Freddie Mac: Top 5 most improved housing markets- Despite Weak Market, Still Improving

While the housing recovery remains at a snail’s pace, it is still improving, with the markets that exhibit stronger local economies and favorable demographics on an even faster pace of improvement.
Freddie Mac released the June numbers for the Multi-Indicator Market Index, which showed a weak market, improving only .04% from May to June. However, on a year-over-year basis, the U.S. housing market has improved by 7.67%.
“As we see the economy slowly normalizing we’re starting to see its effects in the housing market as well, albeit very slowly. The good news is the big housing markets, of which some were also the hardest hit, continue to improve,” Freddie Mac Chief Economist Frank Nothaft said.
“For example, from the same time last year, California is up 12% and every market MiMi tracks in the state is improving. Meanwhile, Florida is up nearly 15% and Illinois is up nearly 13% over the past year,”
So here is Freddie’s list of the top 5 most improved metros that are faring better than the rest of the nation. (All charts are from Freddie Mac and compare the metro to the nation; click for larger image)
5. Miami

Miami has steadily improved over the year and ranks 32nd, increasing two spots from last month and increasing 11 spots from one year ago. A lot of Miami’s improvement is due to the 14.35% increase in the current on mortgage indicator over the past three months.
4. Chicago

While Chicago stayed in the 44th spot this month, it has increased three spots from one year ago. A 14.89% increase in the metro’s employment indicator over the past three months is a main driver behind the improvement.
3. San Jose

San Jose’s improvement is largely due to the 4.32% jump in its employment indicator over the past three months, moving up two spots to 16 and up 3 spots from one year ago.
2. Riverside

Although the Riverside market is weak, it is improving, moving up two spots from last month to 24. This is up 16 spots from one year ago. Like the other metros, this is due to the metro’s 11.93% increase in the employment indicator over the past three months.
1. Las Vegas  

Despite being ranked 50 out of the top 50 metros, Las Vegas is 92.8% above its all-time low of 25 reached in November 2010. A lot of the metro’s improvement is due to the 12.54% increase in the employment indicator over the past three months. The city ranks 50th and is unchanged since last year.

Realtor Confidence Falls

The July 2014 Realtor Confidence Index shows that Realtors aren’t enthusiastic about current conditions and the outlook for the next six months.

Concerns about federal regulations burdening the process, the drop in demand for middle and lower-cost homes, and rising affordability problems headlined their concerns.

Realtors reported some uptick in inventory in some areas, but generally, supply remained tight relative to demand in many areas, especially for “lower” and “middle-priced” homes, according to the July survey conducted by the National Association of Realtors.

Distressed sales continued to account for a smaller share of the market.

Realtors continued to report about the restrictive effects of the current credit conditions, especially in relation to the credit score and down payment requirements that will qualify buyers for a mortgage.

The home buying process was reported to be “long and difficult” even for “quality borrowers”.

Although the home price recovery has encouraged more listings, the strong price growth amid modest wage income gains has also made homes less affordable, creating a demand for lower-priced homes that are, unfortunately, in short supply.

 

Changes in the Federal Housing Administration mortgage insurance premium regulations, the cost of obtaining flood insurance, and increases in property taxes were also reported to be having a negative impact on potential sales.

 

FHA financing regulations continued to be reported as severely impeding condominium sales.

 

Confidence about current market conditions declined across all markets in July 2014 compared to June 2014.

 

In the single-family market, the Realtors Confidence Index - Current Conditions for single-family homes dipped to 60 (62 in June), indicating that a smaller percentage of Realtor respondents viewed the market as “strong” compared to a month ago.

 

Overall it's not pretty.

 

Confidence about the outlook for the next six months similarly declined in July compared to June. The six-month Outlook Index for single-family homes fell to 60 (63 in June); the index for townhouses edged down to 45 (46 in June); and the index for condominiums dropped to 40 (41 in June).

 

Tight inventory, difficulties in obtaining mortgages, and weak job growth were the main concerns reported by Realtors.

 

In some areas, the uncertainty about flood insurance rates, and the increase in property taxes were also cited as adversely affecting sales. FHA condominium accreditation/financing regulations continued to adversely impact condominium sales.

 

The Buyer Traffic Index declined in July to 55 (58 in June). Meanwhile, although inventory is improving, supply is still broadly tight: the Seller Traffic Index is still below 50 and essentially stayed flat at 45(44 in June) 3.

 

An index above 50 indicates that more than half of Realtors view traffic conditions as “strong”.

 

Realtors reported some uptick in inventory, but supply remained tight relative to demand in many areas, especially for “lower” and “middle- priced” homes.

