Is the housing market turning a corner? Indicators show that not even the spiking interest rates are slowing the recovery. Also the government is considering programs geared towards assisting investors, and one bank is resuming 16,000 foreclosures.
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Government to Consider Helping Investors
Real Estate Reporter for CNBC, Diana Olick discussed this week the potential for the government to start programs, specifically for the benefit of investors. Fannie Mae’s chief economist, Doug Duncan, confirmed proposals are on the table both at HUD and Fannie to help investors. This could come in the form of boosting liquidity but also protecting tax payers(meaning a conservative approach). The article hints at the possibility of either raising the cap on ten properties or considering the short refi program which reduces principal balances of those underwater.
The government offering incentives to investors or at least providing additional liquidity could be of huge benefit. While we’ve discussed this issue many times, investors are presently being overlooked and ignored by the government. Currently investors are making up nearly 20% of all transactions and are best positioned to improve the distressed inventory. Unfortunately, many of the programs currently are skewed against investors by offering introductory bid periods to owner-occupants or requiring 3-month seasoning periods on properties purchased. Investors need to demand equal footing at minimum. Many are in severely negative equity situations and should be allowed the same relief that owner-occupants are receiving to write down balances or receive loan modifications.
Interest Rates: Steep Rise
Freddie Mac reported this week that interest rates jumped on the 30-year fixed, rising from 4.46% to 4.61%. The 15-year fixed mortgage jumped commensurately from 3.81% to 3.96%. Rates are nearly 0.5% higher than November’s record low set at 4.17%.
This is largely a result from better economic news, including rising consumer confidence, and the recent increase in pending home sales. Further, the jobless rate is falling and stronger Thanksgiving weekend sales (up 8% over last year) are showing signs of an improving economy. The era of super-low interest rates is likely over.
Mortgage Purchase Activity Continues to Rises
Rising rates are continue to force a decline in the Refinance Index. The drop was less than the prior week though, as people rushed to lock in rates. The Mortgage Bankers Association’s Purchase Index bucked the trend rising 1.8%. This leaves the 4-week Purchase Index up 2.8%.
Real demand is returning to the market as people originate purchase money mortgages in face of interest rate rises. Refinances were down 1.4% over the week causing the overall Composite Index to show declining mortgage activity. This is because refinances make up over 75% of the market. This is down off nearly 83% of all activity when rates were hitting record lows. As purchase money mortgages replace refinances, we’ll see the overall market activity recover.
Bank of America Restarts Foreclosures
After suspending foreclosures since October 1st in 23 states, Bank of America cleared its attorneys to restart 16,000 foreclosures. Bank of America examined its processes and introduced methods such as modification and deed-in-lieu of foreclosure as first steps. This leaves foreclosure as the action of last resort.
This proves the robo-signing crisis was a blip on the radar for the housing recovery. Bank of America’s CEO mentioned that they expect 30,000 fewer foreclosures to be delayed in the Q4 and also that the average person they were foreclosing on was 560 days late. This slight delay in foreclosures likely won’t have a significant impact on the recovery. I would expect us to see any fallout from the robo-signing crisis to fade away.
Final Thoughts and Look Ahead
Rising mortgage purchase applications despite rate increases is a big indicator that demand is returning to the housing market. I suspect the worst is behind us at this point. Also I believe it is no coincidence that the robo-signing “crisis” wasn’t really a crisis at all. I’m sure we’ll see the government finally look at investors as a source of liquidity in the housing market and provide some incentives to them(us). Looking ahead this week we’ll see the following important housing market indicators; CoreLogic’s negative equity report, the National Association of Home-Builder’s Confidence Index, November housing starts, mortgage activity updates, and an update on interest rates.