California pending home sales rise, post double-digit year-over-year gains:

C.A.R.’s Pending Home Sales Index rose to 128.8 in May compared with 115.8 a year earlier. Pending home sales also posted double-digit gains compared with the previous year for the fourth consecutive month. Additionally, the share of distressed sales continued to decline from year-ago levels, signaling a return of non-investors to the housing market.

• The share of equity sales – or non-distressed property sales – compared with total sales improved further in May. The share of equity sales rose to 59.3 percent in May, up from 55.8 percent in April. Equity sales made up 51 percent of all sales in May 2011.
• Likewise, shares of REOs and short sales sold statewide decreased in May, with the share of REO sales dropping the most markedly from a year ago. The combined share of all distressed property sales fell to 40.7 percent in May, down from April’s 44.2 percent and from 49 percent in May 2011.
• The share of short sales declined in May to 19.4 percent, down from 20.6 percent in April and from 20.3 percent a year ago.
• Of the distressed properties, the share of REO sales declined further in May to 21 percent, down from 23.2 percent in April and 28.4 percent in May 2011.
• The available supply of REOs for sale continued to tighten in May, with the Unsold Inventory Index declining from a 2-month supply in April 2012 to 1.5 months in May 2012

Taking advantage of low rates:

Mortgage rates continue to set new record lows, leaving many home buyers and refinancers wondering how low rates can go and how to capture the best rates now.

Making sense of the story

• Many economists are forecasting that mortgage rates will rise again later this year as the American economy gradually improves and as more global investors turn to the U.S. as a safe haven for money.
  
  
• The average rate on a 30-year fixed-rate mortgage averaged 3.71 percent the week of June 14.
  The rate had averaged 3.9 percent three months earlier and 4.5 percent a year earlier.
  
  
• According to one economist, rates could possibly fall further, perhaps as much as a quarter of a percentage point, but it is more likely that they would start a “slow drift” upward.
  
  
• Those planning to refinance or buy a home in the next two or three months might want to consider locking in a mortgage rate now.
  
  
• Borrowers with rate locks, with a built-in deadline, often receive priority treatment from lenders, because the borrower is telling the lender that he or she is serious about closing soon.
  
  
• Lock-in costs and policies vary widely, and are based partly on the time frame the borrower wants covered. Most borrowers will need a 60- to 90-day lock.
  
  
• If interest rates continue to fall during the lock period, borrowers can ask the lender to rewrite the rate lock at an additional cost, or obtain a “float-down” provision in the original agreement. A lock with a float-down agreement allows the borrower to change the rate, often only once, before closing on the mortgage. This option is generally more expensive than a standard lock.

Freddie Mac releases U.S. economic and housing market outlook:

Freddie Mac released recently released its U.S. Economic and Housing Market Outlook for June showing that rental market activity has been a bright spot for the housing market, and due to rental demand by those postponing homeownership, further increases are expected in the coming year.

Highlights from the outlook include:

• Over the year ending March 2012, an additional 1.5 million households moved into rental housing, a 4 percent increase in a single year.

• Rental vacancy rates have dropped roughly two percentage points over the past two years.

• While nominal rents rose (2 to 4 percent) during the year ending March 2012, average rent on an inflation-adjusted basis remained below where it had been for much of the decade prior to the Great Recession.

• Multifamily property values are up on average about 25 percent during the past two years from their trough during the first quarter of 2010, according to the National Council of Real Estate Investment Fiduciaries index, but still about 14 percent below their peak prior to the Great Recession.

• Starts of buildings with at least five apartments have jumped 48 percent in the first five months of this year when compared to the same period a year ago.

Consumers taking a “wait and see” approach to buying, selling:

Consumer data show that Americans are taking a “wait and see” approach to buying or selling a home, according to Fannie Mae’s May 2012 National Housing Survey.

“This is not surprising given their assessment that their income during the past twelve months and their personal financial expectation for the next twelve have leveled off,” said Doug Duncan, vice president and chief economist of Fannie Mae. “These data are in line with what we are seeing on the macroeconomic front, as upside and downside risks and activities are moderating one another. Current jobs data are reminiscent of the spring slowdown that continued into the summer months during the last two years. If this pattern continues, we do not expect to see any significant upturn in consumer sentiment during the summer, and a meaningful housing recovery likely will be delayed once again.”

Highlights of survey include:

• On average, Americans expect home prices to increase by 1.4 percent over the next 12 months, up 0.5 percentage points since March 2012 and the highest value yet recorded.

• Thirty-four percent of respondents say that home prices will go up in the next 12 months, the highest level recorded since March 2011.

• Forty-one percent of respondents expect home mortgage rates to go up in the next twelve months, a slight increase from last month.

• The percentage of respondents who say it is a good time to buy increased by 1 percentage point to 72 percent, while the percentage of respondents who say it is a good time to sell remained at 15 percent.

