HPI from peakThe U.S. housing market continues to make home price gains.

Earlier this week, the S&P/Case-Shiller Index showed home prices gaining 4.3 percent during the 12-month period ending October 2012, marking the largest one-year gain in home prices since May 2010.

The Case-Shiller Index measures changes in home prices by tracking same-home sales throughout 20 housing markets nationwide; and the change in sales price from sale-to-sale. Detached, single-family residences are used in the Case-Shiller Index methodology and data is for closed purchase transactions only.

Between October 2011 and October 2012, home values rose in 18 of the 20 Case-Shiller Index markets, with previously-hard hit areas such as Phoenix, Arizona leading the national price recovery.

The top three “gainers” for the 12 months ending October 2012 were :

  • Phoenix, Arizona : +21.7 percent
  • Detroit, Michigan :  +10.0 percent
  • Minneapolis, Minnesota : +9.2 Percent

Only Chicago and New York City posted annual home value depreciation. On average, homes lost -1.3% and -1.2% in value, respectively.

It should be noted, however, that the Case-Shiller Index is an imperfect gauge of home values

First, as mentioned, the index tracks changes in the detached, single-family housing market only. It specifically ignores sales of condominiums, co-ops and multi-unit homes. 

Second, the Case-Shiller Index data set is limited to just 20 U.S. cities. There are more than 3,000 cities nationwide, which illustrates that the Case-Shiller sample set is limited.

And, lastly, the home sale price data used for the Case-Shiller Index is nearly two months behind its release date, rendering its conclusions somewhat out-of-date.

That said, the Case-Shiller Index joins the bevy of home value trackers pointing to home price growth over the last year. The Federal Housing Finance Agency (FHFA), for example, reported similar home price growth with its October 2012 House Price Index (HPI).

Home values rose 0.5 percent between September and October 2012 nationwide, the FHFA said, and climbed 5.6 percent during the 12 months ending October 2012.

Economists attribute increasing home prices to higher buyer demand, record-low mortgage rates and the gradual improvement of the U.S. economy.

Home Price Index from peak to presentTuesday, the Federal Home Finance Agency’s Home Price Index (HPI) showed home values rising 0.2% on a seasonally-adjusted basis between June and July 2012, and moving +3.7% on an annual basis.

Home values have not dropped month-to-month since January of this year — a span of 6 months.

For today’s home buyers and sellers throughout San Jose , though, it’s important to recognize on what the HPI is actually reporting.

Or, stated differently, on what the HPI is not reporting. The Home Price Index is based on home price changes of some homes, of certain “types”, with specific mortgage financing only.

As such, it excludes a lot of home sales from its results which skews the final product. We don’t know if home values are really up 0.2% this month — we only know that’s true for the home that the HPI chooses to track.

As an example of how certain homes are excluded, because the HPI is published by the Federal Housing Finance Agency and because the FHFA gets its access to home price data from Fannie Mae and Freddie Mac, it’s upon data these two entities upon which the Home Price Index is built.

Home price data from the Federal Housing Administration (FHA), from local credit unions, and from all-cash sales, for example, are excluded from the HPI because the FHFA has no awareness that the transaction ever happened.

In 2006, this may not have been a big deal; the FHA insured just 4 percent of the housing market at the time. Today, however, the FHA is estimated to insure more than 20% of new home purchases. Furthermore, in August, more than 1 in 4 sales were made with cash.

None of these home sales were included in the HPI.

Furthermore, the Home Price Index excludes certain home types from its findings.

Home sales of condominiums, cooperatives, multi-unit homes and planned unit developments (PUD) are not used in the calculation of the HPI. In some cities, including Chicago and New York City, these property types represent a large percentage of the overall market. The HPI ignores them.

Like other home-value trackers, the Home Price Index can well highlight the housing market’s broader, national trends but for specific home price data about a specific home or a ZIP code, it’s better to talk with a real estate agent with local market knowledge.

Since peaking in April 2007, the Home Price Index is off 16.4 percent.

 | Posted by | Categories: Housing Analysis | Tagged: , , |

New g-fees threaten low mortgage ratesBeginning as soon as next week, new, mandatory mortgage fees will push mortgage rates higher throughout San Jose and nationwide. Fannie Mae and Freddie Mac are raising their respective “guarantee fees”.

Guarantee fees are fees that mortgage-backed securities providers charge to lenders for mortgage-related services including the bundling, selling and reporting of mortgage-backed bonds. 

