The number of homes under contract to sell is rising, another signal that the housing market may be regaining its footing.
As reported by an industry trade group, the Pending Home Sales Index gained 2 percent in February. The report measures MLS-listed homes in “pending” status — sold but not yet closed.
Pending Home Sales is not a perfect statistic, though, by any means.
For one, the Pending Home Sales Index doesn’t account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions. In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.
Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions — hardly a complete listing.
But most importantly, a “pending” home sale is not the same as a closed home sale. A lot of things can go wrong between the time a home goes under contract and the supposed closing date. For example, the home inspection could fail, the contract could fall apart, and/or the buyer’s financing could be denied in underwriting.
All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.
When Pending Home Sales rise, it’s tells us that buyers and sellers are matching up, clearing out market inventory. And actual home sales often follow “pending” ones — 80 percent of Pending Home Sales will close within 60 days.
You know you’re in the middle of an economic crisis when an accounting issue becomes Front Page News, and that’s exactly where we’re at today.
Mark-to-market accounting is having its day in the sun and people in need of mortgage sometime soon would do well to pay attention.
If you’ve never heard of mark-to-market accounting, you’re in good company; most people haven’t. Mark-to-market is a method of valuing an asset based on its what-if-it-was-sold-today value. Mark-to-market is officially known as FASB Statement 157.
Mark-to-market is one reason why bank balance sheets look so awful right now. Banks have to assign firesale-like values to their mortgage-backed assets even if those loans are performing, and even if there’s no plans to sell them. Assigning low values to assets, then, in turn, forces the banks to seek TARP funds and take other measures to solidify their mandated capital requirments.
Wall Street and Washington are taking notice of mark-to-market’s impact on banking and, by extension, the economy. Even Fed Chairman Ben Bernanke has expressed an interest in opening a dialogue about the matter.
So, today, starting at 10:00 AM ET, the House Committee on Financial Services meets with key members of the Securities and Exchange Commission, the Treasury, and the Financial Accounting and Standards Board to talk about mark-to-market accounting and whether it should be modified.
It’s unlikely that change will come immediately, but if enough evidence shows that mark-to-market is unduly damaging to the economy, expect changes to the way we value banks to happen soon.
For homeowners and home buyer, a reversal in mark-to-market rules would be a bad thing. Almost overnight, bank balance sheets would recapitalize and the economy would spring forward. This would reverse most of the pressures that have held mortgage rates low for so many months.
A healthy economy, in other words, while good for your investments may be bad for mortgage rates. Call me now to refinance if you’ve been sitting on the fence.
When the White House first introduced the Making Home Affordable program in February, it was positioned as a mortgage program with two goals:
Wednesday, in a much-anticipated announcement, the U.S. Treasury introduced new details about Making Home Affordable.
It also created an ”Am I Eligible For Making Home Affordable” form on its website.
In the press release, the Treasury detailed the President’s original blueprint. Namely, it provided explicit loan modification instructions that will assist up to 4 million delinquent homeowners and their respective mortgage servicers.
The modification guidelines are a thorough 17 pages long and leave little question about the loan modification process, and how it must be carried out.
But for as much ink committed to helping delinquent homeowners, the Treasury gave surprisingly little guidance to the estimated 5 million homeowners for whom deteriorating home equity has rendered refinancing impossible.
For these Americans, the Treasury instead offers a basic Q&A and directs homeowners to call Fannie Mae and/or Freddie Mac to confirm their eligibility. The “refinance plan”, in summary, says that a homeowner who has paid his mortgage as agreed and whose home value is “about the same or less” as the amount owed on his first mortgage may be eligible.
That’s about as much as the Treasury could say.
If after browsing the website, you still have questions about the Making Home Affordable program, call me with specific questions.
First Heritage Mortgage, LLC
6550 Rock Spring Drive, Suite 260, Bethesda, Maryland 20817-1131
Direct: 240.223.1730 • Toll-free: 866.833.LOAN • Fax: 240.223.1703
