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National Real Estate Market Pulse

Sales and prices are up and the length of time it takes to complete sales is down, but National Association of Realtor’s® data for August suggests real estate isn’t out of the woods.

The national median home price, at $187,400, is up 9.5 percent from year-ago levels, and the market is on pace to see 4.82 million home sales this year, a 9.3 percent improvement over last year. Almost two-thirds of sales are completed within three months, a big jump from a year earlier.

But practitioner confidence, a good indicator of how the market will look down the road, has barely budged for months. All trend lines are from August 2011 to August 2012.

Existing-home sales is a seasonally adjusted annual rate, which is the actual rate of sales for the month, multiplied by 12 and adjusted for seasonal sales differences. Pending home sales is an index that measures housing contract activity. An index of 100 is equal to the level of activity during 2001, the benchmark year. Inventory measures the number of existing homes on the market at the end of the month. Buyer and seller traffic, current conditions, six- month expectations, and time on market derive from a monthly REALTOR® Confidence Index. Results are based on 3,421 responses to 6,000 surveys sent to large and small real estate offices. The survey asks practitioners to indicate whether conditions are strong (100 points), moderate (50), or weak (0).

SOURCE: National Association of Realtors

VIDEO: Existing-Home Sales Rise in October

Sales of existing homes increased in October, even with some regional impact from Hurricane Sandy, while home prices continued to rise due to lower levels of inventory supply, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.1 percent to a seasonally adjusted annual rate of 4.79 million in October from a downwardly revised 4.69 million in September, and are 10.9 percent above the 4.32 million-unit level in October 2011.

Lawrence Yun , NAR chief economist, said there was some impact from Hurricane Sandy. “Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country,” he said. “We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions.”

The national median existing-home price for all housing types was $178,600 in October, which is 11.1 percent above a year ago. This marks eight consecutive monthly year-over-year increases, which last occurred from October 2005 to May 2006.

“Rising home prices have already resulted in a $760 billion growth in home equity during the past year,” Yun said. “Given that each percentage point of price appreciation translates into an additional $190 billion in home equity, we could see close to a $1 trillion gain next year.”

Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of October sales (12 percent were foreclosures and 12 percent were short sales), unchanged from September; they were 28 percent in October 2011. Foreclosures sold for an average discount of 20 percent below market value in October, while short sales were discounted 14 percent.

Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, and is the lowest housing supply since February of 2006 when it was 5.2 months. Listed inventory is 21.9 percent below a year ago when there was a 7.6-month supply.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.38 percent in October from 3.47 percent in September; the rate was 4.07 percent in October 2011.

NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said record low mortgage interest rates shouldn’t be taken for granted. “Even with rising home prices, we’ll continue to see favorable housing affordability conditions over the coming year, but they won’t last forever,” he said.

“Inflationary pressures are expected to build during the next two years. As a result, mortgage interest rates will also rise with inflation. Buyers who are currently held back by tight mortgage credit standards should work to improve their credit scores so they’ll be able to qualify for a mortgage while conditions are still favorable.”

With stringent mortgage underwriting standards, Thomas said it’s very important to understand credit issues and how credit scores work. “Realtors ® are a good source to learn about lenders with more reasonable terms and ways to increase your likelihood of obtaining safe and sound financing. Buyers can also visit NAR’s consumer website, Houselogic.com, and search for ‘credit score.'”

The median time on market was 71 days in October, little changed from 70 days in September, but down 26.0 percent from 96 days in October 2011. Thirty-two percent of homes sold in October were on the market for less than a month, while 20 percent were on the market for six months or longer.

First-time buyers accounted for 31 percent of purchases in October, compared with 32 percent in September and 34 percent in October 2011.

All-cash sales were at 29 percent of transactions in October, up slightly from 28 percent in September; they were 29 percent in October 2011. Investors, who account for most cash sales, purchased 20 percent of homes in October, up from 18 percent in September; they were 18 percent in October 2011.

