“We are experiencing the same as others who have reported, decent spring followed by a poor summer,” said Stephen Paul of Mid-Atlantic Builders. “Through June, sales were up 16 percent then dropped off the table in July and August.”

Home builder confidence stalled nationally in September, after rising steadily, especially at the beginning of 2013.

“While builder confidence is holding at the highest level in nearly eight years, many are reporting some hesitancy on the part of buyers due to the sharp increase in interest rates,” said Rick Judson, the National Association of Home Builders’ chairman.

If interest rates retreat to where they were at the beginning of the year, mortgage refinances will likely rebound again, especially since they have dropped so dramatically in the past six months.

As for home sales, that is not an easy call. Sales have been hampered not just by rising mortgage rates, but by very low inventory, anemic construction, and still-pervasive negative equity among potential move-up buyers. Lackluster job and wage growth, especially among younger Americans, has not helped either.

(Read more: Tepper: Fed wants growth first, second, and third)

We also know that while the Federal Reserve may not be tapering now, it will have to eventually. Some say it should do so sooner rather than later.

“Rip this Band-Aid off already,” said Peter Boockvar of the Lindsey Group. “There will never be the right time to cut back, and today was the perfect opportunity to do so because the market was ready for it. Playing games now over this with the market will not smooth the eventual ease.”

Article source: http://www.cnbc.com/id/101043610

Mortgage rates are about a full percentage point higher today than they were at the beginning of March. The average rate on the 30-year fixed hit 4.80 percent by the middle of last week, according to the Mortgage Bankers Association. That is the highest since April 2011.

Rates have been trending higher on expectations that the Federal Reserve will begin to taper its investments in mortgage-backed securities.

Home prices are also trending higher in part due to the fact that there are fewer distressed properties for sale. Excluding distressed sales, prices were up 11.4 percent year over year. Distressed properties have seen big price jumps in the past year, as investors fight to get the remaining bargains.

Markets hit hardest by the housing crash have seen some of the biggest price gains: Nevada home prices were up 27 percent annually in July, California up 23 percent and Arizona up 17 percent. Completed foreclosures nationally were down 25 percent in July from a year ago, according to CoreLogic.

(Read more: Map: Tracking the recovery)

Prices are also getting a boost from the sheer lack of properties for sale. Inventories are way down in local markets across the nation, and home builders are not ramping up production fast enough to meet new demand.

While the inventory situation is not expected to ease very much over the next year, home prices are expected to weaken slightly, as higher rates and weak income growth put a cap on just how high prices can go.

Article source: http://www.cnbc.com/id/101004096

Applications to refinance are already down nearly 60 percent from a year ago, according to the Mortgage Bankers Association. Mortgage rates on the 30-year fixed rose from 3.5 percent in May to nearly 5 percent in July, settling now around 4.5 percent.

The government’s Home Affordable Refinance Program has been successful, allowing more than 2 million borrowers, some with negative home equity, to take advantage of lower rat, but only borrowers with government-backed mortgages qualify.

That has left millions of borrowers out. Obama has pushed for more refinancing in the private mortgage market and will call for it once again. Senior administration officials, however, admit that “the window is closing given interest rates coming up over the last few months.”

(Read more: Homeownership may be for the few rather than the many)

The president will also push for more community-based assistance to help first-time homebuyers get into vacant, foreclosed homes.

Phoenix perhaps is not the best backdrop for this. The recovery there was driven more by private investors in distressed homes than by any government-backed mortgage rescue. Investors bought these homes in bulk and are now renting them for profit.

These same investors, largely using all-cash, pushed first-time buyers out of the Phoenix market and continue to do so in several other markets across the nation, where lower-income buyers might have been able to take advantage of distressed homes.

Obama will offer “targeted ways to make sure first-time buyers have a fair shot competing,” an administration official said.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Article source: http://www.cnbc.com/id/100940811

Applications to refinance are already down nearly 60 percent from a year ago, according to the Mortgage Bankers Association. Mortgage rates on the 30-year fixed rose from 3.5 percent in May to nearly 5 percent in July, settling now around 4.5 percent.

