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Standard & Poors released its Case-Shiller Index Tuesday. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked markets.  It’s the second straight month of strong Case-Shiller findings.

Also, May’s numbers are a mirror-image of February’s. In February, 19 of 20 markets lost value.

In its press release, the Case-Shiller staff resisted calling May’s data proof of a housing recovery, noting that home values remain flat as compared to October of last year. However, there are some noteworthy numbers in the Case-Shiller report.

1. 13 of the 20 tracked cities are showing home price improvement year-over-year
2. Foreclosure posterchlld San Diego has now shown 13 straight months of improvement
3. San Diego, San Francisco and Minneapolis are showing double-digit annual growth

These are all good signs for the housing market, but the Case-Shiller Index is not without its flaws. Most notably, the data is limited to just 20 cities nationwide — and they’re not even the 20 largest ones. 

Cities like Houston, Philadelphia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.

Another Case-Shiller flaw is that it reports on a 2-month delay.

Therefore, today is several days from the start of August but we’re now reflecting on data from May. Given the speed at which the South Orange County real estate market can change, May’s data is almost ancient.  Today’s values may be higher or lower than what Case-Shiller reports.

For home buyers, reports like the Case-Shiller Index may not be useful in making a “Buy or Not Buy” decision, but can aid in watching longer-term trends in housing.  For real-time LOCAL data, give me a call – 949-643-2100, or shoot me an email.

Standard & Poors released its Case-Shiller Index Tuesday.  The index is a monthly home valuation report from select cities and among the private sector’s most popular home pricing models.

In reviewing the April Case-Shiller Index and its accompanying analysis, it appears that the housing market’s rebound is gathering momentum.

In the index’s 20 tracked cities:

• 18 of 20 improved from March to April 2010
• Versus April 2009, home prices are up nearly 4 percent
• The two “down” cities from April — Miami and New York — are off just 0.5% and 1.0% annually, respectively

Furthermore, as another sign of strength, San Diego, a city in which homeowners have lost a lot of equity since 2007, has now shown 12 straight months of home price improvement.

However, the Case-Shiller Index must be kept in context. It’s far from perfect.

For one, the index reports on a 60-day delay; it’s only now showing data from the end of April, when the federal homebuyer tax credit was expiring. Home sales have been weak since then it’s been reported.

And second, the Case-Shiller Index is limited to just 20 cities nationwide. Therefore, the index doesn’t consider every home sale in every American city — it only considers a select few. Many more U.S. homes are excluded from the Case-Shiller Index than are included.

But, despite its flaws, the Case-Shiller Index remains important with respect to economic analysis. Much like the government’s Home Price Index, Case-Shiller helps to identify broader trends in housing that shape government and monetary policy.

Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise.

In a near-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers.

Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12.  The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.

Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.

In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:

• Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
• Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
• Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium

A increase in monthly mortgage insurance premiums will reduce home affordability for buyers in Rancho Santa Margarita and strain household budgets. 

The news isn’t all terrible, however.

Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent. 

On the same $200,000 mortgage, a move like that would reduces closing costs by $2,500.

The bill awaits companion legislation in Senate and final approval into law, but considering the House’s lopsided vote Thursday, it could happen rather quickly.  If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.

The FHA insured close to a quarter of all mortgages made in the first three months of 2010.

Relocate America recently released its 2010 list of Top 100 Places To Live In America. The rankings are topped by some cities you may expect, and some you may not.

According to Relocate America, the rankings highlight communities “moving in the right direction”, defined as having a combination of strong leadership, job opportunities, improving real estate markets, recreational options and a good quality of life.

It’s not a bad formula and topping the list of Top 100 Places To Live In America is Huntsville, Alabama.  Huntsville was chosen for its low levels of unemployment, stable housing stock, and low cost of living.  Last year, Huntsville placed fifth on the Relocate America list.

The Top 10 cities in which to live, as selected by Relocate America are:

1. Huntsville, AL
2. Washington, DC
3. Austin, TX
4. San Diego, CA
5. San Antonio, TX
6. Tulsa, OK
7. Charlotte, NC
8. Raleigh, NC
9. Boulder, CO
10. Minneapolis, MN

View the complete Top 100 Places To Live In America 2010 list at the Relocate America website.

The Pending Home Sales Index moved higher in March as home sales were spurred by low mortgage rates and an expiring tax credit.

A “pending home” is a property that is under contract to sell, but not yet closed.

