Virginia Housing Development Authority Review of Virginia Market Conditions and Foreclosure Trends...

Virginia Housing Development Authority

Review of VirginiaMarket Conditions and

Foreclosure Trends

What’s Ahead for Housing?A Symposium on Federal Housing Policy Change

June 14, 2013

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Where we are inthe market recovery

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Home sales continue to rise. April/May sales were strong following a slowing in the 1st Qtr.

Source: Virginia Association of Realtors (VAR)

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The increase in home sales has been somewhat stronger downstate than in the Northern Tier.

Source: Virginia Association of Realtors (VAR)

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Nonetheless, NoVA’s extremely tight inventoryis pushing up prices more than in other regions.

Source: Federal Housing Finance Agency (FHFA)

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Rising prices are alleviating negative equity,but it remains a constraint on for-sale inventories.

Source: CoreLogic, a real estate data and analytics company

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Investor sales remain high in the Northern Tier,but are much lower than elsewhere in the nation.

Sources: MRIS (regional data), National Association of Realtors (U.S. data)

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Tight inventory and difficulty in accessing creditare keeping first-time buyers on the sidelines.

Source: National Association of Realtors (NAR)

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Loan Performance Trends

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New problem loans rates are declining, but are only half-way back to their long-term average.

Source: Mortgage Bankers Association (MBA)

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Likewise, long-term serious delinquency rates are only half way to their long-term average.


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The decline in serious delinquencies continuesto closely track improvement in unemployment.

Sources: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)

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Subprime and ARM loans make up most of the 45% drop in foreclosures from the 2009 peak.


Drop in Active Virginia Foreclosures from the Peak

1st Qtr. 2013Estimated Active Foreclosures

18,400

10,500

2,400

5,500

Prime & Govt. Fixed-Rate Loans

Prime& Govt.ARM Loans

SubprimeLoans

2nd Qtr. 2009 (peak)Estimated Active Foreclosures

33,500

10,900

10,300

12,300

Prime& Govt.

ARM Loans

SubprimeLoans

Prime & Govt.Fixed-Rate

Loans

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Nonetheless, subprime and ARM loansremain a disproportionate share of foreclosures.


Share of 1st Mortgage Loans Share of Active Foreclosures

Virginia Foreclosure Activity by Type of Loan 1st Quarter 2013

57%13%

30% Prime & Govt. Fixed Rate

Loans

Prime& Govt.ARM Loans

Subprime Loans

83%

9%8%

Prime & Govt.Fixed-Rate Loans

Prime & Govt.ARM Loans

Subprime Loans

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The Northern Tier’s improved loan performance in not yet being seen in downstate markets.

Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics

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Northern VA’s number and share of problem loans has fallen, while Hampton Roads’ has risen.

Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics

Estimated Seriously Delinquent Loans

21,400

13,90011,800

15,800 12,800

14,00011,300

13,800

Other Markets

Other Markets

RichmondMetroArea

RichmondMetroArea

HamptonRoads

Metro Area

HamptonRoads

Metro Area

Washington Metro Area

(VA part)

Washington Metro Area

(VA part)

March 2013 51,900

March 2011 62,900

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Distressed sales in Hampton Roads remain high, and continue to constrain increases in prices.

Sources: National Association of Realtors (U.S. data), Tom Lawler, Economist, Calculated Risk Blog /MRIS (regional data)

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Short sales are playing a bigger role inGreater Washington than they are nationwide.

Source: National Association of Realtors (U.S. data), Tom Lawler, Economist, Calculated Risk Blog /MRIS (regional data)

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Conclusions

1. Price rises are being driven by abnormal factors:

– Low mortgage rates: Ongoing Federal Reserve bond purchases are keeping rates at historic lows.

– Constrained inventories: Negative equity and fewer distressed sales are constraining listings of existing homes.

2. Despite market recovery, key undertows remain:

– Lagging Fundamentals: Traditional housing and lending fundamentals — income, employment and household debt — continue to be weak.

– Reluctant Buyers: Increases in traditional buyers, as well as sellers, are needed to support a sustained recovery.

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Conclusions

3. The housing recovery still relies on federal stimulus.

– Low mortgage rates remain critical to the restoration of positive owner equity and the mitigation of troubled loans.

– However, the Federal Reserve cannot maintain current levels of mortgage bond purchases indefinitely.

– The recovery will remain fragile until higher home prices can be sustained by economic fundamentals — i.e., rising incomes and more normal sales volumes and mortgage interest rates.

Virginia Housing Development Authority Review of Virginia Market Conditions and Foreclosure Trends...

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