The Mortgage Corner

Nationwide housing affordability hit a new record high for a second consecutive quarter in the first three months of this year, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).  So much so, that new-home sales are exceeding housing starts, which is dropping new-home inventories, reports Calculated Risk.

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Graph: Calculated Risk

“For the last 2+ years, the builders have sold a few more homes than they started, and inventory levels are now at record lows,’ says Calculated Risk. “In Q1 (2012), builders started 6 thousand fewer homes than they sold.” Yet tight lending conditions continue to pose a major obstacle to many prospective home buyers.

"Homes in this year’s first quarter were more affordable than they have been at any time in more than 20 years, yet many potential sales are not happening because of overly tight lending conditions that are keeping hardworking families from obtaining a suitable mortgage," said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB). "Without this significant hurdle, the housing and economic recovery could be proceeding at a much stronger pace."

The latest Housing Opportunity Index data reveal that 77.5 percent of all new and existing homes that were sold in this year’s first quarter were affordable to families earning the national median income of $65,000. This beats the previous record set in the final quarter of 2011, when 75.9 percent of homes sold were affordable to median-income earners.

The main problem is either lack of equity for existing homeowners, where more than 30 percent are ‘underwater’ with a mortgage worth more than the property, or problems with credit or income standards, which Fannie and Freddie have made more restrictive. But both the Fannie Mae/Freddie Mac HARP 2.0 loan modification programs are helping, which allow unlimited loan-to-values. Fannie estimates some 9 million homeowners could be helped with that program, alone.

In fact, housing starts rebounded 2.6 percent in April after declining 2.6 percent in March. The April pace of 0.717 million units posted higher than analysts’ forecast for 0.690 million and is up 29.9 percent on a year-ago basis. In April, the comeback was led by the multifamily component but single-family also was healthy.

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Graph: Econoday

The $25 billion National Mortgage Settlement that we summarized in a past column will also help those with non-Fannie or Freddie loans. It is an agreement with 5 of the largest mortgage holders; including Bank of America, Citibank, Wells Fargo, Ally/GMAC, and JP Morgan/Chase Banks to not only drop mortgage interest to current mortgage rates, but reduce principal as well. But it could take up to 9 months to implement, since the banks have to comb through their records to find eligible borrowers.

South Coast, California real estate is also being helped by the increased affordability, and it is spurring sales. Santa Barbara Realtor Gary Woods reported for the Santa Barbara MLS that escrows continued to surge in April with about 145 Home Estate/PUDs starting the buying process. But, just like with sales, the median list price on those escrows slid from $816,750 in March to $789,000 in April. “With the inventory way down and a substantial number of sales drawing multiple offers I would expect prices to start rising but at this point that phenomenon has not occurred,” said Gary.

And so we have a window of opportunity for buyers that many are taking advantage of. Lenders are being deluged with mortgage applications, as mortgage rates are the lowest since the Mortgage Bankers Association has been surveying them. And as a mortgage broker myself, I am seeing underwriting turnaround times of as much as 18 days.

Harlan Green © 2012