Existing-Home Sales Down In January But Higher Than A Year Ago; Prices Steady

Existing-home sales fell in January but are above year-ago levels, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – dropped 7.2 percent to a seasonally adjusted annual rate of 5.05 million units in January from a revised 5.44 million in December, but remain 11.5 percent above the 4.53 million-unit level in January 2009.

Lawrence Yun, NAR chief economist, said there is still some delay between shopping and closing that affected current sales. “Most of the completed deals in January were based on contracts in November and December. People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales,” he said. “Still, the latest monthly sales decline is not encouraging, and raises concern about the strength of a recovery.”

Total housing inventory at the end of January fell 0.5 percent to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December. Raw unsold inventory is 9.6 percent below a year ago, and is at the lowest level since March 2006.

“Activity should be picking up strongly in late spring as buyers take advantage of the tax credit, which is critical to absorb distressed properties reaching the market and to continually chip away at inventory,” Yun said. “With a downtrend in the number of homes on the market, especially in the lower price ranges, values are beginning to firm but with great variance around the country.”

The national median existing-home price for all housing types was $164,700 in January, unchanged from a year earlier. Distressed homes, which accounted for 38 percent of sales last month, continue to downwardly distort the median price because they typically are discounted in comparison with traditional homes in the same area.

A parallel NAR practitioner survey shows first-time buyers purchased 40 percent of homes in January, down from 43 percent in December. Investors accounted for 17 percent of transactions in January, up from 15 percent in December; the remaining sales were to repeat buyers. The survey also shows that buyer traffic increased 9.4 percent in January.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buying a home in the current environment has become more challenging. “First-time buyers and others who need a mortgage are increasingly losing out to all-cash investors for the best bargains in many areas, particularly for foreclosed homes where cash is king,” she said.

“Inventory conditions vary by price range, and of course there are major differences depending on location. Realtors® are the best buyer resource for strategies on winning bids in increasingly competitive markets,” Golder said. “The bidding for more desirable homes will only accelerate between now and the April 30 contract deadline to qualify for a tax credit of up to $8,000.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage edged up to 5.03 percent in January from 4.93 percent in December; the rate was 5.05 percent in January 2009.

Single-family home sales fell 6.9 percent to a seasonally adjusted annual rate of 4.43 million in January from a level of 4.76 million in December, but are 8.6 percent above the 4.08 million pace in January 2009. The median existing single-family home price was $163,600 in January, down 0.4 percent from a year ago.

Existing condominium and co-op sales dropped 8.1 percent to a seasonally adjusted annual rate of 620,000 in January from 675,000 in December, but are 38.1 percent above the 449,000-unit level a year ago. The median existing condo price was $172,400 in January, which is 1.4 percent higher than January 2009.

Existing-home sales in the West declined 5.2 percent to an annual rate of 1.28 million in January but are 7.6 percent higher than January 2009. The median price in the West was $203,400, down 5.8 percent from a year ago.

Source: NAR

Long-Term Rates Rise To Over 5 Percent For The First Time In Three Weeks

Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.05 percent with an average 0.7 point for the week ending February 25, 2010, up from last week when it averaged 4.93 percent. Last year at this time, the 30-year FRM averaged 5.07 percent.

The 15-year FRM this week averaged 4.40 percent with an average 0.7 point, up from last week when it averaged 4.33 percent. A year ago at this time, the 15-year FRM averaged 4.68 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.16 percent this week, with an average 0.6 point, up from last week when it averaged 4.12 percent. A year ago, the 5-year ARM averaged 5.06 percent.

The 1-year Treasury-indexed ARM averaged 4.15 percent this week with an average 0.6 point, down from last week when it averaged 4.23 percent. At this time last year, the 1-year ARM averaged 4.81 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

“Interest rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5 percent this week amid a mixed set of economic data reports” said Frank Nothaft, Freddie Mac vice president and chief economist. “For instance, the January producer price index jumped well above the market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to the Conference Board.

“There were also varying reports as to the current state of the housing market. The S&P/Case-Shiller® national home price index rose for the third consecutive quarter in the fourth quarter, albeit at a slower rate, and the 20-city composite index showed an increase in December 2009 for the seventh month in a row; six metropolitan areas experienced positive year-over-year growth, compared to four in November. New home sales, however, unexpectedly slowed in January to the smallest pace since records began in 1963, and the supply of homes at the current sales rate rose to 9.1 months, the most since May 2009.”

Source: Freddie Mac

Jumbo Mortgage Market Is Beginning To Thaw

The meltdown sent interest rates soaring and availability shrinking, but rates are declining and lenders are more willing to make loans that top the limits for Freddie Mac, Fannie Mae and the FHA.

Phil Kelly had 18 more months to go before the fixed rate on his $2.5 Million mortgage became adjustable.

But when Kelly, a former computer executive living in Rancho Santa Fe, learned he could knock his interest rate down by a full percentage point by refinancing, he went for it.

