Economical Updates June 16, 2017

Bobbing to the Surface

By now we feel the need to explain the term “underwater.” Eight years ago, virtually everyone knew its meaning, since many were experiencing it first-hand. Underwater: owing more money on a mortgage than the house is worth.
It was one of the more widespread results of the 2008 housing crash and the ensuing plunge in home prices. By the third quarter of 2009 more than a quarter of homeowners with a mortgage had lost all equity in their home. Homeowners in this position were far more likely than their neighbors to be delinquent on their mortgages and to fall into foreclosure. They were also unable to sell their homes unless they brought cash to the closing table or convinced their bank to allow a short sale, i.e. take less than was owed on the mortgage. Before government programs such as the Home Affordable Refinance Program (HARP) began, they were unable to refinance into the prevailing record low-interest rates.
In the latest of its quarterly reports on negative equity, CoreLogic says 1 million homes gained positive equity over the 12 months ending in March. While 3.1 million homes remained underwater–still a big number–that is only 6.1% of mortgaged homes; an annual decline of 24%. Homeowner equity nationwide rose by $750 billion on an annual basis.
Underwater: thankfully now a fading memory for most.
Fed Raises Interest Rates
As anticipated, the Federal Reserve’s Open Market Committee (FOMC) raised the fed funds rate for the third time in six months on Wednesday. The quarter-point hike brings the benchmark rate to 1-1.25%. One more increase is expected this year and perhaps three to four in 2018. We shall see.
Black Knight Financial Services says the first quarter of 2017 was a bad one for refinancing; originations fell 45% compared to the last quarter of 2016. However, the recent easing of rates (they remained below 4% this week), may change the outlook.
With interest rates below 4%, the number of homeowners that could benefit from refinancing has risen to the highest level so far this year, to 4.4 million, 1.6 million more than in mid-March.
The company calculates that those in the “financeable pool” could save an average of $260 each month on their mortgage payment. Roughly 2.5 million of them would save between $100 and $300 and nearly 700,000 could chalk up savings of $400 a month or more.
Are you in that pool? Call or email to find out.
Economical Updates June 9, 2017

Another Good Deal?

This week was the fourth consecutive one in which Freddie Mac reported a decline. The 30-year fixed-rate dipped another 5 basis points to 3.89%, the lowest rate in seven months.

Last Friday’s Employment Situation report, however, was a major disappointment. Analysts had expected the economy to add another 185,000 new jobs in May, adding to the excellent April total of 211,000. Instead, the Labor Department announced the creation of only 138,000 new jobs, below even the lowest of the expert predictions. Further, the April number was revised down to 174,000 and the March number was reduced as well.

The unemployment rate did tick down from 4.4% to 4.3%, the lowest rate since 2001, but Econoday said that was a factor of the participation rate which was down 0.2%. Hourly wages rose 0.2% for the month, and are up 2.5% year-over-year.
Lawrence Yun, chief economist of the National Association of Realtors, said, while the May employment figure was soft, the annual figures have consistently remained over 2 million, and he expects housing demand, which is more determined by consistent long-term trends, to remain strong.
Factors Contributing to Low Inventory
We know we keep talking inventories, but so does everyone else and Black Knight Financial Services has some interesting input on the subject. It notes, in its latest edition of Mortgage Monitor, that there are two interest rate-related factors that could be keeping existing homes off the market.
From an analysis of Multiple Listing System (MLS) data, they concluded that homeowners with adjustable rate mortgages (ARMs) are more likely to put their homes up for sale than are those with fixed-rate mortgages. The per-capita likelihood of an ARM mortgaged home being for sale averages 2.4%, almost twice that of properties with fixed-rates. However, the pool of homes carrying ARMs is at the lowest level since 2002. That is Point 1.
Point 2. Among the much larger universe of homes with fixed rate mortgages, an average of 1.3% will be for sale. But that percentage fluctuates with both the homeowners’ interest rate and the prevailing one; the lower the rate on a homeowner’s existing mortgage, the less likely the house will be for sale. Today about 40% of active mortgages have a rate below 4%.
That this may be a factor in the record tight inventories makes perfect sense. It can be hard to walk away from a good deal.
Economical Updates June 2, 2017

