by Calculated Risk on 7/11/2012 07:42:00 AM

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

The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. ... This week’s results include an adjustment for the Fourth of July holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.79 percent, the lowest rate in the history of the survey, from 3.86 percent, with points decreasing to 0.36 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The decline in refinance activity was from a very high level.

The purchase index has increased for two consecutive weeks, but is mostly moving sideways.

by Calculated Risk on 7/10/2012 09:31:00 PM

On Wednesday the focus will be on the May trade balance report and the minutes of the June FOMC meeting:

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

• At 8:30 AM, the Trade Balance report for May is scheduled to be released by the Census Bureau. The consensus is for the U.S. trade deficit to decrease to $48.7 billion in May, down from from $50.1 billion in April. Export activity to Europe will be closely watched due to economic weakness. Also oil prices started to decline in April, and that will probably reduce the value of oil imports in May.

• At 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories report for May will be released. The consensus is for a 0.3% increase in inventories.

• At 2:00 PM, the FOMC Minutes for the Meeting of June 19-20 will be released.


A question for the July economic contest:

by Calculated Risk on 7/10/2012 07:05:00 PM

Note: A couple of years ago I started watching several distressed markets very closely for a shift in the mix. We are now seeing a shift, although it is still early in the process ...

I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

So far there has been a shift from REO to short sales, and the percentage of distressed sales has been declining year-over-year. This data would suggest some improvement although there are still more distressed sales to come.

In June 2012, 54.2% of all resales (single family homes and condos) were distressed sales. This was down from 58.3% last month, and down from 65.2% in June 2011. This is lowest level since the Sacramento Realtors started tracking distressed sales, but 54% distressed is still extremely high!

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales. There is a seasonal pattern for conventional sales (stronger in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales decreases every summer and the increases in the fall and winter.

There has been a sharp increase in conventional sales, and there were more short sales than REO sales in June for the third consecutive month.

Total sales were down 0.8% compared to June 2011, but conventional sales were up 30% year-over-year. Active Listing Inventory for single family homes declined 65.5% from last June, and total inventory, including "short sale contingent", was off 39% year-over-year.

Cash buyers accounted for 33.4% of all sales (frequently investors), and median prices were up 3.2% from last June.

This appears to be a little more progress, although the market is still in distress - and the full impact of the mortgage settlement is still unknown.

We are seeing similar patterns in other distressed areas.

by Calculated Risk on 7/10/2012 05:01:00 PM

First a few excerpts from this article by Diana Olick at CNBC: When Foreclosure Supplies Fall, the Bottom Falls Out of Housing

While foreclosures brought home prices down initially, they are now driving them up because there is so much demand from investors and first time buyers, looking for bargains. Supplies of these cheap homes are also dwindling, because banks are still working to modify many troubled loans, and states that require a judge in the foreclosure process are still facing a huge backlog.
...
This new lack of distressed supply may lead to what housing analyst Mark Hanson calls, “an investor gut check.” He sees early results that sales volume in many of the markets that were deemed to be “recovering” are actually falling.

“First is the artificial lack of distressed supply, which is the market in all of the miracle 'recovery' regions. As I have pounded the table over for years ... 'investors and first timers are thin and volatile cohorts that have been known to up and leave markets in a matter of a month or two leading to a demand collapse'. But equally responsible are Zombie Homeowners; those without enough equity to pay a Realtor 6 percent and put 20 percent down on a new house and/or good enough credit or strong enough income to secure a new mortgage loan,” writes Hanson.

Hanson calls the lack of distressed supply “artificial” because he believes banks are holding back some distressed inventory and/or that many of the loan modifications being worked out will inevitably fail. He points out that distressed supply is vital to a market like Phoenix, because 66 percent of its current borrowers owe more on their mortgages than their homes are currently worth, and are therefore stuck in place, unable to buy or sell.

“Without repeat buyers in the market leaving a unit of supply when they move up, laterally or down (in the case of empty nesters), supply is simply removed from the market and not replaced,” notes Hanson.

Look at the headline "When Foreclosure Supplies Fall, the Bottom Falls Out of Housing". Really? I think we need to define "housing" and what a "housing recovery" looks like.

