Home Inventory Dwindles Into The New Year

Existing Home Sales jumped another 6 percent in November, the report's third month of improvement since bottoming in July.

According to the National Association of REALTORS®, a quarter-million more existing homes were sold during the annual period ending in November as compared to October.  An "existing home" is a home that cannot be considered new construction.

Additionally, the national housing supply dropped by a full month. At the current pace of existing home sales, the complete stock of homes for sale will be exhausted in 9.5 months.

November's strong housing data is yet another signal to buyers in Corona that the housing market's foundation has been rebuilt, and that a rebound is imminent.  It's helped that there are great "deals" on which for buyers to pounce.

In November, short sales and foreclosures accounted for one-third of all existing homes sold, and carried an average price discount of 10 percent and 15 percent, respectively, as compared to non-distressed sales.

Repeat buyers continue to power the market, too, representing more than half of all home buyers.

• First-time buyers : 32% of all buyers
• Investors : 19% of all buyers
• Repeat buyers : 51% of all buyers

This breakdown suggests that housing has regained its footing. First-time buyers can't support a market long-term like repeat buyers can and, as compared to 12 months ago, the percentage of repeat buyers is now up 14 points.

Home buyers take note. Raw sales volume is rising and available inventory is dropping. Basic supply-and-demand tells us that this will lead home prices higher. Furthermore, mortgage rates are rising quickly, increasing the cost of homeownership.

If buying a home is a part of your plan for 2011, consider accelerating your purchase time frame. Existing homes account for more than 80% of homes sold nationwide. If the market keeps improving like this, your home affordability will worsen.

Housing Starts Rise In November, But With A High Margin Of Error

The number of single-family Housing Starts increased in November, adding 30,000 units as compared to October.

The Census Bureau defines a "housing start" as a home on which construction has started.

November's starts represents a 7 percent increase from the month prior. However, if you see the Housing Starts story online or in the papers, you'll notice that the press is calling the market gain at 4 percent.

So which result is right? The answer is both.

The government's monthly Housing Starts data is published as a composite report; lumping activity among 3 separate housing types into a single, group reading.

The 3 housing types are:

1. Single-family homes (i.e. 1-unit)
2. Multi-unit homes (i.e. 2-4 units)
3. Apartments (5 units or more)

The group reading is a fair description of the market and it's easy-to-understand. As a result, it's what the press tends to report. However, for home buyers in California , it's the single-family category that's most relevant.

 

The reason why single-family homes accounted for 84% of November's Housing Starts is because that's the type of home that most buyers buy. Few purchase 2-4 unit properties, and even fewer buy entire apartment complexes.

That said, it's possible that November's Housing Starts data is wrong. Within the press release, the government placed an asterisk next to the data, indicating that the figure's margin of error exceeds its actual measurement.

Against a 7 percent gain, the reported margin of error is 13.5%. There is no statistical evidence, therefore, to prove the actual change was different from zero.

If Housing Starts did fall in November, it will help to reduce the Corona housing inventory, which will, in turn, help keep home prices high. For home sellers, this could mean good news. Fewer homes for sale increase competition among buyers.

Foreclosure Activity Plunges (But With An Asterisk)

According to foreclosure-tracking firm RealtyTrac, the foreclosure filings fell 21 percent in November to 262,339 units nationwide. A foreclosure filing is defined as default notice, scheduled auction, or bank repossession. 

November marked the first time since February 2009 that the number of monthly filings failed to surpass 300,000 units.

There were other notable November statistics, too, included:

• November's 21 percent month-to-month decrease was the largest in RealtyTrac's recorded history
• November's 14 percent year-to-year decrease was the largest in RealtyTrac's recorded history
• Nevada led the nation in foreclosure activity for the 47th straight month

However, we can't read into November's RealtyTrac report too much; ultimately, history may treat it with an asterisk. Controversy surrounding the so-called robo-signers forced some of the biggest banks to institute a temporary halt to foreclosures in November. Foreclosure activity did fall last month, but the moratorium makes the figures look better for housing than if there had been no interference.

The halt in foreclosures is also why Utah leaped into the #2 state for foreclosures nationwide. Perennial foreclosure-leading states like California, Michigan and Arizona posted double-digit improvements in November whereas Utah did not.

Banks have since resumed foreclosure activity so December's results may be a better gauge for how the market is truly performing.

Foreclosures tend to be sold at discount and low home prices can entice home buyers to make an offer. If you're such a buyer in Corona and want to look at foreclosed homes, talk to a real estate agent first.

Although there's a host of online search engines that specialize in foreclosures, a licensed agent may have access to broader inventory, plus the ability to negotiate it more effectively.

What's Ahead For Mortgage Rates This Week : December 20, 2010

Mortgage markets worsened again last week as belief in a U.S. recovery and concerns for inflation took hold on Wall Street.  Conforming mortgage rates rose in California for the 6th straight week.

