Housing probably won’t make you happy

Posted on July 14, 2013 by grim

From the NYT:

Homeownership, the Key to Happiness?

If trying to buy an apartment in New York City has been making you miserable, consider this: actually getting that home may not make you happy.

A growing body of research suggests that spending money on real estate doesn’t necessarily mean investing in contentment. Indeed, the conventional advice to cut back on vacations, restaurant meals and other extras in order to save money for a home may actually be detrimental to felicity. Experts in happiness — an increasingly popular field focused on the scientific understanding of emotional well-being — say that people are happier when they spend money on experiences instead of material goods, whether it be a new car or a bigger apartment.

“People are making so many trade-offs in order to have that home,” said Elizabeth Dunn, an associate professor of psychology at the University of British Columbia who studies consumerism and happiness. She recently explored the impact of housing on people’s happiness while compiling studies for a new book, “Happy Money: The Science of Smarter Spending,” which she wrote with Michael Norton, who teaches at the Harvard Business School.

The recession forced many people to curb their spending habits and re-evaluate their overall lifestyles. But after saving money for years, buyers encouraged by low mortgage rates are re-entering the housing market. They find the pickings slim. In Manhattan, the number of apartments for sale for the second quarter was at a 13-year low, stoking competition and driving up prices.

Now there is research like Dr. Dunn’s, emphasizing that when it comes to your overall happiness, “there are a lot of better things you could be putting your money toward” than real estate.

This isn’t necessarily bad news in a place like New York City, where nearly 70 percent of the housing stock is rentals. And it may offer some solace to frustrated buyers facing bidding wars and all-cash offers they simply can’t top.

“People still view housing as a central component of happiness and a critical aspect of the American dream,” Dr. Dunn said. “But there is little research to support that.”

A 2011 study of about 600 women in Ohio found that homeowners weren’t any happier than renters. The study was conducted by Grace Wong Bucchianeri, then an assistant professor of real estate at the Wharton School at the University of Pennsylvania. Indeed, homeowners spent less time on leisure activities with friends and reported that they derived some pain from homeownership. What exactly caused that pain wasn’t indicated in the study, but financial experts say that people who make the leap from renting to buying can be caught off guard by the nuts and bolts.

“The reality of maintenance and repairs, and being ‘house rich but cash poor,’ can negate much of the perceived happiness people may have had about homeownership,” said Greg McBride, the senior financial analyst for Bankrate.com. Even if a low mortgage rate means you spend less each month than you did when renting, upkeep can drain a bank account faster than a leaking water heater.

Posted in Demographics, Economics, National Real Estate | 32 Comments

Republicans hate homeowners

Posted on July 12, 2013 by grim

From the WSJ:

House Republicans Plan to Wind Down Fannie, Freddie

Congressional Republicans said Thursday that they would introduce legislation to wind down Fannie Mae and Freddie Mac over five years and cede the companies’ roles to the private mortgage market, which has remained mostly dormant since melting down six years ago.

The bill would create a new utility-like platform for investors to securitize mortgages without a government guarantee, while repealing new curbs on the mortgage-bond market in the Dodd-Frank financial-overhaul bill. It also proposes restricting access to loans backed by the Federal Housing Administration to first-time buyers and moderate-income borrowers.

The measure will face stiff opposition from Democrats and isn’t likely to be considered by the Senate, even if it can pass the House of Representatives. But it nevertheless sets out a marker from which Republicans can begin negotiations on the overhaul of the nation’s $10 trillion mortgage market.

The bill tees up a long-awaited fight over the future of the government’s role in the mortgage market. Fannie and Freddie don’t buy mortgages but instead package them into securities, providing guarantees to investors should the loans default. Their role helped create deep, liquid markets that attracted an array of investors to fund U.S. mortgages, particularly long-term, fixed-rate loans that banks don’t like to hold on their books.
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Democrats and some moderate Republicans, along with mortgage investors and the real-estate industry, have argued that some federal guarantees of the mortgage-bond market will be needed to preserve the most popular aspects of the U.S. mortgage market—particularly access to the 30-year, fixed-rate mortgage, a product that isn’t widely offered in most other countries, and the ability to lock in a mortgage rate.
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In addition to Fannie and Freddie, the Republican bill proposes several changes to the Federal Housing Administration. The FHA, which has played a key role backstopping mortgages after the private-mortgage market collapsed in 2007, has faced rising defaults and is at heightened risk of exhausting its reserves for the first time in its 79-year history.

