Distant Memory

n 2012, when home prices finally bottomed out, over 15 million homeowners, 28.5% of all those with a mortgage, were underwater, with a loan balance larger than the market value of their home. Many were recent homeowners who bought during the housing boom and at the top of the market, but even long-term homeowners saw their often-considerable equity eroded, frequently to the point where they could no longer afford to sell or refinance their homes.
Five years and 56 consecutive months of rising home prices later, negative equity is a distant memory for most. Black Knight Financial Services said this week that one million homeowners regained positive equity in 2016, leaving 2.2 million, 4.3% of all those with a mortgage, underwater. In addition, there are now 39.5 million homeowners with combined loan-to-value (LTV) ratios of less than 80%. This means they have “tappable” equity-value that can be extracted from their homes through refinancing. Nationwide, the value of “tappable” equity now stands at $4.7 trillion, up nearly $570 billion in 2016 alone.
Homeowners are beginning to utilize this equity. In the fourth quarter of 2016 there were nearly a half-million cash-out refinances, 8% more than the previous quarter and 50% more than a year earlier. Thirty-one million in equity was cashed out, the highest quarterly total since 2008.
Owners Facing Conundrum
Will this continue? Black Knight notes that 78% of the tappable equity is held by 27 million homeowners who have credit scores over 720, making them prime candidates for cash-out refinancing. But, in the very definition of a conundrum, 68% of the equity belongs to borrowers who have interest rates below those available today.
Enter the HELOC. A recent survey by TD Bank shows these loans regaining popularity, especially among Millennials, more than a third of whom said they are considering applying for one in the next 18 months. This is more than twice the number of Gen-Xers with such plans, and nine times more than Baby Boomers.
Price increases did appear to slow, or at least pause in January, but CoreLogic, the first company to weigh in with February data, shows them accelerating again. Its Home Price Index rose 1.0% from January (when prices were up 0.7%) and were up 6.9% year-over-year, 0.1 percentage point more than the increase a month earlier.
As to the remaining 2.2 million underwater borrowers, several studies have shown their homes are disproportionately in the lower price tiers. These are also the homes enjoying the greatest appreciation, so perhaps they will soon be afloat as well.
Freddie Mac gave us some good news to close out the week. Mortgage rates were down for the third straight week with the 30-year fixed-rate mortgage averaging 4.10%. That is a 20 basis point decline since March 16. Call me to take advantage of these great rates!

Posted on April 7, 2017 at 4:55 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , ,

Brightening Prospects

The Pending Home Sales Index (PHSI) has been making economists queasy since last fall. The index, based on signed contracts for home purchases, is a leading indicator of existing home sales over the following one or two months. For the last three months, it has wobbled between negative numbers and lackluster ones. A particularly bad January report cast doubt on prospects for a robust spring market.
Well, put on your tip-toe-through-the-tulips shoes. The National Association of Realtors says that pending sales jumped by 5.5% in February, more than twice the increase expected. This brought the index to 112.3, the second-highest reading (trailing only April 2016) in 11 years. The surge was broad based; every region saw an increase, ranging from 3.1% in the West to 11.4% in the Midwest.
We reported earlier this month that home price reports from both CoreLogic and the Federal Housing Finance Agency indicate that the price increases are no longer accelerating and in fact may be losing steam. This week Black Knight Financial Services reinforced that notion; its Home Price Index rose 5.4% for the 12 months ending in January, 0.3% point less than the December increase. However, the granddaddy of all price trackers, S&P Case-Shiller, put a big lid on that theory.
Largest Gain in Thirty-One Years
Case-Shiller’s National Index for January showed a year-over-year increase of 5.9%. This was not only a bigger gain than December’s (5.8%) but was the largest in 31 months. Both the Case-Shiller 10-City and 20-City Composites posted even larger annual gains from December than the National Index and 12 of the 20 metropolitan areas in the index saw prices rise faster in January than December.
Interest rates are back in the news this week–and on two different fronts. Even though the Federal Reserve’s Open Market Committee (FOMC) announced, as it raised the fed funds rate on March 16, that they would probably do it two more times this year, three members of the of the Board of Governors said this week that, maybe they really meant three more times.

We are often reminded that the fed rate is a short-term one, and doesn’t necessarily affect long-term rates like mortgages. Sure didn’t this time. The day after the last rate hike Freddie Mac’s 30-year rate averaged 4.30%. Since then it has dropped 16 basis points, nine of them this week alone.

