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Wednesday, March 26, 2014

Freddie Mac: Mortgage Serious Delinquency rate declined in February, Lowest since February 2009

by Calculated Risk on 3/26/2014 10:27:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 2.29% from 2.34% in January. Freddie's rate is down from 3.15% in February 2013, and this is the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for February on Monday, March 31st.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.86 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2015. 

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2 years (mostly in judicial foreclosure states).

MBA: Mortgage Purchase Applications Increase, Refinance Applications Decrease

by Calculated Risk on 3/26/2014 07:01:00 AM

From the MBA: Purchase Applications Increase in Latest MBA Weekly Survey

Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 21, 2014. ...

The Refinance Index decreased 8 percent from the previous week, including an 8.1 percent decline in conventional refinance applications and a 5.8 percent decline in government refinance applications; the government refinance index dropped to the lowest level since July 2011. In contrast, the seasonally adjusted Purchase Index increased 3 percent from one week earlier, driven mainly by a 4.0 percent increase in conventional purchase applications....

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.56 percent, the highest level since January 2014, from 4.50 percent, with points increasing to 0.29 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.45 percent from 4.39 percent, with points increasing to 0.27 from 0.19 (including the origination fee) for 80 percent LTV loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 72% from the levels in May 2013.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 19% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Tuesday, March 25, 2014

Zillow: Case-Shiller House Price Index expected to show 12.8% year-over-year increase in February

by Calculated Risk on 3/25/2014 07:12:00 PM

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, the Durable Goods Orders for February from the Census Bureau. The consensus is for a 1.0% increase in durable goods orders.

The Case-Shiller house price indexes for January were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

It looks like the year-over-year change for Case-Shiller will continue to slow. From Zillow: Case-Shiller Forecast Showing Moderate Slowdown in February

The Case-Shiller data for January 2014 came out this morning, and based on this information and the February 2014 Zillow Home Value Index (ZHVI, released March 19) we predict that next month’s Case-Shiller data (February 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 12.8 and 13.1 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from January to February will be 0.6 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). ... Officially, the Case-Shiller Composite Home Price Indices for February will not be released until Tuesday, April 29.
The following table shows the Zillow forecast for the February Case-Shiller index.

Zillow February Forecast for Case-Shiller Index
 Case Shiller Composite 10Case Shiller Composite 20
NSASANSASA
Case Shiller
(year ago)
Feb 2013159.09162.52146.51149.81
Case-Shiller
(last month)
Jan 2013180.08182.6165.50168.03
Zillow ForecastYoY13.1%13.1%12.8%12.8%
MoM---0.6%---0.6%
Zillow Forecasts1 179.9183.7165.3169.0
Current Post Bubble Low 146.45149.69134.07136.92
Date of Post Bubble Low Mar-12Jan-12Mar-12Jan-12
Above Post Bubble Low 22.8%22.7%23.3%23.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

Comment on House Prices: Graphs, Real Prices, Price-to-Rent Ratio, Cities

by Calculated Risk on 3/25/2014 01:51:00 PM

S&P/Case-Shiller's website crashed this morning. For some reason people seem to care about house prices!

Here is the website and the monthly Home Price Indices for January ("January" is a 3 month average of November, December and January prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

Here is the press release from S&P: Pace of Home Price Gains Slow According to the S&P/Case-Shiller Home Price Indices

Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 19.5% from the peak, and up 0.8% in January (SA). The Composite 10 is up 21.9% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 18.7% from the peak, and up 0.8% (SA) in January. The Composite 20 is up 22.6% from the post-bubble low set in Jan 2012 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 13.5% compared to January 2013.

The Composite 20 SA is up 13.2% compared to January 2013.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in January seasonally adjusted.  (Prices increased in 7 of the 20 cities NSA) Prices in Las Vegas are off 44.8% from the peak, and prices in Dallas and Denver are at new highs (SA).

This was at the consensus forecast for a 13.3% YoY increase.

I've been hearing reports of a slowdown in house price increases (more than the usual seasonal slowdown), and perhaps this slowdown in price increases is finally showing up in the Case-Shiller index.  This makes sense since inventory is starting to increase.

According to Trulia chief economist Jed Kolko, asking price increases have slowed down recently, and Kolko expects that price slowdown will "hit Feb sales prices and get reported in April index releases".

It might take a few months, but I also expect to see smaller year-over-year price increases going forward.

I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (about 38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the quarterly Case-Shiller National Index SA (through Q4 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through January) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2004 levels (and also back up to Q3 2008), and the Case-Shiller Composite 20 Index (SA) is back to Oct 2004 levels, and the CoreLogic index (NSA) is back to August 2004.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q2 2001 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to May 2002.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q2 2001 levels, the Composite 20 index is back to Sept 2002 levels, and the CoreLogic index is back to Dec 2002.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

A comment on the New Home Sales report

by Calculated Risk on 3/25/2014 11:56:00 AM

Earlier: New Home Sales at 440,000 Annual Rate in February

The Census Bureau reported that new home sales in January and February combined were 68,000 not seasonally adjusted (NSA). This is the same as last year NSA - so there was no growth over the first two months of the year.

Weather probably played a small role in the lack of growth, but higher mortgage rates and higher prices probably were probably bigger factors.

Also this was a difficult comparison period. Sales in 2013 were up 16.8% from 2012, but sales in January and February 2013 were up over 28% from the same months of the previous year! The comparisons to last year will be easier in a few months - and I expect to see solid growth again this year.

On revisions: Although sales in January were revised down by 13 thousand, sales in November and December were revised up a combined 18 thousand - so overall revisions were positive.

Note: Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the 440 thousand sales rate in February.   So I expect the housing recovery to continue.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some more or move sideways (distressed sales will slowly decline and be partially offset by more conventional / equity sales).  And I expect this gap to close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.