Gap Widens Between Homebuyer and Renter Morale

pen-and-paper BHResults from the Housing Opportunities and Market Experience (HOME) survey conducted through the National Association of Realtors (NAR)show roughly three-quarters of surveyed households still believe now is a good time to buy a home, but there’s a significant gap in morale between homeowners and renters and about half of those with student debts are unsure about taking on a mortgage.

NAR’s survey results showed the homeowners and renters who believe now is a good time to buy are sitting at 82 percent and 62 percent, respectively, as of March 2015. The share of homeowners has remained at a consistent rate since December of 2015. The share of renters, though, has fallen 6 percent, and renters under the age of 35 were the least confident that now is a good time to buy. Those surveyed in the West were also found to have the lowest percent believing now is a good time to buy.

Lawrence Yun, NAR chief economist, says the survey brings to focus the continuing gap of buyer confidence between current homeowners and renters.

“Existing-home prices surpassed their all-time peak this spring and have climbed on average over 5 percent nationally through the first five months of the year and even faster in areas with severe supply shortages,” he said. “Most homeowners appear to realize that if they’re ready to sell, they’ll likely find a buyer rather quickly and be able to use the sizeable equity they’ve accumulated in recent years towards their next home purchase. Meanwhile, renters interested in buying continue to face minimal choices, strong competition and home prices growing faster than their incomes.”

Additionally, the survey showed that having student debt is causing many potential buyers to be uneasy about acquiring additional debt. Around two-thirds of non-homeowners as well as half the respondents under 35 with student debt stated they didn’t feel confident also taking on a mortgage. Furthermore, this subset didn’t believe they’d be able to qualify for a mortgage if they applied.

“It’s becoming very evident from this survey and our research released last month that the financial and emotional impact of repaying student debt is contributing to a delay in purchasing a home for many would-be buyers,” adds Yun. “At a time of quickly rising rents, mortgage rates at all-time lows and increasing housing wealth, a lot of young adults in their prime buying years are struggling to enter the market and are ultimately missing out on the stability and wealth accumulation that owning a home can provide.”

With regard to selling, because of strong price growth seen in most of the country and homes selling much quicker than years past, 61 percent of current homeowners surveyed believe it is a good time to sell. This is a 5 percent increase from the first quarter of this year. NAR found that those surveyed in the West were again the most likely to think now is a good time to sell.

About 93 percent of respondents surveyed about their views on home prices in their community for the next six months believed that prices will stay the same or rise, a slight increase from last quarter’s 91 percent. Respondents from the West, both renters and those living in urban areas, are most likely to believe prices will go up in their communities.

“More homeowners acknowledging this pent-up demand may perhaps mean we begin to see more supply come online in the near future,” Yun said.

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The Week Ahead: Existing-Home Sales Look to Repeat

House fo Sale Two BHExisting-home sales in May hit their highest pace in almost a decade, according to last month’s report from the National Association of Realtors (NAR). In anticipation of the report for June coming out next week, it is important to note the uptick in demand this spring that has been shown so far amidst lagging supply levels that pushed the median sales higher.

May’s total existing-home sales rose by 1.8 percent from April to a seasonally adjusted annual rate of 5.53 million and are were up 4.5 percent from a year ago. Distressed sales (foreclosures and short sales) fell to 6 percent of sales in May from 7 percent in April. This put May 4 percent lower than the previous year as well. Of this total 6 percent, five percent of May sales were foreclosures and 1 percent were short sales. Foreclosures sold for an average discount of 12 percent below market value in May, while short sales were discounted 11 percent.

According to realtor.com chief economist Jonathan Smoke, the May gain signals that the real estate market has continued to maintain a strong momentum.

“We are now in this year’s peak home buying months,” Smoke said. “This pace of sales should produce the gains we have been forecasting that will make 2016 the best year of home sales in a decade.”

Housing starts for June 2016, HUD/Census Bureau, Tuesday, July 19

Housing starts largely flattened out in May after showing signs of resuscitation in April. If June’s job report is any indication, housing starts may not restart anytime soon. The industry will find out on Tuesday, July 19, when HUD and the Census Bureau release the June 2016 Housing Starts report.

