Home-price growth is slowing even as the sales of homes under $200,000 slip and the share of home sales above the $500,000 price point grow, according to the August home report from RealtyTrac.
Residential properties, including single-family homes, condominiums and townhomes, sold at an estimated annual pace of 4,508,559 in August, down one-half% from the previous month and down 16% from a year ago — the fourth consecutive month where annualized sales volume has decreased on a year-over-year basis.
The median price of U.S. residential properties sold in August — including both distressed and non-distressed sales — was $195,000, up 3% from the previous month, and up 15% from a year ago to the highest level since August 2008, a six-year high.
“Higher-end properties are taking up a bigger share of a smaller home sales pie, boosting the median home price nationwide higher even as home price appreciation slows to single digits in many of last year’s red-hot local housing markets,” said Daren Blomquist, vice president at RealtyTrac. “On the other hand, markets where large institutional investors and other buyers have not picked clean lower-priced inventory are continuing to see strong, double-digit increases in median home prices.”
The share of sales in the $200,000-and-below price range was down 9% from a year ago, while the share of sales in the above-$200,000 price range increased 10% from a year ago.
Breaking down the above-$200,000 price range further, the share of sales in the $500,000-to-$1 million price range increased 18% from a year ago while the share of sales in the over-$1 million price range increased 38% from a year ago. Overall the share of sales above $500,000 increased 23% from a year ago.
“Housing sales in Seattle continue to be very healthy across the board, but one area in particular that has shown strong growth this year is the luxury market,” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. “In August, homes priced above $2 million saw a 38% increase in sales compared to a year ago. I attribute this to Seattle’s economic boom, which is attracting an increasing number of high-paying, executive-level professionals as well as international interest from buyers who are competing for multi-million dollar homes.”
Among 197 metropolitan statistical areas with a population of 200,000 or more and with sufficient sales data, 124 (63%) saw lower annual home price appreciation in August 2014 compared to August 2013.
Home price appreciation slowed in 36 of the nation’s 50 largest markets (72%) and in 18 of the nation’s 20 largest markets (90%).
Major markets with decelerating home price appreciation in August 2014 compared to a year ago included San Francisco (9% annual appreciation in August compared to 37% a year ago); Los Angeles (7% annual appreciation in August compared to 27% a year ago); Phoenix (6% annual appreciation in August compared to 25% a year ago); Atlanta (10% annual appreciation in August compared to 28% a year ago); and Las Vegas (8% annual appreciation in August compared to 26% a year ago).
“We continue to see the traditional housing cycle this year with most of the price appreciation happening in the spring and early summer months,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market. “Inventory in the Southern California coastal markets has become far more balanced, giving buyers a good level of choice and a moderate amount of negotiating room.”
Markets with accelerating appreciation and hitting new home price peaks
Major markets where home price appreciation in August was still accelerating compared to a year ago included Cincinnati (22% annual appreciation in August compared to 4% depreciation a year ago); Cleveland (23% annual appreciation in August compared to 1% a year ago); Miami (20% annual appreciation in August compared to 15% a year ago); Pittsburgh (7% annual appreciation in August compared to 3% a year ago); and Seattle (8% annual appreciation in August compared to 7% a year ago).
Out of the 197 major markets, 22 (11%) reached new median home price peaks in August, including Pittsburgh, Cincinnati, Columbus, Charlotte, and Austin, Texas.
“The Ohio markets continue to experience an increase in overall pricing, but a noticeable decline in total units sold,” said Michael Mahon, executive vice president/broker at HER Realtors, covering the Cincinnati, Columbus and Dayton, Ohio markets. “The declining year-over-year sales unit numbers can be attributed to the lack of available inventory, particularly within the first-time home buyer price range. As cash sales continue to decline within the Ohio markets, the available inventory is continuing to experience improvement, which shows further stability and growth of the Ohio housing stock.”
Short sales and distressed sales account for 13.5% of all residential sales
The median price of U.S. distressed sales — properties in the foreclosure process or bank-owned — was $129,000 in August, up 2% from the previous month and up 15% from a year ago, but still 37% below the median price of non-distressed sales: $205,000.
Short sales and distressed sales (properties in some stage of foreclosure or bank-owned when sold) accounted for 13.5% of all U.S. residential property sales in August, up from 10.7% in the previous month but still down from 14.3% in August 2013.
Markets with the highest share of combined short sales and distressed sales in August were Modesto, Calif., (36.1%), Lakeland, Fla. (35.9%), Stockton, Calif., (33.4%), Las Vegas (33.2%), and Orlando (29.3%).
Short sales accounted for 4.6% of all sales, while bank-owned (REO) sales accounted for 7.8% of all sales and sales at the foreclosure auction accounted for 1.0% of all sales — and the share of sales was down compared to a year ago for all three of these categories of sales.
Thursday, September 25, 2014
Monday, September 22, 2014
WSJ: Student debt could cut home sales 8% in 2014-Effect of debt is major drain, new study says
One thing that hasn’t been underreported in housing in 2014 is the crushing amount of student debt out there, but Nick Timiraos looks into just how much it impacts housing and mortgage finance in the Wall Street Journal.
Higher levels of student debt will reduce U.S. home sales by around 8% this year, according to a report released Friday by John Burns Real Estate Consulting, an advisory firm.
The paper examines the impact of student debt on purchase activity for households under age 40. Those households account for around two-thirds of student debt holders. It concludes that sales of new and existing home will total 5.26 million this year, with some 414,000 “lost” households as a result of rising student debt burdens.
Higher debt burdens will defer home purchases for many borrowers while requiring others to buy a less expensive home in order to qualify for a loan or save for a down payment.
The paper estimates that every $250 per month in student loan debt reduces borrowers’ purchasing power by $44,000, and since 2005, some 3.8 million additional households have at least $250 per month in student debt.
Put differently, around 35% of households under age 40 have monthly student debt payments exceeding $250, up from 22% of households in 2005.
Existing home sales drop 1.8% on cash buyer retreat-Annual home sales down 5.3%
With cash-paying investors on full retreat, existing home sales dropped 1.8% in August, according to the National Association of Realtors.
Sales increases in the Northeast and Midwest were outweighed by declines in the South and West, which are the two biggest housing markets.
Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell to a seasonally adjusted annual rate of 5.05 million in August from the already downwardly revised 5.14 million in July.
Sales are at the second-highest pace of 2014, but remain 5.3% below the 5.33 million-unit level from last August, which was also the second-highest sales level of 2013.
Lawrence Yun, NAR chief economist, says sales activity remains stronger than earlier in the year, but fell last month as investors stepped away.
"There was a marked decline in all-cash sales from investors,” he said. "On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”
Yun adds, "As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”
The median existing-home price for all housing types in August was $219,800, which is 4.8%above August 2013. This marks the 30th consecutive month of year-over-year price gains.
Total housing inventory at the end of August declined 1.7% to 2.31 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace. However, unsold inventory is 4.5 percent higher than a year ago, when there were 2.21 million existing homes available for sale.
All-cash sales were 23% of transactions in August, dropping for the second consecutive month (29% in July) and representing the lowest overall share since December 2009 (22%). Individual investors, who account for many cash sales, purchased 12 percent of homes in August, down from 16 percent last month and 17 percent in August 2013. Sixty-four percent of investors paid cash in August.
NAR President Steve Brown, co-owner of Irongate Realtors in Dayton, Ohio, says a gradual decline in investor activity, many who pay in cash, is good for the market and creates more opportunity for buyers who rely on financing to purchase a home.