The government’s Home Affordable Refinance Program has been successful, allowing more than 2 million borrowers, some with negative home equity, to take advantage of lower rat, but only borrowers with government-backed mortgages qualify.

That has left millions of borrowers out. Obama has pushed for more refinancing in the private mortgage market and will call for it once again. Senior administration officials, however, admit that “the window is closing given interest rates coming up over the last few months.”

(Read more: Homeownership may be for the few rather than the many)

The president will also push for more community-based assistance to help first-time homebuyers get into vacant, foreclosed homes.

Phoenix perhaps is not the best backdrop for this. The recovery there was driven more by private investors in distressed homes than by any government-backed mortgage rescue. Investors bought these homes in bulk and are now renting them for profit.

These same investors, largely using all-cash, pushed first-time buyers out of the Phoenix market and continue to do so in several other markets across the nation, where lower-income buyers might have been able to take advantage of distressed homes.

Obama will offer “targeted ways to make sure first-time buyers have a fair shot competing,” an administration official said.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Article source: http://www.cnbc.com/id/100940811

(Read More: Homes Selling at Fastest Pace Since Boom)

“It has the look of a runaway housing boom again,” said Jane Fairweather, a Realtor in Maryland, who added that looks can be deceiving. “What you have is very inexpensive money and you have very few houses for sale. As soon as interest rates go up, I think you’ll see a lot of people back off.”

Interest rates have been moving steadily higher. After Wednesday’s speech by Federal Reserve Chairman Ben Bernanke, rates took another jump of 0.375 percentage points.

“It’s an over-correction, but a painful one for buyers,” said Dan Green of Waterstone Mortgage. “A home buyer has five percent less home purchasing power as compared to 24 hours ago.

In the end, sales will come down to buyer confidence, affordability and mortgage rates. Even if that last one moves higher, rates are still historically low and confidence is gaining steam despite the rising prices.

“This week I had a seller who got a full price offer in about four days and he refused to take it because he wanted multiple contracts, come on!” exclaimed Fairweather.

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100761763

Their story is getting ever more common, as total student loan balances nearly tripled between 2004 and 2012, according to a new survey from the Federal Reserve Bank of New York. Now $1 trillion in collective student loan debt is directly affecting the housing recovery.

“Short term, you see a decrease in the number of first-time home buyers,” said Brian Coester of Coester Valuation Management. “You’re going to see somebody who would have been able to afford a more expensive house maybe go for the lower version or the downgraded version.”

First-time home buyers usually make up over 40 percent of the home buying population, but their share has hovered at or below 30 percent during this recovery, according to the National Association of Realtors. The student debt burden has kept many potential buyers out of the market, either forced to rent or to move back in with their parents, like Sophia Chaale.

“Without the student loan debt, a year and a half, two years earlier would have been the time I could have afforded to buy a house, and probably something a little bit bigger,” Chaale said.

(Read More: Surging Student-Loan Debt Is Crushing the System

Chaale is facing $60,000 in student loans from graduate and undergraduate schools. She is paying $320 a month on a 30-year loan. Only after living at home for two years was she able to apply for a mortgage and put a down payment on a home. She is scheduled to close at the end of April.

“I consider myself lucky that I had a place where I could save, but what about other people who aren’t originally from this area, who have to pay an extra $1500 a month in rent, and that rent money is not going to savings. How are they going to be able to save up or even to make that transition from renting to owning, in addition to all the student loan debt?” Chaale wondered.

Article source: http://www.cnbc.com/id/100624148

“There is a huge population that have benefitted from adjustable rate mortgages. When the rates adjusted, they adjusted down. Those homeowners have been riding those low, one-year arms. If they start to hear about rates going up, they may come out of the woodwork to lock into fixed rates,” says Strent.

That may be, but 88 percent of loans outstanding today are fixed, according to the Mortgage Bankers Association. Just 12 percent are adjustable rate. Even if rates do not rise any higher than they are today, which they may not, they would have to fall below last year’s lows to see the high refinance volume of 2012 continue in 2013.

