Housing market showing more signs of fraying at the edges

Signed contracts to buy existing homes fell for the fifth straight month in October, as the government shutdown added to an overall slowdown in the U.S. housing market. So-called pending home sales eased 0.6 percent from an upwardly revised September reading and are down 1.6 percent from October 2012, according to the National Association of Realtors.

This is the lowest sales pace since December 2012. Pending home sales are an indicator of closed sales in November and December.

"The government shutdown in the first half of last month sidelined some potential buyers. In a survey, 17 percent of Realtors reported delays in October, mostly from waiting for IRS income verification for mortgage approval," said Lawrence Yun, chief economist for the Realtors in a release.

Regionally, gains in pending home sales in the Northeast and Midwest were stronger, while the South and West saw deeper declines. Sales rose 2.8 percent month-to-month in the Northeast and 1.2 percent in the Midwest. Sales slipped 0.8 percent in the South from September and in the West the decline was steepest, with 4.1 percent fewer buyers signing contracts.

"We could rebound a bit from this level, but still face the headwinds of limited inventory and falling affordability conditions. Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors," Yun said.

While the Realtors' survey, which draws its data from regional multiple listing services, showed a big drop in the usually investor-heavy West, another report saw investors returning to the market in October after stepping back earlier in the year. After surging to 23 percent of the market in February, investors made up just 16.6 percent of home buyers in August, according to Campbell/Inside Mortgage Finance. Over the past two months, however, that share has climbed back to 17.4 percent.

"The two-month rise in investor activity is significant given that it occurred at the same time the proportion of distressed properties in the housing market has continued to fall," the report said.

—By CNBC's Diana Olick

Sales of bank-owned homes decline in California as markets get closer to normal

Sales of bank-owned homes constituted a majority of California home sales as recently as four years ago, but now represent a small fraction of sales in the state, according to data that Realtors are pointing to as evidence of continued recovery in the real estate market.

“In the beginning of 2009, 60 percent of the closings in our state were REOs (repossessed homes),” California Association of Realtors chief economist Leslie Appleton-Young said in a Tuesday conference call. “Now it’s around 5 percent of total sales.”

Appleton-Young on Tuesday presented the Realtors’ forecast for the coming year during a conference call. Appleton-Young delivered her remarks on the same day that the Realtors group opened its California Realtor Expo at the Long Beach Convention Center.

In terms of pricing, the trade group is predicting the median price of a single-family home in California will rise to $432,800 in 2014. That figure would signify a 6 percent rise over the projected 2013 median of $408,600.

A median price of $408,600 would be 28 percent higher than last year’s prices, but a modest rate of appreciation combined with a diminishing proportion of bank-owned and other distressed homes among California real estate deals can be interpreted as one sign the state’s housing market is returning to a “normal” situation.

Concerning distressed properties — foreclosures and short sales — one analyst said a combination of factors including homeowners and banks finding alternatives to foreclosure, the policy impact of the state’s new Homeowners Bill of Rights and the fact that many foreclosures have already been processed has resulted in a downward trend in foreclosure activity.

The trend includes the Los Angeles and Southern California markets, said Daren Blomquist, spokesman for the Irvine-based RealtyTrac, a company that lists foreclosed properties and collects real estate data. Blomquist said foreclosure filings in Los Angeles and San Bernardino counties have fallen for the past 21 and 15 months respectively.

The Homeowners Bill of Rights is a package of laws that state Attorney General Kamala Harris and Democratic lawmakers pushed for last year. The laws include several provisions to prevent or delay foreclosures, including a ban on “dual tracking” activities in which banks work on a homeowner’s loan modification request while simultaneously processing a foreclosure.

He also said banks became more willing to let homeowners pursue short sales — deals in which houses were sold for less than the outstanding mortgage debt.

Blomquist said the laws resulted in a sharp decrease in foreclosure activity from December to January, but he predicted that many foreclosures would be merely delayed — not prevented — by the new laws.

Home prices have appreciated rapidly this year. In August, California prices rose to $441,330, which was about 28 percent higher than prices from 12 months prior, according to the California Association of Realtors. The figure also signified the highest price recorded since December 2007.

Realtors are projecting the rate of appreciation to cool off next year. Scott Underwood, a Long Beach-based broker, said upward movement in mortgage rates has calmed recent conditions in which a house may get a rush of offers as soon as it goes on the market. That makes it easier for parties on either side of the deal to assess a fair price.

