Mortgage Rates Continue to Climb
Mortgage rates are continuing their gradual climb upwards after reaching record lows. The 30-year fixed mortgage rate rose to 4.8 percent from 4.74 percent the previous week, Freddie Mac reports. The average on 15-year mortgage rates also rose slightly from 4.05 percent to 4.09 percent for the week.

In November, 30-year loans had reached a 40-year low at 4.17 percent and the 15-year mortgage rate was at 3.57 percent.

The average on the five-year adjustable-rate mortgages this week increased to 3.7 percent from 3.69 percent the previous week.

Meanwhile, the Mortgage Bankers Association says it expects mortgage lending to drop considerably in 2011, due to high unemployment, borrowers’ diminished credit coming out of the recession, and more lenders not willing to take on a high risk.

MBA says it expects new loans this year to decrease by 36 percent to its lowest level in more than a decade, falling to $966 billion in 2011 from $1.5 trillion this year.

Earlier in the week, MBA reported a drop in mortgage applications to the slowest refinancing activity in more than a year. Mortgage applications dropped 12.9 percent in the week ended Jan. 21, according to MBA’s seasonally adjusted index.

The index dropped 15.3 percent, which is the lowest level since January 2010. Refinancing activity has continued to decline since October from rising interest rates and tighter underwriting standards.

Source: “Bond Yields Rise and So Do Mortgage Rates,” Freddie Mac (Jan. 27, 2011); “U.S. Mortgage Applications Declined Last Week,” Reuters News (Jan. 26, 2011); and “Mortgage Lending Projected to Fall 36%,” Dow Jones Business News (Jan. 26, 2011)

California home sales hit seven-month high in December
California home sales rose in December, posting their highest level since May, according to a report from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.), as the inventory of unsold homes dwindled. 

MAKING SENSE OF THE STORY

• Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 520,680 units in December, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide.  December’s sales were up 5.9 percent from November’s revised pace of 491,590 units, but were down 6.8 percent from the revised 558,840 sales pace recorded in December 2009.  The statewide sales figure is adjusted to account for seasonal factors that typically influence home sales.
• Following three consecutive monthly declines, the median price of an existing, single-family detached home sold in California increased 1.7 percent from a revised $296,690 in November but was down 1.6 percent from the revised $306,860 median price recorded for the same period a year ago.
• “December’s sales increase reflects buyers taking advantage of rock bottom interest rates and improved affordability since the first half of the year, when prices were higher,” said C.A.R. President Beth L. Peerce.  “Most of December’s sales opened escrow in October and November.  Rates hit their absolute lowest in October but began edging higher in November, prompting buyers to get off the fence,” she said.
• For more about the California housing market, watch a video of C.A.R. Chief Economist Leslie Appleton-Young as she discusses highlights of the December sales and price report.

FHA “anti-flipping” rule extended
The Federal Housing Administration (FHA) has extended its 90-day “no flip” rule on recently rehabbed properties for another year.  The ruling, which allows investors who acquire foreclosed properties at below-market value to be exempt from waiting the customary 90 days before reselling them, was set to expire at the end of January 2011.  Vicki Bott, deputy assistant secretary for single-family housing at the FHA, said that first-time buyers have responded overwhelmingly to the opportunity to buy “turnkey” renovated homes with low down payments and they have performed well on their mortgage obligations.

The 90-day waiting period originally was put in place to protect FHA borrowers against predatory practices of flipping where properties were quickly resold at inflated prices to unsuspecting borrowers.  Bott said that while the FHA is concerned about flipping in general, they have not seen any of the fraud problems, defaults and re-foreclosures that cost the agency millions in insurance payouts in earlier years.

Neugebauer: Foreclosure Aid Hurting, Not Helping
Rep. Randy Neugebauer, the chairman of the House Financial Services Oversight Subcommittee, said the government needs to come to terms with the fact that its foreclosure-prevention efforts are failing and actually making the housing market worse.

The Texas Republican said the programs need to be shut down because they are preventing the housing market from bottoming out, which is critical before recovery can begin.

“I really, truly believe that if we will go ahead and quit trying to throw Band-Aids on this housing market … this limbo-like state is prolonging the recovery of the housing market,” Neugebauer said.

The Treasury Department’s Home Affordable Modification Program and other government-sponsored loan modification efforts aren’t helping many home owners.

“My perception is right now that most of the people that can keep their homes can keep them, but we are probably postponing the people that long-term aren’t going to be able to keep them. … Some of these crazy programs that we’ve dreamed up, I think we may have to pull the plug on them: HAMP — no more government modifications,” Neugebauer said.

Also during the interview, Neugebauer said another important unresolved issue is Fannie Mae and Freddie Mac’s fate. Neugebauer is in favor of privatizing the government-sponsored enterprises as well as remove any government guarantee from the mortgage market.

