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Case Shiller: Home prices pick up speed despite fewer sales

Home prices increased once again in July, and even began picking up speed, according to the latest index released from S&P Dow Jones and CoreLogic.

Nationally, home prices were up 5.9% annually to 194.1, yet another new high and an increase from June’s rise of 5.8%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. census divisions.

The 10-City Composite increased 5.2% annually, up from the annual increase of 4.9% the previous month, and the 20-City Composite increased 5.8% year-over-year, also up from July’s 5.6% annual increase.

The chart below shows the National Index reaching its new high, even as the 10-City and 20-City Composite Indices prepare to surge past their 2007 levels.

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Case-Shiller

(Source: S&P Dow Jones, CoreLogic)

Seattle and Portland remained in the top two spots for cities with the highest increases, but Las Vegas climbed up, surpassing Dallas for the third spot. The three cities showed annual increases up 13.5%, 7.6% and 7.4% respectively. Twelve of the top 20 cities reported faster home prices growth for the year ending in July than the year ending in June.

“Home prices over the past year rose at a 5.9% annual rate,” said David Blitzer, S&P Dow Jones Indices managing director and chairman of the index committee. “Consumers, through home buying and other spending, are the driving force in the current economic expansion.

“While the gains in home prices in recent months have been in the Pacific Northwest, the leadership continues to shift among regions and cities across the country,” Blitzer said. “Dallas and Denver are also experiencing rapid price growth. Las Vegas, one of the hardest hit cities in the housing collapse, saw the third fastest increase in the year through July 2017.”

Before seasonal adjustment, the National Index increased 0.7% in July, while the 10-City and 20-City Composites increased 0.8% and 0.7% respectively. After seasonal adjustment, the National Index reported an increase of 0.5% from June. The 10-City Composite increased 0.4% while the 20-City Composite increased 0.3% month-over-month.

“While home prices continue to rise, other housing indicators may be leveling off,” Blitzer said. “Sales of both new and existing homes have slipped since last March. The Builders Sentiment Index published by the National Association of Home Builders also leveled off after March.”

“The housing market will face two contradicting challenges during the rest of 2017 and into 2018,” he said. “First, rebuilding following hurricanes across Texas, Florida and other parts of the south will lead to further supply pressures. Second, the Fed’s recent move to shrink its balance sheet could push mortgage rates upward.”

But while some experts expect the Federal Reserve’s decision to increase interest rates, most agree the widely-telegraphed event will have little effect on interest rates in the months to come.

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Homeowners gained nearly $13,000 in equity from last year

Homeowners with mortgages continue to see their equity increase in their home, according to the Q2 2017 Home Equity analysis from CoreLogic, a property information, analytics and data-enabled solutions provider.

Home equity for all homeowners with a mortgage, about 63% of total homeowners, increased a total 10.6% annually, or $766 billion since the second quarter of 2016, according to the report.

Individually, homeowners earned an average $12,987 in equity between the second quarter of 2016 and the second quarter of this year. Western states saw even higher increases with average homeowners in Washington gaining $40,000 in equity and those in California gaining $30,000 since last year.

The map below shows which states saw the largest rise in equity from the second quarter last year to the second quarter of 2017.

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Home equity

(Source: CoreLogic)

“Homeowner equity reached $8 trillion in the second quarter of 2017, which is more than double the level just five years ago,” CoreLogic President and CEO Frank Martell said. “The rapid rise in homeowner equity not only reduces mortgage risk, but also supports consumer spending and economic growth.”

CoreLogic explained these increases are driven by ever-increasing home prices across the U.S. The most recent House Price Index from the Federal Housing Finance Agency showed home prices jumped 6.3% from July 2016 to July 2017.

And as more homeowners gain equity in their home, the total number of mortgaged residential properties with negative equity decreased 10% from the first quarter to 2.8 million homes. This represents 5.4% of all mortgaged properties. This drop is even more drastic from last year as it fell 21.9% from 3.6 million homes in the second quarter of 2016, or 7.1% of all mortgaged properties.

“Over the last 12 months, approximately 750,000 borrowers achieved positive equity,” CoreLogic Chief Economist Frank Nothaft said. “This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”

Negative equity, often referred to as being underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home value, an increase in mortgage debt or both.

The national value of total negative equity decreased slightly to $284.4 billion by the end of the second quarter of 2017. This is down $700 million or 0.2% from $285.1 billion in the second quarter last year, but up $200 million or 0.1% from $284.2 billion in the first quarter.

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Home prices in Midwestern states drop in July

Across the nation, home prices increased in July, however on region in the Midwest a decrease from the month before, according to the latest House Price Index from the Federal Housing Finance Agency.

