The Mortgage Corner

Further evidence that real estate is recovering is the drop in both vacancy rates and so-called Real Estate Owned (REO) properties—i.e., that banks have taken back in foreclosure. Several analysts, including Calculated Risk, believe this is absorbing much of the excess housing inventory that has been depressing prices.

image

Graph: Calculated Risk

Existing-home sales represent more than 90 percent of the market so they are the best measure of housing inventory. Inventory decreased 23 percent year-over-year in July from July 2011. It is the seventeenth consecutive month with a YoY decrease in inventory, and near the largest year-over-year decline reported. Months of supply decreased to 6.4 months in July from 6.6 percent in June. Listed inventory is 24.4 percent below a year ago when there was a 9.1-month supply.

image

Graph: Calculated Risk

Existing-home sales increased 2.3 percent in July from a month earlier to a seasonally adjusted annual rate of 4.47 million, the National Association of Realtors said Wednesday. The month’s sales were 10.4 percent above the same month a year earlier.

Lawrence Yun, NAR chief economist, said housing affordability conditions are very good.  “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates.  Combined, these factors are helping to unleash a pent-up demand,” he said.  “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”

While not yet overwhelming, the real estate recovery will continue to spur growth, with construction spending also up some 7 percent in the year. But lower inventories are the key, and Realtors are reporting rising prices and multiple offers in most of the metropolitan areas.

Lawrence Yun said inventory shortages are a factor.  “Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” Yun said.  “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

image

Graph: FHFA

Hence the higher prices. Lastly, home prices climbed 0.7 percent on a seasonally adjusted basis in June, following a revised 0.6 percent increase in May, the Federal Housing Finance Agency said Thursday. In the 12 months through June, prices rose 3.6 percent, the agency said. The FHFA purchase-only index is based on transactions bought or guaranteed by Fannie Mae or Freddie Mac for so-called conforming mortgages.

Harlan Green © 2012