Archive for the ‘Fed and Economy Watch’ Category

Foreclosure sales have not regained the momentum they had before numerous lender moratoria brought the process to a virtual halt last Fall. 

According to the May Mortgage Monitor Report released by Lender Processing Services, Inc. (LPS), the number of serious delinquencies (90 days delinquent) and foreclosures (loans referred to an attorney for foreclosures but not yet sold) outnumber the actual foreclosure sales by a factor of 50 to 1.

During the month of May there were a total of 4,084,557 loans that were seriously delinquent or in foreclosure while only 78,676 foreclosure sales took place in the month.

The delinquency rate was essentially unchanged from April at 7.97 percent but was down from a rate of 9.74 in May 2010.  The foreclosure rate declined slightly to 4.11 percent from 4.14 but was up substantially from the 3.66 percent rate a year earlier.   There were 197,007 foreclosure starts in May, nearly 10 thousand more than in April but down from 237,198 one year earlier. 

New problem loans, defined as those that were 60 days or more delinquent during the month but had been current six months earlier, were at 1.27 percent, down from approximately 1.80 percent a year earlier and less than one-half the peak level seen in 2009.

Foreclosure sales peaked almost exactly three years ago at around 130,000 per month and, after a number of sharp monthly variations, were at almost that level last September when deficiencies in the foreclosure process were uncovered and foreclosure sales plummeted to about 60,000 in October.  Sales have not recovered.  The 78,000+ sales in May represented less than 6 percent of the loans in the foreclosure inventory.

The May data shows that the biggest drop in foreclosure sales since the September 2010 peak has been seen in East Coast states, with a decline of 96% in DC, 80% in Maryland, 79% in New York, and 75% in New Jersey. Additionally, inventories of foreclosures in judicial states have increased twice as much as inventories in non-judicial states over the last year.

The average time a loan spends in foreclosure continues to increase.   In May 40 percent of delinquent borrowers had not made a payment in over a year and one third of those in foreclosure had not made a one in over two years.

Negative equity continues to be a problem.  LPS reports that nearly 30 percent of performing loans are in a negative equity position.  This is ominous as other LPS data shows that underwater loans default with 10 times the frequency of those where the borrowers have equity. Of the 70 percent of current foreclosures with negative equity, over 35 percent have combined loan to value ratios of over 150 percent.

The Million Dollar Question: Have Home Prices Bottomed?

"Nationally, housing faces a long road to recovery, but not all markets are equal", says MND's Managing Editor Adam Quinones. "While areas with a high concentration of distressed properties are clearly stuck in a deflating environment, some communities will see price stability.  It's all based on local and regional economies. Where are jobs being created? Where are the best schools? Where is value being created by the community? Where do buyers want to live? This is where the housing recovery can build momentum. Of course you need to be in the right financial situation to even be asking these questions. That's another problem all together. Tight credit demands from lenders combined with damaged borrower credit profiles (and a lack of reserves) implies buyer demand will lag the broader economic recovery, which is lagging itself.  Finding a bottom in the hardest hit areas is another story. Here, the GSEs, FHA, and major banks must manage their REO inventory carefully. In these areas, home prices remain highly-sensitive to even the smallest of shocks in buyer sentiment, such as the premature release of shadow inventory. It's gonna be a tight-rope walk. Step 1 is stopping the negative feedback loop."

Foreclosure Filings in Downtrend. Masked Reality?

Housing Scorecard: Delinquencies Down. Foreclosures Delayed

Foreclosure Filings Drop. Prevention Policies Distorting Supply and Demand

LPS Data Shows Long Delays in Foreclosure Process

CoreLogic Estimates Shadow Inventory at 1.8 Million Homes

Foreclosure Filings Fall. Robogate Fallout Skews Report

ABOUT: LPS data is based on mortgage data and performance information on nearly 40 million first mortgages across all types of credit products.

Woohoo! The April S&P/Case-Shiller Home Price Indices showed a monthly increase* in home prices for the first time in eight months today.

On a month-over-month basis, the 10- and 20-City Composites were up 0.8% and 0.7% in April versus March. The chart below illustrates the annualized returns of the 10-City and the 20-City Composite Home Price Indices.  In April 2011, the 10-City and 20-City Composites recorded annual declines of -3.1% and -4.0%, respectively.

Oh wait a minute, there is an asterisk* to address before we can get excited about positive news in housing.

“In a welcome shift from recent months, this month is better than last - April’s numbers beat March,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather."

Ugh. Mr. Blitzer is a bucket of cold water (rightfully so).  Why does distinguishing between seasonally adjusted and non-seasonally adjusted data matter? Because Case-Shiller recommends using non-seasonally adjusted data, citing it as the more reliable indicator.  This is the last guidance S&P shared on the topic:

"Economic data which are affected by the time of the year, or the seasons, are often adjusted to remove these effects to make it easier to identify underlying changes in the economy. Seasonal adjustment increases the unadjusted values in weak months and decreases the unadjusted values in strong months to eliminate regular seasonal patterns while leaving the underlying trend unaffected. For the S&P/Case-Shiller Home Price Indices, S&P reports two data sets – before seasonal adjustment and seasonally-adjusted. In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor. Additionally, if monthly changes are considered, the unadjusted series should be used."