Posted on March 31, 2017 at 6:37 pm
Greg Timms | Posted in Economical Updates | Tagged , , , ,

Welcome Stats

We reported earlier that positive responses to the “good time to sell” question in Fannie Mae’s National Housing Survey hit an all-time high; NAR’s existing home report added an exclamation point. In some West Coast metro areas, notably the areas around San Jose, San Francisco, and Vallejo, selling appears to be a matter of putting up a sign and getting out of the way. Median marketing times in those areas in February were 27, 33, and 35, days respectively. Seattle and Boulder were also hot markets with marketing times of 36 and 37 days.
Existing home sales started out 2017 with a bang, increasing by 3.2% from December to January, but that rally was short-lived. The National Association of Realtors (NAR) again blamed the lack of available homes for February numbers that completely wiped out the earlier gain, falling 3.7%. NAR Chief Economist Lawrence Yun said affordability issues also took a toll.
The bang got louder for new homes however. Those sales built on a strong January–up 3.7%–with another 6.1% gain. Sales are now running at a seasonally adjusted annual rate of 592,000 units, a whopping 12.8% increase from last year.
Affordability Relief
There were signs of potential relief this week for the affordability issues cited by Yun. The Federal Housing Finance Agency said that, in January, for only the second time since early 2013, its House Price Index did not increase on a month-over-month basis. The annual price increase also flattened to 5.7% after gaining more than 6% every month since last June.
Affordability got another tiny boost as mortgage rates eased back slightly. Freddie Mac said the 7 basis point drop in its 30-year rate “Signals continued uncertainty.”
During the housing crisis, a lot of companies that report housing statistics began to track data to which they had paid little attention in the past. In addition to info on mortgage defaults, loan modifications, and foreclosures, several started following cash home sales. This was considered a secondary measure of the number of homes sold to investors.
Even in “normal” times about 25% of homes are bought without using a mortgage, but at the peak, in January 2011, that share almost doubled. This week CoreLogic reported that while the number is still higher than before the crash, cash sales throughout 2016 were at the lowest level, 32.1%, since 2007.

This is good news for first-time homebuyers who have often found themselves at a disadvantage when competing with investors and their all-cash offers.

Posted on March 24, 2017 at 4:39 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , , ,

Blizzard of Good News

Good housing and economic news fell almost as thick and fast as snow on the East Coast this week. Hard to know where to start digging out.
Proceeding chronologically, the first up was another very good Labor Department report announcing the creation of 235,000 new jobs in February. Below the headline number was some especially good news for the housing industry; 58,000 of those jobs were in the construction sector. The January job creation number was upgraded by 11,000 to 238,000 and earnings ticked up another 0.2%.
Highest Since 2005
New home builders displayed the strongest confidence in their market since June 2005 in their responses to the National Association of Home Builders monthly survey. The index drawn from that survey surged by six points.
That confidence was reflected to a certain degree in the Census Bureau’s residential construction report for February. While permits were down by 6.2%, housing starts were up 3.0%. In addition, both numbers were higher than those in February 2016, by 4.4% and 6.5% respectively. Even better, single family numbers were strong, boding well for growing the dismal inventories. Single-family permits rose 3.1% from January and starts were up by 6.5%.
One Down, Two To Go
The Federal Reserve’s Open Market Committee did as expected at their meeting this month, raising the fed funds rate a quarter point to a range of 0.75% to 1.0%. What sent the markets dancing was the post-meeting announcement that they expect to do it two more times this year. Why was that happy news? Even though FOMC had more or less promised three rate hikes this year, the markets were sure they really meant four.
There will be a notable change in the way consumer credit reporting firms will keep score. Under some pressure from regulators, the three biggest, Equifax, Experian, and TransUnion, announced that starting July 1 they will remove all negative information about tax liens or court judgments from consumer records unless they contain at least three out of four specific pieces of identification–name, address, and either Social Security number or date of birth. New reports without this info will also be rejected.
FICO estimates that about 12 million credit scores will be affected–about 6% of the total. The impact will be small–probably less than a 20-point boost in each case.

With the “unwintery” weather enjoyed by most of the country–up until this week of course–the home sales reports, both new and existing homes–for February could give us a first look at the spring market. Hopefully they will provide the good news headlines next week.

