July 2016 - Lessons Learned

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54 | TH E M R EP 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 ANALYTICS THE LATEST Real Estate's Hotspots High demand and low mortgages are causing a homebuying explosion in a crop of U.S. locales, including several in the Golden Gate State. P ent-up demand and low mortgage rates are caus- ing homes to sell fastest in Vallejo, California, and in nine other markets in the U.S., according to new data from Jonathan Smoke, Chief Economist of noted, "The past three months have set new records. Prior to that, the highest median list price was July last year." Smoke and his team predict that the median list price will be $250,000 in May, 9 percent higher than one year ago and 2 percent higher than April. "This spring real estate market is coming in strong, just as we expected," Smoke said. "Pent-up demand and low mortgage rates are driving consumers into the market with urgency. However, the recurring issue of limited sup - ply is leading to higher prices." also projects that homes will have spent a median of 65 days on the market in May, which is the same length of time as a year ago and three days faster than April. Meanwhile, more than 550,000 listings have been added to the market so far in May, up 4 percent month-over- month. However, inventory is still 4 percent lower than it was one year ago. site traffic data shows a 30 percent growth in searches for homes for sale, com - pared with May 2015. The markets listed on the "hot" list are ranked according to median days on market and the number of views per listing among the country's medium-to-large metropolitan ar - eas. "In these metro areas—which may include several nearby com- munities—buyers are motivated and homes for sale are here today, gone tomorrow," Smoke said. California has held top spots on the hot list for some months now, but did note a few surprises and more variety. Colorado maintained its two spots from the April ranking, while Detroit, which has been on and off the hottest markets list, came in the 19th place this month. "It's a very affordable market now, benefiting from economic growth and a bit of renaissance," Smoke said. Credit Availability Nudged Up in Q4 The increase effectively reversed a downward trajectory posted over the previous four quarters, although credit access still staying tight. C redit availability in the mortgage industry increased slightly in the fourth quarter, reversing a long-time downward trend over the last four quarters. However, credit access is not the same across the board. The Urban Institute's Housing Finance Policy Center's latest credit availability index (HCAI) shows that mortgage credit availability rose to 5.6 in the fourth quarter of 2015, up from 4.9 in the pre - vious quarter. "A lower HCAI indicates that lend- ers are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan," the re - port said. "A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan." According to the report, mortgage credit availability among Fannie Mae and Freddie Mac has been at the highest level over the past four quarters since its low in 2010 and reversing course in the second quarter of 2011. From the second quarter of 2011 to the fourth quarter of 2015, the total risk taken by the GSE channel increased 50 percent, from 1.4 percent to 2.1 percent. The Urban Institute stated that both the government channel (Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture Rural Development program) and portfolio, and private-label securities channel remain close to or at the record low on the amount of default risk taken by the two markets. But the credit picture is not the same across the board. New data in the Urban Institute's Chartbook for May showed that access to credit has become extremely tight, par - ticularly for borrow- ers with low FICO scores. The mean and median FICO scores on new origi- nations have both risen about 40 and 42 points over the last decade. In addi- tion, the 10th percen- tile of FICO scores, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 666 as of February. This threshold held steady in the low 600s before the housing crisis. LTV levels at origination remain relatively high, averaging 85, which reflects the large number of FHA purchase originations. "Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market," Urban Institute said. "If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard." —Urban Institute

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