Guarantee fees are also used to insure providers against credit-related losses.

As announced by the Federal Housing Finance Agency, effective for all conforming loans delivered to Fannie Mae or Freddie Mac, beginning November 1, 2012, guarantee fees will be raised by an average of 10 basis points per loan.

Conforming mortgages already average close to 30 basis points in guarantee fee per loan.

This is the second time this year that the FHFA has raised guarantee fees, with the most recent increase translating into an approximate 50-basis point worsening in consumer mortgage pricing. That today’s home buyers and refinancing households will soon pay higher loan closing costs as a result.

To use a real-life example, Freddie Mac reported that the average 30-year fixed rate mortgage was 3.55% nationwide this week for borrowers willing to pay an accompanying 0.7 discount points. 

Once the new g-fee is implemented, the discount points change : 

  • Prior to guarantee fee increase : 3.55% with 0.7 discount points
  • Post guarantee fee increase : 3.55% with 1.2 discount points

Post-increase, in other words, an identical Freddie Mac loan requires an extra half-point to get to closing, or $500 in additional closing costs per $100,000 borrowed.

These fees will soon appear on rate sheets, if they haven’t already.

Lenders know that it can take up to 60 days to lock a loan, approve it, fund it, then package it for delivery. Loans locked today, therefore, will likely be delivered to Fannie Mae or Freddie Mac after the November 1, 2012 deadline. As a result, mortgage pricing will soon include the effects of the g-fees.

Perhaps as soon as this morning.

 | Posted by | Categories: The Economy | Tagged: , , |

Home Price Index, monthly since April 2007

The housing market recovery appears to be sustainable.

According to the Federal Housing Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.7 percent between May and June 2012. The index is now up 3.0% over the past 12 months, and made its biggest quarterly gain since 2005 last quarter.

The FHFA’s Home Price Index measures home price changes through successive home sales for homes whose mortgages are backed by Fannie Mae or Freddie Mac, and for which the property type is categorized as a “single-family residence”. 

Condominiums, multi-unit homes and homes with jumbo mortgages, for example, are excluded from the Home Price Index, as are all-cash home sales.

June’s HPI gives buyers and seller in San Jose reason to cheer, but it’s important to remember that the Home Price Index — like so many other home valuation trackers — has a severe, built-in flaw. The HPI uses aged data. It’s nearly September, yet we’re talking numbers from June.

Data that’s two months old has limited meaning in today’s housing market. It’s reflective of the housing market as it looked in the past.

And, even then, to categorize the HPI as “two months old” may be a stretch. Because it often takes 45-60 days to close on a home sale, the home sale prices as reported by the July Home Price Index are the result of purchase contracts written from as far back as February 2012.

Buyers and sellers in search of real-time home price data, in other words, won’t get it from the FHFA.

The Home Price Index is a useful housing market gauge for law-makers and economists. It highlights long-term trends in housing which can assist in allocating resources to a particular policy or project. For home buyers and sellers throughout California , however, it’s decidedly less useful. Real-time data is what’s most important.

For that, talk to a real estate professional.

 | Posted by | Categories: Housing Analysis | Tagged: , , |

Case-Shiller Index May 2012

According to the S&P/Case-Shiller Index, home values rose 2.2% nationwide, with all 20 tracked markets making month-to-month improvement. On an annual basis, 17 of the 20 Case-Shiller Index markets improved.

Despite the positive report, however, our enthusiasm for the May Case-Shiller Index should be tempered. This is because the index’s methodology is less-than-ideal for today’s San Jose home buyer.

There are three main reasons why :

  1. The Case-Shiller Index tracks values for single-family homes only
  2. The Case-Shiller Index is distorted by distressed, discounted home sales 
  3. The Case-Shiller Index publishes on a 2-month lag

Perhaps even more important, though, is that the Case-Shiller Index ignores a basic tenet of the housing market — all real estate is local. It’s not possible for 20 cities to represent the U.S. housing market as a whole. Even more egregious is that the 20 markets tracked by the Case-Shiller Index don’t represent the country’s twenty most populated cities.

The Case-Shiller Index specifically excludes home sale data from Houston, Philadelphia, San Antonio and San Jose — four of the nation’s 10 most populated cities. Yet, the index does include data from cities such as Minneapolis, Minnesota and Tampa, Florida.

