Pending Home Sales Index Up For March

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BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

The Pending Home Sales Index (PHSI) rose 1.5 percent to 105.7 in March, the highest level in almost three years, the National Association of Realtors (NAR) reported Monday.

Economists had expected a 0.7 percent increase to 105.5 from February’s originally reported 104.8. The February index reading was revised to 104.1.

Last week in a parallel report, the Census Bureau and HUDreported contracts for the sale of new homes increased 1.5 percent to 417,000 in March.

Both the new homes sales and the pending home sales reports measure contract signings and are designed to be forward-looking indicators.

With the month-over-month improvement, the PHSI is 7.0 percent above March 2012, slightly below the 7.7 percent year-over-year gain in February. The index registered double-digit percent gains from April through October last year so the dip— on the eve of the homebuying season—is less than encouraging.

The index has improved month-over-month only twice in the last five months, March and January.

Though designed to be an indicator of future sales -closings, the PHSI does not always line up with the existing-home sales report of completed transactions issued by the NAR.

In March, existing-home sales dropped to 4.92 million from 4.95 million in February even though the PHSI rose in January. Closed transactions rose in both January and February, although the pending sales index dropped in November and December.

NAR chief economist Lawrence Yun continued to blame tight inventories for the slow moving sales pace.

“Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply. Little movement is expected in near-term sales closings, but they should edge up modestly as the year progresses,” he said. “Job additions and rising household wealth will continue to support housing demand.”

While the month-over-month sales pace does not line up with the pending sales index, it does match the movement in the median price of an existing home. In the last 12 months, the median price has dropped five times with sales increasing in four of those months. In the seven months in which prices increased, sales fell three times.

The PHSI in the Northeast remained unchanged at 82.8 in March and sat 6.3 percent above the year-ago level. In the Midwest, the index was up 0.3 percent to 103.8 in March and is 13.7 percent higher from a year ago. In the South, pending home sales increased 2.7 percent to an index of 120.0 in March, 10.4 percent higher than March 2012. In the West the index rose 1.5 percent in March to 102.9, but is 4.3 percent below a year ago.

The PHSI is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am EST

 

Case Shiller Indices Post Strongest Gain Since 2006

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BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST 

Home prices posted their strongest year-year gain in almost seven years in February, according to the Case Shiller 10- and 20-city Home Price Indexes released Tuesday. Home prices rose year-year in all 20 of the cities in the Case Shiller survey.

Month-over-month, the 10-city index improved 0.4 percent in February while the 20-city index was up 0.3 percent. Year-year, the 10-city index was up 8.6 percent and the 20-city index rose 9.3 percent.

Economists had forecast the 20-city index would rise slightly to 146.16, essentially unchanged from January but 9.0 percent higher than February 2012..

Prices rose in 11 cities in February over January while falling in eight. Prices were unchanged in one city, Atlanta. In the report for January, price rose month-month in 11 cities, declined in six and were unchanged in three.

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Gallup Poll: 81% of Americans Either Own or Plan to Within 10 Years

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BY: ESTHER CHO

The American Dream is still alive, and a recent survey from Gallup provided data to support this conclusion.

In the survey of over 2,000 Americans, 62 percent say they own their primary residence, while 34 percent are renting; the remainder have other arrangements.

More than half of Americans (56 percent) own and plan to continue owning, while 25 percent say they don’t own but plan to in the next 10 years, which means 81 percent of Americans either own or have the intention to.

Just 3 percent of owners plan on selling their home and renting it in the next 10 years, and 11 percent of non-homeowners have no intentions of owning in the foreseeable future.

While the younger population of adults (18-29) were much less likely to own, with just 21 percent currently owning, they’re also the age group that is much more likely to buy in the future.

According to the survey, nearly 7 in 10 Americans aged 18-29 do not own, but plan to become a homeowner within 10 years.

On the other hand, 71 percent of Americans aged 50 to 64 own, but only 5 percent say they plan to buy in the next 10 years.

