Smart Real Estate News & Commentary by Chris McLaughlin May 20, 2011
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MBA – delinquencies and foreclosures down
The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.32% of all loans outstanding as of the end of the first quarter of 2011, an increase of seven basis points from the fourth quarter of 2010, and a decrease of 174 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 117 basis points to 7.79% this quarter from 8.96% last quarter. The percentage of loans on which foreclosure actions were started during the first quarter was 1.08%, down 19 basis points from last quarter and down 15 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.52%, down 12 basis points from the fourth quarter of 2010 and 11 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.10%, a decrease of 50 basis points from last quarter, and a decrease of 144 basis points from the first quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 12.31% on a non-seasonally adjusted basis, a 129 basis point decline from 13.60% last quarter.
On a seasonally adjusted basis, the overall delinquency rate increased for all but FHA loans, with the biggest increases coming in the subprime categories. The seasonally adjusted delinquency rate stood at 4.59% for prime fixed loans, 11.25% for prime ARM loans, 22.04% for subprime fixed loans, 26.31% for subprime ARM loans, 12.03% for FHA loans, and 6.93% for VA loans. The percentage of loans in foreclosure, also known as the foreclosure inventory rate, decreased 12 basis points overall to 4.52. The foreclosure inventory rate for prime fixed loans, which make up the largest portion of the survey (accounting for 63% of all loans outstanding), decreased eight basis points to 2.59%. The rate for prime ARM loans decreased 69 basis points from last quarter to 9.53%. Subprime fixed loans saw an increase of 67 basis points to 10.53%, which is a new record high in the survey. The rate for subprime ARM loans increased 26 basis points to 22.26%, while the rate for FHA loans increased five basis points to 3.35% and the rate for VA loans increased four basis points to 2.39%. The foreclosure starts rate decreased 16 basis points for prime fixed loans to 0.68%, 42 basis points for prime ARM loans to 2.38%, 19 basis points for subprime fixed to 2.56% and 57 basis points for subprime ARMs to 3.67%. The foreclosure starts rate also decreased nine basis points for FHA loans to 0.93% and 15 basis points for VA loans to 1.02%.
The non-seasonally adjusted foreclosure starts rate decreased one basis point for prime fixed loans, 33 basis points for prime ARM loans, eight basis points for subprime fixed loans, 65 basis points for subprime ARM loans, 53 basis points for FHA loans, and 16 basis points for VA loans.
Oil prices a threat
The International Energy Agency warned Thursday that high oil prices are imperiling the global economy. The Paris-based energy watchdog, also called on oil-producing countries to increase supply before demand begins to rise during the peak summer months. The agency said that the surge in oil prices since September is causing global imbalances to wide, “reducing household and business income, and placing upward pressure on inflation and interest rates.” After spiking near $115 a barrel in late April, oil prices have tumbled 14% to about $99 a barrel on Thursday. But IEA officials say that’s still too high. At this time in 2010, oil prices were hovering near $68 a barrel. The IEA statement comes ahead of a scheduled meeting of the Organization of the Petroleum Exporting Countries on June 8 in Vienna. OPEC, which controls much of the world’s oil supply, said in December that average oil demand this year will probably be lower than it was last year. As such, the cartel agreed to maintain oil production at 2010 levels.
Nar – existing home sales down
Existing-home sales slipped in April, although the market has managed six gains in the past nine months, according to the National Association of Realtors (NAR). A parallel NAR practitioner survey shows 11% of Realtors report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10% had a contract delayed, and 14% said a contract was renegotiated to a lower sales price as a result of a low appraisal. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84% in April, unchanged from March; the rate was 5.10% in April 2010. All-cash transactions stood at 31% in April, down from a record level of 35% in March; they were 26% in March 2010; investors account for the bulk of cash purchases.
The national median existing-home price for all housing types was $163,700 in April, which is 5.0% below April 2010. Distressed homes – typically sold at a discount of about 20% – accounted for 37% of sales in April, down from 40% in March; they were 33% in April 2010. First-time buyers purchased 36% of homes in April, up from 33% in March; they were 49% in April 2010 when the tax credit was in place. Investors slipped to 20% in April from 22% of purchase activity in March; they were 15% in April 2010. The balance of sales was to repeat buyers, which were 44% in April. Single-family home sales slipped 0.5% to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6% below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4% below a year ago. Existing condominium and co-op sales fell 3.1% to a seasonally adjusted annual rate of 630,000 in April from 650,000 in March, and are 15.0% below the 741,000-unit level one year ago. The median existing condo price was $167,300 in April, down 2.3% from April 2010.
Regionally, existing-home sales in the Northeast fell 7.5% to an annual pace of 740,000 in April and are 32.1% below a year-ago surge. The median price in the Northeast was $225,400, which is 7.3% below April 2010. Existing-home sales in the Midwest rose 5.7% in April to a level of 1.12 million but are 16.4% below a cyclical peak in April 2010. The median price in the Midwest was $133,200, down 5.1% from a year ago. In the South, existing-home sales declined 1.0% to an annual pace of 1.95 million in April and are 9.3% below a year ago. The median price in the South was $142,800, which is 4.1% lower than April 2010. Existing-home sales in the West slipped 1.6% to an annual level of 1.24 million in April and are 0.8% below April 2010. The median price in the West was $203,400, down 6.1% from a year ago.
