Pending home sales for the month of April plummeted 9.2% compared to April 2013, the National Association of Realtors reported Thursday.
Contracts signed to buy existing homes increased 0.4% in April compared to March 2014, but that’s coming off three months of flat sales blamed on cold weather.
The expectation had been for at least a 2% gain month-over-month.
Optimistic economists expected that there was a swathe of pent-up demand that would flood the market at the start of the spring buying season. That didn’t happen.
"Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective homebuyers' confidence," said Lawrence Yun, chief economist for the NAR. "An uptrend in closed sales is expected, although some months will encounter a modest setback."
Sales have arrested despite mortgage rates now being at a near nine-month low after five straight weeks of steady declines. The 30-year fixed rate mortgage this week was 4.12%. Even refinancings have dropped to 37% of all mortgage activity, meaning borrowers are staying away despite historic lows.
Which means it could get worse, as Yun projects the 30-year fixed-rate mortgage to trend up and average 5.5% next year.
“The extent to which higher mortgage interest rates will impact housing affordability and sales depends on income growth, ongoing improvement in the labor market and any change to mortgage underwriting conditions,” he said.
This comes as the economy is looking at more bad news.
The nation’s domestic economic output for the first quarter was revised downward Thursday, posting a contraction of -1.0% from a meager positive 0.1% initially reported.
This was the first gross domestic product contraction since the first quarter of 2011, the Bureau of Economic Analysis reported. (GDP is the output of goods and services produced by labor and property located in the United States.)
In the fourth quarter, real GDP increased 2.6%.
The decrease in real GDP in the first quarter included declines in residential fixed investment spending. The balance was negative contributions from private inventory investment, exports, nonresidential fixed investment, and state and local government spending.
Thursday, May 29, 2014
Wednesday, May 28, 2014
Yellen Has Scant Power to Relieve U.S. Housing Slowdown
The hesitant housing recovery has surprised and concerned Federal Reserve Chair Janet Yellen and her colleagues at the central bank. It’s not clear how much they can do about it.
While the industry is rebounding from a weather-ravaged first quarter, the pickup will probably fall short of previous projections, according to economists at Goldman Sachs Group Inc. of New York and Macroeconomic Advisers LLC in St. Louis. As a result, they trimmed their forecasts for economic growth in the second half of 2014 to about 3.25 percent from 3.5 percent.
“Housing is a growing worry,” said Macroeconomic Advisers’ senior economist Ben Herzon.
Yellen and many of her colleagues agree. The Fed chair flagged the industry as a risk to the outlook in testimony to Congress on May 7, while Federal Reserve Bank of New York President William C. Dudley said last week he had been surprised by how weak it had been recently. He added that he still expects gross domestic product to “get back on a roughly 3 percent growth trajectory” after stalling in the first quarter.
The trouble from the Fed’s perspective is that many of the forces holding housing back are outside of its control. While the Fed can influence mortgage rates through its conduct of monetary policy, it can’t do much, if anything, to counteract the other causes of faltering demand: lagging household formation, stingy lenders and wary borrowers.
The Fed’s ability to affect the supply of housing is even more limited. Builders are complaining about rising costs and an increasing difficulty in hiring skilled workers. They’re also concentrating on developing bigger, higher-priced projects rather than on the starter homes more buyers can afford. And they too are plagued by tight credit.
Dennis McConnell’s company is one of them. Before the housing crisis, Healthy House of Georgia built about 10 homes a year in historic districts in Atlanta. He said he’s put up two in the last six years combined, partly because of difficulties in finding financing.
McConnell said he’s resorting to private lenders to make his deals happen. Private sources can range from friends and family and self-financed projects to “hard-money” lenders -- “someone who, when you sign the dotted line, you count your fingers and toes and make sure you have them all back.”
Statistics released last week suggested that the industry is still struggling. While sales of previously owned homes rose for the first time this year in April, they were still some 7 percent lower than a year earlier, according to data from the National Association of Realtors. New single-family house sales last month were 4.2 percent below the year-earlier level, Commerce Department data showed.
“New home sales bounce back to mediocrity,” was how economists Stephanie Karol and Patrick Newport of Lexington, Massachusetts-based IHS Global Insight characterized the numbers in a May 23 e-mail analysis.
Housing stocks have also taken a hit this year. The Standard and Poor’s Supercomposite Homebuilding Index, which includes companies such as Lennar Corp. and PulteGroup Inc., has declined 1.74 percent this year through yesterday, compared with a 3.4 percent gain in the broader S&P 500 Index.
Mortgage-finance company Fannie Mae predicts housing construction will strengthen in the months ahead and lift gross domestic product by 0.2 percentage point this year, said vice president Mark Palim. While that’s only off slightly from last year’s 0.33 point contribution, it’s a third of what Fannie Mae economists were expecting at the start of 2014.
“I think that through the rest of the year, we’ll see an improvement, albeit maybe a little bit slow, but I do think that we’re on the right track,” Larry Nicholson, president and chief executive officer at Westlake Village, California-based homebuilder Ryland Group Inc., said during a May 14 presentation.
Mortgage rates have fallen recently as the bond market has rallied, in part on expectations of a continued loose monetary stance by the Fed. The average rate on a 30-year fixed loan was 4.14 percent in the week ended May 22, the lowest level since the end of October, according to McLean, Virginia-based Freddie Mac. However, that’s still up from 3.59 percent a year ago, around the time Bernanke mentioned that the central bank would start tapering its bond-buying program as the economy improved.
