The Mortgage Corner

CoreLogic reported that home prices nationwide, including distressed sales, increased on a year-over-year basis by 9.7 percent in January 2013 compared to January 2012. This change represents the biggest increase since April 2006 and the 11th consecutive monthly increase in home prices nationally.

Excluding distressed sales, home prices increased on a year-over-year basis by 9.0 percent in January 2013 compared to January 2012. On a month-over-month basis excluding distressed sales, home prices increased 1.8 percent in January 2013 compared to December 2012. The five states with the highest home price appreciation, including distressed sales, were: Arizona (+ 20.1 percent), Nevada (+17.4 percent), Idaho (+14.9 percent), California (+14.1 percent) and Hawaii (+14.0 percent).

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Graph: Calculated Risk

This is a huge increase, and may mean borrowers and home buyers fear interest rates may rise later this year, as some Federal Reserve Governors are objecting to the sustained purchase of QE3 securities until the unemployment rate drops to 6.5 percent from its current 7.8 percent.

A major reason for the price increases is increased mortgage activity due to still low interest rates, even though stocks are rallying to record highs. The Mortgage Bankers Association reported both the Refinance and Purchase Indexes increased 15 percent from the previous week and were at the highest levels since mid-January to early February.

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Graph: Calculated Risk

The 30-year fixed conforming rate is still at 3.50 percent for a 1 point origination fee in California, and the high-balance fixed rate is now 3.75 percent for 0 points origination.

Another reason for such rising prices is the decline in mortgage delinquency and foreclosure rates. These are homes that tend to sell under market prices, which bring down overall values. The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago.

And lastly, an increase in overall wealth has to be putting consumers in a buying mood. CNBC estimates that $1 trillion of the $4.8 Trillion increase in household wealth since the end of the Great Recession has been from rising housing values, and studies show homeowners tend to spend 10 percent of that increase, more than the additional wealth created by financial markets.

Harlan Green © 2013

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