New-home construction plunges in February

By The Associated Press

The Associated Press

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WASHINGTON — 

Builders broke ground last month on the fewest homes in nearly two years and cut their requests for permits to start new projects to a five-decade low. The decline in construction activity is the latest evidence that the housing industry is years away from a recovery.
Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes, the Commerce Department said Wednesday. It was the lowest level since April 2009 and the second-lowest on records dating back more than a half-century.
The decline followed a surge in highly volatile apartment construction in January, which pushed the overall construction rate up to more than 600,000 units - the fastest rate in 20 months. Still, the building pace has been far below the 1.2 million units a year that economists consider healthy.
Single-family homes, which make up roughly 80 percent of home construction, fell 11.8 percent in February. Apartment and condominium construction dropped 47 percent, reversing much of January's gains.
Building permits, an indicator of future construction, fell 8.1 percent last month to the lowest level on records dating back to 1960. Permit requests for single-family homes saw the biggest decline. Apartments and condos remained flat.
Falling prices, sluggish sales and the weak construction rate all point to a housing market that is "stuck at a bottom of a steep hill," according to Moody's Analytics Economic Research.
"There are really large structural problems with the housing market," said Dan Greenhaus, chief economic strategist with Miller Tabak + Co. "This is not a run-up in oil prices. This is a multiyear build up in the housing market that is going to take more than several months or several quarters to get through."
For a housing recovery to take hold, the job market needs to improve and builders need to gain access to hard-to-get credit.
"Credit is flowing freely to large companies but not so much to the small builders," said Patrick Newport, U.S. economist for IHS Global Insight. "If builders cannot get financing to build new homes, housing will remain in the dumps."
Analysts said year-end building code changes in California, Pennsylvania and New York caused an artificial spike for permit requests in December and housing starts in January. Builders in those states rushed to file new permits before those changes went into effect.
Even with those gains, the housing market has struggled. Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.
The drop in home construction activity was felt coast to coast. It fell 48.6 percent in the Midwest, 37.5 percent in the Northeast, 28 percent in the West and 6.3 percent in the South.
The volatile housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
The trade group said Tuesday that its index of industry sentiment for March improved slightly to 17. That was the first gain in five months after four straight readings of 16. Still, any reading below 50 indicates negative sentiment about the housing market's future. The index hasn't been above that level since April 2006.

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Underwater mortgages rise as home prices fall

By DEREK KRAVITZ

AP Real Estate Writer

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WASHINGTON — 

The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.
About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That's up from 22.5 percent, or 10.8 million households, in the July-September quarter.

The number of underwater mortgages had fallen in the previous three quarters. But that was mostly because more homes had fallen into foreclosure.  Underwater mortgages typically rise when home prices fall. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.

Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater.

Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.  In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point.

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Reverse mortgages get more affordable, but be careful

By MARCIE GEFFNER

Bankrate.com

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Before you borrow

IF YOU'RE in the market for a reverse mortgage, seek independent counseling before you even talk to a lender to learn about loan alternatives or tips on negotiating with a lender. Find a government-approved counselor near you at www.hud.gov/.

CHECK OUT the National Council on Aging's BenefitsCheckUp.org for assistance programs that could make a reverse mortgage unnecessary.

TO FIND OUT how much you can potentially receive through a reverse mortgage, check online calculators at aarp.org or reversemortgage.org.

CONSUMERS UNION offers tips about reverse mortgages on its website, www.consumersunion.org. The site's offerings include information about applying for government benefits for seniors, getting advice from local Housing and Urban Development counselors and seeking a so-called private reverse mortgage — a loan from a family member using the senior's home equity as collateral.

These loans, which allow seniors to spend their home equity without selling their home, have historically been cumbersome and expensive. But new options empower seniors to tap smaller amounts of equity in a more affordable way, according to Peter Bell, president of the National Reverse Mortgage Lenders Association, a group that represents lenders and investors.

The biggest change is the introduction of a new reverse mortgage, called the Home Equity Conversion Mortgage Saver option, or HECM Saver. It has a cheaper upfront mortgage insurance premium, or MIP, compared with the traditional HECM reverse mortgage, now known as the standard option.
Mortgage insurance protects lenders from loan losses, though borrowers pay the cost. Most reverse mortgages are insured through the Federal Housing Administration.

The trade-off, due to the lower MIP and other program changes, is a 10 percent to 18 percent reduction in the maximum loan amount allowed on the saver option, and 1 percent to 5 percent on the standard option, depending on the borrower's age and interest rate, Bell says. The lower loan amount allowed on the saver option means the FHA's risk exposure is lessened.

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New-home sales in January drop 12.6 pct

By DEREK KRAVITZ

AP Real Estate Writer

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WASHINGTON — 

Sales of new homes fell significantly in January, a dismal sign after the worst year for that sector in nearly a half-century.
New-home sales dropped to a seasonally adjusted rate of 284,000 homes last month, the Commerce Department said Thursday. That's down from 325,000 in December and less than half the 600,000-a-year pace that economists view as healthy.
Bad winter weather likely hampered some sales, although the industry has been struggling since the housing bubble burst in 2006.
Last year was the fifth consecutive year that new-home sales have declined after hitting record highs during the housing boom. Buyers purchased 322,000 new homes last year, the fewest annual total on records going back 47 years. Economists say it could take years before sales return to a healthy pace.
Builders of new homes are struggling to compete in markets saturated with foreclosures. High unemployment and uncertainty over home prices have kept many potential buyers from making purchases.
Poor sales of new homes mean fewer jobs in the construction industry, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
New-home sales were uneven across the country. In January, sales fell 36.5 percent in the West and 12.8 percent in the South. But they rose 17.1 percent in the Midwest and 54.5 percent in the Northeast.
The big declines in the West came after a huge increase in December. Buyers had rushed to take advantage of a state tax credit of up to $10,000 on new home purchases in California at the end of the month, said Joshua Shapiro, chief U.S. economist for MFR Inc.
"It would make sense that a surge in such activity took place in California during December and there was payback in January," he said.
Sales of previously occupied homes have not fared much better. While sales rose slightly last month, the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.
Mortgage applications are now near their lowest levels in 15 years.
The average rate on a 30-year fixed mortgage this week dipped to 4.95 percent from 5 percent, Freddie Mac said Thursday. It hit a 40-year low of 4.17 percent in November, and has been trending upward since.
About 188,000 new homes were for sale at the end of January, the lowest level since 1967. The number of homes that have received permits to begin construction has held steady over the past year while the number of those under construction and finished has plummeted.
The median sales price of a new home sold in January was $230,600, down 1.9 percent from the month before. Given the pace of new-home sales, it would take nearly 8 months to clear them off the market. Economists say a six-month supply of homes is healthy.

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