Pending Home Sales Up 13.3 Percent

Home contract signings rose for the 13th straight month, according to the National Association of Realtors, which reported pending home sales rising 13.3% over May 2011 and up nearly 6% over April 2012.

"The housing market is clearly superior this year compared with the past four years," said Lawrence Yun, NAR chief economist. "Actual closings for existing-home sales have been notably higher since the beginning of the year and we're on track to see a 9 to 10% improvement in total sales for 2012."

On a seasonally adjusted basis, the Standard & Poor's Case-Shiller 20-city index increased by 0.7% in both March and April. The CoreLogic national house price index rose by 1.1% and 1.2% in March and April, respectively. Additionally, Zillow's home value index posted a 0.5% increase in May.

Housing analysts at Goldman Sachs said there are some suspicions as to whether all of this good housing news may be misleading. After all, they point out there are 2 million vacant housing units, with another 4 million in shadow inventory.

"These two seemingly contradictory aspects of the housing market lead many to ask: Can house prices increase in the presence of excess housing supply?" they ask.

Yun commented that desirable housing inventory is actually low, indicating a push on prices. This low inventory, he said, could actually hold back some contract activity. "If credit conditions returned to normal and if we had more inventory, especially in the lower price ranges, more people would become successful buyers. In an environment of historically favorable housing affordability conditions, it's frustrating to see some consumers thwarted in the process," Yun said.

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Reverse Mortgage = Foreclosure Risk

The Consumer Financial Protection Bureau (CFPB) released a report recently showing that although reverse mortgages are meant to help borrowers in retirement, they are in fact causing problems for many who don't fully understand them.

A reverse mortgage is a type of home loan that lets older homeowners access the equity they have built up in their homes and defer loan payment until they sell the home, move out, or pass away. The original intent of reverse mortgages was to allow these homeowners to convert home equity into an income stream or line or credit to use in retirement. Borrowers were largely expected to age in place with their loans, living in their current homes until they passed or needed skilled care.

Reverse mortgages require no monthly mortgage payments, but borrowers must still pay property taxes and homeowner's insurance. The report showed that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay those costs.

The report found that many reverse mortgage borrowers do not understand how their loan balance will rise and their home equity will fall over time. In addition, the influx of new choices brought on by innovations and policy changes have made the matter too complex for many homeowners.

Many consumers are getting reverse mortgages before the age of 70 (with the most common age for a new borrower being 62, the first age at which reverse mortgages are available), and some are even getting them before retiring.

These borrowers will have fewer resources to pay for everyday and major expenses later in life and may find themselves without the financial resources to finance a future move-whether due to health or other reasons.

Another problem is that 70 percent of borrowers are taking out the full amount of proceeds as a single lump sum instead of treating the payment as an income stream. As a result, these borrowers have fewer available financial resources later in life. They may not be able to continue paying taxes and insurance on their homes, leading to potential foreclosure.

Then there is the issue of deceptive or misleading marketing materials about reverse mortgages. The report cited examples of mailers that depict reverse mortgages as a government benefit or entitlement program in the vein of Medicare and use images resembling government seals to entice consumers. It can be difficult for consumers to tell that a reverse mortgage is a financial product, not a government benefit.

If you'd like a copy of the 231 page report (PDF) click here.

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A Turn in Housing: Are These Signs Real?

After several years of false hopes and news that things were turning around in the housing market, evidence is accumulating that the optimists may finally be right this time.

The housing market is starting to recover. Prices are rising. Sales are increasing. Home builders are clearing lots and raising frames.

Like the economic recovery that began three years ago, what happens next is likely to prove a little disappointing. The pace of recovery will probably be slow, and the price of homes in some areas will continue to decline.

Millions of people remain underwater, owing more on their homes than the homes are worth, and unable to sell. Millions of families still face foreclosure. And a setback in the still-fragile economic recovery could easily reverse the uptick in housing prices, too.

But roughly six years after the housing market began its longest and deepest slide since the Great Depression, a growing number of experts and people who actually put money into housing believe the end has come.

The trend is clear in the data. The widely respected S&P/Case-Shiller index reported recently that sales prices for existing homes rose in April for the first time this year. Several other measures, including a seasonally adjusted version of the index, show that price increases began in February. The pace of housing construction has increased. And the National Association of Realtors says that pending home sales climbed to the highest level since the end of a federal tax credit for first-time buyers in September 2010.

The rise in prices is happening despite the vast number of vacant houses awaiting buyers, up to two million more than the normal level, with several million more houses still at risk of being foreclosed.

Shadow inventory is not distributed uniformly, according to a new analysis by Goldman Sachs. Even within some metropolitan areas, vacant houses are clustered in less desirable neighborhoods, while buyers are seeking homes in areas where there are few vacancies.

Under these circumstances, researchers conclude, "It is possible for us to see both house price increases and excess housing supply at the same time." Indeed, in a growing number of areas demand for homes is outstripping supply.

If you've been sitting on the sidelines waiting for the bottom of the real estate market, you may have sat there a little too long.