Plain and Simple:    The headline many news editors will write, "Home Prices See First Increase in Eight Months",  is based off the monthly, non-seasonally adjusted data. That seems like a glimmer of good news for housing, especially after one remembers that S&P told us to focus on the non-seasonally adjusted data, but Mr. Blitzer wants us to contain our excitement until a new trend develops that confirms a home price stabilization. We need to see progress on a monthly basis and we need it to show up in annual comparisons as well. This is because seasonal adjustments tend to decrease unadjusted values in strong months to eliminate regular seasonal patterns, such as nice weather. So what Mr. Blitzer is basically telling us is, "This is a step in the right direction but we don't know if it's gonna last. More positive data is needed to confirm a potential stabilization".

A summary of the monthly changes using the seasonally adjusted (SA) and non-seasonally adjusted (NSA) data can be found in the table below.  Looking closer,  one can see why Mr.Blitzer is skeptical of the month-over-month improvement. In both the 10- and 20- city indexes, there is a 0.8% difference between non-seasonally adjusted data and seasonally adjusted data.  In only 5 metro areas did the seasonally adjusted figure outperform the non-seasonally adjusted figure.  This makes it clear that seasonal adjustments do tend to decrease the unadjusted index values in strong months.

Of course we're discussing the Composite Indexes when we should be breaking down the data by individual locations. 

Excerpts taken from the release..

• As of April 2011, 19 of the 20 MSAs and both Composites are down compared to April 2010.
• From their 2006/2007 peaks, six of the 20 MSAs showed new index lows in April:  Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa.
• Thirteen of the markets rose in April over March, with six of them increasing by more than 1.0%.
• While 13 markets rose on a monthly basis, 16 markets saw their annual rates of change fall deeper into negative territory.
• Minneapolis was the only city that demonstrated a double-digit annual decline, -11.1%.
• Washington D.C. continues to be the only market to post a year-over-year gain, at +4.0%. Plus D.C. saw a +3.0% monthly increase
• With respective index levels of 100.36 and 101.95, Phoenix and Atlanta are two markets that are close to losing any value gained since January 2000.
  
• As of April 2011, Cleveland, Detroit and Las Vegas are the three markets where average home prices are lower than where they were 11 years ago.

The table below summarizes the results for April 2011...

Mr. Blitzer summed up the findings of the report nicely when he said, "For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”

That leaves us to ponder over the million dollar question: Have home prices finally hit bottom?

Nationally, housing faces a long road to recovery, but not all markets are equal. While areas with a high concentration of distressed properties are clearly stuck in a deflating environment, some communities will see price stability.  It's all based on local and regional economies. Where are jobs being created? Where are the best schools? Where is value being created by the community? Where do buyers want to live? This is where the housing recovery can build momentum. Of course you need to be in the right financial situation to even be asking these questions. That's another problem all together. Tight credit demands from lenders combined with damaged borrower credit profiles (and a lack of reserves) implies buyer demand will lag the broader economic recovery, which is lagging itself.  Finding a bottom in the hardest hit areas is another story. Here, the GSEs, FHA, and major banks must manage their REO inventory carefully. In these areas, home prices remain highly-sensitive to even the smallest of shocks in buyer sentiment, such as the premature release of shadow inventory. It's gonna be a tight-rope walk. Step 1 is stopping the negative feedback loop.

ABOUT: The indices, which are billed by S&P as the leading measure of U.S. home prices, are constructed to track the price path of typical single-family homes in a number of metropolitan statistical areas (MSAs).  The study uses matched price pairs of individual houses to construct a 20-City Composite Index and a 10-City Composite Index which are updated monthly. The indices have a base value of 100 which was set in January 2000.  Thus a current index value of 150 indicates there has been a 50% appreciation since that date for a typical home in the subject market. To be eligible to be included in the home price indices, a house must be a single-family dwelling. Condominiums and co-ops are specifically excluded. S&P Indices does publish some separate, supplemental indices for condominiums. Houses included in the indices must also have two or more recorded arms-length sale transactions. New construction is excluded.

 (Editor's Note:  This is the second in a series of articles summarizing material in the latest edition of "Evidence Matters" the new digest of housing research first published in February by the Department of Housing and Urban Development (HUD).  The current issue is devoted to rental housing as it was discussed at the Next Generation Housing Policy Conference held in October 2010.) 

The Next Generation conference featured three presentations on the topic of the future of the mortgage interest tax deduction (MID).  This feature of the tax code allows homeowners to deduct interest paid on one or more mortgages on up to two homes and its elimination is suggested in current attempts to reduce the budget deficit.  It is, in fact, the only tax increase to have come under wide discussion. The three economists who made presentations were:

• Edward Glaeser, Ph.D., Fred and Eleanor Glimp Professor of Economics at Harvard University.
• Todd Sinai, Ph.D., Associate Professor of Real Estate and Business and Public Policy at the University of Pennsylvania's Wharton School, Visiting Scholar at the Federal Reserve Bank of Philadelphia and Faculty Research Fellow at the National Bureau of Economic Research.
• David Crowe, Ph.D., Chief Economist and Senior Vice President at the National Association of Home Builders (NAHB).

