Analysts Are Still Bullish on Housing

Analysts Are Still Bullish on Housing. Image courtesy of ddpavumba / FreeDigitalPhotos.net

A slowdown in price growth and in the housing market hasn’t prompted Capital Economics analysts to change their housing forecast. They still see growth ahead for the sector.

Paul Diggle, property economist at Capital Economics, says he remains bullish on the housing market and mortgage growth in the coming months, and that the declines in home-price growth and the sluggish employment picture are not reason for concern that the housing recovery is headed for derailment.

Diggle says that economic growth is running at more than 3 percent on an annualized basis and that several indicators are pointing to a labor market on the mend.

On the housing market, Diggle points to mortgage affordability: The decrease in home prices has helped the value of homes to improve for many home buyers. Mortgage rates continue to hover at yearly lows, with the 30-year fixed-rate mortgage averaging 4.25 percent in the most recent week.

Still, Diggle says that the average mortgage payment in August accounts for 16.3 percent of median incomes, so mortgage rates aren’t significantly altering mortgage affordability. But he notes that the rise in existing home sales back to historical norms is important. Existing-home sales account for about 90 percent of all sales.

“They increased by 2.4 percent month-over-month to 5.15 million annualized in July, the fourth consecutive rise,” Diggle notes. “Existing home sales per capita are now in line with long-run norms.”

However, new-home sales and mortgage lending remain flat, hampering the housing recovery. Mortgage applications for home purchases dropped for the third consecutive month in August, reaching the lowest level since 1995.

“Yet these data don’t sit comfortably with the net balance of 45 percent of respondents to the Fed’s Senior Loan Officer Survey who saw mortgage demand strengthen in the third quarter,” says Diggle. “The same survey showed that a net balance of 18 percent of lenders loosened mortgage credit conditions.”

He believes the latest loosening in lending should help home sales, particularly new-homes sales, to strengthen in the coming months.

“Indeed, we believe that the majority of the increase in the housing market over the next few years will come from the new-homes sector,” Diggle says.

Source: “Capital Economics Remain Bullish on Housing,” HousingWire (Sept. 10, 2014)

Buyers Facing Less Competition From Cash Buyers

Buyers Facing Less Competition From Cash Buyers. Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net

The percentage of cash sales fell to 33 percent of total home sales in June, marking the lowest share since September 2008, CoreLogic reports. A year ago, cash sales stood at 36.3 percent of the market; they have been falling steadily since January 2013.

Historically, cash sales make up about 25 percent of total home sales, according to data prior to the housing crisis. In 2011, cash sales peaked at 46.2 percent of sales nationwide, CoreLogic reports.

Buyers are using cash mostly to purchase real estate–owned properties, or REOs. Fifty-five percent of REOs are all-cash transactions, followed by nearly 33 percent of resales, about 32 percent of short sales, and 16 percent of newly built homes.

The following states had the largest share of cash sales in June, according to CoreLogic:

• Florida: 50.9%
• Alabama: 48.1%
• New York: 44.6%
• Kentucky: 40.1%
• Nevada: 40%

At a metro level, Cape Coral-Fort Myers, Fla., had the highest number of cash sales at 61.2 percent in June. On the other hand, Washington-Arlington-Alexandria, D.C.-Va.-Md. had the lowest share of cash sales at 15.6 percent, among the 100 metros tracked.

Source: “Cash Sales Accounted for One in Three Home Sales in June,” HousingWire (Sept. 9, 2014)

Banks Causing Housing Slowdown?

Banks Causing Housing Slowdown? Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Some analysts are blaming the slowdown in the housing market on banks that are preventing too many prospective buyers from getting a mortgage.

“It is difficult for any home owner who doesn’t have pristine credit these days to get a mortgage,” Federal Reserve Chairwoman Janet Yellen said in June.

Bank giants have been confirming that in recent months. John Stumpf, CEO of Wells Fargo & Co., the nation’s largest mortgage lender, said that the lender was unwilling to lend to lower-income borrowers or those with low credit scores. That won’t change unless government regulators make it more difficult for investors to force banks to repurchase securitized loans.

“If you guys want to stick with this program of ‘putting back’ any time, any way, whatever, that’s fine. We’re just not going to make those loans, and there’s going to be a whole bunch of Americans that are underserved in the mortgage market,” Stumpf said, referring to loan-purchase demands by Fannie Mae, Freddie Mac, and private investors.

In July, JP Morgan Chase & Co. CEO James Dimon said that the bank’s volume of loans insured by the Federal Housing Administration was way down for the year.

“We want to help the consumers there, but we can’t do it at great risk to J.P. Morgan, so until they come up with some kind of safe harbors or something, we’re going to be very, very cautious in that line of business,” Dimon said.

Mortgage lending has been slowing. The Mortgage Bankers Association predicts the volume of mortgage-loan originations to fall 12 percent this year, despite interest rates being at yearly lows.

