2013-04-17ml-implode.com

While the latest report for housing starts shows an increase of 7% in March, according to the U.S. Census Bureau, single family home starts are struggling and declined 4.8% for the same month. Building permits also dropped 3.9% for March while home completions rose 11%. Starts on multifamily homes, such as apartment buildings, jumped 31% to an annual rate of 417,000 which is the most since January 2006. At this point, more multi-family units are being built than the traditional single family home, the American Dream.

In other recent reports, sentiment is down amongst two separate groups. According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), home builder sentiment fell this month to 42 from 44 in March and was the biggest decline since January. This drop is being blamed on the increase in the cost for building materials and for the limited amount of land for building. In addition, at a time when mortgage rates are down, tight credit continues to keep many consumers from purchasing a new home. The report also shows that home builder sentiment for future sales expectations in the next six months rose three points to 53 and is at the highest level reached since February 2007. According to Rick Judson, National Association of Home Builders (NAHB) Chairman and a home builder from Charlotte, N.C. "While sales conditions are generally improving, these challenges are holding back new building and job creation." Hiring has become difficult as many construction workers moved on to other types of labor after the housing crisis.

The Thomas Reuters/University of Michigan's preliminary reading on consumer sentiment dropped to 72.3 in April, a nine month low, which was below expectations of 78.5. The barometer of current economic conditions dropped to 84.8 this month from 90.7, while the gauge of consumer expectations hit 64.2, down from 70.8. Americans are concerned about the long term health of the economy, higher unemployment and less take home pay. Consumers have tightened their belts, which was seen in the latest retail and food services sales for March released by the U.S. Census Bureau. Sales, adjusted for seasonal variation and holiday and trading day differences, but not for price changes, decreased 0.4% from March.

Despite the consensus that housing is in recovery mode, FHFA extended the HARP program which will now be available until the end of 2015. At a time when home prices are rising, it would seem that HARP loans may not be needed much longer, but this is not the case. Millions of homeowners still remain underwater because, even as home prices continue to rise, they are still not as high as they were when many homes were purchased during the housing boom. In many hard hit areas where home prices fell through the floor, home price increases are welcomed but many homeowners remain underwater. The FHFA Refinance Report for January 2013 shows that a total of 97,589 mortgages were refinanced through HARP 2.0 for the month and represented 21% of all refinance transactions for both GSEs. The HARP refinance program, which was first offered in 2009, has helped 2.26 million homeowners who refinanced through the program.

Single family homes are suffering for economic reasons, as well as, the difficulty that many home buyers have when trying to qualify for a mortgage. Many first time home buyers use FHA loans for financing a home purchase. Changes to the FHA loan program and increases in FHA fees are hurting consumers, as well as, FHA loan volume. FHA mortgage applications fell by nearly 14% for the week ending April 5th and was most likely due to the increase in the annual MIP that became effective April 1st. Since many first time home buyers purchase new homes from tract builders using FHA loans, changing FHA rules may have an affect on these builders' sales. Builders involved in multiply types of housing, including high end homes, may see better results in this market since sales of luxury homes are rising. Lending for these purchases through the use of jumbo loans is also more flexible since these loans are not guaranteed by the government.

For loan application volume, the same pattern continues - homeowners are holding on to the existing homes. Instead of moving up, refinancing to save some money continues to be the trend. For the week ending April 5th, refinance applications rose 6.3% and represented 75% of total applications and for the week ending April 12th, refinance applications rose 5%. (After falling 1% for the week ending April 5th, applications for the seasonally adjusted Purchase Index increased 4% for the week ending April 12th.)

For every positive piece of data, there may be several negative pieces that put a damper on any optimism. Until banks loosen up on credit and make it available to more consumers, significant increases in single family housing may not happen. It is going to take more jobs that offer a livable wage while mortgage interest rates remain low to get consumers interested in owning a home again. The housing recovery, as well as, the entire economy is still traveling down a very bumpy road.

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