Home prices increased 0.2% in July from the month before, and rose 6.3% from July 2016, according to the HPI.

The chart below shows home prices continue to reach all new highs, but increases seem to be leveling off slightly.

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FHFA HPI

(Source: FHFA)

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.

But while home prices are increasing across the nation, one region, the West North Central division saw a drop in home prices of 0.5% from June to July. Changes in home prices ranged from this drop to an increase of 0.6% in the Pacific division.

Similarly, the West North Central division saw the lowest annual increase with 4.2%, compared to the Mountain and Pacific divisions which each saw an increase of 8.2% from July 2016.

Here is a list of which states are in each of those divisions:

West North Central: North Dakota, South Dakota, Minnesota, Nebraska, Iowa, Kansas, Missouri

Pacific: Hawaii, Alaska, Washington, Oregon, California

Mountain: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico

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Freddie Mac: Mortgage rates increase after 2 months of declines

Mortgage rates increased for the first time after two months of straight declines, according to the latest Primary Mortgage Market Survey from Freddie Mac.

“This week’s uptick in the 30-year mortgage rate ends a nearly two-month streak of declines,” Freddie Mac Chief Economist Sean Becketti said.

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9-21-17

(Source: Freddie Mac)

The 30-year fixed-rate mortgage increased to an average 3.83% for the week ending September 21, 2017. This is up from last week’s 3.78% and from 3.48% last year.

The 15-year FRM also increased, rising from 3.08% last week and 2.76% last year to hit 3.13% this week.

The five-year Treasury-indexed hybrid adjustable-rate mortgage increased to 3.17%, up from 3.13% last week and 2.8% last year.

“The 10-year Treasury yield continued its upward trend, rising seven basis points this week,” Becketti said. “As we expected, the 30-year mortgage rate followed suit, increasing five basis points to 3.83%.”

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When is the best time of year to buy a starter home?

Historically, one time of year stands out above the rest as being the best time to buy a starter home, according to a new Inventory and Price Watch report from Trulia.

During this time, starter home inventory increases about 7%, which leads to listing prices falling between 3.1% and 4.8% lower than in other parts of the year, the report shows.

The best time of year to buy a starter home, according to Trulia’s report, is fall, or between October 1st and December 31st. During this time, 70 of the largest 100 U.S. metros see peak levels of starter home inventory, and home prices begin to fall, eventually hitting their annual lows in January through March.

The chart below shows most metros see their inventory peak in October, and many see peaks in November, December and even headed in to January and February.

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Trulia

(Source: Trulia)

The markets with the largest seasonal fluctuations in starter home inventory are located in the western U.S. Seven of the top 10 metros with the largest seasonal swings are in the west. San Jose typically sees the highest jump in starter homes at 42% higher than the first quarter average.

Consequently, seven of the top 10 metros which see the largest drop in listing prices are also in the west. Wichita, Kansas, made the top of the list of metros to see the largest price drop with listing prices 18.6% lower than the first quarter average.

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Ten-X: Housing inventory hovers more than 50% below prior peak

A new analysis from Ten-X shows home sales, while near their cyclic highs, continue to lag significantly behind their previous peak.

A strong labor market and low mortgage rates combined to push home buying demand up, even as low levels of housing inventory hold back progress in sales and increase home prices, according to Ten-X’s Quarterly Residential Market Report for fall 2017.

The chart below, which uses data from Ten-X, the U.S. Census Bureau and the National Association of Realtors, shows that while home sales are currently on a general upward trend, they are significantly lower than previous peak levels.

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Home sales

(Source: Ten-X, U.S. Census Bureau, NAR)

This low level is heavily due to the lack of homes available for sale. The report shows that while new home inventory has risen 17% from last year, it is still 50% below its 2006 peak. And even these yearly gains in new home sales are offset by the drop in existing-home sales.

The chart below shows that new home sales inventory is rising even as existing home inventory continues to fall, but both are significantly below their previous peak level.

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Home sales

(Source: Ten-X, U.S. Census Bureau, NAR)

However, the lack of housing inventory is not fully to blame for this drag on home sales. The report explained many buyers, especially first-time homebuyers, are struggling with student debt, tight underwriting conditions and the potential for an increase in mortgage rates.

Another expert, First American Financial Corp. Chief Economist Mark Fleming, explained the recent hurricanes could also work to hold back home sales in the near future as the market’s potential for home sales shrank. He also said that affordability is another factor which is hindering home sales.

“The combination of home price appreciation driven by inventory shortages and the rise in mortgage rates over the year prior has had a meaningful impact on affordability,” Fleming said. “According to the First American Real House Price Index, affordability is down 9.3 percent in July compared to a year ago.”

