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2014-02-02 17:06:01
Bryan & Allison's Real Estate Report - 2/2/14

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US home prices dipped in Nov. on colder weather

U.S. home prices fell slightly in November as colder weather slowed buying, ending nine straight months of price gains.

The Standard & Poor's/Case-Shiller 20-city home price index slipped 0.1 percent from October to November, partly reversing the previous monthly increase of 0.2 percent. But the index is not adjusted for seasonal variations, so the monthly decline partly reflects slower buying in the late fall as temperatures drop.

“November was a good month for home prices,” said David Blitzer, chairman of the S&P Dow Jones index committee. “Prices typically weaken as we move closer to the winter.”

Despite the overall decline, home values have continued to rise in many Sun Belt cities. Las Vegas, Los Angeles and Phoenix have registered 20 straight months of rising prices.

But home prices surged for much of 2013, driven by big gains earlier in the year. Prices have risen 13.7 percent over the past 12 months.

Dallas enjoyed its strongest annual gain since 2000. And Chicago home prices climbed at their strongest annual clip since December 1988. Among the cities in the index, only Detroit prices remain below their 2000 level.

The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The November figures are the latest available.

Some of the improvement in the housing market since 2012 has begun to slow in recent months. Rising mortgage rates and home prices have reduced affordability, an indication that the housing market will likely expand more gradually this year.

“Sellers used to seeing huge price gains month after month may feel some whiplash as that slows down,” said Stan Humphries, chief economist for the real estate firm Zillow. “The housing market is still a long way from normal, but it's getting there.”

For all of 2013, sales totaled 5.09 million, the best performance since 2006, when sales climbed to 6.48 million, the National Association of Realtors reported last week. But the sales gains in both 2005 and 2006 represented an unsustainable housing bubble. Analysts say a more normal sales pace currently would be around 5.5 million units.

Mortgage rates have also risen by roughly a full percentage point since spring, although they remain low by historical standards. Mortgage buyer Freddie Mac said last week that the average rate on the 30-year loan is 4.39 percent.

Some economists say the Case-Shiller figures overstate recent price gains because they include foreclosures. Foreclosed homes usually sell at steep discounts. As the proportion of those sales declines, the index rises more sharply.

 

Pending Home Sales Fall to Two-Year Low

 

The National Association of Realtors’(NAR) Pending Home Sales Index (PHSI) fell in December to its lowest level in more than two years, with declines reported in all four of the country’s major regions.

The index, a forward-looking sales indicator based on contract signings, dropped 8.7 percent to 92.4 from a downwardly revised reading of 101.2 in November. Compared to December 2012, pending sales were down 8.8 percent. 

December’s index was at its lowest measure since October 2011, when it read 92.2.

NAR chief economist Lawrence Yun said there were several factors at play in last month’s falloff in contracts—not the least of which was onset of harsh winter storms. 

“Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers,” Yun said. “Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice.” 

Job growth (however small it was) and pent-up demand continue to serve as positive factors, though Yun says “it could take several months for us to get a clearer read on market momentum.” 

NAR forecasts existing-home sales this year will hold close to 5.1 million, essentially the same as in 2013. 

The PHSI in the Northeast fell 10.3 percent in December to 74.1, putting it 5.5 percent below year-ago levels. In the Midwest, the index declined 6.8 percent to 93.6, falling 6.9 percent short of last year. 

While they may not have been hit as hard by the ice, the South and West also reported declines in pending sales. In the South, numbers fell 8.8 percent to an index of 104.9, 6.9 percent below a year ago. In the West—where constrained inventory is a heavier burden—pending sales were down 9.8 percent to 85.7, a 16.0 percent annual drop. 

 

San Diego Distressed House Sales Least Frequent in California 

San Diego County had the lowest percentage of distressed house sales in California for December 2013 — 5 percent of its total sales. That's down from 13 percent in December 2012 and equals the rate of distressed sales recorded in November 2013, according to the California Association of Realtors. 

Distressed sales, including foreclosed properties and short sales in which the amount owed is greater than the market value of the house, are generally higher in December because lenders prefer to get the properties off their books by year-end, the Realtors association said in a recent report. 

Statewide, distressed property sales increased to 15.7 percent of the total in December, up from 13.6 percent in November but down from 35.4 percent in December 2012. 

In another housing report on home sales and prices, San Diego real estate research firm Dataquick said that after months of gradual price increases in most areas of the nation, prices have leveled in off in most areas and even declined in four of 42 counties surveyed. 

The growth of home sales declined in December in all but 11 of the 42 counties, Dataquick said. 

However, declining sales and prices aren’t necessarily bad, Dataquick analyst Gordon Crawford said. 

The rapid run-up in prices wasn’t sustainable given the fairly weak underlying economic drivers, Crawford said. 

“This month, home price growth decreased substantially, which is encouraging as it shows that home prices are starting to respond to fundamentals rather than proceed along a speculative bubble-like track,” he said. 

 

Decline in Foreclosures Outpaces Decline in Loan Modifications

An estimated 44,000 homeowners received permanent loan modifications from mortgage servicers during the month of November under both proprietary servicer programs and the government’s Home Affordable Modification Program (HAMP), HOPE NOW reports. While that total represents a 12 percent decrease from the 50,000 loan mods completed in October, the most recent data show a steeper 20 percent decline in foreclosure sales and a 17 percent decline in foreclosure starts between October and November.