“Now, all of a sudden, there’s less of a frenzy and it’s easier to work in (and) conceptualize for buyers and sellers,” he said.

The California Realtor Expo in Long Beach is a three-day convention for the real estate industry. Scheduled events for attendees include educational sessions on California demographics, property management, marketing and how to use data while interacting with clients.

Single family home prices rise, but at less feverish pace

U.S. single-family home prices rose in July, albeit at a slightly slower pace, a closely watched survey showed on Tuesday.

Even so, the year-on-year gain was the strongest in more than seven years.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.6 percent on a seasonally adjusted basis, compared to economists' forecasts for a 0.8 percent gain. Prices rose 0.9 percent in June.

On a non-adjusted basis, prices rose 1.8 percent.

Compared to a year earlier, prices were up 12.4 percent, matching economists' expectations and marking the strongest rise since February 2006. Prices were up 12.1 percent in the year to June.

The report suggested the housing sector continues to recover despite a recent rise in mortgage costs. Economists have pointed to a stronger housing market as a bright spot in the U.S. economic rebound.

Prices in all 20 cities rose on a non-seasonally adjusted yearly basis, led by a 27.5 percent surge in Las Vegas and followed closely by a 24.8 percent gain in San Francisco.

Robert Shiller, one of the index's namesakes, said that Las Vegas figure gave him pause.

"I'm starting to worry about a bubble. In some cities it's looking bubbly now," Shiller told CNBC's "Squawk on the Street" Tuesday

"The really dramatic cities tend to be cities that had bubbles in the recent past - California, Phoenix, Vegas - It's regional somewhat. The northeast is relatively mild."

Shiller also cautioned the rally in prices could run out of steam soon.

"It might be slowing down, because the thing that's driving this doesn't seem to be excitement about a new era," he said. "It's a mixed picture and I don't know where home prices are going to go. This might be the beginning of a slowdown. It could be the beginning of a bubble."

Home resales jump to 6-1/2 year high as housing recovery rolls on

U.S. home resales hit a 6-1/2 year high in August as buyers flocked back to the market to lock in cheap borrowing costs amid rising mortgage rates, a signal of continued strength in the housing market recovery.

The National Association of Realtors said on Thursday existing home sales increased 1.7 percent to an annual rate of 5.48 million units last month, the highest level since February 2007 when property values began to decline after the sector's boom and bust.

Economists polled by Reuters had expected home resales to rise to a 5.25 million-unit rate. The housing recovery has helped shore up the economy by bolstering household finances and supporting consumer spending.

Lawrence Yun, NAR chief economist, said the housing market may be experiencing a temporary peak as would-be buyers sitting on the fence are pushed to close deals ahead of likely price and borrowing cost increases.

"Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions," he said, pointing to tight inventory limiting choices in many real estate pockets.

Mortgage rates have risen in recent months after hitting a low of 3.35 percent in May, according to data from Freddie Mac. The rate for a 30-year fixed rate loan was at 4.5 percent as of Sept. 19, hovering near a two-year high.

The Federal Reserve cited tighter financial conditions as one reason for its decision this week not to taper its stimulus program aimed at supporting growth, a surprise to investors and economists who had expected it to scale back bond-buying. Slower asset purchases would have pushed mortgage rates even higher.

Last month, the inventory of unsold homes on the market increased slightly and represented 4.9 months' supply at August's sales pace, the NAR said.

"There's an ongoing housing shortage," Yun said, adding: "I don't anticipate this housing shortage to go away."

The months' supply remained below the 6.0 months that is normally considered as a healthy balance between supply and demand. The U.S. housing market had been impacted by tight supplies in some parts of the country.

The median home sales price in August rose 14.7 percent from a year ago to $212,100.

Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for about 12 percent of overall sales last month, the lowest since NAR began tracking the data in 2008.

Investors bought 17 percent of homes in August, with first-time buyers accounting for 28 percent of the transactions.

Rising home values and mortgage interest rates have started to price some first-time buyers out of the housing market and affect affordability.

To Figure Out Where Real Estate Is Headed, Start Driving

Metrostudy, a real estate consulting firm based in Houston, analyzes the health of the residential market in metropolitan areas across the U.S. and issued prescient warnings about the coming housing bust as early as 2004. One of its main analytical tools is what makes Metrostudy interesting: drive-bys.