Overall, existing home sales came in at a seasonally adjusted annual rate of 5.44 million in July, the lowest level in 2017 but up 2.1% from last year, NAR’s last report showed. New home sales also decreased as the latest report from the U.S. Census Bureau showed they have hovered near 600,000 sales for most of 2017.

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Blame the hurricanes? Homebuilders report huge drop in housing starts

New home construction increased in August after a slight slowdown, however housing completions plummeted over the month, according to the latest joint release from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Privately owned housing completions dropped from July’s estimate of 1.197 million to a seasonally adjusted annual rate of 1.075 million in August. However, this is up 3.4% from 1.04 million in August 2016.

Single-family housing completions saw an even larger drop of 13.3% from 835,000 completions in July to 724,000 in August.

Privately owned housing starts decreased, but at a much more moderate pace in August to a seasonally adjusted annual rate of 1.18 million. This is down 0.8% from the previous month’s 1.19 million but up 1.4% from August 2016’s 1.16 million.

But the chart below shows despite the constant ups and downs, housing construction has shown a general increasing trend over the past five years.

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Starts

(Source: U.S. Census Bureau, HUD)

However, this monthly decrease is due to a drop in the multifamily sector. Single-family housing starts increased 1.6% from July’s revised 838,000 to 851,000 in August.

Building permits increased to a seasonally adjusted annual rate of 1.3 million in August. This is up 5.7% from July’s revised rate of 1.23 million, and up 8.3% from the 1.2 million permits in August last year.

Single-family authorizations, however, show a slowdown could be on the horizon as they dropped 1.5% from July’s 812,000 to 800,000 permits in August. But a drop in building permits isn’t the only factor predicting a future slowdown.

“Following August’s decline in new home construction, there will no doubt be a further temporary setback to housing starts in upcoming months due to the impacts of Hurricanes Harvey and Irma on Texas and Florida, respectively,” said Lawrence Yun, National Association of Realtors chief economist.

Yun said: “The nation’s housing shortage unfortunately looks to be with us well into the next year.”

The hurricanes even began creating a pull on builder confidence as they worry about labor shortages and the cost of materials which will be magnified by the recent storms. 

However, another expert, who previously served as chief economist of Fannie Mae for more than 20 years, predicted that while the hurricanes might create a slowdown in September housing starts, it will also create an uptick for the rest of the year as disaster areas rebuild.

“Starts in the hurricane hit areas may be down again in September, but completely rebuilt homes will count as new starts, adding to housing starts in coming months as rebuilding commences,” Nationwide Chief Economist David Berson said. “The trend in housing starts should continue to be upward over the remainder of this year and in 2018, as housing demand rises boosted by the solid job market, wage gains that are edging higher, low mortgage rates, and accelerating household formations.”

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[Charts] Here are 3 facts about Harvey’s housing impact on Houston

Experts continue to question the impact of Hurricane Harvey on Houston’s housing market, and Urban Institute created graphs that showed five facts about the changing market.

During the Category 4 storm, the Houston metro was pounded with 9 trillion gallons of water, creating a hurdle for homeowners and renters across the city. Urban Institute explained the impact will be especially hard on low-income, minority families.

Here are three facts from the Urban Institute to keep in mind about the storm’s impact.

1. Homeownership took a hard hit

The chart below shows the areas of Houston with the highest homeownership rate also saw the most flooding. What’s more, only about 7% of households were insured in the Houston area and 70% of homeowners in the flooded area were uninsured, CoreLogic estimated.

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Harvey

(Source: Urban Institute)

2. Newer homeowners in danger of slipping into negative equity

Similar to the hurricane hitting the hardest in the areas with the highest homeownership rates, it also overwhelmed areas with the lowest equity, Urban Institute reported. Many homes could soon slip into negative equity as home values in the area drop.

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Harvey

(Source: Urban Institute)

3. Harvey hit all incomes, areas and property types

Urban Institute explained that while Hurricane Katrina affected mostly low-income communities, Hurricane Harvey swept through communities in every income bracket. This could mean a quicker recovery than in 2005 as higher income brackets will be able to build back more quickly.

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Harvey

(Source: Urban Institute)

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Is major RESPA battle between Zillow and CFPB imminent?

More than a month has gone by since Zillow last gave an update on the Consumer Financial Protection Bureau’s investigation into its practices, causing at least one analyst to question the likelihood the two parties will be able to reach a settlement.

And if no settlement is reached, the industry should ready itself for one of the biggest RESPA battles to date, as Zillow has continuously defended its practices.   

