by Calculated Risk on 4/23/2014 07:01:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 18, 2014. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.49 percent from 4.47 percent, with points increasing to 0.50 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 74% from the levels in May 2013 (almost one year ago).

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


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 18% 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.

by Calculated Risk on 4/22/2014 08:35:00 PM

From Catherine Rampell at the WaPo: Americans think owning a home is better for them than it is

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

Yet Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset.

First, as I've pointed out several times, Shiller used several estimates for changes in house prices. As an example, for the decade prior to 1987 (when the Case-Shiller index started), Shiller used the FHFA index.  However this index was for a small percentage of loans. If he had used CoreLogic instead, the real return over the period Rampell analyzed would have been closer to 1.5% (much higher than 0.3%).

Second, Rampell assumes the buyer paid cash - a much better model would have assumed 10% down, and would have had the buyer refinance every few years as mortgage rates declined. This also means there would be far less invested in the S&P500 than Rampell assumed.

Third, a young person might be happy with a $400 apartment in 1982, but I doubt they'd want to live in the equivalent apartment for 30+ years (marriage, raise kids, etc.).  The model should assume a move-up buyer and renter at certain points.

I'm confident a more complicated  and thorough model would produce the opposite result over the period in question.

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

• At 10:00 AM, the New Home Sales report for March from the Census Bureau. The consensus is for an in increase in sales to 455 thousand Seasonally Adjusted Annual Rate (SAAR) in March from 440 thousand in February

• During the day, the AIA's Architecture Billings Index for March (a leading indicator for commercial real estate).

by Calculated Risk on 4/22/2014 02:40:00 PM

Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in March. Lawler writes: "Note the increase in the foreclosure sales share in Florida."

From CR:   The decline in "distressed" share was one of the positives I mentioned in the previous post.  Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.

Foreclosures are down in most of these areas too, although foreclosures are up in the mid-Atlantic area and Florida (judicial foreclosure) - and a little in Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year).

The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline.  Toledo, Des Moines and Wichita's cash share is up.  The cash share in Florida is still very high.

In general it appears the housing market is slowly moving back to normal.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Mar-14	Mar-13	Mar-14	Mar-13	Mar-14	Mar-13	Mar-14	Mar-13
Las Vegas	12.9%	33.3%	11.7%	11.2%	24.6%	44.5%	43.1%	57.5%
Reno**	14.0%	32.0%	7.0%	9.0%	21.0%	41.0%
Phoenix	5.1%	15.1%	6.9%	11.6%	11.9%	26.8%	33.1%	41.5%
Sacramento	8.2%	27.0%	7.9%	10.5%	16.1%	37.5%	22.5%	36.5%
Minneapolis	4.7%	9.3%	21.9%	28.3%	26.6%	37.6%
Mid-Atlantic	6.4%	11.4%	10.9%	10.7%	17.3%	22.1%	19.9%	20.6%
Orlando	7.9%	21.7%	23.7%	21.4%	31.6%	43.0%	44.6%	55.6%
California *	7.4%	17.0%	7.4%	15.0%	14.8%	32.0%
Bay Area CA*	5.0%	15.0%	4.5%	10.2%	9.5%	25.2%	25.0%	31.0%
So. California*	7.7%	18.7%	6.4%	13.8%	14.1%	32.5%	29.1%	35.1%
Lee County, FL**	4.0%	11.3%	15.5%	11.9%	19.5%	23.2%
Florida SF	6.9%	15.9%	21.6%	16.3%	28.5%	32.3%	45.5%	48.3%
Florida C/TH	4.5%	11.4%	15.9%	14.2%	20.4%	25.6%	70.9%	74.9%
Hampton Roads					24.5%	28.4%
Northeast Florida					39.1%	40.2%
Toledo							40.7%	38.9%
Wichita							32.0%	27.9%
Des Moines							20.8%	19.1%
Tucson							33.5%	35.0%
Omaha							20.3%	22.1%
Pensacola							35.7%	35.9%
Georgia***							33.8%	NA
Pensacola							35.7%	35.9%
Georgia***							33.8%	NA
Houston			6.8%	12.3%
Memphis*			18.5%	26.7%
Springfield IL**			14.0%	26.1%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 4/22/2014 01:35:00 PM

A decline in existing home sales doesn't mean the housing recovery is over.  Far from it!  For existing home sales we need to look at the composition of sales (distressed vs. conventional), and the percent of conventional sales are increasing (even as investor buying has slowed too). That is a positive sign.