Single-family home sales rose 1.9 percent to a seasonally adjusted annual rate of 4.22 million in October from 4.14 million in September, and are 9.6 percent above the 3.85 million-unit pace in October 2011. The median existing single-family home price was $178,700 in October, which is 10.9 percent higher than a year ago.

Existing condominium and co-op sales rose 3.6 percent to a seasonally adjusted annual rate of 570,000 in October from 550,000 in September, and are 21.3 percent above the 470,000-unit level a year ago. The median existing condo price was $177,500 in October, up 11.7 percent from October 2011.

Regionally, existing-home sales in the Northeast fell 1.7 percent to an annual pace of 580,000 in October but are 13.7 percent above October 2011. The median price in the Northeast was $232,600, which is 4.6 percent above a year ago.

Existing-home sales in the Midwest rose 1.8 percent in October to a level of 1.11 million and are 18.1 percent above a year ago. The median price in the Midwest was $145,600, up 10.6 percent from October 2011.

In the South, existing-home sales increased 2.1 percent to an annual pace of 1.92 million in October and are 11.0 percent higher than October 2011. The median price in the South was $152,200, which is 8.2 percent above a year ago.

Existing-home sales in the West rose 4.4 percent to an annual level of 1.18 million in October and are 3.5 percent above a year ago. With much tighter inventory conditions, the median price in the West was $242,100, up 21.2 percent from October 2011.

SOURCE: National Association of Realtors®

FHFA cites eight months of home price increase

Federal Housing Finance Agency house prices rose 1.1% on a seasonally adjusted basis from August to September, this is the eighth consecutive month prices have increased. The home price also rose 4% from the previous year.

The monthly house price index uses the purchase prices of houses with mortgage owned or guaranteed by Fannie Mae or Freddie Mac.

The prominent growth from 0.7% last quarter to 1.1% this quarter is due to the amount of inventory of homes for sale. Over the last four quarters, the index is up 3.3%.

“With significant growth in home prices during the quarter and a modest inventory of homes available for sale, house price movements in the third quarter were similar to what we observed in the spring,” said principal economist Andrew Leventis of FHFA.

He added, “The past year has seen consistent price increases, but a number of factors continue to affect the recovery in home prices such as stagnant income growth, high unemployment levels, lingering uncertainty about the macroeconomy, and the large number of homes in the foreclosure pipeline.”

The seasonally adjusted purchase-only HPI rose in 39 states for the third quarter. Housing prices were strongest in the Mountain division, up 3%, while the East South Central division fell .2%.

Standard & Poor’s/Case-Shiller Home Price Indices also reported an increase in home prices, up 3.6% from a year ago. Lender Processing Services ($23.95 -0.76%) posted a year-over-year HPI increase of 3.6% from last year as well. These indices indicate the housing industry is gaining momentum in its recovery.

 

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Case-Shiller Indices Up in September, Momentum Slows

Despite another month of home price improvement, the housing sector faltered in September as prices fell five of the 20 cities in the monthly Case Shiller Home Price Index, Standard & Poor’s reported Tuesday.

The month-month September gain was weaker than in August when prices rose in all cities surveyed

The 10-city index increased 0.3 percent from August to 158.93, its highest level since September 2010, the 20-city index rose by the same 0.3 percent to 146.22, also the highest in two years and the national index improved 2.2 percent in the third quarter to135.67 its highest level since 3Q 2010.

Economists had expected a slightly faster, 0.4 percent, month-month improvement.

Prices had increased in 19 of the 20 cities in July and August and in all 20 cities in May and June. The quarterly report on prices nationally also showed a deceleration: the 2.2 percent 3Q gain was down sharply from the 7.1 percent jump in the second quarter.

The 10-city index showed a 2.1 percent year-year gain and the 20-city index was up 3.0 percent from September 2011, according to Case Shiller.

