Fitch: U.S. Home Price Growth Stalls for First Time in 2 Years

Fitch Ratings-New York-21 October 2014: The two-year streak of U.S. home price growth appears to have come to a close, according to Fitch Ratings in its latest quarterly index report.
National home prices fell by less than 1% between 1Q'14 and 2Q'14 after more than two years of steady increases. While the magnitude of the decline is benign, the relatively flat prices are in stark contrast to recent price gains. Home prices increased roughly 20% nationally between 4Q'11 and 1Q'14. 'The cooling of the US housing market comes as no surprise after several years of unsustainable growth rates,' said Director Sean Nelson. 'It's also worth noting that nearly all major cities are experiencing the same home price flattening at the same time. 'Most of the metro areas that experienced large home price increases since 2011 saw price growth either slow, stall or reverse in the first two quarters of 2014. The slowed rate of home price appreciation follows a roughly 100 bps increase in mortgage rates in 2013. 'While home price growth has slowed or stopped in most regions, several markets, many of which are in California and Texas, are still overvalued,' said Nelson.Fitch's index is published quarterly and highlights performance trends in legacy and new issue RMBS, house price conditions and mortgage market developments. The HPI index reflects Case-Shiller's seasonally-adjusted national home price index.The Mortgage Market Index -U.S.A. is part of Fitch's quarterly structured finance index reports. It is available at 'www.fitchratings.com' or by clicking on the above link.

Seriously underwater homes hit 2-year low-But it’s not all positive news

The amount of seriously underwater properties plunged to the lowest level in two years, with 8.1 million U.S. residential properties seriously underwater — where the combined loan amount secured by the property is at least 25% higher than the property’s estimated market value, RealtyTrac’s U.S. home equity and underwater report for the third quarter of 2014 said.
This represents 15% of all properties with a mortgage and an estimated $1.4 trillion in negative equity.
Last quarter, 9.1 million residential properties representing 17% of all properties with a mortgage were seriously underwater, and in the third quarter of 2013 10.7 million residential properties representing 23% of all properties with a mortgage were seriously underwater.
"The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac.
“Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity,” he continued.
Additionally, the universe of equity-rich properties — those with at least 50% equity — grew to 10.8 million representing 20% of all properties with a mortgage in the third quarter, up from 9.9 million representing 19% of all properties with a mortgage in the second quarter of 2014.
Collectively these equity rich homeowners have an estimated $2.9 trillion in positive equity.
Another 8.5 million properties were on the verge of resurfacing in the third quarter, with between 10% negative equity and 10% positive equity. This segment represented 16% of all properties with a mortgage in the third quarter, and was down from 8.7 million properties representing 17% of all properties with a mortgage in the second quarter of 2014.
Fewer distressed properties had negative equity in the third quarter, with 39% of all properties in the foreclosure process seriously underwater — down from 44% in the second quarter of 2014 and down from 56% in the third quarter of 2013.
In comparison, the share of foreclosures with positive equity increased to 38% in the third quarter, up from 34% in the second quarter of 2014.
“We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater,” Blomquist noted.
“On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in NY, CA, DC and these folks also tend to live in Democratic Congressional districts,” he said.

Daily Economic Update

Wednesday's bond market has opened flat as stocks have done also. The Dow and Nasdaq are both up a couple points from yesterday's close while the bond market is nearly unchanged also at 2.22%. This should keep this morning's mortgage rates at yesterday's levels.

This morning's only economic data was September's Consumer Price Index (CPI) at 8:30 AM ET. It gave us mixed results but no big surprises. The overall reading rose 0.1% when it was expected to be unchanged and the core reading that excludes more volatile food and energy costs rose 0.1%, falling just short of the 0.2% forecast. The increase in the overall reading was a bit negative for bonds but the weaker core reading offsets that. Both readings indicate inflationary pressures at the consumer level of the economy remain subdued. That is generally good news for the bond market and mortgage rates. However, since both were close to expectations, we have seen little impact on this morning's trading.

Tomorrow has two pieces of data but neither are considered to be highly important. The first will be last week's unemployment figures at 8:30 AM ET. They are expected to show that 285,000 new claims for unemployment benefits were filed last week, up noticeably from the previous week's 264,000 initial claims. The higher the number of new claims, the better the news it is for mortgage rates because rising claims hints at a softening employment sector. It is worth noting though that because this is only a weekly report, it usually takes a surprisingly weak or strong number for the data to affect mortgage rates.

September's Leading Economic Indicators (LEI) will be released by the Conference Board at 10:00 AM ET tomorrow morning. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.5% from August's reading. This would indicate that economic activity is likely to increase over the next couple of months.