Approximately 287,000 jobs were added in June, which was a major increase from May’s dismal job gains total of 39,000. But according to Fannie Mae Chief Economist Doug Duncan, there was nothing in the report to encourage housing supply enthusiasts.

“No increase in construction employment during the month, and the three-month moving average fell for the first time in four years,” Duncan said. “That is consistent with recent housing starts data and offers no near-term hope of housing supply growth to offset strong house price appreciation trends and related affordability constraints. Without supply growth, decreases in interest rates are translating into house price increases in the presence of employment and household formation growth.”

May’s housing starts report found that privately-owned housing starts in May came in at a seasonally adjusted annual rate of 1.164 million. This is 0.3 percent lower than April, though still 9.5 percent up from last May. At the same time, single-family housing starts in May were at a rate of 764,000, which is 0.3 percent higher than in April.

Housing completions in May were equally up and down. Privately-owned housing completions were at a seasonally adjusted annual rate of 988,000, which while 5.1 percent above revised April estimates of 940,000, is 3.5 percent lower than in May 2015. Single-family housing completions in May were at a rate of 717,000, which is 2.3 percent above the revised April rate of 701,000

Are Some Markets on the Brink of Another Bubble?

Home Prices Two BHWhen the housing market starts to exhibit characteristics of a potential housing bubble similar to the one experienced in 2007, such as home prices rising faster than inflation or bidding wars increasing in regularity, it’s easy to expect a potential crash in the future. But according to a report from Realtor.com, despite the warning clouds in some of the nation’s hottest markets, the housing market is generally safe, steady, and continuing to grow.

The report, which covered the 50 largest metros from 2001 to 2015 using 2001 as a baseline year, attributes high home prices and competitive bidding to a housing shortage rather than a possible real estate crisis. They state the factors that caused the housing market crisis is 2008 such as easy credit for most borrowers, exorbitant flipping of homes, and overbuilding are not something that is seen happening today. They say the opposite is occurring instead.

“Only the most qualified buyers are able to get financing,” for mortgages, says chief economist for realtor.com, Jonathan Smoke.  “Flipping is back to normal. And we’re building about half as many homes as we need.”

Smoke states that not one city is showing to be in a bubble currently. In the last bubble in 2007, home values were inflated to a level where they were unsustainable.

This does not mean certain cities don’t have reasons to be cautious. Some cities do in fact show signs of potential overheating and if these high prices can’t be sustained, it could spell trouble, according to the report. In these markets, Smoke expects the continual increase in price rate to eventually slow, or even dip, when prices reach points buyers cannot afford.

“There are places that have risks,” Smoke says. “But even those places do not resemble what they looked like in their actual bubble years.”

The report noted that housing experts consider 2001 to be the most normal recent year before the bust, when homes were considered fairly valued. The analysts then created an index of the six factors that create a housing bubble to assess whether any of these 50 markets were overheating.

The criteria consisted of price appreciation, home flipping, mortgages, and whether there is a potential for theses borrowers to default on them, home prices in comparison to wages, the price of homes versus the price of renting, and construction.

It was determined by the analysts that none of the cities were in a bubble, however, the top six cities—San Jose and San Francisco, California; Austin, Texas; Salt Lake City, Utah; Dallas, Texas; and Los Angeles— show signs of overheating based on the six factors examined. In addition to these cities, there were four others—Fresno, California; Buffalo, New York; Charleston, South Carolina; and Portland, Oregon— which showed some elevated risk, although according to the analysts, have room to grow and expand.

Castro Investigated for Hatch Act Violation

castro

The U.S. Office of Special Counsel (OSC) found Julián Castro in violation of the Hatch Act and in turn sent an investigative report to President Obama, according to a release from the office.

The OSC stated that Julián Castro violated the Hatch Act during a Yahoo News interview on April 4, 2016. The report from the office said Castro’s statements during the interview “impermissibly mixed his personal political views with official agency business despite his efforts to clarify that some answers were being given in his personal capacity.”

According to the Hatch Act, federal employees are allowed to make opinionated remarks when speaking on their own accord but not when using their official title during an interview or when they are speaking about agency business.