 

There were reports that some potential sellers are hesitant to sell because of concerns that they will not find an affordable replacement home with adequate mortgage financing in a tight market.

 

Other potential sellers are waiting for further price increases either to increase the equity gain or to move out of a negative equity position.

 

NAR also tracks foot traffic using Sentrilock, data. Lockboxes made by SentriLock, are used in roughly a third of home showings across the nation.

 

This index rose to 54.8 in July (42.5 in June), which indicates that more than half of the roughly 200 markets tracked in this panel reported an increase in foot traffic in July.

 

Fewer Realtors reported rising prices than was the case in J une, but home prices are still broadly rising. Approximately 65% of Realtor respondents reported that the price of their “average home transaction” is higher today compared to a year ago (68% in June).

 

About 23% reported constant prices, and 12% reported lower prices. Tight inventory has sustained the price growth in many areas.

 

With inventory still generally tight and multibidding prevalent, approximately 14% of reported sales were at a net premium compared to the original listing price. In mid-2013, about 20% of Realtor respondents reported selling properties at a premium. About 70% of properties sold at a discount compared to the listing price, with about half reporting a discount of 0 to 10%.

 

Realtors responding to the survey expect home prices to increase modestly in the next 12 months, with the median expected price increase at 3.4%4. The expected price change is modest compared to the strong price growth in 2012-2013. Local conditions vary, but concerns about how borrowers are finding it difficult to obtain a mortgage and weak job recovery appear to be underpinning the modest price expectation.

 

The map shows the median expected price change in the next 12 months by state of Realtor respondents in the May – July 2014 surveys. Respondents from Florida and Texas were the most upbeat. Tight inventory and the strong growth in Texas metro areas may account for the optimistic outlook. Expected price growth is more modest in other states.

California housing market underperforms in July-Pending home sales drop four months straight

July was not a strong month for the California housing market as the state continued to underperform.
California pending homes sales dropped in July, with the pending home sales index falling 2.3% from 107 in June to 104.5 in July, based on signed contracts, according to the California Association of Realtors. However, the month-to-month drop was consistent with seasonal trends.
This is also down 9.2% from 115.1 in July 2013. “Pending sales have been down year to year since October 2012, but the pace appears to be decelerating as the decrease in July was smaller than the average in the last six months. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market,” CAR said.
As noted in the 3 facts crippling California’s housing recovery, the combined share of all distressed property sales continued to decrease in July, dropping from 9.7% in June to 9.4% in July.
On the other side, the share of equity sales — or non-distressed property sales — maintained its upward trend, increasing to 90.6% in July, from 90.3% in June.
Equity sales have steadily increased since the start of the year, making up more than 80% of total sales for more than two years and rising above 90% for the second straight month.
Despite the bad month for the market, next year is projected to be the best year yet for the economy since the start of the recovery, according to a report from Beacon Economics, with California's state economy lining up to do better than the nation.

Foreclosures Up/Delinquencies Down

Foreclosure starts in July were up for the third consecutive month even as the overall inventory continues to decline, according to Black Knight Financial Services.
This is Black Knight’s analysis of the July 2014 month-end mortgage performance statistics derived from its loan-level database representing approximately two-thirds of the overall market.
Overall the news looked good.
Click below to enlarge.

The national foreclosure inventory is down 34% from July 2013. At the current rate, it is now the lowest since March 2008, at the start of the housing crisis.
Despite the increase in foreclosure starts, starts are still down almost 20% from July 2013, which is a significant improvement.
Click the image to enlarge.

Further good news, delinquency rate declines after slight increase in June 2014.
Even more good news, the rate of prepayment is up more than 10 percent in July, making it the fifth consecutive monthly increase.

New Home Sales Fall- some are surprised

New-home sales in the U.S. fell unexpectedly in July for the second month as the housing recovery makes only fitful progress.
Sales declined 2.4 percent to a 412,000 annualized pace, the fewest since March and weaker than the lowest estimate of economists surveyed by Bloomberg, after a 422,000 rate in June, the Commerce Department reported today in Washington.
Housing has advanced in fits and starts this year, buffeted by tight credit and slow wage growth. A shortage of skilled labor and supply-chain bottlenecks also have hindered construction even as population growth boosts demand for shelter. Bigger gains in employment and wages would stoke a more-rapid recovery.
“It’s a little bit disappointing,” said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years, according to data compiled by Bloomberg. “The new-home sales data have no traction whatsoever and doesn’t seem to be gaining at all.”
The median forecast of 70 economists surveyed by Bloomberg called for the pace to accelerate to 430,000. Estimates ranged from 414,000 to 470,000. June’s pace was revised up from a previously reported 406,000.
Stocks held gains after the figures as European equities climbed on prospects for increased stimulus and Burger King Worldwide Inc. rallied on merger activity. The Standard & Poor’s 500 Index advanced 0.5 percent to 1,999.14 at 10:16 a.m. in New York.