Four Housing Markets That Are OverValued- CoreLogic

Market Condition Indicators designed by CoreLogic (CLGX) identified only four of the top 50 markets in the U.S. as currently overvalued, based on data through August 2014.
CoreLogic also found that despite national home price appreciation gains of 11% in 2013 and 6.5% this year, most markets are still recovering from the crisis.
Earlier this year, CoreLogic released Market Condition Indicators, which evaluate whether individual markets are undervalued, at value or overvalued based on a number of economic variables.
 The analysis expects most markets to continue to lag their long-term sustainable level through 2016.
Click image to enlarge

This first graphic looks at home prices nationwide and shows the population-weighted average of the gaps between home prices and their long-run sustainable level in the largest 50 markets.
CoreLogic notes that during the bubble years from 2005 to 2007, prices were more than 10% above the long-run sustainable levels.
Home prices quickly fell more than 10% below the sustainable price during January 2011 and April 2013.
Subsequently, as home prices have continued to rise, the gap has narrowed to 6% below the long-run sustainable level in August 2014. CoreLogic forecasts the gap to shrink further to 3% by the end of 2016.
Click image to enlarge

This shows the four overvalued markets of the top 50 in CoreLogic’s list.
Topping the list are two metro areas in Texas—Austin and Houston—where an oil and gas boom has fueled job growth and population growth, pushing home prices well above their sustainable levels.
Home prices in these two markets are also well above their historical peak levels: 22.8% for Austin and 16.2% for Houston. The other two overvalued metros are Miami, Fla. and Washington, D.C. As home prices rose significantly since 2013, homes have become less affordable in these two markets, and, therefore, home prices less sustainable.

RealtyTrac: Foreclosure filings increase first time in 3 years-Rise in foreclosures foreshadows new industry trend

Foreclosure filings, including default notices, scheduled auctions and bank repossessions, were reported on 317,171 U.S. properties in the third quarter, marking the first quarterly increase since the third quarter of 2011, according to RealtyTrac’s latest September and third quarter Foreclosure Market Report.
However, it was just a meager 0.42% increase from the previous quarter and is still down 16% from a year ago.
The quarterly increase in overall foreclosure activity was driven by a 2% increase in default notices and a 7% quarterly increase in scheduled foreclosure auctions. In addition, bank repossessions decreased 12% from the previous quarter.
In September, a total of 106,866 U.S. properties had foreclosure filings, down 9% from the previous month and down 19% from a year ago to the lowest level since July 2006 — a 98-month low.
This also marks the 48th consecutive month where U.S. foreclosure activity decreased on a year-over-year basis.
“September foreclosure activity was back to pre-housing bubble levels nationwide, in large part thanks to a continued slide in bank repossessions,” said Daren Blomquist, vice president at RealtyTrac.
“However, a recent rise in scheduled foreclosure auctions in many markets across the country shows lenders are continuing to clean house of lingering delinquent loans. This rise in scheduled auctions foreshadows a corresponding rise in bank repossessions and auction sales to third party buyers in the coming months,” Blomquist added.
(Source RealtyTrac, click to enlarge)

Is the era of buying homes for cash over? Lowest since August, 2008

Cash sales are slowly turning into the endangered species of the industry, reaching the lowest share since August 2008.
Tumbling 35.9% from July 2013, cash sales made up 32.9% of total home sales in July 2014, according to CoreLogic’s latest report on July’s cash sales.
On a monthly basis, the cash sales share was mostly flat, falling only one tenth of a percentage point from June 2014. But it's important to note that cash sales share comparisons should be made on a year-over-year basis due to the seasonal nature of the housing market.
Cash sales have fallen each month since January 2013, and prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%.
The peak occurred in January 2011, when cash transactions made up 46.3% of total home sales.
“A trend to watch is the cash share of re-sales, which has fallen almost 15 percentage points from its peak cash share of 47.1% in February 2011,” the report said. “This category will determine the direction of cash sales going forward, since re-sales make up the largest share at 81% of all sales.”
(Source CoreLogic, click to enlarge)

Student debt costs housing $83B a year-Skyrocketing higher ed costs create enormous drag

For more than a year HousingWire has been reporting on the link between high levels of student loan debt and the struggling housing recovery.
Now John Burns Real Estate Consulting has quantified the true measure of this dismal reality: Student debt will cost the housing industry approximately $83 billion in sales in 2014.
With college debt increasing by about 6% every year, there is every reason to believe this trend will continue, and probably worsen, the firm reports.
Their report estimates that heavy college debt will reduce real estate sales by 8% for this year, and that households that pay $750 or more for college loan debt each month are priced out of the housing market entirely.
Given how important debt-to-income ratios are now with the Qualified Mortgage rules.
Another recent study found that when parsing mortgage applications of those with student loan debt, approved borrowers had monthly college loan payments of about $300.
Mortgage applicants paying nearly $500 per month, however, were usually denied.
Click to enlarge

Source: John Burns Real Estate Consulting
“The analysis was quite complicated and involved a few assumptions, but we believe it is conservative, primarily because we looked only at those under the age of 40 with student debt,” analysts Rick Palacios Jr. and Ali Wolf wrote.
Here is the math:

Student debt has ballooned from $241 billion to $1.1 trillion in just 11 years.

29 million of the 86 million people aged 20–39 have some student debt.

Those 29 million individuals translate to 16.8 million households.

Of the 16.8 million households, 5.9 million (or 35%) pay more than $250 per month in student loans, which inhibits at least $44,000 per year in mortgage capability for each of them.

About 8% of the 20–39 age cohort usually buys a home each year, which would be 1.35 million transactions per year.

“Using previous academic literature as a benchmark for our own complicated calculation, we then estimated that today's purchase rate is reduced from the normal 8% depending on the level of student debt—ranging from 6.9% for those paying less than $100 per month in student loans to less than 1% for those paying over $1,300 per month. Other factors contribute to even less entry-level buying today,” they wrote.
John Burns Real Estate Consulting raised the red flag on student debt back in 2011 and continues to believe that this debt will delay homeownership for many, or at least require that they buy a less expensive home.