Mortgage

The weather is improving but housing conditions are not — here’s why

Is the housing recovery stalling?

Housing, by nature, is more susceptible to weather distortion than activity in other parts of the economy, a recent report from Capital Economics said.  

However, this is no surprise. It's hard to build a home when the ground is frozen and covered in snow.

But that isn't the only factor inhibiting housing. Mortgage rates continue to rise after hitting a low last spring.  

So which is it: mortgage rates or weather? Or is it a conglomeration of factors pushing down the recovery?

Here are four factors at the top of the housing market pile.

flood

1. Weather:

If you look at the weather regionally, single-family housing starts fell sharply in both the Midwest and South, where the weather has been particularly bad, and they rose in the West, where temperatures have been unusually high, the Capital Economics report explained.

Trey Garrison noted on Tuesday that Trulia (TRLA) found January weather probably contributed to a small decline in all five housing activities. 

“Housing activity tends to bounce partway back the month after bad weather (unless that next month is unusually bad, too). Rain and cold don’t last forever, and neither do their effects on housing,” the article stated. 

tight

2. Mortgage Rates:

Yes, mortgage rates are rising and have taken some of the heat out of the housing recovery, but Capital Economics explained that they do not think it will send it into reverse. Historically, rates are still low, and there is a steady rise in the loan-to-value ratio of new mortgage lending over the past year that suggests banks are gradually becoming keener to extend credit.

According to the latest Freddie Mac Primary Mortgage Market Survey, 30-year fixed-rate mortgage averaged 4.33% with an average 0.7 point for the week ending February 20, 2014, up from last week when it averaged 4.28%. 

house

3. REO-to-Rental

The REO-to-Rental market is breaking into the housing industry, with more businesses slowly entering the market.

Back in January, HousingWire reported that American Homes 4 Rent, the nation’s second-largest single-family landlord, has tapped Goldman Sachs (GS) to arrange a bond backed by house rental payments.

Rick Sharga, executive vice president at Auction.com, said as an operation, REO-to-rental is solid.

“There will be an unusually high demand for rental properties in the next few years, and investors playing in the space are meeting a need," Sharga said. "A lot of people either don’t have cash for down payment or can’t meet lending requirements or are not comfortable buying now. REO-to-rental is not exactly a new idea. Individual investors have been doing it forever. It’s just we’ve never seen it on a national scale."

judge

4. MSR regulation

As mortgage-servicing rights transfers and deals, like the following, become more common, industry regulators are starting get more concerned with regulating deals.

Congresswoman Maxine Waters, D-Calif., a top Democrat on the Financial Services Committee, wants government regulators to take action that will protect homeowners from alleged mortgage abuses, honing in on the transfer of mortgage servicing rights.

Waters specifically wants additional regulatory scrutiny for the sale of mortgage servicing rights and wants regulators to ensure nonbank servicers are able to handle the increased volume in loans responsibly.

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