"Realtors applaud the recent policy change to eliminate post-payment interest charges on FHA-insured single-family mortgages,” he said. "The prepayment penalty placed an unfair and unreasonable burden on consumers who already face high housing and closing costs.”
The percent share of first-time buyers remained unchanged in August from July at 29%. First-time buyers have represented less than 30% of all buyers in 16 of the past 17 months.
Distressed homes – foreclosures and short sales – represented 8% of August sales, remaining in the single-digits for the second straight month and down from 12% a year ago. Six percent of August sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 14 percent below market value in August (20% in July), while short sales were discounted 10% (14% in July).
Properties typically stayed on the market in August longer (53 days) than last month (48 days) and a year ago (43 days). Short sales were on the market for a median of 135 days in August, while foreclosures sold in 53 days and non-distressed homes typically took 52 days. Forty percent of homes sold in August were on the market for less than a month.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage fell for the fourth consecutive month to 4.12 percent in August from 4.13% in July, and remains at the lowest rate since June 2013 (4.07%).
Single-family home sales slipped 1.8% to a seasonally adjusted annual rate of 4.46 million in August from 4.54 million in July, and are now 4.9% below the 4.69 million pace a year ago. The median existing single-family home price was $220,600 in August, up 5.2% from August 2013.
Existing condominium and co-op sales declined 1.7% to a seasonally adjusted annual rate of 590,000 units in August from 600,000 in July, and are now 7.8% below the 640,000 unit pace a year ago. The median existing condo price was $213,900 in August, which is 2.1% higher than a year ago.
Regionally, August existing home sales in the Northeast jumped 4.7% to an annual rate of 670,000, but remain 4.3% below a year ago. The median price in the Northeast was $265,800, which is 0.8% lower than a year ago.
In the Midwest, existing home sales increased 2.5% to an annual level of 1.24 million in August, but remain 3.9% below August 2013. The median price in the Midwest was $173,800, up 5.9% from a year ago.
Existing home sales in the South declined 4.2% to an annual rate of 2.03 million in August, and are now down 4.2% from August 2013. The median price in the South was $186,700, up 4.7% from a year ago.
Existing home sales in the West fell 5.1% to an annual rate of 1.11 million in August, and are 9.8% below a year ago. The median price in the West was $301,900, which is 5.4% above August 2013.
Sales increases in the Northeast and Midwest were outweighed by declines in the South and West, which are the two biggest housing markets.
Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell to a seasonally adjusted annual rate of 5.05 million in August from the already downwardly revised 5.14 million in July.
Sales are at the second-highest pace of 2014, but remain 5.3% below the 5.33 million-unit level from last August, which was also the second-highest sales level of 2013.
Lawrence Yun, NAR chief economist, says sales activity remains stronger than earlier in the year, but fell last month as investors stepped away.
"There was a marked decline in all-cash sales from investors,” he said. "On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”
Yun adds, "As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”
The median existing-home price for all housing types in August was $219,800, which is 4.8%above August 2013. This marks the 30th consecutive month of year-over-year price gains.
Total housing inventory at the end of August declined 1.7% to 2.31 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace. However, unsold inventory is 4.5 percent higher than a year ago, when there were 2.21 million existing homes available for sale.
All-cash sales were 23% of transactions in August, dropping for the second consecutive month (29% in July) and representing the lowest overall share since December 2009 (22%). Individual investors, who account for many cash sales, purchased 12 percent of homes in August, down from 16 percent last month and 17 percent in August 2013. Sixty-four percent of investors paid cash in August.
NAR President Steve Brown, co-owner of Irongate Realtors in Dayton, Ohio, says a gradual decline in investor activity, many who pay in cash, is good for the market and creates more opportunity for buyers who rely on financing to purchase a home.
"Realtors applaud the recent policy change to eliminate post-payment interest charges on FHA-insured single-family mortgages,” he said. "The prepayment penalty placed an unfair and unreasonable burden on consumers who already face high housing and closing costs.”
The percent share of first-time buyers remained unchanged in August from July at 29%. First-time buyers have represented less than 30% of all buyers in 16 of the past 17 months.
Distressed homes – foreclosures and short sales – represented 8% of August sales, remaining in the single-digits for the second straight month and down from 12% a year ago. Six percent of August sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 14 percent below market value in August (20% in July), while short sales were discounted 10% (14% in July).
Properties typically stayed on the market in August longer (53 days) than last month (48 days) and a year ago (43 days). Short sales were on the market for a median of 135 days in August, while foreclosures sold in 53 days and non-distressed homes typically took 52 days. Forty percent of homes sold in August were on the market for less than a month.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage fell for the fourth consecutive month to 4.12 percent in August from 4.13% in July, and remains at the lowest rate since June 2013 (4.07%).
Single-family home sales slipped 1.8% to a seasonally adjusted annual rate of 4.46 million in August from 4.54 million in July, and are now 4.9% below the 4.69 million pace a year ago. The median existing single-family home price was $220,600 in August, up 5.2% from August 2013.
Existing condominium and co-op sales declined 1.7% to a seasonally adjusted annual rate of 590,000 units in August from 600,000 in July, and are now 7.8% below the 640,000 unit pace a year ago. The median existing condo price was $213,900 in August, which is 2.1% higher than a year ago.
Regionally, August existing home sales in the Northeast jumped 4.7% to an annual rate of 670,000, but remain 4.3% below a year ago. The median price in the Northeast was $265,800, which is 0.8% lower than a year ago.
In the Midwest, existing home sales increased 2.5% to an annual level of 1.24 million in August, but remain 3.9% below August 2013. The median price in the Midwest was $173,800, up 5.9% from a year ago.
Existing home sales in the South declined 4.2% to an annual rate of 2.03 million in August, and are now down 4.2% from August 2013. The median price in the South was $186,700, up 4.7% from a year ago.
Existing home sales in the West fell 5.1% to an annual rate of 1.11 million in August, and are 9.8% below a year ago. The median price in the West was $301,900, which is 5.4% above August 2013.
Thursday, September 18, 2014
Housing start woes go deeper than single-month drop
With news Thursday that privately owned housing starts plunged 14.4% in August, many were left scratching their heads at how starts could have printed so poorly.
The August print for housing starts was a seasonally adjusted annual rate of 956,000, well below analyst expectations, but 8% above the August 2013 rate of 885,000.
“The decline in housing starts in August was worse than we or the consensus had anticipated and stands in stark contrast to surging homebuilder confidence,” said Paul Diggle, property economist for Capital Economics. “This weakness should prove temporary, however, with the strengthening economic recovery and shortage of homebuilding relative to household formation set to boost starts over the coming months.”
Troubling in the data is that starts and building permits fell in every region in August. The last time that happened was in October 2009, when the housing crash was still in progress.
Housing starts are little changed from the level at the start of 2013, reflecting a similar stagnation in new home sales. In addition, land and labor shortages have been significant constraints on homebuilders, although these may now be easing.
Click to enlarge
Chart: Zerohedge
In a bit of conspicuous incongruity, on Wednesday the National Association of Home Builders/Wells Fargo Housing Market Index hit 59 — the highest level since November 2005. This is the fourth consecutive month it has increased, reaching a nine-year high.
Jonathan Smoke, chief economist for Realtor.com, however said that nothing in the report was really unexpected.
“The totals (permits and starts) were down in August over July, driven by declines in multifamily. None of the single family numbers were statistically significant— meaning the best we can say about August based on this initial survey sample is that it was likely flat—not hugely up or down,” Smoke said.
“Multifamily new construction is where we have seen most of the growth, not just this year, but every year since 2011. Multifamily demand continues to benefit from the decline in home ownership and the now record levels of households in the US that rent,” Smoke said. “We are not seeing rents or vacancies show any wide-spread weakness, so the August reading is simply a reflection of the lumpiness of the data. We had huge positive numbers in July, which were also revised up.”