The release shared that the OSC began conducting this investigation upon receiving a complaint about that particular interview. Castro was notified at the completion of the investigation by the OSC and responded to the report saying, “In responding to a journalist’s question about the 2016 election, I offered my opinion to the interviewer after making it clear that I was articulating my personal view and not an official position. At the time, I believed that this disclaimer was what was required by the Hatch Act. However, your analysis provides that it was not sufficient.”

Castro acknowledges that an error was made on his part, though he said it was not intentional. “I appreciate your staff’s diligence and professionalism in assessing the content of the interview and the circumstances surrounding it, as well as the clarifications of law that your team provided.”

The office’s release stated the final step in an OSC Hatch Act investigation is to forward on a report to the President including a response from the official. Because of this violation, according the Hatch Act, Castro may be subject to a range of disciplinary actions, including removal from federal service, reduction in grade, debarment from federal service for a period not to exceed 5 years, suspension, letter of reprimand, or a civil penalty not to exceed $1000.

The OSC could not be reached for a comment.

HUD Reports Continued Progress For Housing Recovery

HUD’s latest housing scorecard, which examines housing recovery data, HUD’s programs performance, and areas for improvement, showed continued progress in the nation’s housing recovery for June—with growth in key indicators such as existing-home sales, homeowners’ equity, and home value appreciation.

“While our housing market is on a healthy trajectory, it’s clear we must continue to support programs that help more Americans recover from the Great Recession,” said Katherine O’Regan, Assistant Secretary for the Office of Policy Development and Research under HUD.

Sales of existing homes rose to the highest pace in more than nine years in May 2016. According to The National Association of Realtors (NAR), sales of existing homes rose 1.8 percent in May to an annual rate of 5.53 million and appear to be at their fastest pace since February 2007’s rate of 5.79 million. Additionally, sales were 4.5 percent higher year-over-year and have been above the 5.0 million mark for 14 of the past 15 months.

HUD’s report also shares that homeowners’ equity continues to increase and currently sits 3.7 percent higher than the fourth quarter of 2015, giving it a total of more than $13.0 trillion–the highest level since the first quarter of 2006, when it peaked at almost $13.3 trillion. The Federal Reserve reports the change in equity since April 1, 2009, when the Administration initiated actions to try and stabilize the housing market, now sits at nearly $6.8 trillion and equity has risen by more than $6.5 trillion since the end of 2011.

O’Regan also points out that home prices continue with an upward trend in April as the annual house price changes remain “fairly stable” in a 5- to 6-percent range. The Federal Housing Finance Agency (FHFA) seasonally adjusted purchase-only house price index for the month of April 2016 estimates home values rose 0.2 percent over the previous month and 5.9 percent over the previous year. The FHFA index reports U.S. home values at 3.1 percent above their previous peak set in March 2007 and stand 30.2 percent above the low point reached in March 2011.

Additionally, O’Regan shares that the Administration’s foreclosure mitigation programs continue to aid millions of homeowners as the recovery from the housing crisis continues. She states more than 10.5 million mortgage modifications and other forms of mortgage assistance arrangements were completed between April 2009 and the end of May 2016.  Likewise, she says more than 2.6 million homeowner assistance actions have taken place through the Making Home Affordable Program, including over 1.6 million permanent modifications through the Home Affordable Modification Program (HAMP), and the Federal Housing Administration (FHA) has offered more than 3.2 million loss mitigation and early delinquency interventions through May.

According to O’Regan, “These Administration programs continue to encourage improved standards and processes in the industry, with lenders offering families and individuals more than 4.7 million proprietary modifications through April.”

Where Will the Housing Market Stand Post-Election?

saving-homesA recent poll conducted within the United States by Harris Poll on behalf of Trulia found that Republicans and Democrats have contrasting opinions on how they foresee the evolution of the housing market after the election in November. Though issues connected to the housing market have not been discussed at the depth that they were in the previous presidential election cycle during this primary season, both Hillary Clinton and Donald Trump hold varied stances on what housing policy should look like post-election.

In the limited moments that Clinton has shared her thoughts on what she would do with the housing market if she were to be elected, she stated that $25 billion of her proposed $125 billion Economic Revitalization Initiative would be targeted towards facilitating homeownership among households that have been traditionally underserved. Trump doesn’t want to fund government programs. He wants to eliminate them by implementing his plan to do away with the U.S. Department of Housing and Urban Development (HUD).