“The lowest quarter of the housing market [by price] will see less demand, fewer sales, less increases in price, and more decreases in price,” unless banks change their mortgage-lending policies, says David Blitzer, the managing director and chairman of the Index Committee at Dow Jones S&P Indices.

Lawrence Yun, chief economist for the National Association of REALTORS®, says that 15 percent more mortgage applications are being denied this year than in 2000. But he says that is “relatively normal” for the housing market.

Still, “a robust recovery is not occurring,” Yun says. “We are projecting a slow recovery in home-sales activity because of the current tight underwriting standards.”

Source: “Opinion: When the Next Housing Bust Hits, Blame the Bankers,” MarketWatch/The Wall Street Journal (Sept. 4, 2014)

Where Homes Are Most Affordable

Where Homes Are Most Affordable. Image courtesy of Pixomar / FreeDigitalPhotos.net

Home affordability varies greatly depending on where a buyer lives, as well as other factors. Using RealtyTrac’s income-to-price affordability ratios from more than 2,000 counties, 24/7 Wall St. pinpointed where home affordability is highest. In fact, in some markets, home owners may need to use only about 3 percent of their income to afford a median-priced home.

Unsurprisingly, San Francisco County in California had the least number of affordable homes in the nation. In San Francisco, the median selling price for houses and condos recently reached the million-dollar mark.

But on the opposite end of the spectrum, the following seven markets are considered some of the most affordable in the nation. (The affordability rate is the percentage of the county’s estimated median household income needed to make monthly payments — including mortgage, property taxes, and homeowners insurance — on a median-priced residential property.)

1. Chattooga County, Ga.
   Affordability rate: 3.75%
   Household median income: $41,864
2. Lake County, Tenn.
   Affordability rate: 5.75%
   Household median income: $33,512
3. Edgecombe County, N.C.
   Affordability rate: 6.17%
   Household median income: $40,726
4. Upson County, Ga.
   Affordability rate: 6.31%
   Household median income: $37,601
5. Barnwell County, S.C.
   Affordability rate: 6.81%
   Household median income: $35,219
6. Obion County, Tenn.
   Affordability rate: 6.88%
   Household median income: $45,919
7. Lamar County, Ga.
   Affordability rate: 6.92%
   Household median income: $33,661

Source: “The 10 Most Affordable Markets in America,” 24/7 Wall St. (Sept. 4, 2014)

Is This the Nation’s Next Housing Crisis?

Is This the Nation’s Next Housing Crisis? Image courtesy of cooldesign / FreeDigitalPhotos.net

The lack of affordable, accessible, and well-located homes is failing to meet the needs of an aging population and could be the nation’s next housing crisis, a new report suggests.

A new study by the Harvard Joint Center for Housing Studies and AARP Foundation points to three main issues: The cost of renting and home ownership is too high; many homes and apartments lack basic accessibility features; and older Americans say they want to “age in place” in their current home but are living in car-dependent suburbs and rural towns that can make it more difficult.

“If things don’t change, low-income older people will be compromising their well-being in many respects,” says Chris Herbert, acting managing director of the Harvard Joint Center for Housing Studies. “It’s an issue that will affect us all.”

In 15 years, one in five Americans will be 65 or older, according to the report.

“You’ve got a scenario with the largest generation we’ve ever had moving into their senior years combined with the fact that longevity is increasing,” says Jonathan Smoke, chief economist at realtor.com®. “And we’re fairly ill-prepared to address the housing needs and challenges of them.”

Incomes for seniors are not rising, but home prices are, says Smoke. Millions of low-income older adults are sacrificing spending on other necessities — such as health care and food — to pay for higher housing costs, according to the Harvard study.

Also, the study shows that the majority of people in their 50s and 60s live in rural areas or car-dependent suburbs with no access to public transportation. This will make it challenging for seniors to stay in their current residences if they become unable to drive.

“It’s a conundrum. Seniors today — and most likely tomorrow — are living in places that are not ideal to enjoy fulfilling lives as we age,” says Smoke.

Also, only 1 percent of U.S. housing units have all five of the “universal design” features: no-step entry; single-floor living; extra-wide doorways and halls; and accessible electrical controls, switches, and lever-style door and faucet handles, according to the report.

The main reason so many homes lack such accessibility? It can be expensive to install them. For example, adding a ramp can cost $2,400, and a stairlift can cost up to $12,000.

According to the study, change is slowly occurring to address such issues. States such as Ohio have offered tax credits of up to $5,000 to help home owners make their residences more accessible, and Massachusetts is providing loans of up to $30,000 so home owners can add accessibility features. Also, some states, such as Colorado, Massachusetts, Mississippi, Missouri, Oregon, Texas, and Utah, are offering developers more incentives to build affordable housing near mass transit.

“Addressing the needs of seniors will improve communities for everyone,” says Smoke. “I don’t think you want to be a community that screams: ‘If you’re over 65, you’ll want to leave here.'”

Source: “The Next Housing Crisis: Aging Americans’ Homes,” Forbes.com (Sept. 2, 2014)