Original Post Date: February 27, 2012
By: Nick Timiraos
An index that tracks contracts to buy previously owned homes rose 2% in January from December to the highest level since April 2010, rekindling hopes that improving demand will help halt the slide in prices this year.
The index of pending home sales, which reflects deals that have signed contracts but haven’t yet closed, rose to 97 from 89.8 a year ago, according to the National Association of Realtors.
The reading was the highest for any January since 2007, but still remains at historically low levels.
Real-estate firms saw buyer traffic surge as the year began, “but we don’t yet know if they’re going to buy,” said Glenn Kelman, chief executive of brokerage Redfin Corp. “Part of the concern is that we saw a strong January and February last year,” only to see sales disappoint during the spring and summer, he said.
Other reasons for caution: Many real-estate agents say a significant share of contracts are falling apart at the closing table. Also, lending standards remain tight, so some buyers can’t qualify for loans.
A bigger problem is that appraised values often come in below the agreed-upon sales price, forcing the buyer to lower the price or the seller to make a larger down payment in order to hold the deal together, real-estate agents say.
Also, while mortgage rates are nearly one percentage point below their levels of a year ago, applications for home-purchase mortgages remain in the dumps. Applications were down by 10% from a year ago in mid-February, according to an index maintained by the Mortgage Bankers Association, recording their second-lowest weekly level since the housing downturn began.
Some housing analysts say a pickup in sales might not be detected by the mortgage index because investors and other all-cash buyers have played a growing role in many of the hardest-hit housing markets over the past year.
Policymakers have stepped up efforts in recent weeks to shore up battered housing markets. On Monday, for example, the regulator that oversees Fannie Mae said it would begin accepting bids from investors on around 2,500 properties located in eight different regions as part of an initiative announced last year to convert some foreclosed properties into rentals.
Those properties currently are occupied by renters, and under the program investors would be required to maintain them as rentals. If this first phase succeeds, Fannie could begin marketing other foreclosed properties this way. So far, it has largely resisted bulk sales, instead selling homes one at a time.
Around 23% of the units in the first phase of the program are in Southern California, and 21% are in Atlanta. Other markets where Fannie is soliciting investor interest include Chicago, Las Vegas, Phoenix, and three different regions in Florida.
It isn’t clear how the sales will be structured. It is possible Fannie will keep a stake in a joint venture so the housing-finance company would benefit if home values rise. Policymakers have encouraged federal entities to consider renting out foreclosures because many housing markets are seeing rents climb while prices remain under pressure from a glut of foreclosed properties.
The Federal Housing Finance Agency began “pre-qualifying” investors this month, and the regulator said in a statement on Monday that investors would have to go through a “rigorous” process to be eligible to bid on the properties. It didn’t specify a timeline for the auctions, but inital sales could take place over the course of several months, said people familiar with the matter.
Meanwhile, federal officials on Monday said they would increase mortgage fees charged by the Federal Housing Administration to borrowers who take out loans insured by the agency. Today, the FHA offers among the easiest lending terms available with down payments of just 3.5%, making it popular with first-time buyers. But the value of its reserves has plunged, raising the specter of a taxpayer bailout.
Beginning April 1, the agency will raise by 0.75 percentage points to 1.75% the upfront insurance premiums that borrowers must pay when they take out FHA-backed loans. On a $300,000 loan, the new upfront premium works out to $5,250, up from $3,000. Because homebuyers are allowed to roll those fees into their loan, officials said they expected the higher premiums wouldn’t deter many buyers.