Will Lending Standards Loosen Up This Spring?

DAILY REAL ESTATE NEWS | THURSDAY, MARCH 28, 2013

Lenders tightened up their underwriting standards the last few years, making it difficult for even creditworthy buyers to get approved for a home loan. Federal Reserve Chairman Ben Bernanke said at a press conference last week that the tightening of the mortgage market “has gone too far.” 

But recent data released by Ellie Mae shows there may be some improvement in the loosening of credit. 

“The credit box may be expanding,” says Jonathan Corr, Ellie Mae president and CEO.

In its latest data release, Ellie Mae found that the average FICO scores for approved loans has started to drop — a 767 FICO average for all of 2012 compared to 761 FICO average for all approved conventional loans during February. 

More applications for mortgages also were approved — 56.8 percent in February versus 55 percent in January, a slight improvement.

The refinance share of loan originations fell to 68 percent in February, from 73 percent in January, which is “a good sign since it indicates lenders are getting more serious about going after the purchase market,” Inman News reports. 

Still, many in the industry say that banks are being too strict with home loans. Lawrence Yun, chief economist for the National Association of REALTORS®, estimates that if credit conditions returned to “normal,” about 500,000 to 700,000 more home sales would occur this year.

Existing Home Sales Hit 3 Year High, Home Prices Rise:

U.S. home resales (the largest segment of the housing market) hit a three-year high in February and prices jumped, adding to signs of an acceleration in the housing market recovery.

The National Association of Realtors said on Thursday existing home sales increased 0.8 percent to an annual rate of 4.98 million units last month, the highest level since November 2009. The January sales pace was revised upward to 4.94 million units from the previously reported 4.92 million units.

The median home sales price in February rose 11.6 percent from a year ago to $173,6000.

In a separate report, the U.S. Department of Commerce reported that New Home Starts rose. Building Permits for new construction approached a five-year high.

Jumbo Loans Availability and Rates Point To Growing Housing Market:

Even as mortgage rates begin to rise, the difference between conforming and jumbo loan rates is shrinking, and that is good news for buyers of higher-priced homes. Conforming loans are largely financed by Fannie Mae and Freddie Mac, and are valued at up to $417,000 — although they can be as high as $625,000 in some of the nation's pricier markets.

Jumbo Loans are anything above that and are funded by banks or private investors. Rates used to be far higher for jumbo loans, but that is changing fast.  As reported by the Mortgage Bankers Association, The spread between a jumbo and a conforming mortgage rate was as wide as 0.875 percent last summer. It has now dropped to between 0 and 0.25 percent as of Monday.

The jumbo market has heated up, as tight lending guidelines have drastically reduced consumer late payments, strategic defaults, and foreclosures, this gives investors confidence to buy jumbos again, which means lower rates for consumer borrowers.

The rebirth of jumbo securitizations is being driven not just by investor confidence, but by growth in jumbo originations, which increased after the conforming loan limit was lowered. Originations of non-agency jumbo mortgages jumped by over 19 percent in 2012 from 2011, according to Inside Mortgage Finance. 

New-home sales continue upward swing

28.9 percent annual jump makes for best January in 5 years

By Inman News
Inman News®

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February 26, 2013

Sales of new single-family homes rose 28.9 percent on an annual basis in January to a seasonally adjusted annual rate of 437,000, the U.S. Census Bureau reported today.

That represents a 15.6 percent increase from December, and was the fastest pace of new-home sales for a January since 2008, blogger Bill McBride pointed out on Calculated Risk.

It was, however, the ninth weakest January in records going back to 1973, McBride noted. Nearly three times as many new homes sold in January 2005.

The median sales price of new homes sold in January was $226,400, up 2.1 percent from a year ago, but down 9.4 percent from December.

The Census Bureau estimated that 150,000 new homes were on the market at the end of December, representing a 4.1-month supply. Less than six months' supply is considered normal, McBride said.




Source: Calculated Risk blog.

Labor Costs to Push Up Housing Prices:

Housing starts are up 24 percent from a year ago, but residential construction employment is up only 3.1 percent, according to the U.S. Commerce and Labor Departments.

During the slow down in new construction, wages were cut or laid off workers naturally sought out other jobs.  Now that housing starts and housing demand have heated back up, the housing industry is struggling to get those workers back to fill demand. And in order to attract skilled workers back, builders are paying more.

Total employment in construction increased by 48,000 in February. Since September, construction employment has risen by 151,000. The biggest growth in February construction jobs came in residential specialty trade contractors, up 17,000. Those trades, such as plumbers, painters, and electricians, have been boosted not just by an increase in home construction but in home remodeling as well.

For example: in Las Vegas where Pardee Homes is building 150 percent more homes this year than they did last year, finding workers is increasingly difficult.  "We lost quite a bit of labor to the oil fields and to places like Wyoming and North Dakota, where you would not expect it to go," noted Klif Andrews, Pardee's Las Vegas president.

Andrews said he is paying workers five to ten percent more now, and that has pushed his home prices higher. "We've raised median home prices up over 15 percent, so we've been able to stay a little bit ahead of it, but cost increases, it's not just labor, it's also materials," he added.

Nationwide, the median price for newly built homes rose 2 percent in January and new home prices now far exceed the median price for existing homes.  

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