Two of the three speakers argued forcibly for curtailing the deduction although their reasons differed.  Only Crowe, speaking for an industry group which benefits from home ownership, favored its continuation. 

Glaeser called the deduction a regressive one that artificially distorts behavior, including pushing people toward single-family detached houses, while at the same time being poorly designed to actually promote homeownership. He maintained that the government should not be encouraging people to use leverage to gamble on "the vicissitudes of the housing market," particularly in the wake of a housing crisis.  

The deduction, he said, also encourages people to buy bigger homes and he believes that Americans already live in homes that are too big for their budgets or for the environment.  Homeownership is generally equated with single-family structures so, by encouraging ownership rather than rentals the government is pushing people away from multifamily dwellings and thus from urban areas where they are more common.  "We should not be bribing people to leave our economically productive urban cores," he said.

Homeownership, Glaeser said, has often been pushed as a path to middle-class prosperity, but in the wake of the housing boom he calls this "dubious."  It is also credited with other desirable social outcomes but the deduction is actually poorly designed to encourage homeownership because it disproportionately benefits the wealthy who are likely to own anyway.  Glaeser quoted research from James Poterba and Sinai that the MID is ten times more beneficial to upper income individuals than the family earning $40,000 to $75,000 and stated that many poorer households "on the margin between owning and renting do not even itemize."

Reform is needed but with the market still in distress eliminating the deduction all at once would be too extreme.  He suggested reducing the upper limit from $1 million to $300,000 over the next seven years.  "Eventually, policymakers could replace the deduction with a straight owner's credit that provided some incentive for ownership (if absolutely necessary) but did not encourage extra borrowing or larger homes."

Sinai opted for referring to the MID as a subsidy rather than a deduction and says it is only one component of the total tax subsidy for owner-occupied housing. "In an undistorted tax code, taxpayers would be allowed to deduct their expenses (mortgage interest) when they pay tax on their income (rent). Because the United States does not tax estimated rental income for owner-occupiers, the interest deduction should not be allowed." This constitutes a subsidy. "However, the tax code also does not permit many actions that could offset the effects of untaxed rental income, such as taxing the estimated return to equity invested in owner-occupied houses."

The deduction costs an estimated $93.8 billion in each year which constitutes nearly 9 percent of the 2011 budget deficit as projected by the Congressional Budget Office.  However, Sinai said that his and Poterba's research concluded that in 2004 the total tax subsidy for owner-occupied housing was $330 billion. The MID is just a subsidy that uses mortgage debt to finance home purchases. Curtailing it leaves behind a host of subsidies, the most important being a subsidy for using equity to buy a house.  "Many positive aspects of homeownership exist, but the inappropriate use of mortgage debt negated nearly all of them in the latest downturn."

Eliminating MID would not eliminate the tax subsidy for owner-occupied housing. High-income households might substitute equity finance for debt, allowing them to retain their housing subsidy. Older homeowners with little mortgage debt and low-income households that do not itemize do not benefit from MID, so curtailing it would have the biggest impact on middle-class families and would discourage wealthy households from using leverage. "Is a partial reduction in the housing subsidy worth these distortions to household capital allocation and progressivity? Because the government can change other parts of the tax code to restore progressivity, the answer is likely yes."

The solution depends on implementation; reducing MID requires corresponding reductions in the income tax burden and any changes must be phased in to mitigate an adverse impact on home prices.

Crowe outlined what he called the fundamental role of homeownership in American society including improved educational outcomes, better health, reduced crime, and in the long run, homeownership a path to wealth accumulation.  The net worth of the average homeowner, he said, is more than 45 times that of the average renter.

Homeownership for most is impossible without debt financing and the MID provides parity with the tax treatment of interest expense associated with other forms of debt-financed investment, including financial assets and rental housing and lowers the effective interest rate making homeownership accessible to more households.  "The MID is well justified as housing policy given the documented positive externalities associated with homeownership."

Crowe said that among the misleading or incorrect information used to attack the MID is that few homeowners actually benefit because they do not itemize on their tax returns.  In fact, Crowe said, 86 percent of all mortgage interest paid over the past decade was claimed as an itemized deduction.

He also argued that it is not regressive, citing a Congressional committee which estimated that about 70 percent of the benefits from MID go to households earning less than $200,000 and figures NAHB that show middle-class households earn the largest benefits as a share of income. That these benefits are greatest during the early years of a mortgage when most of a monthly payment is interest provides significant help to younger homebuyers when their household budgets are the tightest and wealth accumulation is beginning.

Another NAHB analysis indicates that families with children collect larger tax benefits so, rather than causing homebuyers to buy a larger home, the MID helps growing households finance the larger home they need.

Crow disputed that the MID played a role in the recent housing crisis as it has been part of the tax code since 1913 and widely used by the middle class since the 1940s, with no evidence of having created a housing bubble.  If the MID were responsible for recent problems, "you would expect a positive relationship between the use of the MID and foreclosures, but none exists."

"Given the macroeconomic damage that weakening the MID would cause," Crowe said, "the MID must retain its place as a cornerstone of U.S. housing policy."

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 17, 2011.

