21 years to save for the down payment on a house?

Guardian reporter Jessica Glenza and her boyfriend are buying a house and decided to go with a Federal Housing Authority loan. Glenza explains (in a satirical way that catches your eye), how she can finally afford a home and why some might think this is a bad thing.

It was over a plate of linguine and cream sauce that I learned I could afford a home. The government-run program allows buyers to put down as little as 3.5% of the property’s sales price.
What I found out is that the Federal Housing Authority finances about one in five homes in the US, a huge proportion. FHA financing works by allowing people to finance part of the traditional 20% down payment. 

Previously, Glenza assumed she would be forced to save for 10 to 15 years in order to pull together a 20% down payment.
However, as she learned about this new program, she also realized the opposition to it. This is where people like Norbert Michael from the Heritage Foundation, who would rather do away with Fannie, Freddie and the FHA, come in.

“The [government-sponsored enterprise] system has blown up more than once already in history,” said Michael. “I don’t think you should have the federal government in the business of insuring people’s mortgages,” he said.

In Michael’s view, eliminating programmes like the FHA would eliminate debt, something that financial types would refer to as “risk”. Like people, debt is more likely to experience health problems with age, and missed payments, or default, is a function of time.

As a result, this would be counterbalanced by home prices – which Michael believes are currently inflated, and would come down if the government got out of the way.
But this would also significantly impact people's ability to become homeowners.

An analysis by the Centre for Responsible Lending found that it would take a family earning the median income, or $50,046, 21 years to save for a 10% down payment and closing costs on a house of median value ($158,100), both using 2010 census numbers. That’s derived from Americans’ average savings rate of 3.9%. It would take even longer for African-American and Latino families to do the same – 31 and 26 years respectively.

Default Mortgage Demand is Up

According to an article in Bloomberg, sales of delinquent mortgages are accelerating as lenders rush to meet demand from hedge funds and private-equity firms that has sent prices surging.

The market for defaulted mortgages is heating up as Wall Street firms try to profit from the housing recovery, banks seek to avoid the added costs of holding delinquent debt and the Department of Housing and Urban Development sells loans to reduce losses at the financially troubled Federal Housing Administration. 

“This market is getting very heady and you are seeing the supply come out in response to these prices,” Laurence Penn, CEO of Ellington Financial, said. 

Top 10 Markets Expected To Do Well

Although home price growth has slowed dramatically from last year and will continue to slow into mid-2015 are now enjoying the advantage of price increases, while buyers have more choices.
In 10 key markets, strong price appreciation and increases in housing inventory increase are an early sign of potential strong home sales, in contrast to what’s happening in the rest of the housing market nationwide, realtor.com reports in its June National Housing Trend Report.
“National housing trends are masking some of the excitement we’re seeing in individual markets,” said Jonathan Smoke, chief economist for realtor.com. “For the last two years, listing shortages constrained home sales and frustrated buyer demand. Our June data shows monthly inventory picking up in markets already experiencing price increases and fast property turnover.
“These dynamics will result in strong home sales and extend the buying season past the usual June/July peak to later in the third quarter,” Smoke said.
Homes in the Charlotte, N.C. region are selling 14 days faster compared to a year ago – the most improved in median inventory age among these markets.
Meanwhile Reno, Nevada, the “biggest little city in America,” has the biggest year-over-year home price increase at nearly 18.5%.
“The markets where we expect significant third quarter home sales are all very different – ranging from small to large, affordable to expensive, previously distressed to minimally affected by the downturn,” Smoke said. “Diversification in the areas experiencing healthy real estate economies is a key indicator that the housing recovery has become more sustainable.”
Median list prices are up 7.6 percent in June over last year. Month-over-month price acceleration is slower compared to April, when the home-buying season traditionally starts.
National housing inventory is now roughly in line with June 2013 levels when rising home prices first generated a surge in market supply. Additionally, homes in June sold 5 percent faster than last year.
  Top Markets Set for Significant Growth in Home Sales
(Listed in alphabetical order)

 

