Housing Recovery Has Begun

The Mortgage Corner

This may be the brashest of predictions. Can residential real estate prices actually be recovering? Yes, as housing inventories decline. The National Association of Realtors just reported on the national level, inventory of for-sale single family homes, condominiums, townhouses and co-ops declined by -20.7 percent in May 2012 compared to a year ago, and declined in all but two of the 146 markets covered by REALTOR.com.

This is while the median age of the inventory fell -9.78 percent on a year-over-year basis last month, and the median national list price increased 3.17 percent last month compared to May 2011.

Graph: Calculated Risk

“Signs of recovery are evident in a growing number of markets that were once the epicenter of the housing crisis, and older industrialized areas in the Northeast and the Midwest are showing emerging signs of weaknesses,” said NAR’s press release. “For example, the recovery process that began in Florida approximately one year ago has since spread to Phoenix and most recently California. At the same time, markets such as Reading, PA, Allentown, PA and Milwaukee, WI continue to lag behind the rest of the market.”

Another sign of the housing recovery is that Mortgage applications increased 18.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA).  This is part because of the new Fannie Mae/Freddie Mac HARP 2.0 loan modification program, which Fannie Mae predicts could affect as many as 9 million mortgage holders.

Graph: Calculated Risk

“Mortgage application volume increased sharply last week. The increase was accentuated due to the comparison to the week including Memorial Day, but the level of refinance and total market activity is the highest since the spring of 2009,” said Michael Fratantoni, MBA's Vice President of Research and Economics. “Refinance volume increased as borrowers were able to lock in at mortgage rates below 4 percent, and purchase application volume was its highest level in over six months. HARP volume has been steady in recent weeks at about 28 percent of refinance applications.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88 percent from 3.87 percent, with points decreasing to 0.43 from 0.46 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. But rates are actually lower in states like California, where the 30-yr fixed conforming rate has fallen to 3.50 percent, with zero points origination fee.

According to the MBA, HARP activity is increasing at the same rate as overall refinance activity, which means long waiting periods for refinances in particular. Some lenders are saying it takes up to 16 days for underwriting approval.

The so-called echo boomer generation, children of baby boomers are beginning to provide some of the increased purchase activity. There are approximately 62 million echo boomers in the U.S. Also called "millennials," echo boomers are currently ages 17-31. According to the 2011 National Association of Realtors Profile of Home Buyers and Sellers, younger home buyers - those ages 18-34 - represent 31 percent of all recent home purchases.

In other words, it looks like 2012 is the year real estate will begin to recover. With 4.5 million jobs created or retained since 2009, the demand for jobs growing, according to the Bureau of Labor Statistics JOLTS report (with 3.5 million job openings), and affordability never higher, housing might be finally leading us out of the Great Recession.

Harlan Green © 2012