Real Estate News & Commentary

Price Declines, Higher Rates, and Foreclosure Numbers: The Week in Housing

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How long will price declines continue? Are interest rates going anywhere but up? We answer these questions and take a look at mortgage activity and foreclosure rates this week.

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CoreLogic: Price Declines Enter 5th Straight Month

CoreLogic released its December Home Price Index, showing home prices declined 5.46% over December 2009. Excluding distressed sales, prices year-over-year declined 2.31%. Prices appreciated most in North Dakota, up 5.53%, and dropped the most in Idaho, down 14.61%. The overall drop from peak to current numbers was a drop of 31.6%, including distressed sales and down 22.2% excluding distressed sales.

The good news? The data shows that prices are stabilizing overall and the largest declines are behind us. Some markets are even rising including; North Dakota, Hawaii, West Virginia, Vermont, New York, and DC. Many more markets will see an improved 2011. Looking at localized shadow inventories will be key to understanding if your market could be improving. Remember, anything around a 6-month supply is considered healthy.

Rates Skyrocket in Latest Survey

Positive economic activity caused a big jump in interest rates this week. The 30-year fixed rate increased from 4.81% to 5.05%. The 15-year fixed jumped from 4.08% to 4.29%. Included was the highest non-farm productivity gains since 2002. Though unemployment increased to 9.4% from 9%, the service sector expanded the fastest in nearly 6 years.

Rates jumped as a consequence of a healthier economy. While not ideal for the housing market, it is good news for the job market and consumer confidence. Those financing a home will have to pay more including investors.   A better economy puts housing in a catch-22. The better the economy, the more people will worry about inflation. Ben Bernanke said he presently isn’t worried about inflation but investors obviously think otherwise.

Purchase Activity Improves as Refinances Decline

The Mortgage Bankers Association reported a decrease in overall mortgage activity this week. The Market Composite Index dipped 5.5%, lead by a decline in refinance activity. The Refinance Index dropped 7.7% while the Purchase Index actually increased 4.8%. The 4-week moving average for the Market Composite is down 0.9%, purchases down 0.8%, and refinances down 1.5%.

Purchases are less rate correlated than refinances. As the economy improves people purchase despite rates. This is typically true so as long as the cost of buying versus renting is less. The indices are close to even for the 4-week moving average which could show that we’re about to hit an uptrend. I do think we’ll see improved mortgage activity as economic activity improves. My prediction is: Slow uptrend over the next 90 days.

Foreclosures Up 1% in January, Down 17% Year-over-year

RealtyTrac released its January foreclosure report, citing a slight increase in foreclosures in the last month. January resulted in 1% more foreclosures than December, 2010, but the year-over-year number is down 17%. This represents a huge decline and shows that the crisis is coming off cyclical highs. Nevada remained the center of the foreclosure crisis with a 16% increase in January over December and the nation’s highest rates with 1 in every 93 homes receiving a foreclosure notice.

The sand states continue to suffer though Florida saw a 42-month low in foreclosures signaling the worst might be over for the sunshine state. Foreclosures are expected to remain very high over the next 12-18 months and investors should consider how localized rates of foreclosure affect their strategy. For example, those flipping properties in Nevada might see margins squeezed with the continued wave being felt there.

Parting Thoughts

This week showed continued bleeding in the housing market with higher interest rates, continued high foreclosures, and declining home prices. Still the market fundamentals are improving, even if marginally. Thinking forward, markets are becoming even more localized as some show signs of recovery. Over the last 2 years most markets have been significantly down so to see price increases in many areas and foreclosures slowing shows that markets are ready to recover.

    Replied over 9 years ago
    Good overview of the data from the previous couple of year. I wonder how the recent White House stance on Fannie/Frannie will alter the data.
    Ryan Hinricher
    Replied over 9 years ago
    Good question. I believe in markets innovating. If there is an opportunity that the government is currently taking up, then the private sector will step in. If underwritten correctly, secured lending on real estate can obviously be profitable.