These two cities rank #48 and #55, respectively.

Furthermore, in its 20 tracked cities, the Case-Shiller Index still manages to fail as a reliable housing market barometer. This is because home values vary by zip code, by neighborhood, and by street, even. All 20 Case-Shiller Index cities showed gains in May, but there remains areas within each metropolitan area in which values outpaced the Case-Shiller Index findings, and areas in which values fell short.

The Case-Shiller Index provides broad, generalized housing market data and that works for an economist. For an active home buyer or seller, though, making smart real estate decisions requires having timely, relevant real estate data at-hand when it’s needed. 

For data like that, talk with a real estate agent.

 | Posted by | Categories: Housing Analysis | Tagged: , , |

Home Price Index from peakThe housing market’s bottom is 9 months behind us. Home values continue to climb nationwide.

According to the Federal Home Finance Agency’s Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May’s reading marks the sixth time in seven months that home values rose.

Values are now higher by 4 percent since the market’s October 2011 bottom.

As a San Jose home buyer or seller, though, it’s important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn’t measure.

Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.

As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.

5 years ago, this wasn’t a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new purchases and cash sales topped 17 percent in May 2012.

That’s a sizable subset of the U.S. housing market.

A second flaw in the Home Price Index is that it tracks home resales only and ignores new home sales. New home sales represent roughly 10% of the today’s housing market, so that’s a second sizable subset excluded from the HPI.

And, lastly, we can’t forget that the Home Price Index is on a 60-day publishing delay.

It’s nearly August, yet we’re only now receiving home valuation data from May. A lot can change in the housing market in 60 days, and it often does. The HPI is not reporting on today’s market conditions, in other words — it’s reporting on conditions as they existed two months ago. Information like that is of little use to today’s buyers and sellers in Cambrian.

For local, up-to-the-minute housing market data, skip the national data. Talk with a local real estate agent instead.

Since peaking in April 2007, the FHFA’s Home Price Index is off 16.0 percent.

 | Posted by | Categories: Housing Analysis | Tagged: , , |

HPI from April 2007 peak

The Federal Home Finance Agency’s Home Price Index shows home values up 0.8% in April on a monthly, seasonally-adjusted basis.

April marks the third consecutive month during which home values increased and the index is now up 3 percent from last year at this time.

As a home buyer in San Jose , it’s easy to look at the Home Price Index and believe that its recent, sustained climb is proof of a broader housing market recovery. Ultimately, that may prove true. However, we cannot base our buy-or-sell decisions on the HPI because, like the private-sector Case-Shiller Index, the Home Price Index is flawed.

There are three main flaws in the FHFA’s Home Price Index. They cannot be ignored.

First, the FHFA Home Price Index’s sample set is limited to homes with mortgages backed by Fannie Mae or Freddie Mac. By definition, therefore, the index excludes homes with mortgages insured by the FHA.

5 years ago, this wasn’t such an issue because the FHA insured just 4 percent of mortgage. Today, however, the FHA’s market share is estimated to exceed 30 percent.  This means this the HPI excludes more than 30% of U.S. homes from its calculations right from the start.

The index also excludes homes backed by the VA; jumbo mortgages not securitized through the government; and, portfolio loans held by individual banks.

Second, the FHFA Home Price Index is based on the change in price of a home on consecutive home sales. Therefore, it’s sample set cannot include sales of new home sales, nor can it account for purchases made with cash because cash purchases require no mortgage.

Cash purchases were 29% of the home resale market in April.

Third, the Home Price Index is on a 60-day delay.

The report that home values are up 0.8% accounts for homes that closed two months ago, and with contracts from 30-75 days prior to that. In other words, the Home Price Index is measuring housing market activity from as far back as January. 

Reports such as the Home Price Index are helpful in spotting long-term trends in housing but data from January is of little help to today’s California home buyers and sellers. It’s real-time data that matters most and the best place to get real-time housing market data isn’t from a national home valuation report — it’s from a local real estate agent.

 | Posted by | Categories: Housing Analysis | Tagged: , , |

Home Price Index since April 2007 peakThe government confirms what the private-sector Case-Shiller Index reported yesterday. Nationwide, average home values slipped in October.

The Federal Home Finance Agency’s Home Price Index shows home values down 0.2% on a monthly, seasonally-adjusted basis. October marks just the second time since April that home values fell month-over-month.