For adults aged 30 to 49, the majority (58 percent) own, while 29 percent don’t but plan to buy within 10 years.

The survey also found a strong relationship between income and homeownership.

Three-quarters of Americans who earn at least $75,000 a year own their residence and plan to continue owning. For the income bracket below this category ($50,000-$74,999), 65 percent are homeowners and plan to continue owning. Nearly half (49 percent) of Americans who earn $30,000-$49,999 are homeowners and plan to remain as owners.

For those who earn less than $20,000 a year, just 21 percent are owners and plan to continue as owners. However, Americans in this income bracket were also the most hopeful, with 40 percent stating they are non-homeowners but plan to buy in the next 10 years, the highest among any other income category. More than a third (35-36 percent) of those who earn at least $20,000 a year but less than $50,000 aren’t homeowners but plan to own within 10 years.

The research company, however, noted that the current share of overall homeownership (62 percent) found is actually the lowest since the question was first posed in 2001. This fact may be reflected in the greater desire to buy.

FHFA Reports 7.1% Annual Increase in Home Prices

04/23/2013

BY: TORY BARRINGER

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The Federal Housing Finance Agency (FHFA) released Tuesday its House Price Index (HPI) for February, revealing home prices rose 0.7 percent month-over-month on a seasonally adjusted basis.

Year-over-year, U.S. house prices were up 7.1 percent in February, according to FHFA. In February 2012, the index was up only 0.4 percent on an annual basis.

As of February, the U.S. index rested at 196.3, 13.6 percent below its peak in April 2007 and was roughly the same as its October 2004 reading. FHFA’s index has not declined on a monthly basis since January 2012.

For the nine census divisions, seasonally adjusted monthly price changes ranged from -0.6 percent (month-over-month) in the Middle Atlantic region to +1.7 percent in the South Atlantic division. On an annual basis, all divisions saw growth, with the Middle Atlantic seeing the smallest change (+1.9 percent) and the Pacific seeing the largest (+15.3 percent).

According to FHFA, the index has seen an average annual compound growth rate of 3.1 percent since January 1991. Since January 2000, that growth rate has been 2.8 percent.

FHFA uses the purchase prices of homes with mortgages owned or guaranteed by Fannie Mae or Freddie Mac to calculate its monthly index.

Fannie Economists Project 1.8M Borrowers Could Regain Equity in 2013

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BY: CARRIE BAY

The broadening housing recovery has firmed up home prices around the country, with the potential to restore many underwater mortgages to a position of positive equity, according to Fannie Mae’s Economic and Strategic Research (ESR) group.

Citing data from CoreLogic, Orawin Velz, Fannie Mae’s director of economic and strategic research, notes that 1.7 million properties moved from negative to positive equity last year. Provided the home price gains seen so far this year continue, Velz anticipates another 1.8 million properties will rise out of their underwater positions by the end of 2013.

In a new commentary piece entitled “Down But Not Out: Many Underwater Borrowers Will Likely Regain Buoyancy This Year,” Velz examines the extent to which home price appreciation can lift underwater properties into positive equity positions and the anticipated recovery time for transitioning the nation’s housing markets toward “normal” activity.

“The first annual rise in home prices on a national basis in six years has contributed to a positive feedback loop for the housing market by helping many underwater homeowners … regain their positive equity positions,” Velz said. “This improving trend should help spur mobility and housing turnover….The broader economy also should benefit.”

Main measures of home prices showed continued robust gains through the first part of 2013, thanks to an improving labor market, low mortgage rates, and very lean inventory—which Velz contends has been the principal driver of price gains so far.

She says rising home prices should help some homeowners who have involuntarily remained on the sidelines to put their homes on the market. According to CoreLogic’s data, the number of underwater residential properties peaked in the fourth quarter of 2011 at 12.1 million and declined in each quarter of 2012, with 10.4 million properties remaining in negative equity by year-end.