Smoke said that on the single family side, the market has seen weakness all year and an inability to see more than low single digit growth over last year. This level of single family production is half of what a normal market should produce, he said.
“What isn’t normal today is the depressed first-time and entry level market, which is a reflection of the ‘overlay tight’ qualification restrictions. Meanwhile builders have been investing in lots and product designs reflective of a more qualified buyer— that’s why we’ve seen new home prices and new home sizes grow so much. But that also means they aren’t building large volumes of affordable homes that the first-time market would need if they could qualify,” Smoke said.
“The numbers are also reflective of regional differences. The south, where affordability is strong, had a slight increase in single family starts in August over July and is also up 12% year-over-year,” he said. “The south represents 55% of current single family starts.
“With new single family construction remaining weak, we will continue to see limited overall supply of homes for sale, and finding affordable homes for sale will continue to be challenging,” Smoke said.
“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.
During the Bipartisan Policy Center’s 2014 Housing Summit, Beth Ann Bovino, chief economist of Standard & Poor’s, said certain negative economic conditions are now turning around, as proof that housing can be sustained.
Diggle noted the disconnect.
“Minor consolations in the data were a 2.2% upward revision to starts in July and the fact that the latest drop ‘only’ reversed three-quarters of the previous gain. But this is clearly a disappointing release,” he said. “But it’s not unusual for the NAHB measure and starts to diverge for extended periods – it’s happened twice before in the early- and late-1990s and on both occasions the divergence ended with a drop in homebuilder confidence rather than a rise in homebuilding.”
Diggle said he thinks the current divergence will end with a significant increase in housing starts.
“After all, labor market conditions are strengthening - demonstrated by the 36,000 drop in initial jobless claims, the largest in two years, to 280,000 last week – and earnings growth looks likely to rise,” he said. “And at 1.4 (million) last year, household formation is outstripping homebuilding. The upshot is that we expect housing starts, which may average 1 (million) this year, to rise to 1.3 (million) in 2015.”
The August print for housing starts was a seasonally adjusted annual rate of 956,000, well below analyst expectations, but 8% above the August 2013 rate of 885,000.
“The decline in housing starts in August was worse than we or the consensus had anticipated and stands in stark contrast to surging homebuilder confidence,” said Paul Diggle, property economist for Capital Economics. “This weakness should prove temporary, however, with the strengthening economic recovery and shortage of homebuilding relative to household formation set to boost starts over the coming months.”
Troubling in the data is that starts and building permits fell in every region in August. The last time that happened was in October 2009, when the housing crash was still in progress.
Housing starts are little changed from the level at the start of 2013, reflecting a similar stagnation in new home sales. In addition, land and labor shortages have been significant constraints on homebuilders, although these may now be easing.
Click to enlarge
Chart: Zerohedge
In a bit of conspicuous incongruity, on Wednesday the National Association of Home Builders/Wells Fargo Housing Market Index hit 59 — the highest level since November 2005. This is the fourth consecutive month it has increased, reaching a nine-year high.
Jonathan Smoke, chief economist for Realtor.com, however said that nothing in the report was really unexpected.
“The totals (permits and starts) were down in August over July, driven by declines in multifamily. None of the single family numbers were statistically significant— meaning the best we can say about August based on this initial survey sample is that it was likely flat—not hugely up or down,” Smoke said.
“Multifamily new construction is where we have seen most of the growth, not just this year, but every year since 2011. Multifamily demand continues to benefit from the decline in home ownership and the now record levels of households in the US that rent,” Smoke said. “We are not seeing rents or vacancies show any wide-spread weakness, so the August reading is simply a reflection of the lumpiness of the data. We had huge positive numbers in July, which were also revised up.”
Smoke said that on the single family side, the market has seen weakness all year and an inability to see more than low single digit growth over last year. This level of single family production is half of what a normal market should produce, he said.
“What isn’t normal today is the depressed first-time and entry level market, which is a reflection of the ‘overlay tight’ qualification restrictions. Meanwhile builders have been investing in lots and product designs reflective of a more qualified buyer— that’s why we’ve seen new home prices and new home sizes grow so much. But that also means they aren’t building large volumes of affordable homes that the first-time market would need if they could qualify,” Smoke said.
“The numbers are also reflective of regional differences. The south, where affordability is strong, had a slight increase in single family starts in August over July and is also up 12% year-over-year,” he said. “The south represents 55% of current single family starts.
“With new single family construction remaining weak, we will continue to see limited overall supply of homes for sale, and finding affordable homes for sale will continue to be challenging,” Smoke said.
“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.
During the Bipartisan Policy Center’s 2014 Housing Summit, Beth Ann Bovino, chief economist of Standard & Poor’s, said certain negative economic conditions are now turning around, as proof that housing can be sustained.
Diggle noted the disconnect.
“Minor consolations in the data were a 2.2% upward revision to starts in July and the fact that the latest drop ‘only’ reversed three-quarters of the previous gain. But this is clearly a disappointing release,” he said. “But it’s not unusual for the NAHB measure and starts to diverge for extended periods – it’s happened twice before in the early- and late-1990s and on both occasions the divergence ended with a drop in homebuilder confidence rather than a rise in homebuilding.”
Diggle said he thinks the current divergence will end with a significant increase in housing starts.
“After all, labor market conditions are strengthening - demonstrated by the 36,000 drop in initial jobless claims, the largest in two years, to 280,000 last week – and earnings growth looks likely to rise,” he said. “And at 1.4 (million) last year, household formation is outstripping homebuilding. The upshot is that we expect housing starts, which may average 1 (million) this year, to rise to 1.3 (million) in 2015.”
Housing starts nosedive 14.4% in August-Below analyst expectations despite coming off a heated July
Privately-owned housing starts plunged 14.4% in August, according to the U.S. Census Bureau.
Starts were expected to drop after a strong July but not by this much.
Housing starts for July jumped to an annualized pace of 1.093 million units-up from 0.945 million units the prior month. July was up a sharp 15.7%.
Housing starts printed at a seasonally adjusted annual rate of 956,000, well below analyst expectations, but 8% above the August 2013 rate of 885,000.
Single-family units remained largely flat as they have for the past 20 months, multifamily starts fell from 396,000 to 343,000, or 13.4% for permits, and an incredible 31.5% for starts.
Single-family housing starts in August were at a rate of 643,000; this is 2.4% below the revised July figure of 659,000. The August rate for units in buildings with five units or more was 304,000.
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 998,000. This is 5.6% below the revised July rate of 1,057,000, but is 5.3% above the August 2013 estimate of 948,000.
Single-family authorizations in August were at a rate of 626,000; this is 0.8% below the revised July figure of 631,000. Authorizations of units in buildings with five units or more were at a rate of 343,000 in August.
Privately-owned housing completions in August were at a seasonally adjusted annual rate of 892,000. This is 3.2% above the revised July estimate of 864,000 and is 16.9% above the August 2013 rate of 763,000.
Single-family housing completions in August were at a rate of 591,000; this is 8.2% below the revised July rate of 644,000. The August rate for units in buildings with five units or more was 292,000.
Starts were expected to drop after a strong July but not by this much.
Housing starts for July jumped to an annualized pace of 1.093 million units-up from 0.945 million units the prior month. July was up a sharp 15.7%.
Housing starts printed at a seasonally adjusted annual rate of 956,000, well below analyst expectations, but 8% above the August 2013 rate of 885,000.
