Homeowners are once again taking cash out:

Home values are rising and homeowners are taking advantage of that, finally tapping into that equity again in the form of cash-out mortgage refinances. They are doing so, however, by pulling the most conservative amounts in history.

Prior to the historic housing crash of the last decade, homeowners used their homes like ATMs, pulling out as much cash as the bank would allow, which at the time was essentially all of it and more. This led to millions of borrowers falling underwater on their home loans as home prices fell, and leading to 7.1 million homes so far ending up in foreclosure, according to Black Knight Financial Services.

Lending standards have tightened significantly since then, but borrowers are clearly much more risk averse. They are taking cash out again; 42 percent of mortgage refinances last fall involved borrowers taking cash out of their homes, not just lowering their interest rates. That is the highest share since 2008, according to Black Knight.

The average cash-out amount was over $60,000, but the average loan-to-value ratio after the refinance was 67 percent, the lowest level on record. Borrowers left 33 percent equity still in the home which is still a very healthy level.  

With rents rising, many are taking out cash to purchase rental properties or make some upgrades to their current homes as there is simply not enough quality inventory available.  So, many are not selling..they are staying put and improving instead. 

December Existing Home Sales Jump:

Sales of existing homes jumped 14.7 percent in December compared to November, according to the National Association of Realtors.  The nearly 11 percent monthly drop in home sales in November was not due to a pull back in demand for housing but rather, that drop in November had all to do with something in the mortgage market called "TRID."

TRID is an acronym for TILA-RESPA Integrated Disclosure. It's a new set of rules from federal regulators, deemed "Know Before You Owe," designed to protect borrowers from hidden fees and costs in a home loan. It requires lenders to present borrowers with a simple disclosure form listing all facets of the loan three business days prior to closing. This is so borrowers can ask educated questions if they need to.

"(Friday's) data just confirms that the November drop was due to delays in closings that were pushed to December," said Lawrence Yun, chief economist for the NAR.

"November was the first month of getting a sense of some impact. We saw a softer November in terms of closings and saw much of that activity push into December. December is going to look a little stronger relative to seasonality," said Jonathan Corr, president and CEO of Ellie Mae, a mortgage software company, which saw an average delay of three days due to the new rules.

Closings are in December took a week longer than in December 2014, according to Ellie Mae, but that may be due to factors outside of TRID. Lenders began downsizing as mortgage rates rose, expecting fewer refinance applications, but rates stayed low longer than expected, after the Federal Reserve delayed increasing its lending rate until December. That prompted more refinances.

"Things were creeping out throughout the year, and as that refi picked up, and there was more demand, they tried to accomplish it with the same labor force," Corr said. 

Home Builders Remain Optimistic:

A monthly survey of builder sentiment held steady in January. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) stands at 60, in positive territory, and well above 50 which is the line between positive and negative sentiment.

Current sales condition rose two points to 67 in January. The index measuring sales expectations in the next six months fell three points to 63, and the index measuring buyer traffic dropped two points to 44. Buyer traffic has yet to break out of negative territory.

"January's HMI reading is right in line with our forecast of modest growth for housing," said NAHB Chief Economist David Crowe. "The economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward."

"After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead," said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri. 

Tax Break for Short Sellers at Risk:

What is it and why is it important to the overall health of our housing market?

A short sale is when you sell your home for less than market value and the lender holding your mortgage accepts less that what you owe them.  The IRS considers this a taxable gain...the forgiveness of a portion of your debt.  But, President Bush and Congress passed a provision back in 2007 that gave homeowners an exemption on having to pay taxes on this type of transaction as a way to help the housing market emerge from the slump at that time.

So the above is the "What" and now we address why its important.  The number one headwind for the housing market are not mortgage rates (which are very, very low), its not employment (which is tight and stable), its available inventory.  There simply aren't enough single family homes available for sale.  Part of that reason is that a lot of homes are tied up in a "shadow" inventory held by banks as a result of defaulted mortgages.  Part of the reason is that many are still "under water" on their  homes...owing more than it is worth.  Short sales are a way of getting those under water homes back on the market and providing the much needed new inventory.

