June 15th, 2011
Econintersect: The housing crisis has many faces. Today, the Mortgage Bankers Association weekly mortgage applications shows a slight growth, but the data remains at 1990's levels.
"Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November," said Michael Fratantoni, MBA's Vice President of Research and Economics. "The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes." Follow up:
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year average rate since November 19, 2010.
The latest data was greeted by Realtor Mag, the official magazine of the National Association of Realtors, with the headline:
Mortgage Applications Surge Amid Falling Rates
A more realistic assessment of the data can be made by looking at the following graph from Calculated Risk:
Econintersect has consistently warned that mortgage applications are no longer predictive of home sales as over 1/3 of the current home purchases are not financed. One reason is due to home flippers coming with cash. According to Altos Research:
Like ‘em or not, the market needs these investors to clear the housing ongoing housing glut.
From the article a Sacramento Bee article today – “Real estate scavengers flip foreclosed homes in Sacramento area”:
“Eighty percent of these homes will be flipped within a year. Typically, they will fetch about $30,000 – or 20 percent – more than the flipper paid.”
Sacramento "flips" - 6% of flips re-enter the market within 90 days, 9% within 180 days, 11.5% within 1 year.
Altos Research argues these flippers are good for the market.
The $30,000 investment includes material, labor, and holding costs, and not all flips are quick. Investors absorb significant risk and holding costs, taking up to a year or more between purchase and resale.
FHA loans require only a 3.5% down payment – that’s $8750 on a $250k home (the current median ask price in Sacramento) – and a difference of $21,250 in cash investment to make the house marketable/livable. First-time home-buyers don’t have that kind of savings laying around.
In any event, all markets need scavangers (flippers) to make use of what others cannot find a use.