March marks the second straight month in which the Pending Home Sales Index improved after a series of weak showings this past winter.

March showed a 5 percent increase over the month, but the Pending Home Sales Index is still off its October 2009′s peak. October 2009 is a comparable period to March 2010 in that it marked the 1-month deadline before the home buyer tax credit’s initial expiration date. The credit was later extended to April 2010, of course.

That said, March’s surge in sales is being felt on the street.

Home buyers no doubt noticed the change in activity. Around the country, anecdotally, multiple offer situations were more common last month and “right-priced” homes tended to go under contract quickly.

The increase in March’s Pending Home Sales is diminishing the nation’s home supply which, in turn, should cause prices to rise in most markets.

Today’s buyers should consider making an offer sooner rather than later. Looking at the data, it appears the best time to have found a “deal” on a home may have been in February.

For the first time this year, Fannie Mae announced significant updates to its mortgage underwriting guidelines.

The changes include newer, harsher ARM qualification standards, the elimination of a once-popular loan product, and tighter rules for interest only mortgages.

Fannie Mae made its official announcement April 30, 2010. The changes will roll out to home buyers and homeowners over the next 12 weeks.

The first guideline change is tied to ARMs of 5 years or less.

Mortgage applicants must now qualify based on a mortgage rate 2% higher than their note rate. For example, if your mortgage rate is 5 percent, for qualification purposes, your rate would be 7 percent.

The elevated qualification payment will disqualify borrowers whose debt-to-income levels are borderline.

The second change is Fannie Mae’s elimination of the standard 7-year balloon mortgage. Balloon mortgages were popular early last decade. Lately, few borrowers have chosen them, though. Mostly because rates have been relative high as compared to a comparable 7-year ARM.

And, lastly, Fannie Mae is changing its interest only mortgages guidelines.

Effective June 19, 2010, Fannie Mae interest only mortgages must meet the following criteria:

1. The home must be a 1-unit property
2. The home must be a primary residence, or vacation home
3. The borrower’s FICO must be 720 or higher
4. The mortgage must be a purchase, or rate-and-term refinance. No “cash out” allowed.

Furthermore, borrowers using interest only mortgages must show two full years of mortgage payments “in the bank” at the time of closing.

Earlier this year, Fannie Mae-sister Freddie Mac announced that as of September 2010, it will stop offering interest only loans altogether.

Between Fannie Mae, Freddie Mac, the FHA, and other government-supported entities, the U.S. government now backs 96.5% of the U.S. mortgage market. So long as mortgage default rates are high, expect approvals for all borrower types to continue to toughen.

Mortgage markets improved last week on tame inflation data, a benign statement from the Federal Reserve, and ongoing credit problems in Greece.

The factors combined to drop conforming mortgage rates to their lowest levels in 6 weeks.

It’s an unexpected development considering that mortgage rates were supposed to rise post March 31, 2010. That was the day the Fed’s support for mortgage markets ended.

Since then, however, a month-long string of devastating economic and meteorological events within the Eurozone sparked a global flight-to-quality that benefited “safe” assets such as mortgage bonds.

May 2010 may not be so kind.

The week starts with news that Greece reached a $147 billion bailout agreement with the IMF Sunday. This is a plus for the Eurozone and mortgage market negative. Rates should rise on the bailout.

Also on Monday, the government releases Personal Consumptions and Expenditures data.

PCE is the Fed’s preferred inflation gauge and it’s expected to show an annual read of 1.3 percent. Anything higher and rates should rise.

Then, for the rest of the week, employment data takes center stage.

• Wednesday : ADP releases its private sector employment data
• Thursday : The government releases initial jobless claims
• Friday : The government releases April’s job report

Jobs are key to the U.S. economic recovery, tied to consumer spending, consumer confidence, and mortgage delinquencies. If job growth is better than expected, mortgage rates should rise. If job growth is worse, rates should fall.

There’s no “best day” to lock this week so keep an eye on the market. However, if rates rise as quickly in May as they fell in April, you won’t have much time to act.

Earlier this week, Standard & Poors released its February Case-Shiller Index, a home price tracker for select metropolitan areas.

Overwhelmingly, home values fell in the 20 markets tracked by the Case-Shiller. Only San Diego showed a modest increase. The other 19 markets averaged a 1.23 percent decline between January and February.

However, that’s not the story you read in the most papers. Instead, headlines read that home values were up in the United States, citing annualized data.

