FREDDIE MAC: MARKET UNCERTAINTY DISORIENTS MORTGAGE RATES

Continuing its new pattern, the 30-year mortgage rate continues to stray from the Treasury yield amid rising market uncertainty.

“This week’s survey once again displays the disconnect between mortgage rates and Treasury yields, a result of continued uncertainty,” Freddie Mac Chief Economist Sean Becketti said.

The 30-year fixed-rate mortgage increased slightly to 4.16 percent for the week ending Feb. 23, 2017. This is up from last week’s 4.15 percent and from last year’s 3.62 percent.

The 15-year FRM also increased slightly to 3.37 percent, up from last week’s 3.35 percent and from last year’s 2.93 percent.

However, the five-year Treasury-indexed hybrid adjustable-rate mortgage decreased slightly to 3.16 percent, down from last week’s 3.18 percent but still up from last year’s 2.79 percent.

“In a short week following Presidents Day, the 10-year Treasury yield fell about eight basis points,” Becketti said. “However, the 30-year mortgage rate rose one basis point to 4.16 percent.”

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http://www.housingwire.com/articles/39302-freddie-mac-market-uncertainty-disorients-mortgage- rates

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CALIFORNIA HOUSING MARKET KICKS OFF YEAR HIGHER IN JANUARY

California’s housing market started the year on a high note, following up on December’s strong showing with higher sales both on a monthly and yearly basis in January, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 420,100 units in January, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide sales figure represents what would be the total number of homes sold during 2017 if sales maintained the January pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

The January figure was up 2.1 percent from the 411,430 level in December, and up 4.4 percent compared with home sales in January 2016 of a revised 402,220. The month-to-month gain was the first December- to-January increase since 2012, which is an encouraging sign.

“California’s housing market continues to be defined by the higher-priced, coastal markets and the less expensive, inland areas that still offer access to major employment centers,” said C.A.R. President Geoff McIntosh. “For example, eroding affordability and tight housing inventory are pushing buyers away from the core Bay Area markets of San Francisco, San Mateo, and Santa Clara and into less expensive bedroom communities, such as Contra Costa, Napa, and Solano. In Southern California, an influx of buyers from coastal employment areas into the Inland Empire drove healthy year-over-year sales in Riverside and San Bernardino.”

Making sense of the story
• The median price of an existing, single-family detached California home fell below the $500,000 mark for the first time since March 2016, but home prices remain seasonably strong. 
• The median price was down 3.8 percent from a revised $508,870 in December to $489,580 in January. The median sales price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling, as well as a general change in values.
• January’s median price was up 4.8 percent from the revised $467,160 recorded in January 2016, a slightly slower pace than the 5.6 percent increase averaged last year.
• Since 2011, price declines from December to January have usually ranged from -11.7 percent to as little as -4.6 percent, but January’s 3.8 percent monthly smaller price decline suggests that price pressure remains relatively robust and could translate into additional price growth as the spring and summer home-buying seasons near.

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http://www.car.org/aboutus/mediacenter/newsreleases/2017releases/jan2017sales

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SWIFT GAINS IN FOURTH QUARTER PUSH HOME PRICES TO PEAK LEVELS IN MAJORITY OF METRO AREAS

The best quarterly sales pace of the year pushed available housing supply to record lows and caused price appreciation to slightly speed up in the final three months of 2016, according to the latest quarterly report by the National Association of Realtors®. The report also revealed that sales prices in over half of measured markets since 2005 are now at or above their previous peak level.

The median existing single-family home price increased in 89 percent of measured markets, with 158 out of 178 metropolitan statistical areas 1 (MSAs) showing sales price gains in the fourth quarter of 2016 compared with the fourth quarter of 2015. Twenty areas (11 percent) recorded lower median prices from a year earlier.

There were more rising markets in the fourth quarter compared to the third quarter of 2016, when price gains were recorded in 87 percent of metro areas. Thirty-one metro areas in the fourth quarter (17 percent) experienced double-digit increases — an increase from 14 percent in the third quarter.

