Housing Market Experiences the Chill Factor

Some Markets Cooling Down

The housing market recovery has seen accelerated gains in some of the hottest spots, but it seems those markets are now starting to cool down, according to James Saft, a columnist for Reuters. And it may not be an effect of the winter season.

The numbers now show that inventory is up in many markets, and sales are certainly cooling off. The trend in dips and spikes may linger for a while, Saft said.

“Whether this is a reaction to the run-up in mortgage interest rates in recent months or represents a waning bid from the all-cash financial investors who have so often been marginal buyers is unclear,” Saft said. “Either way, volatility in house prices may now prove to be a feature of the system rather than a bug.”

Saft cited the conditions in different markets to support his argument about price volatility. In Phoenix, where home prices skyrocketed more than 40 percent in less than two years, pending sales dived 32 percent in October, he said. Home inventory is up 111 percent in that market when compared to May. In Sacramento, sales are down 20 percent, whereas inventory is up 93 percent compared to a year ago.

Of course, both Sacramento and Phoenix saw a huge bump in investors lured by lucrative deals, who drove prices in double-digit growth. They amassed large portfolios of single-family homes, which they managed and rented out.

The phenomenon of rising inventory isn’t just limited to the boom-and-bust towns. In Washington, D.C. home sales slipped 14 percent last month, while sales in Silicon Valley, now in the midst of a technology IPO boom, fell 20.9 percent, Saft said.

“I feel like it’s 2006-2007 again,” Michael Hanson, a real estate adviser and mortgage banking veteran told Saft. Hanson said that we could be in a “substantial downdraft of values” as volume and supply lead home prices.

“Data is everywhere but nobody is looking, or wants to look.”

And that data seems pretty grim.

Hanson told Reuters that about 22 percent of mortgage borrowers are underwater. In addition to that, there are huge numbers of people with bad credit, no job or simply not enough equity to pay real estate and moving costs. All those factors make up a market in which 40 to 50 percent of mortgagees are trapped, he said. That’s definitely not a sign of stability, but it signals more volatility in the future.

Mortgage Rates Lower This Week

According to mortgage giant Freddie Mac, fixed mortgage rates trended lower this week. Rates on 30-year fixed loans averaged 4.42 percent. That’s down from 4.46 percent last week.

The average rate for a 15-year fixed mortgage was 3.43 percent, down from 3.47 percent a week ago, Freddie Mac said. Rates on popular adjustable mortgages also trended lower this week.

Mortgage rates have risen from historic lows in the last year. Many blame the cooling factor in the housing market on these rising rates. But, there are other positive indicators in the market.

According to the Los Angeles Times, the total amount of single-family mortgage debt increased for the first time since 2008.

“This a positive sign,” Freddie Mac chief economist Frank Nothaft said, “as it reflects that the pickup in new purchase money originations has offset loan pay-downs.”

There’s yet another sign that the mortgage market is doing well. Credit-rating firm TransUnion issued a forecast Thursday stating that delinquent home loans will decline for the fifth straight year in 2014.

TransUnion predicts that the dip in the percentage of borrowers more than 60 days past due on their home loans is expected to go down from 3.94 percent at year end to 3.75 percent at the end of 2014. The national mortgage delinquency rate peaked at nearly 7 percent in late 2009 and early 2010, the Los Angeles Times said.

Read More: realestate.com

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