Housing Prices Are Rising But Mortgage Loans Hit 16-Year Low

Housing Prices Are Rising But Mortgage Loans Hit 16-Year Low

Posted on 09. Nov, 2012 by in Business

Is now a good time to buy a house? Yes, if you’re able to do so. For the third month in a row the price of the average house in most regions of the country moved higher, albeit not by an impressive amount. When it comes to the number of home sales, the picture didn’t look so bright last month. Sales of new single-family homes fell 0.3% in August to an annual rate of 373,000, the Commerce Department said on Wednesday, September 19th. The pace of sales last month was less than what most analysts had expected. Economists polled by Reuters predicted sales of 380,000. July sales were revised higher to 374,000 units from 372,000 units — the fastest pace since August 2010.

CoreLogic chief economist Mark Fleming was interviewed at the end of September by The Daily Ticker to discuss the housing numbers as well as to try to put them in perspective. His interview speaks to the hope that housing prices have hit a bottom. Although the August figures are down slightly from the previous month, “we expect sales, new and existing, to slow down as we head into the off season at this time of the year,” Fleming mentioned.

New homes sales are up nearly 30% from a year ago. But there is a “shadow inventory” that isn’t being released all at once. Plus he mentioned that there are a large number of homeowners who want to sell but can’t because their homes are worth less than they owe on it.

Meanwhile, U.S. home prices continue to rise. In July, home prices rose 1.6% following a 2.3% increase the month before, according to the latest S&P Case-Shiller data reported Tuesday September 25th. The reported data through July 2012, released by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed average home prices increased by 1.5% for the 10-City Composite and by 1.6% for the 20-City Composite in July versus June 2012.

For the third consecutive month, all 20 cities and both Composites recorded positive monthly changes. It would have been a fourth had prices not fallen by 0.6% in Detroit back in April. That may seem like great news for renters who want to buy, but there’s a hidden anomaly lurking like a salt-water crocodile just beneath the surface of all this so-called “good news.” The Federal Financial Institutions Examination Council, a federal government agency, recently reported that mortgage lending has declined to its lowest level in 16 years in 2011. This was partly because of weak demand but also due to tighter lending standards.

They reported that banks funded a little more than 7 million mortgages in 2011, down 10% from the previous year, and, was the lowest number of mortgages originated since banks issued 6.2 million mortgages way back in 1995.
If you wonder why the Federal Reserve is doing such an unprecedented massive amount of “Quantitative Easing,” commonly called QE3, it was partly because they analyzed data submitted by more than 7,600 lenders under the Home Mortgage Disclosure Act.

What they discovered was that loans for buying houses fell by 5% in 2011 and were 64% below the level of 2006 when the housing bubble hit its zenith. Refinances fell by 13% in 2011 from 2010, but did recover at the end of 2011 when the average 30-year fixed rate mortgage fell below 4%. As of the week ending September 21, 2012 the average 30-year fixed rate mortgage fell to 3.4%. I’ve anticipated in past articles that the Federal Reserve had begun to ease liquidity by pumping more money into the credit markets to spur more lending. Then they announced on Sept.20th that they would begin buying $40 billion in mortgage-backed securities each month in an effort to reduce interest rates and make mortgages more affordable.

Because of the very tight credit standards, “the impact of lower mortgage rates on housing is probably less powerful than normal,” said William Dudley, president of the Federal Reserve Bank of New York in a speech he gave a few days before Dr. Bernanke’s surprising announcement. The good news about rising home prices is offset by “the difficulties of households with lower credit scores in obtaining mortgage credit warrants ongoing attention,” Mr. Dudley made ominously clear.

For property managers it means the supply of residents who can only qualify to rent homes and apartments will continue to rise for the foreseeable future. Let your owners and best clients know that the inventory of rental properties is low in many areas, and now may be an auspicious time to buy more rental homes. There are more families than you might realize who’ll need a home to rent in the year ahead.

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