Single-family units remained largely flat as they have for the past 20 months, multifamily starts fell from 396,000 to 343,000, or 13.4% for permits, and an incredible 31.5% for starts.
Single-family housing starts in August were at a rate of 643,000; this is 2.4% below the revised July figure of 659,000. The August rate for units in buildings with five units or more was 304,000.
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 998,000. This is 5.6% below the revised July rate of 1,057,000, but is 5.3% above the August 2013 estimate of 948,000.
Single-family authorizations in August were at a rate of 626,000; this is 0.8% below the revised July figure of 631,000. Authorizations of units in buildings with five units or more were at a rate of 343,000 in August.
Privately-owned housing completions in August were at a seasonally adjusted annual rate of 892,000. This is 3.2% above the revised July estimate of 864,000 and is 16.9% above the August 2013 rate of 763,000.
Single-family housing completions in August were at a rate of 591,000; this is 8.2% below the revised July rate of 644,000. The August rate for units in buildings with five units or more was 292,000.
Wednesday, September 17, 2014
3 reasons why California housing is about to go bust- The money is drying up
California is perhaps one of the most important states in mortgage finance. So much of the mortgage finance world is based in California and, like Texas, the industry is a huge source of employment for workers of varying levels of education.
Beacon Economics famously pointed to factors in the Golden State that will lead to a continued, strong housing economy.
Home sales are estimated to continue on their upward trajectory over the next two years; however, the pace of growth will cool to the 4% to 6% range, a rate more in line with income growth. Home sales in California are forecast to rise by double-digit percentages in 2015.
Plus a report yesterday from the California Association of Realtors also had some good news.
The main finding from that report is that the August 2014 price for the average home in California was the highest observed since 2007.
The median price of an existing, single-family detached California home rose 3.3% from July’s median price of $464,750 to $480,280 in August and up 8.9% from the revised $441,010 recorded in August 2013.
But, trouble could be brewing:
“California’s housing market continues to be bifurcated both geographically and demographically, with the San Francisco Bay Area and high-end housing markets outperforming other regions and market segments,” said California Association of Realtors chief economist Leslie Appleton-Young. “A strong job market and barriers to building new housing are creating an imbalance between supply and demand in some housing markets. Buyers who are not impacted by affordability issues are fueling sales in the high-end market, which is putting upward pressure on home prices.”
And according to Property Radar, year-on-year the numbers are much less positive.
August 2014 sales are actually down 13.5% from August 2013. “Median prices fall in half of California’s largest 26 counties,” the report reveals.
According to Property Radar, there are three things that could pop the California real estate market.
1. There’s no more money in the market
Beacon Economics famously pointed to factors in the Golden State that will lead to a continued, strong housing economy.
Home sales are estimated to continue on their upward trajectory over the next two years; however, the pace of growth will cool to the 4% to 6% range, a rate more in line with income growth. Home sales in California are forecast to rise by double-digit percentages in 2015.
Plus a report yesterday from the California Association of Realtors also had some good news.
The main finding from that report is that the August 2014 price for the average home in California was the highest observed since 2007.
The median price of an existing, single-family detached California home rose 3.3% from July’s median price of $464,750 to $480,280 in August and up 8.9% from the revised $441,010 recorded in August 2013.
But, trouble could be brewing:
“California’s housing market continues to be bifurcated both geographically and demographically, with the San Francisco Bay Area and high-end housing markets outperforming other regions and market segments,” said California Association of Realtors chief economist Leslie Appleton-Young. “A strong job market and barriers to building new housing are creating an imbalance between supply and demand in some housing markets. Buyers who are not impacted by affordability issues are fueling sales in the high-end market, which is putting upward pressure on home prices.”
And according to Property Radar, year-on-year the numbers are much less positive.
August 2014 sales are actually down 13.5% from August 2013. “Median prices fall in half of California’s largest 26 counties,” the report reveals.
According to Property Radar, there are three things that could pop the California real estate market.
1. There’s no more money in the market
Yes, this is literal.There is not more money coming into the California real estate market, there is actually much, much less.2. Less cash means less investors
Cash sales totaled 7,547 in August and were 22% of total sales. Cash sales have been steadily declining, down 46.2%, since reaching a peak of 14,028, or 40% of total sales in August 2011.
“Hey honey, let’s use our extra cash to buy a home, refurbish it and quickly sell at a profit,” say fewer and fewer people in California.3. Not just the mom-and-pops
According to Property Radar, flip sales fell 2.3% for the month and are down 36.5% for the year. Flip sales are defined as properties that have been resold within six months.
Flip sales peaked in October 2012 and have declined 38.2%.
California real estate is also quickly losing the attention of corporate money.Here’s a chart from Property Radar showing the drop in home sales. Mix the below results with the above three facts and it seems clear California real estate is headed for a bust. Click chart to enlarge.
Institutional Investor purchases edged up 0.9% for the month but are down 23% from August 2013. As the supply of distressed properties dwindle and prices rise, institutional investor demand has retreated due to the lower return on investment.
In general, institutional purchases have posted consistent monthly declines since peaking in December 2012 and are down 43.9% since then. Trustee sale purchases by LLCs and LPs are down nearly 83.6% from their October 2012 peak.
NAHB: Homebuilder confidence hits 9-year high-Builders optimistic even with mortgage apps at 14-year low
Builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a nine-year high.
The National Association of Home Builders/Wells Fargo Housing Market Index, released Wednesday, hit 59 — the highest level since November 2005.
Ironically, despite this week’s gains, mortgage applications are at a 14-year low.
“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.
“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time homebuyers,” said NAHB Chief Economist David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”
Click to enlarge
Chart: ZeroHedge
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
All three HMI components posted gains in September. The indices gauging current sales conditions and traffic of prospective buyers each rose five points to 63 and 47, respectively. The index gauging expectations for future sales increased two points to 67.
Builder confidence also rose across every region of the country in September. Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58.
The National Association of Home Builders/Wells Fargo Housing Market Index, released Wednesday, hit 59 — the highest level since November 2005.
Ironically, despite this week’s gains, mortgage applications are at a 14-year low.
“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.
“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time homebuyers,” said NAHB Chief Economist David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”
Click to enlarge
Chart: ZeroHedge
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”
Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
All three HMI components posted gains in September. The indices gauging current sales conditions and traffic of prospective buyers each rose five points to 63 and 47, respectively. The index gauging expectations for future sales increased two points to 67.
Builder confidence also rose across every region of the country in September. Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58.
Tuesday, September 16, 2014
New HUD Secretary outlines his vision for last years of Obama Administration-Focus ranges from accountability and transparency to progressive projects
The new Housing And Urban Development Secretary sees HUD as a department of opportunity, not just a department of housing.
The keynote afternoon speaker at the Bipartisan Policy Center’s Housing Summit in Washington, D.C., Julián Castro, said he is focused on advancing policies at the nearly 50-year-old HUD that create opportunity across the country, creating a solid foundation for the next 50 years.
“Across the country, HUD is providing help and hope. And we’ll spend the next two-and-a-half years expanding opportunity for all Americans. The best place to start is homeownership. In fact, it’s time to remove the stigma associated with promoting homeownership. When done responsibly, it strengthens communities and boosts our economy. It helps families put down roots and secure their financial futures. In short, it’s a cornerstone of the American Dream,” Castro said in prepared remarks.
He wants to build a stronger HUD, and his speech started in a disciplined manner about internal reforms.
“By improving the way we do business, we will be able to more effectively deliver on our mission of creating opportunity for all. To do this, we want to focus on four areas of operational improvement,” he said.