Although mortgage rates have rallied back to levels just above their all-time lows, home loan demand has largely failed to react to it.  The MBA did report a nice uptick in refinance applications in the week ending June 7th, and while this was exciting, even that jump failed to spark further momentum as the Refinance Index declined 7.2 percent in the most recent report.  Mortgage rates did however move higher last week, so besides all the barriers that contiue to block borrowers from reducing their monthly payments,  there is an explanation for the most recent slowdown.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 5.9 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 6.2 percent compared with the previous week.  The four week moving average is up 0.4 percent.

The Refinance Index decreased 7.2 percent from the previous week. The four week moving average is up 0.8 percent. The refinance share of mortgage activity decreased to 69.2 percent of total applications from 70.0 percent the previous week.

The seasonally adjusted Purchase Index decreased 2.8 percent from one week earlier. The unadjusted Purchase Index decreased 3.9 percent compared with the previous week and was 4.4 percent higher than the same week one year ago. The four week moving average is down 0.7 percent.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.57 percent from 4.51 percent, with points decreasing to 0.91 from 1.04 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  The effective rate also increased from last week.  

The average contract interest rate for 15-year fixed-rate mortgages increased to 3.70 percent from 3.67 percent, with points decreasing to 1.05 from 1.06 (including the origination fee) for 80 percent LTV loans. The effective rate also increased from last week.

The adjustable-rate mortgage (ARM) share of activity decreased to 5.9 percent from 6.1 percent of total applications from the previous week.

Regarding the barriers that continue to block borrowers from reducing their monthly payments...

Over a month ago we wrote, "Right now we're witnessing the beginnings of a mini-refinance boom in the primary mortgage market, but there has been little activity in the secondary market that would indicate increased rate locking by consumers." says MND's Managing Editor Adam Quinones. "However, if conventional 30-year rates reach 4.25%, we'd expect to see a mini-boom scenario play out. There is much stored demand in the system as many borrowers missed the boat on record low rates in October and early November. This crowd is waiting in the wings for those rates to return. Whether or not that happens is still very much up in the air"

In reaction to that comment, Ted Rood, a loan originator from MetLife Home Loans added, "One thing to consider regarding refi volume is that HUD effectively ended FHA streamlines over the course of the last year by tightening underwriting guidelines and jacking up monthly MIP fees. After the change, many existing FHA clients have been unable to meet net benefit rules,  even when dropping their rate by 1% or more, since their monthly MIP would double on the new loan. So FHA clients don't get to benefit from lower rates and HUD doesn't get new upfront MIPs from existing clients with clean payment histories who want to refinance".

READ MORE: New FHA MIP Structure to Slow Streamlines

READ MORE: Rents Seen Rising as Poor Credit Hurts Homeownership Demand

READ MORE: Realtors Request Looser Credit Regs as Home Sales Decline

* ABOUT: The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.

The National Association of Realtors today released Existing Home Sales data for May 2011.

Existing Home Sales declined by 3.8 percent to a seasonally adjusted annual rate of 4.81 million in May from a negatively revised 5.00 million pace in April. This is 15.3 percent below the 5.68 million annual pace reported last May (*when sales were surging to beat the deadline for the home buyer tax credit).   All regions saw annual contractions in both the pace of home sales and median prices.  And while total housing inventory was reduced by 1.0 percent to 3.72 million previously owned homes for sale,  it's now going to take longer to sell those homes because the annualized pace of sales declined to 4.81 million. That works out to 9.3-months of supply, up from 9.0-months of supply in April. FYI: Supply of between six and seven months is viewed as an equilibrium range. Higher readings general point to lower home prices to better balance supply and demand.

Existing-home sales were down in May as temporary factors and financing problems weighed on the market, according to the National Association of Realtors®. Lawrence Yun, NAR chief economist, said temporary factors held back the market in May, as implied from prior data on contract signings. "Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May," he said. "Current housing market activity indicates a very slow pace of broader economic activity, but recent reversals in oil prices are likely to mitigate the impact going forward. The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year."

Excerpts from the Release...

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8 percent to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3 percent below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.

Single-family home sales declined 3.2 percent to a seasonally adjusted annual rate of 4.24 million in May from 4.38 million in April, and are 15.4 percent below a surge to 5.01 million one year ago. The median existing single-family home price was $166,700 in May, down 4.5 percent from May 2010.

Existing condominium and co-op sales fell 8.1 percent to a seasonally adjusted annual rate of 570,000 in May from 620,000 in April, and are 14.7 percent below the 668,000-unit pace in May 2010. The median existing condo price was $165,400 in May, which is 5.8 percent below a year ago.

There were notable regional differences in home sales. “A large decline in Midwestern existing-home sales can be attributed partly to the flooding and other severe weather patterns that occurred, but this also implies a temporary nature of soft market activity,” Yun explained.

Regionally, existing-home sales in the Northeast declined 2.5 percent to an annual level of 770,000 in May and are 13.5 percent below May 2010. The median price in the Northeast was $241,500, up 6.1 percent from a year ago.  Existing-home sales in the Midwest dropped 6.4 percent in May to a pace of 1.02 million and are 22.7 percent below a year ago. The median price in the Midwest was $136,400, which is 8.5 percent below May 2010. In the South, existing-home sales fell 5.1 percent to an annual level of 1.85 million in May and are 14.4 percent below May 2010. The median price in the South was $149,200, down 3.1 percent from a year ago.
Existing-home sales in the West were unchanged at an annual pace of 1.17 million in May but are 10.0 percent lower than a year ago. The median price in the West was $192,300, which is 12.6 percent below May 2010.