Employees drive through newly built—or still being built—home developments and start observing. Are there toys on a house’s lawn? Good sign: A family has moved in. Families mean stability. Is there a garden hose attached to the side of the house? Another good sign. The house is not only occupied, it has an owner who cares about his or her property. A welcome mat is always, well, welcome.

A bad sign: no curtains in the windows. That means the house could be unoccupied—and unsold. Two others that trigger alarms are a high number of empty lots and newly completed but clearly empty houses, both indicators a developer may have badly overestimated demand and could soon be choking on inventory.

Analyzing all this data streaming in from Boston to Miami is Brad Hunter, chief economist of Metrostudy. He was one of the first to observe signs of life in the residential market in 2009, saying home sales would show staying power even after the end of President Obama’s tax break on residential sales.

Now, Hunter is forecasting double-digit increases in new home prices for the rest of the year; the latest number released on July 30 shows a jump of 12 percent. “People are buying homes to live in them,” says Hunter. That wasn’t always the case at the height of the frenzy last decade, when speculators financed by ultracheap mortgages and zero down payments bought newly built, unoccupied homes—and sometimes empty lots—to flip to the next buyer.

Hunter sees the speculative excess gone from the market—well, mostly gone. Developers are buying lots again in desirable central locations, driving up prices. The once-hot exurbs still have unsold homes and empty lots aplenty, but developers are shunning them for now.

Next year, says Hunter, will be different: He predicts new home prices will grow only 6 percent in 2014 as interest rates keep rising. “Mortgage rates could pose a challenge to affordability,” he says.

By Christopher Power
Power is the Global Economics editor at Bloomberg Businessweek.

Home prices rise most since 2006, pace cools: S&P/Case-Shiller

U.S. single-family home prices rose in May, though the pace of gains cooled compared to the month before, a closely watched survey showed on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 1 percent on a seasonally adjusted basis, shy of economists' forecast for a 1.5 percent increase. That marked a slower pace from April's 1.7 percent rise.

On a non-adjusted basis, prices rose 2.4 percent.

Case-Shiller Index shows best gains in 7 years Robert Shiller, co-founder of the Case-Shiller Index, breaks down the latest numbers on housing and which cities are "bubbling up."

Compared to last May, prices also fell short of expectations, rising 12.2 percent from a year earlier. Still, it was the biggest annual gain since March 2006, matching a record set in April.

The report was unlikely to alter economists' views that the housing sector continues to recover, making it a bright spot for the economy.

"The cities that bubbled in the past are bubbling again," Robert Shiller, economist and co-founder of the S&P/Case-Shiller Home Price Index, told "Squawk on the Street" Tuesday.

"To me, it seems to be at least partly psychological. They've seen it before and they're ready for it again … It seems like California has historically been the most bubbly state in the country and it continues."

Shiller said that the new factor emerging in the numbers is the effect of institutional investors on home prices. "They've learned about momentum and they're saying 'hey, this is it.' The housing market is showing a lot of upward momentum. And you know, I think they're probably right, at least for the short term."

"For a flipper who can get out in about a year, it seems to be a fairly safe bet," he added.

All 20 cities rose on a yearly basis, led by a 24.5 percent surge in San Francisco.

New home sales surge to five-year high despite higher rates

Sales of new U.S. single-family homes vaulted to a five-year high in June, showing little signs of slowing in the face of higher mortgage rates.

The Commerce Department said on Wednesday sales increased 8.3 percent to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008.

Sales increased 1.3 percent in May.

Economists polled by Reuters had expected new home sales to rise to a 482,000-unit rate last month.

Compared with June last year, sales were up 38.1 percent, the largest increase since January 1992.

The third straight month of gains in new home sales, which are measured when contracts are signed, suggested the housing market was gaining more muscle and should allay concerns that higher mortgage rates could slow down momentum.

Mortgage rates have spiked in anticipation of the U.S. Federal Reserve starting to taper its generous monetary stimulus later this year. Rates still remain low and Fed Chairman Ben Bernanke last week expressed optimism the housing market recovery would continue.

Last month, the inventory of new homes on the market increased 1.3 percent to 161,000, the highest since August 2011, as builders continue to ramp up production to meet the growing demand.

Still, supply remains tight, putting upward pressure on prices. The median new home price increased 7.4 percent from a year ago.

At June's sales pace it would take 3.9 months to clear the houses on the market, down from 4.2 months in May. A supply of 6.0 months is normally considered as a healthy balance between supply and demand.

Sales last month rose in three regions, but fell in the Midwest.