The proposal would limit FHA-backed loans to first-time borrowers and to moderate-income borrowers, defined as those who make less than 115% of the area median household income and 150% of the median income in high-cost markets.

The bill would increase down-payment requirements for the FHA, which currently allows a 3.5% minimum down payment, to 5% for non-first-time borrowers. The FHA, which doesn’t make loans but instead backs those that meet its standards, would also be required to reduce the amount of its insurance coverage to 50% over five years.

Posted in Economics, Housing Recovery, Politics | 57 Comments

Rates to drag the market down (or maybe not)

Posted on July 11, 2013 by grim

From CNBC:

Dire Predictions For Housing Recovery

The housing recovery is in for a major pause due to higher mortgage rates. It is not in the numbers now, and it won’t be for a few months, but it is coming, according to one noted analyst. The market has seen rising rates before, but never so far so fast; there is no precedent for a 45 percent spike in just six weeks. The spike is causing a sense of urgency now, a rush to buy before rates go higher, but that will be short term. Home sales and home prices will both come down if rates don’t return to their lows, and the expectation is that they will not.

Where is the proof of this? We only need look to the $8,000 home buyer tax credit that expired in 2010. The falloff was dramatic.

“That stimulus was so small compared to a 3.5 percent interest rate, it’s almost not even a comparable, but it’s the only thing I can find,” said Mark Hanson, a well-known mortgage analyst in California who predicted many aspects of the mortgage market crash. “When that stimulus went away, new home sales fell 38 percent in a single month, down 25 percent year-over-year, and existing home sales fell 30 percent over a single month, 24 percent year-over year.”

Hanson is predicting a 19 percent jump in contract cancelations for the home builders for sales made between December 2012 and June of this year. That is because 70 percent of homes sold in that time were not built yet, and buyers had not locked in rates. As for the home builder stocks, he said they are, “priced for perfection” according to sales from the past years, but those sales won’t hold up.

The predictions may sound dire, but the forward-looking indicators are falling in line. Mortgage applications have been falling for the past month. Applications to purchase a home are down 28 percent in the past month and up only 4.5 percent from a year ago. They should be up far higher, given that prices and demand are rising so fast. Signed contracts to buy existing homes jumped unexpectedly to a six-year high in May as rates started to rise; there’s your rush.
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Mortgage rates going from 3.5 to 5 percent is roughly a 15 to 20 percent decrease in what the average buyer can afford. They can move to different loan products, like an adjustable rate loan, but ARMs are harder to qualify for and require far more documentation.
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Prices are moving up faster than income growth and faster than employment growth. Even the Realtors have said they are overheating. Buyer demand is clearly there, a lot of pent-up demand from the housing crash, but demand that will have a price cap. Yes, mortgage rates were at 6 percent for much of the 2000’s and higher than that in the 1980s and 1990s, but 3.5 percent became the new normal, and a lot of demand was pulled forward at that rate. This housing recovery was easy at 3.5 percent. It will be far harder at 5.

Posted in Economics, Housing Recovery, Mortgages | 75 Comments

Is the foreclosure crisis over?

Posted on July 10, 2013 by grim

From Inman News:

The foreclosure crisis is over

It’s been a long haul since the housing bubble burst in 2006 but there’s growing evidence that the foreclosure crisis is quickly winding down even as a stubborn batch of bad loans originated during the height of the housing bubble continues to pollute the real estate ecosystem.

First, let’s look at evidence the foreclosure crisis is truly over.

U.S. foreclosure activity dropped to a 74-month low in April, with 144,790 properties with foreclosure filings. Although still about twice as high as the average 75,000 per month in 2005, it was 60 percent below the monthly peak of more than 367,000 in March 2010.

Given the much tighter lending standards of the past few years and recently rising home prices, the downward trend in new foreclosure activity at the national level should continue for the foreseeable future, until monthly foreclosure activity is back to that “normal” level of about 75,000 properties with foreclosure filings a month.