Even a modest increase in mortgage rates through next year to a level around 5.5 percent -- still low by historical standards -- could hold back housing, Knotek and Zaman said in research released today.
The decline in mortgage rates this year isn’t “going to have a terribly big impact” on demand, especially since rates will probably rise again as the economy strengthens, said Mike Fratantoni, chief economist for the Mortgage Bankers Association in Washington.
The MBA’s purchase index, a measure of mortgage loan applications by those seeking to buy a home, stood at 180 in the week ended May 16, below the 197.5 average last year.
The supply of credit has improved slightly over the past year yet is still well below levels that would be considered normal, according to Fratantoni. The MBA’s mortgage credit availability index was 113.8 in April, up from 108.6 a year earlier but well below the 414.8 level that prevailed at the end of 2004, before the last housing boom.
If credit is key, then the most important policy maker when it comes to housing may not be Yellen, but Melvin Watt, the new director of the Federal Housing Finance Agency, which oversees government-controlled Fannie Mae and Freddie Mac.
In his first speech as head of the agency, Watt announced this month new rules to reduce the risk that banks will have to repurchase bad mortgages from Fannie and Freddie. The changes are designed to allow lenders to relax credit standards.
The steps Watt outlined are only going to help on the margin, said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute in Washington. To broaden credit availability, it will be important for the FHFA, Fannie Mae and Freddie Mac to set out a clear timetable for improving the buyback process, she added.
That’s led them to look for other reasons to explain the weakness. At their last meeting on April 29 to 30, Fed policy makers discussed a number of potential causes, according to the minutes of the gathering released last week. They included “higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input-cost pressures or a shortage in the supply of available lots.”
Dudley also cited limited credit availability and reticent buyers as reasons for housing’s weakness. Heavy student debts have encouraged some young Americans to live with their parents rather than forming households of their own. Those debts also have discouraged them from purchasing homes.
What’s significant is that Dudley outlined “structural issues the Fed cannot control” in his speech, Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, wrote in a May 27 note to clients.
“This supports the notion that the weakness in housing is not enough of a reason to derail the Fed from their baseline policy path,” he said. “Tapering continues.”
While the industry is rebounding from a weather-ravaged first quarter, the pickup will probably fall short of previous projections, according to economists at Goldman Sachs Group Inc. of New York and Macroeconomic Advisers LLC in St. Louis. As a result, they trimmed their forecasts for economic growth in the second half of 2014 to about 3.25 percent from 3.5 percent.
“Housing is a growing worry,” said Macroeconomic Advisers’ senior economist Ben Herzon.
The trouble from the Fed’s perspective is that many of the forces holding housing back are outside of its control. While the Fed can influence mortgage rates through its conduct of monetary policy, it can’t do much, if anything, to counteract the other causes of faltering demand: lagging household formation, stingy lenders and wary borrowers.
Tight Financing
“Mortgage financing is extremely tight,” said Ellen Zentner, senior economist at Morgan Stanley in New York. “And that’s not something the Fed can manipulate.”The Fed’s ability to affect the supply of housing is even more limited. Builders are complaining about rising costs and an increasing difficulty in hiring skilled workers. They’re also concentrating on developing bigger, higher-priced projects rather than on the starter homes more buyers can afford. And they too are plagued by tight credit.
Dennis McConnell’s company is one of them. Before the housing crisis, Healthy House of Georgia built about 10 homes a year in historic districts in Atlanta. He said he’s put up two in the last six years combined, partly because of difficulties in finding financing.
McConnell said he’s resorting to private lenders to make his deals happen. Private sources can range from friends and family and self-financed projects to “hard-money” lenders -- “someone who, when you sign the dotted line, you count your fingers and toes and make sure you have them all back.”
Specialty Market
“For those poor saps like myself who build a couple houses a year or have a specialty market like mine, funding just became impossible,” he said.Statistics released last week suggested that the industry is still struggling. While sales of previously owned homes rose for the first time this year in April, they were still some 7 percent lower than a year earlier, according to data from the National Association of Realtors. New single-family house sales last month were 4.2 percent below the year-earlier level, Commerce Department data showed.
“New home sales bounce back to mediocrity,” was how economists Stephanie Karol and Patrick Newport of Lexington, Massachusetts-based IHS Global Insight characterized the numbers in a May 23 e-mail analysis.
Housing stocks have also taken a hit this year. The Standard and Poor’s Supercomposite Homebuilding Index, which includes companies such as Lennar Corp. and PulteGroup Inc., has declined 1.74 percent this year through yesterday, compared with a 3.4 percent gain in the broader S&P 500 Index.
Drag on Growth
After boosting GDP for 12 straight quarters, residential investment subtracted 0.26 percentage point from growth in the fourth quarter of 2013 and 0.18 point in the first quarter of this year, according to the Commerce Department.Mortgage-finance company Fannie Mae predicts housing construction will strengthen in the months ahead and lift gross domestic product by 0.2 percentage point this year, said vice president Mark Palim. While that’s only off slightly from last year’s 0.33 point contribution, it’s a third of what Fannie Mae economists were expecting at the start of 2014.
“I think that through the rest of the year, we’ll see an improvement, albeit maybe a little bit slow, but I do think that we’re on the right track,” Larry Nicholson, president and chief executive officer at Westlake Village, California-based homebuilder Ryland Group Inc., said during a May 14 presentation.
