by Calculated Risk on 4/26/2012 09:17:00 PM

Mortgage broker Soylent Green is People sent me an example today of private money coming back into the mortgage market:

Second mortgage purchase mortgage lending above 80% loan to value has begun to creep back into the market. Prudent Underwriting standards and deep risk analysis have convinced some private money to come back into the housing finance market of late. We’ve added an 80 / 10 / 10 product recently that has no Private Mortgage Insurance.

700 FICO minimum.

SFD, and Condos - providing that the project has 75% Owner Occupancy ratios

90% CLTV to $750,000

Interest Only minimum payment HELOC, Prime + 1.99%. No prepayment penalty.

Qualifying at index, margin, plus .125, fully amortized.

45% Absolute debt to income ratio maximum.

Let’s take a $333,400 priced home. Most FHA buyers will put less down, but for comparison purposes assume a 10 percent down payment. An FHA 30 fixed borrower pays 1.75% for the FHA Up Front Mortgage Insurance Premium PLUS 1.20% per year in Mortgage Insurance. Assuming a 3.75% rate and a $300,000 balance, the payment plus MI runs $1,690. A similarly structured Conventional Conforming loan at 3.875% runs $1,532 An 80/10/10 combined payment comes in at $1,437, principal and interest.

That’s quite a payment spread for the typical home buyer to choose from. As more of these risk tolerant companies enter the market, the share of FHA loans will finally diminish.

CR note: As I mentioned yesterday, when house prices stop falling, private lenders will become more confident and reenter the market. This is just the beginning.

Some expanded prudent private lending makes sense, but we never want to see Alt-A and stated income loans again!

by Calculated Risk on 4/26/2012 07:17:00 PM

For those entering the monthly contest ...



From MarketWatch: Q1 GDP report to show economy 'plugging along'

Economists polled by MarketWatch expect a 2.7% growth rate in the first quarter, slightly slower than the 3.0% rate in the fourth quarter.

There was a wide range of forecasts, from just above a 2% growth rate up to a 3.2%.

Bloomberg is showing the consensus at 2.5%.

by Calculated Risk on 4/26/2012 03:16:00 PM

From economist Tom Lawler:

The Ryland Group, the 8th largest US home builder in 2010, reported that net home orders (including discontinued operations) in the quarter ended March 31st totaled 1,357, up 40.5% from the comparable quarter of 2011. The company’s sales cancellation rate, expressed as a % of gross orders, was 18.0% last quarter, down from 18.2% year ago. Home closings totaled 848 last quarter, up 23.3% from the comparable quarter of 2011. The company’s order backlog on 3/31/12 totaled 2,023, up 38.1% from last March. Ryland noted that sales incentives and price concessions totaled 10.9% last quarter, down from 11.7% a year ago.

PulteGroup, the 2nd largest US home builder in 2010, reported that net home orders in the quarter ended March 31st totaled 4,991, up 14.9% from the comparable quarter of 2011. The sales gain came despite a 6% decline in community count. The company’s sales cancellation rate, expressed as a % of gross orders, was 15% last quarter, down form 16% a year ago. Home closings last quarter totaled 3,117, down 0.8% from the comparable quarter of 2011. The company’s order backlog on 3/31/12 totaled 5,798, up 11.8% from last March. Pulte noted that while “(w)e are only one quarter into the year, but the start has exceeded our internal estimates and has us cautiously optimistic that housing demand may have reached a positive inflection point."

Meritage Homes, the 10th largest US home builder in 2010, reported that net home orders in the quarter ended March 31st totaled 1,144, up 36.2% from the comparable quarter of 2011. Home closings last quarter totaled 759, up 11.9% from the comparable quarter of 2011. The company’s order backlog as of 3/31/12 totaled 1,300, up 38.3% from last March. Meritage noted that “(o)ur spring selling season got off to a strong start, as evidenced by our 36% increase in sales in the first quarter,” and that “(a)s demand has strengthened, we've begun to raise prices in most of our communities this year.”