“Somebody asked me what would be the one thing by the end of 112th Congress that would be the most important thing to get done,” Neugebauer said. “I’d have to put getting the mortgage market back on track again and having an overall plan of how we are going to get the taxpayers out of that business.”

INFO THAT HITS US WHERE WE LIVE… Thursday saw Existing Home Sales shoot up 12.3% in December, to an annual rate of 5.28 million, well ahead of the 4.87 million rate the consensus expected. Overall, existing home sales are off 2.9% compared to a year ago, but that’s when sales were artificially boosted by the homebuyer tax credits. All regions showed sales gains in single family homes, condos and coops.

The supply of existing homes dropped to 8.1 months from 9.5 months in November. The pace of existing home sales is up 38% since July and sales are now only around 5% off the long-term trend, which has been a 5.5 million annual pace. All this has happened without government tax credit support. Smart buyers don’t want to miss out on housing affordability that’s at its highest level in 40 years.

Earlier in the week we saw housing starts drop 4.3% for December to a 529,000 unit annual rate. But colder temperatures and more snow than usual slowed starts in many parts of the country. Home completions actually increased for the month, while building permits shot up a strong 16.7%, to a 635,000 annual rate. We’re not out of the woods yet, as permits are off 6.8% from a year ago and starts are down 8.2% compared to last year.

What will be the top 2011 trends in green building? A non-profit research group expects green homes will become increasingly affordable, smart and energy-efficient — all trends that Green House agrees are likely.

“We believe it’s going to be a promising year for the green building industry,” writes Tom Breunig of the Earth Advantage Institute, a Portland, Ore.-based group that has has certified more than 11,000 eco-friendly homes. A recent report by McGraw-Hill Construction also gives a rosy forecast.

Breunig said his group compiles its annual top 10 trends based on discussions with builders, developers, architects, real estate brokers, appraisers, lenders and homeowners. Last year’s trends focused on water conservation, “rightsizing” of homes and “eco-districts” where people could walk or bike to most services.

• Follow Green House on Twitter

This year’s trends include increased recycling of “greywater,” which is waste water from sinks and tubs (but not toilets) and greater use of smart meters as well as appliances that monitor their own energy use. Also expected: more accessory dwelling units or independent backyard cottages that function as rental units, studios, in-law suites or home offices.

What do you expect? I see a push to build homes that meet ultra-strict Passive House Institute standards for energy-efficiency. The Earth Advantage Institute cites these standards and a few other trends:

1. Rethinking of residential heating and cooling. Advances in applied building science in the U.S. and abroad have resulted in homes that are so tightly sealed and insulated that furnace-less, ductless homes are now a reality. The increasingly popular “Passive House” standard, for example, calls for insulation in walls and ceilings that is so thick that the home is actually heated by everyday activity of the occupants, from cooking to computer use.
2. Affordable green. Many consumers typically associate green and energy-efficient homes and features with higher costs. However, the development of new business models and technologies and the mainstreaming of high-performance materials is bringing high-performance, healthy homes within reach of all homeowners.
3. Sharing and comparing home energy use. As social and purchasing sites like Facebook and Groupon add millions more members, the sharing of home energy consumption data – for rewards – is not far behind. The website Earth Aid (www.earthaid.net) lets you track home energy usage and earn rewards for energy savings from local vendors. … When coupled with other developments including home energy displays, a voluntary home energy scoring system announced by the Department of Energy, and programs including Oregon and Washington’s Energy Performance Score, a lot more people will be sharing — and comparing — their home energy consumption.
4. Community purchasing power. Neighborhoods interested in renewable energy will increasingly band together to obtain better pricing on materials such as solar panels and on installation costs. The Solarize Portland program was initiated by local neighborhood leaders in Southeast Portland who wanted to increase the amount of renewable energy generated in their area by working together as a community. The program is structured so that the price of solar panel installation decreases for everybody as more neighbors join the effort.

NEW YORK (CNNMoney) — Sales of existing homes jumped in December, marking the fifth month of gains in the past six months, based on an industry report released Thursday.

Previously-owned home sales climbed 12.3% in December to an annual rate of 5.28 million, from 4.70 million in November, according to the National Association of Realtors.

That puts sales at the highest level since the homebuyer tax credit expired in June, said Stuart Hoffman, chief economist at PNC Financial Services Group.

The December rate came in much higher than expected. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 4.8 million. However, sales were down 2.9% from 12 months earlier and fell 4.7% in 2010.

“December was a nice finish to the year, but looking at the bigger picture — home sales and prices have been scraping along the bottom for the last three years,” Hoffman said. “So, while we’re not digging a deeper hole — the housing market is still quite weak, and there are still more homes available on the market than there are likely to be buyers.”

The median price of all existing homes sold in December was $168,800, down 1% from a year ago.

Meanwhile, the inventory of homes on the market fell 4.2% in December to 3.56 million units. That’s enough inventory to last 8.1 months, and is down from a 9.5-month supply in November.