The poll was conducted among 2,034 U.S. adults ages 18 and older and found that Republicans, Democrats, and Independents held varied opinions when asked what they thought would happen to home prices if Clinton or Trump were elected president. If Clinton were to be elected, the democrats polled felt that housing prices would likely rise instead of fall as did the republicans polled. The same was true for Trump. Both republicans and democrats agreed that with Trump as president, housing prices would be more likely to rise as opposed to fall.

7-7 Trulia GraphThe variance in opinion stemmed from which of the candidates each respective party felt would be more likely to raise or lower the housing prices. Republicans showed that they believed the housing prices would be more likely to rise during Clinton’s presidency over Trump’s. For democrats, the data showed more believed that the prices would more likely rise during Trump’s presidency than Clinton’s. In addition to these findings, The Harris Poll found that Americans gave the edge to Trump when it came to who they trusted for a higher-priced housing market.

These results would seemingly contradict a recent Zillow survey of over 100 economists and real estate experts who thought that Clinton would have the biggest positive net effect on the housing market. But according to the David Weidner of Trulia the Zillow survey did not conclude whether the positive effect would take into account home prices. It was concluded though that both candidates performed better during the primaries in counties that had risen only minimally from the deepest part of the recession during the second quarter of 2009.

Despite the fact that conversation on the housing market and homeownership has been minimal this election season, Ralph McLaughlin, chief economist for Trulia, said that voters shouldn’t be surprised. “Eight years ago, housing and the economy were the main talking points of Obama and Romney because millions of homeowners were going through foreclosure and the economy was in shambles. Today, the housing market and US economy look much healthier, and as such, candidates have turned their attention to more popular issues such as immigration, gun control, and national security.

House Committee Chairman Wants Answers from Castro

Senate BHRep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, on Thursday asked for HUD Secretary Julián Castro to appear before his Committee to answer questions about the effect of recent changes to HUD’s delinquent loan sales program on taxpayers.

In late June, FHA and HUD announced major changes to the Distressed Asset Stabilization Program (DASP) that include principal reduction and capital arrearage forgiveness, payment shock protection, prohibiting buyers of the loans from abandoning lower-value properties, and alternative bidding for non-profit buyers.

DASP, as well as distressed loan sales conducted by the GSEs, have come under heavy criticism in the last year from housing advocacy and civil rights groups due to the large number of these loans being sold to private investors, whom the critics say are interested only in profiting from the foreclosure crisis rather than achieving the best outcomes for borrowers. In April, a coalition of activists called DASP sales a “Wall Street giveaway”; some critics even suggested that this should disqualify Castro from consideration as Hillary Clinton’s vice president. Some have suggested that Castro made the changes to DASP in order to satisfy these critics.

Hensarling wants Castro to appear before committee at a hearing on Wednesday, July 13, to answer question about how the changes to DASP will affect taxpayers. Hensarling said he believes the changes will create “preferential bidding” options for certain buyers and restrict investor options in the program.

Julian Castro

Hensarling

In late March, Hensarling and Sen. Richard Shelby (R-Alabama), Chairman of the Senate Banking Committee, wrote a letter to Castro and FHFA Director Mel Watt saying that any proposed changes to the distressed loan sales programs should be “swiftly and categorically rejected” because such changes would “negatively impact the purpose of those programs and taxpayers alike.” Hensarling said Castro never responded to the letter.

“Secretary Castro was told months in advance that changes harming taxpayers would result in a congressional hearing, and we’re simply following through,” Hensarling said. “Hardworking taxpayers deserve to know why Secretary Castro suddenly decided to expose them to greater losses and worsen the nation’s already unsustainable national debt. The changes he’s making rig the program so certain buyers approved by Washington elites can receive steep discounts on properties and leave taxpayers holding the bag. There have been several media reports that these changes are motivated not by what’s best for taxpayers, but by what’s best for the Secretary’s future ambitions. The timing and impact of these changes certainly raise legitimate questions that need to be answered.”

A HUD spokesman declined to comment on Hensarling’s request for Castro to appear before the committee.