For all of 2016, an average of 87 percent of measured markets saw increasing home prices, up from the averages in 2015 (86 percent) and 2014 (75 percent). Of the 150 markets NAR has tracked since 2005, 78 (52 percent) now have a median sales price at or above their previous all-time high.

Lawrence Yun, NAR chief economist, says home-price gains showed little evidence of letting up through all of 2016. "Buyer interest stayed elevated in most areas thanks to mortgage rates under 4 percent for most of the year and the creation of 1.7 million new jobs edging the job market closer to full employment," he said. "At the same time, the inability for supply to catch up with this demand drove prices higher and continued to put a tight affordability squeeze on those trying to reach the market."

Added Yun, "Depressed new and existing inventory conditions led to several of the largest metro areas seeing near or above double-digit appreciation, which has pushed home values to record highs in a slight majority of markets. The exception for the most part is in the Northeast, where price growth is flatter because of healthier supply conditions."

The national median existing single-family home price in the fourth quarter of 2016 was $235,000, which is up 5.7 percent from the fourth quarter of 2015 ($222,300). The median price during the third quarter of 2016 increased 5.4 percent from the third quarter of 2015.

At the end of the fourth quarter, there were 1.65 million existing homes available for sale 2, which was 6.3 percent below the 1.76 million homes for sale at the end of the fourth quarter in 2015 and the lowest level since NAR began tracking the supply of all housing types in 1999. The average supply during the fourth quarter was 3.9 months — down from 4.6 months a year ago.

NAR President William E. Brown, a Realtor® from Alamo, California, says prospective buyers will likely see competition in their market increase even more this spring. "The prospect of higher mortgage rates and more home shoppers in coming months should be enough of an incentive for those serious about buying to start their search now," he said. "There are fewer listings on the market, but also a little less competition than what's expected this spring. Buyers may find just the home they're looking for at a good price and without the possibility of having to outbid others."

Total existing-home sales 3, including single family and condos, rose 3.3 percent to a seasonally adjusted annual rate of 5.57 million in the fourth quarter from 5.39 million in the third quarter of 2016, and are 7.1 percent higher than the 5.20 million pace during the fourth quarter of 2015.

Despite a meaningful increase in the national family median income ($70,831) 4, rising prices and the boost in mortgage rates at the end of the year slightly weakened affordability compared to a year ago. To purchase a single-family home at the national median price, a buyer making a 5 percent down payment would need an income of $51,017, a 10 percent down payment would require an income of $48,332, and $42,962 would be needed for a 20 percent down payment.

"Even a pick-up in wage growth may be insufficient to compensate the impact of higher mortgage rates and home prices. Increased homebuilding will be crucial to alleviate supply shortages and stave off the affordability hit," added Yun.

Metro area condominium and cooperative prices — covering changes in 61 metro areas — showed the national median existing-condo price was $222,000 in the fourth quarter, up 6.1 percent from the fourth quarter of 2015 ($209,300). Nearly all metro areas (93 percent) showed gains in their median condo price from a year ago.

The five most expensive housing markets in the fourth quarter were the San Jose, California, metro area, where the median existing single-family price was $1,005,000; San Francisco, $837,500; Anaheim-Santa Ana, California, $745,200; urban Honolulu, $740,200; and San Diego, $593,000.

The five lowest-cost metro areas in the fourth quarter were Youngstown-Warren-Boardman, Ohio, $87,600; Decatur, Illinois, $92,400; Cumberland, Maryland, $94,000; Rockford, Illinois, $109,500, and Binghamton, New York, $109,700.

Regional Breakdown
Total existing-home sales in the Northeast jumped 10.5 percent in the fourth quarter and are now 6.4 percent above the fourth quarter of 2015. The median existing single-family home price in the Northeast was $254,100 in the fourth quarter, slightly lower (0.2 percent) from a year ago.

In the Midwest, existing-home sales climbed 2.3 percent in the fourth quarter and are 8.8 percent above a year ago. The median existing single-family home price in the Midwest increased 5.7 percent to $181,100 in the fourth quarter from the same quarter a year ago.