This includes, from the prepared materials:
Accountability
“A government-dominated market is unsustainable. Instead, we need to attract private capital back to the market, establish certainty for lenders, and protect taxpayers for the future. The bipartisan passage of Johnson-Crapo in the Senate Banking Committee was a huge step forward. Now we must keep pushing until housing reform legislation gets over the finish line — once and for all. In the meantime, we must do all we can to get capital flowing again,” Castro said.
Castro said he understands the dilemmas and challenges facing mortgage financing.
“With all our efforts, I want to send a simple message to lenders: let’s work together. We share a common interest: to see a robust, healthy housing market where those who are ready can buy a home – from the millennial starting out, to the veteran returning from the battlefield, to the couple expecting their first child,” Castro said. “We can advance this interest and move our nation forward — but that takes partnership.”
He said he understands the issue of uncertainty, and wants HUD to be a source to alleviate rather than add to that.
“Many have been reluctant to lend because they fear unanticipated consequences. They need to be able to manage their risk better – and so does FHA. So we’re making it easier to do business with us by overhauling our ‘Single Family Handbook,’” Castro said. “It brings together 900 mortgagee letters and other policy guidance into a single document. By the end of this month we will publish our first section — loan origination through endorsement.”
Castro addressed the demographic challenge ahead in his prepared remarks.
He noted that when it comes to rental housing, America is in the midst of a severe and growing challenge. In 2012, more than half of renters were paying more than 30% of their income on housing.
Castro said that to meet this challenge, HUD must continue to seek innovative ways to both preserve and create affordable rental housing.
On the issue of homelessness, Castro said that HUD is committed to working with federal, state, and local partners to end homelessness.
“We've made tremendous progress in recent years, including a 16% drop in chronic homelessness and a 33% drop in veteran homelessness,” he said.
Castro said another focus will be on urban community development.
“So we’re bringing new life to HUD initiatives that boost access to knowledge and employment. Later this month, we’ll award $75 million to nearly 750 Public Housing Authorities to connect residents with the education and job opportunities they need to build assets and improve their lives,” he said.
The keynote afternoon speaker at the Bipartisan Policy Center’s Housing Summit in Washington, D.C., Julián Castro, said he is focused on advancing policies at the nearly 50-year-old HUD that create opportunity across the country, creating a solid foundation for the next 50 years.
“Across the country, HUD is providing help and hope. And we’ll spend the next two-and-a-half years expanding opportunity for all Americans. The best place to start is homeownership. In fact, it’s time to remove the stigma associated with promoting homeownership. When done responsibly, it strengthens communities and boosts our economy. It helps families put down roots and secure their financial futures. In short, it’s a cornerstone of the American Dream,” Castro said in prepared remarks.
He wants to build a stronger HUD, and his speech started in a disciplined manner about internal reforms.
“By improving the way we do business, we will be able to more effectively deliver on our mission of creating opportunity for all. To do this, we want to focus on four areas of operational improvement,” he said.
This includes, from the prepared materials:
Outcome Metrics
“In this tight budget environment, we've got to make a powerful case for resources. The best way to make the case is by measuring our outcomes and using data to guide our work. We've got to show our stakeholders that what we're doing works and deserves investment. Evidence-based work also shows us what's not working, giving us the information we need to make adjustments or, if appropriate, change course.”
Transparency
“Transparency is good for productivity and morale. We must make every effort to let the HUD team know when and why we are making decisions, as well as encourage employees to offer ideas-through Switchboard, to supervisors and more-to make HUD an even better place to work.”
Accountability
“Accountability is critical. HUD's greatest asset is its people. We've got to hold ourselves and each other accountable. In addition to celebrating our successes, we must take action when and where we fall short. We also should put extra effort into performance plans, using them to reward those who perform well and support those who don't with training and effective management.”
Cooperation
“HUD is part of a broader federal government community. Working even closer with our fellow agencies as we simultaneously strive to foster collaboration within HUD will allow us to better align our efforts, streamline initiatives and, ultimately, make us more effective for the people we serve.”
Related to GSE reform, Castro said there has to be movement.“A government-dominated market is unsustainable. Instead, we need to attract private capital back to the market, establish certainty for lenders, and protect taxpayers for the future. The bipartisan passage of Johnson-Crapo in the Senate Banking Committee was a huge step forward. Now we must keep pushing until housing reform legislation gets over the finish line — once and for all. In the meantime, we must do all we can to get capital flowing again,” Castro said.
Castro said he understands the dilemmas and challenges facing mortgage financing.
“With all our efforts, I want to send a simple message to lenders: let’s work together. We share a common interest: to see a robust, healthy housing market where those who are ready can buy a home – from the millennial starting out, to the veteran returning from the battlefield, to the couple expecting their first child,” Castro said. “We can advance this interest and move our nation forward — but that takes partnership.”
He said he understands the issue of uncertainty, and wants HUD to be a source to alleviate rather than add to that.
“Many have been reluctant to lend because they fear unanticipated consequences. They need to be able to manage their risk better – and so does FHA. So we’re making it easier to do business with us by overhauling our ‘Single Family Handbook,’” Castro said. “It brings together 900 mortgagee letters and other policy guidance into a single document. By the end of this month we will publish our first section — loan origination through endorsement.”
Castro addressed the demographic challenge ahead in his prepared remarks.
He noted that when it comes to rental housing, America is in the midst of a severe and growing challenge. In 2012, more than half of renters were paying more than 30% of their income on housing.
Castro said that to meet this challenge, HUD must continue to seek innovative ways to both preserve and create affordable rental housing.
On the issue of homelessness, Castro said that HUD is committed to working with federal, state, and local partners to end homelessness.
“We've made tremendous progress in recent years, including a 16% drop in chronic homelessness and a 33% drop in veteran homelessness,” he said.
Castro said another focus will be on urban community development.
“So we’re bringing new life to HUD initiatives that boost access to knowledge and employment. Later this month, we’ll award $75 million to nearly 750 Public Housing Authorities to connect residents with the education and job opportunities they need to build assets and improve their lives,” he said.
Washington is protecting buyers right out of homeownership-BPC Housing Commissioner: Give borrowers a chance to fail
Government is protecting first-time, lower- and middle-income borrowers out of homeownership.
That’s the opinion of Rob Couch, one of the commissioners for the Bipartisan Policy Center’s housing commission, sitting down after Tuesday morning with HousingWire at the BPC Housing Summit in Washington, D.C. Tuesday. And it was a view echoed by politicians and housing experts alike at the summit.
Couch is an attorney for Bradley Arant Boult Cummings, and also served as General Counsel of the U.S. Department of Housing and Urban Development from June 2007 to November 2008. Prior to his position with HUD, Couch served as president of Ginnie Mae, where he was responsible for administering its mortgage-backed securities program, valued at over $414 billion, and its $123 billion Real Estate Mortgage Investment Conduit program.
“With any pool of loans, some portion will go bad,” he said, speaking with HousingWire before moderating a panel that hit on similar issues. “Lost job, loss of spouse – some life-changing event.
“Then in the mid-2000s the stage was set for a lot of the traditional reasons for defaults being eclipsed by failures from loan features being inappropriate to that particular borrower. A three-year ARM or interest-only may be great for someone whose job will have them moving in three years, but not for someone just getting the loan for the low initial rate hoping the value of the home will rise enough,” Couch said.
While a lot of finger-pointing goes towards lenders and sellers of the bundled loans that led to the subprime crisis, at least some of the blame falls on the borrowers.
“The borrower shares blame in this – they signed. They breathed on the mirror,” Couch said.
Regardless, he said, in any pool of loans a certain percentage will go bad and for reasons other than traditional.