Housing Study
Fed policy makers have been repeatedly frustrated by their inability to engineer a full-fledged recovery of housing through their easy-money policies. Then-Chairman Ben S. Bernanke even went so far as to send a central bank study on the housing market to Congress in 2012, outlining steps that lawmakers could take to revive the industry. Senate Republicans promptly rebuked the Fed for overstepping its role by making policy recommendations to Congress.Mortgage rates have fallen recently as the bond market has rallied, in part on expectations of a continued loose monetary stance by the Fed. The average rate on a 30-year fixed loan was 4.14 percent in the week ended May 22, the lowest level since the end of October, according to McLean, Virginia-based Freddie Mac. However, that’s still up from 3.59 percent a year ago, around the time Bernanke mentioned that the central bank would start tapering its bond-buying program as the economy improved.
‘Largest Role’
Rising mortgage rates played “the single largest role in the recent weakness in residential investment,” according to Cleveland Fed vice president Edward Knotek and economist Saeed Zaman. Historically low mortgage rates “are likely to be an important factor underlying ongoing recovery in the housing market and, by extension, the economy overall.”Even a modest increase in mortgage rates through next year to a level around 5.5 percent -- still low by historical standards -- could hold back housing, Knotek and Zaman said in research released today.
The decline in mortgage rates this year isn’t “going to have a terribly big impact” on demand, especially since rates will probably rise again as the economy strengthens, said Mike Fratantoni, chief economist for the Mortgage Bankers Association in Washington.
The MBA’s purchase index, a measure of mortgage loan applications by those seeking to buy a home, stood at 180 in the week ended May 16, below the 197.5 average last year.
Credit Availability
“The level of the mortgage rate is not the issue,” said David Crowe, chief economist at the National Association of Home Builders in Washington. “It’s the availability of credit.”The supply of credit has improved slightly over the past year yet is still well below levels that would be considered normal, according to Fratantoni. The MBA’s mortgage credit availability index was 113.8 in April, up from 108.6 a year earlier but well below the 414.8 level that prevailed at the end of 2004, before the last housing boom.
If credit is key, then the most important policy maker when it comes to housing may not be Yellen, but Melvin Watt, the new director of the Federal Housing Finance Agency, which oversees government-controlled Fannie Mae and Freddie Mac.
In his first speech as head of the agency, Watt announced this month new rules to reduce the risk that banks will have to repurchase bad mortgages from Fannie and Freddie. The changes are designed to allow lenders to relax credit standards.
The steps Watt outlined are only going to help on the margin, said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute in Washington. To broaden credit availability, it will be important for the FHFA, Fannie Mae and Freddie Mac to set out a clear timetable for improving the buyback process, she added.
Harsh Weather
Economists inside and outside the Fed had expected housing to take a hit from the rise in mortgage rates last year and the severe weather over the winter. What’s surprised them is the steepness of the decline and its persistence.That’s led them to look for other reasons to explain the weakness. At their last meeting on April 29 to 30, Fed policy makers discussed a number of potential causes, according to the minutes of the gathering released last week. They included “higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input-cost pressures or a shortage in the supply of available lots.”
Deep Downturn
“The housing downturn was very deep and protracted. It takes time to shift resources back into this area,” Dudley told the New York Association for Business Economics on May 20. “In some markets house prices still appear to be below the cost of building a new home. Thus, in those markets it remains uneconomic to undertake new home construction.”Dudley also cited limited credit availability and reticent buyers as reasons for housing’s weakness. Heavy student debts have encouraged some young Americans to live with their parents rather than forming households of their own. Those debts also have discouraged them from purchasing homes.
What’s significant is that Dudley outlined “structural issues the Fed cannot control” in his speech, Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, wrote in a May 27 note to clients.
“This supports the notion that the weakness in housing is not enough of a reason to derail the Fed from their baseline policy path,” he said. “Tapering continues.”
Friday, May 23, 2014
Why are big investors betting against the housing market?-Wall Street sees housing recovery failure
MarketWatch surveyed some of the bigger names on Wall Street who focus on housing, and the general consensus is that whatever recovery was going isn’t anymore, and that they’re betting against housing.
Hard to argue considering that rates are at the lowest in 2014, and yet sales have stalled out in all but the highest priced segments.
Hard to argue considering that rates are at the lowest in 2014, and yet sales have stalled out in all but the highest priced segments.
Some of Wall Street’s most vocal investors are betting against housing, saying the recovery has fizzled out.
Earlier this month, DoubleLine Capital founder Jeffrey Gundlach took to the podium at a highly watched investment conference to suggest shorting the popular SPDR S&P Homebuilders exchange traded fund. He pointed to a concern, cited by others, that would-be young buyers are shunning mortgages .
BlackRock CEO Laurence Fink said Tuesday that the housing market is “structurally more unsound ” than prior to the financial crisis due to its reliance on Fannie Mae and Freddie Mac, according to news reports. He did sound a more optimistic note on homeownership reviving.
Real-estate investor Sam Zell says he expects the Homeownership rate to drop as low as 55% as more people delay marriages.
Thursday, May 22, 2014
Gain in Existing U.S. Home Sales Lifts Spring Prospects:
Previously owned U.S. home purchases increased in April as a bigger supply of properties lured buyers and raised prospects for a stronger spring buying season.
The 1.3 percent gain, the first this year, pushed sales to a 4.65 million annualized rate, National Association of Realtors data showed today. The number of available properties climbed to an almost two-year high, helping slow the pace of price appreciation.
A pickup in real-estate listings that improves affordability will help bring homeownership within reach of more Americans, increasing the odds the industry will recover from a yearlong slowdown. A gain in home construction last month showed builders are responding to limited inventory at the same time mortgage rates retreat and lure prospective buyers.