Posted on March 17, 2017 at 5:10 pm
Greg Timms | Posted in Economical Updates, Real Estate News | Tagged , , , , , ,

Green Shoots

As if you didn’t know, lack of housing inventory has been cited over and over (and over) as hampering homebuying. To a lesser extent, consumer confidence has been a drag both on homebuying and the economy. This week there were green shoots of hope for both.

A National Association of Realtors (NAR), survey broke down homebuying trends by generation. Gen X, currently aged 37 to 51, (NAR appears to have “disappeared” the quite small Gen Y into this cohort), never gets much attention, but they presented some of the survey’s more interesting findings. They appear to have delayed homebuying (usually of a “move-up” house) longer than Millennials and are the generation to have most often lost a distressed home or been locked out of the market by debt or being underwater in their existing home. They also carry the most student debt, $35K against $25K for Millennials.

NAR says that generation has now recovered enough equity to sell and buy another home. Xers accounted for 28% of sales last year, up 2 points from the previous year. Millennials had a 35% share, but there are a lot more of them.

NAR chief economist Lawrence Yun says that Gen Xers who bought last year had been in their existing homes a median of 10 years; many of them buying when “home values were on the precipice of declining.” He said more of the generation are expected to sell this year and that should help ease the inventory shortages in much of the country. That these are likely to be mostly starter homes is even better news.

Fannie Mae’s National Housing Survey has tracked homeowner and renter attitudes toward homeownership and the economy since 2011. The survey has 100 questions, six of which are distilled into a single number, the Home Purchase Sentiment Index (HPSI).

The February survey blew the roof off. The HPSI jumped 5.6 points to 88.3, an all-time high. Five of the six components were higher than the previous month, and three set records of their own.

Asked if it was a good time to buy a house, 66% said yes, 26% said no, a net of 40%, 11 points higher than in January. A net of 22% think it is a good time to sell, a survey high.

Financial confidence is also on the rise. The net of those unconcerned about losing their job jumped 9 points to 78% while a net of 19% reported their household income higher over the last 12 months. Both were survey highs.

Doug Duncan, Fannie Mae’s chief economist said, “Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time homebuyers.”

Lots of housing news next week–including a resumption of the Fed Watch–will they or won’t they raise rates?

Tune-in next week to find out.

Posted on March 10, 2017 at 5:16 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , , ,

It’s All About Inventories

Sales of new homes in January were every bit as good as those released last week for existing homes. There were an estimated 41,000 newly built homes sold during the month compared to 38,000 in December. On a seasonally adjusted annual basis that works out to a pace of 555,000 units, up 3.7% from December and 5.5% higher than in January 2016. Sales of existing homes had risen by 3.2% for the month and 3.8% year over year so the two reports together bode well for a strong spring market.

If we could, we would just leave it there. Our sense of duty, however, compels us to also mention pending home sales. They sort of took the bloom off the rose. The National Association of Realtors’ (NARs’) Pending Home Sales Index, a leading indicator of existing home sales for the upcoming two months, slipped 2.8% to the lowest level since last January and the December number was revised down to half its previously announced 1.6% gain. Because? Inventories of course.

The West is also looking a little weak and worrisome. Existing sales were up a strong 6.6% for the month although they had fallen in both November and December, but new home sales, strong in the other three regions, were down more than 4% and pending sales plunged by nearly 10% and were fractionally lower than a year earlier. Hopefully, it is just a blip.

That home prices are continuing to escalate was confirmed by the last two of the December reports. Case Shiller’s National Index was up 5.8% year-over-year compared to a 5.6% annual gain in November. Black Knight Financial Services said the annual increase of 5.7% in December tied with November for the largest of the year. Again, no question about what is behind this appreciation.

Inventories are now news beyond the real estate industry. This week the Washington Post headlined the difficulties millennials are having with competition and shortages now that they have finally decided to enter the housing market. Among the stories about failed offers and multiple bids, the Post does offer some encouraging words from the director of Harvard’s Joint Center for Housing. Christopher E. Herbert reminds us that Baby Boomers entered the market in the early 1980s, faced with a double-digit recession and double-digit interest rates. “But then homeownership rates and housing prices boomed in the 1990s. That group started out on a slower trajectory, then caught up. When you’re young you have some time to make up for a slower start.”

Please call or email if you have any questions.