MSA	Median Listing Price	% YY	% MM	Total Listings	% YY	% MM	Median Age of Inventory	% YY	% MM
Albany-Schenectady-Troy, NY	$226,025	0.50%	0.50%	6,145	1.10%	9.83%	80 days	-4.76%	-3.61%
Baton Rouge, LA	$188,000	4.50%	1.62%	3,630	1.79%	7.27%	74 days	-8.64%	-6.33%
Charlotte-Gastonia-Rock Hill, NC-SC (NC)	$209,000	7.18%	2.00%	12,906	-2.15%	3.53%	64 days	-17.95%	-7.25%
Columbia, SC	$162,500	2.20%	0.03%	5,190	-0.63%	2.98%	83 days	-8.79%	-13.54%
Des Moines, IA	$179,900	7.47%	0.50%	3,654	-4.09%	5.97%	59 days	-4.84%	-1.67%
Philadelphia, PA-NJ (NJ)	$187,000	1.14%	1.14%	12,233	-4.75%	3.59%	97 days	-9.35%	-1.02%
Portland-Vancouver, OR-WA (WA)	$299,000	11.15%	1.05%	2,207	-3.79%	15.55%	59 days	-16.90%	-4.84%
Reno, NV	$295,000	18.47%	1.76%	2,539	2.01%	6.82%	60 days	-1.64%	-1.64%
Spokane, WA	$198,000	7.06%	4.27%	3,986	8.20%	7.90%	61 days	-3.17%	-14.08%
Washington, DC-MD-VA-WV (VA)	$429,000	4.63%	0.00%	14,776	4.06%	6.34%	53 days	-8.62%	-7.02%

Each market listed demonstrates strong supply and demand dynamics including:
Inventory increases:  For-sale inventory shortages have played a significant role in limiting home sales during the past two years. Each community listed is getting its supply in check with month-over-month inventory growth. Additionally, half of these markets also are increasing on a yearly basis.  
Median list price increases: Price increases encourage sellers to put homes on the market and indirectly keep inventory levels more sustainable. While each region listed had price increases on a monthly and yearly basis, they vary from hot markets with fast price acceleration, such as Reno, Nevada, to communities just beginning to see appreciation, such as Albany, N.Y
Median age of inventory decreases: Declining median age of inventory indicates listings growth has not satisfied demand. Properties in these areas are selling faster than last year, demonstrating continuing homebuyers’ interest that will propel sales.

Home Affordability Down- and why values will adjust

As of the second quarter of 2014, one-third of counties surveyed by RealtyTrac have surpassed their historical averages for income-to-price home affordability percentages since 2000 — making residential properties less affordable now than they have been on average over the last 14 years.
The survey analyzed the affordability for buying a residential property in more than 1,000 counties nationwide.
It is important to note that none of the nearly 1,200 counties analyzed have regressed to the dangerously low affordability levels reached during the housing price bubble, and even if interest rates increased 1 percentage point, only 59 counties representing 2% of the U.S. population would be at or above bubble levels in terms of affordability.
“But the scales are beginning to tip away from the extremely favorable affordability climate we’ve seen over the last two years, with one-third of the counties analyzed — representing 19 percent of the total population in those counties — now less affordable than their long-term averages,” said Daren Blomquist, vice president at RealtyTrac.
Additionally, counties still more affordable than their long-term averages in the second quarter included Los Angeles County (by less than a half a percentage point), Cook County, Illinois, Maricopa County, Arizona, San Diego and Orange counties in Southern California, Miami-Dade County in South Florida and the New York City boroughs of Kings County and Queens County.
Counties less affordable than their long-term averages included San Francisco County, California, Multnomah County, Oregon, Travis County, Texas, Bexar County, Texas, Harris County, Texas and Fulton County, Georgia.

An Opinion Why The Housing Recovery Is Not Real

As I continue to follow and write about developments affecting the housing market I cannot help but notice an increase in reports and supporting articles that question the strength of this important component of the general economy in America.
In a piece authored by John Mason in The Street dated Jul. 31, “How Fast Can the U.S. Economy Grow With So Many Delinquent Loans?” Mr. Mason points to a recent report by the Urban Institute, “… that analyzed the credit files of 7 million Americans shows why the U.S. economy may not be as strong as [another recent] report from the Commerce Department on second-quarter growth may have indicated.”
Mason’s article continues to state that the government reported that GDP rose at a seasonally adjusted 4% annual rate in the second quarter, as compared to a decline of 2.1% during the first quarter, which as we know was revised downward to a staggering 2.9% contraction. I have also reported on this here at HousingWire. There continues to be conflicting reports about just how “strong” our economic recovery is, or has been.
The Urban Institute, as noted by Mason, reported that about one-third of adults in America who have a credit file have a report of debt that is in collection.
And what is also noteworthy is that many low-income individuals and families do not have access to credit but still might well be delinquent on debts. It is estimated, according to the Urban Institute’s report that it is possible that as many as 40% of adults in the U.S. are delinquent on loans of one type or another, or several others.
This fact undermines the government’s rosy report regarding second quarter GDP growth. But that is hardly news in and of itself.
However, also taking a look at future housing prices across the nation, another article, this one penned by Mike Sorohan featured in MBA NewsLink on Aug. 4, “Housing Reports Mixed on Prices, Delinquencies,” quotes Clear Capital from their Home Data Index Market Report showing a “major shift” in home sales types. Sorohan noted that “… distressed sales fell in July to 18%, a ‘stark’ reduction since its peak of 40.8% in March 2011.”
But a key indicator in this article that the so-called housing “recovery” has been illusory is that Clear Capital noted that national yearly growth fell from 9% in June to 8.4% in July. Sorohan said in his piece that Clear Capital’s “forecast shows national home prices could rise by 1.5%, suggesting prices might not have the strength to stabilize.”
A vice president of research and analytics from Clear Capital was quoted by Sorohan as stating that, “Relatively speaking a national yearly growth rate of 8.4% is not alarming, but it’s the path by which we got there that is of concern.”
I completely agree, since the growth rate today is more than 3% lower than it was at the beginning of this year. And historically the summer months are among the most conducive to increases in sales, pushing economic growth.
Unfortunately, the housing market of recent years cannot be compared to previous cycles.
It is also important to note that many such reports do not take into full consideration the differences in market conditions from one part of the country to another. The inexplicable rise in house prices in the West, for example, is not replicated in other parts of the nation.
But because of space limitations and other factors, such as trends, looking at the nation as a whole still provides a good barometer for what is “real” and what is “Memorex.”

