The Mortgage Corner
Is the housing market finally beginning to thaw from the polar winter? Pending home sales rose sharply in May, with lower mortgage rates and increased inventory accelerating the market, according to the National Association of Realtors’ Pending Home Sales Index (PHSI). All four regions of the country saw increases in pending sales, with the Northeast and West experiencing the largest gains.
Housing inventories are now up 14 percent, June-to-June, according to Housing Tracker (Department of Numbers). The median asking price for existing homes is now $280, 935, up 10.2 percent y-o-y. But in high growth areas, such as San Francisco and San Jose, inventories are shrinking -1.5 percent and -0.7 percent, respectively thanks to a booming Silicon Valley. Existing inventories in Los Angeles have not grown at all y-o-y.
NAR chief economist Lawrence Yun expects improving home sales in the second half of the year. “Sales should exceed an annual pace of five million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” he said. “However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.”
That’s in part because only 29 percent of prospective homebuyers were first-timers, and first-timers usually take up at least 33 percent of purchases. Many first-timers are more likely to rent than purchase at present, with little or no savings and difficult qualification criteria, say several surveys.
FHA in particular has tightened its standards and costs. The upfront mortgage insurance fee (MIP) is now 1.75 points, and annual premium 1.5 points with the minimum 3.5 percent down payment. It is slightly less for higher down payments. FHA at one time accounted for up to 60 percent of first-time homebuyers, but now it’s just 30 percent.
Will this change soon? It will depend mainly on better-paying jobs. And that depends on fuller employment, which seems to be the best way to boost incomes these days.
“The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year’s pace. Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability,” said Yun. “Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable.”
The PHSI in the Northeast jumped 8.8 percent to 86.3 in May, and is now 0.2 percent above a year ago. In the Midwest the index rose 6.3 percent to 105.4 in May, but is still 6.6 percent below May 2013. Pending home sales in the South advanced 4.4 percent to an index of 117.0 in May, and is 2.9 percent below a year ago. The index in the West rose 7.6 percent in May to 95.4, but remains 11.1 percent below May 2013.
Yun expects existing-homes sales to be down 2.8 percent this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6 percent this year and in the range of 4 to 5 percent in 2015.
Harlan Green © 2014
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