Flowers & Weeds

Even though the spring market should be in full flower as it were, this hasn’t been the best month for home sale news. Earlier we reported downturns in April’s new and existing sales; this week pending sales followed suit.
The National Association of Realtors (NAR) said its Pending Home Sales Index (PHSI), a leading indicator based on home purchase contract signings, slumped for the second month in a row, falling 1.3% from its March reading of 111.3 to 109.8. This meant it was also down by 3.3% from the April 2016 pace.
Econoday noted that, thus far in 2017, the Index has done what it was supposed to do, accurately telegraph the month-to-month performance of upcoming sales. The PHSI fell 0.8% in March and this was followed by an even more sizable decline (2.3%) in existing home sales the next month.
Lawrence Yun, NAR chief economist, said “weak supply levels” are behind the fading spring contract activity. Inventory issues are, in turn, spurring deteriorating affordability conditions. “Realtors are indicating that foot traffic is higher than a year ago,” Yun said, “but it’s obviously not translating to more sales.”
Yun isn’t expecting relief any time soon. He notes that homebuilding activity is still below what might be hoped and too few homeowners are listing their home for sale.

Home Price Appreciation Up Significantly
Home prices continue to rise; the last two indices for March, those from S&P Case-Shiller and Black Knight Financial Services verified that this week–and they are showing no sign of slowing down. Both indices put the annual increase at 5.8% and for both that was an 0.1% uptick from February’s reported gain. On a month-over-month basis, Case-Shiller put the March appreciation at 0.8%, while Black Knight said it was 1.3%; both were significantly larger gains than their February counterparts.
This last item takes us into the weeds, but since it will be good news for some readers, we will go there. Fannie Mae announced a new version of its automatic underwriting system will go into effect at the end of July. Among the changes is a loosening of the acceptable debt-to-income ratios. They were previously capped at 45% but, with compensating factors–for example, a low LTV (loan to value ratio) or a high FICO score–lenders could go as high as 50%. There are also some positive changes to the documents needed for self-employed borrowers. Freddie Mac is expected to follow suit.
With easing credit and interest rates down for the third straight week, it’s a good time to give me a call.
Economical UpdatesReal Estate News May 12, 2017

On The Brink

Last week we reported that the rate of homeownership remains stagnant. This week we learned of a new survey from the Gallup people that seems to show that could be on the brink of change–maybe even massive change. The survey, conducted among both homeowners and non-homeowners, indicates that more than half of the latter don’t plan to stay that way.
Forty-nine percent of those who don’t currently own one said they expect to buy a home within the next five years, (10% within one year) and another 20% have a ten-year plan. That leaves only 28% with no current intention to buy. When Gallup conducted the same survey in April of last year, 38% of respondents were content with their status quo.
As might be expected, these homeowners-in-waiting are clustered on the low end of adulthood. Fifty-two percent of 18 to 34-year-olds have a five-year window (for more than half, that window is a year) as do 58% of those aged 35 to 54. Less than a third of non-homeowners 55 years or older have homebuying plans.
Let’s hope they can find a home to buy. Gallup says the homeowners it questioned were prepared to stay put. Only 4% expect to sell within 12 months and another 20% within five years. Nearly two-thirds say they won’t be moving “in the foreseeable future.”

April Jobs Report Raises Hopes
The only hard economic numbers this week were those for employment in April. They were much better than those for March (which got even worse in the retelling.) The Labor Department said there were 211,000 new jobs created during the month and the unemployment rate ticked down to 4.4% the lowest rate since 2001. The March report originally reported a dismal 98,000 new jobs; that number was revised down this month by another 19,000.
The chicken and the egg has long been a “thing” in real estate–should a homeowner find a new home before he sells the old one or vice versa. Freddie Mac’s blog this week suggests a variation. When it comes to home buying, the house or the mortgage?
Experts agree, Freddie says, that you should fit your mortgage to your finances, not to a house. The key is knowing, not just to know how much mortgage you can afford, but if your budget can cover expenses for upkeep, utilities and major repairs like a new furnace.
In other words, before there is either a chicken or an egg, there is a need to get a handle on your finances. It’s what we do–give us a call.
Economical Updates May 5, 2017