• On average, respondents expect home rental prices to increase by 4.1 percent over the next 12 months, a 0.5 percentage point increase versus last month and a return to the level seen in March.

• Forty-nine percent of respondents think that home rental prices will go up, consistent with last month’s value and remaining the highest number recorded to date.

• At 32 percent, the percentage of respondents who would rent if they were going to move is unchanged, while 63 percent would buy.

The advantages of preapproval:

The housing market is warming up in many areas, with multiple offers becoming more commonplace. Buyers who want an advantage in the bidding process will need more than a mortgage prequalification – they will need a preapproval.

Making sense of the story

• The differences between mortgage prequalification and preapproval are significant. Prequalifying for a mortgage is based solely on what a borrower discloses to the loan officer or broker about his/her earnings, credit score, and total assets, including what is available for a down payment. By contrast, a preapproval requires a borrower to provide documentation of his/her income and assets.

• The lender typically pulls the borrower’s credit report and score, while the borrower gathers together almost everything else needed for the actual mortgage underwriting: W-2 wage statements; 1099s; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s; and other assets that could show the borrower has the resources to buy and maintain a home.

• At one of the country’s largest mortgage lenders, Wells Fargo, the first quick review provided by an underwriter constitutes an agreement to lend. Other lenders may treat preapprovals as more of an opinion on the person’s ability to borrow, not a guarantee to lend.

• With so many homes receiving multiple offers, a preapproval is more important in today’s marketplace.

• The preapproval letter should include the amount a borrower is qualified to borrow, as well as the loan officer’s contact information. Some letters may have an estimated monthly payment, but details about the loan time and interest rate are not included.

• Timing also is important. Buyers should aim for obtaining a preapproval letter from a lender within 30 to 60 days of the expected purchase date. That is because some letters expire in 90 days.

Fighting back against lowball home appraisals;

Record-low interest rates are a boon for home buyers and for homeowners seeking to refinance. But low appraisals are making it difficult or even impossible for some borrowers to take advantage.

Making sense of the story

• Lenders report that “overly pessimistic appraisals caused by appraisers using distressed sales as ‘comparables’ are a key reason why deals are falling through.

• Part of the problem is that home prices have plummeted further than many people would like to believe.

• Another key factor is the appraisal changes enacted in the wake of the financial crisis that were designed to eliminate improper pressure on appraisers that often led to inflated valuations during the housing boom. However, critics say those changes resulted in unnecessarily conservative valuations and the greater use of appraisers with little knowledge of local market conditions.

• Additionally, accurate valuations can be difficult to come by when sales are thin and prices are just beginning to edge upward after prolonged declines. Many borrowers are “in a holding pattern for extended periods” because it’s difficult to find comparable sales to support the appraisal value.

• Despite these issues, there are ways consumers can improve their odds of getting a deal done. For example, borrowers can look at comparable sales from the last three to six months before seeking a mortgage to know the range of home values in the area.

• Secondly, although borrowers cannot choose their appraiser, they can accompany the appraiser during the inspection, pointing out improvements that add to the home’s value. They also can provide the appraiser with comparable sales that can be used to support the valuation.

• Borrowers also can request that the lender review the appraiser’s findings, though the chances of success are slim. If the borrow thinks the value is unreasonably low, they should first look for factual errors, such as an erroneous number of bedrooms or miscalculated square footage.

Speeding up short sales:
Beginning June 15, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, will require both agencies to give short-sale buyers a final decision within 60 days.

Making sense of the story

• Under this same guideline, Fannie Mae and Freddie Mac also must respond to initial requests for a short sale within 30 days of receiving the buyer’s submission.

• According to one analyst, expedited sales as a result of the new directive will benefit the entire housing market. They could also remove some risks for buyers – many of whom previously had to wait months for a decision and then ended up not getting the house they wanted.

• Lenders favor short sales because they are less costly and more efficient than foreclosures. Yet the homeowners, trying to exit as gracefully as possible, never know how long the process will take or how badly their credit will be hurt.

• Although short sales have a reputation for being easier on credit scores than foreclosures, Experian says that is a “fairly common misperception.” If there is a difference in impact, according to Experian, it is slight.

• Both short sales and foreclosures remain on the credit report for seven years, but foreclosures don’t appear until the legal paperwork is filed, and that could take months.

• The effect was measured by an analysis by VantageScore, a provider of credit scores used by lenders. The higher the credit rating a consumer has, the more points he or she would lose in a short sale.

• If consumers started with an 830 score, they would most likely lose 100 to 110 points from a short sale, 120 to 130 points from a foreclosure. But a homeowner with a 625 score, who is behind on his mortgage and some credit card payments, would lose 15 to 25 points from a short sale and 10 to 20 points from a foreclosure.