South Orange County Blog from Bob Phillips

What’s Ahead For Mortgage Rates This Week – June 29, 2015

What's Ahead For Mortgage Rates This Week - June 29, 2015Last week’s economic news was largely positive as both new and existing home sales beat expectations. FHFA reported that home price growth held steady in May, while weekly jobless claims edged up, but were lower than expected.

New and Existing Home Sales Exceed Expectations

According to the Commerce Department, new home sales reached 546,000 on an annual basis for May. This surpassed expectations for 525,000 new homes sold and April’s revised reading of 534,000 new homes sold. Expectations were based on the original reading of 517,000 new homes sold in April.

Existing home sales rose by 5.10 percent in May to a seasonally-adjusted annual reading of 5.35 million sales and hit their highest level in five and a half years. The National Association of Realtors reported that this was the fastest pace of sales for previously-owned homes since November 2009. Expectations were based on an April’s original reading of 5.04 million sales, which was later revised to 5.09 million existing homes sold.

With wages and hiring picking up, more first-time buyers are expected to enter the market. Economists said there are signs that mortgage credit is becoming more available as lenders gain confidence in stronger economic conditions. A larger supply of available homes was also cited as driving sales of previously owned homes higher.

FHFA: Home Prices Show Steady Growth in May; Mortgage Rates Mixed

The Federal Finance Housing Agency (FHFA), the agency that oversees Fannie Mae and Freddie Mac, reported that home prices related to mortgages owned by Fannie Mae and Freddie Mac held steady with a growth rate of 5.30 percent year-over-year reported in May. This was the same year-over-year home price growth rate that the agency posted in April.

Freddie Mac reported mixed developments for mortgage rates. The average rate for a 30-year fixed rate mortgage rose by two basis points to 4.02 percent; the average rate for a 15-year fixed rate mortgage fell by two basis points to 3.21 percent and the average rate for a 5/1 adjustable rate mortgage also fell by two basis points to 2.98 percent. Average discount points were 0.70, 0.60 and 0.40 percent respectively.

Last week’s economic reports ended on a high note with June’s Consumer Sentiment Index reporting a reading of 96.1 as compared to expectations of 94.6 and May’s reading of 94.6. All in all, last week’s economic news provided further indications of stronger economic conditions that should provide the confidence to ease mortgage credit requirements and enable more first-time buyers to purchase homes.

What’s Ahead

This week’s economic reports include date on pending home sales, Case-Shiller’s Home Price Index reports and construction spending. The Bureau of Labor Statistics will also release the monthly Non-Farm Payrolls report and National Unemployment reports. No economic news is scheduled for Friday, July 3 due to the Independence Day holiday.

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Orange County’s median home price inches higher to a 7-year peak

An article from Jon Lansner of the Orange County Register. June 18th, 2015

Home-Values-RisingHave Orange County house shoppers stopped paying up?

Orange County’s median selling price was $610,000 last month, CoreLogic reported Wednesday. And though that’s the highest price in seven-plus years, it’s up just 2.5 percent in a year.

The economic fundamentals of housing – local job growth, mortgage rates and availability – look solid. Those factors plus slower home price appreciation helped draw buyers. Orange County sales totaled 3,458 units – up 7.4 percent compared  with a year ago.

But Orange County’s price tag pressures loom large when when you look at the regional housing picture. That 2.5 percent year-over-year median price gain in Orange County was the smallest among Southern California’s six counties, though our local market is still the priciest in the region.

Ventura County had the region’s biggest annual gain. Its median selling price of $500,000 was up 8.7 percent compared with a year ago. Southern California’s median selling price for May was $426,000 – up 2.2 percent compared with a year ago.

Although that’s the slowest regional price growth in three years, it’s mainly due to a changing mix of sales throughout the region. Simply put, more people are buying inexpensive houses in Riverside and fewer people are buying pricey ones in L.A.

