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This Month in Real Estate Newsletter for U.S. Market – June 2010
The housing sector continues to show signs of recovery. Together the tax credit (which expired at the end of April), the more upbeat consumer confidence, and favorable market conditions all contributed to bolstering April’s sales activity – with existing home sales increasing for the second straight month.
The return of buyer confidence with much of the home price correction believed to be over, encouraging economic developments and historically low mortgage rates, will provide the stepping stone for further market stabilization.
Meanwhile, stagnant job growth and elevated levels of foreclosure continue to be cause for concern. The government is now taking proactive steps to restructure the mortgage industry with risk-management measures seen by experts as a “huge cut in red tape” that would ultimately benefit consumers.
The Housing Market:
Existing Home Sales
Existing home sales strengthened in April to 5.77 million, up 8.7% from March and 22.8%from last April. This is the tenth consecutive month of year-over-year increases.
According to Lawrence Yun, NAR chief economist, although part of the uptick was expected from the tax credit, there’s also been a return of buyer confidence, for those who remained on the sideline last year. The return of confidence is a result of stabilized prices, an improved economy, and continued advantageous interest rates.
In March, 49% of sales were from first-time buyers.
Median Home Price
The median price for an existing home was $173,100 in April, up 2.1% from a year ago and 4% from March. Distressed homes, accounting for a third of last month’s sales, continued skewing prices downward slightly as they typically are discounted 15% compared to typical home sales. Overall, prices this past year showed increased stability over the previous year.
Total housing inventory rose slightly to 4.04 million in March, representing slightly less than an eight-and-a-half month supply of sales (if homes continue to sell at the current pace consistently and no new homes come on the market). Compared to the previous year, there are now 3% more homes on the market. Although this is the first rise in twenty consecutive months of decline when compared to the previous year, NAR’s chief economist believes this increase can be attributed to the summer selling season and that home prices are back on track.
Mortgage rates dipped back below 5% this month due largely in part to the European debt crisis. As confidence in the value of the Euro eroded, more investors chose the U.S. dollar instead. With more demand for dollars, the cost of debt (interest rate) dropped. This event has also shown the global recovery is not free-and-clear of roadblocks to complete recovery. However, experts still anticipate rates will increase to between 6% and 6.5% by the end of the year. As the recovery gains increasing traction, the Federal Reserve will need to increase rates to prevent inflation.
Affordability remains advantageous, supported by some of the lowest mortgage rates in decades as well as less expensive home prices. The home price-to-income ratio continues to remain well below the historical average of 25%. The ratio now stands at 14.9%.
Sources: National Association of Realtors, Freddie Mac
FHA Turns to Lenders to Monitor Brokers
As the Federal Housing Administration (FHA), the government agency that insures home loans, saw its market share rise to about one-third of the mortgage market last year, up from 2% in 2006, the number of brokers seeking to arrange FHA-backed loans has mushroomed to 9,043 at the end of 2009 from 5,759 just two years earlier.
The agency, finding itself inadequately equipped to monitor its brokers, is shifting the responsibility to its lenders.
The FHA expects the new policies to result in better risk management, and the cut in red tape should produce better rates for consumers.
As of May 20, the FHA no longer certifies mortgage brokers or tracks the performance of brokers’ loans. Instead, lenders are now required to sponsor brokers and assume responsibility for loans they originate, including losses from fraud or mistakes in underwriting. In addition to revamping broker insight, the agency also beefed up oversight of its lenders by increasing net-worth requirements to $1 million from $250,000. The change is in effect for one year for existing lenders.
This Month in Real Estate Newsletter for Canada Market – June 2010
Canada’s economy continues to remain stronger than many other major national economies, and is affirmed by the Bank of Canada’s first rate increase since the beginning of rate cuts in 2008.
As rates begin to rise, experts believe the housing market is poised to soften. Incomes rise at a relatively constant rate, while the housing market tends to rise in steps with periods of stability followed by periods of more rapid appreciation. The past decade has been one of appreciation following the 1990s (when prices were fairly flat). Thanks to a solid mortgage market, prudent lending, and responsible borrowing, experts anticipate the market will generally remain more balanced and prices will stabilize. This is a positive indicator for the long-term health of the market and for the wealth accumulated by homeowners.
While it’s important to keep in mind that the country’s commodity-based economy leaves it somewhat more susceptible to external forces such as global demand, currency rates, and commodity prices, things continue to look up for Canada from a year earlier.
Existing home sales activity totaled 42,078 units in April, up 20.1% from last year and down 2.6% from last month. Experts believe there will be a gradual calming of the recently “hot” home sales activity over the next year, citing rising interest rates and a change in mortgage regulations that may have encouraged some buyers to push their timeline forward to purchase before the regulations took effect on April 19.
Average Home Price
Low supply and strong demand continued to boost prices. The national average home price was $344,968 in April, up 12.2% from April 2009 and up 1.2% from March. Experts anticipate home price appreciation will slow, but prices will remain stable – a positive sign for the long-term health of the housing market.
In April, 79,678 new homes entered the market. Presently, buyers continue to have a wider variety of options as the uptick in new listings draws the market back into solidly balanced territory on a macro level. As is always the case with real estate, the micro level of locations differ from place to place.
Average for: 25-Year Amortization, 5-Year Term
In April, the Bank of Canada lifted its conditional commitment to keep rates steady until July and made its first increase at the beginning of June. Rates are expected to continue rising but are anticipated to stay within a range that will leave homeownership in reach for many buyers.
Sources: Conference Board, The Canadian Real Estate Association, Royal Bank of Canada, Canadian Mortgage and Housing Corporation, Bank of Canada
Canadian Borrowers Well Prepared for Rate Hikes
As interest rates are trending upward and housing activity is expected to cool down, a survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP) shows that Canadians are in a strong position to weather the new mortgage market condition.
•Increasing home equity is easing consumer concern about rising mortgage rates.
•Many Canadians have used cost savings from historically low rates to make higher-than-required payments and will now have more breathing room as rates increase.
•Mortgage debt is a priority for Canadians with the vast majority, 93%, having never missed a payment.
•Many mortgages were renegotiated at significantly lower rates, one percentage point or more on posted interest rates.
•A high percentage of Canadians remain positive about the housing market and are bullish about house prices.
Sources: Canadian Association of Accredited Mortgage Professionals
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