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Hurricane Impact Could Exceed $20 Billion
Hurricane Sandy swept through 12 U.S. states, causing floods and fires, and an estimated $10 billion to $20 billion in potential losses according to estimates from research firm Capital Economics.
Mortgage Bankers Association CEO David Stevens said he expects loan application numbers and rates to be affected for the period that includes Hurricane Sandy. But overall, he views the storm as a “temporary blip” that will have no long term affects or significant impact on the mortgage finance system. Some industries, including home construction and repair, will no doubt see a boost in the aftermath.
Last year’s Hurricane Irene, which was less severe, ended up costing the Northeast region $10 billion while 2005’s Hurricane Katrina led to $100 billion in cleanup expenses around the Gulf Coast, according to data from Paul Ashworth, chief U.S. economist for Capital Economics.
Despite the negative impact of the hurricane, Capital Economics contends Sandy’s overall effect on economic output “is likely to be small,” although the economy will take a hit early on.
The financial impact will be short-term and over before the end of this quarter, Capital Economics said. When factoring in the expected boost to GDP on cleanup activity, the overall impact is modest. Much of the clean up spending will be born by insurers and large global reinsurance firms, many of which are based in Europe.
The states impacted by Sandy represent 23% of the nation’s gross domestic product, with the New York metropolitan area alone accounting for 10% of GDP.
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Pending Home Sales Up in September
Forecasting increases in home prices and completed transactions for the year, the National Association of Realtors is starting to report slow, but positive improvement for housing.
According to NAR, pending home sales jumped 14.5%, compared to September 2011. In comparison, August pending home sales grew 10.7%, suggesting overall improvement in 2012.
NAR chief economist, Lawrence Yun, stated it is the pending home sales that continue to hold a higher ground. “This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”
While housing has a long road ahead before anyone can call it a full recovery, small, yet positive economic indicators in housing are slowly emerging, with the PHSI being one of them, given that it has risen for 17 consecutive months on a year-over-year basis. This September revealed a significant increase in contract activity versus the previous year in every region except the West, which struggles with a limited inventory.
It is predicted that over the next year, the conditions of housing will remain affordable, with the 30-year-fixed-rate mortgage remaining remarkably low until it’s gradual 4% rise toward the second half of 2013.
Additionally, NAR says that completed existing-home sales in 2012 will total close to 4.6 million (an increase of 9.0 percent), and are projected to rise about 9.0 percent next year to nearly 5.1 million. With notably lower housing inventory, the national median existing-home price is expected to increase 6.0 percent this year and 5.0 percent in 2013.
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August Home Prices at 2-Year High
U.S. home prices continued to increase in August with the Case-Shiller 20-city Home Price Index increasing 0.9 percent to its highest level since September 2010. The index rose in 19 of the 20 cities included in the index.
Economists had expected the 20-city index to be 2.0 percent ahead of August 2011, when in fact it was 1.3 percent ahead of that measured time period.
The median price of an existing single family home dropped 1.5 percent in August, according to the National Association of Realtors but was up 8.0 percent from August 2011. In July, the median price of an existing single family home was up 9.7 percent from one year earlier.
Home values play a significant role in the nation’s economy following the “wealth effect” which holds that households spend more as perceived wealth increases. Increases in household net worth due to real estate – rather than stock – values have, according to studies, a greater impact on consumption which is more than 70 percent of GDP.
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Home Prices Show Strong Quarterly Gain
Home prices rose 6.9 percent in the second quarter, according to the Case-Shiller National Home Price Index compiled by Standard & Poor’s, the strongest quarter-over-quarter gain since the index began in 1987.
According to S&P, the monthly 10- and 20-city index rose 2.2 percent and 2.3 percent respectively in June. The two indexes were up 0.1 percent and 0.5 percent respectively in the last year, the first year-year gains in the monthly measures since September (20-year) and October (10-year) 2010.
The 10-city index rose to its highest level since September 2011 and the 20-city index to its highest level since August 2011.
Economists had expected the 20-city index to grow 1.4 percent in June and be flat year-over-year.
According to the National Association of Realtors, the median price of a single family home rose 4.7 percent in June while the government report from the Census Bureau and HUD showed the median price of a new home fell 3.4 percent in that month.