“Home prices are rising or very stable in local markets with improved employment conditions, such as in North Dakota, Alaska, Washington, D.C., and many parts of Texas,” Yun noted.

The national median existing-home price for all housing types was $166,500 in May, down 4.6 percent from May 2010. Distressed homes – typically sold at a discount of about 20 percent – accounted for 31 percent of sales in May, down from 37 percent in April; they were 31 percent in May 2010.

“The price decline could be diminishing, as buyers recognize great bargain prices and the highest affordability conditions in 40 years; this will help mitigate further price drops,” Yun said.

All-cash transactions stood at 30 percent in May, down from 31 percent in April; they were 25 percent in May 2010; investors account for the bulk of cash purchases.

First-time buyers purchased 35 percent of homes in May, down from 36 percent in April; they were 46 percent in May 2010 when the tax credit was in place. Investors accounted for 19 percent of purchase activity in May compared with 20 percent in April; they were 14 percent in May 2010.

Total housing inventory at the end of May fell 1.0 percent to 3.72 million existing homes available for sale, which represents a 9.3-month supply at the current sales pace, up from a 9.0-month supply in April.

Yun said the market also is being constrained by the lending community. “Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards,” he said. “There’s been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction – this overreaction is clearly holding back the recovery.”

When calling attention to high gas prices and severe weather Yun is referencing the economic connection between Consumer Confidence and housing demand. We have described this relationship as the "negative feedback loop". This is what we wrote in August 2010 after the home buyer tax credit expired in June....

HOUSING  IS STAGNANT

This should come as no surprise to folks working in the industry. Uncertainty is abundant in all sectors of the economy and prospective (qualified) homeowners are too worried about further declines in home prices to buy a house right now. When investing outlooks are unusually cloudy and the market's strategic perspective is stuck in the "here and now", a brutal negative feedback loop can arise. Some may refer  to this phenomenon as a "downward spiral", where negative data leads to more negative data.

Plain and Simple: Although mortgage rates are at all-time lows and home affordability is at an all-time high, fence sitting home buyers are waiting for proof that home prices have hit bottom before making the biggest investment decision of their life.  While they wait for a clear cut buy signal, home prices will fall further and home buyer pessimism will intensify which will lead to more weak housing data. And the downward spiral begins...

We could go on and on about the industry, lender, and borrower specific problems limiting the housing recovery, however we believe the general big picture economic environment is providing enough roadblocks to recovery on its own. Thus, we will continue to state that until the labor market stabilizes and jobs start being created, the housing market will undergo a slow, frustrating recovery process (for mortgage and real estate professionals especially)

Some Optimism: Nationally, housing faces a long road to recovery, but not all markets are equal. While areas with a high concentration of distressed properties are clearly stuck in a deflating scenario, some communities will see price stability.  It's all based on local and regional economies. Where are jobs being created? Where are the best schools? Where is value being created by the community? Where do buyers want to live? This is where the housing recovery can find momentum. Of course you need to be in the right financial situation to even be asking these questions. That's another problem all together...

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a number of proposals being considered in Washington could further jeopardize the housing recovery. “We’re concerned about the flow of available capital, including a possible rule that would effectively raise minimum downpayment requirements to 20 percent,” he said. “We don’t need to throw the baby out with the bath water – increasing downpayment requirements would effectively shut many qualified families out of the market. What we critically need is a return to the basics of providing safe mortgages to creditworthy buyers willing to stay well within their budget.”

ABOUT: Existing Home Sales report on the number of completed real estate sales transactions on single-family homes, townhomes, condominiums and co-ops. The methodology in calculating existing-home sales statistics is really quite simple. Each month the National Association of Realtor® receives data on existing-home sales from local associations/boards and multiple listing services (MLS) nationwide.  The monthly EHS economic indicator is based on a representative sample of 160 Boards/MLSs. NAR captures 30-40% of all existing-home sale transactions with its monthly survey. HERE is the methodology for the data collection

The U.S. Census Bureau and the Department of Housing and Urban Development have released New Residential Construction statistics for May 2011.

Housing Starts data estimates how much new residential real estate construction occurred in the previous month. New construction means digging has begun. Adding rooms or renovating old ones does not count, the builder must be constructing a new home (can be on old foundation if re-building). Although the report offers up single family housing, 2-4 unit housing, and 5-unit and above housing data, single family housing is by far the most important as it accounts for 70-80% of total home building (which should be shifting more toward multi-family in the years ahead).

Building Permits data provides an estimate on the number of homes planning on being built. This indicator basically tracks how much future construction activity we should expect to take place in the future. This data is a part of Conference Board's Index of Leading Economic Indicators.

Reuters Quick Recap....