In Case You Wanted To Buy The Next Rental- Vacancies and Delinquencies Spike

The vacancy rate for the single-family rental homes in Colony American Homes’ $513.6 million securitization is rising and it’s rising quickly.
In the last two months, the month-end vacancy rate has risen nearly 77%, from 3.9% in April to 6.9% in June. There are 3,396 single-family rental properties that support Colony American Homes’ first securitization, which launched in March.
The number of vacant properties has jumped from 132 in April, to 184 in May, to 236 in June.
That means vacancies jumped from less than 4% to around nearly 7%.
In terms of vacancies determined by the amount of cash collected, the vacancy rate is lower, but still increased 72.2% — from 3.6% in April to 6.2% in June.
Additionally, the month-end delinquency rate has more than doubled in the last month. In May, the delinquency rate was 0.7%. It rose to 1.5% in June, which represents an increase of 114%.
By comparison, the delinquency rate actually dropped from April to May, by 0.1%.
In total, the vacancy and delinquency rate by property count has risen nearly 81% in the last two months, from 4.7% in April to 8.5 in June.
On the securitization’s cutoff date of February 1, the underlying properties were 100% rented and had no delinquencies.
But according to a performance update from Morningstar, the net cash flow based on the total rent collected is still sufficient to cover the bond obligations. Morningstar factors in an expected vacancy rate of 9% for the underlying properties, so despite the drastic increase, the vacancy rate is still below Morningstar’s expected threshold.
Perhaps these fluctuations are to be expected, considering the fickle nature of renters. In the last few months, the vacancy rate for the homes that make up the $1 billion REO-to-rental securitization from Invitation Homes has seesawed between 5.5% in April, to 7.3% in May and back down to 6.8% in June.
Morningstar expects these jumps to subside in time. “Initial lease expirations are anticipated to peak in July and August this year,” Morningstar reported. “As the number of expiring leases declines following this peak and vacant properties become occupied, Morningstar expects the month-end vacancy rate to stabilize and to potentially decline.”
Morningstar does caution that it reviews the vacancy rates at the end of the respective months, when vacancies tend to be higher than in other points in the month.
Morningstar also provided a report on Colony American Homes’ second REO-to-rental securitization, which was brought to market in June. CAH 2014-2 was a $558.5 million single-family rental securitization based on 3,719 income-producing properties.
The vacancy rate for CAH 2014-2 stands at 0.9% as of June 30. Of the 3,719 properties, 35 were vacant at the end of June.
The delinquency rate was even lower, at 0.1% for June, with only four properties reported as delinquent.
Of note is the fact that more than a third of the vacant properties are located in Tampa/St. Petersburg/Clearwater, Florida.
“Initial lease expirations are anticipated to gradually increase through the remainder of 2014 before peaking in February 2015,” Morningstar’s report states.
“As the number of expiring leases increases, Morningstar expects the month-end vacancy rate to steadily rise through the February 2015 peak, after which time, the vacancy percentage should stabilize and potentially decline. Morningstar’s expected stabilized vacancy rate is 10.3% for this transaction.”
As with Colony American’s first rental securitization, Morningstar reports that the net cash flow based on the total rent collected is sufficient to cover the bond obligations.

Mortgage Lending Standards Ease Up

Mortgage-lending standards eased up during the second quarter, indicating a gradual thaw and potentially helping boost a sluggish housing recovery, according to an article in The Wall Street Journal.

In the Federal Reserve's latest quarterly survey of banks' senior loan officers, nearly one-quarter of respondents said they had eased standards modestly on prime mortgages, the first such sign of a thaw in any of the Fed's surveys since the housing bust hit in 2007.
Still, the survey showed that lending standards remain stringent, historically speaking. The Fed asked banks how standards for various types of lending have varied since 2005, and nearly half of lenders said mortgage standards were tighter than their median requirements for the past decade.