Year-over-year, the median price of an existing single family home was up 7.5 percent in June, according to the NAR as did the median price of a new home.
Meanwhile, Zillow’s July Real Estate Markets Reports show that home values increased 0.5 percent from June to July, marking another month of healthy monthly appreciation. Inventory shortages are being fueled by negative equity and a slowed distribution of REOs. More on inventory in our next story…
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Home Inventories Continue Falling
Record low home inventories (homes for sale) which are boosting home values and prices but depressing sales, show no signs of letting up. Though decline is normal this time of year, inventories stubbornly remain at decades-low levels.
The National Association of Realtors reported that the total housing inventory at the end July increased 1.3 percent to 2.40 million existing homes available for sale, which represents a 6.4-month supply at the current sales pace, down from a 6.5-month supply in June.
NAR’s chief economist, Lawrence Yun, said “given population and demographic demand, existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that.”
Yun said there are distortions in housing inventory. “The total supply of housing inventory appears to be balanced in historic terms, but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers. The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers.”
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Home Ownership at Lowest Rate in Nearly 50 Years
It seems fewer and fewer people are sharing in the American dream these days, whether by choice or circumstance.
A report released recently from John Burns Real Estate Consulting revealed that the “real” homeownership rate—measured as the percentage of households that own a home and are not seriously delinquent on their mortgage—has fallen to 62.1 percent, the lowest level in almost half a century.
The firm said that the Census Bureau’s 65.5 percent homeownership estimate was a vast overestimate, as it includes 3.8 million homeowners who are 90 or more days delinquent.
While the government and various lenders have taken steps to help struggling homeowners, John Burns Real Estate forecasted that those people are “really just renters in waiting.”
The spread between published and real homeownership rates has historically stayed slightly below 1.0 percentage point. That spread has widened in recent years for several reasons, including the economic downturn and the growing number of borrowers who have figured out how to keep their homes for an extended period without paying.
While the firm remains confident in the shared dream of homeownership, writer and John Burns Real Estate manager Sean Fergus said it’s time to face facts. He wrote, “let’s stop pretending that 65.5 percent of Americans own their own, recognize that the real number is 62.1 percent, and move forward with responsible mortgage programs that allow Americans to achieve the American dream.”
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Home Improvements That Still Pay Big Returns
Home improvements are obviously investments in your home, and most homeowners have a list of things they’d like to do to their home to make it their dream home. Things like: gutting the kitchen, reconfiguring the bathroom or repainting the entire outside of the home.
The key to home improvements is doing them wisely. You don’t have to spend a ton of money to add value to your home when it comes time to sell it.
Home Improvements With the Biggest Return on Investment
The National Association of Realtors (NAR) and Remodeling Magazine recently released their 2011-2012 Remodeling Costs vs. Value Report.
Exterior renovations dominated the list of the most cost-effective projects, those expected to recoup close to 70 percent of the cost.
1 – Siding replacement is already part of long-term home maintenance, but upgrading to fiber cement siding replaced the previous number one remodeling project of replacing exterior doors.
2 – An entry door replacement pays for itself. Replacing a wood door with a strong steel door not only pays for itself with cost recovery when you sell, but adds safety and security to your home while you’re still living there.
3 – An attic bedroom addition, although not for everyone, adds value to your home, and is considered one of the least expensive ways to add another bedroom, without adding on to the existing structure.
4 – Replacing old worn out garage doors jumped on the list this year, mostly due to the cost of doing so dropping about 15 percent from last year.
5 – Window replacements are definitely a long term investment. Replacing old wooden windows with newer vinyl models will help you save on utility bills, and you’ll recoup some of that investment when it comes time to sell your home.
New Attitude About Home Improvements
Many homeowners don’t fret over paybacks from home improvements. Most owners want assurances that their renovations will enhance the property’s market value, but expectations of 100 percent return on their money is no longer there.
Most people are happy with modest returns. For many consumers, fixing up their house now fits their sentiments — and their finances — far better than selling or buying. Useful enjoyment of their home improvements now seems to outweigh the old “how much will we recoup from these home improvements when we sell?” mentality..
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Appraisals: What They Mean For Your Mortgage
Appraisals are more important than ever before when it comes to determining the value of a house.