Unfortunately for active home buyers and sellers, year-over-year data isn’t all that helpful when making a real estate decisions. It’s the month-to-month data that matters. Month-to-month changes in home prices are what defines a housing market. Month-to-month is what sets the tone for contracts and negotiations on a purchase.

The rosier, annualized data published this past week just doesn’t capture the reality of what was the February 2010 market. And even then, the data is somewhat useless because it’s from February and May will be upon us next week.

Case-Shiller is on a 2-month lag — hardly reflective of the “right now” of real estate.

When you’re looking for real estate data that actionable, consider using sources that are more “real-time”. A real estate agent may be the right place to start. Because for all the data that Case-Shiller and the other housing indices collect, it can never be as relevant to your individual needs as a well-executed, timely market analysis.

Why is there such a fierce debate about whether the housing market is slowly healing or heading for another free fall? Partly because no one can estimate with much confidence how many foreclosed homes banks need to sell or how fast they are getting rid of all that property.

A huge chunk of today's housing supply comes from homes that have been acquired by banks or mortgage investors through foreclosure, plus those that are being offered by people who hope to avoid foreclosure by doing 'short sales,' selling their homes for less than the mortgage balance due. The National Association of Realtors estimates that such 'distressed' situations accounted for 35% of home sales in February and March.

The latest heroic attempt to tally how many foreclosed homes are available for sale comes from analysts at Barclays Capital in New York. They estimate that banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. That's far lower than previous estimates. Barclays explains that it has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank's previous methods, the estimate for February would have been more than 600,000.

Estimating the inventory of foreclosed homes is tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly makes such calculations, estimates that banks and mortgage investors own 758,000 foreclosed homes.

So we have a pretty big gap. Is it 480,000 as Barclays thinks, or 758,000, as per RealtyTrac? Tom Lawler, an independent housing economist who tracks reams of housing data when he isn't tending the livestock on his farm near Leesburg, Va., figures the total is more than 550,000 but probably less than the RealtyTrac estimate.

'What is truly disturbing,' Mr. Lawler wrote in his daily housing-market commentary Wednesday, 'is that given all of the economic data the government tracks, the sector it appears to track the worst isthe housing market! Why is it that the government has not deployed more resources to better track and report data on the housing inventory, households, home sales, home prices, and, of course, foreclosures and the number of homeowners who have lost their home to foreclosure?'

(That's an especially good question given that the U.S. government has a bit of exposure to the housing market. Inside Mortgage Finance reports that mortgages backed by government-related entities - Fannie Mae, Freddie Mac, the FHA and the VA - accounted for more than 96% of home loans originated in the first quarter.)

Whatever the number of homes that banks, the federal agencies and private mortgage investors own now, it's likely to increase. Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.

To get a rough sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a 'shadow inventory,' consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.

Barclays expects 1.6 million 'distressed sales' of homes - mainly foreclosures or short sales - both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. Around 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.

Barclays expects U.S. home prices on average to fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual improvement in the unemployment rate to 8% within the next two years from 9.7% in March. The home-price picture would worsen if job growth sputters or banks 'push homes through the foreclosure pipeline faster than expected,' Mr. Tayon says.

Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country, such as the Las Vegas area and Orange County, Calif., that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.

In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm.

This article appeared in the Wall Street Journal on April 28^th, 2010, written by James R. Hagerty

http://blogs.wsj.com/developments/2010/04/28/debate-rages-over-supply-of-foreclosed-homes/

Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its current target range of 0.000-0.250 percent.

In its press release, the FOMC noted that, since March, the U.S. economy “has continued to strengthen” and that the jobs markets “is beginning to improve”. This is a step up from the last meeting after which the Fed said jobs were “stabilizing”.

It also reiterated that business spending “has risen significantly”.

Today’s statement marks the 7th straight press release in which the Fed shows optimism for the U.S. economy. Furthermore, the Fed has now closed all but one of the programs it created to support markets during last year’s financial crisis.

Threats remain to growth, however. The Fed fingered a few:

1. Employers are reluctant to hire new workers
2. High unemployment threatens consumer spending
3. Consumer credit (still) remains tight

Also in its statement, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”. This was expected.

Overall, the statement’s tone was positive and the Fed noted that inflation is within tolerance.

Mortgage market reaction has been muted thus far. Mortgage rates are unchanged post-FOMC.

The FOMC’s next scheduled meeting is a 2-day affair, June 22-23, 2010. The 55-day span between meetings will be the FOMC’s longest of 2010.