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Starts Down
The Census Bureau reported that April housing starts fell 10.6% to an annual rate of 523,000, and were down 23.9% from a year earlier, when the home buyer tax rebate action was at its peak. The bad news was somewhat offset by a significant upward revision to the March starts, to 585,000 from the 549,000 originally reported. Single-family starts dropped 5.1% to 394,000, but multifamily slumped 28.3% to 114,000. First-quarter multifamily starts were boosted by changes in building codes in several states, which encouraged builders to get their permits in before January 1. The actual starts stretched into the first quarter. Multifamily starts are up 5.6% from last April, while single-family starts are down 30.4%.
The drop in starts was concentrated in the South, where starts plunged 23.0% to 255,000. Starts fell somewhat in the Northeast, by 4.8% to 60,000, and were up in the Midwest (up 15.7% to 96,000) and the West (up 3.7% to 112,000).
Permits dropped 4.0% to 551,000. Multifamily permits, however, were down 13.9% to 143,000, while single-family permits fell 1.8% to 385,000. The backlog of permits not yet started was flat at 81,200.
Price Indexes Hover Above 2009 Lows
Through February (most recent available data), the S& Home Price Indices showed that the 10- and 20-city composites were lower than a year earlier but still slightly above their April 2009 bottom. The 10-City Composite fell 2.6% and the 20-City Composite was down 3.3% from February 2010, levels. Washington, D.C., was the only market to post a year-over-year gain with an annual growth rate of 2.7%. Ten of the 11 cities that made new lows in January 2011 saw new lows again in February 2011. Detroit avoided another new low, managing a 1.0% increase in February over January, the only city with a positive monthly change. With an index level of 139.27, the 20-City Composite is virtually back to its April 2009 trough value (139.26); the 10-City Composite is 1.5% above its low.
Mortgage Markets
Fixed mortgage rates fell to their lowest levels of the year in May, providing Americans more incentive to buy homes or refinance their loans. The 30-year mortgage rate dipped to 4.61% during the week ended May 19, from the previous week's 4.63%, according to Freddie Mac. The 30-year mortgage rate remains well above the all-time low of 4.17% reached in November 2009.
Coming This Fall: Lower Limits on Large Loan Guarantees
Loans for expensive homes are likely to become more costly this fall, as the federal government plans to lower the amount of mortgage debt it will guarantee in areas with higher-than-average home prices. Effective October 1, conforming loan limits in approximately 250 so-called high-priced counties will decline from $729,750 to a maximum of $625,500 for one-unit homes, according to the Federal Housing Finance Agency. In some areas, however, the limit will be set lower. For example, the new limit in Monterey County, California, will drop from $729,750 to $483,000. Lower conforming loan limits could result in higher mortgage rates for borrowers, who may need to pay a premium for loans not backed by the government. In addition, the changes may result in higher required down payments and a smaller pool of potential buyers, which could put downward pressure on prices.
Mortgage Fraud Reached Record Level in 2010
Reports of mortgage fraud reached a record high level in 2010, according to a recent Wall Street Journal article. Citing Treasury Department data, the paper reported in May that the number of "suspicious activity reports" related to suspected mortgage fraud rose 5% last year, to 70,472-the highest number recorded since the government began tracking complaints in 1996. There were fewer than 4,700 fraud reports filed in 2001, but by 2006 the number exceeded 37,000. The article also points out that much of the alleged fraud reported in 2010 may have occurred in previous years, but only recently came to light.
More Than Half of All Second Homes Bought With Cash in 2010
Mortgage issuance for second homes in 2010 was 73% below its peak in 2005, but falling prices have apparently attracted the attention of buyers with enough liquid assets to buy without financing. The number of buyers who paid cash for a second home jumped from 48% in 2009 to 60% in 2010, according to a report on smartmoney.com citing CoreLogic data.
Lenders' Glut of Foreclosed Homes Could Threaten Market
U.S. banks and mortgage lenders now own nearly twice as many foreclosed homes as they did in 2007, and the stockpile of shadow inventory has the potential to deepen the housing crisis and derail a broader economic recovery. Lenders now own more than 870,000 such homes, and are in the process of foreclosing on approximately one million more, according to a New York Times article referencing RealtyTrac statistics. In addition, they are likely to take possession of millions more in the years ahead. Before the housing collapse, it was considered normal for lenders to repossess one home for every distressed home they sold. In some markets, the ratio has since changed dramatically. For example, the article reported that Atlanta-area lenders repossessed eight homes for every distressed home they sold in March. In Minneapolis, the ratio was six to one.
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