The Mortgage Corner

Following the 15 percent jump in September housing construction, new-home sales rose 11.7 percent and are up 27 percent over September 2011, as inventories have shrunk to a meager 4.5 months, especially at the affordable level. The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 389 thousand. This was up from a revised 368 thousand SAAR in August. This is the highest level since April 2010 and the tax credit related bounce, says Calculated Risk.

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Graph: Calculated Risk

The Mortgage Bankers Association (MBA) also expects to see $1.3 trillion in mortgage originations during 2013, largely driven by a spillover of refinances into the first half of the year. This is thanks in large part to the Fed’s QE3 that has pushed 30-year fixed conforming rates to 3.125 percent with 0 points in California at this writing.

The MBA also upwardly revised its estimate of originations for 2012 to $1.7 trillion, approaching levels at the height of the housing boom. MBA expects to see purchase originations climb to $585 billion in 2013, up from a revised estimate of $503 billion for 2012. In contrast, refinances are expected to fall to $785 billion in 2013, down from a revised estimate of $1.2 trillion in 2012, as more new homes are built.

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Graph: Calculated Risk

“We expected 2012 originations to be front-loaded in the first half of the year, with refis falling off with rate increases, said Jay Brinkmann, MBA’s Chief Economist. “Instead we saw the refinance market grow during the year due to a combination of low rates, thanks to QE3 and slowing global growth because of continuing problems in Europe, and adjustments in the HARP and FHA refinance programs. We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half.”

The bottom line is that with banks still holding some 2 million plus of the so-called ‘shadow inventory’ of existing homes, as they work through their homes in default, the demand for new homes should continue to grow. Serious delinquencies, which are the main driver of the shadow inventory, declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).

In the end, an improving jobs picture will be most effective in bringing down serious delinquencies, and so the shadow inventories further—thus increasing the supply of houses available for sale. And employment is improving with 150,000 private sector jobs per month created just over the past year, enough to absorb new entrants.

Harlan Green © 2012