The inventory of homes stuck in the foreclosure process was still up 4 percent in May from a year ago, caused primarily by elongated foreclosure timelines in judicial foreclosure states, but those inventory numbers should also turn a corner and start heading down in the relatively near future at the national level — although there will certainly be some states with longer foreclosure timelines where this trend will lag.

Loans originated during the most inflated years of the housing bubble account for the bulk of foreclosure inventory in 2013, even seven years after the bubble burst. Nearly three-fourths of loans in foreclosure (74 percent to be exact) as of May were originated between 2004 and 2008, according to RealtyTrac data, while 12 percent were originated after 2008 and 14 percent were originated before 2004.

At the current pace of bank repossessions (a little more than 40,000 a month so far this year) and third-party foreclosure sales (a little less than 30,000 a month so far this year), the approximately 850,000 loans now in the foreclosure process will be flushed out in about a year. It will take an additional six months for the bank-owned homes to be sold to third parties.
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Unfortunately, loans already in the foreclosure process do not represent the totality of potentially toxic loans that need to be cleaned up. RealtyTrac data show that 37 percent of all outstanding mortgages not in foreclosure were originated between 2004 and 2008, representing more than 14 million loans. Furthermore, based on an 80 percent sample where interest rate data was available, approximately 88 percent of the 14 million at-risk loans have an interest rate of 6 percent or higher — indicating that the homeowners attached to those loans could benefit from a refinancing but have not done so.

Posted in Economics, Foreclosures, Housing Recovery | 48 Comments

Delinquencies ease, fewer homeowners underwater

Posted on July 9, 2013 by grim

From HousingWire:

Less sickness in housing as delinquencies fall 43% from peak

The housing market continues to recover from post-meltdown levels with mortgage delinquencies down 43% from 2010 levels, Lender Processing Services Applied Analytics said Monday.

The number of borrowers who remain underwater – or who owe more on their homes than their current worth – also fell a sharp 47% from Q1 2012 to Q1 2013, LPS said in its Mortgage Monitor Report.

Underwater borrowers now account for 14.7% of all active loans studied by the mortgage analytics platform, LPS explained.

Homeowners carrying high loan-to-value ratios also are on the decline.

In 2011, 17 million homeowners had LTVs greater than 100%.

That figure now sits at 7.3 million mortgages, with borrowers benefitting from rising home prices.
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Overall, the loan delinquency rate is hovering at 6.08% down 2.11% from the prior month. The pre-sale foreclosure inventory rate sits at 3.05%, down 3.91%.

“As we’ve noted before, negative equity appears to still be one of the strongest drivers of new problem loans, and — primarily buoyed by home price increases nationwide — that situation also continues to improve,” said Herb Belcher, senior vice president of LPS.
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“We looked once again at the number of ‘underwater’ loans in the U.S., and found that the total share of mortgages with LTVs of greater than 100 percent had declined to just 7.3 million loans as of the end of the first quarter of 2013. This accounts for less than 15 percent of all currently active loans and represents a nearly 50 percent year-over-year decline,” he explained.

Posted in Housing Recovery, Mortgages, National Real Estate | 65 Comments

So much for that Code of Ethics

Posted on July 8, 2013 by grim

From the NY Daily News:

Real estate agent fired from job after dumping dead animals on neighbor’s property: cops

If good fences make good neighbors, these folk should have opted for barbed wire.

Two Pennsylvania realtors have been cited for disorderly conduct and harassment after reportedly scattering dead mice and snakes onto their neighbor’s front yard.

Jonathan and Andrea Straub were caught on a security camera tossing dead animals, cutting branches off trees, and knocking over their neighbor’s “For Sale” signs, Lower Merion police say. The high-powered realtors had put their own home up for sale and allegedly didn’t appreciate their neighbor’s tacky attempts at marketing.

Both of the houses on Booth Lane are listed for at least $1 million, Philly.com reports. Neighbor Mary Martell’s home sits directly behind the Straub’s home. She was trying to sell the house by herself.

Andrea Straub, on the other hand, was born into the real estate industry. Her father is a top builder and developer while her mom worked as a broker. The award-winning real estate agent graduated from New York University with honors and handled multi-million dollar home sales for Prudential Fox & Roach. On her website, she calls herself a skilled negotiator and a “people person.”
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After Martell was hospitalized for an unrelated condition, her house sitter noticed that someone had been knocking over the signs and stealing the real estate flyers advertising the home.

