The holiday season and winter weather slowed home sales in November. Last week, the NAR reported that sales of existing homes had slumped to their lowest level in nearly a year, but this was not unexpected.
The unusual start of this year’s short supplies of available homes, evolved into a “normal” housing inventory, and coupled with later rising mortgage rates, largely eliminated 2013’s earlier pent-up demand for homes.
Improvement In The Labor Market
4.90 existing homes were sold in November; this was lower than the 5.13 million existing homes sold in October, as well as lower than expectations of 5.00 million existing home sales in November.
Existing home sales for November 2013 were also 1.20 percent lower than for November 2012; this is the first time in 29 months that existing home sales were lower year-over-year.
Lawrence Yun, chief economist for NAR, described the slow-down in sales as a “clear loss of momentum.” The outlook for 2014 is better, as analysts expect continued improvement in the labor market.
The pent-up demand for homes will ease as homeowners begin to list their homes for sale as home prices increase. Mr. Yun also noted that prices for existing homes are increasing at their highest rate in eight years.
The national median home price of existing homes rose to $196,000 in November, which represents a year-over-year increase of 9.40 percent. There was a 5.1 month supply of previously homes available at the current sales rate.
Housing Market Continues To Progress Over Long Term
The Census Bureau and HUD report that 464,000 new homes were sold in November. This was 2.10 percent lower than October’s rate of 474,000 new homes sold. This represents an increase of 16.60 percent as compared to the 398,000 new homes sold in November 2012.
The national median home price for new homes in November was $270,900; with an average new home price of $340,300. The seasonally-adjusted estimate of new homes for sale in November was 167,000; this reading represents a 4.30 month supply of new homes for sale.
While home builder confidence is up and recent labor reports indicate improving job markets, the Fed’s decision to taper its quantitative easing program in January is generating some uncertainty as mortgage rates will likely rise as the Fed winds down the QE program.
For those of you looking for cautionary notes going into 2014, I offer two items: jobs and loans.
Despite recent gains, which some of us believe are more of a mirage than an oasis, the economy still isn’t creating enough good-paying full-time jobs to drive a full recovery in the housing market. This is particularly true among the millennials, who continue to live at home with mom and dad at near record levels.
Unemployment—and under-employment—among the 25- to 35-year-old cohort continue to be stubbornly high, which is having a chilling effect on the number of first-time homebuyers—the group that historically has fueled growth in the housing ecosystem. This has led to slower-than-forecast household formation, and increasingly, when new households are formed, they’re rental households.
Some erstwhile buyers have simply decided not to enter into a long-term financial obligation for the time being. Others either don’t have sufficient funds for a down payment or don’t qualify for today’s relatively strict lending requirements.
Those lending requirements—and a lending environment that I believe is going to get more challenging before it gets easier—are the other major headwinds that could slow down housing. While most forecasts are calling for a slight uptick in purchase loans in 2014, it’s easy to build a scenario that goes terribly wrong.
The Consumer Financial Protection Bureau’s new Qualified Mortgage (QM) and Ability-to-Repay rules will exclude somewhere between 10-20 percent of borrowers who would have qualified for a loan in 2013. Most of the large banks will issue loans that fall squarely within QM guidelines, simply to avoid as much risk as possible. The one exception is likely to be jumbo loans, offered to ultra-qualified, high-net-worth individuals.
Another complication is lower loan limits proposed by Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). These lower limits will make it more difficult for borrowers in high-priced housing markets to get loans. Those who do qualify for loans will pay more—the Federal Housing Finance Agency (FHFA) recently announced hikes in the GSEs’ guarantee fees and a new, higher payment schedule for borrowers who fall within certain FICO and down payment measures. TheFHA has also increased insurance premiums, particularly on its lowest down payment products.
Some believe that by raising costs and limiting loan amounts, the government will drive private capital back into the market, but that seems unlikely until regulatory and litigation risks have subsided, and until loans can be priced appropriately to risk. At some point in 2014, private capital will probably return, along with a more functional secondary market. Then non-bank lenders can come to market with loans available to less-than-perfectly-qualified borrowers, but at significantly higher interest rates.
Higher interest rates, which are inevitable, will begin to erode affordability levels, even with home prices still well off the peak numbers reached during the housing boom. The primary culprit isn’t high interest rates or rising home prices, but lower median incomes and wage stagnation over the past five years.
So which will it be: Full speed ahead, or trouble around the bend? If nothing else, 2014 promises to be a very interesting year.
