The housing recovery hit high gear in 2013 with bigger than expected price gains and solid home sales. This year isn’t likely to be as exciting. Rising mortgage interest rates will price out some potential buyers. Instead of double-digit price gains, look for single-digit ones, economists say, while existing home sales remain at last year’s level.
Sound boring? “You want boring in the housing market,” says Svenja Gudell, Zillow director of economic research.
Here’s what’s ahead for:
• Home prices. They were the highlight of the 2013 housing market, up 12.5% in October year over year, CoreLogic says. Prices are now 20% off their 2006 peaks after falling more than 30%, shows the Standard & Poor’s Case-Shiller index.
Economist John Burns looks for a 6% gain in 2014. Many others see smaller increases ahead. Zillow forecasts just a 3% rise.
Prices will likely rise more slowly as more homes come on the market, fewer investors bid for homes and higher ownership costs — including interest rates and home prices — take a bite out of housing affordability, housing experts say.
Still, U.S. housing remains 4% undervalued when compared with other economic fundamentals, such as consumer incomes and the cost to rent, says Jed Kolko, Trulia economist. At their 2006 peak, home prices were 39% overvalued based on the same metrics, Kolko says.
•Existing home sales. They’ve started to slow. In November, they were down year over year for the first time in 29 months, National Association of Realtor data show.
The dip was driven by higher interest rates and a tight supply of homes for sale. It doesn’t mean the housing recovery has come off the rails, because home prices and housing starts continue to improve, says Capital Economics economist Paul Ashworth.
Existing home sales, which came in at a 4.9 million seasonally adjusted pace in November, are expected to be about 10% higher in 2013 than 2012 and stay about the same at 5.1 million in 2014, NAR forecasts. That’s roughly back to 2007 levels but below the inflated levels preceding the housing crash.
New-home sales, which make up a smaller part of the market, have more room to grow. They hit an annual pace of 464,000 in November, up almost 17% from a year ago but still below the 700,000-a-year pace generally considered healthy.
The new year will be different for home buyers, though.
Look for fewer bidding wars and a less frantic market, says Glenn Kelman, CEO of brokerage Redfin. Its data show bidding wars recently falling to one of two offers handled by Redfin agents, down from three of four at the peak in March.
Homes are taking longer to sell, and more sellers are also reducing prices to win sales, Kelman says. At the same time, the supply of existing homes for sale edged up to 5.1 months from 4.9 months in October, NAR says. That’s still below the six-month supply that Realtors generally consider to be a balanced market for buyers and sellers.
Supply should get closer to that level in 2014, Kelman says.
Donaee and Jeff Reeve hope he’s right. The couple sold their Seattle-area home in just 10 days amid a hot June market. They’ve been renting as they search for a new home with a few acres. Meanwhile, prices have risen. The lack of suitable homes for sale is “discouraging,” says Donaee Reeve, 36, a dental hygienist.
• Housing construction. This part of the housing recovery has been a laggard.
November’s data showed an improvement, with housing starts topping 1 million on an annual basis, the Commerce Department says. That was up almost 30% from a year earlier, but it’s still far below the norm. Starts averaged 1.5 million a year before the mid-2000s housing boom.
Construction won’t return to normal this year, but it will strengthen enough to be the main driver of the housing recovery as home price gains shrink, says investment manager Goldman Sachs Asset Management.
It sees housing starts increasing 20% a year for the next several years as household formation picks up with the strengthening economy.
More home construction means more jobs for construction workers, plumbers, civil engineers and others in the building trades, as well as related industries such as furniture manufacturing, it says.
Construction alone will add 300,000 to 500,000 jobs a year to the nation’s job base for the next three years, GSAM predicts. That’s up from about 100,000 in 2013.
“The construction revival is primarily a matter of when, not if,” says Tom Teles, GSAM head of securitized and government investments.
• Mortgage rates. Sarah and Andrew Katz know home prices are going up, and mortgage interest rates, too. But they’re still convinced it’s a good time to buy a first home. They’ve set their sights on spring.
“We’re banking on interest rates staying under 5%, but they are what they are,” says Sarah, 29, who works in public relations in Manhattan.
The couple better not wait too long, economists warn.
Average rates for a fixed 30-year mortgage will rise to 5.5% by the end of 2014, says Lawrence Yun, NAR chief economist. Rates have already risen about 1 percentage point in the past year as the economy has strengthened. They’ll be pushed up further as the Federal Reserve winds down its $85 billion monthly bond-buying program.
Each percentage point increase in mortgage rates makes homes about 10% more expensive in terms of higher housing payments.
Another factor could weigh on borrowers. Starting in January, lenders must make home loans that meet new federal qualified mortgage standards or face greater liability from borrower lawsuits, should the loans go sour.
At least 5% of mortgages extended in 2013 wouldn’t meet the new standard, Yun says. More than that will likely face additional scrutiny from lenders as they implement all parts of the new rule, says Brian Koss, executive vice president of lender Mortgage Network.
He says the higher rates and tighter rules will likely drive some home buyers out of the market or into lower-priced homes than they could have afforded last year.
