Single-family home prices rose more than expected in May, reflecting robust spring sales spurred by homebuyer tax credits, Standard & Poor's/Case Shiller home price indexes showed on Tuesday.
May is a strong seasonal period for home sales, S&P said, and buyers who rushed into the market to sign contracts by the April 30 deadline for up to $8,000 in tax credits have until September 30 to close loans.
Home prices have essentially moved sideways over the past seven months, however, and are likely to bounce around the bottom for the foreseeable future, S&P said.
"There is still a huge amount of supply on the market but sales appear to have improved enough to stabilize prices," said Christopher Low, chief economist at FTN Financial. "It will be a long time before they recover back to where they were before."
The 20-city composite price index rose 0.5 percent on a seasonally adjusted basis in May after an upwardly revised 0.6 percent gain in April, topping the 0.2 percent rise forecast in a Reuters poll.
Prices on an unadjusted basis jumped 1.3 percent in May, after a 0.9 percent April gain and declines in the six prior months. The index increased 4.6 percent in May from a year earlier, S&P said.
"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year still does not indicate that the housing market is in any form of sustained recovery," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.
With the recent upturn, prices still are 29.1 percent lower than the peak four years ago. A record inventory of foreclosed properties is widely seen preventing much of a price upturn in the near term.
The payback from the federal tax incentives went beyond most expectations and some reports have started to show some stabilization from historic lows.
Sales of new homes in June surged 23.6 percent, but remained at the second-lowest level since the Commerce Department started keeping records in 1963. High unemployment and wage cuts are keeping many potential buyers at bay.
The government is expected to report on Friday that gross domestic product growth slowed to a 2.5 percent annual rate in the second quarter from a 2.7 percent pace in the first quarter.
Rapid rescorings by independent, legitimate firms use procedures approved by the three major credit bureaus. They can help correct errors or omissions that are dragging down your scores.
Call it the great real estate disconnect of 2010: Mortgage rates have been at half-century lows and home prices have stabilized, but applications for mortgages to buy houses have declined most weeks during the last three months, as measured by the Mortgage Bankers Assn.
What's going on here? Shouldn't 30-year fixed-rate loans well below 5% be flying off the shelf? Economists say part of the reason is the expiration of the federal home purchase tax credits, which encouraged thousands of buyers to accelerate their transactions — starting with mortgage applications — into the early spring months to qualify for the April 30 contract deadline.
But other key factors are at work: More stringent underwriting standards imposed by private lenders, declining consumer credit scores in the wake of the recession, and rule changes by Fannie Mae, Freddie Mac and the Federal Housing Administration have all combined to make qualifying for a new mortgage more challenging than it has been in years.
Take credit scores. While most lenders have raised the bar on minimally acceptable scores, Fair Isaac Corp., creator of the widely used FICO score, says there has been a deterioration in millions of Americans' scores during the last two years. More than 25% of all consumers who have active credit files — roughly 43 million people — now have FICO scores of 599 and below. On Fair Isaac's scale, which runs from 300 (highest risk) to 850 (lowest risk), a 599 score is considered unacceptable by most lenders.
In fact, since the housing boom went bust, lenders prefer to see minimum scores well into the 700s. Fannie Mae, for instance, gives its best combinations of rates and fees to applicants with 740-or-higher FICO scores.
How can buyers deal with the tougher rules? Tops on the list: Be aware that there are work-arounds and creative solutions to some of the roadblocks. For example, say your credit scores appear too low to qualify for the mortgage you need. Ignore the online and junk-mail "credit repair" come-ons that promise miraculous FICO-score improvements overnight. They are often rip-offs and may not even be legal in some instances.
However, an experienced mortgage broker or retail loan officer can get your credit file into a "rapid rescoring" program that just might get you the legitimate lift you need to qualify. Rapid rescorings performed by independent credit reporting firms — most of them members of the National Credit Reporting Assn. — use procedures approved by the three major credit bureaus to make direct changes to the information contained in credit files.
If there are documented errors in the file, or omissions that are dragging down your scores behind your back, the rescorers connect you, your creditors and the national bureaus — Equifax, Experian and TransUnion — to get the problems fixed. In some cases, rescorers can even spot steps you can take, such as cutting your usage percentage on a particular account, that will boost your score immediately.
Most rescorings take three to five days and cost an average of $30 per "tradeline" or credit account per borrower, says Marty Flynn, president of Credit Communications Inc. in San Ramon, Calif., a credit reporting firm. A typical rescoring costs from $90 to $200. Though extensive rescorings can push FICO scores up dramatically, Flynn said the average increase is more like 25 to 32 points. If you've been an irresponsible deadbeat, of course, rescoring your files won't help much or at all.
Steve Stamets, a loan officer with Union Mortgage Group in Rockville, Md., said rapid rescoring can rack up transaction costs — and even pinch loan officers' revenue — when an applicant's scores are being depressed by issues in multiple accounts. One recent applicant had problems with three separate credit tradelines, throwing the entire mortgage application into jeopardy. Straightening them out cost $270.
"We got [the client] above the 620 FICO he needed" to be approved for the mortgages, Stamets said, "but believe me, it took some work."
Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), with the 30-year and 15-year fixed-rate mortgages reaching record lows for this survey. (The 30-year fixed-rate survey began in 1971, and the 15-year began in 1991.)
News Facts
1.30-year fixed-rate mortgage (FRM) averaged 4.56 percent with an average 0.7 point for the week ending July 22, 2010, down from last week when it averaged 4.57 percent. Last year at this time, the 30-year FRM averaged 5.20 percent.
2.15-year FRM this week averaged a record low of 4.03 percent with an average 0.7 point, down from last week when it averaged 4.06 percent. A year ago at this time, the 15-year FRM averaged 4.68 percent.