Rick Sharga is EVP for Auction.com.
The University of Michigan’s Consumer Sentiment Index was improved for December at 82.5, after the November reading was adjusted from 82.5 to 75. Analysts noted that consumers were relieved when legislative gridlock ended.
Durable goods orders reached their highest level since May with November’s reading of + 3.5 percent. Without the volatile transportation sector, the reading for November was +1.2 percent.
This could be a sign of economic recovery for manufacturing, as more orders are being placed. Economists expected an overall increase of 2.0 percent for overall durable goods orders.
The U.S. Commerce Department provided housing markets with good news with its New Home Sales report for November. 464,000 new homes were sold in November against expectations of 440,000 new homes sold.
This expectation was based on the original reading of 444,000 new homes sold in October, which has been revised to 474,000 new homes sold. The latest reading for October is the highest since July of 2008.
While rising mortgage rates slowed home purchases during the summer, analysts note that home buyers seem to be adjusting for higher mortgage rates by purchasing smaller homes in less costly areas.
Home Builder Confidence recently achieved its highest reading since 2005, a further indication of overall economic recovery and housing markets in particular.
After Wednesday’s holiday, the Weekly Jobless Claims report came in with a reading of 338,000 new jobless claims filed. This reading was lower than expectations of 345,000 new jobless claims and significantly lower than the previous week’s report of 380,000 new jobless claims.
This was the largest decrease in new jobless claims since the week of November 17, 2012. After seasonal volatility associated with the holidays, analysts expect new jobless claims to decrease at a slower rate in early 2014,
Freddie Mac released its Primary Mortgage Market Survey on Thursday. Although some economic analysts had expected a jump in mortgage rates after the Fed announced its plan to begin tapering its monthly securities purchases in January, mortgage rates showed little change.
The average rate for a 30-year fixed rate mortgage rose by one basis point to 4.48 percent with discount points unchanged at 0.70 percent. Average 15-year mortgage rates also rose by one basis point to 3.52 with discount points moving up from 0.60 to 0.70 percent.
The average rate for a 5/1 adjustable rate mortgage rose by 4.00 basis points to 3.00 percent, with discount points unchanged at 0.40 percent.
2014 shows promise of a steady economic improvements, and given the latest New Home Sales report, it’s possible that improving housing markets will continue leading the way.
As with last week, this week’s schedule of economic events is reduced due to the New Year holiday. Pending home sales for November will be released Monday, Tuesday’s economic reports include The Case/Shiller Housing Market Indices and the Consumer Confidence report.
After the holiday on Wednesday, Thursday’s scheduled reports include the Weekly Jobless Claims and Freddie Mac PMMS on mortgage rates. Construction Spending will also be released. There is no housing or mortgage-related economic reports set for release on Friday.
From Orange County’s Rick Sharga, of Auction.com
Many economists and market observers have suggested the market is poised for continued growth as the recovery enters its third year, and there are positive elements in play that provide some reasons for optimism.
Recent loan vintages continue to perform at levels better than historical norms—the default rates on loans from 2011-2013 are virtually non-existent. This has essentially shut off the pipeline of distressed assets, finally allowing the industry to work through the backlog of seriously delinquent loans and loans already in the foreclosure process.
States with non-judicial foreclosure processes have had remarkable success in clearing out the inventory of distressed properties, which is one of the factors driving the housing rebound in states like California and Arizona.
Not coincidentally, foreclosure activity has been declining as well, and this is likely to continue throughout 2014. Unprecedented levels of short sales have been one of the reasons for the decline in foreclosures—every short sale represents one less REO coming to market. And the billions
of dollars of non-performing loan sales have connected distressed borrowers with special servicers, who have managed to modify tens of thousands of loans, preventing more foreclosures.
Investor activity at the low end of the market has had two significant effects: first, investors have gobbled up virtually all available REO homes, and begun to purchase rental properties via short sales and trustee sales.
Second, they’ve helped accelerate home price appreciation, particularly in many of the markets that were hardest hit during the downturn. This, in turn, has dramatically reduced the number of homeowners in a negative equity position, dropping the number of homes in the so-called “shadow inventory” to much more manageable levels.
As home prices have risen, more non-distressed properties have begun to enter the market, helping to ease the inventory shortage of existing homes, and dropping the extremely high percentage of distressed home sales to more reasonable levels than we’ve seen in the past seven or eight years.