Martell then had security camera installed on her property and managed to catch the Straubs red-handed.
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Straub was fired from her job at Prudential Fox & Roach on Friday, Mainline Media reports.

Posted in Humor, Trash | 82 Comments

Fewer underwater as prices rise

Posted on July 5, 2013 by grim

From the WSJ:

Real-Estate Rebound Buoys Underwater Mortgage Borrowers

As the real-estate market rebounds, many luxury homeowners who just a few years ago had their heads underwater are now only ankle deep.

At the end of the first quarter, 20.6% of homes with jumbo mortgages were underwater, meaning the owners owed more on the mortgage than the home was worth. That’s compared with 32.3% a year ago, according to real-estate website Zillow.com.

More important, the level of negative equity has improved significantly for homeowners, said Stan Humphries, chief economist for Zillow. “Nationally most people in negative equity are in relatively shallow water, with less than 20% negative equity,” he said, meaning that borrowers’ loan-to-value percentage is less than 120%.

The Zillow analysis includes homes that have one jumbo mortgage and whose unpaid balance is still at a jumbo level, above the threshold for government-backed loans of $417,000 in most areas of the country and $625,500 in certain high-price home markets, such as New York, San Francisco and Boston.
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The strengthening economy and housing market have boosted the value of high-end homes, which has translated to fewer homeowners underwater. As a result, more borrowers with jumbo mortgages will be eligible to refinance their loans at a time when interest rates are still historically low and the availability of jumbos is improving. As of June 21, the interest rate for a 30-year, fixed-rate jumbo was 4.52%, just 0.06 percentage point above the 4.46% rate for a 30-year fixed-rate conforming loan, which falls under the threshold for jumbo loans.
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In the New York metro area, 14.5% of homes with jumbo mortgages are currently in negative equity, according to Zillow, but home values in Manhattan appear to have stabilized back to normal levels, said David Adamo, CEO of Luxury Mortgage, a lender based in Stamford, Conn. “Jumbo refinancing is back to business as usual,” he added. “We’re doing them all day, every day.”

Posted in Economics, Housing Recovery, National Real Estate | 53 Comments

Buyers beg to get off rate roller coaster

Posted on July 4, 2013 by grim

From CNBC:

Housing Recovery Rides Mortgage Rate Roller Coaster

Mortgage rates are moving so fast and so dramatically that even reports from barely a week ago seem suddenly outdated.

The average rate on the 30-year fixed conforming loan moved to its highest level in two years last week, according to the Mortgage Bankers Association weekly survey. That had a direct effect on consumers shopping for mortgages. Applications to refinance fell 16 percent and applications to purchase a home dropped 3 percent week-to-week.

That comes one day after another report from Zillow, an online real estate company, showed mortgage rates moving off their highs, although not that far off.

“Last week mortgage rates retreated from a 23-month high as the Fed sought to reassure markets that the wind-down of the stimulus program would be gradual, and contingent upon strong improvement in economic fundamentals,” said Erin Lantz, director of Zillow Mortgage Marketplace.

“This coming week, market participants will be focused on Friday’s jobs report as an indicator of whether the economic recovery is strong enough to withstand an earlier-than-expected withdrawal of Fed stimulus.”
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Mortgage rates are up about a full percentage point from where they were at the beginning of May. That translates into about a 15 percent jump in monthly payments for the average home buyer, or 15 percent less purchasing power, depending on how you look at it. That can certainly be make or break for some buyers, especially first-time home buyers who may have been stretching in the first place.
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The very recent rate retreat gave back around 15 basis points, but buyers really can’t play these small moves, which are largely dependent on investors buying or selling Treasury bonds.

“Although 10-year Treasury yields have come down slightly in recent days, we do not expect the bulk of the increase in mortgage rates to be reversed,” said Paul Diggle of Capital Economics. “We’ve penciled in mortgage rates of 4.5 percent at year end, rising to 5 percent next year and 5.5 percent in 2015.”