(Read More: Link Between Credit and Mortgages: Not What You Think)

“The refi apocalypse is upon us,” says Mark Hanson, a mortgage analyst in Northern California. “The thought is that there are a bunch of homeowners on the fence who haven’t refi’d who will all jump in thinking they will miss out. The theory is 100 percent nonsense. The series will simply plunge. That’s because after 16 months of sub 4 percent rates — and every bank loan officer and mortgage broker doing everything they can after a long mortgage banking income drought that ended with Twist — there is nobody left to refi. In fact, the only reason refi applications stayed flat in Q3 and Q4 was because they passed a new law allowing refinances regardless of the LTV [loan to value]…the HARP unlimited LTV refi.”

While the Federal Reserve does not set mortgage rates, a signal that the economic recovery is improving and even the slightest hint that the Fed could end its purchases of mortgage-backed securities, could push rates slightly higher.

“The Fed likely won’t use its statement to markets to finger a specific date on which QE3 will end, but that won’t stop investors from guessing. If the herd believes that QE3 will terminate within the next 6 months, mortgage rates will likely rise. If QE3 is believed to extend into 2014 and beyond, mortgage rates will likely fall,” writes Dan Green of Waterstone Mortgage in his blog.

(Read more: What to Expect from Interest Rates This Year)

While refinances may suffer under even slightly higher rates, more important to the housing recovery is new mortgages to purchase homes. Purchase applications are still running at half the rate they were in 2007, when last the Dow hit a new high. Small moves in mortgage rates do affect purchasing power, but lending standards are a far bigger driver today. New regulations for lenders and a consolidation of lending overall to the mega-banks are certainly slowing, and in some cases stalling, the process for some would-be buyers.

(Read More: Cities That Are Most Prepared for Retirement)

Article source: http://www.cnbc.com/id/100420382

Mortgage rates may also be headed higher. Several members of the Federal Reserve Open Market Committee (FOMC) thought it would “probably be appropriate to slow or to stop purchases [of assets including mortgage-backed securities] well before the end of 2013,” according to minutes of the committee’s latest meeting. Doing so would push mortgage rates higher. (Read More: Mortgage Recovery Still Rocky.)

Fitch analysts admit price recovery will vary widely depending on the local market conditions, but their case seems more bearish than most. Or is it?

“I personally think that a lot of the price appreciation we’re seeing in many markets right now is because the market of tradable homes is thinner than usual because of high negative equity,” said Zillow’s chief economist Stan Humphries. “This condition will change as home price gains pull homeowners out of negative equity and the market becomes more fluid.”

Zillow’s home value index was up 5.2 percent annually in November, but Humphries expects appreciation over the next twelve months of just 2.5 percent. He cites decreasing unemployment, rent increases, rising household formation and “essentially a five-year hiatus” in home building. (Read More: Most Affordable US Cities.)

Supply and demand, as they always have historically, will determine home prices going forward; unfortunately, both of those are currently too complicated and too economically sensitive to predict.

Article source: http://www.cnbc.com/id/100355400

Disclosure: I am long KBH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More…)

The real estate market, like any other market, is a numbers game. Demand versus Supply. If one is greater than the other, it tips the balance and creates a turn in the market. Did we turn? Let’s look at the numbers.

Demand can be tracked simply by population growth. Using 2010 US census numbers, we can track back 50 years of population growth and get an average compound growth of 1.4% growth per year. Factors such as birthrate and immigration make this demand stable and consistent through the last 50 years.

(click to enlarge)

Secondly, let’s look at Supply. New supply comes onto the market in terms of new homes built each year. The best way to track this is through housings starts. Let’s track back 50 years of housing starts to see our levels of new supply to the market.

(click to enlarge)

From the graph, the average cyclical real estate market is plotted through 10 year cycles. It’s rather clear that the 10 year cycles have been pretty predictable the last 50 years up to 1997. Instead of the cyclical downturn we should had expected in 1997, we accelerate upward mainly due to the dot-com bubble. This continued to after 2001 when the dot-com bubble popped, and was followed upward with historically low interest rates from the Federal Reserve. It’s no wonder why we had a dramatic downturn in 2006, followed by historically low starts the next 5 years to clear the supply. Excluding the bubble period, if you break down these 10 year averages from the last 60 years, the average new housing starts are close to 14M per decade. There are decades where the homebuilders either overbuilt or under-built, but the demand over time remains consistent to level out this supply. More dramatically though, in the last 4 years, the total cumulative housing starts combined to a number barely over 2.2M homes. To reach the historic 14M decade average, there will need to be 2M housing starts per year or a sum of 11.8M starts in the next 6 years.

