Housing Trends

After posting their first decline in four weeks last week, mortgage applications are headed higher.

The Mortgage Bankers Association (MBA) reports applications were up 2.3% for the week ending February 3, with the Refinance Index rising 2.0%. As a share of overall applications, refinancings fell to 47.9% -- the lowest level since June 2009.

The adjustable-rate mortgage (ARM) share of activity increased to 6.9% of total applications; the FHA share dipped to 11.9% from 12.1% the week before; the VA share rose to 12.7% from 12.4%; and the USDA share was unchanged at 0.9%.

Contract interest rates

• The average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($424,000 or less) was down four basis points -- to 4.35% from 4.39% -- with points unchanged at 0.34 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs with jumbo loan balances (greater than $424,000) dropped from 4.32% to 4.27%, with points decreasing to 0.31 from 0.34 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs backed by the FHA slipped one basis point to 4.16%, with points increasing to 0.37 from 0.35 (including the origination fee) for 80% LTV loans. The effective rate remained unchanged from last week.
• The average contract interest rate for 15-year FRMs fell to 3.55% from 3.61%, with points increasing to 0.34 from 0.33 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 5/1 ARMs rose six basis points to 3.39%, with points decreasing to 0.18 from 0.22 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The survey covers over 75% of all U.S. retail residential mortgage applications.

It hasn't been quick and it hasn't been easy, but the housing market is moving steadily toward what has traditionally been considered “normal.”

According to the National Association of Home Builders (NAHB)/First American Leading Markets Index (LMI), markets in 146 of the approximately 340 metro areas across the U.S. returned to or exceeded their last normal levels of economic and housing activity in the second quarter. This marks a year-over-year net gain of 66 markets.

The index’s nationwide score is now up to .97, which means that based on current permit, price, and employment data, the nationwide average is running at 97% of normal economic and housing activity. Additionally, 91% of markets have shown an improvement year over year.

“This gradual uptick is in line with NAHB’s forecast for a slow but steady recovery of the housing market,” said NAHB Chairman Ed Brady. “With a strengthening economy, solid job growth and low mortgage interest rates, the market should continue on an upward trajectory throughout the rest of the year.”

Measurable progress

Baton Rouge, La., again tops the list of major metros on the LMI, with a score of 1.61 -- or 61% better than its last normal market level. Other major metros at the head of the list include Austin, Texas; Honolulu; and San Jose, Calif. Rounding out the top 10 are Houston; Provo, Utah; Spokane, Wash.; Nashville, Tenn.; Los Angeles; and Oklahoma City.

Among smaller metros, both Odessa and Midland, Texas, have LMI scores of 2.0 or better, meaning that their markets are now at double their strength prior to the recession. Also at the top of that group are Manhattan, Kan.; Walla Walla, Wash.; and Grand Forks, N.D.

The LMI examines metro areas to identify those that are now approaching and exceeding their previous normal levels of economic and housing activity. Approximately 340 metro areas are scored by taking their average permit, price, and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth.

For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics.

An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

“Among the LMI components, house prices are making the most far-reaching progress, with almost 97% of markets having returned to or exceeded their last normal levels. Meanwhile, 78 metros have reached or exceeded normal employment activity,” said NAHB Chief Economist Robert Dietz. “Single-family permits have edged up to 50% of normal activity, but remain the sluggish element of the index.”

After advancing for two straight weeks, mortgage applications have taken a step back.

The Mortgage Bankers Association’s Weekly Mortgage Applications Survey shows applications dipped 1.3% in the week ending July 15, 2016. The Refinance Index was also lower -- down 1% -- as the refinance share of mortgage activity rose to 64.2% of total applications from 64.0% the previous week.

The adjustable-rate mortgage (ARM) share of activity fell to 5.1% of total applications, the FHA share slipped to 9.9% from 10.0% the week before, the VA share was 11.2%, and the USDA share of total applications dropped to 0.5% from 0.6% a week earlier.

Contract interest rates

• The average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($417,000 or less) rose five basis points -- to 3.65% from 3.60%, with points unchanged at 0.36 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.
• The average contract interest rate for 30-year FRMs with jumbo loan balances (greater than $417,000) moved from 3.61% to 3.66%, with points unchanged at 0.32 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 30-year FRMs backed by the FHA was unchanged at 3.53%, with points decreasing to 0.30 from 0.32 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 15-year fixed-rate mortgages inched up two basis points to 2.90%, with points decreasing to 0.31 from 0.34 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 5/1 ARMs jumped to 2.86% from 2.7%, with points increasing to 0.29 from 0.25 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The survey covers over 75% of all U.S. retail residential mortgage applications.

In the 1970s the hot real estate trend was planned communities. In the ‘90s it was village center developments. Now, real estate developers are eyeing the older, rundown areas of urban centers for residential and commercial redevelopment.