“Now, you can prevent all foreclosures by making no loans,” he said. “But we don’t want that. What we should be talking about is where the bar should be. I think it’s too low right now.
“You have to give good people the opportunity to fail. We are setting the bar too low,” Couch said. “We should be shooting for higher delinquencies and foreclosures. We should be willing to run a little more risk.”
He said that with the regulations, QM and other regulatory limits, the housing industry and mortgage finance industry are trying to be too safe.
“But the net result is home ownership is plummeting. First-time home sales are at their lowest in 40 years. The reason is the bar is so low that this loss level has the biggest impact on first-time, low- and moderate-income borrowers,” Couch said. “The very people we are supposed to be trying to help and protect.”
The rules for protecting buyers are pricing them out, Couch said.
Three ways to make money in mortgage lending, he said – points and fees, yield spreads, and servicing sales.
“There’s a 3% cap on points and fees. So on a $150,000 home, that’s $4,500. But the (Mortgage Bankers Association) will tell you that the average cost of originating a mortgage is $8,000. And lenders will tell you that the smaller, marginal loans are much more expensive to originate,” Couch said.
“For the yield spread premium, that’s also capped,” he said.
The third, sale of servicing, has its own problem.
“A servicer will tell you it costs $10 a month to service a normal mortgage,” Couch said. “But if it goes past 60 days it costs $100 a month to service. So servicers won’t pay you much for low-FICO loans because it may be a money loser.”
That’s all three, Couch said.
“You can’t make it on the points and fees, can’t make it on the yield spread, can’t make it on the servicing – so what do you do?” he asked. “You don’t make the loan.”
The bottom line?
“All the laws set up to protect low-income, moderate-income and first-time buyers are protecting them out of a chance to buy a home. And consider the difference it makes on the community to have homeowners, to take chances on people on the margins and have them grow into responsibility,” he said.
Couch said he is not talking about reckless lending, but rather more flexibility in expanding credit and in making up costs that would subsidize a prudent but realistic amount of foreclosures, so that lenders would open up to a broader consumer base.
That’s the opinion of Rob Couch, one of the commissioners for the Bipartisan Policy Center’s housing commission, sitting down after Tuesday morning with HousingWire at the BPC Housing Summit in Washington, D.C. Tuesday. And it was a view echoed by politicians and housing experts alike at the summit.
Couch is an attorney for Bradley Arant Boult Cummings, and also served as General Counsel of the U.S. Department of Housing and Urban Development from June 2007 to November 2008. Prior to his position with HUD, Couch served as president of Ginnie Mae, where he was responsible for administering its mortgage-backed securities program, valued at over $414 billion, and its $123 billion Real Estate Mortgage Investment Conduit program.
“With any pool of loans, some portion will go bad,” he said, speaking with HousingWire before moderating a panel that hit on similar issues. “Lost job, loss of spouse – some life-changing event.
“Then in the mid-2000s the stage was set for a lot of the traditional reasons for defaults being eclipsed by failures from loan features being inappropriate to that particular borrower. A three-year ARM or interest-only may be great for someone whose job will have them moving in three years, but not for someone just getting the loan for the low initial rate hoping the value of the home will rise enough,” Couch said.
While a lot of finger-pointing goes towards lenders and sellers of the bundled loans that led to the subprime crisis, at least some of the blame falls on the borrowers.
“The borrower shares blame in this – they signed. They breathed on the mirror,” Couch said.
Regardless, he said, in any pool of loans a certain percentage will go bad and for reasons other than traditional.
“Now, you can prevent all foreclosures by making no loans,” he said. “But we don’t want that. What we should be talking about is where the bar should be. I think it’s too low right now.
“You have to give good people the opportunity to fail. We are setting the bar too low,” Couch said. “We should be shooting for higher delinquencies and foreclosures. We should be willing to run a little more risk.”
He said that with the regulations, QM and other regulatory limits, the housing industry and mortgage finance industry are trying to be too safe.
“But the net result is home ownership is plummeting. First-time home sales are at their lowest in 40 years. The reason is the bar is so low that this loss level has the biggest impact on first-time, low- and moderate-income borrowers,” Couch said. “The very people we are supposed to be trying to help and protect.”
The rules for protecting buyers are pricing them out, Couch said.
Three ways to make money in mortgage lending, he said – points and fees, yield spreads, and servicing sales.
“There’s a 3% cap on points and fees. So on a $150,000 home, that’s $4,500. But the (Mortgage Bankers Association) will tell you that the average cost of originating a mortgage is $8,000. And lenders will tell you that the smaller, marginal loans are much more expensive to originate,” Couch said.
“For the yield spread premium, that’s also capped,” he said.
The third, sale of servicing, has its own problem.
“A servicer will tell you it costs $10 a month to service a normal mortgage,” Couch said. “But if it goes past 60 days it costs $100 a month to service. So servicers won’t pay you much for low-FICO loans because it may be a money loser.”
That’s all three, Couch said.
“You can’t make it on the points and fees, can’t make it on the yield spread, can’t make it on the servicing – so what do you do?” he asked. “You don’t make the loan.”
The bottom line?
“All the laws set up to protect low-income, moderate-income and first-time buyers are protecting them out of a chance to buy a home. And consider the difference it makes on the community to have homeowners, to take chances on people on the margins and have them grow into responsibility,” he said.
Couch said he is not talking about reckless lending, but rather more flexibility in expanding credit and in making up costs that would subsidize a prudent but realistic amount of foreclosures, so that lenders would open up to a broader consumer base.
Monday, September 15, 2014
More homeowners retire with outstanding student loan debt-Defaults come out of social security checks
Yes, millennials have accrued an absurd amount of student debt, putting a damper on the housing recovery.
And nothing is hurting the housing recovery in such a nuanced way as student loan debt, according to Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.
But milennials are not alone in dealing with the burden of student debt. A new study released by the Government Accountability Office found that the outstanding federal student debt for those aged 65 or older is growing.
While older Americans don't carry a significant amount of student debt, the percentage of households headed by those aged 65 to 74 having student debt grew from about 1% in 2004 to about 4% in 2010.
In addition, the small amount of outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.
(Source GAO, click for larger image)
In the overall picture, about 3% of households headed by those aged 65 or older — about 706,000 households — carry student loan debt. In comparison, about 24% of households headed by those aged 64 or younger — 22 million households — carry student debt.
With the increase in student debt, borrowers 65 and older hold defaulted federal student loans at a much higher rate, which can leave some retirees with income below the poverty threshold.
If left unpaid for over a year, the GAO said a portion of the borrower's Social Security disability, retirement or survivor benefits can be claimed to pay off the loan.
As a result, the report said, “From 2002 through 2013, the number of individuals whose Social Security benefits were offset to pay student loan debt increased about five-fold from about 31,000 to 155,000. Among those 65 and older, the number of individuals whose benefits were offset grew from about 6,000 to about 36,000 over the same period, roughly a 500 percent increase.”
Although additional limits on the amount that monthly benefits can be offset were implemented in 1998, since that time the value of the amount protected and retained by the borrower has fallen below the poverty threshold.
It's important to mention that older Americans are more likely to have other types of debt, with 29% carrying home mortgage debt and 27% carrying credit card debt.
And nothing is hurting the housing recovery in such a nuanced way as student loan debt, according to Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.
But milennials are not alone in dealing with the burden of student debt. A new study released by the Government Accountability Office found that the outstanding federal student debt for those aged 65 or older is growing.
While older Americans don't carry a significant amount of student debt, the percentage of households headed by those aged 65 to 74 having student debt grew from about 1% in 2004 to about 4% in 2010.
In addition, the small amount of outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.