When it came to homebuying, Orange County’s 7.4 percent sales increase easily topped the region’s collective 4.9 percent annual gain. But note that Southern California’s sales hot spot, Ventura, was up 15.1 percent compared with a year ago. That high demand likely explains Ventura’s major price hikes.

To see how price tag pressure is playing out in Orange County, look at the performance of local builders, who typically sell the costliest homes.

New homes in Orange County had a median selling price in May of $861,000 – up 6.8 percent compared with a year ago. That’s darn expensive when you look at the resale home median of $667,500 – up 3.5 percent from a year ago – and the resale condo median of $415,000, up 2.3 percent compared with a year ago.

To my eye, too many builders have bet on Orange County’s high end, perhaps missing a chance to excite shoppers in more modest income ranges with their newly constructed offerings. If builders offered more $600,000 homes, they probably would go like hotcakes.

Orange County developers sold 278 new residences in May, down 24.7 percent compared with a year ago. That dip contrasts sharply with how quickly existing homes are selling. Resale house sales totaled 2,163 – up 8 percent compared with a year ago. Condo resales were 1,017 – up 20.1 percent.

Similar patterns were seen across Southern California. New-home sales were up only in the Inland Empire, where developers sell relatively inexpensive housing.

Riverside County’s builders sold 421 new homes in May, up 36 percent in a year. The median selling price was $384,000 – less than half of Orange County’s median even after rising 10.8 percent in a year. San Bernardino developers sold 186 homes, up 14 percent from May 2014. The median selling price was $417,250, off 1.6 percent in a year.

Sales of new homes were lower in the region’s three other counties. In Los Angeles (median price of $548,000), sales fell 16 percent compared with a year ago. In San Diego (median price of $539,000), sales were off 10 percent. In Ventura (median price of $477,500), sales were down 26.3 percent.

So who is balking in Orange County? I see one very curious pattern inside May’s sales data: the lack of homebuying growth in the midpriced communities.

I divided Orange County’s sales results by three price ranges, using the median selling price for 83 local ZIP codes. My trusty spreadsheet tells me that last month’s sales in the cheapest third – ZIP codes with median home prices up to $521,500 – were up 9 percent compared with May 2014. In the upper third – where prices start at $689,000 – May sales were up 13 percent compared with a year ago.

But I’m puzzled why homebuying in the ZIPs priced in between ran flat.

Certainly we know if a home is “affordable” for Orange County it sells quickly. That explains buying enthusiasm among the lower third. And the upper-crust house hunter typically does not feel the impact of economic cycles as much those with leaner finances.

But what of the middle? Are people not seeing enough choice? Inventory data suggest that supply shortages may be turning off some shoppers. (Note to builders: Free market research right here!)

Or is this middle group’s skittishness another example of the home-affordability stress felt particularly by the local middle class – and an explanation of why home price appreciation has stalled?

Orange County home prices moved slowly higher in May with the smallest year-over-year gain among Southern California’s six counties.

CoreLogic reported Wednesday that Orange County’s median selling price for May was $610,000 – up 2.5 percent compared to a year ago.

Ventura County had the region’s biggest annual gain. Its median selling price $500,000 – up 8.7 percent compared to a year ago. San Diego County had the smallest gain after Orange County with its median at $459,000, up only 3.1 percent compared to a year ago.

Andrew LePage, a research analyst with CoreLogic, said: “It’s slow going, but in many ways, the housing market continues to edge back toward normalcy with fewer distressed property sales and fewer investor and cash purchases. While home sales remain sub-par, they’ve been trending closer to long-term averages.

“Job growth and other factors suggest we should see solid housing demand. But in the wake of the Great Recession and years of weak income growth, many would-be home buyers are struggling with affordability and credit hurdles,” he said.

Perhaps slower home appreciation drew buyers into Orange County as sales totaled 3,458 units – up 7.4 percent compared to a year ago. That was a swifter sales increase than the regional trend. SoCal sales totaled 21,644 – up 4.9 percent compared to a year ago.