The 44,000 loan mods granted in November brings the total number to approximately 6.8 million since HOPE NOW began tracking the data in 2007. Some 5.5 million homeowners have received proprietary loan modifications since 2007, and another 1,297,954 have received HAMP modifications.

“As we approach the seven million mark for completed loan modifications, we remain convinced that the collaborative efforts of the industry, non-profits, government agencies and local community groups continues to make a positive impact on the nation’s housing market,” commented Eric Selk, executive director of the private-sector alliance of mortgage servicers, investors, mortgage insurers, and nonprofit counselors.

 

Recovery Expected to Enter ‘Middle Innings’ in 2014

While the housing market is still far from “normal,” it is inching that way, according to a report released Thursday from Zillow. Last year’s skyrocketing home price appreciation, frenzied demand from investors, and high tide of negative equity are all expected to subside somewhat this year, according to the real estate company.

Nationally, home prices increased 6.4 percent year-over-year in the fourth quarter, but annual price gains are expected to fall to 4.8 percent by the end of this year.

On a quarterly basis, prices rose 1.4 percent in the fourth quarter, according to Zillow.

“Below the surface of last year’s market, a number of unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting up a bit of a mixed bag for 2014,” said Stan Humphries, chief economist at Zillow.

However, some of the markets that posted the highest price gains last year are already slowing, which according to Zillow, is “a welcome sign in markets that risk crossing over into bubble territory as rising mortgage interest rates create affordability issues for homebuyers.”

Markets such as those in California and the Southwest that experienced rapid appreciation this year may stall this year due to affordability issues, leading to “volatility that could potentially cause whiplash for homebuyers and sellers,” according to Zillow.

Nationally, price appreciation is already tapering off, according to Zillow. After reaching a high of a 7.1 percent annual price gain in August, price gains remained below 7 percent for the entire fourth quarter.

However, local markets will vary widely this year with a 16.1 percent anticipated gain in Riverside, California, and a 0.4 percent gain anticipated in Kansas City, according to Zillow.

All but three of the nation’s 35 largest metros experienced price growth in 2013, and all but one are expected to experience price gains again this year, according to Zillow.

After posting a 3.8 percent decline last year, St. Louis, Missouri, is the only metro expected to experience falling prices this year with an anticipated 3.1 percent decline.

In two of the 35 markets Zillow tracks—Denver and Pittsburgh—home prices surpassed the peaks they reached before the housing downturn.

While home prices rose 1.4 percent in the fourth quarter to $169,000, rents rose 0.7 percent to $1,302.

 

Housing & Mortgage Outlook: Expect Declines in 2014 

Following a year of fast-paced appreciation, Fitch Ratings expects home price gains to slow to a more moderate pace in 2014 in the United States, according to its Global Housing and Mortgage Outlook released Tuesday. The ratings agency also predicts mortgage volume will decline and delinquencies and shadow inventory will decrease, albeit slowly, while liquidation timelines continue to rise.

Home prices will continue to rise on the winds of “market momentum, the effects of inflation, the improving economy, and a return of buyers attracted by signs of stabilization,” according to Fitch. 

However, rising mortgage rates and increasing inventory will temper price gains this year, the ratings agency said in its report. 

At a national level, prices are about 15 percent overvalued, according to Fitch. A few markets in western states are leading this trend with home price growth outpacing income and other economic factors. For example, price-to-rent and price-to-income ratios in San Francisco have risen almost 25 percent since early 2012, Fitch explained. 

Because of these trends, “Fitch remains concerned about regional overvaluation,” the ratings agency stated in its report.

 

How can 2014 home sales outpace 2013?

Existing home sales stalled out at the end of 2013, but Paul Diggle, property economist at Capital Economics, says the decline in existing home sales will prove temporary.

Capital Economics notes the number of existing home sales fell 9.1% between August and November to 4.9 million annualized. 

'That meant that, for the first time since mid-2011, existing home sales were running slightly below the level seen a year ago. What’s more, judging by the latest set of pending home sales figures, which tend to lead existing home sales by a month or two, existing home sales may have dropped to 4.8m annualized in December,” Diggle says. 

'Given that existing home sales make up more than 90% of all home sales, a key question is whether the current slump will prove temporary or permanent.' 

Diggle says the drop in existing home sales was triggered by the rise in mortgage interest rates over the mid-part of last year. Average 30-year mortgage interest rates rose from 3.7% in April to 4.7% in September and they have mostly remained in that territory. 

'Alongside the rise in house prices, higher rates have reduced mortgage affordability and taken a toll on consumers’ confidence in the housing recovery,' Diggle says. 'The share of respondents to Fannie Mae’s monthly housing survey who think that now is a good time to buy a home dropped from 76% in May to 64% in November, while the NAR’s index of buyer traffic declined from 72 to 53 between April and October.' 

'The bottom line is that the improvement in housing market activity during 2014 will be considerably weaker than the improvement during 2013 – even taking account of the soft end to last year. But we do at least expect a further improvement in activity,' Diggle notes. 

“We stand by the forecasts … that existing home sales will increase from 5.1 million in 2013 to 5.2 million in 2014. But the expected 100,000 pickup in existing home sales would be far below the 400,000 pickup between 2012 and 2013.'

 

Bryan & Allison Devore

Berkshire Hathaway HomeServices|California Properties

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