There are already plenty of examples. Areas of Brooklyn and Detroit are now flourishing with stylish residences and exciting new businesses. When publications like USA Today feature the best up-and-coming neighborhoods in America, they almost always are made up of urban enclaves that have been transformed.

They all seem to have something else in common. Residents can easily get around on foot. The National Association of Realtors (NAR) says buyers put a premium on “walkable” neighborhoods.

Creating walkability

“Creating walkability with restaurants and stores can help transition an edgy part of town into one that is hip and hopping with pedestrians,” said NAR Chief Economist Lawrence Yun. “This type of real estate development transforms the community for the better.”

Older, renovated homes and lofts are highly sought-after and don’t linger on the market. People seem to like the idea of walking to a nearby restaurant, movie theater or the corner market.

City governments like it too. NAR says walkable communities generate four times the tax revenue of regional and business malls, adding more value to a region.

“Walkable urban regions in the U.S. have a 41% higher Gross Domestic Product (GDP) over non-walkable regions,” said Christopher Leinberger, professor at George Washington University School of Business and president of Locus, a national coalition of real estate developers and investors. “That’s the difference between countries like Germany and Romania.”

Living in an urban walkable community might also be more affordable than living in the suburbs. NAR cites statistics showing urban residents spend about 43% of their incomes on housing and transportation while the typical suburbanite spends about 48%.

“If a family can get rid of one car, they can increase their mortgage capacity by as much as $150,000,” said Leinberger.

Zoning issues

At a recent NAR-sponsored symposium, panelists suggested urban redevelopment could occur at a faster rate if more municipalities reviewed their zoning regulations and worked with developers toward a common goal.

Earlier this month researchers at the University of Chicago and University of California Berkley found tight land use regulations tended to drive up home prices in America’s most expensive cities. Rolling back some of these regulations in just 3 metros – San Francisco and San Jose, Calif., and New York would boost U.S. economic growth, the researchers said.

 “We’ve been bumping along at 2% GDP growth, and we should be at 3.5%, and obsolete zoning is what is holding us back,” said Leinberger. “Less than 10% of land would need to be rezoned, and that is where 80 percent of the development is going to go.”

From the Mortgage Bankers Association (MBA), word that mortgage applications rose for a third consecutive week.

According to the MBA's weekly survey, applications jumped 4.2% in the week ending September 9 -- including an adjustment for the Labor Day holiday.

The Refinance Index was up 2%, although the refinance share of mortgage activity fell to 62.9% of total applications from 64.0% the previous week.

The adjustable-rate mortgage (ARM) share of activity came in at 4.6% of total applications, the FHA share went from 9.5% to 9.6%, the VA share rose to 12.0% from 11.9% and the USDA share of total applications increased to 0.7% from 0.6% a week earlier.

Contract interest rates

• The average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($417,000 or less) dipped one basis point -- to 3.67% from 3.68% -- with points decreasing to 0.36 from 0.37 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs with jumbo loan balances (greater than $417,000) dropped to 3.64% from 3.66%, with points increasing to 0.36 from 0.30 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs backed by the FHA was down two basis points to 3.50%, with points decreasing to 0.27 from 0.35 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 15-year FRMs inched up from 2.96% to 2.97%, with points unchanged at 0.34 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 5/1 ARMs was unchanged at 2.87%, with points increasing to 0.37 from 0.30 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The survey covers over 75% of all U.S. retail residential mortgage applications.

Mortgage applications ticked lower in the week ending September 23, according to the Mortgage Bankers Association, with a decline of 0.7%.

The Refinance Index was down 2% from the previous week, pushing the refinance share of mortgage activity down to 62.7% of total applications from 63.1% a week earlier.

The adjustable-rate mortgage (ARM) share of activity was unchanged at 4.4% of total applications, the FHA share held steady at 10.2%, the VA share rose 11.9% from 11.6% the week be fore, and the USDA share of total applications slipped to 0.6% from 0.7% the prior week.

Contract interest rates

• The average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($417,000 or less) dropped three basis points -- from 3.70% to 3.66% -- with points decreasing to 0.33 from 0.38 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs with jumbo loan balances (greater than $417,000) fell to 3.64% from 3.69%, with points decreasing to 0.28 from 0.29 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year FRMs backed by the FHA dipped four basis points to 3.52%, with points decreasing to 0.21 from 0.23 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 15-year FRMs went from 2.99% to 2.95%, with points increasing to 0.38 from 0.35 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 5/1 ARMs was down four basis points to 2.92%, with points increasing to 0.40 from 0.26 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

The survey covers over 75% of all U.S. retail residential mortgage applications.

Applications for mortgages have now fallen for a fourth consecutive week.