M/I Homes, the 15th largest US home builder in 2010, reported that net home orders in the quarter ended March 31st totaled 764, up 16.8% from the comparable quarter of 2011. The company’s sales cancellation rate, expressed as a % of gross orders, was 14% last quarter, down from 16% a year ago. Home closings last quarter totaled 507, up 15.5% from the comparable quarter of 2011. The company’s order backlog on 3/31/12 totaled 933, up 24.9% from last March. M/I noted that “(o)ur first quarter results reflect what we believe to be slowly improving housing condition.”

All of the publicly-traded builders who have reported results for the quarter ended 3/31/12 so have shown YOY increases in average home sales prices, though in many cases this reflected a change in the mix of homes sold as opposed to overall price increases. By the same token, however, pricing vs. a year ago appears to have been pretty stable, and there appears to have been less price discounting.

Below is a summary of selected stats for the six publicly-traded builders who have released results for the quarter ended in March.

	Settlements			Net Orders			Backlog
	3/2012	3/2011	3/2010	3/2012	3/2011	3/2010	3/2012	3/2011	3/2010
D.R. Horton	4,240	3,516	4,260	5,899	4,943	6,438	6,189	5,281	6,314
NVR	1,924	1,634	1,919	3,157	2,403	2,940	4,909	3,685	4,552
PulteGroup	3,117	3,141	3,795	4,991	4,345	4,320	5,798	5,188	6,456
The Ryland Group	848	688	984	1,357	966	1,167	2,023	1,465	1,915
Meritage Homes	759	678	808	1,144	840	1,064	1,300	940	1,351
M/I Homes	507	439	475	764	654	765	933	747	936
Total	11,395	10,096	12,241	17,312	14,151	16,694	21,152	17,306	21,524
YOY % change	12.9%	-17.5%		22.3%	-15.2%		22.2%	-19.6%

On Tuesday the Commerce Department estimated that new SF home sales last quarter were up 16% (not seasonally adjusted) from the comparable quarter of last year. Recently, of course, there has been a pattern of upward revisions to preliminary, and historically during improving markets such revisions are commonplace (and in declining markets, downward revisions are common). I’d bet that when the April new home sales report is released, March’s sales estimate will be revised higher.

CR note: Net orders are above Q1 2010 too when sales average a 358,000 seasonally adjusted annual rate. There has been some consolidation, and cancellations are down, but I think Tom is correct about coming upward revisions.

by Calculated Risk on 4/26/2012 01:07:00 PM

From the National Multi Housing Council (NMHC): Market Conditions Improve For Apartment Industry

Optimism continues for the apartment industry, according to the latest results of the National Multi Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The findings reflect a gradual recovery for the multifamily sector that faced a 50-year low in apartment starts in 2009.

The Q1 2012 survey’s four indexes measuring Market Tightness (74), Sales Volume (57), Equity Financing (62) and Debt Financing (65) remained above 50 for the eighth time in the past nine quarters. Any number above 50 indicates quarter-to-quarter growth.

"Market conditions improved across the board, even from the rather strong level of three months ago,” said NMHC Chief Economist Mark Obrinsky. “Demand for apartment residences – and apartment properties – continues to grow. We anticipate this increasing further in the coming years due in part to the large number of younger households moving into the housing market and a greater preference shown for renting.”
...
The Market Tightness Index increased to 74 from 60. Nearly half (49 percent) reported tighter markets – reflecting lower vacancy rates and/or higher rents – compared to only one percent reporting looser markets.

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last nine quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q1 2012 to 4.9%, down from 5.2% in Q4 2011, and 9.0% at the end of 2009. This is the lowest vacancy rate in the Reis survey in over 10 years.

This survey indicates demand for apartments is still strong. And even though multifamily starts increased in 2011, completions of apartments were near record lows - so supply was constrained. There will be more completions in 2012, but it looks like another strong year for the apartment industry.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) early in 2010.

by Calculated Risk on 4/26/2012 11:20:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Eased Further but Activity Remained Expansionary

“Factories in our region report continued growth, especially in employment, but at somewhat slower rates than in previous months, when unseasonably warm weather may have helped boost activity” said Wilkerson. “Expectations for the rest of the year notched down a bit as well, but remained positive.”