“People have gotten spoiled,” Koss says. Higher rates and home prices will test the strength of the housing recovery in 2014, he says.
By Julie Schmit
Rates on 30-year fixed-rate mortgages dropped to their lowest level since the end of June, amid speculation that the Fed would delay winding down its stimulus program.
“Mortgage rates slid this week as the partial government shutdown led to market speculation that the Federal Reserve will not alter its bond purchases this year,” said Frank Nothaft, vice president and chief economist at Freddie Mac. “The weak employment report for September added to this expectation.”
“The economy added just 148,000 jobs, which was below the market consensus forecast and less than the 193,000 jobs increase in August,” he added.
Rates on 30-year fixed-rate mortgages averaged 4.13 percent with an average point of 0.8 for the week ending Oct. 24, down from 4.28 percent last week but up from 3.41 percent a year ago, according to Freddie Mac’s latest Primary Mortgage Market Survey.
Rates on 15-year fixed-rate mortgages, five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans and one-year Treasury-indexed ARMs also all fell.
by John Burns
I was on Bloomberg TV this morning and sent (I hope) a wake-up call to the Fed. If mortgage rates stay at 3.5% for several years, I believe home prices will skyrocket. Potential home buyers can purchase a 34% more expensive home today than they could at the end of 2008. With supply now dwindling, it is a seller’s market, and price appreciation is only limited by what people can afford to pay every month. Here is a link to the interview as well as 2 charts illustrating my point.
Borrowers who want to get a mortgage insured by the Federal Housing Administration should act quickly to avoid changes the agency is making to shore up its faltering insurance fund.
The U.S. Department of Housing and Administration announced the changes on Wednesday but didn’t announce the effective dates until Thursday.
Here’s the timing: FHA will raise the annual mortgage insurance premium on most loans that have a case number starting April 1 or later. To get a case number before the April 1 deadline and avoid the increase, borrowers should apply with a lender no later than March 25, says Julian Hebron, vice president with RPM Mortgage in San Francisco.
On most FHA loans, the annual premium will increase by 0.10 percentage point, or $100 per year for each $100,000 in loan amount.
For loans greater than $625,000 with a term longer than 15 years, the increase will be 0.05 percentage point, or $50 per year for each $100,000 in loan amount.
The premium itself varies depending on the loan size, term and loan-to-value ratio, but here’s an example:
For a $500,000, 30-year loan with a loan-to-value ratio greater than 95 percent, the new premium will be 1.35 percent, or $6,750 per year, up from 1.25 percent, or $6,250 per year. On a monthly basis, the premium increase amounts to about $42.
For a chart showing premiums increases for various loan types, check out Hebron’s blog at tinyurl.com/as4xsqb. These premium increases do not apply if a borrower refinances an existing FHA loan that was endorsed on or before May 31, 2009, into a new FHA loan under the streamline refinancing program.
FHA is not changing the one-time premium borrowers pay up front; it remains at 1.75 percent of the loan amount.
In a potentially bigger hit, FHA borrowers will have to continue paying annual mortgage insurance premiums for a longer period of time – in most cases for the life of the loan.
This change will apply to new loans with case numbers starting June 3. To avoid this change, borrowers should try to apply by May 24, Hebron says.
In the past, FHA automatically canceled mortgage insurance on most loans when a borrower, anytime after five years, had made enough payments to reduce the balance to 78 percent of the original loan amount.
A borrower taking out a 30-year loan with 10 percent down could usually eliminate mortgage insurance after about six years making normal payments, or after five years if they made extra principal payments, Hebron says.
(If the original loan term was 15 years or less, the five-year rule didn’t apply; FHA would cancel the insurance when the balance dropped to 78 percent.)
In the future, if the borrower starts off with a loan-to-value ratio above 90 percent, FHA will collect the premium for the life of the loan. If the original ratio is between 78 and 90 percent, FHA will cancel the premium if the balance drops below 78 percent of the original loan amount anytime after 11 years.
Program for school employees
The California Housing Finance Agency is planning to reinstate a program that provided down-payment assistance for teachers and other employees working in low-performing schools.
To help with a down payment, the program provided what’s known as a sleeping second mortgage of up to $15,000 in high-cost areas and $7,500 in the rest of the state. The second mortgage did not require payments until the borrower refinanced or paid off the first mortgage, or sold the home.
Borrowers had to be first-time home buyers, live in the house and meet income requirements. Interest on the second accrued at a rate that was reduced to zero over three years if the borrower remained employed at an eligible school.
The program was designed to recruit teachers and administrators to the worst schools, but participation was limited and it was later expanded to include more schools and other employees such as janitors and bus drivers.
When it was suspended in December 2008, borrowers had to work at a school in the bottom half of those ranked by Academic Performance Index (API ranking of 1 of through 5).
The program was originally funded with bond proceeds but was suspended after that money ran out.
When borrowers repay their loans, that money goes back into the fund and can be recycled into new loans. With interest rates plummeting, many borrowers have refinanced their loans, and that has provided enough money to reactivate the program within the next two months, says Kenneth Giebel, a spokesman for the agency.