Posted in Economics, Housing Recovery, Mortgages | 17 Comments

Hammers start swinging again

Posted on July 3, 2013 by grim

From the Record:

NJ home construction running 45% ahead of 2012 rate

In another sign of a recovery in housing, New Jersey home construction is running 45 percent ahead of last year’s rate, according to the U.S. census.

In the first five months of this year, building permits were issued for 8,912 housing units in the state, up from 6,117 in the same period in 2012.

More than half of the permits were for multifamily construction, which has grown as demand for rentals has increased.

“Multifamily is really the source of the increased momentum,” said Patrick O’Keefe, an economist with CohnReznick, an accounting firm with an office in Roseland.

And the two busiest counties are Bergen and Hudson, which are seeing a spillover of demand from the New York City market. Projects in Bergen include the redevelopment of a long-vacant 16-acre site in downtown Fort Lee; a 57-unit apartment building on the Passaic River in Elmwood Park; apartment buildings in East Rutherford and Fort Lee, built by BNE Real Estate Group of Livingston; and apartments in Hackensack and Wood-Ridge, constructed by AvalonBay of Virginia.

O’Keefe is predicting that about 23,000 homebuilding permits will be issued in New Jersey this year, up from 18,000 last year and an average of only 13,000 a year from 2009 to 2011 — the lowest annual totals since World War II. Even with the recovery, the rate of homebuilding remains below long-term averages above 30,000 units a year.

Posted in Economics, Housing Recovery, New Development, New Jersey Real Estate | 33 Comments

Governor keeps state out of the real estate business

Posted on July 2, 2013 by grim

From the Courier Times:

Christie conditionally vetoes bill to create state program to buy foreclosed properties

A controversial housing bill intended to help reduce New Jersey’s glut of foreclosed homes was vetoed by Gov. Chris Christie for a third time.

Christie wasted little time in blocking the Residential Foreclosure Transformation Act as he conditionally vetoed the measure Thursday, the same day the Democratic-controlled Senate and Assembly voted to send it to him for consideration.

The bill would have directed the New Jersey Housing and Mortgage Finance Agency to create a program to purchase foreclosed properties for resale or rent as affordable housing. The bill also sought to extend a moratorium on a state fee on nonresidential development until January 2018.

The fee, which was enacted in 2008 when Democrat Jon S. Corzine was governor, would require developers to set aside 2.5 percent of the cost of any nonresidential project to help towns meet their affordable housing obligations.

Lawmakers, including Christie, froze the fee with a two-year moratorium in July 2009 after the housing market collapsed and sparked a national recession. It was extended another two years in 2011.

In his conditional veto, Christie recommended that the Legislature extend the moratorium again, but he eliminated all language related to the proposed foreclosure program, pointing out that the state already has programs to assist homeowners in danger of foreclosure and that the proposed program requires spending outside the budget.
Christie cited similar reasons when he vetoed bills in January and in June last year.

“The state is committed to helping its citizens avoid foreclosure through the New Jersey Housing and Mortgage Finance Agency’s mortgage foreclosure prevention programs,” Christie said in his latest veto message. “Sending the New Jersey Residential Foreclosure Transformation Act to me for a third time is not the charm.”
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The Foreclosure Transformation Act has been steadfastly opposed by the Steve Lonegan-led conservative group Americans for Prosperity-New Jersey, which has called the measure a bailout for banks and lenders that would damage communities by turning market-rate homes into affordable housing.
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Kevin Walsh, associate director of the Cherry Hill-based Fair Share Housing Center, said Christie was being short-sighted with his veto.

“The governor doesn’t care about New Jersey’s foreclosure problem. He would rather people lose their homes than sign a sensible bill that would cost the state nothing,” Walsh said.

Posted in Foreclosures, New Jersey Real Estate, Politics, Risky Lending | 40 Comments

North Jersey Contracts – June 2013

Posted on July 1, 2013 by grim

Here it is! The first look at pending home sales (contracts) for Northern NJ.

