Housing Markets Improving — As Are Lending Profits
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Foreclosures dropped in July 2012 to 58,000 from 69,000 in July 2011 (and 62,000 in June 2012) according to CoreLogic. Half of all foreclosures were from five states: California, Florida, Michigan, Texas and Georgia. Homes tallied 1.3 million in some form of foreclosure (3.2 percent of all homes with a mortgage) compared to 1.5 million a year ago (3.5 percent of all homes). Since the housing bubble burst in September of 2008, 3.8 million homeowners lost their residence to foreclosure.
Fannie Mae reported that almost one-half of their foreclosed inventory (47 percent) cannot be marketed at this time given the redemption status of the property. Depending on the state, the time that a borrower or lender can redeem the property out of foreclosure varies. As a result, just 23 percent of Fannie Mae’s 109,000 repossessed homes are available for sale. Offers accepted and pending closings make up 19 percent of the inventory while another 11 percent of those with offers are awaiting completion of an appraisal. Foreclosed properties still occupied by the previous owner yet to be evicted make up 13 percent of Fannie Mae’s inventory. One in 12 (8 percent) have been leased back to the prior owner—many times with a rent to own option.
For the first five months of 2012, RealtyTrac reported that non-distressed housing sales made up 64 percent of the market, banked-owned sales 12 percent, non-foreclosure short sales 14 percent, and pre-foreclosure sales 10 percent.The average price of distressed home sales rose 7 percent in Q2 2012 when compared to Q2 2011. Short sales took an average 319 days to close after the foreclosure process commenced while sales of Real Estate Owned (REOs) averaged 195 days following the foreclosure process.
As housing markets continue to improve, likewise has profitability per new loan. The Mortgage Bankers Association (MBA) reported that profitability per new loan originated in the second quarter of 2012 was $2,152—a jump from $1,654 in Q1 2012 (up 30.1 percent). This is a function of both leverage (with lending volume up 23.3 percent) and cost controls (loan costs declining $164 per new loan). The profitability per loan by lenders in Q2 2012 was greater than the entire gross revenue seen by the title industry on a per-property basis.
The best proxy on where home values are heading is the number of months of inventory, as reported by the National Association of Realtors® (NAR). Months inventory shows the interaction between supply and demand and is calculated by dividing current active listings (supply) by the number of homes sold in the prior 12 months (a proxy for demand). The result is then multiplied times 12. Six months of inventory is considered normal, while four months or less is a seller’s market and more than eight month’s is a buyer’s market. NAR reported just 6.4 months of inventory in July 2012, down from 10.5 months in the heart of the housing bust in December 2008.
This is reflected in the latest report on June housing sales by Standard & Poors’ Case Shiller® Price Indices. In the August press release, they reported price Index increases in 18 of 20 markets tracked.
The bottom line is that the housing market continues to improve, driven by a shrinking inventory.
And even better news, recent buyers have locked in interest rates at all time lows.
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