While that’s an improvement, Hoffman said that data doesn’t reflect the large number of foreclosures that could soon enter on the market.

“What’s hidden behind the curtain are potential foreclosures adding to those inventory levels,” he said. “Even as we have jobs growing, inventory is still large and more foreclosures are going to be coming on the market. Prices will go down and it’s going to continue to be very much a buyer’s market.”

That said, Hoffman expects sales to gradually improve — rising about 4% or 5% — by the end of 2011, as the employment picture improves.

“I do think there will be more sales in 2011, because job growth will support homebuyers,” Hoffman said. “We’re getting back to the underlying demand without the homebuyer tax credit, but housing is still not contributing much to the overall economic improvement in the economy.”

December Existing-Home Sales Jump
Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS^®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

“The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Inventory Levels
Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

NAR President Ron Phipps said buyers are responding to very good affordability conditions despite tight mortgage credit. “Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market,” Phipps said. “Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.71 percent in December from 4.30 percent in November; the rate was 4.93 percent in December 2009.

Transaction Types
A parallel NAR practitioner survey shows first-time buyers purchased 33 percent of homes in December, up from 32 percent in November, but are below a 43 percent share in December 2009.

Investors accounted for 20 percent of transactions in December, up from 19 percent in November and 15 percent in December 2009; the balance of sales were to repeat buyers. All-cash sales were at 29 percent in December, compared with 31 percent in November, but up from 22 percent a year ago. “All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.

Single-family home sales jumped 11.8 percent to a seasonally adjusted annual rate of 4.64 million in December from 4.15 million in November, but are 2.5 percent below the 4.76 million level in December 2009. The median existing single-family home price was $169,300 in December, down 0.2 percent from a year ago.

Existing condominium and co-op sales surged 16.4 percent to a seasonally adjusted annual rate of 640,000 in December from 550,000 in November, but remain 5.2 percent below the 675,000-unit pace one year ago. The median existing condo price was $165,000 in December, which is 7.4 percent below December 2009.

Performance by Region
Regionally, existing-home sales in the Northeast jumped 13.0 percent to an annual pace of 870,000 in December but are 5.4 percent below December 2009. The median price in the Northeast was $237,300, which is 1.4 percent below a year ago.

Existing-home sales in the Midwest rose 11.0 percent in December to a level of 1.11 million but are 4.3 percent below a year ago. The median price in the Midwest was $139,700, up 3.3 percent from December 2009.

In the South, existing-home sales increased 10.1 percent to an annual pace of 1.97 million in December but are 2.5 percent below December 2009. The median price in the South was $148,400, unchanged from a year ago.

Existing-home sales in the West surged 16.7 percent to an annual level of 1.33 million in December but remain 1.5 percent below December 2009. The median price in the West was $204,000, down 5.6 percent from a year ago.

— NAR

FHFA Plans Big Moves to Rescue Lending
The Federal Housing Finance Agency said it would consider a new approach to how home loans are managed so banks take on more of the risk, as well as find ways to spark more loan modifications so struggling borrowers can stay in their homes.

Studies have shown that foreclosure is often more profitable for a mortgage servicer, and as such, many companies avoid loan modifications in favor of foreclosure. But the FHFA hopes to change that by considering a new compensation structure for mortgage servicers that would allow servicers to receive fees for restructuring mortgages that avoid foreclosure.

The FHFA said that it does not expect any changes to the mortgage servicing compensation model to be made before summer 2012.

The FHFA is also targeting efforts to more tightly regulate what firms can do with the loans they make and how they can take on more of the risks associated with those loans. The goal is to get rid of risky lending made by banks.

Currently, banks pool mortgage loans together and sell them to investors, thereby passing the risk along to the investors. But FHFA’s new approach would require banks to hold on to a portion of the investment. That would make it difficult for a bank to ignore risks associated with lending, experts note.

>> Market Update 

INFO THAT HITS US WHERE WE LIVE  Down in Orlando, Florida, last week there were more housing market forecasts for the year just begun. Bottom line? Housing economists are cautiously optimistic about a recovery during 2011. These economists were presenting their views at the annual meeting of the National Association of Home Builders (NAHB). None of the experts see a robust upturn for housing. But they do feel that home sales, which have been in a bit of a stall, may start to recover soon.

The prevailing opinion is that the residential market should pick up in the spring, thanks to low mortgage rates and home prices at bargain levels. The NAHB’s chief economist feels that recent economic indicators are “signifying growing consumer confidence.” These indicators include job creations, good retail sales, and increasing purchases of big ticket items like cars and furniture. Freddie Mac’s chief economist sees home prices bottoming in the first six months. He expects mortgage rates to edge up slightly but still remain at historically low levels. Overall, home sales are forecast to be up from 4% to 10% year-over-year and for new construction to be up by 20%.