(Source GAO, click for larger image)
In the overall picture, about 3% of households headed by those aged 65 or older — about 706,000 households — carry student loan debt. In comparison, about 24% of households headed by those aged 64 or younger — 22 million households — carry student debt.
With the increase in student debt, borrowers 65 and older hold defaulted federal student loans at a much higher rate, which can leave some retirees with income below the poverty threshold.
If left unpaid for over a year, the GAO said a portion of the borrower's Social Security disability, retirement or survivor benefits can be claimed to pay off the loan.
As a result, the report said, “From 2002 through 2013, the number of individuals whose Social Security benefits were offset to pay student loan debt increased about five-fold from about 31,000 to 155,000. Among those 65 and older, the number of individuals whose benefits were offset grew from about 6,000 to about 36,000 over the same period, roughly a 500 percent increase.”
Although additional limits on the amount that monthly benefits can be offset were implemented in 1998, since that time the value of the amount protected and retained by the borrower has fallen below the poverty threshold.
It's important to mention that older Americans are more likely to have other types of debt, with 29% carrying home mortgage debt and 27% carrying credit card debt.
Thursday, September 11, 2014
Here's strong proof of the wide differences in local house prices- Big Data Dispells Notion Of A National Market
Modern analysis of real estimate markets is a great example of the new world of “big data”.
Some of the empirical analysis of housing markets thirty plus years ago relied upon national and annual indexes of the price of housing.
Today it is possible to have information about millions of properties at much more frequent intervals.
Living in the world of big data presents both new opportunities to understand housing markets better but also challenges to some ways of thinking built upon the conventional wisdom of the past.
For example, our firm generates updated AVM estimates for over 90 million properties each month and provides insights and tools to assign values to properties underlying residential mortgages. On the other hand, such geographically granular analysis of property values provides a strong challenge to the notion of a national housing market and the insights provided by national house price indexes.
The purpose of this article is to use some of the geographically granular data available at Collateral Analytics to exemplify what is possible in today’s world and to help debunk the notion of a national housing market.
We focus upon comparisons of zip code level housing prices indexes developed by us to the national index of house prices produced by the Federal Housing Finance Agency.
The time period covered is January 2005 through December 2013. Zip codes with a 2010 Population of at least 10,000 and with monthly data for each month during this period are the subject of analysis. This produces information for about 5,500 zip codes from a wide variety of places around the country. The zip code indexes represent the sale price per square foot and the national index is FHFA’s purchase only index.
The percentage differences between the national index and the Collateral Analytics zip code indexes are computed each month (HPDIFF = (US Index base 2005:1 less Zip Code Index base 2005:1)/Zip Code Index).
Summary measures of the distribution of these differences are presented in Table 1 for the changes between 2005 and 2010 and between 2005 and 2013. For example, the median values of the gap are 10.4% in 2010 and 14.7% in 2013. That is, the US Index grew 10.4% faster than the median zip code indexes in 2010 and 14.7% more rapidly than the zip code level indexes in 2013, respectively. Prices at the zip code level grew more rapidly than the US Index in only 1,877 and 1,446 of the zip code 5,497 zip codes in 2010 and 2013, respectively.
Figure 1 (click to enlarge) also seeks to highlight the wide distribution of these differences around the national index.
Figure 2 maps these differences for the changes between 2005 and 2013.
The zip codes with negative values are those in red. The brighter the shade of green the greater is the difference between the US and zip code level index.
Most of the zip codes with positive differences are in the coastal states, but most states include both positive and negative differences.
For example, 185 of the 930 zip codes in California have negative values – price growth at the zip code exceeded growth in the US Index; however, most zip codes in California are lagging the growth in the national average and some by substantial amounts. On average, the US index exceeds the zip code level indexes by 25% among these zip codes in 2013. (click to enlarge)
As noted in the introduction, the opportunity to study the wide variation in house price trends at the zip code level is an outgrowth of the enormous amounts and quality of data available to the modern analyst.
Indeed, we could go even more geographically granular levels below the zip code.
These rich data strongly suggest that house price variations at the local level vary widely among local markets. Alternatively stated, these results and many others like them strongly reject the notion of a national housing market.
This conclusion raises issues for some participants in the housing market and current best practices.
One that we have in mind is the relative stability of residential mortgage interest rates among local housing markets.
The residential mortgage rate reflects the current level of long term interest rates and two components of the risk of such lending: interest rate and credit risk. As such, variations in the mortgage rate among markets should reflect variations in future house price movements. Recent data from Freddie Mac indicates that regional averages on 30-year fixed rate mortgage rates vary from 4.08 to 4.17%.
This and other evidence strongly suggest to us that such variation grossly underestimates the variation in the credit risk implicit in residential mortgages due to the wide variation in house prices among local markets. This is especially the case for mortgage with relatively high loan to value ratios and the credit risk associated with the potential of declining prices is most acute.
Such a concern has led us to develop a new credit risk model capable of generating estimates of the credit risk of residential mortgages that are more in tune with variations in house price expectations among markets and other local market conditions that affect credit risk.
Our estimates credit risk spread estimates rest upon our own projections of future house prices at the metropolitan area level for a variety of scenarios from the expected to a severe or stress scenario.
These clearly are not perfect and surely contain a variety of potential measurement and model errors. However, evidence of the type we offer in this article and in other work that we have done strongly rejects one alternative hypothesis – variations in house price expectations among local housing markets are insufficient to warrant much wider variations in mortgage rates among regions of the country.
In particular, our work suggests that rates should be higher in areas in which future price expectations are less optimistic and vice versa.
Some of the empirical analysis of housing markets thirty plus years ago relied upon national and annual indexes of the price of housing.
Today it is possible to have information about millions of properties at much more frequent intervals.
Living in the world of big data presents both new opportunities to understand housing markets better but also challenges to some ways of thinking built upon the conventional wisdom of the past.
For example, our firm generates updated AVM estimates for over 90 million properties each month and provides insights and tools to assign values to properties underlying residential mortgages. On the other hand, such geographically granular analysis of property values provides a strong challenge to the notion of a national housing market and the insights provided by national house price indexes.
The purpose of this article is to use some of the geographically granular data available at Collateral Analytics to exemplify what is possible in today’s world and to help debunk the notion of a national housing market.
We focus upon comparisons of zip code level housing prices indexes developed by us to the national index of house prices produced by the Federal Housing Finance Agency.
The time period covered is January 2005 through December 2013. Zip codes with a 2010 Population of at least 10,000 and with monthly data for each month during this period are the subject of analysis. This produces information for about 5,500 zip codes from a wide variety of places around the country. The zip code indexes represent the sale price per square foot and the national index is FHFA’s purchase only index.
The percentage differences between the national index and the Collateral Analytics zip code indexes are computed each month (HPDIFF = (US Index base 2005:1 less Zip Code Index base 2005:1)/Zip Code Index).
Summary measures of the distribution of these differences are presented in Table 1 for the changes between 2005 and 2010 and between 2005 and 2013. For example, the median values of the gap are 10.4% in 2010 and 14.7% in 2013. That is, the US Index grew 10.4% faster than the median zip code indexes in 2010 and 14.7% more rapidly than the zip code level indexes in 2013, respectively. Prices at the zip code level grew more rapidly than the US Index in only 1,877 and 1,446 of the zip code 5,497 zip codes in 2010 and 2013, respectively.
Figure 1 (click to enlarge) also seeks to highlight the wide distribution of these differences around the national index.
Figure 2 maps these differences for the changes between 2005 and 2013.
The zip codes with negative values are those in red. The brighter the shade of green the greater is the difference between the US and zip code level index.