“The improvement in availability suggests stronger sales activity in the months ahead,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the second-best forecaster of existing home sales in the last two years, according to data compiled by Bloomberg. Still, “we need to see more building activity.”
More building permits last month helped boost the index of leading indicators by 0.4 percent after a 1 percent March gain that was the strongest since September, the New York-based Conference Board’s report showed today. The measure indicates the world’s largest economy will strengthen in the next three to six months after a first-quarter slowdown.
“If consumers continue to spend, and businesses pick up the pace of investment, the industrial core of the economy will benefit and GDP growth could move closer towards the 3 percent range,” Ken Goldstein, an economist at the Conference Board, said in a statement.
Economists surveyed by Bloomberg projected a 4.69 million pace of previously owned home sales. Estimates of 75 economists ranged from 4.6 million to 4.82 million after a 4.59 million pace in March that was the weakest since July 2012.
The report still contained figures that show housing is far from hitting its stride. Compared with a year earlier, purchases were down 7.3 percent. The gain from a month earlier was limited to stronger results in the West and the South.
Investors continued to play a big role in the market, the April increase was driven mainly by purchases of condominiums and the share of first-time buyers was little changed. Lower limits on loans guaranteed by the Federal Housing Administration have also taken a toll.
Sustained employment gains would give housing a further boost and lift consumers’ spirits at the same time. Another report today showed uneven labor-market improvement. The number of Americans filing for unemployment insurance increased by 28,000 to 326,000 in the week ended May 17 from a seven-year low in the prior period, according to the Labor Department.
Consumers’ expectations for the economy deteriorated to a seven-month low in May, data today from the Bloomberg Consumer Comfort Index showed. An expectations gauge that tracks where the economy is heading declined to 42.5 from 48 a month earlier. The share of respondents who said the economy was getting worse climbed to the highest level of the year.
The sales increase in April “is welcoming,” Lawrence Yun, NAR’s chief economist, told reporters as the figures were released. “I feel optimistic you would trend higher generally. Now with more inventory, I think there will be more buyers entering the market.”
The median selling price of an existing home rose 5.2 percent from April 2013 to $201,700. The year-over-year increase was the smallest since March 2012. Some 44 percent of transactions last month were for properties valued between $100,000 and $250,000. Homes costing less than $100,000 accounted for 17.5 percent.
Investors accounted for 18 percent of the home purchases last month, up from 17 percent a month earlier. Seven of 10 investors paid cash. All-cash transactions accounted for about 32 percent, about the same share as the last year, the report showed. First-time buyers represented 29 percent of all transactions.
Potential buyers are starting to find relief in cheaper borrowing costs. The average rate on a 30-year, fixed mortgage fell to 4.14 percent in the week ended today, the lowest since October, according to Freddie Mac in McLean, Virginia.
Home-improvement retailers Home Depot Inc. (HD) and Lowe’s Cos. (LOW) are sticking to forecasts for improved sales this year after demand cooled at the start of the year because of harsh weather.
While the long winter held receipts at Lowe’s established stores to a 0.9 percent gain in the quarter ended May 2, trailing the 5 percent increase analysts estimated, the Mooresville, North Carolina-based company maintained its forecast that revenue by that measure would advance 4 percent this year.
Home Depot, the largest home-improvement retailer, reported somewhat similar results yesterday. While first-quarter sales and profit trailed analysts’ estimates, ending six straight years of exceeding or meeting projections, the chain reiterated its forecast that revenue would gain 4.8 percent this year and boosted its projection for profit.
The 1.3 percent gain, the first this year, pushed sales to a 4.65 million annualized rate, National Association of Realtors data showed today. The number of available properties climbed to an almost two-year high, helping slow the pace of price appreciation.
A pickup in real-estate listings that improves affordability will help bring homeownership within reach of more Americans, increasing the odds the industry will recover from a yearlong slowdown. A gain in home construction last month showed builders are responding to limited inventory at the same time mortgage rates retreat and lure prospective buyers.
“The improvement in availability suggests stronger sales activity in the months ahead,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price is the second-best forecaster of existing home sales in the last two years, according to data compiled by Bloomberg. Still, “we need to see more building activity.”
More building permits last month helped boost the index of leading indicators by 0.4 percent after a 1 percent March gain that was the strongest since September, the New York-based Conference Board’s report showed today. The measure indicates the world’s largest economy will strengthen in the next three to six months after a first-quarter slowdown.
“If consumers continue to spend, and businesses pick up the pace of investment, the industrial core of the economy will benefit and GDP growth could move closer towards the 3 percent range,” Ken Goldstein, an economist at the Conference Board, said in a statement.
Stock Prices
Stocks rose, sending the Standard & Poor’s 500 Index toward a record amid a rebound in small-cap shares. The S&P 500 climbed 0.4 percent to 1,8X95.62 at 1:48 p.m. in New York.Economists surveyed by Bloomberg projected a 4.69 million pace of previously owned home sales. Estimates of 75 economists ranged from 4.6 million to 4.82 million after a 4.59 million pace in March that was the weakest since July 2012.
The report still contained figures that show housing is far from hitting its stride. Compared with a year earlier, purchases were down 7.3 percent. The gain from a month earlier was limited to stronger results in the West and the South.
Investors continued to play a big role in the market, the April increase was driven mainly by purchases of condominiums and the share of first-time buyers was little changed. Lower limits on loans guaranteed by the Federal Housing Administration have also taken a toll.