Although eight years have passed since the housing crisis began, some 13.4% of homeowners remain underwater, meaning they owe more than their homes are worth, according to Zillow, a real-estate information company.

Technically, the tax break expired at the end of 2014, leaving homeowners in limbo for 2015. Although it is widely expected to pass, if it weren’t renewed, homeowners who received some relief this year could now take a hit when they file their taxes next year. 

How Long it Takes to Save for a Down Payment:

Which age groups are financially fit to buy homes the fastest? Hanley Wood’s Data Studio recently used Metrostudy and Census data to find out how long it would take each generation to save up a 10 percent down payment on a home based on the median household income and median home price for each age group.

Millennials and retirees tend to save for the longest amount of time in order to put a 10 percent down on a home, according to the study. More specifically, younger millennials aged 18 to 24 – who are usually recent college graduates – will have to save the longest at an average of 8.77 years in order to save enough for a 10 percent down payment on a home costing $221,600.

Retirees aged 65 and over will take, on average, about 7.37 years to save up for a down payment on a $291,000 home.

Americans aged 45 to 54 years old – who tend to be at their top earnings power -- take the least amount of time to save up for a down payment. Still, it takes more than three-and-a-half years to save for that age group.

Here’s a breakdown of the years to save up for a down payment based on age:

• 18-24: 8.77 years (average monthly mortgage payment: $597)
• 25-34: 7.34 years (average monthly mortgage payment: $950)
• 35-44: 5.45 years (average monthly mortgage payment: $1,073)
• 45-54: 3.54 years (average monthly mortgage payment: $891)
• 55-64: 3.72 years (average monthly mortgage payment: $766)

65 and over: 7.37 years (average monthly mortgage payment: $532) 

Home Equity Returns in a Big Way:

Nearly a million U.S. homeowners came up from underwater on their home loans in the third quarter, finally owing less than their homes are worth. The nation's overall negative home equity rate fell to 13.4 percent of homeowners with a mortgage, down a full percentage point from the second quarter and from 16.9 percent a year ago, according to Zillow, the Seattle-based real estate firm. Historically, the typical negative equity rate is lower than 5 percent.

Fast-rising home prices are behind the gains. Home value gains widened in October, up 6.8 percent from October 2014. The gains had been contracting in the first half of this year. Recent price gains have reduced negative equity by a collective $60 billion in just three months. While the increase in home equity is sizable and the improvement since the worst of the housing crash dramatic, the negative equity crisis is far from over. More borrowers will now be able to refinance, but an inordinately large number are still stuck in place.

This is still one of the key reasons why inventory levels are so tight.

Housing markets with higher rates of negative equity will have fewer homes for sale, as homeowners are stuck in place. Negative equity is concentrated in lower-priced homes, so this especially hurts the first-time buyer looking to purchase those homes. The supply of homes for sale is very tight nationwide, but it is especially tight at the entry level. 

Pending Home Sales Rise:

In a housing market equipped with very low mortgage rates, Unemployment at 5% and steady appreciation.....there is just one thing missing: Inventory.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2 percent to 107.7 in October from an upwardly revised 107.5 in September and is now 3.9 percent above October 2014 (103.7). The index has increased year-over-year for 14 consecutive months.e largest segment of the housing market continues to hold on.  Year-over-year, existing home sales rose 3.8% and is on track to record their best annual sales in eight years.

Although further expansion in existing-sales is expected next year, ongoing inventory shortages and affordability pressures from rising prices and mortgage rates will likely temper sales growth to around 3 percent (5.45 million) in 2016. Home prices are expected to slightly moderate from a 6 percent increase in 2015 to 5 percent next year.

"Unless size-able supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home," says NAR Chief Economist, Lawrence Yun.