For the "housing recovery", we need to look more at housing starts and new home sales (housing starts and new home sales have a larger impact on GDP and employment than existing home sales). Both starts and new home sales are off to a slow start in 2014 compared to 2013, but I expect new home sales and starts to be up solidly year-over-year soon (there was a surge in starts at the beginning of 2013, and the comparisons will be easier going forward).

There are many positives for housing right now: 1) distressed sales are down sharply year-over-year, 2) delinquencies are down sharply, 3) inventory is up (this is a positive right now because there is too little inventory), 4) negative equity has declined significantly.   Overall the housing market is improving. 

Probably the most important number in the NAR existing home sales report is inventory.   This morning the NAR reported that inventory was up 3.1% year-over-year in March.   This is a smaller increase than other sources suggest, and it is important to note that the NAR inventory data is "noisy" (and difficult to forecast based on other data).  A few other points:

• The headline NAR inventory number is NOT seasonally adjusted (and there is a clear seasonal pattern).
• Inventory is still very low, and with the low level of inventory, there is still upward pressure on prices.
• I expect inventory to increase in 2014, and I expect the year-over-year increase to be in the 10% to 15% range by the end of 2014.
• However, if inventory doesn't increase, prices will probably increase a little faster than expected (a key reason to watch inventory right now).

Click on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 5.8% from the bottom. On a seasonally adjusted basis, inventory was up in March compared to February.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were down 7.5% from March 2013, but normal equity sales were probably up from March 2013, and distressed sales down.  The NAR reported that 14% of sales were distressed in March (from a survey that isn't perfect):

Ten percent of March sales were foreclosures, and 4 percent were short sales.

Last year the NAR reported that 21% of sales were distressed sales.

A rough estimate: Sales in March 2013 were reported at 4.96 million SAAR with 21% distressed.  That gives 1.04 million distressed (annual rate), and 3.92 million equity (conventional).  In March 2014, sales were 4.59 million SAAR, with 14% distressed.  That gives 0.64 million distressed, and 3.95 million conventional.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up slightly (even with less investor buying). 

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in March (red column) were above the sales for March 2011, and below sales for 2010, 2012 and 2013. 

Overall this report was as expected (fewer distressed sales pulling down overall sales).

Earlier:
• Existing Home Sales in March: 4.59 million SAAR, Inventory up 3.1% Year-over-year

by Calculated Risk on 4/22/2014 10:00:00 AM

The NAR reports: Existing-Home Sales Remain Soft in March

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 0.2 percent to a seasonally adjusted annual rate of 4.59 million in March from 4.60 million in February, and are 7.5 percent below the 4.96 million-unit pace in March 2013. Last month’s sales volume remained the slowest since July 2012, when it was 4.59 million.

Total housing inventory at the end of March rose 4.7 percent to 1.99 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 5.0 months in February. Unsold inventory is 3.1 percent above a year ago, when there was a 4.7-month supply.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in March (4.59 million SAAR) were slightly lower than last month, and were 7.5% below the March 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.99 million in March from 1.90 million in February.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 3.1% year-over-year in March compared to March 2013.   This year-over-year increase in inventory suggests inventory bottomed early last year.

Months of supply was at 5.2 months in March.

This was slightly above expectations of sales of 4.56 million.  For existing home sales, the key number is inventory - and the key story is inventory is still low, but up year-over-year.    I'll have more later ...