3.5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.79 percent this week, with an average 0.6 point, down from last week when it averaged 3.85 percent. A year ago, the 5-year ARM averaged 4.74 percent.
4.1-year Treasury-indexed ARM averaged 3.70 percent this week with an average 0.7 point, down from last week when it averaged 3.74 percent. At this time last year, the 1-year ARM averaged 4.77 percent.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
“The decline in mortgages rates over the past few weeks echoes the recent signs of weakening confidence in the strength of the economy, particularly the housing and consumer sectors. For example, homebuilder confidence declined in July to lows not seen since April 2009, as measured by the NAHB/Wells Fargo Housing Market Index, following the large drop in housing starts reported for June.”
“Similarly, July’s consumer confidence dropped to the lowest level since August 2009, based on the Reuters/University of Michigan’s Consumer Sentiment index. We see these as part of the normal pattern of ebbs and flows in recovery and believe that there is sufficient momentum to carry the U.S. economy forward, albeit moderately.”
With the scheduled closing deadline for the home buyer tax credits, existing-home sales slowed in June but remained at relatively elevated levels, according to the National Association of Realtors®.
Existing-home sales , which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million in May, but are 9.8 percent higher than the 4.89 million-unit pace in June 2009.
Lawrence Yun , NAR chief economist, said the market shows uncharacteristic yet understandable swings as buyers responded to the tax credits. "June home sales still reflect a tax credit impact with some sales not closed due to delays, which will show up in the next two months," he said.
"Broadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge. Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels."
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.74 percent in June from 4.89 percent in May; the rate was 5.42 percent in June 2009.
The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago. Distressed homes were at 32 percent of sales last month, compared with 31 percent in May; it was also 31 percent in June 2009.
NAR President Vicki Cox Golder , owner of Vicki L. Cox & Associates in Tucson, Ariz., said softer home sales expected this summer don't tell the whole story. "Despite these market swings, total annual home sales are rising above 2009 and we're looking for overall gains again this year as well as in 2011," she said. "Conditions have become more balanced in much of the country, which is good for both buyers and sellers. However, consumers find it even more challenging to navigate the transaction process, especially for distressed properties, which only underscores the value Realtors® bring to buyers and sellers in this market."
A parallel NAR practitioner survey shows first-time buyers purchased 43 percent of homes in June, down from 46 percent in May. Investors accounted for 13 percent of sales in June, little changed from 14 percent in May; the remaining purchases were by repeat buyers. All-cash sales were at 24 percent in June compared with 25 percent in May.
Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May.
"The supply of homes on the market is higher than we'd like to see. But home prices are still holding their ground because prices had already overcorrected in many local markets," Yun said. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.
Single-family home sales fell 5.6 percent to a seasonally adjusted annual rate of 4.70 million in June from a level of 4.98 million in May, but are 8.5 percent above the 4.33 million pace in June 2009. The median existing single-family home price was $184,200 in June, up 1.3 percent from a year ago.
Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in June in comparison with June 2009. In addition, existing single-family home sales rose in 12 of the 19 areas from a year ago while two were unchanged.
Existing condominium and co-op sales slipped 1.5 percent to a seasonally adjusted annual rate of 670,000 in June from 680,000 in May, but are 20.5 percent higher than the 556,000-unit pace in June 2009. The median existing condo price was $180,100 in June, which is 1.4 percent below a year ago.
Regionally, existing-home sales in the Northeast rose 7.9 percent to an annual level of 960,000 in June and are 17.1 percent above June 2009. The median price in the Northeast was $244,300, down 1.2 percent from a year ago.
Existing-home sales in the Midwest dropped 7.5 percent in June to a pace of 1.23 million but are 11.8 percent higher than a year ago. The median price in the Midwest was $155,900, down 0.1 percent from June 2009.
In the South, existing-home sales fell 6.5 percent to an annual level of 2.01 million in June but are 11.0 percent above June 2009. The median price in the South was $163,600, unchanged from a year ago.
Existing-home sales in the West dropped 9.3 percent to an annual pace of 1.17 million in June but are 0.9 percent higher than a year ago. The median price in the West was $221,800, up 1.5 percent from June 2009.
A recent report found 24 percent of homes listed for sale nationwide experienced at least one price reduction as of July 1, representing a 9-percent increase compared with the previous month, according to Trulia.com. The average discount for price-reduced homes remained unchanged at 10 percent of the listing price.
Cities in the Western U.S. experienced some of the largest surges in price reduction compared with the previous month. Oakland increased 38 percent month-over-month and San Diego experienced price reductions of 25 percent. Honolulu experienced a 21 percent increase in reductions from the previous month and Las Vegas increased by 20 percent.
Having lived, attended schools, worked and raised a family in Santa Barbara, Don has a unique and in depth knowledge of Santa Barbara County. He has been a top producer for over 26 years in his association with Coldwell Banker and their predecessors. Don specializes in neighborhoods such as the Upper Westside of Santa Barbara, the lavish Bel Air Knolls, and Cold Springs in Montecito. With an in depth knowledge of these neighborhoods and their buying/selling history, he is better capable of getting your house on the market, getting it noticed, and getting it sold effectively. His experience in Santa Barbara will lead you to find that house that best suits your needs.
Don was raised in Santa Barbara. In his youth he played football in high school and college. Don and his wife Holly have been married for over 40 years and have three adult children, two sons and a married daughter. They are proud Grandparents of four young children. Don's idea of a fun vacation is backpacking in the wilderness with his extended family. Don's first love is his family followed by tennis and the wonderful and inspiring escape to nature during vacation.