If we are able to meet 2M homes per year, the homebuilders would need a dramatic spike in housing starts the next 6 years.

(click to enlarge)

From the latest housing report this month, the homebuilders are currently on pace to reach only 894k (revised, Oct 2012) (seasonally adjusted) new starts this year. It is no wonder why new homebuilders are in “catch-up” mode buying any large developed parcel of land to meet the supply shortage. Furthermore, to support this data, inventory in many local markets are experiencing 50 year historic lows. So in principle, the increased demand due to consistent population growth, combined with decreased supply shortage from the last 4 years, will equal price appreciation in the next 6 years. Do you think we hit a bottom now?

Who are the best homebuilders that are position to take advantage of this shortage?

Any homebuilders that survive the downtown of the last 5 years are all in a great position to take advantage of the next 5 years. More specifically, homebuilders with the largest and key coastal land position will benefit the most. I like KB Home (KBH) as my top pick due to its heavy land position in California. They own more than 60% of their total land holdinsg in California, with the majority of the remainder in other hot markets like Texas. Fundamentally, their balance sheet and cash position is solid with moving a large part of their short-term bond holdings ($585M) well out to 2020 and beyond. In addition, they have a meaningful deferred tax asset of $883M that could be used to potentially offset $2.2B future taxable income. All of this combined will just provide them with a significantly large cash position to fill the shortage the next 5 years in housing.

Additional disclosure: John Chiem is a realtor in the SF Bay Area real estate market.

Article source: http://seekingalpha.com/article/1081501-why-housing-will-surge-in-the-next-5-years

“As a result, refinance applications dropped sharply to the lowest level in over a month.”

Applications to buy a home also dropped 5 percent week-to-week, indicating a still weak and rate-sensitive purchase market. One third of buyers in today’s housing market use all-cash. Many in the housing industry complain that it is not the rates but the availability of potential borrowers to obtain financing that is holding the market back from a more robust recovery.

The chairman of the National Association of Home builders says that while his cohort is feeling more confident about their business, “overly stringent lending standards” are holding back a more robust recovery.

(Read More: Housing Starts Fall as Sandy Slows Northeast)

Mortgage rates have been below 4 percent since May of 2012 and refinance volume has surged accordingly. Those refinances, many of them under the government’s Home Affordable Refinance Program (HARP) for underwater borrowers, have helped to fuel consumer spending and have likely kept many borrowers from defaulting on their loans.

The big drop in refinances after such a small move up in rates indicates that the slightest move, up or down, can really change activity. The hope, of course, had been for rates to continue moving down.

“A lot of money has been spent between OT [Operation Twist] and QE3 for very little incremental reward,” notes Peter Boockvar of Miller Tabak. “The true cost, yet to be determined, will of course occur when the likely market forced exit begins.”

If mortgage rates rise markedly in 2013, the housing recovery will undoubtedly take a hit. The recovery in housing began with all-cash investors, but owner-occupants are quickly moving in.

“Fannie Mae, Freddie Mac and the FHA financed a record $31.2 billion in so-called conforming jumbo mortgages during the third quarter of 2012,” according to a new Inside Mortgage Finance ranking and analysis. “Business in conforming jumbo loans – defined as mortgages on one-unit properties that exceed $417,000 – rose 29.6 percent from the second quarter and represented the highest quarterly volume for the agencies since emergency loan limits went into effect back in 2008.”

Unfortunately many buyers are either too young or too forgetful to realize that mortgage rates are incredibly, historically low, despite slight moves up week-to-week. The good news is in the near term is that when some buyers see rates tick up, they jump into purchase more quickly, for fear the rates will keep going up.

Article source: http://www.cnbc.com/id/100327898