–>It was good news this past week for housing when data for pending home sales showed an unexpected jump in May.
According to the National Association of Realtors, pending homes sales, which represents the number of contracts signed, increased 5.9% to 101.1 from 95.5 in April. Construction Spending also rose 0.9% in May, according to the Commerce Department, which was the biggest gain since December. While some area markets are stabilizing, S&P/Case-Shiller Index of Property Values showed that the decline in home prices during the month of April was at the lowest since November, 2010. Home prices are still down even as the housing market sees some improvement.
FreeRateUpdate.com’s survey of wholesale and direct lenders shows that mortgage rates have remained steady with 30 year fixed mortgage rates at 3.375%, 15 year fixed mortgage rates at 2.750% and 5/1 adjustable mortgage rates at 2.125%, all available with 0.7 to 1% origination fee for well qualified borrowers. As these mortgage rates continue at historic lows, home affordability is still high which is helping those who wish to purchase a home. It is necessary to have good credit and qualifications for conforming mortgage approval and many consumers have taken the time to clean up their credit so that they could take advantage of this opportunity.
Even with a low 5% down payment, obtaining a conforming mortgage with private mortgage insurance is possible and available. With mortgage rates this low, it is a really good time to obtain a mortgage refinance, and now existing borrowers who have mortgages that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009, have HARP 2.0 available for those underwater mortgages. In many instances, HARP will not require an appraisal or other detailed information since it has been expanded to include unlimited loan to values.
Although HARP guidelines do differ from lender to lender due to overlays, many borrowers have been receiving successful approvals. There are still millions of borrowers who are eligible for HARP which is available until the end of 2013. Seeking a HARP refinance with an online inquiry can bring more success since it opens the door to a variety of lenders who are willing to assist.
The FHA Streamline Refinance is now another popular mortgage product for borrowers who have existing FHA mortgages that were endorsed prior to June 1, 2009. With no cash out, there is no need for an appraisal or other documentation and verifications. The biggest perk for this program is the extremely low upfront mortgage insurance premium at .01% which gives all eligible borrowers the opportunity to refinance to lower FHA mortgage rates. Current FHA 30 year fixed mortgage rates are at 3.125%, FHA 15 year fixed mortgage rates are at 2.625% and FHA 5/1 adjustable mortgage rates are at 2.625%.
FHA mortgages for home buyers are still available with different programs to fill a variety of needs. The FHA rehab mortgage is now a favorite especially when purchasing foreclosures or short sales. Borrowers who use the FHA rehab mortgage are able to complete the home improvements and repairs without the need of a second loan. Even though FHA closing costs are high because of the upfront mortgage insurance premium and other FHA fees, FHA still offers one of the lowest down payment requirements and flexible credit qualifying, which is not found with other mortgages. Since any FHA approved and participating lender can handle FHA loans, including the FHA streamline refinance, seeking information online has become very popular and successful for many borrowers.
Jumbo 30 year fixed mortgage rates dropped .125% this week and are currently at 4.125%. Jumbo 15 year fixed mortgage rates are at 3.125% and jumbo 5/1 adjustable mortgage rates are at 2.250%. Excellent credit is required in order to receive these lowest jumbo mortgage rates with 0.7 to 1% origination fee. The jumbo mortgage market is still somewhat tight right now, but is starting to see some improvements. Private mortgage insurance companies, such as Radian, are beginning to expand their involvement with jumbo mortgages which will help make these loans more readily available for suitable borrowers. Since jumbo mortgages are private loans that are held within a lender’s portfolio, they are usually stricter, although high end borrowers usually have the means to meet the guidelines.
This past week, even though stocks took back some of their losses, MBS prices were able to hold on which kept mortgage rates steady. MBS prices affect mortgage rates which move in the opposite direction. Consumer sentiment was reported as weaker than expected, but personal income matched predictions.
The Conference Board’s Sentiment Index fell to 62 as consumers express increased concern over jobs and income, although the Commerce Department reported that the economy grew at a 1.9% annual pace for the first quarter. Core PCE inflation came in lower than expected rising at a 1.8% annual rate. While Durable Orders for May increased 1.1%, ISM Manufacturing was weaker for May. Jobless claims were 386,000 and close to expectations. The Euro zone continues to be a major global issue as Euro leaders have now turned to the European Central Bank for help to keep markets calm.
FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.
Published: July 4, 2012
A weekly survey of lenders by Freddie Mac showed mortgage rates at or near record lows for a fourth consecutive week amid growing expectations that Europe is headed for a recession that will slow U.S. growth.
A separate survey by the Mortgage Bankers Association showed applications for purchase loans jumped to the highest level since August, but demand remained below levels seen at the same time last year. Read Article: http://www.linkedin.com/news?actionBar=&articleID=933727217&ids=0OdPgNdzkTcPAIe38TdjkUcjgVb3gMdP8Oe3wPeiMTcj8TczsPcPAIcPkSdPsTc3cV&aag=true&freq=weekly&trk=eml-tod2-b-ttl-1&ut=39WflK9_cHl501