“It’s always tough to pick the exact bottom or top of anything,” Kelly said. “But I think this rate is about as low as you’re going to get.

Rates on jumbo mortgages – loans of more than $729,750 in counties with the highest-cost housing – shot up during the financial crisis as lenders and loan investors shunned anything tainted with even a whiff of higher risk. Rates on big mortgages were especially high relative to those on smaller loans.

But in a boon for borrowers in California’s expensive housing markets, the jumbo-loan market us starting to return to normal.

Two weeks ago, the average interest rate on 30-year fixed-rate jumbos dropped to 5.79%, a nearly five-year low, according to rate tracker Informa Research Services of Calabassas. It edged up to 5.88% on Tuesday, still very attractive by historical standards. The average is down from well above 7% in late 2008.

Rates are even lower on so-called hybrid adjustable mortgages, on which the rate is fixed for, say, five years and then adjusts annually. Kelly’s new loan is a five-year hybrid adjustable identical to his old one, except that he’s paying about 5%, down from 6%.

Banks are also relaxing slightly some of their requirements for jumbo loans. That’s an encouraging sign because the market for jumbos, in contrast with the rest of the mortgage business, isn’t being propped up by Uncle Sam.

The lower rates and somewhat easier terms reflect newfound confidence among banks in the housing market. That’s because, by definition, jumbos are too big to be bought by Freddie Mac and Fannie Mae or to be insured by the Federal Housing Administration. Plus, the private market for mortgage-backed bonds dried up when the meltdown hit. So lenders making jumbo loans these days must be willing to take the risk of keeping them in their portfolios.

The maximum amounts for Freddie Mac and Fannie Mae “conforming” mortgages, and for FHA mortgages, are set by Congress. The cutoff for single-family homes was $417,000 from 2006 to 2008, when lawmakers increased it temporarily to $729,750 in certain high cost areas, including Los Angles, Orange and Ventura counties. Conforming loans top out at $500,000 in Riverside and San Bernadino counties and $697,500 in San Diego.

The increased upper limits, which have been extended until the end of this year, have created a three-tier system in expensive areas, mortgage professionals say: loans of up to $417,000, which are the easiest to obtain and carry the lowest rates, “conforming jumbos” from $417,000 to $729,750, which are somewhat harder to get and have slightly higher rates; and true jumbos, with the toughest standards and highest rates.

Interpreting Housing Economic Indicators

Analysts, policy makers and investors closely follow economic indicators that track the condition of the housing market. Here’s some background information on these important indicators.

Housing Starts
Housing starts is considered the most important report on the housing sector due to its large ripple effect in the economy when buyers purchase appliances and household furnishings. Construction of single-family homes accounts for about 85% of the industry. Work on multi-family units makes up the rest of the market and is considered highly volatile.

Home Sales
New homes sales account for less than 10% of the market. They are tabulated when the contract is signed. This is different from the way that existing home sales are tallied. They’re counted when the transaction closes and thus reflect contracts signed a month or two earlier. Existing home sales account for more than 80% of the market.

Another important home sales figure is the pending home sales index. This is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. Because it usually takes four to six weeks to close a contracted sale, it’s considered a leading indicator.

Housing Price Indices
There are two housing price indices: the S&P/Case-Shiller home-price index and the Federal Housing Finance Agency (FHFA) index. The FHFA index is a national measure that tracks houses bought with mortgages purchased by Fannie Mae or Freddie Mac and excludes many of the foreclosure sales and properties bought with non-conventional mortgages. Homes with these loans did not experience the sharp rise and subsequent decline in prices throughout the last decade and represent a more stable pricing index.

In contrast, the S&P/Case-Shiller report is focused on large metropolitan areas and includes distressed properties and those bought with non-conventional loans such as jumbo mortgages. These home prices tend to be much more volatile.

California Median Price Rises In January

The median price of existing, single-family homes rose 15 percent in January, while sales declined 10.6 percent compared with the prior year, according to C.A.R.’s latest sales and price report. The median price of an existing, single-family detached home in California during January was $287,440, a 15 percent increase from the revised $249,960 median for January 2009, according to the report. The January median price declined 6.3 percent compared with December’s $306,820 median price. Statewide home resale activity decreased 10.6 percent from the revised 602,660 unit sales pace recorded in January 2009. Sales in January 2010 decreased 3 percent compared with the previous month.

“Many sales that closed escrow in January were on homes with offers accepted during the holiday season--a time when many house hunters are first-time buyers,” said C.A.R. President Steve Goddard. “First-time buyers typically purchase homes priced below an area’s median home price. Reflecting this, the percentage of homes priced under $500,000 increased to 77 percent of all sales in January, compared with 75 percent in December.”

Source: California Association of Realtors ®

Consumer Confidence Declines To 46 In February

The Consumer Confidence Index declined in February to 46 (1985=100) compared with 56.5 in January, the Conference Board reported yesterday. The Present Situation Index decreased to 19.4 in February from 25.2 in January, and the Expectations Index declined to 63.8 from 77.3 last month, according to the report.

“Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years,” said Lynn Franco, director of The Conference Board Consumer Research Center. “Consumers' short-term outlook also took a turn for the worse, with fewer consumers anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending."

Consumers' assessment of current conditions was more negative in February than in January, with those claiming business conditions are "bad" increasing to 46.3 percent in February from 44.7 percent in January, while those claiming conditions are "good" decreased to 6.2 percent in February compared with 8.5 percent in January. Consumers' assessment of the job market also was more pessimistic, and their short-term outlook lost considerable ground in February, according to the report.

Source: The Conference Board

Foreclosures Decrease 10 Percent in January

Foreclosures decreased 10 percent in January compared with December, according to RealtyTrac®’s monthly foreclosure market report. Foreclosure filings were reported on 315,716 U.S. properties in January, a 10 percent decrease compared with December, but up 15 percent compared with January 2009. The report also found nearly one in every 409 U.S. housing units received a foreclosure filing in January.

Foreclosure activity in California decreased 10.77 percent in January compared with December, with one in every 187 housing units receiving a foreclosure filing, according to the report. Six California cities registered foreclosure rates among the top 10 in the nation: Modesto, one in every 107 housing units; Stockton, one in 107; Riverside-San Bernardino-Ontario, one in 109; Merced, one in 109; Vallejo-Fairfield, one in 112; and Bakersfield, one in 118.

Source: RealtyTrac®

Entry-Level Housing Affordability Remains At 64 Percent

The percentage of households that could afford to purchase an entry-level home in California remained at 64 percent in the fourth quarter of 2009, compared with 61 percent for the same period a year ago, according to a report released Friday by C.A.R. C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California.

The minimum household income needed to purchase an entry-level home at $257,940 in California in the fourth quarter of 2009 was $44,100, based on an adjustable interest rate of 4.5 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,470 for the fourth quarter of 2009.

At $44,100, the minimum qualifying income was 4 percent lower than a year earlier when households needed $45,900 to qualify for a loan on an entry-level home. Home prices remained below peak levels, resulting in an improvement in housing affordability compared with the previous year.

Source: California Association of Realtors®

Fast Facts

Calif. median home price: December 09: $306,820

Calif. highest median home price by C.A.R. region December 09: Santa Barbara So. Coast $847,500

Calif. lowest median home price by C.A.R. region December 09: High Desert $121,010

Calif. First-time Buyer Affordability Index - Fourth Quarter 2009: 64 percent

Mortgage rates - week ending 2/11/10 30-yr. fixed: 4.97 Fees/points: 0.7% 15-yr. fixed: 4.34% Fees/points: 0.6% 1-yr. adjustable: 4.33% Fees/points: 0.6%

Source: California Association of Realtors® & Freddie Mac

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Record Share Of Borrowers Reduced Principal Balance

In the fourth quarter of 2009, 33 percent of borrowers who refinanced their loan lowered their principal balance, resulting in the highest “cash-in” share since Freddie Mac began tracking the characteristics of refinance transactions in 1985, according to the company’s refinance report.

Consistent with the cash-in share, the report showed that the share of borrowers who increased their loan balance by 5 percent or more during the fourth quarter was at a record low of 27 percent.

“Rates on 30-year fixed-rate mortgages set a new record low during the first week in December at 4.71 percent and over the quarter averaged just 4.9 percent in Freddie Mac’s Primary Mortgage Market Survey®,” said Frank Nothaft, Freddie Mac vice president and chief economist. “One-half of borrowers who refinanced their conventional loan during the quarter lowered their annual mortgage interest rate by at least 0.9 percentage points below the old rate. In aggregate, the lower interest rate translates into about $2 billion in payment savings for these homeowners over the first 12 months of the new loan.”

Source: Freddie Mac

Program Encourages Borrowers To Pursue Loan Modifications

Freddie Mac and 13 national and local non-profit organizations recently announced the launch of Freddie Mac Borrower Help Centers, including one in San Bernardino. The centers are designed to encourage delinquent borrowers to pursue mortgage workouts. At the centers, Freddie Mac borrowers will receive free, confidential one-on-one mortgage counseling. The company also is launching a separate Borrower Help Network which will offer similar counseling services over the phone to targeted Freddie Mac borrowers.

Delinquent borrowers with a mortgage owned by Freddie Mac can schedule free appointments by contacting the Borrower Help Center in their area.

To reach distressed borrowers located outside of the initial target areas, Freddie Mac also is launching a separate Borrower Help Network consisting of eight national and local non-profit organizations. Together they are launching a national phone campaign to make contact with delinquent Freddie Mac borrowers who have stopped responding to their lenders. Counselors will provide free counseling, and help borrowers explore and understand their mortgage modification options.

Source: Freddie Mac