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Housing Takes Two Steps Forward, One Step Back

Phil Hall
Aug 20, 2014

The latest data offers evidence of progress in the housing market … well, sort of. According to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Aug. 15, the Market Composite Index increased 1.4 percent on a seasonally adjusted basis and one percent on an unadjusted basis from one week earlier. The Refinance Index increased three percent from the previous week, while the refinance share of mortgage activity increased to 55 percent of total applications from 54 percent the previous week. However, the seasonally adjusted Purchase Index decreased 0.4 percent from one week earlier, while the unadjusted Purchase Index decreased two percent compared with the previous week and was 11 percent lower than the same week one year ago. The MBA blamed the continued seesaw effect on mortgage activity on issues ranging from Washington to Eastern Europe. “Interest rates dropped last week as a result of the ongoing turmoil in Ukraine and other international concerns, which in turn pushed mortgage rates lower,” said Mike Fratantoni, MBA’s chief economist. “Overall application volume for conventional mortgages increased. However, there was a 5.9 percent decline in the number of applications for government mortgages, with both purchase and refinance applications declining. Within the government sector, this decline was led by an eight percent decline in unadjusted Department of Veterans Affairs applications, while Federal Housing Administration and Rural Housing Service unadjusted applications also fell by five percent and three percent respectively.” Other data released earlier this week also pointed to a market in the midst of contradictions. Monday saw the release of the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index for August, which recorded a two-point rise in builder confidence in the market for newly built, single-family homes. But that good news was seasoned with agitation. "As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market," said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. "However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor." Separately, RealtyTrac released data yesterday that found all-cash sales accounted for 37.9 percent of all sales of single family homes and condos nationwide in the second quarter of this year, down from a three-year high of 42.0 percent in the previous quarter but still up from 35.7 percent in a year ago. RealtyTrac also found that sales to institutional investors accounted for 4.7 percent of all sales of single family homes and condos in the second quarter, down from 5.3 percent in the previous quarter and down from 5.8 percent a year ago to the lowest level since the first quarter of 2012. But even that development was seen as a mixed blessing. “This is a classic good news/bad news scenario for the housing market,” said Daren Blomquist, RealtyTrac vice president. “The good news is that fewer cash buyers should help loosen up inventory of homes for sale and reduce competitive bidding, giving first time homebuyers and other non-cash buyers more opportunities. The bad news is that some of those first time homebuyers and other non-cash buyers may already be priced out of the market thanks to the rapid run-up in home prices over the past two years in many areas.” So why is housing in a state of two-steps-forward/one-step-back? “We have a massive air of uncertainty in the market,” said Phil Bracken, chairman and founder of America’s Homeowner Alliance and a former executive vice president at Wells Fargo. “The GSEs are in flux, the FHA recently needed a draw from taxpayers. And there is a constriction of credit, mostly around the tightening of credit scores, that has an impact on the consumers’ ability to get access to affordable financing.” And Adam Leitman Bailey, a New York City-based real estate attorney, commented that today’s market is still coated in the residue of the 2008 crash. “We still have a hangover from the economic crisis,” he said. “There are people that have many years to go before they can buy a home again.” Bailey added that lenders are submitting potential borrowers to a “financial body scan” before they would commit to a home loan. “Banks have tightened their standards since the crash, and are only lending to people who can pay back their loans,” he said. Still, there is some optimism to be found in the market. “What we have now is a market correction after the late spring market overheated a little bit,” said Bob Simone, owner and broker at Better Living Real Estate in Foxboro, Mass. “You’re going to expect these adjustments.” For his part, Simone is more interested in what the coming autumn has to offer. “We are ramping for a busy fall,” Simone continued. “We have all the signs–from economic indicators to new phone call inquiries and overpopulated open houses–that should lead to a good September, October and November. If it is not going to be a robust market, then at least it will be a normal market.”
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