Existing-home sales in the South increased 2.6 percent in the fourth quarter and are 5.4 percent higher than the fourth quarter of 2015. The median existing single-family home price in the South was $210,500 in the fourth quarter, 7.9 percent above a year earlier.

In the West, existing-home sales rose 1.6 percent in the fourth quarter and are 9.1 percent above a year ago. The median existing single-family home price in the West increased 7.8 percent to $348,800 in the fourth quarter from the fourth quarter of 2015.

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing over 1.1 million members involved in all aspects of the residential and commercial real estate industries.

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SMALL HOMES CAN OFFER BIG RETURNS

When shopping for a new home, bigger is better, right? When it comes to roomier closets and more spacious kitchens, probably — but not so much when considering the return on your investment. According to a NerdWallet analysis of three years of data from Realtor.com for 20 of the largest U.S. metro areas, smaller homes generally appreciate at a faster rate than larger abodes.

NerdWallet looked at Realtor.com’s data for home listing prices in each of the 20 largest metro areas by population (other than New York City and Philadelphia, which had insufficient data) from 2013 to 2016. Homes for each metro area were lumped into four equal groups, or quartiles, based on square footage, each relative to the median home size in that area. From there, we calculated the compound annual growth rate of listing prices.

Key takeaways• Smaller homes see prices rise faster: While individual market dynamics and trends vary, in 17 of the 20 metro areas analyzed, listing prices of the smallest 25% of homes grew fastest when calculated as a percentage. The median annual growth rate for the smallest quartile of homes was 8.9% from 2013 to 2016. The second-smallest group of homes had the second-fastest growth rate, with median annual growth of 7.4%.

• Prices in Florida appreciated fastest: The two metro areas with the fastest rate of price appreciation among the smallest homes are both in Florida. Miami-Fort Lauderdale-West Palm Beach saw the most drastic growth, as the smallest quartile of homes appreciated by 19.5% each year from 2013 to 2016. The metro area with the second-fastest appreciation of small homes was Tampa-St. Petersburg-Clearwater, Florida, where the smallest quartile of homes appreciated by 16.6% annually.

• Larger homes appreciate fastest by dollar amount: While the smallest homes appreciate fastest when viewed as a percentage, larger homes appreciate faster when looking at absolute dollar amount. This is simply because of the larger price tag of the home. For example, the smallest homes in the metro areas we analyzed appreciated just over $57,535 on average between 2013 and 2016. Over the same period, the largest homes saw their prices rise $99,790 on average.

Why small homes might net better returns faster
These findings are not surprising, says Richard K. Green, a professor and chair of the Lusk Center for Real Estate at the University of Southern California. “We’ve had this now for about nine to 10 years, this return to center cities” being more desirable than suburbs, Green says. And homes in the center of big cities tend to be smaller than those in suburbs, Green noted, regardless of whether they’re historic houses or new construction.

In addition to increased demand for homes in city centers, another possible reason for the trend, Green says, is that new construction has been down nationwide dating back to 2007; that means inventory in general is low. Furthermore, many people who bought starter homes between 2004 and 2006 haven’t recovered all the value they lost during the housing crisis.

“They haven’t built up the equity that normally people would use for a down payment in order to move up, so you have a lot of people who are stuck in their starter homes,” Green says. While home prices are going up, he says, they’re not high enough to get people to leave their starter homes except in a few markets, such as Denver and Dallas. As a result, there often aren’t enough starter homes on the market to meet demand. This lack of inventory, paired with increased demand, means more price appreciation for smaller homes.

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THE DEFINITIVE HOUSING MARKET AND INTEREST RATE FORECAST FOR 2017

Active and higher. That’s it, that’s my forecast; housing markets will be active and interest rates will trend higher. The question of course is how active and how much higher, so here you go:

Since what I do is all about finance and interest rates, people tend to assume that I know what is behind the doors with the signs that say “Interest Rates” and “Market Trends.” Truth is I am no better at handicapping interest rate and housing market trends than anybody else. I watch every day, I absorb what is happening, I make assumptions and I roll the dice just like everybody else.