Southern California’s homebuying hot spot was Ventura, which likely explains the county’s May price surge. Ventura sales totaled 977 – up 15.1 percent compared to a year ago.

A changing mix of sales throughout the region led to a curious move in the six-county median sales price. Southern California’s median selling price for May was $426,000 – up 2.2 percent compared to a year ago.

How can the regional sales gain be lower that any one county’s increase? Look to sales in Riverside County – the region’s second-most active and second-cheapest county – which surged 9.9 percent, twice the regional growth rate. ( End of Jon’s article.)

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The subprime mortgage crisis wasn’t about subprime mortgages

By Chris Mathews, of Fortune Magazine, 6/17, 2015

next-exitNew research challenges the conventional wisdom on the financial crisis.

In the years following the financial crisis, a cottage industry arose that tried to explain just what happened to the American economy and the financial system.

Early on in the process, journalists zeroed in on one set of villains: subprime lenders and the supposedly irresponsible borrowers who were their customers. We were regaled with stories of mortgage lenders like Countrywide handing out loans that borrowers couldn’t possibly repay, and then selling them on to investment banks, who packaged them into “toxic” bundles like Goldman Sachs’ infamous Abacus collateralized debt obligation.

When these subprime borrowers began to default, so the narrative goes, the dominoes began to fall, eventually helping to send the entire mortgage market, U.S. financial system, and global economy into crisis.

At the time, the press spent a lot of energy scrutinizing subprime borrowers and lenders, based on the fact that in the early days of the crisis, the rate and absolute number of subprime foreclosures were much higher than foreclosures in the prime market. It was around this time that CNBC’s Rick Santelli gave his famous rant against talk of bailing out underwater homeowners that helped launch the Tea Party movement, calling the folks who were at risk of foreclosure “losers.”

Furthermore, much of the reforms instituted since the financial crisis have centered around increasing scrutiny of mortgage lending, to make sure that these sorts of irresponsible loans aren’t made again.

But if journalism is the first-draft of history, then it’s about time for a second draft. In a new working paper by Wharton economists Fernando Ferreira and Joseph Gyourko, the authors argue that the idea that subprime lending triggered the crisis is misguided. The paper looks at foreclosure data from 1997 through 2012 and finds that while foreclosure activity started first in the subprime market, the foreclosure activity in the prime market quickly outnumbered the number of subprime foreclosures.

The following chart shows the total number of foreclosures and short sales per quarter in various classes of mortgages:

Screen Shot 2015-06-17 at 10.38.09 AM

While subprime borrowers default at a higher rate than prime borrowers, Fierra said in an interview with Fortunethat the data shown above suggest that the foreclosure crisis would have happened even in the absence of such risky lending. “People have this idea that subprime took over, but that’s far from the truth,” says Ferreira. The vast majority of mortgages in the U.S. were still given to prime borrowers, which means that the real estate bubble was a phenomenon fueled mostly by creditworthy borrowers buying and selling homes they simply thought wouldn’t ever decrease in value.

We can draw two conclusions from this data. One is that your chances of being foreclosed upon in the past decade was more a matter of timing than anything else. If you were a subprime borrower in, for instance 2002, who bought a bigger house than a more prudent and creditworthy borrower would have bought, chances are you would have been fine. But a prime borrower who did everything right—bought a house he could easily afford, with a large downpayment—but did so in 2006 would have had a higher chance of defaulting than the subprime borrower with better timing.

Since whether you were hurt by the crisis had more to do with luck than anything else, Ferreira argues we should rethink whether doing more to help underwater homeowners would have been a good idea.

The research also offers some sobering policy implications. Ferreira’s data show that even with strict limits on borrowing—say, requiring every borrower to put 20% down in all circumstances—wouldn’t have prevented the worst of the foreclosure crisis. “It’s really hard for certain regulations to stop the process [of a bubble forming],” Ferreira says. “I really wish my research had showed that it’s all about putting down 20% and all problems are solved, but the reality is more complicated than that.”

