Monday, December 26, 2011

2012 Housing Market Predictions: Prices and Rates to Remain Low

Home prices in 20 U.S. cities probably declined at a slower pace and consumer confidence improved, signs the economy gained strength heading into 2012, economists said before reports this week.

Property values dropped 3.2 percent in October from the same month in 2010, the smallest year-over-year decrease since January, according to the median forecast of 20 economists before a Dec. 27 report from S&P/Case-Shiller. Consumer confidence rose to a five-month high in December and more people signed contracts to buy previously owned homes than a month earlier, other data may show.

Rising builder confidence, fewer unsold new properties on the market and a pickup in construction point to improvement in the industry that triggered the last recession. Real estate is still facing another wave of foreclosures that may keep pressure on home prices, making for an uneven housing recovery.

“We’ll continue to see prices drop,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The middle of 2012 is when we think prices will actually bottom.”

Economists surveyed projected the gauge of residential real-estate values declined 0.3 percent in October from the prior month, when it fell 0.6 percent. The index was down 31 percent in September from its July 2006 peak. The year-over-year gauge provides a better indication of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Pending Home Sales
Figures on Dec. 29 may show pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump, economists said before a report from the National Association of Realtors.

Reports last week showed a pickup in demand for houses. Sales of previously owned homes, which make up about 94 percent of the market, rose 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said Dec. 21.

Purchases of new single-family properties advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. The increase pushed the number of new homes on the market to a record low.

Those gains have buoyed builders’ stocks since the end of the third quarter. The Standard & Poor’s Supercomposite Homebuilding Index, which includes Toll Brothers Inc. and Lennar Corp., has climbed 32 percent, while the broader S&P 500 has gained 12 percent.

Consumer Confidence
As housing stabilizes and employment strengthens, consumers are becoming more optimistic. Confidence rose to 58.6 from 56 last month, according to the Bloomberg survey median before a Dec. 27 report from the New York-based Conference Board.

Other surveys reflect gains in optimism. The Bloomberg Consumer Comfort Index improved to minus 45 in the period ended Dec. 18 from a reading of minus 49.9 the prior week, marking the biggest seven-day gain since January. The Thomson Reuters/University of Michigan index of consumer sentiment rose to a six-month high in December. Some homebuilders say an increase in sentiment is needed to help boost demand.

“We need a higher level of confidence to get back to the traditional move-upstream or first-time buyer out of the rental,” Jeffrey Mezger, chief executive officer of KB Home, said on a Dec. 21 conference call with analysts. “A lot of consumers are surprised, frankly, at how low home payments are compared to rent.”

Policy makers are promoting programs designed to reinvigorate the housing market. The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original plan helped less than a quarter of the people targeted to lock in lower mortgage rates.

Officials at the Federal Reserve this month reiterated that they will keep the benchmark interest rate near zero until at least mid-2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

Wednesday, December 21, 2011

California Pending Home Sales Decline in November, but Year-to-Year Sales Post Higher for Seventh Straight Month

Pending home sales in California fell in November but were up from the previous year for the seventh consecutive month. Additionally, distressed home sales dropped in November from both the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS(R) (C.A.R.) reported today.

Pending home sales:
California pending home sales fell 9.1 percent in November but were up from a year ago, according to C.A.R.'s Pending Home Sales Index (PHSI)*. The index was 109.8 in November, based on contracts signed in that month, down from October's index of a revised 120.9. However, the index was up 11 percent from November 2010, marking the seventh consecutive month that pending sales rose from the previous year. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

"The strong year-over-year growth in pending sales observed in the last several months suggests we should see an increase in December's closed sales over the same month last year," said C.A.R. President LeFrancis Arnold.

Distressed housing market data:
*At 55.1 percent, equity sales made up more than half of home sales in November, up from 53.9 percent in October and 54.4 percent in November 2010.

*The total share of all distressed property types sold statewide fell to 44.9 percent in November, down from October's 46.1 percent and 45.6 percent in November 2010.

