tax credit also is benefiting the market. “Strong activity by entry-level buyers is helping to absorb inventory and allow some existing owners to make a trade,” Yun says. Existing-home sales should trend up through the end of the year, with normal local market differences. “The big question is how much the appraisal issue will impact the ability of contracts to go to closing,” Yun says. “We are currently conducting a study to assess the degree to which new appraisal rules are impacting home sales.”

June 23,2009

Existing-Home Sale Continue to Rise
Sales of existing homes showed another gain in May, benefiting from favorable affordability conditions and a first-time buyer tax credit, according to the NATIONAL ASSOCIATION OF REALTORS ®. May’s increase was the first back-to-back monthly gain since September 2005. Single-family home sales: rose 1.9%, but are 3 percent below the level in May 2008. Existing condominium and co-op sales: increased 6.1%, but are 8.9 percent below the level in May 2008.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.4%. Sales remained 3.6 percent below the 4.95 million-unit pace in May of last year. Lawrence Yun, NAR chief economist, expected an improvement in sales. “Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” Yun says. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory... However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

Yun says the appraisal problem is serious. “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he says. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.” [If you get a bad appraisal, an experienced agent should be able to find out the problem and help the appraiser correct the appraisal, as we just did with one of ours.]

NAR President Charles McMillan says appraisals and the tax credit are key issues. “To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” he said. “In addition, the first-time buyer tax credit should be expanded to all buyers of primary homes regardless of income. Extending the credit into 2010 would allow more time for the market to catch up with underlying demand, in part because many families with children, who normally time their purchase based on school year considerations, do not have enough time to move before the start of school in late August. Freeing a pent-up demand in housing will absorb inventory at a faster pace, strengthen communities and stabilize home prices earlier,” McMillan said.

An NAR practitioner survey in May showed first-time buyers accounted for 29% of transactions, and that the number of buyers looking at homes is nearly 10 percentage points higher than a year ago.
“This is the time of year when we see large increases in the number of repeat buyers, who are benefiting from sales to entry-level buyers,” Yun says. “Investors appear less active, but are more prevalent in areas with large price corrections.”

June 18,2009

Recession losing steam, Conference Board says

The U.S. recession is "losing steam" and a slow recovery should begin by the end of the year, the Conference Board said Thursday as it announced that the index of leading economic indicators rose 1.2% in May, the second straight increase. The increase was in line with the MarketWatch consensus forecast of 1.1% increase. Seven of the 10 indicators improved in May, the private research organization said. The leading index is up 1.2% in the past six months, the first increase since April 2007. The coincident index fell 0.2% in May, "but the declines are less intense," said Ken Goldstein, an economist for the organization

June 18,2009

Freddie Mac: Fixed-rate mortgages head lower

The national average interest rate on the benchmark 30-year, fixed-rate loan averaged 5.38% in the week ending Thursday, down from last week's 5.59% and the year-ago 6.42%, according to Freddie Mac's weekly survey. The 15-year fixed-rate loan averaged 4.89%, down from the week-ago 5.06% and the year-ago 6.02%. The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.97%, compared with 5.17% a week ago and 5.89% a year ago. "Reports of benign inflation figures reversed the upward trend of mortgage rates this week," said Frank Nothaft, Freddie Mac vice president and chief economist

June 17,2009

Survey Shows Optimism on Home Values
A recent poll by Housing Predictor asked consumers if they believed home prices would one day hit the record highs last seen during the residential property boom. Of those surveyed, 62 percent anticipate a recovery and expect record high prices to be achieved down the road. Consumers appear to have faith in housing, despite troubling media reports triggered by the foreclosure crisis.

June 17,2009

U.S. Ups the Ante in Foreclosure Program
The U.S. government is offering another $3.1 billion to mortgage servicing companies to encourage them to modify loans for borrowers facing foreclosure. More than 9% of 45 million U.S. mortgages, or about 4 million loans, were delinquent in the first quarter of 2009, according to the Mortgage Bankers Association. The Obama administration put up $50 billion in March as an incentive to encourage the mortgage industry to modify loans to make monthly payments more affordable. So far, however, the plan hasn’t been very effective with relatively few borrowers able to qualify. To increase the numbers, the administration last month expanded the program to provide incentives for lenders to streamline their short-sale processes. As of this week about 50,000 borrowers are enrolled in three-month trial modifications under the plan, the Treasury Department says. Part of the problem, lenders say, is the volume of applicants, which has overwhelmed workers charged with modifying the loans. [And, of course, the servicers and the holders of the mortgages don't want to lower the interest rates or write down the principal balances...]

June 17,2009

Consumer Agency Wants to Revamp Lending
The new consumer protection agency announced Tuesday by the Obama administration would overhaul current U.S. mortgage lending practices. The new agency would require lenders to offer mortgages with simple terms along with more complex loan products, according to a fact sheet from officials. Mortgage brokers would be required to present home owners with the best available mortgage loans and ensure that borrowers could afford them. There would be bans on prepayment penalties and so-called "yield spread premiums," which provide incentives to brokers to steer borrowers to more expensive loans.

The new rules would apply nationwide to all lenders, although states could make the rules tougher.
The Mortgage Bankers Association was unenthusiastic about the proposal. "This seems to be redundant of the current regulatory regime. We see the risk of duplicating efforts, of having overlapping standards and creating confusion in the marketplace," says Steve O'Connor, senior vice president for government affairs at the Mortgage Bankers Association.

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