Real estate agents dominate my cell phone and Outlook contacts. I am a mortgage guy and real estate people are important if I want to do things like pay bills, eat and maybe save for when I am too old to do this anymore. The technical term for mortgage “guy” is “originator.”

And real estate people ask me all the time what I think about economic things that have a lot to do with our respective livelihoods. I get asked about what direction interest rates are headed and where they will be in the future. I get asked what I think housing market activity will be and how strong the economy will look in 2017. I have been a mortgage guy for a long time and I think I have the exact right answer when I get asked the housing market activity question. What direction rates are headed and what the economy will be doing are questions that are above my pay grade, but I will do some common sense opining here in a moment.

As far as the housing market in 2017, I can say with absolute certainty that people will be selling houses, people will be buying houses and people will be getting mortgages. I am 100% certain of this and you can use this information with ironclad confidence as you tread into whatever housing market dynamics you are contemplating. Mortgage interest rates do not drive or impede housing market activity. People buy and sell houses in all interest rate environments and for a host of reasons that have nothing to do with mortgage payments. Families grow, families shrink, jobs and fortunes change, people get married, people get divorced, this list could go on all night. Interest rates are just part of the equation; they are not the headline determinant.

And interest rates have already telegraphed the near term future trend with a dramatic move north following the U.S. Presidential election. Almost immediately after the votes were tallied, mortgage rates which had been hovering around 3.50% zoomed up to 4.25% and have settled in with this as the current norm. And while the Fed left short term rates unchanged at last week’s meeting, notice has been given that engineered rates will be moving north in 2017.

According to Dr. Yoav Benari of financialgauge.com; “The current environment of slow but steady economic growth and inflation suggest an end to the secular decline in bond yields once 10-year Treasuries top 2.5% - with a likely levelling off in a range between 3% and 4%”. At this writing, 10-year Treasury yields are trading slightly above 2.4% and mortgage interest rates are hovering around 4.25%. Should 10-year Treasury yields move to somewhere between 3% to 4%, we will see mortgage interest rates in the 4.75% to 5.75% range.

The U.S. economy has yet to break out and definitively march towards real growth but signs are bullish and bets are being made that robust will be a regular part of the economic lexicon before long.

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TRULIA REPORTS MILLENNIALS THINK HOUSING NO LONGER PART OF AMERICAN DREAM

The homeownership rate remained the same in the fourth quarter as the previous year and the previous quarter, according to today’s report from the U.S. Census Bureau.

The national homeownership rate slipped only slightly to 63.7% in the fourth quarter. This is down from the previous year’s 63.8% and up slightly from the third quarter’s 63.5%.

One economist explains that the lack of inventory is partially to blame for the low homeownership rate.

“After reaching a 50-year low in mid-2016, the homeownership rate edged up for the second consecutive time in the final quarter,” Capital Economics Property Economist Matthew Pointon said. “A lack of inventory is preventing a faster rebound in homeownership.”

The national vacancy rates for rental housing in the fourth quarter of 2016 dipped slightly from 7% in the fourth quarter of 2015 to 6.9%. This is a slight increase from the third quarter’s 6.8%. Similarly, the homeowner vacancy rate of 1.8% is also slightly down from the fourth quarter of 2015’s 1.9% and the same as the third quarter’s rate.

But this could get even worse in the year ahead. Trulia’s end of the year survey shows the share of Americans who say homeownership is part of the American dream dropped for the first time in five years from 75% last year to 72%.

This drop was even more extreme among Millennials. While in 2015 80% of Millennials said buying a home was part of the American dream, the survey at the end of 2016 showed that number dropped to 72%, now even with everyone else.

“Given millennials make up the largest pool of potential homebuyers in the U.S., this should be at least somewhat disconcerting,” Trulia Chief Economist Ralph McLaughlin said. “If the for-sale housing market is to continue building steam in the years ahead, this demographic will need to transition into homeownership in order to support the resale of homes by their older counterparts.”

“Though home buying among millennials is likely to be volatile in the short-run, the long-run potential for this generation to support housing consumption in the U.S. is large,” McLaughlin said.

