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Home Affordability Remains Strong Despite Price Rises

Black Knight Financial Service took a look back on January’s home affordability and foreclosure metrics, and made some interesting discoveries. It would appear that foreclosure starts reached a twelve month high at the start of 2015, both in terms of first time foreclosures and repeats. As of then, repeat foreclosures accounted for better than half of the total foreclosures.

Meanwhile, home affordability, despite two years of rising prices, remains better than what we saw prior to the housing bubble. The low interest rates at the time served well to offset price increases so that the mortgage-to-income ratio average throughout the United States was at 21%. This is an improvement over the 26% average observed from 2000-2002, but it’s still up from the 17.6% low in October of 2012.

Here in Washington state, we are slightly above the average at 21.3%. However, this represents an improvement of 6.5% from 2000-2002, exhibiting a greater-than-average increase of mortgage affordability.

Lack of Distressed Properties Brings Real Estate Sales Down

Mortgage loan officers in Lynnwood and across the country have been noticing a trend in declining home sales lately. In February, thirty-one states experienced a decrease in home sales over January, and six states saw a drop from the same time last year. Nationwide, the median sales price for residential properties was $164,667 in February, which represents a decline of one percent from January.

A big part of this trend appears to be related to the dwindling inventory of distressed homes. With many foreclosed properties going on the market over the past years, the housing market had come to depend upon this inventory. However, as demand increases and fewer houses are going into foreclosure, these homes are rapidly drying up. Meanwhile, this dearth of homes is not being adequately compensated for in non-distressed sales or new construction.

Distressed properties still represent a significant part of real estate sales, though. In February, 5.7 percent of sales were short sales and an additional 11.2 percent represented sales of homes owned by banks. This makes for a combined percentage of distressed sales of 16.9 percent, which represents an increase from January’s 16.1 percent but a decline from the 19.1 percent we saw in February of last year.

Source: https://www.mortgagenewsdaily.com/03272014_realtytrac_home_sales.asp

Does Freddie Mac Still Have Something to Offer?

With the mortgage market going through dynamic transformations and the federal efforts to phase out the long-standing mortgage giants, the question needs to be asked: is Freddie Mac still bringing something to the table?

As the first quarter of 2014 came to an end, Freddie Mac’s CEO came forward with a fairly positive outlook on how the group strengthens the real estate market. In addition to their strong financial results, he provided the following list of services that the group has been providing the country with:

• Funding Housing: In the first quarter of 2014, Freddie Mac helped nearly 250,000 families purchase or refinance a home. It also funded over 50,000 multifamily properties, most of which were made affordable for renters at or below the median income for the area.
• Helping Struggling Homeowners: Another 65,000 homeowners struggling with their mortgage loans received aid via the group’s Home Affordable Refinance Program. This represents a smaller number compared to earlier quarters, but the group is reporting fewer delinquent loans.
• Shifting Credit Risk: In an effort to spare taxpayers from the burden of Freddie Mac’s risky balance sheet, the group has eliminated a substantial amount of credit risk on $165 billion worth of mortgages and sold off $19 billion of securities throughout the past five quarters.
• Increasing Efficiency and Effectiveness: Freddie Mac reports that it is currently prioritizing improving their operation so as to better serve the country and help mortgage lenders likewise do their own jobs better.

June Sees Rise in Home Sales, Drop in Mortgages

Last month, mortgage lenders experienced a decline in applications for new home purchase mortgages. According to a survey conducted among mortgage subsidiaries of US builders by the the Mortgage Bankers Association (MBA), mortgage applications in June were down five percent from May. This represents the second month in a row of drops in mortgage activity, with an estimated eight percent decline between April and May.

Conventional loans in June represented the bulk of loan applications, with a total of 67.2% of the market. FHA made up 17%, VA loans made up 14.6%, and 1.2% represented loans from the Rural Housing Service and USDA. Among new home loans, the average loan size was $296,078, representing a slight decline from May’s average of $296,427.

Despite this drop in mortgage activity, it is estimated that new home sales rose in June. Based on their survey data and assumptions regarding the market coverage, MBA places June home sales at 386,000 units. This represents a 3.2% increase over the 374,000 units purchased in May.

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Is a Pocket Listing Right for Me?

Though home prices are easing up throughout the country, it’s still very much a seller’s market. Indeed, even with a new influx of inventory, demand is high enough such that the average number of days a house spends on the market dropped to only forty-five in June. This is due in part to the increase in rental rates, which makes the price of a mortgage loan look all the more appealing. However, another big factor that is defeating the greater number of available homes on the market is something realtors call “pocket listings”.

A pocket listing is not widely advertised. A realtor takes a pocket listing only to his or her own buyer clients, or only to clients within his or her company. This greatly decreases the number of homes that are made visible to individual homebuyers, virtually reducing the available inventory.

Pocket listings are not illegal, though they can be somewhat bothersome. Some realtors prefer pocket listings only because it allows them to earn both the buyer’s and seller’s commission, instead of having to share with another realtor. They are not, however, entirely without merit, and sellers should explore the concept with their realtor in order to determine whether or not a pocket listing is right for their specific circumstances.

First of all, a pocket listing is probably going to work only in a high-demand market. In a climate such as this one, you may not need to advertise to many people in order to get a seller quickly. You may lose some potential to start up a bidding war on your house, but there is also money to be saved in not having to go through the hassle or expense of advertising to and dealing with a large number of potential buyers.

If your home is in bad condition, like if it suffered a fire, flood damage, or significant mold, it may be a good idea to do a pocket listing. The property may not be the safest place to take potential buyers to before significant repairs can be done. Therefore, it is impractical to present it to a large number of people, and more favorable to focus on a small group.

Should your realtor suggest a pocket listing, be sure to ask for a reason. Though it is possible that this would be the best move for your own situation, it is also possible that you would simply be losing the benefits of transparency in favor of lining the realtor’s pockets.

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Mortgage Rates Brought Back Under Control

As July gave way to August, the mortgage market saw a bit of recovery after the significant rise in rates.

The bad news is that this recovery in mortgage rates can be largely attributed to the recent Employment Situation Report, which showed less job creation than was initially anticipated. All the same, this recover represents an important development for consumers in that it prevents what was promising to be a great surge upward. Meanwhile, recent activity in the European markets gives us good reason to believe that this trend is here to stay.

In the last week of July, European borrowing rates reached an all-time low. This applies downward pressure to American mortgage rates. Since Europe will likely have to make a significant recovery in order to reverse this trend, it may be safe to assume that the US mortgage market will continue to be kept in check for a while.

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Another Drop in Delinquency Brings Us to 2007 Levels

The Mortgage Bankers Association as some good news in terms of mortgage delinquency. In the second quarter of 2014 the delinquency rate for one-to-four unit residential mortgages dropped. This represents the fifth quarter in a row that we’ve seen such a drop. This put the seasonally adjusted rate of such loans outstanding at 6.04 percent, which is the lowest rate since the fourth quarter of 2007.

Mortgages in serious delinquency, or loans that are either ninety or more days past due or in foreclosure proceedings, comprised 4.8 percent of total mortgages. This is twenty-four basis points lower than the previous quarter, and one hundred eight basis points below the second quarter of 2013.

Mortgage loans that were in foreclosure proceedings in the second quarter comprised 2.49 percent of all mortgages. This represents a drop of sixteen basis points from the previous quarter, and eighty-four basis points from the same time last year. This brings us to the lowest foreclosure inventory rate since the beginning of 2008, and even states hit hardest by the crisis are enjoying pre-crisis levels of foreclosure inventory.

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