Growth in Tenth District manufacturing eased further in April, but activity remained expansionary and well above year-ago levels. The majority of producers reported some negative effects from elevated gasoline prices, and nearly half of all respondents noted difficulties finding workers. Price indexes were mixed, with slight easing in some materials price indexes and fewer producers planning to raise selling prices.

The month-over-month composite index was 3 in April, down from 9 in March and 13 in February ... However, the employment index jumped from 23 to 31 – its highest level since early 2007.

Most of the regional surveys were weaker in April, but they also showed an increase in employment.

From Freddie Mac: Fixed Mortgage Rates Hold Near Record Lows

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates down slightly and hovering just above their record lows as markets waited for the Federal Reserve's monetary policy announcement. The 30-year fixed-rate mortgage averaged 3.88 percent and has been below 4 percent all but one week in 2012. The 15-year fixed, a popular refinancing choice, averaged 3.12 percent.

30-year fixed-rate mortgage (FRM) averaged 3.88 percent with an average 0.7 point for the week ending April 26, 2012, down from last week when it averaged 3.90 percent. Last year at this time, the 30-year FRM averaged 4.78 percent.

From Radar Logic: Home Prices Strengthened Considerably in February, But the Strength May Not Last

According to the February 2012 RPX Monthly Housing Market Report released today by Radar Logic Incorporated, the RPX Composite price, which tracks home prices in 25 major US metropolitan areas, increased 1.9 percent over the month ending February 16, 2012.

Notwithstanding the strength exhibited by home prices in February, the RPX Composite price was 3.18 percent lower than it was in February 2011. Transaction activity in the 25 MSAs increased 16 percent on a year-over-year basis. ... Investment buying and mild weather likely contributed to the strength in the housing market during February. Unfortunately, the positive impact of both these factors will probably be temporary.

The Radar Logic report includes a graph of future prices that suggests investors think prices will bottom in early 2013.

by Calculated Risk on 4/26/2012 10:00:00 AM

From the NAR: March Pending Home Sales Rise, Market Recovering

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1 percent to 101.4 in March from an upwardly revised 97.4 in February and is 12.8 percent above March 2011 when it was 89.9. The data reflects contracts but not closings.

The index is now at the highest level since April 2010 when it reached 111.3.
...
The PHSI in the Northeast slipped 0.8 percent to 78.2 in March but is 21.1 percent above March 2011. In the Midwest the index declined 0.9 percent to 93.3 but is 16.9 percent higher than a year ago. Pending home sales in the South rose 5.9 percent to an index of 114.1 in March and are 10.6 percent above March 2011. In the West the index increased 8.7 percent in March to 108.0 and is 9.0 percent above a year ago.

This was above the consensus of a 1.0% increase for this index.

Contract signings usually lead sales by about 45 to 60 days, so this is for sales in April and May.

by Calculated Risk on 4/26/2012 08:30:00 AM

The DOL reports:

In the week ending April 21, the advance figure for seasonally adjusted initial claims was 388,000, a decrease of 1,000 from the previous week's revised figure of 389,000. The 4-week moving average was 381,750, an increase of 6,250 from the previous week's revised average of 375,500.

The previous week was revised up to 389,000 from 386,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 381,750.

This is the highest level for the 4-week moving average this year.

And here is a long term graph of weekly claims:



After falling to 363,000 at the end of March, the 4-week average has increased for three straight weeks and is at the highest level this year.

All current Employment Graphs

by Calculated Risk on 4/26/2012 12:01:00 AM

From RealtyTrac: 54 Percent of U.S. Metros Post Quarterly Increase in Foreclosure Activity in First Quarter of 2012

First quarter foreclosure activity increased from the previous quarter in 26 out of the nation’s 50 largest metro areas, led by Pittsburgh (up 49 percent), Indianapolis (up 37 percent), Philadelphia (up 30 percent), New York (up 24 percent), Raleigh, N.C. (up 23 percent), and Virginia Beach, Va. (up 22 percent).

The biggest quarterly decreases in foreclosure activity among the 50 largest metro areas were in Portland, Ore. (down 28 percent), Las Vegas (down 26 percent), Providence, R.I. (down 24 percent), Salt Lake City (down 22 percent), Boston (down 21 percent), and San Jose, Calif. (down 21 percent).

