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Housing Sentiment sours as mortgage rates rise

Tue, 16 Jul 2013 03:09:36 +0000

“Prices have to be lowered, more cash must be put into the transaction in the form of a down payment or to buy down the interest rate in order to qualify for the same house price,” said Hanson. “Buyers must switch to a lower-rate, higher-leverage ARM (adjustable rate) loan, which is much tougher to qualify for through the Fannie, Freddie and FHA systems, meaning much greater denials/fall-out; or the deal must simply be canceled.”

Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

Buyers of new construction often sign contracts for homes that will not be delivered for three to nine months, and therefore the buyers do not lock in mortgage rates at the time of purchase. A buyer who signed a deal the first week in May without a mortgage is now facing a far higher potential monthly payment, perhaps an unaffordable one.

The hangover effect could be much like the drop in home sales after the expiration of the home buyer tax credit. Prices dropped as well. This, as millions more borrowers were finally coming out from underwater on their loans, thanks to increased home equity. The number of borrowers owing more on their mortgages than their homes are currently worth fell by 47 percent in the first three months of this year from a year ago, according to Lender Processing Services. Some 7.2 million mortgages are still underwater, but that’s down from a high of 17 million in 2011.

Increased home equity has helped to push mortgage delinquencies down. They dropped 15 percent in May from Jan. 1, the biggest drop in 11 years, according to LPS. If home price gains stall or if prices turn lower, that trend will reverse. Rising home equity has allowed more borrowers to sell homes they don’t want or can’t afford.

(Read More: Map: Tracking the US Real Estate Recovery)

While home sales may surge in the short term on fears of rising rates and falling affordability, the longer term may be a different story. One telling sign from the Fannie Mae survey, 56 percent of respondents expect rents to rise. That’s up 8 percentage points in one month to a survey high.

—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/100870112

Housing Sentiment Sours as Mortgage Rates Rise

Tue, 09 Jul 2013 08:45:53 +0000

Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

(Read More: Map: Tracking the US Real Estate Recovery)

—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/100870112

Buy, Sell or Rent: Americans Rewrite the Dream

Fri, 03 Aug 2012 11:55:42 +0000

American homes have never been more affordable than they are today. Prices are down dramatically, mortgage rates are at record lows and desperate sellers are willing to make concessions.

Still about one third of Americans choose to rent, despite the fact that 85 percent say owning makes more sense financially than renting over the long term, according to a new Fannie Mae study.

Buying is cheaper than renting in most U.S. markets, according to another study from online real estate sale site Zillow. The upfront costs may be higher, but Zillow looked at what it calls the “breakeven horizon,” which is when the cost of owning (including down payment, taxes, fees) meets the cost of renting. While markets will vary neighborhood to neighborhood, the breakeven point in many markets, like Minneapolis, Baltimore, Denver, St. Louis, Chicago and Charlotte, is under three years.

The main barrier to homeownership for many, however, is the mortgage market.

The days of free-wheeling lending are over, and credit worthiness is now king. There are low down payment options, like the FHA, but too many potential buyers don’t meet the credit qualifications either for the great low rates or for the loan itself.

The other half of the equation is attitudes.

Consumer confidence in housing is still in the basement, especially for younger Americans, who make up 46 percent of the rental market, according to Fannie Mae. Younger Americans not only have the highest unemployment rate, but they also don’t have the cash for today’s higher down payments, and in many cases they’ve seen their parents lose massive amounts of home equity. Fannie Mae’s survey found that attitudes played a much bigger role in the decision to buy for some, while demographics played higher for others, and home values, believe it or not, played a very small role:

Demographics such as income, age, marital status, and employment status are the primary drivers of current homeownership status and the own-rent intention for outright homeowners (those who don’t have a mortgage). However, attitudes are the key drivers of the own-rent intention for renters and homeowners with a mortgage – two groups that account for about 80 percent of housing units in the U.S. Surprisingly, we also found that exposure to default, perceived home value appreciation/depreciation, and self-reported underwater status make minimal incremental contributions to predicting the own-rent intention in the models.

While renters have historically been younger, lower wage-earners, nearly 20 percent of renters make between $50,000 and $100,000 a year in income, according to Fannie Mae. Nearly half of those who own a home without a mortgage are over the age of 65. But the renters keep coming, as aging baby boomers downsize and as younger cohorts choose not to fight the mortgage market.

“While we do agree that housing is bottoming, that doesn’t mean we’re coming back strongly,” says Oliver Chang, former head of housing strategy at Morgan Stanley
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], who just launched Sylvan Road Capital, a new real estate fund which intends to invest $1 billion in the single family rental market over the next two years. “It is still incredibly difficult to get mortgage credit. The lending environment, whether government-backed or private, is still unclear.”

Despite the recession, the household formation rate has been growing steadily, which means more demand for shelter. Rentals will likely absorb much of that demand, unless and until lending ramps up. It will take several years for many Americans to not only rebuild their credit scores and rebuild their faith in home ownership.