When I think of "housing", I think of 1) residential investment, especially housing starts and new home sales, and 2) house prices for existing homes. When the supply falls - especially foreclosure supply - I'd expect there to be less downward pressure on house prices, and also more opportunity for new home sales. That is what we are seeing.

So what does the headline mean? A decline in existing home sales? Yes, sales have declined year-over-year in some distressed markets (like Phoenix and Las Vegas), but that is not bad news. As I've pointed out before, those looking at the number of existing home sales to judge a "housing recovery" are looking in the wrong place.

Mark Hanson makes some interesting points, and this raises the question again of why supply has fallen so sharply. There are probably several reasons for the decline in supply: 1) negative equity keeps people from selling (and buying as Hanson notes), 2) banks aren't foreclosing quickly and are focusing more on modifications and short sales, 3) cash-flow investors have purchased a substantial number of houses, especially at the low end, and they will not be sellers for some time, and 4) seller price expectations (when sellers expect prices to stabilize, they no longer rush to sell).

For these reasons (and probably others), there is less supply. And this in turn might lead to fewer sales since investors and first time buyers are focused on the low end of the market (I also expect sales to decline from record levels in areas like Las Vegas). But lower existing home sales doesn't mean the "bottom falls out of housing". Actually it could mean the housing market is improving!

To look for a "housing recovery", we need to focus on residential investment (new home sales and housing starts) and existing home prices. Lower supply is a positive for both.

by Calculated Risk on 7/10/2012 12:37:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the March Case-Shiller report, were off 61.1% from the peak, and off 5.8% over the last year.

Sales in 2011 were at record levels - even more than during the bubble - and it looks like 2012 might be an even stronger year, even with some new rules that slow the foreclosure process.

From the GLVAR: GLVAR reports local home prices up for fifth straight month, while local housing supply continues to shrink

According to GLVAR, the total number of local homes, condominiums and townhomes sold in June was 3,945. That’s down from 4,134 in May and down from 4,540 total sales in June 2011.

Even with fewer sales last month and fewer homes listed for sale each month this year, [GLVAR President Kolleen] Kelley said existing home sales are ahead of the record pace set in 2011, when GLVAR reported 48,186 existing properties were sold in Southern Nevada.

The total number of homes listed for sale on GLVAR’s Multiple Listing Service again decreased from May to June, with a total of 16,930 single-family homes listed for sale at the end of the month. That’s down 2.4 percent from 17,346 single-family homes listed for sale at the end of May and down 25.4 percent from one year ago. GLVAR reported a total of 3,713 condos and townhomes listed for sale on its MLS at the end of June. That’s down 0.4 percent from 3,728 condos and townhomes listed for sale on its MLS at the end of May, and down 29.2 percent from one year ago.
...
By the end of June, GLVAR reported 3,690 single-family homes listed without any sort of offer. That’s down 2.9 percent from 3,800 such homes listed in May and down 67.5 percent from one year ago. For condos and townhomes, the 1,083 properties listed without offers in June represented a 2.4 percent increase from 1,058 such properties listed without offers in May and a decrease of 59.2 percent from one year ago. ...
34.2 percent of all existing local homes sold during June were short sales, which occur when a lender agrees to sell a home for less than what the borrower owes on the mortgage.

Bank-owned homes accounted for 27.8 percent of all existing home sales in June, down from 32.6 percent in May.

“Since banks have been encouraging short sales and doing fewer foreclosures, short sales have finally surpassed (the sale of) foreclosures,” Kelley said.

Inventory continues to decline (down 67.5% year-over-year for single family homes) and sales are slowing, but still on pace for a record year.

The percent distressed sales was extremely high at 62% in June (short sales and foreclosures), but that was down from 67.3% in May. Some of this decline was due to the new foreclosure rules in Nevada.

It is important to understand that sales in these highly distressed markets will probably decline as the percent of distressed sales declined (sales are at record levels in Las Vegas - even above the bubble pace!). The key is to watch inventory (listed inventory is down 25.4% from a year ago, and non-contingent inventory is down 67.5%) and to watch the number of conventional sales.