Builders have noticed the drop-off in distressed property sales and limited inventory, and housing starts for single-family homes have risen dramatically in the last months of 2013.
So…home sales are up, prices are up, inventory is improving, foreclosures are dropping, and homebuilding is awakening from its long hibernation. What’s there to be bearish about?
For those of you looking for cautionary notes going into 2014, I offer two items: jobs and loans.
Rick Sharga is EVP for Auction.com. Look for the second part of his 2014 commentary on Monday.
According to December’s NAHB/Wells Fargo Housing Market Index, home builder confidence rose by four points to a reading of 58; this surpassed the consensus of 56 and November’s reading of 56.
November Housing Starts were released Wednesday and also exceeded expectations and the prior month’s reading. 1.09 million housing starts were reported for November against expectations of 963,000 and October’s reading of 889,000 housing starts.
Building permits issued in November came in at 1.01 million and fell short of October’s reading of 1.04 million permits issued. November’s reading exceeded expectations of 990,000 permits issued.
The week’s big news emerged after the conclusion of the Federal Reserve’s FOMC meeting. The committee announced that it would begin tapering the Fed’s $85 billion purchases of securities. The taper was modest; the Fed will reduce its rate of purchases to $75 billion monthly, with a split of $40 billion in Treasury securities and $35 billion in mortgage-backed securities.
Fed Chairman Ben Bernanke gave his final press conference as Fed chair. He noted that the FOMC was confident that the economy would continue to improve at a moderate rate and that the Fed would continue monitoring economic and financial developments to guide future adjustments in its monthly purchase of securities.
Mortgage rates were expected to rise after news of the Fed’s tapering of its quantitative easing program, as the program was intended to hold down long-term interest rates and mortgage rates.
Mortgage Rates, Jobless Claims Rise
Freddie Mac’s Primary Mortgage Market Survey confirmed expectations of higher mortgage rates. Average mortgage rates ticked upward by five basis points to 4.47 percent for a 30-year fixed rate mortgage; the average rate for a 15-year fixed rate mortgage rose by eight basis points to 3.51 percent.
Discount points for a 30-year mortgage were unchanged at 0.70 percent for a 30-year mortgage and dropped from 0.70 to 0.60 percent for a 15-year fixed rate mortgage. The average rate for a 5/1 adjustable rate mortgage rose from 2.94 percent last to 2.96 percent with discount points unchanged at 0.40 percent.
Weekly Jobless Claims came in at 379,000 and were higher than projections of 338,000 and the prior reading of 369,000 new jobless claims. Although the reading was the highest since March, analysts attributed the higher reading to changes in work schedules during the holidays.
Sales of existing homes slipped to their lowest levels in close to a year. The NAR reported that existing home sales fell from 5.12 million in October to 4.90 million in November.
Projections were set at 5.00 million sales for November, but a shortage of available homes and rising mortgage rates were seen as reasons for fewer sales. The approaching holiday season and cold weather typically contribute to a lull in home sales during the winter months.
This week’s scheduled economic news is light due to the Christmas holiday, but Monday’s releases include consumer spending, personal spending and the University of Michigan’s Consumer Sentiment Index.
New Home Sales for November will be released Tuesday. The week’s scheduled news will conclude with Weekly Jobless Reports on Thursday, as no further economic news is scheduled for Friday.
Housing Starts exceeded expectations and also beat October’s reading of 889,000. November housing starts were posted at 1.09 million against a consensus of 963,000.
This reading is more in line with the NAHB/Wells Fargo Home builder Market Index, which reached a four month high with December’s reading.
With that threat resolved and a new federal budget passed, builders can now proceed without worrying about setbacks caused by government shutdowns and legislative gridlock.
Building permits issued in November were slightly lower at 1.01 million than October’s reading of 1.04 million. Viewed as an indicator of future construction, and ultimately, available homes, it is not unusual for construction and permits to slow during the winter months.
FOMC Statement And Chairman Bernanke’s Last Press Conference
Throughout 2013, strong signs of economic recovery have led to predictions of the Federal Reserve tapering its quantitative easing program.
As each FOMC meeting approached, analysts predicted that the Fed would start reducing its $85 billion purchases of Treasury and mortgage-backed securities.
The asset purchases are part of the government’s quantitative easing program that was implemented to keep long-term interest rates and mortgage rates low.
The cut finally came on Wednesday as the FOMC made its customary post-meeting statement. Effective in January 2014, the Fed will reduce its monthly purchases by $10 billion.
