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40 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION the latest existing-Home sales Hit 13-Month High Up on both a monthly and yearly basis, sales of existing homes expected to remain strong heading into the winter season. s ales of pre-owned homes improved for a second straight month in October, beating their year-ago levels for the first time in a year even as the typically slower fourth quarter got underway. Total existing-home sales in October, including single-family houses, townhomes, condo- miniums, and co-ops, came in at a seasonally adjusted annual rate of 5.26 million, up 1.5 percent from an upwardly revised estimate of 5.18 million in September, according to transaction data from the National Association of Realtors (NAR). With October's increase, sales are at their highest annual pace since September 2013 and rose above year-ago levels for the first time since October 2013. "Sales activity in October reached its highest annual pace of the year as buyers continue to be encour- aged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth," said NAR's chief economist, Lawrence Yun. "Furthermore, the job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of ad- ditional months of year-over-year sales increases," Yun added. It's been a rollercoaster year for existing-home sales, which spent much of the first half of 2014 under the 4 million mark as the economy experienced an early stall. Since then, sales numbers have crept up but still hadn't been able to match 2013's pace until October. The month's gain came despite a 2.6-percent drop in housing inventory, which was estimated at 2.22 million existing homes available for sale as of October 31. Compared to the prior year, un- sold inventory was up 5.2 percent, a factor Yun says will help stave off the kind of slump the market saw toward the end of 2013. "The growth in housing supply ... will likely prevent the drastic sales slowdown and coinciding spike in home prices we saw last winter due to low inventory," Yun said. "However, more hous- ing starts are needed to increase supply, meet current demand, and keep price growth in check." Sales were up on a monthly ba- sis in three of the four Census re- gions, climbing 2.9 percent in the Northeast to a rate of 710,000, 5.1 percent in the Midwest to a rate of 1.24 million, and 2.8 percent in the South to a rate of 2.17 million. Existing-home sales were down 5 percent in the West to an annual pace of 1.14 million. Annually, sales of existing homes were up 4.4 percent in the Northeast, 2.5 percent in the Midwest, 5.3 percent in the South, and down 3.4 percent in the West. The median existing-home price for all housing types dur- ing the month of October was $208,300, according to NAR, representing a 5.5-percent an- nual increase. October was the 32nd straight month in which prices improved year-over-year. The share of first-time home- buyers in October was 29 percent for the fourth consecutive month, NAR reported. A recent survey from the group showed the an- nual share of first-time buyers in the last year was 33 percent, well below the long-run historical av- erage of 40 percent and the lowest share in decades. Mortgage Profits down despite increased Production Decline in secondary market income cuts average third-quarter profits to $897 per loan. M ortgage banking profits hit another stumbling block in the third quarter, sinking slightly as a decline in secondary market income offset rising production numbers. Home lenders took in an aver- age profit of $897 on each loan they originated during Q 3, the Mortgage Bankers Association (MBA) reported. That average was down from $954 in the second quarter but still a vast improve- ment from an average per-loan loss of $194 in the first quarter. "Average company produc- tion volume was up in the third quarter, which resulted in a nominal decrease in per-loan production expenses," said Marina Walsh, VP of industry analysis for MBA. "Nonetheless, production profits were slightly down because of a decrease in secondary marketing income." According to the group, average production volume came to $437 million per company in the third quarter, up from $378 million the prior period. By count, lenders averaged 1,901 new mortgages compared to 1,676 in Q2. At the same time, secondary marketing income for the quarter was 261 basis points, a decline from 270 basis points the previous quarter. The net cost to originate a mortgage was $5,038 per loan, down from $5,074 in Q2, MBA reported. That total includes all production operating expenses and commissions with the excep- tion of fee income. The average loan balance for first mortgages in the third quar- ter was $231,914, up more than $6,000 from the previous quarter's survey and a new record high. Among other findings, MBA reported a small drop in purchase loan origination share, which was 72 percent by dollar volume compared to 74 percent in Q2. For the industry as a whole, the trade group estimates purchase loans accounted for 62 percent of total originations in Q 3. Meanwhile, the share of high- cost first mortgage originations continued to increase, rising to a survey high of 9.4 percent as lenders loosened standards on jumbo products. Including all business lines, 83 percent of the nearly 350 compa- nies in the study posted pre-tax financial profits in Q 3, up from 81 percent in Q2. $5,038 The net cost to originate a mortgage in Q3. Sources: MBA.