The Index’s 10-city composite rose 4.9 percent for the year, while the 20-city composite increased 5.7 percent. Both numbers were down slightly from March’s numbers, which came in at annualized growth rates of 5.6 percent and 5.9 percent, respectively.
Still, despite the slight slowing of growth, home prices are steadily climbing—and have been for some time. And according to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, the continuing rise in prices raises concerns of another housing crisis.
“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” Blitzer said. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up.”
Increasing demand—and inventories that just can’t keep up—are also of concern, Blitzer said.
“The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising,” he said. “At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four-month supply. Adding to price pressures, mortgage rates remain close to 4 percent and affordability is not a significant issue.”
Ultimately though, Blitzer thinks we don’t need to worry about another crash—at least not yet.
“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them?” Blitzer said. “For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher, and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable.”
Broken down by city, Seattle, Portland, and Dallas experienced the biggest jumps in home prices over the year, with 12.9 percent, 9.3 percent, and 8.4 percent increases, respectively.
Lenders are continuing to loosen up their credit standards—and they plan to keep on doing it as the year goes on, according to the Q2 2017 Mortgage Lender Sentiment Survey released by Fannie Maeon Monday. In fact, the share of lenders who say they plan to ease credit standards on GSE, non-GSE, and government loans over the next three month has hit its highest point since the survey’s inception.
Overall, the share of lenders who say they have eased credit standards has risen steadily since Q4 of last year. But this uptick in looser credit standards is no surprise, especially given the number of lenders who reported declining purchase activity this quarter.
“Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period,” Fannie Mae reported. “The drop in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low. The results of both surveys mirror the ongoing narrative for housing: Tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.”
According to Doug Duncan, SVP and Chief Economist at Fannie Mae, lenders are concerned about being outpaced by their competitors.
“Expectations to ease credit standards climbed to survey high points in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” Duncan said. “Easing credit standards might also be due, in part, to increased pressure to compete for declining mortgage volume. For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”
Fewer compliance concerns, increased GSE support, and greater clarity on warranties and underwriting tools have also allowed lenders to loosen up on credit standards, Duncan said.
Fannie Mae conducts its Mortgage Lender Sentiment Survey on a quarterly basis. To see the full results of Q2’s survey, visit FannieMae.com.
Mortgage Interest on the Decline for Second Straight Month
The Federal Housing Finance Agency (FHFA) has conducted its monthly interest rate survey for 4,437 loans closed during the last five business days in April across 17 lenders, and has reported a decline by over 10 basis points across in all mortgage interest rates. Interest rates have been falling since February 2017.
The largest drop in interest rates from March to April was to 30-year fixed rates for homes costing less than $424,100, which fell 20 basis points from 4.24 percent to 4.04 percent. Factoring in other types of mortgages other than a 30-year fixed, the average interest rate on all mortgages showed the smallest drop, down 14 basis to 3.98 percent from a previous 4.12 percent.
The National Average Contract Mortgage Rate for Previously Occupied Homes Index, which calculates interest rates on homes with at least one previous owner, dropped to 3.97 percent from 4.12 percent (15 basis points), and is currently the lowest interest rate reported by the institutions surveyed. Similarly, the average effective interest rate on all loans also declined 15 basis points from 4.25 percent to 4.10 percent, which is good news for homeowners but less fortunate for lenders.
In keeping with April’s trend, the average loan amount also fell slightly from $312,700 to $311,600, a nominal difference of $1,100 in comparison to March’s $11,100 mean increase.
It’s worth noting that all reports, with the exception of the specified 30-year fixed, can include 15-year mortgages and adjustable-rate mortgages. The survey, however, does not include mortgages that were refinanced from another mortgage or balloon mortgages. Nor does it include mortgages that are insured or guaranteed by the Federal Housing Administration or the United States Department of Veteran Affairs, multi-family loans, or loans on mobile homes.
While the FHFA does not name the 17 lenders surveyed for the report specifically, it does specify that they include an array of commercial banks, mortgage companies, savings associations, and mutual savings banks.
Both mortgage originations and foreclosures are in freefall, according to the recent Mortgage Monitor report released by Black Knight Financial Services on Monday. Overall originations dropped 34 percent over the first quarter of the year, while foreclosure starts hit a 12-year low of just 52,800.
Though purchase loans and refinances took a hit during Q1, refis saw the steepest drop, falling 45 percent since the end of 2016 and 20 percent over the last year. According to Ben Graboske, EVP of Data & Analytics at Black Knight, this drop in refinances was no surprise.