Prices Continue to Rise

The first March home price data shows month-over-month appreciation at the fastest pace in 11 months. The CoreLogic Home Price Index (HPI) rose 1.6% compared to February, the largest gain since last April.
After more than a decade of decline, the homeownership rate set a record low of 62.9% in the second quarter of 2016. It ticked up the next two quarters, but was down again in the first quarter of this year. It was only a 0.1% dip, but still, a disappointing break in the flow. There were, however, some pluses in the U.S. Census Bureau report.
First, the homeownership rate is still higher than a year ago. Second, the large and persistent gap in homeownership between white and minority households narrowed slightly. Both black and Hispanic homeownership rates were up by more than a percentage point year-over-year.
The Census Bureau report, which also tracks vacancies and rents, noted that Q1 marked the first time since 2006 that owner households grew faster than renter households. The former grew by 850,000 units while renter households rose by 365,000.
Rates Stay Low
The Federal Reserve Open Market Committee (FOMC) left rates alone at its May meeting. Officials signaled their belief that recent indications of decelerating growth (the 1st quarter GDP grew by a paltry 0.7%) were temporary and that they would stay with their plan for two more rate hikes this year.
The FOMC decision is always interesting, but it has little to do with mortgage rates. Over the next few years they are more likely to be impacted by a potential reversal of QE, quantitative easing. To refresh your memory, in 2009, the Fed launched QE, buying huge numbers of mortgage-backed securities (MBS), an effort to keep rates low and mortgage money flowing. The MBS issued by Fannie Mae and Freddie Mac (the GSEs) are collateralized by pools of conforming mortgages and those from Ginnie Mae by FHA/VA backed loans.
The Fed stopped investing new money several years ago, but continues to reinvest as mortgage balances are paid down or securities mature. It now holds $1.75 trillion in MBS, 30% of the total market.
Per the Urban Institute, it is a given the Fed will divest, probably soon and the path they chose is critical. Gradually cutting back on reinvestment would be the least disruptive option, or they could abruptly stop reinvesting, letting their portfolio run off through mortgage paydowns. Finally, they could sell the whole portfolio on the open market. Any of these options will reduce demand for the securities, and will probably raise rates, but the Fed’s management of the process will make a big difference. We’ll keep our eye on this.
Economical UpdatesReal Estate Activity April 28, 2017

Banner Week

As weeks go, one could probably call this a banner one. Three home price indices showed home prices continuing to accelerate and two of three reports on home sales were positive (even the third wasn’t that bad). Heck, even inventories increased a bit.
New home sales appear to have finally broken free of their persistent see-saw pattern and have now risen convincingly for three straight months. Sales in March increased by 5.8% from February and were up 15.6% compared to the previous March. The bump brought the annual rate of sales to 621,000 units, nearly tying the 622,000 unit pace set in July as the highest since the housing crash. It was also the first time since then that sales exceeded 600,000.
Highest Pace in Over 10 Years
Existing home sales started 2017 with a 3.23% gain only to fall back by more than that in February. Now sales are back in the black for the year with a 4.4% jump in March. The month’s seasonally adjusted annual rate of 5.71 million sales was the highest rate since February 2007 and puts sales 5.9% above those in March 2016.
Pending home sales were down 0.8%, but the National Association of Realtors (NAR) said it was still the third best month for purchase contracts in a year. Analysts had expected the pull-back after a 5.5% increase in February and given the way sales have yo-yo’d month to month.
Price Appreciation Continues to Rise
Just as CoreLogic did earlier in the month, Black Knight Financial Services, S&P Case-Shiller, and the Federal Housing Finance Agency (FHFA) all posted annual increases in their respective February price indices that were larger than those in January. The year-over-year appreciation ranged from 5.7% (Black Knight) to 6.4% in Case-Shiller’s National Index. The latter was 0.7% higher than Case-Shiller’s January number.
Higher prices are, of course, terrific news if you already own a house, but maybe this news is hopeful for prospective buyers as well. Increasing equity may allow, or incentivize some homeowners to sell. There is already a little movement; the inventory of existing homes increased 5.8% to 1.83 million in March, although that is still far below last year’s already tight supply. The number of new homes available for sale gained, by slightly more than 1%. Rising sales however, will put those inventories under increased pressure.

Fannie Mae announced some changes to underwriting to help those with student loan burdens more easily qualify for a mortgage. There are options for both buyers and refinancers, so check in and see how they might apply to your situation.

