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Mixed Emotions Greet Latest Housing Data

Phil Hall
Sep 11, 2014

Two new housing data reports seem to offer evidence that the U.S. market is still on shaky ground. However, whether this data should generate concern or whether it is an affirmation of wider, ongoing trends is open to debate. Freddie Mac’s Primary Mortgage Market Survey (PMMS) for the week ending Sept. 11 found the 30-year fixed-rate mortgage (FRM) averaged 4.12 percent with an average 0.5 point, up from last week when it averaged 4.10 percent. A year ago at this time, the 30-year FRM averaged 4.57 percent. The 15-year FRM averaged 3.26 percent this week, with an average 0.5 point, up from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 3.59 percent. Freddie Mac also reported that the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.99 percent this week with an average 0.5 point, up from last week when it averaged 2.97 percent. A year ago, the five-year ARM averaged 3.22 percent. The one-year Treasury-indexed ARM averaged 2.45 percent this week with an average 0.4 point, up from last week when it averaged 2.40 percent. At this time last year, the one-year ARM averaged 2.67 percent. But somewhat more troubling news came via the Mortgage Bankers Association (MBA) with its Builder Application Survey (BAS) data for August, which found new home purchases decreased by nine percent relative to July. By product type, conventional loans composed 68.9 percent of loan applications, FHA loans composed 15.7 percent, RHS/USDA loans composed one percent and VA loans composed 14.3 percent. The average loan size of new homes increased from $297,253 in July to $300,443 in August. The MBA estimated new single-family home sales were running at a seasonally adjusted annual rate of 424,000 units in August, based on data from the BAS. The seasonally adjusted estimate for August is a decrease of 2.1 percent from the July pace of 433,000 units.  On an unadjusted basis, the MBA estimated that there were 34,000 new home sales in August 2014, a decrease of 8.1 percent from 37,000 new home sales in July. Compared to last year, the MBA estimate of unadjusted new home sales are down 2.9 percent from 35,000 new home sales in August 2013. For some industry experts, the latest data offers reason for concern. “This could start a trend that shows a definite weakening in housing,” said Dean Wegner, a Scottsdale, Ariz.-based originator with Academy Mortgage Corporation. “Robust numbers previously indicated that housing was rebounding. A big shift like this is something we would definitely want to pay attention to.” “The pace of homes sold has slowed this summer and down roughly 12 percent over the last 12 months,” observed Chris Sorensen, director of mergers and acquisitions at Corona, Calif.-based Paramount Residential Mortgage Group Inc. (PRMG) and author of Financial Sense to White Picket Fence. “With the pull back of the Fed’s bond purchases, some are talking about when one should jump off the ‘crazy train’ and let the other guy take the pending fall. No one knows how the Feds reduced quantitative easing will impact the markets as this experiment, on this level, has never before been attempted. Suffice to say, we can go on this way in perpetuity, or crash and burn far worse than we would have if we let the proverbial excrement hit the fan in 2009.” However, Logan Mohtashami, an Irvine, Calif.-based senior loan manager at AMC Lending Group and a financial blogger at LoganMohtashami.com, commented that the latest data has less to do with the overall state of housing and more to do with choices made by homebuyers and home builders. “Once existing inventory comes back to the market, there are two distinctive advantages that it has over new homes,” Mohtashami explained. “First, they are a lot cheaper–builders jacked up their prices for a higher profit margin. And second, a buyer has more choices from existing inventory.” Mohtashami added that the majority of the current wave of homebuyers are primarily higher-income individuals instead of first-time homebuyers, and these house hunters are choosing to pursue existing properties rather than new homes – a situation that he believed will ultimately bring about improved affordability in newly-built residences. “It is good for housing if it forces the home builders to adjust and stop their egregious price hikes,” he said. And Loren Sanders, real estate advisor and director of special projects at Encinitas, Calif.-based Sea Coast Exclusive Properties, that many buyers—including those with healthy bank accounts—are not ready to go on spending sprees. “Homebuyers since the bubble have been a little bit more value conscious,” Sanders said. “A lot of buyers who I work with who can afford a $1 million home would rather go for a $750,000 or $850,000 home. That is probably a better indicator of the overall climate—people are still a little bit cautious.”
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