First-Time Buyers
“There’s not that many first-time buyers who are getting into the market,” said Stephanie Karol, a U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We see a turnaround happening slowly.”Sustained employment gains would give housing a further boost and lift consumers’ spirits at the same time. Another report today showed uneven labor-market improvement. The number of Americans filing for unemployment insurance increased by 28,000 to 326,000 in the week ended May 17 from a seven-year low in the prior period, according to the Labor Department.
Consumers’ expectations for the economy deteriorated to a seven-month low in May, data today from the Bloomberg Consumer Comfort Index showed. An expectations gauge that tracks where the economy is heading declined to 42.5 from 48 a month earlier. The share of respondents who said the economy was getting worse climbed to the highest level of the year.
Housing Inventory
The report from the Realtors group showed the number of previously owned homes on the market rose 16.8 percent to 2.29 million, the highest since August 2012. At the current sales pace, it would take 5.9 months to sell those houses. Less than a five months’ supply is considered a tight market, the NAR has said.The sales increase in April “is welcoming,” Lawrence Yun, NAR’s chief economist, told reporters as the figures were released. “I feel optimistic you would trend higher generally. Now with more inventory, I think there will be more buyers entering the market.”
The median selling price of an existing home rose 5.2 percent from April 2013 to $201,700. The year-over-year increase was the smallest since March 2012. Some 44 percent of transactions last month were for properties valued between $100,000 and $250,000. Homes costing less than $100,000 accounted for 17.5 percent.
Investors accounted for 18 percent of the home purchases last month, up from 17 percent a month earlier. Seven of 10 investors paid cash. All-cash transactions accounted for about 32 percent, about the same share as the last year, the report showed. First-time buyers represented 29 percent of all transactions.
Condo Sales
Sales of single-family homes increased 0.5 percent to an annual rate of 4.06 million. Purchases of multifamily properties -- including condominiums and townhouses -- jumped 7.3 percent to a 590,000 pace.Potential buyers are starting to find relief in cheaper borrowing costs. The average rate on a 30-year, fixed mortgage fell to 4.14 percent in the week ended today, the lowest since October, according to Freddie Mac in McLean, Virginia.
Home-improvement retailers Home Depot Inc. (HD) and Lowe’s Cos. (LOW) are sticking to forecasts for improved sales this year after demand cooled at the start of the year because of harsh weather.
While the long winter held receipts at Lowe’s established stores to a 0.9 percent gain in the quarter ended May 2, trailing the 5 percent increase analysts estimated, the Mooresville, North Carolina-based company maintained its forecast that revenue by that measure would advance 4 percent this year.
More Confidence
“Performance has improved in May which, together with our strengthening execution, gives us confidence to reaffirm our sales and operating profit outlook for the year,” Robert Niblock, chief executive officer of the second-largest U.S. home-improvement retailer, said in a statement.Home Depot, the largest home-improvement retailer, reported somewhat similar results yesterday. While first-quarter sales and profit trailed analysts’ estimates, ending six straight years of exceeding or meeting projections, the chain reiterated its forecast that revenue would gain 4.8 percent this year and boosted its projection for profit.
Tuesday, May 20, 2014
Here’s why there aren’t any houses to buy
The supply of existing homes on the market remains low, at 5.2 months in March, according to a report from Freddie Mac.
The total number of homes offered for sale relative to the number of households in the U.S. has been running at the lowest level in more than 30 years.
"The housing recovery is struggling to shift into a higher gear, and obviously there are various imbalances holding this back from happening, but at the heart of the matter it comes down to jobs,” said Frank Nothaft, Freddie Mac vice president and chief economist.
But these low inventory challenges are the direct offspring of several features of today’s market.
1. Underwater homeowners
Since the Mortgage Forgiveness Debt Relief Act expired on Dec. 31, 2013, many underwater homeowners are reluctant to short-sell.
CoreLogic reported that 6.5 million homeowners remained underwater as of year-end 2013.
Meanwhile, there was also a sharp decline in short sales at the beginning of 2014, from 5.2% of sales in December to 2.2% of sales in February.
2. Low rates
Many borrowers were able to refinance into record low rates in the past several years.
According to the Bureau of Economic Analysis, the average interest rate on single-family mortgages outstanding was 3.9% during the first quarter of 2014, drastically down from the average 30-year fixed-rate average rate of 4.4% for new loans during the quarter.
As a result, homeowners are reluctant to sell their current home and forego the low rate mortgage loan they currently have.
3. REO sales slow
Despite real-estate owned sales remaining strong in some markets, in aggregate REO sales have slowed considerably over the past couple of years.
“A decline in the number of homes offered for sale at each price point over the past year is consistent with the trend in the number of sales and in house prices: A supply-constrained market (holding other factors constant) will result in a decline in the volume of sales and an increase in real transaction prices (that is, house prices rising faster than inflation for all other goods),” Freddie said.
And even though existing home sales are down 6.3% during the first quarter of 2014 compared with a year ago, house prices are up 8%.
The total number of homes offered for sale relative to the number of households in the U.S. has been running at the lowest level in more than 30 years.
"The housing recovery is struggling to shift into a higher gear, and obviously there are various imbalances holding this back from happening, but at the heart of the matter it comes down to jobs,” said Frank Nothaft, Freddie Mac vice president and chief economist.
But these low inventory challenges are the direct offspring of several features of today’s market.