Selling Prices

The median sales price of a new house climbed 2.9 percent from July 2013 to $269,800, today’s Commerce Department report showed.
Purchases dropped in three four U.S. regions, led by a 30.8 percent slump in the Northeast. The West declined 15.2 percent and the Midwest fell 8.8 percent. Sales climbed 8.1 percent in the South.
The supply of homes at the current sales rate rose to 6 months, the highest since October 2011, from 5.6 months in June. There were 205,000 new houses on the market at the end of July, the most in almost four years.
New-home sales, which last year accounted for about 5 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Existing Homes

Existing-home sales picked up last month as low borrowing costs and an increase in inventory drew buyers. The annual pace of purchases climbed to 5.15 million in July, the best showing since September, according to the National Association of Realtors. Residential construction also rebounded, with starts climbing 15.7 percent last month to a 1.09 million annualized rate, the Commerce Department reported last week.
Builders and their suppliers see room for growth as the job market improves. As foreclosures and other distressed property sales become a smaller share of the market, housing growth will accelerate, said Robert A. Niblock, chairman and chief executive officer of home-improvement chain Lowe’s Cos., based in Mooresville, North Carolina.
“Signals from the housing market appear mixed,” Niblock said on an Aug. 20 earnings call. “We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth.”

Truth is, those recent housing numbers aren't so shiny-Housing starts? More like housing stops, amirite?

The mainstream financial media have something to sell you.
It’s optimism. Or optimistic spin.
It doesn’t matter whether they are servicing, in the "old profession" sense of the word, their Wall Street sugar daddies and insider connections, or working as palace guards for Team Red and/or Team Blue, whichever they favor.
In some cases it’s just overworked writers promoted Peter Principle-style to covering subjects they don’t understand. The rest are market cheerleaders who believe in management of perspective economics – if people hear enough good news about the economy, they’ll spend and invest more.
Today’s housing starts and permits report from the Department of Housing and Urban Development is a prime example.
Take a quick look at the bulk of the headlines. Note the words soar, surge, jump and so on.
And here are the plain facts. After plunging in June, housing starts and housing permits recovered in July, printing at 1,093,000 and 1,052,000, respectively.
And yes, this is a 15.7% gain in starts and permits.
The bad news is that almost all of those gains from June to July in starts and permits are in multifamily rental housing.
That’s not the sign of a housing recovery. That’s the sign of a shift from an ownership society to a rental society.
In permits, almost all of the increase was due to multi-family unit construction, which soared by 73,000 to 382,000, a 24% increase, while single-family residential permits were up by just 6,000, or less than 1%.
And technically, apartments can be homes, but come on. That’s not what they mean when they say things like:

Construction on new U.S. homes jumped 15.7% in July to the highest level in eight months and starts were revised up sharply for June, indicating a pickup in home building after an early-year lull.

Emphasis mine.
And it’s not just the mainstream financial press. Check the wording in this report from Capital Economics.

“The sharp rise in housing starts in July is an encouraging sign that the recovery in construction activity is getting back on track. Booming homebuilder confidence points to further gains to come.”

If you’re feeling déjà vu, there’s a reason. Words to this effect are used every time there’s an uptick in housing starts, pending sales, and existing sales, while every downturn is blamed on everything from the weather to the weather.
It’s never, ever blamed on the tepid economy and the part-time job market that’s the new norm.
A few out there get it.
Brent Nyitray, director of capital markets for iServe Residential Lending, notes that, “Can't complain about the number, which was the highest in eight months. Still, ‘normalcy’ is around 1.5 million units per year, which goes to show how depressed housing still is. We probably will not hit historical numbers until the first time homebuyer returns.”
And that won’t happen until jobs return, and the last couple of monthly jobs reports heralded in the media have been heavy on the part time and low income jobs, and light on full time and middle class.
Retail, wait staff and home health aides accounted for 41% of the positions created over the past couple of years, according to the latest figures from the National Employment Law Project, a left-leaning advocacy group who may be wrong on the minimum wage issue but they’re right that you can’t have a strong economy without strong job growth. (Their solutions are the stuff of college dorm room discussions, but there are better solutions to better job creation than the weak sauce we’ve seen from this administration and Congress.)
Meanwhile, medium-wage manufacturing jobs accounted for just 26% of the new jobs, while white-collar industries generated 33% of the new jobs.
As CNBC notes, since the recession ended, lower-wage jobs have grown by 2.3 million while medium- and higher-wage jobs actually contracted by 1.2 million. This is in line with the ground-losing 2% wage growth the job market is seeing.
Now you see why the big gains in housing starts and permits are pretty much concentrated in apartment construction, not home building.
And you see why housing won’t get its footing back until private enterprise and the economy as a whole is unshackled and unhobbled.

