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Cautious Optimism Greets Latest MBA, NAHB Data

Sep 17, 2014

Two new data reports issued today appeared to offer evidence of a new vibrancy in the housing market. And even the organizations issuing these reports cautioned that despite the mostly positive numbers being presented, there were still problems that prevented a full embrace of a quickly recovering market. The first data report came in the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Sept. 12. According to the MBA, the Market Composite Index increased 7.9 percent on a seasonally adjusted basis and increased 19 percent on an unadjusted basis from one week earlier. The seasonally adjusted Purchase Index increased five percent from one week earlier; the unadjusted Purchase Index increased 14 percent compared with the previous week, but was 10 percent lower than the same week one year ago. The Refinance Index increased 10 percent from the previous week and the refinance share of mortgage activity increased to 57 percent of total applications, the highest level since February 2014, from 55 percent the previous week. “Application volume rebounded coming out of the Labor Day holiday, even as rates increased to their highest level in the last few months,” said Mike Fratantoni, MBA’s chief economist. “Given the volatility in activity around the long weekend, it can be helpful to look at the change over a two week span: Refinance applications are down 1.4 percent, while purchase applications are up 2.1 percent. [But] purchase volume continues to track almost 10 percent behind last year’s levels.” The second data report came in the latest National Association of Home Builders/Wells Fargo Housing Market Index, which found that builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a level of 59, a four-point gain that brought the index to its highest reading since November 2005. “Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. Builder confidence also rose across every region of the country in September. Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58. However, NAHB Chief Economist David Crowe, saw dark spots in the new data. “While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time homebuyers," Crowe said. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.” Across the industry, there were mixed readings on what the new data meant. For Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance at George Mason University in Fairfax, Va., and author of the Confounded Interest blog, the latest data offered no serious evidence of a healthy trajectory. “Mortgage purchase applications rose 7.9 percent from the previous week,” Dr. Sanders wrote in his blog today, “but it is simply a repeat of the post-Labor Day surge we experienced last year ... and the year before ... and ... Be careful of pundits that proclaim this is the turning point. It isn't!” Dr. Sanders also warned that the financial health of potential homebuyers still remains critical, especially in view of an ongoing trend in stagnant wages. “It is difficult for many borrowers to quality for debt-to-income under these circumstances,” Dr. Sanders continued. “And there is a loan-to-income problem with rapidly rising home prices ... again. Note that real median household income is below where it was during the housing bubble. I would say that the enthusiasm is more about providing rental housing than single-family detached housing.” Gibran Nicholas, chairman and CEO of The CMPS Institute, based in Alpharetta, Ga., pointed out that the spike in applications could also be credited to a seasonal transition. “When summer is over, a lot of sellers start lowering prices when going into the fall and winter,” Nicholas said. “If a house has not sold over the summer, the seller is anxious to get rid of the house now–it is either now or wait until next spring, especially in the northern states that had harsh winters over the last couple of few years. Buyers are also interested in buying now because they can get a better deal than if they wait until next spring, when prices can be higher.” Still, Nicholas observed that recent data from the St. Louis Fed pointing to an increase in housing starts suggested there was room for considerable improvement. “Not only are the numbers better than last year, they are likely to get better moving forward,” he said. “Buyers are certainly more interested in buying or building than they were in the past few years.” Chris Shelton, market leader at Movement Mortgage in Raleigh, N.C., expressed puzzlement that the MBA found the refinance portion of the market to be as high it was. “We’re about 96 percent purchase in our business,” Shelton said. Shelton also noted that in the market he served, activity in new home construction is aided in large part by a tight supply of resale properties. “We have a bit of an inventory crunch right now,” he conceded. “We’re short on resell inventory, which is driving up new construction.” Rocke Andrews, vice president of NAMB—The Association of Mortgage Professionals and broker/owner at Tucson-based Lending Arizona LLC, agreed that the current environment is still shaky, adding that macroeconomic and even global political crises, could ignite a domino effect that would topple whatever progress is made in housing. “If the stock market were to drop substantially, it would make people cautious about establishing new credit or putting their savings into a down payment,” Andrews said. Andrews stated that the new data should be viewed with “cautious optimism” rather than enthusiasm. “Breaking out the champagne is a bit too much,” he added, with a laugh. “But we are closer to turning the corner.” Phil Hall is managing editor of National Mortgage Professional Magazine. He may be reached by e-mail at [email protected].  
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