The Mortgage Corner
Consumers, perk up, as I said last week. Housing values are finally rising nationally. In fact, housing prices in all 20 city-metro areas in the Case-Shiller Home Price Index rose for the first time in years, before seasonal adjustment.
Home prices rose an adjusted 0.9 in May. This is the third strong gain in a row following 0.7 and 0.8 percent readings in April and March. Prices are coming off the bottom reflected in the year-on-year rate which is still in the negative column at minus 0.7 percent. Yet the direction is going the right way with 18 of 20 cities showing monthly growth led by Chicago and Atlanta, when prices are adjusted for the usual seasonal fluctuations.
And Fannie Mae/Freddie Mac financed home prices are doing even better. The FHFA home price index in May increased 0.8 percent, following a 0.7 percent boost in April. June’s figure was the fourth increase in a row. The year-on-year rate is up 3.7 percent, compared to up 3.0 percent in April, according to the FHFA.
One reason housing prices are firming is soaring refinance activity, due in part to the new HARP 2.0 Fannie Mae/Freddie Mac loan modification program that allows unlimited loan to values, but without forgiving principal. It’s hard to quantify just how much this is helping home prices, but it is certainly helping fix the pocketbooks of homeowners, since conforming 30-year fixed rates have dipped to as low as 3.25 percent in California with zero origination points. And increased refinance activity has always preceded higher home sales.
The Refinance Index increased 0.8 percent from the previous week to its highest level since the week ending April 17, 2009, said the Mortgage Bankers Association. The slight increase in refinance activity was muted by a 6 percent drop in government refinance applications, while conventional refinance activity increased about 2 percent over the week. The seasonally adjusted Purchase Index decreased about 2 percent from one week earlier.
Graph: Calculated Risk
Another indicator Pending Home Sales dipped slightly in June, but that may be due to fewer homes available for sale. The inventory of homes on the market has been dropping steadily. In fact, there are only 4.9 months of new homes on the market, something we haven’t seen since the 1980s.
So lack of supply appears to be an increasing negative in the housing sector. The National Association of Realtors, which compiles the pending sales report, blamed inventory shortages for June’s weakness. But shortage of inventory may also be boosting home prices, which should pull more existing homes into the market and will encourage builders in the new home market. Also, by region, weakness was most pronounced in the Northeast which was hit by bad weather.
Harlan Green © 2012