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Home Values Start The Year Strong

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HPI 2007-2012

Home prices started the year on an upswing. 

According to the Federal Home Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index’s assertion that home values are sinking.

Last week, Standard & Poor’s Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months. 

As a home buyer or seller in Minneapolis , data showing “rising home values” or “falling home values” may be of interest to you, but we can’t forget that most home valuation trackers — including both the government’s Home Price Index and the private sector Case-Shiller Index — have a severe, built-in flaw.

Both used “aged” data. Today, the calendar reads May. Yet, we’re still discussing February’s housing data.

Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the “right now” of housing. And, even then, characterizing the data as “two-plus months old” may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.

Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we’re really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.

Data that’s 5 months old is of little relevance to today’s buyers and sellers. Today’s market is driven by today’s economics.

The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller throughout Minnesota , though, it’s much less useful. Real-time data is what matters to you.

For that, talk to a real estate professional. For Minnesota Real Estate Properties Today

Mortgage Guidelines Resume Tightening Nationwide

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Senior Loan Officer SurveyDespite an improving U.S. economy, the nation’s banks remain cautious about what they will lend, and to whom.

Last quarter, by a margin of 3-to-2, more banks tightened residential mortgage lending standards for “prime borrowers” than did loosen them.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio. The insight comes from the Federal Reserve’s quarterly survey of its member banks.

Last quarter, of the 54 responding banks :

  • 0 banks tightened mortgage guidelines considerably
  • 3 banks tightened mortgage guidelines somewhat
  • 49 banks left guidelines basically unchanged
  • 2 banks eased mortgage guidelines somewhat
  • 0 banks eased mortgage guidelines considerably

By contrast, in the quarter prior, not a single surveyed bank reported tighter residential mortgage guidelines. The period from January-March was a step backwards, therefore, for the fledgling U.S. housing market.

Overall, getting approved for a mortgage is tougher than it used to be. Banks enforce higher minimum credit score standards; ask for larger downpayment/equity positions; and require higher monthly income relative to monthly debt obligations.

It’s one reason why the homeownership rate is at its lowest point since 1997.

Another reason why homeownership rates may be down is that prospective home buyers believe the hurdles of today’s mortgage approval process may be impassably high. That’s untrue.

There are many U.S. homeowners and renters — even here in Minneapolis — that were approved for a home loan last quarter — prime borrowers or otherwise. Some had excellent credit, some had modest credit. Some had high income, some had moderate income. Many, however, took advantage of low-downpayment mortgage options such as the FHA’s 3.5% downpayment program, and the VA’s 100% mortgage program for military veterans.

Despite a general tightening in mortgage standards, loans are still available and banks remain eager to lend.

It is harder to get approved today as compared to 5 years ago, but for those that try and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout Minnesota continue to push home affordability to all-time highs.

If you’re in the market to buy a new a home or refinance one, your timing is excellent.

Pending Home Sales Index Crosses The 100 Barrier

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Pending Home Sales 2010-2012

After a series of worse-than-expected data last month, the housing market appears to be back on track.

The Pending Home Sales Index posted 101.4 in March, a four percent gain from the month prior and the index’s highest reading since April 2010 — the last month of that year’s federal home buyer tax credit.

A “pending home” is a home under contract to sell, but not yet closed. The Pending Home Sales Index is tracked and published by the National Association of REALTORS® monthly.

The March report marks the index’s first 100-plus reading in nearly two years.

To home buyers and sellers throughout Minnesota , this is statistically significant because the Pending Home Sales Index is normalized to 100, a value corresponding to the average home contract activity in 2001, the index’s first year of existence. 2001 was an historically-strong year for the housing market.

The March 2012 Pending Home Sales Index, therefore, puts current market activity on par with market activity from 2001.

You wouldn’t know it from reading this week’s papers, though. There have been stories about how the Case-Shiller Index put home values at new loans; and how the Existing Home Sales figures unexpectedly dropped off; and how the New Home Sales report was a laggard.

But this is why the Pending Home Sales Index can be so important.

What makes the Pending Home Sales Index different from those other data points is that the Pending Home Sales Index is a “forward-looking” housing market indicator.

Unlike most data which aims to tell us how the housing market performed at some point in the past, the Pending Home Sales Index attempts to tell us how the housing market will perform at some point in the future. 

80% of homes under contract close within 2 months. Many more close within months 3-4. Therefore, on the strength of the March Pending Home Sales Index, we should expect a strong April and May nationwide

If you’re shopping for homes right now, consider taking advantage while the market remains somewhat soft. Mortgage rates are low and home prices are, too. It can make for a good home-buying conditions.

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