1. Underwater homeowners
Since the Mortgage Forgiveness Debt Relief Act expired on Dec. 31, 2013, many underwater homeowners are reluctant to short-sell.
CoreLogic reported that 6.5 million homeowners remained underwater as of year-end 2013.
Meanwhile, there was also a sharp decline in short sales at the beginning of 2014, from 5.2% of sales in December to 2.2% of sales in February.
2. Low rates
Many borrowers were able to refinance into record low rates in the past several years.
According to the Bureau of Economic Analysis, the average interest rate on single-family mortgages outstanding was 3.9% during the first quarter of 2014, drastically down from the average 30-year fixed-rate average rate of 4.4% for new loans during the quarter.
As a result, homeowners are reluctant to sell their current home and forego the low rate mortgage loan they currently have.
3. REO sales slow
Despite real-estate owned sales remaining strong in some markets, in aggregate REO sales have slowed considerably over the past couple of years.
“A decline in the number of homes offered for sale at each price point over the past year is consistent with the trend in the number of sales and in house prices: A supply-constrained market (holding other factors constant) will result in a decline in the volume of sales and an increase in real transaction prices (that is, house prices rising faster than inflation for all other goods),” Freddie said.
And even though existing home sales are down 6.3% during the first quarter of 2014 compared with a year ago, house prices are up 8%.
Monday, May 12, 2014
Mortgage delinquency risk hits all-time high
The National Mortgage Risk Index for home purchase loans hit a new series’ high of 11.89% for April, up from 11.50% in March.
The NMRI is an objective mortgage risk measure, created by the American Enterprise Institute’s Center on Housing Risk. It represents an estimated cumulative default rate for new home purchase loans under the assumption of stress conditions from 2007-2012.
The increase was due to the Federal Housing Finance Administration, which had higher market share and increasing loan level risk. The FHA’s April home purchase volume was 41,756, an increase of 36% over March.
By contrast Fannie Mae and Freddie Mac had April home purchase volume of 101,050, an increase of 24% over March and down 4% from the same month last year.
Overall April purchase volume was up 27% over March, the result of the spring buying season ramping up.
The April NMRI for FHA loans also hit a new series high of 25.12% up from 24.77% in March.
The April NMRI for Fannie Mae and Freddie Mac loans declined slightly to 5.93% from 6.00% in March.
An overall index level of less than 6% is indicative of conditions conducive to a stable national market. For more information about the NMRI, please visit HousingRisk.org.
The NMRI is an objective mortgage risk measure, created by the American Enterprise Institute’s Center on Housing Risk. It represents an estimated cumulative default rate for new home purchase loans under the assumption of stress conditions from 2007-2012.
The increase was due to the Federal Housing Finance Administration, which had higher market share and increasing loan level risk. The FHA’s April home purchase volume was 41,756, an increase of 36% over March.
By contrast Fannie Mae and Freddie Mac had April home purchase volume of 101,050, an increase of 24% over March and down 4% from the same month last year.
Overall April purchase volume was up 27% over March, the result of the spring buying season ramping up.
The April NMRI for FHA loans also hit a new series high of 25.12% up from 24.77% in March.
The April NMRI for Fannie Mae and Freddie Mac loans declined slightly to 5.93% from 6.00% in March.
An overall index level of less than 6% is indicative of conditions conducive to a stable national market. For more information about the NMRI, please visit HousingRisk.org.
Tuesday, May 6, 2014
Fed: Nearly half of lenders say mortgage demand is weaker-At the same time, credit demand tightens
Lenders continued to raise the bar on credit standards over the past three months, making it more difficult for potential homeowners to jump into the market. However, loan officers also reported weaker loan demand.
According to the April Federal Reserve senior loan officer survey, credit standards on mortgage loans that banks categorize as nontraditional residential mortgages and subprime residential mortgage tightened.
The survey interviewed 74 domestic banks and found that when it comes to prime residential loans, the difference in credit changes over the past three months is divided.
Of the 70 banks that responded, 51 said standards remain basically unchanged, nine eased somewhat and 10 tightened somewhat.
However, on the level of nontraditional residential mortgages, eight said it tightened somewhat and three said it tightened considerably. But 32 respondents responded that their bank didn't originate non-traditional mortgages at all.
With even less respondents, only seven banks responded to the subprime question, and of that seven, one said credit standards tightened somewhat and two banks said credit standards tightened considerably.
But as credit standards tightened, loan officers reported that the demand wasn't there either.
Out of 70 responses, 28 people said demand was the same, while 27 said it was moderately weaker and only 12 posted a moderately stronger demand.
Then for nontraditional mortgages, of the 37 responses, 12 said demand was moderately weaker compared to 17 that said demand was the same.
This drop in demand can also be seen in lender earnings, with more banks revealing in their first-quarter earnings that things are tougher now in mortgage finance compared to a year prior.
In the current earnings season, Wells Fargo (WFC) reported record net income of $5.9 billion, up 14%, or $1.05 per diluted common share, for first quarter 2014, where as JPMorgan Chase (JPM) recorded a first quarter 2014 net income of $5.3 billion, a drop from $6.5 billion in the first quarter of 2013.
Both banks posted significant drawbacks in their mortgage divisions.
According to the April Federal Reserve senior loan officer survey, credit standards on mortgage loans that banks categorize as nontraditional residential mortgages and subprime residential mortgage tightened.
The survey interviewed 74 domestic banks and found that when it comes to prime residential loans, the difference in credit changes over the past three months is divided.