Posted on March 3, 2017 at 5:42 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , , ,

Fifty-Nine Months in a Row

Rising interest rates apparently aren’t scaring off buyers, so far at least. A spurt in existing home sales in January pushed the seasonally adjusted annual rate up 3.3% over December to 5.69 million units, a gain of 3.8% year-over-year.
The rate of increase was the strongest for any month since the previous January and sent sales jumping over those from last November to become the best month for existing sales since the peak of 5.79 million units in February 2007.
Condo/coop sales were particularly strong, soaring 8.3% to a seasonally adjusted rate of 650,000 units, an increase of 4.8% over the last 12 months. Single-family sales rose 2.6% to 5.04 million units.
According to the National Association of Realtors, home prices appreciated for the 59th straight month on an annual basis. The median price for all types of homes increased 7.1% year-over-year to $228,900 and was the largest increase in a year.
The Federal Housing Finance Agency’s (FHFA’s) Home Price Index was a little less ebullient than NAR and lags it by a month, but still had annual prices up in December by 6.2%, the strongest year-over-year gain since August. FHFA economist Andrew Leventis said that, while prices probably weren’t yet feeling a full impact from rising interest rates, “There is no evidence of a normalization in the unusually low inventories of homes available for sale, which has been the primary force behind the extraordinary price gains.”
Among other reasons home prices have risen so quickly over the last few years was the increasing size of new homes. Per James McManus, writing in Builder, tight credit, labor and material shortages, and a large share of move-up buyers, pushed builders disproportionately toward bigger, pricier homes, and away from those that would pull droves of renters into homeownership.
The National Association of Home Builders (NAHB) says the average floor area of new homes rose about 11% between 2008 and 2016 to an average of around 2,600 square feet. Recently those home sizes started trending down, and NAHB suggests they are heading for further declines.

McManus says buyers may soon have some fresh options in communities “designed specifically for rental refugees, downsizing discretionary buyers, and those on a modest budget looking to retire to a modest modicum of entitled living.” He quotes one homebuilder who has coined the phrase “entry-level plus” for new developments coming on line in some areas and says they will bring lower price tags along with a smaller footprint.

Posted on February 24, 2017 at 8:07 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , , ,

A Bumpy Ride

Residential construction was mixed in January, not unusual in an industry so easily affected by weather. Permitting was strong at a seasonally adjusted annual rate of 1.228 million units (808,000 of them single-family), up 4.6% from the previous month and 8.2% higher than a year earlier. Housing starts, however, were down, although not seriously so. Ground was broken at a 1.246 million-unit rate during the month, 2.6% below December’s pace. The rate for single-family starts was up by 1.9%. Construction activity in the West softened considerably with permits and starts both down by double digits.
It has become almost routine for housing start numbers to swing monthly from positive to negative and back again, and the entire residential construction report is always, what Econoday calls “bumpy.” The report’s numbers (which also include housing completions; down 5.6% this time) often move in different directions, and big revisions of earlier estimates are common. Econoday, however, says, “In sum, housing starts and permits are pointing to continuing strength for new homes where lack of supply held down what nevertheless was a solidly positive 2016 for the sector.”
About to buy or remodel? We certainly hope you have checked with Buddy or Max about your plans. The National Association of Realtors (NAR) surveyed both homeowners and Realtors and found that the family pet carries a lot of weight when it comes to decisions about buying, selling, and most particularly remodeling a home.
According to NAR’s recent report, Animal House: Remodeling Impact, 81% of consumer respondents said that considerations related to their fur-babies (or even fin-babies) play a role in decisions about their next living situation. Ninety-nine percent of pet owners in the survey said they consider their pets to be part of the family and 89% said they would not give up their animal to comply with housing restrictions. Nineteen percent said they would consider moving to accommodate their pet; 12% said they had already done so.
Realtors reported pet-owning clients often refuse to make an offer because a home was not ideal for their animal and nearly two-thirds of their customers had encountered problems finding a rental property or a home because of landlord or homeowner association restrictions.
When it comes to remodeling, more than half of all respondents said they had completed a home renovation project to accommodate their animal. Most often cited were fences, laminate flooring, and dog doors. Most reported they (the owners and the dogs) were very happy with the changes.

No surprise in these findings. Pet parents always knew who was in charge.

Posted on February 17, 2017 at 11:53 pm
Greg Timms | Posted in Economical Updates | Tagged , , , ,

Crushed it!