While a lot is still unknown in the case, the issue centers on Section 8 of the Real Estate Settlement Procedures Act and Section 1036 of the Consumer Financial Protection Act.

During Zillow’s earnings call, they revealed that the CFPB concluded its investigation and wants to discuss a settlement.

According to the earnings release, “Based on correspondence from the CFPB in August 2017, we understand that it has concluded its investigation. The CFPB has invited us to discuss a possible settlement and indicated that it intends to pursue further action if those discussions do not result in a settlement.”

Kathleen Philips, Zillow chief financial officer, said at the time that they expect things to move quickly and was headed to Washington after the call to talk about a settlement.

However, as it stands today, the company doesn’t have any new updates to give on the case.

An article from The Fly cited that shares of Zillow stock are sliding after Susquehanna Financial Group analyst Thomas Claps “told investors that he believes a lawsuit may be forthcoming from the Consumer Financial Protection Bureau over its co-marketing program. The analyst pointed out that CFPB had ‘invited’ the company to discuss a settlement, but no progress update on the discussions has been announced.” 

From the article:

Currently, Zillow’s co-marketing program allows certain groups of lenders to subsidize up to 90% of an agent’s marketing costs, while other lenders are capped at 50%, Claps said. The analyst argued that this subsidy issue is the primary focus of the CFPB investigation, and that the CFPB is likely demanding a 50% contribution cap across the board, regardless of how many lenders are contributing. Therefore, at a bare minimum, the CFPB will demand that Zillow eliminates its ability to collect more than a 50% co-pay from lenders, he added. The analyst reiterated a Neutral rating on Zillow. 

Here’s a picture from Yahoo on the company’s stock over the last year, along with another one from the last three months.

zillow stock

zillow stock

In April 2017, Zillow received a Civil Investigative Demand from the Consumer Financial Protection Bureau that requested information related to its March 2017 response to the CFPB’s February 2017 Notice and Opportunity to Respond and Advise (NORA) letter.

The letter stated that the bureau’s Office of Enforcement was considering whether to recommend that the CFPB take legal action against Zillow, alleging that it violated Section 8 of the RESPA and Section 1036 of CFPA.

Zillow added that the notice stemmed from an inquiry that commenced in 2015 when it received and responded to an initial Civil Investigative Demand from the CFPB.

The CFPB has already cautioned that the bureau may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action.

“We cannot provide assurance that the CFPB will not commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action,” stated Zillow.

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Trulia: Housing market fails to produce what buyers really want

The gap between the homes consumers want and the homes available for sale continues to grow in many markets across the U.S., according to the latest Mismatched Markets report from Trulia.

In order to examine the widening gap, Trulia compared home searches with for-sale inventory on Trulia between April and June of 2017, and compared it with that same period last year.

The data showed potential homebuyers continue to struggle when looking for starter and trade-up homes, but expensive luxury homes are flooding into the market. Trulia’s national mix-match score for all homes increased from 92 last year to 14.7.

This score is on scale of zero to 100, with zero being perfectly matched and 100 being completely mismatched.

The infographic below compares the number of home searches to the inventory available nationally, and in several housing markets across the U.S. While cities like Grand Rapids, Michigan have extremely mix-matched markets for all home types, other cities, such as Camden, New Jersey, are much more level.

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starter homes

(Source: Trulia)

The total share of starter and trade-up homes dropped to 45.8% this year, down from last year’s 46.5%, even as the share of searches for these homes increased from 55.6% to 60.5% during the same time period.

As starter and trade-up homebuyers see falling number of homes available, with shortfalls of 8 and 6.7 percentage points respectively, luxury homes saw a surplus of 14.7 percentage points nationally.

Before Hurricane Harvey, Houston held the title of the most mix-matched market with is extremely low level of starter and trade-up homes. Trulia explained it is too early to tell what kind of impact the hurricane will leave on the housing market.

“With mortgage rates remaining favorable and unemployment low, the home-buying waters probably seem welcoming enough to bring out more home buyers, many of them younger and first timers,” Trulia stated in its report. “But with inventories at historic lows and the make-up of that inventory continuing to slide away from the make-up of home buyer interests, we expect many starter and trade-up home buyers are going to find a competitive market with few options, with the possible exception of those in a handful of unique markets.”

The good news is, while homes are increasingly difficult to find, and home prices continue to soar as a result, Americans are now better positioned than ever before to cope with the rising home prices.

The U.S. Census Bureau announced Monday that real median household income increased 3.2% from 2015 to 2016, according to its Income, Poverty and Health Insurance Coverage in the United States: 2016 report. This increase to $59,039 marks the highest median income on record. It also reported the official poverty rate decreased 0.8 percentage points to 12.7%.