RTRS - US MAY HOUSING STARTS +3.5 PCT VS APRIL -8.8 PCT (PREV -10.6 PCT)

RTRS - US MAY HOUSING STARTS 560,000 UNIT RATE (CONSENSUS 540,000) VS APRIL 541,000 (PREV 523,000)

RTRS - US MAY HOUSING PERMITS +8.7 PCT VS APRIL -1.9 PCT (PREV -1.9 PCT)

RTRS - US MAY HOUSING PERMITS 612,000 UNIT RATE (CONSENSUS 558,000) VS APRIL 563,000 (PREV 563,000)

RTRS - US MAY SINGLE-FAMILY STARTS +3.7 PCT TO 419,000 UNIT RATE; MULTIFAMILY +2.9 PCT TO 141,000 UNIT RATE

RTRS - US MAY HOUSING PERMITS RATE HIGHEST SINCE DEC 2010 (630,000 UNITS)

Excerpts from the Release....

BUILDING PERMITS
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000.

Single-family authorizations in May were at a rate of 405,000; this is 2.5 percent (±1.1%) above the revised April figure of 395,000. Authorizations of units in buildings with five units or more were at a rate of 190,000 in May.

HOUSING STARTS
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the 12.4%) revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Single-family housing starts in May were at a rate of 419,000; this is 3.7 percent (±9.5%)* above the revised April figure of 404,000.  The May rate for units in buildings with five units or more was 134,000.

HOUSING COMPLETIONS
Privately-owned housing completions in May were at a seasonally adjusted annual rate of 544,000. This is 0.4 percent (±14.6%)* above the revised April estimate of 542,000, but is 22.5 percent (±9.2%) below the May 2010 rate of 702,000.

Single-family housing completions in May were at a rate of 431,000; this is 2.9 percent (±17.0%)* above the revised April rate of 419,000. The May rate for units in buildings with five units or more was 108,000.

Because the New Home Sales survey is primarily based on a sample of houses selected from Building Permits data, we are able make a forward looking observation about May New Home Sales using today's permit numbers.   Building Permits were up 5.2% in May, so New Home Sales should also increase in May following a 7.3% increase in April (but with a 16.6% margin of error).  Discrepancies between Building Permits data and the New Home Sales report that follows can be attributed to this statistical margin of error. READ MORE

These month over month improvements seem great, but the new construction market is really just bouncing along near record low levels of activity. National Association of Home Builders Chairman Bob Nielson recently summed up the environment when he said, "Builders are being squeezed by the continuing weakness in existing-home prices - against which they must compete -- as well as rising material costs...In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs."

The U.S. Census Bureau and the Department of Housing and Urban Development have released New Residential Construction statistics for May 2011.

Housing Starts data estimates how much new residential real estate construction occurred in the previous month. New construction means digging has begun. Adding rooms or renovating old ones does not count, the builder must be constructing a new home (can be on old foundation if re-building). Although the report offers up single family housing, 2-4 unit housing, and 5-unit and above housing data, single family housing is by far the most important as it accounts for 70-80% of total home building (which should be shifting more toward multi-family in the years ahead).

Building Permits data provides an estimate on the number of homes planning on being built. This indicator basically tracks how much future construction activity we should expect to take place in the future. This data is a part of Conference Board's Index of Leading Economic Indicators.

Reuters Quick Recap....

RTRS - US MAY HOUSING STARTS +3.5 PCT VS APRIL -8.8 PCT (PREV -10.6 PCT)

RTRS - US MAY HOUSING STARTS 560,000 UNIT RATE (CONSENSUS 540,000) VS APRIL 541,000 (PREV 523,000)

RTRS - US MAY HOUSING PERMITS +8.7 PCT VS APRIL -1.9 PCT (PREV -1.9 PCT)

RTRS - US MAY HOUSING PERMITS 612,000 UNIT RATE (CONSENSUS 558,000) VS APRIL 563,000 (PREV 563,000)

RTRS - US MAY SINGLE-FAMILY STARTS +3.7 PCT TO 419,000 UNIT RATE; MULTIFAMILY +2.9 PCT TO 141,000 UNIT RATE

RTRS - US MAY HOUSING PERMITS RATE HIGHEST SINCE DEC 2010 (630,000 UNITS)

Excerpts from the Release....

BUILDING PERMITS
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000.

Single-family authorizations in May were at a rate of 405,000; this is 2.5 percent (±1.1%) above the revised April figure of 395,000. Authorizations of units in buildings with five units or more were at a rate of 190,000 in May.

HOUSING STARTS
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the 12.4%) revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Single-family housing starts in May were at a rate of 419,000; this is 3.7 percent (±9.5%)* above the revised April figure of 404,000.  The May rate for units in buildings with five units or more was 134,000.

HOUSING COMPLETIONS
Privately-owned housing completions in May were at a seasonally adjusted annual rate of 544,000. This is 0.4 percent (±14.6%)* above the revised April estimate of 542,000, but is 22.5 percent (±9.2%) below the May 2010 rate of 702,000.

Single-family housing completions in May were at a rate of 431,000; this is 2.9 percent (±17.0%)* above the revised April rate of 419,000. The May rate for units in buildings with five units or more was 108,000.

