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.
Posted on June 16, 2017 at 4:53 pm
Greg Timms | Category: Economical Updates | Tagged , , , , , , ,

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.
Posted on June 9, 2017 at 5:38 pm
Greg Timms | Category: Economical Updates | Tagged , , , , ,

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.
Posted on June 2, 2017 at 4:40 pm
Greg Timms | Category: Economical Updates | Tagged , , , , , , ,

Headwinds Ahead?

Home sales encountered some headwinds in the first full month of spring. April sales of both new and existing homes fell off the strong sales figures posted in March although neither the Census data on new home sales nor the National Association of Realtors’ (NAR’s) existing home sales numbers particularly surprised the experts.
New home sales took the bigger hit. They dropped 11.4% from March to a seasonally adjusted annual rate of 569,000. Sales had been expected to retrench after three months of solid increases, but analysts did expect they would remain above what seems to have become a prized 600,000-unit marker.
March sales had been especially strong, reported as the best of the recovery at 621,000 units. They got even better, revised upward in this week’s report to 642,000 units, besting last July as the best month since well before the housing crisis.
Existing home sales advanced a solid 4.2% in March but retreated by 2.3% in April to an annual rate of 5.57 million. Inventories increased, (they did for new homes as well) but marketing time fell to the shortest since NAR started tracking it in 2011, a median of 29 days. Analysts had expected sales to decline, but were looking for a number in the 5.65 million range.
The West was particularly hard hit in both sales reports. The region’s new home numbers fell by 26.3% for the month and were down 13.7% on an annual basis. Existing home sales were better, but still 3.3% lower month-over-month, remaining about that same amount above sales a year earlier.

Price Increases Moderating
NAR always has the first home price report each month and their April figures did show prices might be moderating their earlier manic pace. The year-over-year increase was estimated at 6.0%, the lowest since December, and well below the 7.2% average reported by NAR over the previous three months.
The Federal Housing Finance Agency (FHFA) Housing Price Index (HPI) for March contained quarterly as well as monthly and year-over-year data and those numbers also showed a slight slowdown. Appreciation in the first quarter was 1.4% compared to 1.5% in Quarter 4, and the monthly rate dipped to 0.6% from 0.8% in February. The annual rate, at 6.0%, was down 0.4% from the year-over-year gains the previous month.
Freddie Mac’s monthly Outlook reversed an earlier forecast for lower home sales in 2017 and predicted interest rates will continue to linger in the 4.0% range. Low rates and the strong jobs market, will push home sales to the highest level since the housing crisis.
Then, just as we went to press, Freddie Mac announced rates hitting a 2017 low; down 7 basis points to 3.95%. This should help keep home-buying affordable and refinancing beneficial.
Posted on May 26, 2017 at 8:56 pm
Greg Timms | Category: Economical Updates | Tagged , , , ,

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.
Posted on May 5, 2017 at 5:45 pm
Greg Timms | Category: Economical Updates | Tagged , , , , , , ,

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Posted on April 28, 2017 at 9:29 pm
Greg Timms | Category: Real Estate Activity | Tagged , , , , ,

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.

Posted on April 14, 2017 at 6:57 pm
Greg Timms | Category: Economical Updates | Tagged , , , , ,

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 | Category: 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 | Category: 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 | Category: Economical Updates, Real Estate News | Tagged , , , , , ,