In the words of several media reports, the January Employment Situation Report “crushed it.” There were 227,000 new jobs created during the month, up from a revised 157,000 in December and the best report since last September. The number was way above expectations; analysts had been looking for a number in the range of 155,000 to 195,000.

But into every bright economic report, a little rain must fall; in this case the data on wages. The estimated increase of 0.4% reported for December was revised down to 0.2% and January’s gain was a meager 0.1%. But another set of employment stats offers hope. The Job Openings and Labor Turnover report or JOLTs (rumored to be one of Janet Yellen’s favorite indicators) shows a tightening labor market, with 5.50 million job openings at the end of December and 5.252M hires. Econoday calls the 249,000 job gap an indication that “employers are having a hard time finding people with the right job skills.” That’s usually a precursor to higher salaries.

Back on the “home” front. One of the possible reasons behind the tight inventories of homes for sale is the number of homes that were converted from owner-occupied to rentals during the Great Recession; some analysts put the figure at 3 million. A new study this week from the Research Institute for Housing American (RIHA) points out both that this is nothing new and that it may be exacerbating new home shortages as well.

The report, written by Stuart S. Rosenthal, calls the shift from owned homes to rentals both cyclical and a two-way street. There are both short term and long term transitions from owned to rented and back again. Short-term shifts are often prompted by changes in home prices–falling prices tend to push owned homes into rentals only to see them shift back when prices rise. Over time a net of about 2% of the housing stock becomes rentals. Longer term shifts tend to be related to age. Older homes are more likely to become rentals and to stay that way than are younger properties.

Rosenthal says rising home prices may be shifting rentals back to owner homes and this has the potential to undercut the demand for new construction. In addition, the current low homeownership rate suggests that a large buffer stock of potential owner-occupied homes may now sit in the rental segment of the market.

After some pretty wild swings in November, December, and January, interest rates have gone a little squishy. Per Freddie Mac, average rates moved within a two basis point range for the third straight week.

Posted on February 10, 2017 at 10:06 pm
Greg Timms | Posted in Economical Updates | Tagged , , , ,

Pending Home Sales Up

As reported last week, home sales finished out the year on a down note with both new home and existing home sales retreating from November’s levels. Rising interest rates along with an inventory of existing homes that was the smallest in the National Association of Realtors’ (NAR’s) record books got the blame.
Sales numbers, of course, reflect buying decisions made weeks earlier, perhaps even before the recent rate increases. This week’s pending home sales figures for December could indicate the pullback was only temporary and buyers are back on track. NAR reports that its Pending Home Sales Index (PHSI) based on home purchase contracts, rose 1.6% in December and is running slightly ahead of last year’s numbers.
Lawrence Yun, NAR chief economist, said the pending sales were encouraging but warned, “Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
The tight inventory, a 3.6 -month supply at the end of the year, is even more discouraging according to Yun who points out a large portion of available homes are at the upper end of the market. In December, sales of homes priced above $250,000 increased by 10% from the previous December while home sales in the $100,000 to $250,000 tier grew 2.3% and those in the under $100,000 category fell 11.6%.
Construction spending numbers for December were down overall but there was an encouraging little nugget relating to new home inventories. The end-of-year estimate of single-family construction spending was only 4.3% higher than in 2015 but that number may be masking a recent change. Cumulative month-over-month changes in the fourth quarter alone added up to 3.1%.
The Case-Shiller price indices for November joined the other major indexes to again demonstrate the long-expected slowdown in price increases just isn’t happening. With a 5.6% annual rate of appreciation, Case-Shiller’s national number was well below the 7.1% estimate for CoreLogic, but all four home price indices showed larger annual price gains in November than in October.
The Federal Reserve Open Market Committee (FOMC) finished up their January two-day meeting on Wednesday and, no surprise voted to continue a policy of no sudden moves. Their public statement gave a nod to a strengthening labor market and moderate economic expansion but cited low inflation and soft fixed business investment as among reasons they will hold the line at a half to three-quarter percent for the fed funds rate. The announcement added nothing to the indication last month that rates might be raised twice more this year, just that “economic conditions will evolve in a manner that will warrant only gradual increases in the fed funds rate.”

Posted on February 3, 2017 at 6:40 pm
Greg Timms | Posted in Economical Updates | Tagged , , , , ,