Because the New Home Sales survey is primarily based on a sample of houses selected from Building Permits data, we are able make a forward looking observation about May New Home Sales using today's permit numbers.   Building Permits were up 5.2% in May, so New Home Sales should also increase in May following a 7.3% increase in April (but with a 16.6% margin of error).  Discrepancies between Building Permits data and the New Home Sales report that follows can be attributed to this statistical margin of error. READ MORE

These month over month improvements seem great, but the new construction market is really just bouncing along near record low levels of activity. National Association of Home Builders Chairman Bob Nielson recently summed up the environment when he said, "Builders are being squeezed by the continuing weakness in existing-home prices - against which they must compete -- as well as rising material costs...In addition to the ongoing impacts of distressed property sales on home prices, appraisal values and consumer confidence, rising costs for materials such as roofing, copper, wallboard, vinyl siding and other components have made it extremely difficult to construct a new home and sell it at a price that covers the costs."

Could the end be near?  There finally appears to be a developing trend of good news on the foreclosure front as filings of all types declined by two percent in May.  This is now the eighth straight month that RealtyTrac's U.S. Foreclosure Market Report has shown a month-over-month drop and May filings were 33 percent lower vs. May 2010.

Of course, the foreclosures that have caused such disruption to the market and heartbreak for millions of Americans are still occurring at levels that were never imagined five years ago, and in May one in every 605 U.S. housing units received a filing.  Still, the data has been pointing for some months to fewer loans defaulting and what we hopefully are seeing now is the huge backlog of seriously delinquent loans working their way through the system.

The May report shows that 214,927 properties in the U.S. received some type of foreclosure filing last month compared to 219,258 in April which was itself down 9 percent from March. RealtyTrac, an Irvine California firm tracks foreclosure filings in three categories:

1. Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.
2. Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS): if the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
3. Real Estate Owned or REO properties : "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

Notice of Default filings (NOD, LIS) totaled 58,797 in May, a seven percent decrease from April and down 39 percent from a year earlier.  This was the lowest number of default notices recorded in a single month since December 2006.

Foreclosures were scheduled (NTS, NFS) for the first time on 89,251 housing units.  This was an increase of 3 percent over April figures following eight straight months of decreases.  The May 2011 figure was 33 percent lower than the number of foreclosures scheduled a year earlier.

Lenders repossessed 66,879 properties during the month, a 4 percent decrease from April and the second straight month the number was down.  Repossessions (REO) were 29 percent lower than one year earlier.  RealtyTrac noted that, since the so-called robo-signing controversy erupted last fall, REO activity has exhibited a rollercoaster pattern with five monthly decreases and three increases.

"Foreclosure processing delays continue to mask the true face of the foreclosure situation, although there were some clues in the May numbers of what lies behind that mask," said James J. Saccacio, chief executive officer of RealtyTrac. "First, activity spiked in May for various stages of the foreclosure process in some states, a pattern that has occurred in several states over the past few months. This pattern provides evidence that lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures and as they determine that some local markets are able to absorb more foreclosure inventory.  

"Second, while the inventory of properties in the foreclosure process has declined steadily over the past six months - thanks in large part to 16 consecutive months of year-over-year declines in new default notices - the inventory of unsold bank-owned REOs increased in April and May even as new REO activity slowed in both of those months," Saccacio continued. "That points to continued weak demand from buyers, making it tough for lenders to unload their REO inventory. Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month."

 A total of 141,348 properties received foreclosure filings in states where lenders primarily use the non-judicial foreclosure process, nearly two-thirds of the national total. Overall foreclosure activity in non-judicial foreclosure states was down 3 percent from April and down 25 percent from May 2010.  In non-judicial foreclosure states scheduled auctions increased 2 percent but in California this category was up 16 percent since April and in Texas, Virginia, and Michigan the increase was 10 percent.  REO activity in states that used primarily the judicial foreclosure process was virtually unchanged while there was a very high increase in activity in three non-judicial states.  In Georgia REO activity increased 79 percent month-over-month while in Virginia and Michigan the increases were 36 percent and 19 percent respectively.  There were also spikes in REO activity in four judicial states with New York posting a 97 percent increase, New Jersey 21 percent, Wisconsin 20 percent and Indiana 18 percent.

Once again Nevada and Arizona led the nation in foreclosure activity followed by California, Michigan, and Georgia.

Despite the severe economic downturn, persistent unemployment, and thousands of foreclosures, Secretary of Housing and Urban Development (HUD) Shaun Donovan announced that the number of homeless people in the U.S. held relatively steady between 2009 and 2010.  While overall numbers were up slightly, the numbers of chronically homeless decreased 1 percent, from 110,917 to 109,920.  This and other data on homelessness are contained in the 2010 Annual Homeless Assessment Report to Congress (AHAR) released by HUD on Tuesday.

At a press conference attending the release, Donovan stated "It's clear that had it not been for President Obama's Recovery Act, many hundreds of thousands of persons may have fallen into homelessness or remained there.  During the height of our nation's economic hardship, we've managed to stabilize and even prevent homelessness as we work to find permanent housing solutions for the most vulnerable among us."

Data on the numbers of homeless are collected through a count of the numbers of persons who are in shelters or "unsheltered" on a single night in February and a 12 month count of persons who access a shelter over the course of a full year.  Data was collected from over 4,700 cities and counties during 2010. 

The "snapshot" survey found the numbers of persons homeless on that single night increased by 1.1 percent over the 2009 count to 649,879.  This included 29,344 family households and 241,621 persons in families, both slight (1.6 percent or less) increases year-over-year.  Three states, California, New York, and Florida accounted for 40 percent of the homeless on this night.  