According to the National Association of Realtors, the median price of an existing single family dropped 3.6 percent in September, but was up 7.9 percent from September 2011.

The improvement in the Case Shiller indices – both the 10- and 20-city have risen month-month for the last six months – has been increasingly weaker. In the preceding five months, the improvement in the 10-city index averaged 2.4 percent and in the 20-city index averaged 2.3 percent.

Prices dropped in September in five cities led by 0.9 percent decline in Cleveland, 0.6 percent decline in each of Boston and Chicago, a 0.3 percent drop in Charlotte, NC and a 0.1 percent dip in New York. All of those cities showed price gains August. (Pinning them to an electoral map, only Cleveland is in a “swing state,” Ohio, which was carried by President Obama.

The cities in which prices improved month-month were led by Las Vegas and San Diego, each of which showed a 1.4 percent gain. Prices in Las Vegas had improved 1.6 percent in August and in San Diego 0.9 percent, Prices rose 1.1 percent in September in Phoenix and Minneapolis compared with 1.8 percent and 1.2 percent increases, respectively, in August.

Year over year prices improved in 18 of the 20 cities in September, compared with year-year gains in 17 of the 20 cities in August.

Prices were down year-year in September in New York, 2.3 percent matching the 12-month drop registered in August, and down 1.5 percent in Chicago which had shown a 2.6 percent month-month drop in August.

Year-year price gains were led by Phoenix, 20.4 percent, Minneapolis, 8.8 percent, Detroit 7.6 percent San Francisco, 7.5 percent, and 7.4 percent, Minneapolis.

Even with the increases, the 10-year index remains down 29.8 percent from its June 2006 peak and the 20-year index is down 29.2 percent from its July 2006 peak.

 

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The Coming Mortgage Lock-in: Future Effects of Today’s Low Rates

Mortgage rates are now the lowest they have ever been, at least in America, and possibly in the world. Today’s low rates will have lasting effects on labor mobility, the demand for new houses and the remodeling industry. The low mortgage rates will make it more expensive for homeowners to move to different homes in the future.

Let’s run some numbers. Recent mortgage rates have been around 3.5 percent, at which rate a 30-year fixed rate mortgage of $200,000 has monthly payments of $898. Let’s say that a young couple buys a house today for $250,000, putting 20 percent down and financing the remainder. After a few years the babies arrive and the couple thinks about a larger house. They may decide that they can afford 20 percent higher mortgage payments, or $1,078 per month. How much house can they get with 20 percent higher monthly payments? If interest rates have moved up just one percentage point, then their monthly payments that are 20 percent higher support a mortgage that is six percent higher. That’s not a lot of improvement for the family.

US 30 Year Mortgage Rate Chart

Suppose that mortgage rates have gone up not one percentage point but two, to 5.5 percent. Then a new mortgage would cost 26 percent more for the same old principal. In other words, it would be very expensive for the couple to move.

Is it reasonable to think that mortgage rates could move up to 5.5 percent? That would leave rates below where they were in the mid-2000s housing boom. Eventually mortgage rates will move up to the average of the 1990s, or eight percent.  At eight percent, that $200,000 mortgage would cost $1,468 a month, 60 percent more than the current cost of a similar mortgage.

How many homeowners would be affected?  A rough estimate is that one-fourth of all families will feel locked in place by rising mortgage rates. (That is based on Zillow’s estimates that 54 percent of mortgagees have equity of at least 20 percent of their home value, and thus would probably qualify for a new mortgage. Many homeowners are underwater, and many more have too little equity to qualify for a new mortgage at today’s low rates. About one third of homes are owned free and clear. There are also about one third of all households that rent—they are not locked in to their current residence by low mortgage rates.

This will have broad implications for business in America. The most obvious is that moving into a larger house will be very, very expensive for these families. Look for homebuilders to have difficulty selling larger houses that would best fit a growing, upper-middle-class family.