The Case-Shiller Index 20-City Composite showed values down 0.7 percent from September to October.

As a home buyer in San Jose , it’s easy to look at these numbers and think housing markets are down. Ultimately, that may prove true. However, before we take the FHFA’s October Home Price Index at face value, we have to consider the report’s flaws.

There are three of them — and they’re glaring. As we address them, it becomes clear that the Home Price Index — like the Case-Shiller Index — is of little use to everyday buyers and sellers in places like Blossom Hill.

First, the FHFA Home Price Index only tracks home values for homes backed by Fannie Mae or Freddie Mac mortgages. This means that homes backed by the FHA, for example, are specifically not computed in the monthly Home Price Index.

In 2007, this was not as big of an issue as it is today. in 2007, the FHA insured just 4 percent of the housing market. Today, the FHA is estimated to have more than one-third of the overall housing market.

This means that one-third of all home sales are excluded from the HPI — a huge exclusion.

Second, the FHFA Home Price Index excludes new home sales and cash purchases, accounting for home resales backed by mortgages only. New home sales is a growing part of the market, and cash sales topped 29 percent in October 2011.

Third, the Home Price Index is on a 60-day delay. The above report is for homes that closed in October. It’s nearly January now. Market momentum is different now. Existing Home Sales and New Home Sales have been rising; homebuilder confidence is up; Housing Starts are showing strength. In addition, the Pending Home Sales Index points to a strong year-end.

The Home Price Index doesn’t capture this news. It’s reporting on expired market conditions instead.

For local, up-to-the-minute housing market data, skip past the national data. You’ll get better, more relevant facts from a local real estate agent.

Since peaking in April 2007, the FHFA’s Home Price Index is off 18.3 percent.

Making Home Affordabie

Tuesday, Fannie Mae and Freddie Mac unveiled lender instructions for the government’s revamped HARP program, kick-starting a potential refinance frenzy across California and nationwide.

HARP stands for Home Affordable Refinance Program. The updated program is meant to give “underwater homeowners” an opportunity to refinance at today’s low mortgage rates.

In the two-plus years since its launch, HARP’s first iteration helped fewer than 900,000 homeowners. HARP II, by contrast, is expected to reach millions.

Lenders begin taking HARP II loan applications December 1, 2011.

To apply for HARP, applicants must first meet 4 basic criteria :

  1. The existing mortgage must be guaranteed by Fannie Mae or by Freddie Mac
  2. The existing mortgage must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009
  3. The mortgage payment history must be perfect going back 6 months
  4. The mortgage payment history may not include more than one 30-day late payment going back 12 months 

If the above criteria are met, HARP applicants will like what they see.

For HARP applicants, loan-level pricing adjustments are waived in full for loans with terms of 20 years or fewer; and maxed at 0.75 for loans with terms in excess of 20 years.

This will result in dramatically lower mortgages rates for HARP applicants — especially those with credit scores below 740. Some applicants will find HARP mortgage rates lower than for a “traditional” conventional mortgage.

In addition, HARP applicants are exempted from the standard waiting period following a bankruptcy or foreclosure, which is 4 years and 7 years, respectively.

These two items are inclusionary and should help HARP reach a broader U.S. audience.

HARP contains exclusionary policies, too.

  1. The “unlimited LTV” feature only applies to fixed rate loans or 30 years or fewer. ARMs are capped at 105% loan-to-value.
  2. Applicants must be “requalified” if the proposed mortgage payment exceeds the current payment by 20%.
  3. Applicants must benefit from either a lower payment, or a “more stable” product to qualify

And, of course, HARP can only be used once. 

Fannie Mae and Freddie Mac will adopt slight variations of the same HARP guidelines so make sure to check with your loan officer for the complete list of HARP eligibility requirements.

Monthly changes in Home Price Index Since April 2007

Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December.  Thursday, the public-sector Home Price Index showed the same.

Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December.  And that’s an average, of course.  Some regions performed well in December as compared to November, others didn’t.

  • Values in the Middle Atlantic states improved slightly
  • Values in New England were essentially unchanged
  • Values in the Mountain states sagged, down 3.5%

These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.

For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.

Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not.  Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.

Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers.  National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.

So, when you need to know whether your home in San Jose is gaining or losing value, you can’t look at the national data.  You have to look at your block — what’s selling and not selling — and start your valuations from there.

 | Posted by | Categories: Home Price Index | Tagged: , , |