You’ve heard the scenario: You find the home of your dreams, you’re already pre-approved for a mortgage, closing is all set, then, a low appraisal comes in and the deal is off.
Even though some of the tough mortgage standards have been easing up in recent months, getting an appraisal for what the house needs to be in order to make your lender happy, has not eased.
If a buyer signs a purchase agreement to buy a $250,000 home, but the appraisal only comes in at $220,000, the lender will only agree to finance on the lower value, not the purchase price. It’s up to the buyer to come up with the rest, or find another house.
Banks are the main reason appraisals are coming in low. If they end up having to repossess a home (short sale or foreclosure), they don’t want to be stuck with a a home that is worth less than the mortgage.
Are Banks Dictating Appraisals?
Lenders are not telling appraisers, “We want you to come in low”, it’s more like, “We want you to account for everything…” and many appraisers hear that and overcompensate on the low side.
There’s even a box on standard appraisal forms indicating “declining value”, which indicates falling home prices in that market. Banks will then cut another 5% off the loan just to protect their investment.
Any Options After a Low Appraisal?
One path buyers can take if a bad appraisal is about to kill their purchase is to renegotiate the sale price of the home. Often times, once a seller sees their home appraised for less than the sales price, they will agree to lower the price to save the sale. Low appraisals will only carry forward to the next potential buyer anyway, so it may be to the seller’s advantage to come down on their price and get the deal done now.
So don’t let a low appraisal mean the end of the road for your home purchase. Talk to your agent about renegotiating with the seller to see if anything can be done to help you still get that dream home..
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Home Prices Rising: Three Straight Months
Home prices rising means good news for the economy, or so everyone thinks.
Standard & Poor’s closely watched Case-Shiller index declined in January for the fifth straight month, but according to John Burns Real Estate Consulting, that news doesn’t reflect what’s really happening in the market right now.
The independent research company conducted its own analysis of home prices in 97 markets and found that over the period of January to March, prices were up in 90 of those 97 markets by an average of 1.1 percent, or 4.5 percent annually.
One of the reasons many industry indices still shows a picture of gloom and doom is because most home indices are on a three-month lag for reporting.
JBREC’s “Burns Home Value Index” calculates home values based on prices that are set at the time purchase contracts are negotiated and signed. Nearly all other indices are based on when the transaction closes, which can lag 2 to 3 months behind contract signings.
It is current because it uses what is happening in MLS databases all over the country, as well as some leading indicators the research firm has determined are reliable.
JBREC has calculated BHVI index values for the United States and 97 major metro areas, with history going back to January 2000.
According to the U.S. Census Bureau, the pace of new home sales rose in January, exceeding forecasts and revised the December stats to reflect a higher rate of home sales, all of which is good news for a suffering new home construction sector. This growth is in line with recent reports of builder confidence levels rising across the nation.
New Home Sales Inventory
The inventory levels of new homes for sale fell, marking the eleventh consecutive month of decreasing supply levels. The current supply sold at the current sales pace represents a 5.6 month supply, down considerably from the 7.2 month supply just one year ago. Compared to January 2011, the number of new homes sold has risen 3.5 percent nationally with particularly strong sales in the South which has increased 15 percent.
The median number of months a new home sits for sale after completion is at 7.1 months, down from 7.4 months last January and down dramatically from the peak last summer of 10 months.
More Buyers Paying Cash
Meanwhile, even more American homebuyers are paying cash to acquire homes, according to a new survey from Campbell/Inside Mortgage Finance. The group’s Housing Pulse Tracking Survey said between October and January, the number of homeowners purchasing residences with cash grew from 30.8% to 34.1%.
This trend is occurring at a time when mortgage rates are holding low. The survey noted that all-cash buyers are getting discounts of approximately 10%.
Homebuyers who turned to cash purchases are doing so because of the slow underwriting process, late appraisals and long-wait times when dealing with certain loans, the report said.
In most areas of the country, it is taking about 60 days to close a non-troubled FHA loan. About 30 days longer than usually a year ago.
To release its report, the Campbell/Inside Mortgage Finance Housing Pulse Tracking survey interviewed 2,500 real estate agents across the country.
Ben Bernanke presided over his first meeting as Federal Reserve chairman in March 2006 believing the nation’s economy could pull off a “soft landing” from falling home prices…
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