With so many families locked in to their current houses, remodeling and additions will be a big business. The desire for more bedrooms, a larger kitchen, and nice cabinetry will be alive, but moving will be expensive, so many families will upgrade their current homes.

Finally, moving for a new job will be more expensive when it means getting a much more expensive mortgage. Companies recruiting executives or technical workers will have a more difficult time luring people to new jobs that require moving to a new home. Let’s say that an engineer has a $200,000 mortgage on her home, and she will move into another house with a similar mortgage. If her interest rate moves from 3.5 percent to 5.5 percent, she will have to pay about $3,000 a year more on her mortgage. It won’t take too large a raise to justify that, but there will likely be a psychological regret about giving up the great mortgage.

The entire nation will probably see a little less labor mobility. People who live in depressed areas are usually more likely to move, and they are more likely to move to rapidly growing parts of the country. Mortgage lock-in will slow the moves.

Mortgage lock-in will not stop new homebuilding, nor will it stop all corporate transfers, but it will have an effect on some parts of the economy that should be understood in advance.

SOURCE: Forbes

Blackstone Sees Two-Year Window to Buy Houses

“Prices are starting to move faster,” said Jonathan Gray, global head of real estate for Blackstone, which has invested about $1.5 billion this year in foreclosed homes. “That’s one of the risks that emerge as more people like us get into the space and as individual homeowner confidence grows. Frankly, buying a home today is pretty compelling.”

The opportunity for funds to buy homes at discounts could last less than two or three years, Gray said yesterday at the Bloomberg Commercial Real Estate Conference in New York as record-low mortgage rates and home prices down 40 percent from the peak entice individuals back into real estate. Atlanta, Phoenix, Las Vegas and other markets hit hard by the worst housing crisis since the Great Depression are rebounding as the economy improves and the supply of homes for sale shrinks.

Home Depot Inc. (HD), the largest U.S. home-improvement retailer, is the latest company to benefit from a housing recovery, reporting third-quarter earnings this week that beat analysts’ estimates.

“Geographically, the harder hit areas that were really the epicenter of the housing crisis appear to be on the mend,” Frank Blake, the company’s chairman and chief executive officer, said. “It has been consecutive, it has been consistent, so that is why we think it is healing.”

Price Gains

Home prices have risen year over year for seven consecutive months, which hasn’t happened since 2006, said Walter Molony, a spokesman for the National Association of Realtors.

The median price of a previously owned U.S. home rose 11.3 percent in September to $183,900, the biggest year-over-year gain since November, 2005, as inventories dwindled, the Washington-based National Association of Realtors said Oct. 19. That price is up 19 percent from January, when Blackstone started buying.

The number of homes for sale is drying up as demand improves, funds snap up foreclosed properties to rent out and owners remain reluctant to sell until prices rise further. Mortgages rates driven to record lows by Federal Reserve stimulus, along with a falling jobless rate, indicate sales will keep improving. Previously owned homes on the market dropped 3.3 percent in September to 2.32 million, the fewest for any September since 2002.

‘Beaten Down’

“The recovery in house prices could surprise people,” Gray said in a Bloomberg TV interview airing today on “Money Moves” with Deirdre Bolton. “They have just gotten beaten down so much and we’re not building enough to keep up with the population growth. Affordability is there. I think as homeowners get a little bit of confidence, we will steadily have more people lean toward buying homes, faster home price appreciation, which will be good for this investment strategy and good for the economy at large.”

“With rising sales and a sustained downtrend in housing inventory, we’re projecting the median existing-home price to rise 6 percent this year and 5 percent in 2013, with comparable gains in 2014,” Molony said. “However, if housing construction doesn’t return to normal, prices could accelerate.”

Even with the cost of borrowing at record lows, many potential homeowners lack the savings and income to buy, buoying the rental housing market and drawing in institutional investors.

Biggest Buyer

Blackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.

“This is the kind of thing that happens once — every once in a while, where you see something that’s a market-turning trend and we are loading the boat,” Schwarzman said.