Furthermore, we still don’t have the tools to understand the cycles of real estate prices, or to recognize bubbles, in any asset class, before they form. So it would be a mistake to think that any regulatory reform will offer fool-proof protection against the next financial crisis.

The booms that capitalism confers on us, it seems, will inevitably be followed by busts. ( End of Chris’ article.)

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What’s Ahead For Mortgage Rates This Week – June 15, 2015

Posted in Market Outlook by southorangecounty on June 15, 2015

What's Ahead For Mortgage Rates This Week - June 15, 2015

Retail Sales, Consumer Confidence Up

Retail sales rose for the third consecutive month. May sales increased at a seasonally adjusted rate of 1.20 percent according to Commerce Department data. Auto and gasoline sales led the charge to higher retail sales, but analysts said that most retail sectors posted gains. Upward revisions of March and April’s retail sales provided evidence of stronger economic conditions.

Consumer sentiment jumped nearly four points from May’s reading of 90.7 to 94.6 in June. This appears to be great news compared to the year before the recession, when consumer sentiment averaged a reading of 86.9.

Weekly Jobless Claims, Mortgage Rates

Weekly jobless claims rose last week and were also higher than expected. 279,000 new jobless claims were filed against an expected reading of 275,000 new claims and the prior week’s reading of 277,000 new jobless claims. This was the fourteenth consecutive week that new jobless claims remained below 300,000, an accomplishment that hasn’t occurred in 15 years.

Mortgage rates rose sharply last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage jumped from 3.87 percent to 4.04 percent; the average rate for a 15-year fixed-rate mortgage rose from 2.08 percent to 3.25 percent and the average rate for a 5/1 adjustable rate mortgage increased by five basis points from 2.96 percent 3.01 percent. Average readings for discount points were 0.60 percent for 30 and 15 year mortgages and 0.40 percent for 5/1 adjustable rate mortgages. Higher mortgage rates may sideline some home buyers as they wait to see if rates will drop or are priced out of the market. Expectations that the Fed will raise its target federal funds rate this fall may be fueling higher rates.

What’s Ahead

Next week’s economic news schedule includes more housing-related readings. The National Association of Home Builders Housing Market Index, the Commerce Department’s reports on Housing Starts and Building Permits along with the weekly reports on new Jobless Claims and Freddie Mac’s mortgage reports are set for release. On Wednesday, the Federal Open Market Committee of the Federal Reserve will release its post-meeting statement and Fed Chair Janet Yellen will also give a press conference. These events are important as they may shed light on the Fed’s intentions for raising rates. When the Fed raises the target federal funds rate, mortgage rates and interest rates for consumer credit are expected to rise as well.

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Preparing Your Home for Hot Weather

As warm weather rolls across most of the country, it’s time to start thinking about how to protect and care for your home when the mercury soars. What can you do to ensure the summer sun doesn’t cause damage to your home?

Beat_The_Heat_With_A_Programmable_ThermostatHeat stays out, cool stays in.
That’s the general idea, right? Check the weather stripping around doors and windows to make sure you don’t have a leak where your air conditioning can escape. This is a good time to assess the state of your insulation as well. Many power companies also offer home energy-efficiency assessments — often at no cost — to help you pinpoint places where the heat is creeping in, and often they’ll supply solutions too.

Perform an A/C checkup.
Don’t wait until you really need the air conditioning to make sure it’s working properly! If something goes wrong at the  height of summer, it could be weeks before repairs can be made. Replace your HVAC unit’s filters, and consider having    your air ducts and vents cleaned out and the seals checked.

Turn it around.
Your ceiling fan, that is: Many types have a way to reverse the direction they spin. In summer, the blades should rotate counterclockwise in order to maximize the fan’s beneficial effect on your home’s temperature.