Whle Greater Optimism from builders is wonderful, what will greater inventory do to values? Also, what about the foreclosure inventory?

Housing starts surged in July to the highest level in eight months, underscoring the recent pickup in builder optimism as the U.S. residential real-estate market gains some traction.
Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington. The level exceeded the highest estimate in a Bloomberg survey of economists, whose median projection called for 965,000 starts.
A strengthening job market and cheaper borrowing costs are helping revive residential real-estate after a lull in construction at the start of the year. At the same time, the industry’s recovery has been challenged by slow wage growth and tight credit, which have put homeownership out of reach for some Americans.
“Recent news on the housing front has been relatively encouraging,” Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said in a research note. “‘With affordability remaining high, mortgage rates still low, and labor market activity accelerating, we expect the housing market trajectory to continue gradually improving in the coming months.”

Beginning home construction climbed 15.7 percent to a 1.09million annualized rate following June’s 945,000 pace, which wasstronger than previously reported, the Commerce Departmentreported today in Washington. The level exceeded the highestPhotographer: Luke Sharrett/Bloomberg Close

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Beginning home construction climbed 15.7 percent to a 1.09million annualized rate following June’s 945,000 pace, which wasstronger than previously reported, the Commerce Departmentreported today in Washington. The level exceeded the highestPhotographer: Luke Sharrett/Bloomberg

Permits for future projects advanced 8.1 percent to a 1.05 million pace. The gain reflected the fastest rate of building applications for single-family dwellings since November.
Estimates for annualized starts ranged from 898,000 to 1.03 million after a previously reported 893,000 in June, according to the Bloomberg survey of 75 economists. It was the biggest positive surprise for starts since April 2013. Building permits were projected to advance to a 1 million rate.

Consumer Prices

Another report today showed the cost of living in the U.S. eased in July as energy prices declined. The consumer-price index increased 0.1 percent last month, the smallest gain since February, according to the Labor Department. Costs excluding fuels and food also rose 0.1 percent in July.
Stocks rose after the reports, with the Standard & Poor’s 500 Index advancing 0.2 percent to 1,975.4 at 9:45 a.m. in New York. Home Depot Inc. gained 4.2 percent after earnings topped analysts’ estimates and the company raised its forecast.
Starts of single-family properties rose 8.3 percent to a 656,000 rate in July, the fastest this year, the Commerce Department said. Construction of multifamily projects such as condominiums and apartments rose 28.9 percent to an annual rate of 437,000.

Photographer: Luke Sharrett/Bloomberg

Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington. Close

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Photographer: Luke Sharrett/Bloomberg Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington.

Northeast Jump

Three of four regions showed an increase in groundbreaking last month, led by a 44 percent jump in the Northeast to the highest level since July 2008. Starts rebounded 29 percent in the South and climbed 18.6 percent in the West.
Today’s figures corroborate a report yesterday showing builder confidence rose in August to the highest level in seven months. The National Association of Home Builders/Wells Fargo said its sentiment measure climbed to 55 from 53 in July.
Weather dealt a setback to builders at the beginning of the year as snow blanketed construction sites in parts of the country and bitter cold kept some would-be buyers at home. Homebuilding bounced back in the second quarter, climbing at a 7.5 percent annualized rate in the second quarter after a 5.3 percent slump in the first three months of the year, data from the Commerce Department showed on July 30.
More hiring and cheap borrowing costs are helping some Americans take the plunge. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures.

Interest Rates

Borrowing costs have declined this year. The average 30-year, fixed-rate mortgage was 4.12 percent in the week ended Aug. 14, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.
While the market recovers, demand is outpacing construction. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.
New orders at the Ryland Group Inc. climbed 1.7 percent, to 2,228 homes, in the three months ended June 30. It was the best quarter in seven years for the Westlake Village, California-based company and President and Chief Executive Officer Larry Nicholson said he is optimistic about the outlook.
“We remain confident about the future of housing,” Nicholson said on a July 31 earnings call. “We see the markets continue to move forward. We have good traffic. We’re making sales. We’re making margin. We’re pretty upbeat for what we see for the rest of the year.”