(Source GSMLS, except Bergen- NJMLS) – Updated with 2011/2010 Data

June Pending Home Sales (Contracts)
——————————-

Bergen County
June 2010 – 711
June 2011 – 745
June 2012 – 868
June 2013 – 944 (Up 8.8% YOY, Up 21.1% Two Year, Up 32.8% Three Year)

Essex County
June 2010 – 318
June 2011 – 340
June 2012 – 365
June 2013 – 478 (Up 31.0% YOY, Up 40.6% Two Year, Up 50.6% Three Year)

Hunterdon County
June 2010 – 109
June 2011 – 106
June 2012 – 136
June 2013 – 160 (Up 17.6% YOY, Up 51.0% Two Year, Up 46.8% Three Year)

Morris County
June 2010 – 345
June 2011 – 416
June 2012 – 465
June 2013 – 516 (Up 11.0% YOY, Up 24.0% Two Year, Up 49.6% Three Year)

Passaic County
June 2010 – 169
June 2011 – 185
June 2012 – 224
June 2013 – 321 (Up 43.3% YOY, Up 73.5% Two Year, Up 89.9% Three Year)

Somerset County
June 2010 – 266
June 2011 – 297
June 2012 – 319
June 2013 – 403 (Up 26.3% YOY, Up 35.7% Two Year, Up 51.5% Three Year)

Sussex County
June 2010 – 103
June 2011 – 130
June 2012 – 113
June 2013 – 163 (Up 46.0% YOY, Up 25.4% Two Year, Up 58.3% Three Year)

Union County
June 2010 – 245
June 2011 – 309
June 2012 – 354
June 2013 – 411 (Up 16.1% YOY, Up 33.0% Two Year, Up 67.8% Three Year)

Warren County
June 2010 – 68
June 2011 – 87
June 2012 – 75
June 2013 – 99 (Up 32.0% YOY, Up 13.8% Two Year, Up 45.6% Three Year)

Posted in Economics, Housing Recovery, North Jersey Real Estate | 58 Comments

Otteau: Contracts soared in May

Posted on June 29, 2013 by grim

From the Otteau Group:

Home Sales Continue to Accelerate in May

Home purchase contracts in New Jersey soared for yet another month in May, recording a 23% increase compared to one year ago. Given that the pace of sales rose by 22% in May-2012, purchase demand has expanded by an astounding 51% over the past 2 years. Home sales have experienced a double-digit increase in 4 out of 5 months this year, for a YTD gain of 18%.

Posted in Employment, Housing Recovery, New Jersey Real Estate | 26 Comments

Pending Home Sales at a 6 year high

Posted on June 28, 2013 by grim

From MarketWatch:

Pending home sales jump to six-year high in May

Pending home sales jumped in May to reach a six-year high, the National Association of Realtors said Thursday. The NAR’s pending home sales index climbed 6.7% to 112.3 in May, from a downwardly revised 105.2 (from 106.0) in April. The index was up 12.1% from May 2012 levels. The NAR said the rise in mortgage rates has prompted some would-be buyers to move. “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” said Lawrence Yun, chief economist of the NAR. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The NAR upgraded its median price forecast for 2013 to nearly $195,000 from exceeding $190,000 and its existing home sales forecast to a seven-year high of 5.07 million from “about” 5 million.

From Bloomberg:

Pending Sales of Previously Owned U.S. Homes Jumped 6.7%

More Americans signed contracts in May to buy previously owned homes than at any time in more than six years, a sign of bigger progress in the industry.

The index of pending home sales jumped 6.7 percent to 112.3, the highest since December 2006, figures from the National Association of Realtors showed today in Washington. The increase exceeded all estimates in a Bloomberg survey of economists and was the biggest since April 2010.

More contract signings show Americans who had been holding off on purchases entered the market as mortgage rates started to climb, reaching an almost two-year high this week. Further gains in sales of previously owned properties will probably encourage a pickup in purchases of home furnishings, spurring economic growth.

“The housing market is pretty healthy,” Guy Lebas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “When you buy a home, either new or existing, you’ve got to furnish it. It’s sort of the secondary benefits of greater home sales that support growth.”

Pending sales fell a revised 0.5 percent in April, previously reported as a 0.3 percent gain.

Estimates for pending home sales ranged from a decline of 0.9 percent to an increase of 5.5 percent, according to 43 economists surveyed by Bloomberg.