Scout the perimeter.
Most people spend more time outdoors when temperatures rise. Check the boundaries of your property for damage to fences, security lights, and gate locks. Clear away any long grass that may have grown up next to fences as they can harbor fleas and ticks. Reset timers on sprinklers and outdoor lights in consideration of the longer hours of daylight.

Paint: It’s not just for looks.
Although we generally think of a new coat of paint as a cosmetic indulgence, it actually helps to protect the home from the effects of strong heat and sun. While you’re at it, check the deck to see if it needs a fresh coat of sealant as well. Washing the windows will ensure you can enjoy the summer sunshine. And speaking of windows, check screens and shutters for damage too.

Prepare to party.
If you love to entertain outdoors, or you want to live off barbecue for the next few months, your summer fun equipment will need a good once-over. Hose down patio furniture and check cushions to see if they would benefit from a good wash and a chance to dry in the fresh air or if they’ll need to be replaced. Clean off the bbq and fill the propane tank [or stock up on briquettes].

Scale the heights.
Before it gets too hot, an inspection of the roof and attic is a great idea. Check outside for missing shingles or other signs of damage. Trim back tree branches that could be used by local critters as stepping stones to get onto and then under your roof. Check out the gutters while you’re up there too. Then head inside to examine the attic for leaks, holes, and signs of animal trespass.

We may think of summer as a time for vacations, but we never really get a vacation from taking care of our homes. I hope these tips help you have an enjoyable summer!

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Orange County Real Estate Update for 6/9/2015

Orange County Housing Report:  Data Can Lie   

June 7, 2015  From Steven Thomas, of Reports On Housing

Truth = liesSometimes we rely on data that just does not paint the correct picture.

Housing Data: so many people rely on the “Days on Market” statistic and “Sold Data Indices” even though they often misrepresent what is truly going on in the marketplace today.

The average days on market for the current active inventory in all of Orange County is 79 days. For homes below $250,000 it is 80 days, over 11 weeks. Who in their right mind would sit down with a potential seller today and set an expectation of selling in 11 weeks for homes priced below $250,000? Clearly, any sound strategy to market a home will not include Average Days on Market.

The true expected Market Time for Orange County as a whole is 62 days. For homes priced below $250,000 it is 48 days. That is more like it. Sitting down with that same seller and outlining expectations between a sign in the ground to entering escrow of less than 7 weeks is a market reality. So, what’s with the huge disparity between the Market Time and Average Days on Market?

First, let’s take a closer look at how we arrive at Market Time. Market time answers how many months it will take to exhaust the current supply of active, listed homes based upon demand, the past month’s pending activity. For example, Gotham City has 100 homes currently on the market and 25 were placed into escrow within the prior 30 days. To ascertain the market time, divide 100 by 25, which is 4. So, given the most recent activity, the market time for Gotham City is 4 months.

The market can and will change and so will the Market Time; but, it is a pretty precise barometer for what everybody is experiencing in the real estate trenches today. This chart is like taking a pulse of the market. If there were suddenly a flood of listings and demand remained the same, the Market Time would increase. When demand increases, Market Time drops. However, Average Days on Market does not move as quickly and cannot accurately identify market changes and new trends.

6-8-15-A

For homes priced above $1 million, the Expected Market Time tells a completely different story compared to the Average Days on Market. The higher the price range, the larger the discrepancy. Often, luxury sellers read how the housing market is hot and mistakenly expect their home to fly off the market too. They may be encouraged by the Average Days on Market, but that is far from a market reality. For example, homes priced between $2 million and $4 million have an expected market time of nearly 7 months, not even close to the average days on market of only 85 days.