About 3.7 percent of those—or 1.8 million—were in a slightly negative position, which Velz defined as those with loan-to-value (LTV) ratios of 100 to less than 105 percent. She says these properties may switch to positive equity positions this year assuming home prices continue their upward trend. Based on CoreLogic’s latest negative equity report, the share of properties with a slightly negative equity position varied across the country, ranging from 1.3 percent in North Dakota to 5.4 percent in Georgia.

Velz concludes that all but about 10 percent of properties currently underwater will be back in positive territory within three and a half years. Most analysts expect home prices to trend up this year. Zillow polled more than 100 economists, housing analysts, and other industry experts in March. The consensus for median appreciation in 2013 was 4.8 percent, with only two respondents out of 117 indicating a decline.

Applying the Zillow survey’s consensus expectation for home prices—a cumulative gain of 17.5 percent between 2013 and 2016—and assuming continued amortization, Velz says most of the underwater properties at the end of 2012 would likely regain their positive equity positions by 2016—all except the most severely underwater, meaning those with LTVs of 120 percent or higher.

Underwater properties remain concentrated in a few states with those in the worst five states—Nevada, Florida, Arizona, Georgia, and Michigan—accounting for nearly a third of total underwater properties, according to CoreLogic’s assessment. Velz stresses the speed of the transition of underwater loans to positive equity positions is expected to vary regionally.

Nevada and Arizona are among the states with the highest share of negative equity properties, yet these states witnessed very robust home price gains over the past year, Velz points out. On the other hand, Michigan’s negative equity share is the lowest among the five worst states, but its home price appreciation has been the most modest.

Fannie Mae’s economic and research director also noted strong home price appreciation bodes well for California, which was consistently among the five worst underwater states until the second quarter of 2011. Since then, California has moved out of the worst five states, as its home prices troughed in the first quarter of 2011—much sooner than trends have demonstrated in other severely underwater states and much earlier than national prices, which didn’t witness a trough until 2012.

According to Velz, that rate at which underwater borrowers are elevated above the break-even surface will depend on the severity of their underwater conditions—or their LTV ratios—and the pace of home price gains in specific markets.

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Rise in Prices, Use of Short Sales Lead to Declining Loss Severities

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BY: KRISTA FRANKS BROCK

Rising home prices and higher levels of short sales are leading to declining loss severities in the residential mortgage-backed securities (RMBS) market, according toFitch Ratings. The agency’s quarterly report noted its Loss Severity Index declined from 67.5 percent in the first quarter of 2012 to 64.2 percent in the first quarter of this year.

Loss severities on short sales tend to be 10 to 15 percent lower than loss severities on REOs, according to Fitch. Also, short sales are generally resolved about 12 months sooner than REOs, the agency stated.

“Along with home price improvements, the increased use of short sale liquidations is now helping to reverse the trend of rising mortgage loss severities,” said Sean Nelson, director at Fitch Ratings.

Short sales actually declined slightly in the first quarter of this year, but they still outpace other liquidation strategies for nonperforming loans, according to Fitch.

The decline in short sales and changes in the regulatory environment led to increased liquidation timelines in the first quarter.

Completed foreclosures plummeted in the first quarter amid the regulatory changes and landed near historical lows, according to Fitch.

However, the market did experience improvement in delinquencies over the quarter with 60+ day delinquencies declining from 28.7 percent to 27.9 percent and the delinquency roll rate declining from 2.6 percent to 2.4 percent.

Delinquency improvements can be attributed to “positive selection among remaining borrowers, improved re-default rates of modified loans and positive home trends,” according to Fitch.

Delinquencies for loans issued since 2005 will likely continue their current decline, according to Fitch.

Rising home prices, which also played a role in declining loss severities in the first quarter, may not persist, according to Fitch.

The agency suggests “home prices remain slightly above sustainable levels are at risk for further declines.” A particular area of concern is the Northeast.