However, there is still hope for the future of homeownership. McLaughlin points out that the report shows growth in household formation. Household formation increased 0.5%to 805,000 new households, however the increase was due to the formation of renter households.

“This effectively is why the homeownership rate has dropped: a greater share of new households since 2006 have been renters rather than home owners,” McLaughlin said. “But the margin is slimming: about 46% of new households over the past year were owner occupied.”

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ONE OF TRUMP'S FIRST ORDERS MEANS HOME LOAN FEES WON'T GO DOWN

Friday was the day that many homebuyers across the country were to start saving on average $500 a year on their loans. A fee reduction was set to go into effect at the Federal Housing Administration, lowering the cost of nearly 1 million FHA loans per year.

But that's not going to happen, at least for now, because in his very first hours in office, President Trump issued an order suspending that fee cut.

The Obama administration had authorized the fee reduction for FHA loans earlier this month. Trump's order says it is now "suspended indefinitely." The Trump administration could ultimately allow it to go through, but the order states "more analysis and research are deemed necessary."

Geoff McIntosh, president of the California Association of Realtors, says his group was disappointed by the Trump administration's move. "It would have made a difference to California homebuyers of about $860 a year," McIntosh tells NPR.

The higher the price of the home, the greater the savings since the fee in question was to be cut by 0.25 percentage points of the total amount borrowed. So on a $400,000 home loan, the savings would be $1,000.

So why would the new administration want to keep that money out of Americans' pockets? The order doesn't say precisely. But some conservatives had warned that cutting the fees for FHA borrowers might leave taxpayers on the hook in another housing crash.

"FHA insures over $1 trillion in outstanding mortgage loans," says Ed Pinto, co-director of the American Enterprise Institute's Center on Housing Risk. He sees that as a potentially ominous liability given the FHA's cash reserves.

Other analysts disagree and say the FHA is once again on strong financial footing and they say the fee cut was justified.

At question is a home loan program that's become very popular with fist-time homebuyers and working-class and lower-income borrowers. With the rising costs of health care and education among other factors, many Americans find it hard to scrape together a very sizable down payment to buy their first home. To lower that barrier to ownership, for decades now the FHA has been allowing Americans to buy homes with as little as a 3.5 percent down payment. Private lenders make the loans and the FHA guarantees them.

Homebuyers agree to pay fees into an FHA reserve fund to cover losses on loans that go bad. Those fees went up during the foreclosure crisis to cover increased defaults. And the Obama administration had been lowering them in recent years as things got back to normal in the housing market.

Today, the money in the FHA's reserve fund is back above its legally required level. So the Obama administration concluded it was time to reduce the fees for borrowers again to pass more savings on to homebuyers. Had the fee reduction gone through, the fee would still be slightly above the level it was before the housing crash.

Still, Pinto remains uneasy. "There's been a lot of concern that the level of that fund is insufficient to really cover FHA in the event there were another serious event in terms of foreclosures," he says.

The FHA did require a bailout after the housing crash. But it was less than 1 percent of the money the government had to use to rescue Fannie Mae and Freddie Mac, which also guarantee home loans.

That's one of the big reasons that other experts say concerns like Pinto's are overblown. Chris Mayer, a housing economist at Columbia University, says that for a long time some conservatives have been warning that the FHA is a $1 trillion time bomb that people should be worried about.

But Mayer says, "we just went through the worst financial crisis since the Great Depression and the FHA didn't take down taxpayers or the federal government in any way, shape or form." So, he says, "at some point you can't keep saying this thing's gonna blow up, this things gonna blow up!"

The move to block the fee cut came hours after Trump's inaugural address, in which he Trump said he wanted to help working-class Americans. "I did find it somewhat ironic," says Geoff McIntosh, with the Realtors group.

But McIntosh says it's reasonable for the new administration to take some time to look at the numbers. "I can also appreciate that they wanted to make sure that it was a sound fiscal decision before they executed it."

McIntosh says he's cautiously optimistic that after the Trump administration reviews all the facts and figures, that it will allow the fee cut to go through, to help make homeownership a bit more affordable for Americans with FHA loans.

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