The argument against emphasizing pending sales is that many homes fall out of escrow. It happens, but not an alarming rate. Even though some pending sales do not go together, the Expected Market Time is extremely accurate and a powerful gauge of the current market. Yet, sold data is not a reliable gauge of demand TODAY. Sold data is tracked by most widely publicized housing indices, but it tells us a story of what happened about 45 to 60 days back. The market does not adhere to following what happened in the past. Instead, it does whatever it pleases today. Using pending sales over the prior month tells us what buyers are willing to do right now.

As the market slows a bit during the summer months, pending sales are going to drop slightly and the inventory will climb. As a result, the Expected Market Time will climb throughout the summer, slowing any appreciation considerably. Relying on this data is like looking out the windshield of your car, the best way to determine where you are headed. Yet, during the summer months Sold Data Indices will be elevated and indicate rising values; but, remember, this data will be a reflection of late spring, a completely different market compared to the summer. Relying on this data is like driving a car while looking out the rearview mirror.

Days on Market and Sold Data Indices often does not paint an accurate picture of what is truly going on in the housing market right NOW. Alternatively, the Expected Market Time encompasses the twists and turns as real estate evolves from season to season or responds to changes in the economy, interest rate changes, or local and global events.

Active InventoryThe inventory increased by 3% in the past two weeks.

The active inventory increased by 172 homes in the past two weeks and now totals 6,276, a 3% gain. Since the end of March, the inventory has continued to increase without pause. It looks like that trend will continue through the end of summer. The expected market time is on the rise and is currently at 62 days.

6-8-15-inventory

End of Steven’s report for 6/7/2015

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What’s Ahead For Mortgage Rates This Week – June 8, 2015

Whats-Ahead-Mortgage-Rates-5Last week’s economic news included reports on construction spending, Freddie Mac’s mortgage rates survey and several employment related reports. The details:

Construction Spending Jumps

The Commerce Department reported that construction spending reached its fastest annual pace since November 2008. Most  of the momentum was caused by construction of apartments, commercial projects and roads, and construction of single  family homes. Builders spent 2.20 percent more in April than they did in March, which equated to an annual outlay of $1.01 trillion for all types of construction spending. Analysts said that increased spending in construction indicated that the    housing sector could see improvement as construction provides more jobs.

Mortgage Rates Mixed

Freddie Mac’s weekly survey of mortgage rates reported that average mortgage rates were mixed last week. Average rates were reported as follows: 30-year fixed rates were unchanged at 3.87 percent with discount points also unchanged at 0.60 percent. The average rate for a 15-year fixed rate mortgage fell from 3.11 percent to 3.08 percent with discount points unchanged at an average of 0.50 percent. The average rate for a 5/1 adjustable rate mortgage rose by six basis points to 2.96 percent with discount points unchanged at 0.50 percent.

Employment Reports Suggest Stronger Labor Market

Several labor-related reports released last week suggest that job markets are gaining strength as they continue to improve. ADP, a private-sector payrolls company, reported 201,000 new jobs in May against April’s reading of 165,000 new jobs. The Labor Department released its Nonfarm Payrolls report for May and reported 280,000 new jobs against expectations of 210,000 new jobs and April’s reading of 221,000 new jobs.

Average hourly wages rose by 0.30 percent and surpassed expectations of a 0.20 percent increase and April’s reading of 0.10 percent. Although incremental, this suggests that labor markets are strengthening to a point where employers are comfortable with increasing wages.

Weekly Jobless claims were reported at 276,000 new claims filed as compared to expectations of 278,000 new claims and the prior week’s reading of 284,000 new jobless claims filed. The national unemployment rate for May ticked up to 5.50 percent from the prior month’s reading of 5.40 percent, but this reading remains below the Federal Reserve’s original benchmark of 6.50 percent for potentially raising the target federal funds rate. The Fed has not moved to change the rate, but analysts expect that this could occur by Fall if economic conditions hold steady.

What’s Ahead

Next week’s scheduled economic reports include job openings, retail sales, consumer sentiment along with the usual weekly reports on mortgage rates and weekly jobless claims.

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