Great article about our local Real Estate market – is recovery slowing down? Or is supply holding back the reins?
Signs of possible slowdown in housing recovery
By: Kathleen Pender, San Francisco Chronicle & SF Gate
Bay Area home prices rose on a year-over-year basis last month, albeit at a slower pace than earlier in the year, while sales fell to their slowest pace for a December since 2007, DataQuick reported Wednesday.
It was another sign of a potential slowdown in the housing recovery.
On Tuesday, the Mortgage Bankers Association lowered its forecast for 2014 mortgage originations, citing higher interest rates and uncertainty over new mortgage rules that took effect this month.
DataQuick attributed the sales slowdown to a lack of supply, not a lack of demand.
“Demand has been impacted by a roughly one percentage point increase in rates since spring. But we think the bigger deal is the lack of inventory,” DataQuick spokesman Andrew LePage says.
In the Bay Area, 6,714 new and resale houses and condos were sold in the nine counties last month. That was up 0.8 percent from November but down 12.7 percent from December 2012.
Sales are typically higher in December than November, but the seasonal increase is normally much higher – around 8 percent.
The December sales figure was the lowest for a December since 2007, when 5,065 homes sold.
The median price paid for a Bay Area home last month was $548,500. That was down 0.3 percent from November, but 23.9 percent higher than the same time last year. From April through August last year, prices rose 30 percent or more on a year-over-year basis.
More sales in spring
LePage says there will be more homes on the market in spring and summer, when the market typically heats up. Rising home prices will leave fewer homes underwater, so more homeowners will sell because they could make enough to pay off their mortgage. Also, there has been “a little more construction,” LePage says.
“Waiting (to buy a home) will get you more choice, but all bets are off on prices,” he says.
If the current rate of appreciation holds, “the typical home would be selling for $50,000 to $60,000 more by spring.
Perhaps twice that at the upper end of the market,” DataQuick President John Walsh said in a news release.
Tight inventories are also hurting the mortgage industry.
In its forecast Tuesday, the Mortgage Bankers Association predicted that only $1.12 trillion in home loans will be originated this year, down 36 percent from $1.76 trillion in 2013. In October, it predicted that 2014 originations would drop by only 32 percent.
The forecast came out hours after mortgage heavyweights Wells Fargo and Chase announced big drops in fourth-quarter mortgage originations as part of their earnings reports.
The numbers “just kept getting worse through the end of 2013,” says Michael Fratantoni, the association’s chief economist.
The association predicts that home-purchase mortgages will rise just 3.8 percent to $677 billion this year. In October, it was expecting a 9 percent increase.
Refinance originations, it says, will hit only $440 billion, down 60 percent form last year. In October it expected a 57 percent drop.
Higher rates a drag
The main culprit is higher interest rates. Mortgage rates were around 3.5 percent at the beginning of last year but jumped by a full percentage point in May and June. They have been hovering around 4.5 percent since then.
The immediate effect was to slash refinance volume, but home-purchase originations also suffer from a low-rate “hangover,” Fratantoni says. The ultra-low rates that persisted before May “pulled forward some (purchases) that might not have occurred until six months or a year later. Now we are now we are seeing a bit of a payback in terms of lower activity.”
The association predicts that the average 30-year mortgage rate will be above 5 percent by the end of this year and above 5.5 percent at the end of next year.
It also predicts that fewer mortgages could be made this year as lenders narrow their product lineup to conform with the new mortgage rules designed to outlaw some of the abusive lending practices that led to the financial crisis.
The new rules give lenders some protection from borrower lawsuits if they make what is known as a qualified mortgage and the loan goes bad. A loan is not qualified if it has certain features, such as interest-only payments, or if the borrower’s total debt payments (including the mortgage and other debt) exceed 43 percent of gross income.
Over government limit
The new rules apply only to jumbo and other nonconforming mortgages, because all loans that could be bought or backed by Fannie Mae, Freddie Mac, the Federal Housing Administration and other government agencies are automatically deemed qualified.
Government loans account for the vast majority of the mortgages nationwide but a smaller percentage in the Bay Area, where many borrowers exceed the government limit, which tops out at $625,500 for Fannie, Freddie and FHA loans in high-cost areas.
In the Bay Area, 15.4 percent of home-purchase loans exceeded $625,500 in the fourth quarter, but this number ranged from less than 0.4 percent in Solano County to 32 percent in San Francisco, according to DataQuick.
Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: kpender@sfchronicle.com Blog: http://blog.sfgate.com/pender Twitter: @kathpender
I read this article at: http://www.sfgate.com/business/networth/article/Signs-of-possible-slowdown-in-housing-recovery-5146631.php
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