Posted in Economics, Housing Recovery, National Real Estate | 58 Comments

Whodathunkit

Posted on June 27, 2013 by grim

From CNBC:

Rising Mortgage Rates Cause ‘Rush to ARMs’

After hovering around record lows for the past few years, mortgage rates are rising dramatically. That has consumers not only shopping more but also considering adjustable rate mortgages, which offer lower rates and lower monthly payments.

These ARMs, many requiring interest payments only, were popular during the latest housing boom but quickly fell out of favor when safer, fixed-rate loan rates fell to record lows. ARMs accounted for 36 percent of mortgages in 2006 but just 4.5 percent today, according to Lender Processing Services.

The shift to ARMs is not visible on a grand scale yet, but it is beginning.

The average contract rate on the 30-year fixed rate rose to 4.46 percent from 4.17 percent, the Mortgage Bankers Association said Wednesday. At the beginning of May, rates were as low as 3.5 percent. Concern that the Federal Reserve will begin to pull back on its purchases of mortgage-backed bonds, which pushed rates so low in the first place, caused the most recent spike.
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The combination of sharply higher home prices and rising rates is squeezing buyers who are already facing tighter underwriting standards. In order to qualify for loans, they must fit into strict debt-to-income calculations, and those calculations change with every increase in mortgage rates.

“I think you’re seeing much more intense shopping where people are comparing rates between lenders, but also looking at different less conventional products,” said Glenn Kelman, CEO of Redfin. “They’re getting teaser rates, they’re buying it down, they’re trying different things to try to get back to the rate they saw last week.”

Some buyers are also being forced into adjustable rate loans in order to save deals that may have blown up in the past few weeks due to the rise in rates.

“Funny, people are rushing into higher-risk loans to save deals as rates spike. What happens in five years when their rate starts adjusting upward 2 percent per year? They blow up!” said Mark Hanson, a California-based mortgage and housing analyst.
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Rising rates will push some into riskier, adjustable-rate products, “whereas others will view rising rates as a sign that they need to lock in to a 30-year fixed now before rates move higher,” said Craig Strent, CEO of Maryland-based Apex Home Loans.

Posted in Housing Recovery, Risky Lending | 80 Comments

Rising rates cast a shadow over housing recovery

Posted on June 26, 2013 by grim

From CNN/Money:

Home prices jump 12%, new home sales hit a five year high

The housing recovery continues to pick up steam, as home prices jumped in April, and new home sales hit a five year high in May.

But a recent increase in mortgage rates could soon put the brakes on housing.

The S&P/Case-Shiller home price index was up 12.1% in April, compared to a year ago, in the 20 top real estate markets across the nation. That was the biggest annual jump in prices in seven years. Prices climbed 2.5% from March, posting the biggest one-month rise in the 12-year history of the index.

New homes sold at an annual pace of 476,000 in May, according to a separate government report. That’s the best reading since July 2008, just before the global financial meltdown slashed homebuyers’ access to credit. The pace of sales was up 2.1% from April, and up 29% from a year ago.
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A drop in foreclosures, coupled with a tight supply of homes for sale and mortgage rates that hit record lows, have fueled the rebound in housing over the last 11 months.

But the 30-year mortgage rate has risen to nearly 4%, up from 3.35% at the start of May. While that is still low by historical standards, it’s trimmed about $12,000 off of an average buyer’s purchasing power. Mortgage rates began to climb in May, after April’s sharp jump in home prices was recorded.

“Home value appreciation in some of these areas will have to slow down, or potentially fall, as higher prices are no longer masked by rock-bottom mortgage rates,” said Stan Humphries, chief economist of home price tracker Zillow.

Indeed, the rapid rise in home prices that’s fueling the housing recovery could actually help derail it, as it makes purchases more difficult for potential buyers. Even the National Association of Realtors warned last week that “home price growth is too fast,” and said that the market needs significantly more home building and better access to credit for buyers.
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Still, higher costs for home buyers shouldn’t derail the recent recovery, according to Joseph LaVorngna, chief U.S. economist at Deutsche Bank.

“Affordability remains near historic highs, despite the recent rise in rates and home prices,” he said. And while banks might be charging higher rates, they are likely to ease lending standards for mortgages due to the stronger prices. That should make it easier for some buyers to qualify for home loans.

Posted in Economics, Housing Recovery, National Real Estate | 89 Comments