The 12 month count found that 1.6 million persons experienced homelessness and found shelter in a one year period ending September 30, 2010, a 2.2 percent increase over 2009.

Single homeless individuals tend to be white men over the age of 30 with a disabling condition, while adults in families are more likely to be younger African-American women without a reported disability. Of all those who sought emergency shelter or transitional housing during 2010, the following characteristics were observed: 

• 78 percent of all sheltered homeless persons are adults.
• 62 percent are male.
• 58 percent are members of a minority group.
• 37 percent are 31-to-50 years old.
• 63 percent are in one-person households.
• 37 percent have a disability. 

Donovan highlighted two programs that have helped stabilized the homeless population.  The Homelessness Prevention and Rapid Re-housing Program served 690,000 people during its first year of operation including 531,000 individuals who were prevented from becoming homeless in the first place.  The remaining 159,000 received "rapid re-housing" assistance to move from the streets or shelters into permanent housing.  Fifty-nine percent of HPRP participants received assistance for two months or less with those receiving homelessness prevention assistance requiring a slightly longer participation than those receiving rapid re-housing assistance.

The second program is the Permanent Supportive Housing Program (PSH) which combines shelter solutions with other services such as health care, employment, or addiction treatment.   PSH beds are now the largest part of the nation's homeless housing inventory with 236,798 beds 23 percent of which are specifically targeted for the chronically homeless.  Nearly 295,000 people used PSH at some point between October 2009 and September 2010. Compared to the sheltered homeless population, PSH tenants are more likely to be female, part of a family, living in an urban area, and African-American. Adult PSH tenants are also more than twice as likely as adults in shelters to have a disabling condition (79 percent versus 37 percent.)

Donovan said that there are two trends that are notable in the new survey.  The first is a continued decline in the chronically homeless.  The numbers of this group have declined 11 percent in three years largely due to a focus on the problem among local groups.  At the same time there has been an increase among families and in rural and suburban areas.  Donovan said one reason for the rise in the rural homelessness is the number of military personal who come from rural areas and return there and experience homelessness.  Veterans, he said, are 50 percent more likely to become homeless than the general population.  A separate assessment on veterans' homelessness will be issued in the next few months.

The Secretary said the increase in homeless families is not surprising given the economy and the history of homeless programs where local efforts have been targeted at chronic homelessness so those tools are further advanced.  The local areas are not as far along dealing with families but are catching up.

Barbara Poppe, chairperson of the Interagency Council on Homelessness pointed out that family homelessness is more complex because it requires a higher level of interagency cooperation to address supportive services such as child care, child health, and education.  

The report says the long-term impacts of the recession are unclear. A recent study found a nearly five-fold increase in the rate of housing overcrowding, suggesting that many families are doubling up in response to the economic downturn.   If some of these family support networks already are struggling to make ends meet, some of the doubled-up families may find their way into the homeless residential service system during 2010. 

HUD will use the findings from the 2010 AHAR to continue to work to end all homelessness through the Obama Administration's initiative Opening Doors, a federal strategy to end veteran and chronic homelessness by 2015, and to end homelessness among children, families, and youth by 2020. 

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey* for the week ending June 7, 2011.

The Refinance Index ticked up noticeably in the last week, from 2475 to 2883, the highest reading since November 2010.  This is bittersweet as it finally showed some linear connection between falling rates and refi demand...only to have rates rise this week.  Even so, the last time rates fell from 5.0 to 4.5 as they have in 2011, readings around 3000 on the refi index represented the LOW END, moving over 5000 on the index by the time rates hit the same reported level as they did last week. 

Plain and Simple: The same historically low rates are producing only a little more than half the refi demand as last fall, providing a stark picture of the current lending environment.

The Purchase Index was fairly uneventful last week.  Although it rose from 182.9 to 191.1, that puts it right in line with a majority of previous weeks.  In fact, 2 out of every 3 weeks since March have been within 5 points of 190.  Pretty darn stagnant.  With the exception of the horrible levels under 170 in the summer of 2010, we're sideways at the lowest levels in the history of MBA's reporting with a clear pivot point around 210 separating past and present. 

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, increased 13.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 24.5 percent compared with the previous week, which included Memorial Day. The Refinance Index increased 16.5 percent from the previous week. The seasonally adjusted Purchase Index increased 4.5 percent from one week earlier. The unadjusted Purchase Index increased 14.2 percent compared with the previous week and was 6.1 percent higher than the same week one year ago.

"Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November," said Michael Fratantoni, MBA's Vice President of Research and Economics. "The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes."

The four week moving average for the seasonally adjusted Market Index is up 2.4 percent. The four week moving average is up 0.3 percent for the seasonally adjusted Purchase Index, while this average is up 3.1 percent for the Refinance Index.

The refinance share of mortgage activity increased to 70.0 percent of total applications from 67.3 percent the previous week. This is the highest refinance share since January 21, 2011. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 6.1 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year average rate since November 19, 2010. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.67 percent, while points also remained unchanged at 1.06 (including the origination fee) for 80 percent LTV loans. This is the lowest 15-year average contract rate since November 5, 2010. The effective rate increased from last week.

*The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (may boost consumer spending. It also allows debtors to pay down personal liabilities faster. A trend of declining purchase applications implies home buyer demand is shrinking.