Of the 70 banks that responded, 51 said standards remain basically unchanged, nine eased somewhat and 10 tightened somewhat.
However, on the level of nontraditional residential mortgages, eight said it tightened somewhat and three said it tightened considerably. But 32 respondents responded that their bank didn't originate non-traditional mortgages at all.
With even less respondents, only seven banks responded to the subprime question, and of that seven, one said credit standards tightened somewhat and two banks said credit standards tightened considerably.
But as credit standards tightened, loan officers reported that the demand wasn't there either.
Out of 70 responses, 28 people said demand was the same, while 27 said it was moderately weaker and only 12 posted a moderately stronger demand.
Then for nontraditional mortgages, of the 37 responses, 12 said demand was moderately weaker compared to 17 that said demand was the same.
This drop in demand can also be seen in lender earnings, with more banks revealing in their first-quarter earnings that things are tougher now in mortgage finance compared to a year prior.
In the current earnings season, Wells Fargo (WFC) reported record net income of $5.9 billion, up 14%, or $1.05 per diluted common share, for first quarter 2014, where as JPMorgan Chase (JPM) recorded a first quarter 2014 net income of $5.3 billion, a drop from $6.5 billion in the first quarter of 2013.
Both banks posted significant drawbacks in their mortgage divisions.
Monday, May 5, 2014
Realogy misses estimates, posts $1 billion net revenue- spring selling season fails to help
Realogy (RLGY) reported a first-quarter net loss of $46 million, or $0.32 per share, missing analyst expectations by $0.11.
Additionally, Realogy's net revenue for first quarter 2014 hit $1 billion, a 5% increase compared to first quarter of 2013, also missing analyst consensus by $100 million.
The net loss includes $70 million of interest expense, $46 million of depreciation and amortization expense and $10 million in pre-tax charges related to the repricing of its term loan and repurchases of $44 million of senior secured notes during the quarter.
Realogy's Adjusted EBITDA for first quarter 2014 was $53 million, down from $71 million in the first quarter of 2013, due to an approximately $20 million reduction in earnings related to the decrease in refinancing activity at its mortgage origination joint venture and within the company's title and settlement services segment.
And this is not estimated to end soon.
"This trend, which is expected to continue for much of 2014, along with a pause in the rate of growth in the housing recovery we are seeing this year, could make for challenging near-term comparisons, although current industry forecasts for 2015 are more favorable," said Richard Smith, Realogy's chairman, CEO and president.
Smith explained that the company witnessed two opposing trends in the market, causing an overall shift in Realogy's mix of business resulting in a higher average sale price and reduced transaction sides.
“Demand at the higher price points in markets served by our franchisees and company-owned brokerages was strong, while difficult credit standards and rapid home price appreciation, primarily caused by low inventory levels, constrained activity at the entry level of the housing market," Smith explained.
Looking ahead, the company expects homesale transaction volume in the range of -2% to +2% year-over-year in the second quarter of 2014.
"As we have moved into our spring selling season, thus far the level of open activity we expected has not materialized, particularly as it relates to homesale transaction sides," said Anthony Hull, Realogy's executive vice president, chief financial officer and treasurer.
"Having said that, we expect our aggregate number of homesale transaction sides to increase sequentially from 260,000 in the first quarter of 2014 to between 367,600 to 375,500 in the second quarter," Hull added.
Additionally, Realogy's net revenue for first quarter 2014 hit $1 billion, a 5% increase compared to first quarter of 2013, also missing analyst consensus by $100 million.
The net loss includes $70 million of interest expense, $46 million of depreciation and amortization expense and $10 million in pre-tax charges related to the repricing of its term loan and repurchases of $44 million of senior secured notes during the quarter.
Realogy's Adjusted EBITDA for first quarter 2014 was $53 million, down from $71 million in the first quarter of 2013, due to an approximately $20 million reduction in earnings related to the decrease in refinancing activity at its mortgage origination joint venture and within the company's title and settlement services segment.
And this is not estimated to end soon.
"This trend, which is expected to continue for much of 2014, along with a pause in the rate of growth in the housing recovery we are seeing this year, could make for challenging near-term comparisons, although current industry forecasts for 2015 are more favorable," said Richard Smith, Realogy's chairman, CEO and president.
Smith explained that the company witnessed two opposing trends in the market, causing an overall shift in Realogy's mix of business resulting in a higher average sale price and reduced transaction sides.
“Demand at the higher price points in markets served by our franchisees and company-owned brokerages was strong, while difficult credit standards and rapid home price appreciation, primarily caused by low inventory levels, constrained activity at the entry level of the housing market," Smith explained.
Looking ahead, the company expects homesale transaction volume in the range of -2% to +2% year-over-year in the second quarter of 2014.
"As we have moved into our spring selling season, thus far the level of open activity we expected has not materialized, particularly as it relates to homesale transaction sides," said Anthony Hull, Realogy's executive vice president, chief financial officer and treasurer.
"Having said that, we expect our aggregate number of homesale transaction sides to increase sequentially from 260,000 in the first quarter of 2014 to between 367,600 to 375,500 in the second quarter," Hull added.
Monday Morning Cup of Coffee: JPMorgan CEO tells all; Housing recovery divided
Monday Morning Cup of Coffee takes a look at stories across the HousingWire news desk, with more coverage to come on bigger issues.
As the first-quarter earnings season starts to come to a close, a new trend started to unfold in CEO letters to shareholders, according to an article in CNBC.
CEOs usually send the letters along with the company’s proxy statement in the spring because proxy statements are due within four months of every company’s fiscal year ending.