*Of the distressed properties sold statewide in November, 21 percent were short sales, up slightly from the previous month's share of 20.7 percent and up from last November's share of 19 percent.

*At 23.5 percent, the share of REO sales was down from October's 24.9 percent, and down from the 26.2 percent reported in November 2010

Thursday, December 15, 2011

Why the VA Home Loan is the Better Choice for Veterans

Within the last year conventional lending programs have lessened their strict lending requirements, but that doesn't mean that obtaining a conventional home loan has become any easier. In fact, conventional lending is just as unaffordable and inaccessible as it has ever been to the average American which has led many to either avoid homeownership altogether or seek the aid of government program.

For veterans and active duty service members, a unique government lending option is available through the Department of Veteran Affairs – the VA Home Loan. Catering to the distinct financial needs of service members, the VA home loan provides military members with money saving benefits that they would otherwise not be able to obtain including:

No Down Payment
Perhaps one of the biggest perks to the VA Home Loan program is that borrowers can secure a mortgage loan without having to put down a down payment. Even though conventional lending programs have lessened their income requirements, they haven't exactly lessened their need of a high down payment. Borrowers wishing to obtain prime interest rates can still expect to have to pay a 20 percent or more down payment which isn't always an affordable option, especially in this economy.

No Private Mortgage Insurance Required
Conventional lending programs require that borrowers purchase private mortgage insurance (PMI) to reduce their risk in the mortgage. PMI, depending on the size of your mortgage, can be incredibly costly adding a couple hundred dollars on to your mortgage payment. Because a VA home loan is backed by the government, there is no need for PMI, which can save you thousands over the life of your loan.

Low Mortgage Interest Rates
Conventional lenders are allowed to set their own loan interest rates to entice customers; however, unless you are able to put at least 20 percent down on the home you wish to purchase and have a credit score well into the 700s, you aren't going to qualify for those low interest rates they are boasting. Because the VA home loan program is regulated by the government, interest rates are constant. What you see is what you get, and because the government partially backs each loan given, interest rates are generally competitive to those borrowers were find with conventional lenders.

The VA Home Loan also has high loan limits, which can be a big money saver for qualified borrowers. The average VA Home Loan limit is $417,000, but can be even higher in more expensive real estate markets, allowing borrowers the opportunity to purchase the home they desire without having to seek additional financing.

Who is Eligible for the Program?
The VA loan requirements are quite lax, making eligibility for the program easy to obtain. In order to become initially eligible for the VA Home Loan program, service members must:

*Have served on active duty for 90 days during wartime or 181 during peacetime

*Or have served for at least 6 years in the Reserves or National Guard

Veterans and active duty service members will also be required to submit their Certificate of Eligibility in order to become eligible for the program. The VA home loan program does have lenient eligibility requirements; however, VA approved lenders will require that veterans and active duty service members present proof of a stable income and reasonable credit history in order to obtain financing.

Content provided By: Kevin Pearia

Mortgage Commentator for

Tuesday, December 6, 2011

Housing Market Bottoming Out: Clear as Egg Nog

Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that "the bottom" in house prices is just around the corner - only to be wrong every time.

But now, finally, it looks as though house prices may actually be nearing a bottom. Why?
Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching "normal" levels on two key valuation measures: The "price-to-rent ratio," which measures house prices relative to what the houses might rent for, and the "price-to-income ratio," which measures house prices relative to average incomes.

Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.

House prices differ markedly depending on where you live, of course, and Goldman's analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.

Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don't stop at "average" levels on the way down. On the contrary, they often plunge straight through "fair value" and spend years below average levels. And that certainly could happen to house prices this time around.

But Goldman's economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman's economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.

Of course, even if house prices do bottom in 2013, that doesn't mean that they'll quickly shoot up again - or that housing will once again be the "great investment" that everyone thought it was back in the boom years.

One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing "affordability" is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable. So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.