Economical Updates April 21, 2017

Trying To Keep Up

Residential construction continued its ragged attempts to keep up with demand. Permits for construction, which were down in February, posted a healthy increase in March while housing starts did the exact opposite.
Residential permits rose 3.6% to a seasonally adjusted annual rate of 1.26 million units, while housing starts dropped by 6.8% to 1.22 million. Despite that each measure has alternated gains and losses for months, the overall trend has been positive. Permits are running 17% higher than last year, and starts are up by 6.2%. Housing completions are also improving, rising almost 10% year-over-year to 1.09 million units. However, more than half of these, 621,000, are multi-family units.
In its housing forecast this week, Freddie Mac notes that its current projection is for 1.36 million housing starts this year, just slightly ahead of the actual March number. However, just keeping pace with growing demand and replacing existing housing stock will require 1.7 million new units.
Fannie Mae’s forecast echoed Freddie’s in predicting that the low level of available homes for sale, existing as well as newly built, will be a headwind for an otherwise promising spring market. Fannie also said the Fed’s favorite inflation indicator, the personal consumption expenditures (PCE) deflator, has now outpaced the Fed’s target of a 2.0% annual increase. This prompted Fannie’s economists to revise their earlier predictions about the Fed’s rate timeline. Instead of hikes in September and December, the company looks for the Open Market Committee to move in June and September.
Homes That Appreciate Faster
The National Association of Realtors (NAR) wondered why some homes appreciate more than the typical population- and inflation-driven 3% to 4% a year. After analyzing five years-worth of listings they found: Homes with an open floor appreciated the fastest, 7.4%, along with smaller homes (under 1,200 square feet) which had gains of almost twice that of homes over 2,400 square feet (3.6%). Prices of homes with two bedrooms rose more than a third faster than those with five or more.
Other features that brought more (eventual) bang for the buck were homes with fireplaces, patios, open floor plans, views of green space views, or a modern architectural style. Food for thought as you shop for a home this spring.
And note that mortgage rates just dove under 4%. Call or email for more information.
Economical Updates April 14, 2017

And The Survey Says

Bloomberg put part of the blame on the Nor’easter that tore up the East Coast last month, but last Friday’s Employment Situation Report from the Labor Department was the worst since last May. There were 98,000 jobs created during March, while analysts polled by Econoday were looking for 125,000 to 202,000. Further, the number of jobs created in February was revised down from 235,000 to 219,000.
The report’s bright spot was a sharp drop in the unemployment rate which fell by 0.2% to 4.5%, the lowest rate since the high point of the last expansion, April 2007.
Spring seems to be the season for surveys. Freddie Mac asked renters about their housing situation and found more than half saying renting is good for them, up 4 percentage points since the September survey. Millennials seem more content with their status than their older counterparts; 73% said they would rent when they next moved, up from 64%, and well above the 59% of all renters who expressed that choice.
Renters increasingly prefer single-family houses. The aggregate of those who want to move into an apartment complex, either small or large, fell by 7 percentage points while preference for a home or condo rose by 5 points.
Sales of both new and existing homes set records last year, but a survey by the National Association of Realtors (NAR) found vacation home sales had plummeted. Sales to owner-occupants rose from 3.74 million in 2015 to 4.21 million in 2016, accounting for 70% of the market, but vacation home purchases fell by 21.6%, from 920,000 to 721,000. Those second home purchases accounted for 12% of sales, down from 16% in 2015 and the lowest share in five years.
Individual investors (those who buy less than 10 properties in a year) picked up some of the slack. Their purchases increased by 4.25% to 1.14 million. Both investors and vacation homebuyers showed a greater inclination to rent out their homes short-term (less than 30 days) and both took out more mortgages than in the past. All-cash sales to investors and vacation homebuyers declined by 4 and 10 percentage points respectively.
NAR Chief Economist Lawrence Yun speculated that the decline in vacation home sales was only temporary, due in part to rising home prices, but also to the volatility in the financial markets in late 2015 and early 2016. “Some affluent households with money in stocks likely refrained from buying or delayed plans until after the election,” he said.

It is “Spring Market Time” and mortgage rates are cooperating. They have now declined for four straight weeks, putting the 30-year fixed-rate right back where it was during the week ending December 1st.

Economical Updates April 7, 2017

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!

Economical Updates March 31, 2017

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.