The article explained that most CEOs have a tendency to take this time to boast about their accomplishments.
But this year was a little different, with some CEOs taking the opportunity to rmark on recent, not-so-grand events. A full list of CEOs telling it like it is is available in the original USA Today article.
JPMorgan Chase (JPM) CEO Jamie Dimon dealt with a year filled billions of dollars of settlements, mostly related to mortgage securities.
Thousands of homeowners will open their mailboxes to a pleasant surprise as Everbank Financial is prepared to write $1,050 checks to 25,389 of its customers, even though no errors were found in reviews of their foreclosure files, an article in The Washington Post explained.
As HousingWire reported a week ago, Office of the Comptroller of the Currency released a status update on how much of that $3.9 billion payback fund has actually been paid out, and how much of the $6 billion in foreclosure prevention actions has been collected by the government.
EverBank was one of the last mortgage servicers to sign on to an amended government order born out of the rob-signing scandal, the article stated. And this particular situations comes out the foreclosure settlement that that the bank inked with the OCC and the Federal Reserve in August.
The Las Vegas housing market is doing much better, with widespread appreciation offering broad economic benefits to the Las Vegas Valley, the Las Vegas Review-Journal said in an article.
“Because the market has worked through a big chunk of its inexpensive, distressed homes, investor interest is starting to wane, sales will be driven more by people who are buying a place to live in,” Brian Gordon, a SalesTraq principal, which is the real estate research company that conducted the study.
“As availability creeps north, and the demand side of the equation becomes more sustainable, overall price appreciation is likely to slow,” Gordon added in the article.
Every ZIP code in the Las Vegas area enjoyed a 2013 boost, ranging from a low of 6.9% in Boulder City’s 89005 to a high of 53.2% in 89107, around Decatur Boulevard and U.S. Highway 95.
Continuing with the news on the housing recovery, the same type of positive reports cannot be found in South Florida.
A series in the Miami Herald, unfolds how far removed the poor neighborhoods in Miami are from the housing recovery.
Although Miami-Dade County is making international headlines for its swaggering resurgence from the housing crash, in the north-central neighborhoods comprising ZIP code 33147, the crisis still exists.
Meanwhile, many homes are still in the labyrinth of foreclosure, and those property owners who survived are struggling with the fallout from neighbors who lost their humble homes.
The neighborhoods' main hope clings on the promise of an intensifying focus on redeveloping the 79th Street corridor.
The Federal Insurance Corp. reported no bank closing this week.
As the first-quarter earnings season starts to come to a close, a new trend started to unfold in CEO letters to shareholders, according to an article in CNBC.
CEOs usually send the letters along with the company’s proxy statement in the spring because proxy statements are due within four months of every company’s fiscal year ending.
The article explained that most CEOs have a tendency to take this time to boast about their accomplishments.
But this year was a little different, with some CEOs taking the opportunity to rmark on recent, not-so-grand events. A full list of CEOs telling it like it is is available in the original USA Today article.
JPMorgan Chase (JPM) CEO Jamie Dimon dealt with a year filled billions of dollars of settlements, mostly related to mortgage securities.
"The bad news was bad," he wrote. "The most painful, difficult and nerve-wracking experience that I have ever dealt with professionally was trying to resolve the legal issues we had this past year."However, Dimon stressed that despite all of the negative, JP Morgan came out strengthened. And, despite the loss, Dimon's 2013 compensation package was raised to $20 million.
Thousands of homeowners will open their mailboxes to a pleasant surprise as Everbank Financial is prepared to write $1,050 checks to 25,389 of its customers, even though no errors were found in reviews of their foreclosure files, an article in The Washington Post explained.
As HousingWire reported a week ago, Office of the Comptroller of the Currency released a status update on how much of that $3.9 billion payback fund has actually been paid out, and how much of the $6 billion in foreclosure prevention actions has been collected by the government.
EverBank was one of the last mortgage servicers to sign on to an amended government order born out of the rob-signing scandal, the article stated. And this particular situations comes out the foreclosure settlement that that the bank inked with the OCC and the Federal Reserve in August.
The Las Vegas housing market is doing much better, with widespread appreciation offering broad economic benefits to the Las Vegas Valley, the Las Vegas Review-Journal said in an article.
“Because the market has worked through a big chunk of its inexpensive, distressed homes, investor interest is starting to wane, sales will be driven more by people who are buying a place to live in,” Brian Gordon, a SalesTraq principal, which is the real estate research company that conducted the study.
“As availability creeps north, and the demand side of the equation becomes more sustainable, overall price appreciation is likely to slow,” Gordon added in the article.
Every ZIP code in the Las Vegas area enjoyed a 2013 boost, ranging from a low of 6.9% in Boulder City’s 89005 to a high of 53.2% in 89107, around Decatur Boulevard and U.S. Highway 95.
Continuing with the news on the housing recovery, the same type of positive reports cannot be found in South Florida.
A series in the Miami Herald, unfolds how far removed the poor neighborhoods in Miami are from the housing recovery.
Although Miami-Dade County is making international headlines for its swaggering resurgence from the housing crash, in the north-central neighborhoods comprising ZIP code 33147, the crisis still exists.
Meanwhile, many homes are still in the labyrinth of foreclosure, and those property owners who survived are struggling with the fallout from neighbors who lost their humble homes.
The neighborhoods' main hope clings on the promise of an intensifying focus on redeveloping the 79th Street corridor.
The Federal Insurance Corp. reported no bank closing this week.
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