Reports say growth remains sluggish
Factory activity in the U.S. Mid-Atlantic region grew much more slowly than expected in May, a survey by the Philadephia Fed showed yesterday. Meanwhile, a gauge of future U.S. economic activity dropped for the first time in nearly a year in April, the Conference Board said. Other reports showed an unexpected decline in existing home sales for April, while jobless claims fell but showed the trend in employment remains weak. The Philadelphia Federal Reserve Bank said its business activity index slumped to 3.9 from 18.5 in April. Economists had expected a reading of 20, based on the results of a Reuter’s poll, which ranged from 10.0 to 28.0. Any reading above zero indicates expansion in the region’s manufacturing. The Leading Economic Index slipped 0.3% in the first decline since June 2010, the independent business and research group said. Economists polled by Reuters had expected it to rise 0.1%. Meanwhile, the index’s March increase was revised up — to 0.7% from the previously reported 0.4%. The Conference Board’s Coincident Economic Index rose 0.1% in April, following a 0.2% increase in March. Its Lagging Economic Index also rose in April, 0.5%, after increasing 0.3% in March.
Olick – credit rules the housing market
“Existing home sales were basically flat in April, down close to one% month-to-month and down nearly 13% year-over-year, but you have to remember last year we were heavily under the influence of the home buyer tax credit. Now we are heavily under the influence of the mortgage market, or lack thereof.
It’s all in the numbers. Let’s start with all-cash. Thirty-one% of buyers in April used all-cash, and that’s down from 35% the previous month. It’s likely because the number of investors buying in April also fell. Investors have been the only real fuel in this market, buying distressed properties at distressed prices. Just look at the share of what’s selling at what price point: The low end [low-priced homes] is moving (your investors), and the high end is moving because higher-end folks don’t always need a mortgage; neither investors nor high-end buyers were affected by the home buyer tax credit last year. The trouble is, the middle of the market makes up the lions share of home sales, over 60%, and it’s not moving. What’s also juicing the lower end is the fact that the FHA raised insurance premiums on April 18th, so mortgage applications for FHA loans surged 20% in the four weeks before and then fell nearly 27% the week after. With that surge, you would have thought we’d see a lot more sales, but that wasn’t the case.
Realtors are blaming appraisals. In a survey of their people, 11% said they had to cancel a contract because of a low appraisal. Appraisals, which during the housing boom were laughable, have now swung the opposite direction, towards levels so conservative that they themselves are actually pushing some asking prices lower. And that all goes back to the lenders, to Fannie Mae and to Freddie Mac. As house prices fall, lenders have to be even more careful because risk rises.
The remaining question, though, is why did investors fall out of the market in April, even just a bit? Is it because the homes on the market tend to be higher-priced? Inventories rose by 350,000 in April, which is usually the case in the heart of the spring season. The realtors claim there are fewer foreclosed properties to buy because banks are trying to do more short sales, which take longer. That may be as well. Short sales generally don’t lower prices as much as bank-owned (REO) sales. Whatever the answer, the fact is that we are not seeing any kind of spring surge. A tweet from a follower named ‘Kentucky loan’: says business has slowed to a crawl out here on the front lines.”
Oil up on lower dollar
Oil prices fluctuated around $99 a barrel today, mirroring changes in the value of the U.S. dollar and concerns about global appetite for crude. By early afternoon in Europe, benchmark crude for June delivery was up 15 cents to $98.59 a barrel in electronic trading on the New York Mercantile Exchange. The June contract, which expires later Friday, fell $1.66 to settle at $98.44 yesterday. Earlier in the session, it rose to $99.60 as the dollar weakened and made commodities like oil cheaper for investors holding other currencies. After rising early Friday, the euro fell to $1.4217 from $1.4309 late yesterday while the dollar recovered to 81.74 yen from 81.69 yen. In London, Brent crude for July delivery was down 30 cents to $111.12 a barrel on the ICE Futures exchange. Crude has bounced around in the upper-$90s most of this week as investors eye a volatile dollar and mixed signs about the strength of the global economy and oil demand.
Las Vegas sales slump
Las Vegas home sales in April were essentially flat over April 2010 with just a 0.4% uptick, while prices slumped 13% as foreclosures continued to dominate the market, according to DataQuick. About 4,500 new and resale homes and condos sold in the Las Vegas metropolitan area last month, down 9.5% from March. The median price paid for all new and resale houses and condos sold was $116,500, sliding 13% from a year earlier and down 0.4% from March. It was the seventh consecutive month in which the median price fell year-over-year, and the magnitude of the decline was the highest in since the median fell 17.2% year-over-year in February 2010.
Still, sales hit a five-year high in April, as investors and cash buyers flocked to the distressed market. DataQuick attributed the slight growth in sales to an influx of cash-only purchases. In April, 54.1% of sales transactions involved cash buyers, up slightly from 54% in March and up from 47.6% a year earlier. Cash buyers paid a median $90,000 for a home last month, according to the San Diego-based research firm.
Prices are continually trending downward due to the amount of distressed sales every month. DataQuick said about 62% of all market sales in Las Vegas were attributable to distressed properties in April. This sector also made up 68% of the resale market. DataQuick reported a slight rise in the number of foreclosed properties in April. Lenders foreclosed on 3,682 single-family homes and condos during the month, up 8.9% from February and up 11.2% from April 2010.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
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* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
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