The QE purchase will be split between $40 billion in Treasury securities and $35 billion in MBS. The Fed expects that the economy will continue recovering at a moderate pace.
The FOMC statement noted that the Fed will continue monitoring inflation, which remains below the Fed’s target rate of 2.00 percent, and the national unemployment rate, which remains above the Fed’s target rate of 6.50 percent.
The statement noted that asset purchases are not on a predetermined course, and that the Fed will continue to closely monitor labor market conditions, inflation pressure and economic developments in the U.S. and globally.
The Fed did not change its target federal funds rate of 0.00 to 0.25 percent, and would not do so at least until unemployment falls to 6.50 percent. Changes to policy accommodation are made with the Fed’s dual goal of achieving an inflation rate of 2.00 percent and achieving maximum national employment goals.
Bernanke Press Conference
Mr. Bernanke repeated key points of the FOMC statement, and noted that “highly accommodative monetary policy and waning fiscal drag” is helping with the economic recovery, but that the economy has much farther to go before it can be considered fully recovered.
Mr. Bernanke said that FOMC members saw the unemployment rate dropping from 7.00 percent in November 2013 to 6.30 to 6.60 percent in the fourth quarter of 2014. Improving labor markets and rising household spending were cited as signs of economic recovery.
Mr. Bernanke mentioned concerns about the high unemployment and underemployment rates and said that the Fed’s benchmarks for unemployment and inflation would not automatically trigger reductions in its QE asset purchases.
He also said that the committee did not expect to adjust the target federal funds rate immediately after the national unemployment rate reaches 6.50 percent.
Mr. Bernanke repeated that the Fed’s actions regarding monetary policy and QE would be dependent on in-depth review of ongoing financial and economic developments, but said that further tapering of QE purchases is likely if the economy stays on its present course of moderate improvement.
Whether you are purchasing a new home or you are considering applying to refinance your home, in many circumstances, the lender will require an escrow account. These accounts are often a source of confusion for homeowners.
In reality, these accounts benefit the homeowner and help protect the lender.
What Is An Escrow Account?
Escrow accounts are sometimes called “impound” accounts. These accounts are set up to help manage payments of property taxes and homeowner’s insurance.
Depending on the individual requirements of the lender, you may be asked to pay as much as one-quarter of these upfront and they will be put into the account for the purposes of making payments.
Who Controls Escrow Accounts?
Lenders have complete control over escrow accounts. However, homeowners are entitled to receive an annual statement advising them of their escrow balance.
If there is an increase or decrease in insurance payments through the year, a homeowner may request the lender evaluate the escrow account and change the amount that is paid.
Is Interest Paid On Escrow Accounts?
There is no mandate to pay interest on escrow accounts. When you refinance your home, the funds for your taxes and insurance are calculated into your overall payment.
The portion that is to be used to pay taxes and insurance is placed in escrow. Arizona laws do not require lenders to pay interest on these accounts.
What Happens If I Sell My Home Or Refinance?
When you sell or refinance your home, your escrow account will be credited at closing. The amount may be used to lower your out-of-pocket costs or may be turned over to you as a direct payment.
What Happens If There Is Not Enough/Too Much Money In Escrow?
If your lender has underestimated your escrow payments, they may request you send an additional payment to make up the difference. In the event you are paying too much into escrow, your lender has the discretion to release the overage amount directly to you.
In most cases, shortfalls or overages of $50 or less are typically not a major concern.
If your lender requires you to have an escrow account for the taxes and insurance portion of your mortgage payment, it can be very helpful. Escrow accounts help ensure you do not have to come up with a large payment once a year for insurance or quarterly for taxes.
In some cases, if a lender does not require an escrow account, as a borrower, you may request they escrow your taxes and insurance for convenience.
Mortgage Debt Rises For First Time Since Recession
Last week was relatively quiet concerning scheduled housing-related news, but the Federal Reserve’s financial accounts report, released on Monday, indicated that mortgage debt in the U.S. had increased for the first time since the first quarter (Q1) of 2008.
Mortgage debt increased by a seasonally-adjusted annual rate of $87.4 billion, or 0.90 percent. Mortgage debt remains approximately 12.00 percent below pre-recession levels.
Increasing debt is not often considered good news, but in the case of mortgage debt in today’s economy, it suggests economic recovery in the form of higher home prices and fewer foreclosures.
