This Week in Real Estate: June 27, 2016

The top story This Week in Real Estate and the most noteworthy news globally was Britain’s withdrawal of the European Union (aka “Brexit”), and how that decision may impact the U.S. housing and mortgage finance industry. The market’s initial reaction: the single best day for mortgage rates in more than a year. Below are a few highlights from the third full week of June that influences our business:

* Existing Home Sales Reach Highest Pace in Over 9 Years. Existing-home sales sprang ahead in May to their highest pace in almost a decade, while the uptick in demand this spring amidst lagging supply levels pushed the median sales price to an all-time high. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.8 percent to a seasonally adjusted annual rate of 5.53 million in May from a downwardly revised 5.43 million in April. With last month’s gain, sales are now up 4.5 percent from May 2015 (5.29 million) and are at their highest annual pace since February 2007 (5.79 million). Existing-home sales in the West jumped 5.4 percent to an annual rate of 1.18 million in May, but are still 1.7 percent lower than a year ago. The median price in the West was $346,900, which is 7.7 percent above May 2015. May’s price increase marks the 51st consecutive month of year-over-year gains.
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* Foreclosure Starts Now at Pre-Crisis Levels. Foreclosure inventory continues to decrease, decreasing 3.55% from April to May and 29% year-over-year, according to a recent report from Back Knight Financial Services. Foreclosure inventory in May hit below 575,000, down from 800,000 last year. That marks the lowest foreclosure inventory since the summer of 2007. Foreclosure starts, on the other hand, increased almost 6% from April. That being said, however, April’s foreclosure starts hit a 10-year low. May’s 62,100 foreclosure starts were still 20% less than May 2015. Delinquencies increased slightly in May by just 0.36%, however they are still down by almost 13% annually. It’s normal seasonal behavior for delinquencies to hit their calendar year low in March and then gradually climb throughout the summer and fall months.
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* Fewer Buyers Paying Cash for Properties. Cash sales made up 33% of total home sales in March 2016, a decrease of 2.4 percentage points annually, according to a recent report by CoreLogic. Monthly, cash sales fell by 2.8 percentage points from February. For the first three months of 2016, cash sales averaged 34.7%, the lowest start to any year since 2008. Though below the peak of 46.6% in January 2011, cash sales are up from the pre-crisis average of 25%. If cash sales continue to fall at the same rate it did in March, they could hit the pre-crisis level by mid-2018. Real estate owned sales had the highest percentage of cash sales at 57.2%. Resales came in second with 32.9%, followed by short sales at 30.6% and newly constructed homes at 14.4%. Alabama reported the largest percentage of cash sales at 49.8%. New York came in second at 47.5%, followed by Florida at 45.9%, Michigan at 41.8% and Indiana at 41%. The percentage of cash sales in Oregon and Washington were 28% and 23% respectively.
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* Single Best Day for Mortgage Rates in More Than a Year. Mortgage rates plummeted today, June 24th, following the surprise victory of the referendum for the U.K. leaving the European Union (aka “Brexit”). This joins the ranks as one of the few days in history where rates have moved a full eighth of a point in a single day. There have only been 9 instances in the past decade, and the most recent example was in October 2014. In that sense, it’s the single best day for mortgage rates in more than a year, not to mention the fact that outright levels are getting very close to all-time lows. From yesterday’s most prevalent conventional 30-year fixed quote of 3.625%, we’re now easily down 3.5% for most lenders. A few of the most aggressive lenders are already down to 3.375% on top tier scenarios. Back in 2012, 3.375% was the lowest rate that was maintained for more than a few days, although there were a few windows of opportunity for 3.25% and 3.125%. Considering some of the higher costs associated with today’s mortgages (government guarantee fees and servicing costs), we’re effectively back in line with all-time lows.
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Have a productive week!

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