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Is the Housing Market Transitioning to Stability?

Phil Hall
Jan 22, 2016
The latest wave of housing market data is pointing to an alignment of positive developments regarding home sales, loan closing times, rent spikes and foreclosure levels

The latest wave of housing market data is pointing to an alignment of positive developments regarding home sales, loan closing times, rent spikes and foreclosure levels. It may be premature to chill the champagne, if only because a few potholes remain in the road to full recovery, but only the most acute pessimist would not be cognizant of the mostly encouraging statistics.

Today’s news from the National Association of Realtors (NAR) is the most positive: existing-home sales soared 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November. Existing-home sales are now at a level that is 7.7 percent above the same period last year.

The percent share of first-time buyers was at 32 percent in December, up from 30 percent in November and 29 percent a year ago. Last month’s level of first-time buyers ties the record high set in August 2015. And there were fewer all-cash sales last month–24 percent of transactions, compared to 27 percent in November and 26 percent a year ago–and fewer distressed sales–eight percent in December, down from nine percent in November and 11 percent a year ago.

However, inventory levels remain challenging. NAR found the total housing inventory at the end of December dropped 12.3 percent to 1.79 million existing homes available for sale, and is now 3.8 percent lower than a year ago (1.86 million). Unsold inventory is at a 3.9-month supply at the current sales pace, a considerable slide from 5.1 months in November; December recorded the lowest unsold inventory rate since the 3.6 months recorded in January 2005.

And would-be homeowners in search of affordable options may not be encouraged to know that the median existing-home price hit $224,100 last month, up 7.6 percent from December 2014’s $208,200. Last month saw the 46th consecutive month of year-over-year gains in existing-home prices.

Another potential challenge in the housing market involved the closing times on home loans. NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Fla., credited the strong December sales numbers on mortgage and housing professionals being prepared for the new Know Before You Owe guidelines, but he added this could still be a problem.

“Our data is still showing longer closing timeframes, which is a reminder that the near-term challenges we anticipated are still prevalent,” he said. “NAR advised members to extend the time horizon on their purchase contracts to address this concern.”

On the subject of closing times, the latest Ellie Mae Origination Insight Report found that the average time to close a loan during December was 49 total days. Using a month-over-month measurement, Ellie Mae found the average time to close a refinance fell from 49 days to 47 days, while closing on purchase loans climbed one day to 50. The average time to close FHA and conventional loans remained largely unchanged on at 49 days, while VA loans increased from 50 to 52 days.

Furthermore, Ellie Mae found that the average FICO score on closed loans increased for the first time since May from 720 in November to 722 in December, while the average FHA refinance FICO score increased to 651, up from 648 in November.

“While our customers are certainly impacted by the Know Before You Owe changes, we’ve been providing them with resources, training and tutorials to help mitigate the effects,” said Jonathan Corr, president and CEO of Ellie Mae. “And while the time to close loans remained consistent from November, the 49-day cycle is still a week longer than the time to close at this same time last year.”

On the rental side of the housing world, Zillow is forecasting that rent appreciation will slow to an annual rate of 1.1 percent by December. The Zillow Rent Index is projecting a national median rent of $1,396 by the end of this year, up very slightly from $1,381 in December 2015.

Zillow is also predicting a dramatic rental appreciation slow down in the extremely expensive San Francisco market, which saw 12.5 percent appreciation in 2015. For this year, Zillow forecasts rent in San Francisco will grow by 5.9 percent.

But–and this is a major caveat–Zillow is not forecasting any serious rent depreciations in markets where affordable housing options remain elusive.

"Hot markets are still going to be hot in 2016, but rents won't rise as quickly as they have been," said Zillow Chief Economist Svenja Gudell. "The slowdown in rental appreciation will provide some relief for renters who've been seeing their rents rise dramatically every single year for the past few years. However, the situation remains tough on the ground: rents are still rising and renters are struggling to keep up."

Also on the subject of financial struggle, Black Knight Financial Services (BKFS) is reporting that 2015 concluded with a 22 percent improvement in national foreclosure inventory, including a 15 percent drop in the number of delinquencies. Last month saw the total U.S. loan delinquency rate at 4.78 percent, down 2.99 from November and down 14.98 percent from December 2014.

The total U.S. foreclosure pre-sale inventory rate in December was 1.37 percent, a one percent decline from November but a whopping 21.85 percent slide from last year. There were 78,100 foreclosure starts in December, up 17.27 percent from November but down 14.64 percent from a year earlier.

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