Data released by the Mortgage Bankers Association (MBA) show applications were down 9.2% in the week ending November 11, as contract interest rates rose to levels unseen -- in some cases -- since early this year

The Refinance Index plummeted 11% from the previous week to its lowest level since March 2016, with refinance share of mortgage activity dipping to 61.9% of total applications from 62.3% the week before.

The adjustable-rate mortgage (ARM) share of activity rose to 4.7% of total applications, the FHA share increased to 12.2% from 11.6% a week earlier, the VA share was 12.6%, and the USDA share of total applications slipped to 0.6% from 0.7% the week prior.

Contract interest rates

• The average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($417,000 or less) rose 18 basis points -- from 3.77% to 3.95% -- its highest level since January, with points increasing to 0.39 from 0.38 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate increased from last week.
• The average contract interest rate for 30-year FRMs with jumbo loan balances (greater than $417,000) increased to its highest level since January -- 3.89%, from 3.75% -- with points decreasing to 0.26 from 0.27 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 30-year FRMs backed by the FHA shot up 12 basis points to 3.73%, its highest level since April, with points decreasing to 0.28 from 0.35 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 15-year FRMs rose to its highest level since March -- 3.15% from 3.03% -- with points decreasing to 0.29 from 0.38 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.
• The average contract interest rate for 5/1 ARMs surged 19 points to 3.11%, its highest level since March, with points decreasing to 0.42 from 0.47 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.

"Following the election, mortgage rates saw their biggest week-over-week increase since the taper tantrum in June 2013, and reached their highest level since January of this year,” said MBA President and CEO David H. Stevens. “Investor expectations of faster growth and higher inflation are driving the jump up in rates, and rates have now increased for five of the past six weeks, spurring a commensurate drop in refinance activity."

The "taper tantrum," according to Investopedia, is the term used to refer to the surge in U.S. Treasury yields, which resulted from the Federal Reserve's use of tapering to gradually reduce the amount of money it was feeding into the economy.

It began when investors panicked in reaction to news of this tapering and drew their money rapidly out of the bond market, which increased bond yields The "taper tantrum," according to Investopedia, is the term used to refer to the surge in U.S. Treasury yields, which resulted from the Federal Reserve's use of tapering to gradually reduce the amount of money it was feeding into the economy.

It began when investors panicked in reaction to news of this tapering and drew their money rapidly out of the bond market, which increased bond yields drastically.

The survey covers over 75% of all U.S. retail residential mortgage applications.

The surprisingly-solid gain in jobs in October's employment report sent a very strong signal.

No, not that the economy is improving – which it appears to be.

Rather, that the creation of 271,000 new jobs last month, when the expectation was for only 180,000, means the Federal Reserve is almost certainly going to raise interest rates next month.

The financial markets have been obsessing for years over what the Fed will do about rates, even though the anticipated increase will only be a quarter point. But after nearly a decade of 0% money, even the slightest change gets magnified.

While Wall Street is focused on what this will mean for stocks and bonds, the housing market should also feel the effects. But the real estate market doesn't see rising rates as the big negative -- the equity markets do.

Strong demand

“We should see continuing strong demand for housing in the months ahead if today’s strong jobs report reflects a true return back to a strong growth trend we’ve seen over the last few years,” said Jonathan Smoke, chief economist at Realtor.com. “The healthy strong employment results for the past two years created an uptick in household formation, which has driven increased demand for home purchases and rentals.”

Make no mistake – Smoke believes the strong jobs report will send mortgage rates higher. But he notes that even rates topping 4% are low by historical standards. At the height of the housing bubble, the average mortgage rate was around 6%.

While that might suggest smooth sailing for the housing market, a new report from the National Association of Realtors (NAR) points to some potential trouble spots.

First-time buyers declining

While first-time buyers were active in the market during several months, on an annual basis they make up an increasingly smaller segment of the market.

The NAR report says first-time buyers' share of the market declined for the third consecutive year and remains at its lowest point in nearly three decades. The market is being driven more by repeat buyers who have dual incomes.

"There are several reasons why there should be more first–time buyers reaching the market, including persistently low mortgage rates, healthy job prospects for those college–educated, and the fact that renting is becoming more unaffordable in many areas," said NAR chief economist Lawrence Yun. "Unfortunately, there are just as many high hurdles slowing first–time buyers down.”

Among them, he says, are increasing rents that make it harder for would-be buyers to save enough for a down payment. Also, he says it is still too difficult to get a mortgage.

But a big obstacle, he says, is the tight inventory of available homes. Builders are constructing fewer new homes, and those that are being built tend to be more expensive, well outside the price range of a first-time buyer. There are also fewer existing homes in the entry-level price range.

A lack of entry level homes also has the effect of making those that are on the market more expensive, making this trend harder to break.