“As expected, the decline was most pronounced in the refinance market, which saw a 45 percent decline from Q4 2016 and were down 20 percent from last year,” Graboske said. “They also made up a smaller share of overall originations than in the past; just 45 percent of total Q1 originations were refinances vs. 54 percent in Q4 2016.”
Purchase originations were down 21 percent over the quarter, though up slightly over the year, at 3 percent higher than 2016’s numbers.
“Purchase lending was up year-over-year, but the 3 percent annual growth is a marked decline from Q4 2016’s 12 percent and marks the slowest growth rate Black Knight has observed in more than three years—going back to Q4 2013,” Graboske said. “At that point in time, interest rates had risen abruptly— very similarly to what we saw at the end of 2016—and originations slowed considerably. The same dynamic is at work here.”
Though the decline of both numbers is worrisome, according to Graboske, it’s the lower credit scores of borrowers that should have the industry on edge.
“Not only are refinances—which generally tend to outperform purchase mortgages—making up a smaller share of the market, but there’s also been a net lowering of average credit scores as well,” Graboske said. “The average Q1 2017 refinance credit score was 742, down from 751 in Q4 2016, and the lowest average credit score since Q3 2014. Both of these factors could have a dampening factor on mortgage performance, holistically speaking.”
As for foreclosures, April marked the lowest month on record for first-time foreclosure starts, with just 24,200 for the month. Repeat foreclosures also dropped, hitting their lowest point since April 2008. The total delinquency rate for the month was 4.08 percent, with foreclosure pre-sale inventory dropping 3.47 percent.
The states with the highest share of delinquent loans were Mississippi, Louisiana, Alabama, West Virginia, and Maine.
Foreclosure timelines declined over the year in the third quarter, a first in RealtyTrac’s reporting history, according to the latest Foreclosure Market Report released Thursday by ATTOM Data Solutions, the parent company of RealtyTrac. RealtyTrac has been reporting foreclosure timelines since 2007.
It took five fewer days to foreclose a home in the third quarter of this year than in the third quarter of last year, according to RealtyTrac, which reported an average foreclosure timeline of 625 days in Q3 2016.
This momentous decline was “the final nail in the coffin of the foreclosure crisis,” according to Daren Blomquist, SVP at ATTOM Data Solutions.
“The decrease in the average foreclosure timeline indicates that banks have worked through the bulk of the legacy foreclosure backlog in most states – with a few lingering exceptions – and that most of the foreclosures being completed now are relatively recent defaults that are more efficiently progressing through the foreclosure pipeline,” Blomquist said.
Overall foreclosures have “been on a steady slide downward over the past six years, finally dropping back below pre-crisis levels in September,” Blomquist said in the report.
Foreclosure filings were down 13 percent over the month in September and 24 percent over the year, reaching their lowest level since December 2005, according to ATTOM Data Solutions.
Foreclosure filings actually ticked up 4 percent over the third quarter of this year, but they were down 10 percent from the same quarter last year, marking the fourth consecutive quarter of year-over-year declines.
Foreclosure starts also followed a downward trend, sliding 13 percent over the month in September and 20 percent over the year to a more-than 11-year low. Bank repossessions were down 32 percent over the year and 12 percent over the month in September.
A significant share of properties sold at foreclosure auction in the third quarter went into the hands of third-party investors, according to ATTOM. Forty-four percent of properties sold at foreclosure auction went to investors, breaking a pre-recession high of 30 percent in 2005 and higher than any quarter since RealtyTrac began recording data in 2000.
Nationally, one in every 1,600 homes had a foreclosure filing in September. The states with the highest foreclosure rates were Delaware (one in every 680 homes), New Jersey (one in every 691 homes), Nevada (one in every 897 homes), Illinois (one in every 946), and Florida (one in every 950).
While foreclosure timelines decreased over the year nationally for the first time on record, the time it took to foreclose a home increased on an annual basis in 27 states in the third quarter.
The states where the foreclosure process takes the longest as of the third quarter are New Jersey (1,262 days), Hawaii (1,241 days), New York (1,070 days), Florida (1,038 days), and Illinois (942 days)—all of which are judicial states.
States where foreclosures take the least amount of time include Virginia (196 days), New Hampshire (230 days), Texas (246 days), Minnesota (250 days), and Mississippi (253 days)—all of which are non-judicial states.