Friday, November 16, 2012

October Sales Strong as Demand Outstrips Supply | PV Brokers

Demand for homes continues to ramp in Palos Verdes as inventory remains scarce.  PV Brokers is forecasting strong first quarter home sales as pent up demand meets new supply.  We anticipate strong home sales toward the end of the first quarter with follow-through into late spring 2013.  Further, we expect home sales volume to remain flat through the end of 2012. 

Palos Verdes real estate statistics for October 2012 again indicate a solid market.  55 Palos Verdes houses sold in October which is a slight decrease from the 58 homes that sold in September.  Pending sales are way up in October with 72 Palos Verdes single family homes pending compared to 56 in September.  The number of active Palos Verdes homes for sale in October decreased to 152 homes compared to 171 homes in September.  Our inventory of homes for sale is the lowest in recent memory.  As you can see by the chart above, in October we had 37% less active Palos Verdes homes for sale compared to October 2011 yet the number of sales through the 3rd quarter of 2012 increased to 470 homes compared to 428 homes sold through the 3rd quarter of 2011. 

Price per square foot for Palos Verdes houses that sold/closed escrow in October increased to $501 from $466 in September.  Average sales price for Palos Verdes homes sold in October decreased slightly to $1,322,000 from $1,332,000 in September.  Average days on market in October fell to 83 days from 100 days in September for properties sold that month.  Months of inventory (months it would take to sell existing inventory at the current rate of sale) decreased slightly to 2.8 months for October compared to 2.9 months in September.  A “normal” market is considered 6 months of inventory and Palos Verdes real estate “months of inventory” is substantially less than that indicating the strength of our local market . 

Presently, there are 149 single family Palos Verdes homes for sale.  111 Palos Verdes houses are in escrow (54 homes have pending sales and 57 homes are accepting backup offers).  Additionally, 6 homes have sold/closed escrow in the first 8 days of October.




Can Mortgage Rates Go Even Lower? | PV Brokers Residential Report

Are Mortgage Rates Headed Even Lower?  
Today's Mortgage rates are the lowest on record. However, by key historical measures, they should be even lower.  During  the past year, a large gap ripped open between the mortgage rates that house hunters se, and a benchmark interest rate investors demand to buy bonds backed by home loans.
In normal times, this obscure metric would only be of interest to bankers, brokers and traders of mortgage-backed securities. But with housing still dragging on the economy, the spread is potentially slowing the recovery—and important to everyone from top Washington policy makers to strapped homeowners who could use a few extra dollars each month.

For months, a key interest rate on mortgage-backed securities—known as the current coupon yield—has tumbled faster than average U.S. 30-year mortgage rates.  In recent weeks, the difference between the two has flirted with levels seen in the aftermath of the financial crisis.
Experts say this wide spread shows the large banks that dominate the mortgage market are flexing their muscle by keeping prices relatively high. Others argue the gap reflects increased regulatory costs, risks and new realities of mortgage making.
Regardless, this gap is wide. Tuesday afternoon, it was 0.96 percentage points—almost double its average over almost 30 years. It has been as high as 1.20 percentage points this year.

"What it tells us is that traditional monetary-policy measures to help get the housing market rolling again…are weaker than they normally would be," said Columbia University's Frederic Mishkin, a former Fed governor.
Efforts by the Federal Reserve and others to boost housing hinges on the mechanics of the banking system to pass along savings and benefits to consumers. The wide spread between the mortgage rates and mortgage-backed bonds suggests the gears of that mechanism are gummed up.
"This is not a rounding error, this is something to take note of," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School.

To be sure, consumers are seeing the lowest rates in several generations already. The 30-year fixed mortgage rate averaged 3.87% for the week ended Thursday, down from 5% the previous year. That is the lowest in Freddie Mac's survey data, which stretches back to 1971.
If history is any guide, it should be a lot lower. With yields on mortgage-backed securities at these levels, the 30-year fixed rate mortgages would be roughly 3.40% if the spread was around its historical average of 0.50 percentage points.
That rate would save a U.S. homeowner with the average outstanding loan balance of $155,000 about $41 in mortgage payments each month, versus the current rate.
Over the seven-year period someone usually holds a 30-year mortgage, that translates into a roughly $3,446 difference, according to numbers provided by trade publication Inside Mortgage Finance.  Wider spreads generally translate into better margins for banks and brokers. And some lenders have seen profitability on mortgage origination improve as the spread has widened.

Some mortgage-finance observers suggest that increased concentration among the large banks that dominate the mortgage market better helps explain the wide spreads. They argue that because there are fewer banks doing the bulk of the mortgage lending than in years past, it is easier for them to capture market share without offering rock-bottom prices.
"It's a lack of competition. We really haven't seen a competitive marketplace since 2008," said Guy Cecala, publisher of Inside Mortgage Finance.
In 2011, the top five banks had a hand in 59% of the mortgage loans packaged into government-guaranteed mortgage-backed securities, up from 45% in 2004, according to Inside Mortgage Finance. Recently, major banks have cut down on their mortgage business sharply.
Bankers push back against any notion of oligopoly.
"The mortgage business is extraordinarily competitive," said Franklin Codel, head of mortgage production at Wells Fargo Home Mortgage.
There are other factors at work. For one thing, fees charged to lenders by government-controlled mortgage-finance companies Fannie Mae and Freddie Mac are set to rise this year. The increases paid for the payroll-tax break passed by Congress in December.

Analysts stress it is difficult to disentangle how much of the spread is due to pricing power from banks with more control of the market, and how much might represent structurally higher costs of doing business in the U.S. mortgage market reshaped by the crisis.
Banks and mortgage lenders point out that costs of underwriting loans—conducting the detailed scrutiny of financial statements and employment background—has gotten more expensive and time consuming.
In part that reflects the experience of some banks, which have been forced by Fannie and Freddie to buy back loads of loans that soured, making them more cautious. Others say Fannie and Freddie have grown much tougher over the documentation they accept on loans.

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