Another instance of counter-intuitive economic results was released Tuesday. The Bureau of Labor Statistics (BLS) released its Job Openings and Labor Turnover Survey (JOLTS) report for October.
JOLTS indicated that 2.39 million workers quit their jobs in October. This was the highest number of jobs quit since 2008. While this may appear counter-productive to a growing economy, it indicates that workers are leaving their jobs for better positions.
Mortgage Rates Fall, Federal Budget Deficit Shrinks
On Wednesday the U.S. Treasury announced that November’s federal budget deficit had shrunk to -$135 billion from November 2012’s deficit reading of -$172 billion. This represents a year-over-year deficit decrease of 21 percent.
Freddie Mac’s Primary Mortgage Market Survey (PMMS) report provided good news as average mortgage rates fell last week. The average rate for a 30-year fixed rate mortgage fell from 4.46 percent to 4.42 percent. Discount points rose from the previous week’s reading of 0.50 percent to 0.70 percent.
15-year fixed rate mortgage rates fell from 3.47 percent to an average reading of 3.43 percent, with discount points rising from the prior week’s reading of 0.40 percent to 0.70 percent.
The average rate for a 5/1 adjustable rate mortgage dropped from 2.99 percent to 2.94 percent with discount points unchanged at 0.40 percent.
Lower mortgage rates are good news for home buyers facing higher home prices.
Weekly jobless claims rose last week. The previous week’s reading of 300,000 new jobless claims was short-lived as the reading for new jobless claims rose to 368,000 last week and surpassed a consensus of 335,000 new jobless claims.
Financial analysts cautioned that employment data can be volatile during the holidays, and noted that the four-week average of new unemployment claims rose by 6000 to 328,750.
What‘s Coming Up
There are several significant releases set for housing-related news. The NAHB housing market index, Housing Starts, and Building permits indicate how current builder confidence and new construction may impact the supply of available homes.
On Wednesday, the FOMC will issue its usual statement at the conclusion of its two-day meeting. Some analysts expect an announcement concerning the Fed’s quantitative easing policy; Outgoing Fed Chair Ben Bernanke is set to give a press conference after the FOMC statement.
In addition to the weekly jobless claims report and Freddie Mac’s PMMS, Reports on Existing Home Sales and Leading Economic Indicators will also be released.
It’s that time of year again when the weather outside gets frightful but the holiday cheer is delightful. You’ve probably got a lot on your mind during these busy winter months, but make sure that you don’t neglect the roof of your home.
Taking care of your roof is an important part of home maintenance and you don’t want to suffer a leak or any other problem during the cold months.
So how can you make sure that Santa and his sleigh have a solid and well-maintained landing pad when they touch down at your house this year? Here are some tips that every homeowner should know:
Check Out Your Gutters
Your gutters are an important part of your roof, because they allow water to flow away from the roof surface before it causes rot and damage. During the winter, your gutters will be more likely to get clogged with fallen leaves and can get blocked if they are not cleared out.
Get yourself a ladder and a friend to hold it for you and clean any leaves, debris and dirt from the gutters. ( DON’T try to do this alone, if you’re working on a 2 story house. I had a friend who was trying to install Christmas lights, who fell from a tipsy ladder, and didn’t survive the fall.) Flush the gutters out with a hose afterward to ensure they are clean. If your gutters have become damaged or leaky, you can use gutter sealant or fibreglass resin to patch up the hole.
Trim Back The Trees
If you have a lot of trees and vegetation overhanging above your roof, it’s a good idea to trim it back before the winter months. At the moment, it might not be touching your roof – but once it is blown around by the wind it might do some damage.
When hiring a tree trimming service, get a few different quotes from a range of contractors so that you can be sure that you are getting the right price.
Inspect Your Roof For Weak Spots
A roof inspection can save you from a lot of roof damage, which could get even more serious when the weather gets colder and wetter. Start by performing a visual inspection of the inside and outside of your roof.
Look around for any missing tiles and make sure that the gutters are allowing the water to drain freely from the roof. This can be done while walking around your property with binoculars.
If you spot something that looks suspicious, you can hire a professional roofer to take a closer look. They will be experienced and will know what to look for, so that they can find the weak spot and fit it right away. A roof inspection will cost you, but it is a lot cheaper than paying for a new roof!
These are just a few important maintenance tasks that you can perform in order to ensure that your roof is in tip top shape to welcome the winter season – and a sleigh pulled by eight tiny reindeer!