“First quarter metro foreclosure trends were a mixed bag,” said Brandon Moore, chief executive officer of RealtyTrac. “While the majority of metro areas continued to show foreclosure activity down from a year ago, more than half reported increasing foreclosure activity from the previous quarter — an early sign that long-dormant foreclosures are coming out of hibernation in many local markets.”

Click on graph for larger image.

This graph from RealtyTrac shows some market are seeing an increase in foreclosure activity and others a decrease.

RealtyTrac doesn't mention this, but Pennsylvania, Indiana, New York and North Carolina are all judicial states (the top 5 metro increases were in those states).

The states with the largest decreases in foreclosure activity - Oregon, Nevada, Rhode Island, Utah, Massachusetts, and California - are all non-judicial states.

This really is a tale of two different foreclosure methods. Many of the judicial states still have a long way to go.

by Calculated Risk on 4/25/2012 08:35:00 PM

From the San Francisco Chronicle: S.F. rental market on a tear

The Wall Street Journal wrote recently about renters eyeing to live in San Francisco scrambling and begging to sign a lease. ...

Some ran as short as 15 minutes, with crowds of other would-be tenants vying for sometimes lackluster digs. One 600-square-foot loft in the South of Market neighborhood that was “just basically a massive kitchen” listed for $3,200 a month, he says. Still, people were competing for the owner’s attention to submit a rental application.

They were “backing him into a corner to see who could talk to him first…I thought there was going to be a fistfight.”

While rents in other parts of the country are rising around the pace of inflation, at 2.7%, the average rental price in San Francisco shot up by 15.8% from a year ago. Landlords are seeing the demand and acting accordingly, looking to mark up rents significantly when they can.

San Francisco rental-home owners and brokers say they are being deluged with applicants for apartments that would have barely gotten a nibble a year or two ago. Some property managers say they are boosting rental prices by 30% to 40% when units turn over.

It’s always been more expensive to buy than rent in San Francisco, but it looks like the rental market is starting to make up some ground.

Manhattan and San Francisco are both very tight markets, but rents are rising in most areas - and rising rents eventually help support house prices (that is why I track the price-to-rent index).

by Calculated Risk on 4/25/2012 04:43:00 PM

This is not an appeal to authority - house prices don't care who calls a bottom - but earlier this morning I mentioned a few former housing bears who now think prices are at or very near a bottom. Here is another article with comments from Ivy Zelman and Christopher Thornberg; two of the biggest housing bears at one point ...

From Alejandro Lazo at the LA Times: Housing market may be on rebound at last. A couple of excerpts:

"What are important are sales and inventory, and those are pointing in the right direction," said Christopher Thornberg, a principal at Beacon Economics who was one of the early callers of the housing crash. "I would say that by the end of the year, they should translate into better prices."

Thornberg added, "The recovery is here."
...
"This is not a robust recovery, but I feel confident that we are not sitting here lingering," said [Ivy Zelman, chief executive of Zelman & Associates], who predicts that home prices will end the year up about 1%. "There really is more meat to the bone."
...
"The foreclosure market is turning into a drought, not a wave, and that has resulted in a lack of inventory," said Sean O'Toole, chief executive of the firm ForeclosureRadar.com. "If it continues, it will likely mean that we've either seen a bottom — or have passed a bottom — in prices because of limited supply and still strong demand."

Ivy Zelman, formerly at Credit Suisse, became an internet favorite when she asked Toll Brothers CEO Bob Toll "Which Kool-aid are you drinking?" on the Q4 2006 Toll Brothers conference call.

A couple of key points:
• None of these former housing bears see prices rising significantly any time soon.

• However if prices do stop falling that would impact psychology. Many homeowners with a little negative equity would start feeling that they can work their out from under their debt, and I'd expect delinquencies to fall further. And some potential buyers would start feeling a little more confident about buying. If sellers feel prices will increase a little, some will wait for the "better market", and that will keep inventory down. And lenders will start becoming more confident too. Prices do not have to increase to change psychology, just stop falling!