Blackstone fell 2.7 percent to $13.98 today in New York. It’s returned 0.5 percent, including dividends, during the past year, compared with 11 percent for the Standard & Poor’s 500 Index.

Thomas Barrack’s Colony Capital LLC, a private-equity firm, has bought about 5,500 homes since April, spending more than $500 million, and expects to reach $1.5 billion invested by the end of next year. Closely held Waypoint Homes has said it has bought about 2,500 homes and expects to have 10,000 homes by the end of next year.

REIT Plans

Blackstone, Colony and other investors buying homes in bulk to rent have said they could create real estate investment trusts out of the properties to take public, paying dividends from the rental income on the homes, similar to the wave of apartment REITs such as Equity Residential (EQR) that went public in the early 1990s.

“There are differing opinions about whether the opportunity will continue beyond 2-3 years to buy houses at yields that make sense to institutional investors,” said Colin Wiel, co-founder and managing director of Waypoint Homes. “I believe this is an evergreen opportunity.”

While investment yields “will come down,” from about 7 percent today, excluding debt, to a level more in line with apartment-property yields, or about 5.5 percent, Wiel said, “I think institutional investors will be comfortable with that because the asset class will be ‘established’ by then.”

Blackstone paid less than $150,000 on average for homes that were valued during the 2006 peak at more than $300,000, Gray said. Blackstone has formed a company called Invitation Homes to focus on about 10 metropolitan areas that were particularly hard hit by the credit crisis. It has partnered with closely held Riverstone Residential Group based in Dallas to manage the properties.

‘Sizable Investment’

“It’s grown to be a sizable investment for us,” Gray said. “One of the key questions is, can you make this work?”

Blackstone plans to attract tenants by renovating the homes and providing better property management, Gray said. Because it’s buying homes after lenders have foreclosed, the properties generally are in poor condition and require investment to make them more livable.

“We’re coming in and deploying significant capital,” Gray said. “We’ve got to make this as efficient as possible,” he said. “I think it’s one of the barriers to entry. You have to make a huge infrastructure investment in order to execute.”

Owning 400 single-family homes spread out by geography, as opposed to one apartment building with 400 units, presents challenges for investors, Gray said. Blackstone is focused on about 10 markets, including Northern and Southern California, Phoenix, Tampa and Orlando in Florida, Atlanta, Chicago, Charlotte in North Carolina, Las Vegas and Seattle, he said.

One exit strategy for the firm is to sell stock to the public in the management company when the time is right, Gray said.

“We can create a business investors will want on an income basis,” he said. “I think we can create a real company that can be taken public.”

SOURCE: Bloomberg

UPDATE: Mortgage Rates Drop To Another Record Low

Freddie Mac today released the results of its Primary Mortgage Market Survey®, showing fixed mortgage rates dipping to new all-time record lows amid indicators of higher consumer confidence and lower wholesale prices. The previous record low for the 30-year fixed was set the week of October 4, when it averaged 3.36 percent, and the 15-year fixed was set the week of October 18, when it averaged 2.66 percent.

News Facts

30-year fixed-rate mortgage (FRM) averaged 3.34 percent with an average 0.7 point for the week ending November 15, 2012, down from last week when it averaged 3.40 percent. Last year at this time, the 30-year FRM averaged 4.00 percent.
15-year fixed-rate mortgage this week averaged 2.65 percent with an average 0.7 point, down from last week when it averaged 2.69 percent. A year ago at this time, the 15-year FRM averaged 3.31 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.74 percent this week with an average 0.6 point, up from last week when it averaged 2.73 percent. A year ago, the 5-year ARM averaged 2.97 percent.
1-year Treasury-indexed ARM averaged 2.55 percent this week with an average 0.3 point, down from last week when it averaged 2.59 percent. At this time last year, the 1-year ARM averaged 2.98 percent.

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