Questions? Comments? And follow me on Twitter @Diana_Olick

Article source: http://www.cnbc.com/id/48461343?__source=RSS*blog*&par=RSS

FHA Turns to Investors as Losses Continue to Rise

Fri, 08 Jun 2012 18:42:01 +0000

Article source: http://www.cnbc.com/id/47736043?__source=RSS*blog*&par=RSS

Under Pressure, FHA Skews to Wealthier Home Buyers

Sat, 26 May 2012 05:00:01 +0000

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Higher Loan Limits for FHA, Amid Higher Risk?

Wed, 16 Nov 2011 05:55:29 +0000

Article source: http://www.cnbc.com/id/45306545?__source=RSS*blog*&par=RSS

Lower Loan Limits: Let the Games Begin

Fri, 24 Jun 2011 19:08:30 +0000

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The summer has barely started, but the fight is on against changes to loan limits that don’t take place until the first of October.

Today the National Association of Home Builders released its own study claiming that lowering the loan limits at Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA), “will reduce housing demand and place downward pressure on home prices in major housing markets.”

The loan limits were raised when the mortgage market crashed, investors in mortgage backed securities ran for the hills, and the government-owned entities were the only ones left writing mortgages. Originally at $417,000 for a so-called “conforming loan,” they rose to as high as $729,000 in the nation’s higher-cost markets, in order to keep mortgages moving. That will drop to $625,000 in October in those markets, with the base limit remaining at $417,000.

The builders say that homes above those limits “would likely require financing with higher mortgage interest rates and other less favorable loan terms, such as higher required down payments and more stringent credit history thresholds.”

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No Housing Recovery Without Private Label Mortgage Investors

Wed, 18 May 2011 21:43:54 +0000

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Despite the lowest interest rate on the 30 year fixed in six months, mortgage applications to purchase a new home fell last week, over 3 percent. In fact, purchase application volume has been falling, on average, for the past four weeks, which is particularly troubling in this, the supposedly busiest season of the year for home buying.

So what’s going on?

I’m not going to boil it down to some generalization that there is no demand for housing out there, and everyone’s afraid of falling prices. There is demand. Homes are selling. But an historically high number of these purchases are to all-cash buyers, because the mortgage market is just so tight. Fannie, Freddie and FHA rule the roost, and their new rules and fees are pricing some buyers out while disqualifying many more.

Don’t get me wrong, I’m all for stricter underwriting, given the brutal effects of the opposite. I do, however, believe that as government tries to shut the door on Fannie and Freddie, it must open the door to private mortgage investors.

That’s why I was particularly interested to see the testimony today from the CEO of the only player in the private label game. Redwood Trust President and CEO Martin Hughes boiled the situation down pretty clearly.

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Realtors Face Off Against Mortgage Bankers

Fri, 13 May 2011 07:32:56 +0000

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Yesterday I had the great opportunity to moderate a symposium on mortgage liquidity with a pretty heavy panel of mortgage bankers and industry executives.

I knew they would be guarded in their answers, as I asked about the new world of underwriting, the wind down of Fannie Mae and Freddie Mac, the tighter more expensive FHA, new federal regulation in the industry and a controversial new appraisal process.

And they were guarded, until I opened up the floor to the Realtors, who hammered them hard on foreclosures, short sales, and mortgage credit for independent contractors like themselves.

A Realtor from Wilmington, NC asked what are the plans for companies to put the shadow (foreclosed) inventory onto the market? Most agents believe banks are holding on to these properties to somehow game the market, but the bankers were firm in their rebuttal:

Cara Heiden/Wells Fargo [ WFC 28.23 +0.07 (+0.25%) ]: “With respect to shadow inventory, we are not holding on to properties. On average we do hold the REO about 160-70 days, but once they’re listed they’re sold in 90 days and the reason that we hold them for a period of time prior to listing is so that we can get them in better shape for sale and uphold, to the extent that we can, market values. So we’re not holding other than for the purpose of getting that property to a level that does help maintain market values whenever possible.”

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Obama Administration Defends Housing Bailout

Thu, 03 Mar 2011 15:26:28 +0000

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The Obama Administration is vigorously defending its mortgage bailout programs, from the Home Affordable Modification Program (HAMP) to the Neighborhood Stabilization Program to the FHA Short Refi.

They’ve taken to the blogosphere, the reporter conference call and to a hearing room in the House of Representatives, where Republicans are bent on scrapping it all.

Interestingly, the Administration also released the “Monthly Scorecard” for the programs today. The HAMP in particular offered some pretty lackluster results. While totals continue to rise, the number of trial and permanent modifications made in January were fewer than the number made in December. New volume has been falling steadily.

Neil Barofsky, the Special Inspector General for the TARP, opened today’s hearing with strong criticism of the Treasury’s transparency, or lack thereof, in reporting the number of borrowers who can be helped. He called it “disturbing,” “shameful,” and “inexplicable.”

When the vote to abolish these programs was announced last week, and Administration spokesperson blasted, “If enacted, this legislation would close the door to struggling homeowners seeking relief in the face of the worst housing crisis in generations.”

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