According to Freddie Mac's weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is 0.66% higher this week as compared to rates on November 11, but loan originators will tell you that figure is understated.

Real mortgage rates -- mortgage rates available to everyday homeowners and buyers in Corona are up by as much as a full percentage point since November, and loan costs are rising, too.

The Refi Boom of 2010 is over.

Last week, mortgage markets revolved around the Federal Open Market Committee. The FOMC met Tuesday and voted to leave the Fed Funds Rate unchanged within a target range of 0.000-0.250. This was expected. However, markets seemed to be surprised by the Fed's take on inflation.

In its press release, the Fed said inflation is running too low to benefit the economy. Its policies, including the group's $600 billion bond market program, may be meant to spark inflation, then. This would lead mortgage rates higher and Wall Street knows it.

Mortgage rates spiked after the Fed adjourned.

This week, with a sparse data schedule and trade volume thinning because of holidays, expect mortgage rates to be volatile.

Although rates are higher since 7 weeks ago, they remain low, historically. There's still a chance to capitalize on the lowest mortgage rates in decades. If you haven't refinanced this year and want to know what's available, talk to your loan officer right away.

Why Builder Confidence Surveys Matter To Buyers Of New Homes

Home builder confidence is holding firm this month, according to the National Association of Home Builders.

The group's monthly Housing Market Index survey posted 16 for December. That's the same value as from November. It's also equal to this 2010's average HMI reading.

HMI is scored on a scale of 1-100, and is a composite of 3 separate home builder surveys measuring single-family sales; projected single-family sales over the next six months; and prospective buyer foot traffic.

The results of the 3 surveys were as follows:

• Single-Family Sales : 16 (unchanged from November)
• Projected Single-Family Sales : 25 (unchanged from November)
• Prospective Buyer Foot Traffic : 11 (from 12 in November)

Values of 50 or better indicate favorable conditions for home builders. Values below 50 indicate unfavorable conditions.

In other words, although improving, conditions for home builders remain less from excellent. Home buyers in Corona can use this to their advantage. When builders feel pressure from the market, they're more likely to offer discounts.

On the other hand, job growth is returning, the economy is expanding, and mortgage rates are rising. These 3 factors are thought to boost housing markets. So, despite an unfavorable HMI reading, home builders might still less willing to "make a deal"; holding out for a better 2011.

November's strong Housing Starts data supports that line of thinking.

If you're buying a newly-built home , or expect to buy sometime in 2011, keep an eye on home builder sentiment surveys. The better the builders feel, the more you may be asked to pay to buy your next home.

Simple Real Estate Definitions : Loan-Level Pricing Adjustments

Loan-level pricing adjustments are mandatory loan fees based on a borrower's specific default risk.

First introduced in 2008, LLPAs were Fannie Mae's and Freddie Mac's logical response to massive balance sheet losses. At the time, the housing market was deteriorating and mortgage delinquencies were rising.

To "better align with loan risk characteristics", the two entities created specific fees to be associated to specific loan traits, to be charged to all borrowers.

LLPAs are still in existence today.

Today's loan-level pricing adjustments can be grouped into 5 basic categories. Application exhibiting any of the 5 traits can trigger LLPAs, adding to a borrower's loan fees:

1. Credit Score (i.e. the borrower's FICO is below 740)
2. Property Type (i.e. the subject property is multi-unit)
3. Occupancy (i.e. the subject property is an investment home)
4. Structure (i.e. there is a subordinate/junior lien on title)
5. Equity (i.e. mortgage insurance is required by the lender)

In many respects, loan-level pricing adjustment are similar to auto insurance. All things equal, the driver of a "fast" car will pay higher costs than the driver of a "safe" car.  The same is true for mortgages.

Loan-level pricing adjustments are public information. Fannie Mae publishes the complete LLPA matrix on its website. The chart can be confusing, however. If you have questions about how LLPAs work, talk with your loan officer.

A Simple Explanation Of The Federal Reserve Statement (December 14, 2010 Edition)

Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since November's meeting, the "economic recovery is continuing", but at a pace deemed too slow to make a material impact on unemployment rates. It also said that household spending in increasing, but remains constrained by joblessness, tight credit and lower housing wealth.

In addition, the Fed used its press release to re-affirm its plan to keep the Fed Funds Rate near zero percent "for an extended period" while also opting to keep its $600 billion bond market support package in place.

And lastly, of particular interest to home buyers and mortgage rate shoppers, the FOMC statement devoted an entire paragraph to the Federal Reserve's dual mandate of keeping inflation and employment at acceptable levels.

The Fed acknowledges making progress toward this goal, but calls it "disappointingly slow". Currently, inflation is too low for what the Fed deems acceptable, and unemployment is too high. 

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC statement has been negative thus far. Mortgage rates in Corona are unchanged post-FOMC, but appear poised to worsen.

The FOMC's next scheduled meeting is a 2-day affair, January 25-26, 2011. It's the first scheduled meeting of 2011.