A Day in the Life of the Housing Market – NMP Skip to main content

A Day in the Life of the Housing Market

Phil Hall
Aug 30, 2016
There was a surplus of new housing and mortgage data unveiled this morning, and the composite picture showed a market that was mostly heavy, albeit with more than a few frayed patches across its landscape

There was a surplus of new housing and mortgage data unveiled this morning, and the composite picture showed a market that was mostly heavy, albeit with more than a few frayed patches across its landscape.

On a big picture level, the latest S&P CoreLogic Case-Shiller Indices saw a continuation of rising home prices, albeit with most of the dramatic upward movement centered on a regional basis. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a 5.1 percent annual gain in June, unchanged from May, while the 10-City Composite posted a 4.3 percent annual increase that was slightly weaker than the 4.4 percent in the previous month and the 20-City Composite saw a year-over-year gain of 5.1 percent that was less than the 5.3 percent level in May.

Six cities reported greater price increases in the year ending June versus the year ending May, with the greatest year over year gains in Portland (12.6 percent) Seattle (11 percent) and Denver (9.2 percent). David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, observed that the greatest thrust in home price appreciation was primarily due to regional markets.

“Home prices continued to rise across the country led by the west and the south,” said Blitzer. “In the strongest region, the Pacific Northwest, prices are rising at more than 10 percent; in the slower Northeast, prices are climbing a bit faster than inflation. Nationally, home prices have risen at a consistent 4.8 percent annual pace over the last two years without showing any signs of slowing.”

Two other data reports detailed regional strengths and weaknesses in housing. WalletHub’s listing of the best real estate markets—which compared 300 cities using measurements ranging from affordability to job growth—found six Texas cities in its top 10 including Frisco (in first), McKinney (in second) and Richardson (in third). Colorado had two cities in the top 10, with eighth place Thornton and tenth place Arvada. At the other end of the spectrum, New Jersey had three cities among the bottom feeders as worst real estate markets, with last-place Newark, second-to-last Paterson, and fourth-to-last Elizabeth. Connecticut had two cities in the bottom 10 with eighth-to-last Hartford and ninth-to-last Waterbury.

WalletHub also found considerable differences between West and East Coasts in terms of negative equity (San Mateo, Calif., had the lowest percentage at 1.9 percent while Hartford had the highest with 51.2 percent), the average number of days of having a house on the market (Berkeley, Calif., had the lowest with 38, Paterson, N.J., had the highest with 186) and vacancy rates (Simi Valley, Calif., had the lowest at 2.40 percent while Miami Beach had the highest with 36.17 percent).

Separately, HSH.com offered a "Home Price Recovery Index" that determined which housing markets have fully recovered and which still lag behind the housing recovery. Measuring the time period from the first quarter of 1991 through the second quarter of this year, HSH.com cited the Denver metro area as having the most muscular recovery, with five Texas metro markets (Austin, Dallas, Houston, Fort Worth-Arlington and San Antonio) in the top 10 of fully recovered markets. Las Vegas lagged behind the rest of the nation as the least recovered market, registering 44.46 percent below its peak value.

Much of the strength in the housing market can be attributed to the continued evaporation of distressed sales. CoreLogic reported that distressed sales accounted for 8.4 percent of residential property transactions in May, down one percent from April and down 2.1 percent from one year earlier. Sliced down further, REO sales accounted for 5.4 percent and short sales accounted for three percent of May’s total home sales.

However, eight states had higher distressed sales shares on a year-over-year measurement, most dramatically Maryland (19.4 percent), Connecticut (18.5 percent), Michigan (17.8 percent), Illinois (16 percent) and Florida (15.8 percent). On a metro level, Maryland’s Baltimore-Columbia-Towson corridor had the largest share of distressed sales at 19.2 percent, followed by Illinois’ Chicago-Naperville-Arlington Heights metro market. (18.1 percent), Florida’s Tampa-St. Petersburg-Clearwater market, (17.3 percent), Florida’ Orlando-Kissimmee-Sanford market (16.4 percent) and the St Louis metro area (13.6 percent).

The seemingly endless continuation of very low interest rates clearly played a factor in the housing market’s vitality. The Federal Housing Finance Agency (FHFA) reported that the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders Index was 3.62 percent for loans closed in late July, a drop from the 3.69 percent level in June. The average interest rate on all mortgage loans last month was 3.63 percent, compared to a 3.70 percent reading in June.

The FHFA also noted that the average interest rate on conventional, 30-year, fixed-rate mortgages of $417,000 or less was 3.80 percent, down from 3.88 percent in June, while the effective interest rate on all mortgage loans was 3.77 percent in July, compared to 3.83 percent in June.  The average loan amount was also on the decline: $325,700 in July, down $8,200 from $333,900 in June.

As for the mortgage industry, life appears to be copacetic. The Mortgage Bankers Association’s (MBA) latest Quarterly Mortgage Bankers Performance Report found that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,686 on each loan they originated in the second quarter of this year, up from a reported gain of $825 per loan in the first quarter. Average production volume during the second quarter was $654 million per company, up from $517 million per company in the first quarter, while the volume by count per company averaged 2,721 loans in the second quarter, up from 2,196 loans in the first quarter.

Furthermore, the average pre-tax production profit was 73 basis points (bps) in the second quarter, a significant increase from the 33 bps recorded one quarter earlier; one year earlier, production profits were 67 bps. And the purchase share of total originations by dollar volume was 66 percent in the second quarter, up from 61 percent in the first quarter; for the mortgage industry as a whole, MBA estimated the purchase share at 54 percent in the second quarter. 

“Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015,” said Marina Walsh, MBA’s vice president of industry analysis. “Mortgage lenders also benefited from higher loan balances that reached a series-high of $245,394 and drove production revenue to a series-high of $8,807 per loan. With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization. Nonetheless, the profitability on the production side of the business generally outweighed servicing losses. Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73 percent in the first quarter of 2016.” 

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