Most of the zip codes with positive differences are in the coastal states, but most states include both positive and negative differences.
For example, 185 of the 930 zip codes in California have negative values – price growth at the zip code exceeded growth in the US Index; however, most zip codes in California are lagging the growth in the national average and some by substantial amounts. On average, the US index exceeds the zip code level indexes by 25% among these zip codes in 2013. (click to enlarge)
As noted in the introduction, the opportunity to study the wide variation in house price trends at the zip code level is an outgrowth of the enormous amounts and quality of data available to the modern analyst.
Indeed, we could go even more geographically granular levels below the zip code.
These rich data strongly suggest that house price variations at the local level vary widely among local markets. Alternatively stated, these results and many others like them strongly reject the notion of a national housing market.
This conclusion raises issues for some participants in the housing market and current best practices.
One that we have in mind is the relative stability of residential mortgage interest rates among local housing markets.
The residential mortgage rate reflects the current level of long term interest rates and two components of the risk of such lending: interest rate and credit risk. As such, variations in the mortgage rate among markets should reflect variations in future house price movements. Recent data from Freddie Mac indicates that regional averages on 30-year fixed rate mortgage rates vary from 4.08 to 4.17%.
This and other evidence strongly suggest to us that such variation grossly underestimates the variation in the credit risk implicit in residential mortgages due to the wide variation in house prices among local markets. This is especially the case for mortgage with relatively high loan to value ratios and the credit risk associated with the potential of declining prices is most acute.
Such a concern has led us to develop a new credit risk model capable of generating estimates of the credit risk of residential mortgages that are more in tune with variations in house price expectations among markets and other local market conditions that affect credit risk.
Our estimates credit risk spread estimates rest upon our own projections of future house prices at the metropolitan area level for a variety of scenarios from the expected to a severe or stress scenario.
These clearly are not perfect and surely contain a variety of potential measurement and model errors. However, evidence of the type we offer in this article and in other work that we have done strongly rejects one alternative hypothesis – variations in house price expectations among local housing markets are insufficient to warrant much wider variations in mortgage rates among regions of the country.
In particular, our work suggests that rates should be higher in areas in which future price expectations are less optimistic and vice versa.
Tuesday, September 9, 2014
NY FEd- Why aren’t more renters becoming homeowners?
The main factors preventing renters from becoming owners are weak balance sheets, low income, and lack of access to credit.
Some cite inherent advantages of being a renter, but notably few say that they do not want to own because they are concerned that house prices might fall.
Still, there’s no one-size fits all.
Some cite inherent advantages of being a renter, but notably few say that they do not want to own because they are concerned that house prices might fall.
Still, there’s no one-size fits all.
Recent activity in the U.S. housing market has been widely perceived as disappointing. For instance, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. From a longer-term perspective, a striking statistic is that the homeownership rate in the United States has fallen from 69% in 2005 to 65% in the first quarter of 2014. This decrease in homeownership is particularly pronounced for younger households, implying that many of them are remaining renters for longer than in the past. In this post, we use survey evidence to shed some light on what is driving this sluggish transition from renting to homeownership.
Understanding the rate at which renters enter homeownership is important for several reasons. One, first-time homebuyers (mostly former renters) generally account for a substantial portion of home sales. (The share going to first-time buyers has historically amounted to 30 to 50% of all home sales.) Two, in the time series, renter-to-owner transition flows tend to lead the business cycle and house price growth.
What could be inhibiting the flow of renters into homeownership? Is it that renters today simply do not want to own because of changed attitudes toward housing, as sometimes hypothesized in the popular press? Or are they prevented from entering homeownership by fundamental factors, such as low incomes and weak personal finances, coupled with difficult access to mortgage credit? To help answer these questions, we use data from a special module on housing-related issues in the New York Fed’s Survey of Consumer Expectations, fielded in February 2014 to 867 homeowners and 344 renters. For more information on the survey, see our earlier post.
Monday, September 8, 2014
What Fannie Mae's New Forecast Could Mean for Homeowners
Recently, mortgage giant Fannie Mae revised its forecast for the U.S. housing market, and the news is not too good. Basically, thanks to a weak first half of 2014, Fannie now thinks total home sales will actually be lower in 2014 than they were in 2013, and that 2015 won't be much better.
A weak 2014 so farHome sales have been lagging in 2014 for a few reasons. First of all, the year got off to a rough start because of the brutally cold winter weather during the first few months. And even as the weather thawed, the market didn't pick up quite as much as experts thought it would.
There were two big catalysts last year driving home sales that aren't present anymore. First, for the first half of 2013, mortgage rates were ridiculously low. The 30-year rate dipped to just above 3.3% at one point, and rates remained below 3.75% until summer. Now, even though rates are still very low on a historical basis, at around 4.1%, they are not the magnetic draw they once were.
Secondly, homes are simply much more expensive now. No matter how low your mortgage rate is, if the home is too expensive, you can't buy it. Period.
Since bottoming in 2012, U.S. home values have risen by more than 25% on average, and popped by nearly 14% during 2013 alone.
Sure, existing home sales have picked up recently, but don't read too much into that data. Home sales are very seasonal, with about half of all sales taking place in the summer months, according to realtor.com. So, it's to be expected that existing home sales will rise during the summer; the most recent data says existing home sales rose by 2.4% from June to July.
However, a more telling statistic is the year-over-year change, and sales are indeed down by 4.3% from last July's levels. Also, the inventory of homes on the market is up 5.8% year over year to its highest level in almost two years.
So, why are builders so optimistic?Despite the downward revisions in the forecast, home builders are surprisingly confident. In fact, the most recent data shows they are the most confident they've been so far this year.
They seem to believe that low mortgage rates and job growth will lead to strong sales and higher prices over the coming months. Some builders are even reporting a noticeable increase in the number of serious buyers coming into the market.
However, the builders still have to contend with the higher prices and the potential of rising mortgage rates. Plus, the very tight credit standards right now could make it tough for a lot of "serious buyers" to obtain a mortgage.
The laws of supply and demand could make a big impactMy natural instinct is to say that rising inventories combined with lower projected home sales could cause a dip in U.S. home values. This is especially true if confident home builders continue to add even more homes to the market.
Basic laws of supply and demand say that when you provide more inventory of a product than people are willing to buy, prices will go down until the market reaches equilibrium. And at the current pace of sales, it would take a half month longer to sell the inventory that's currently on the market.
While prospective buyers certainly wouldn't mind if home prices came back down, it could be rough for the economic recovery. Because homes have regained so much of their lost value, many homebuyers once again have positive equity in their homes. And if prices were to decline, millions of U.S. homeowners could once again find themselves underwater, which would be a very bad thing.
What negative equity does is eliminates options. If you owe more than your home is worth, you can't sell it unless you want to come out of pocket to make up the difference. And, when times get tough, homeowners with equity in their homes are more likely to do anything they can to make their payments and keep their home. Being underwater can make letting the home go into foreclosure seem like a better option.
With inventory already high, the market doesn't need a new influx of foreclosures, nor does it need a lot more people to be "stuck" in their homes at a time when the market could really use more buyers. If prices begin to drop, this could start a dangerous cycle of price drops.
Source: flickr/Megan.
While this makes sense, because a lot of catalysts that drove sales last year are no longer there, what could this mean for the U.S. real estate market going forward? And what if the negative trends become even worse?A weak 2014 so farHome sales have been lagging in 2014 for a few reasons. First of all, the year got off to a rough start because of the brutally cold winter weather during the first few months. And even as the weather thawed, the market didn't pick up quite as much as experts thought it would.
There were two big catalysts last year driving home sales that aren't present anymore. First, for the first half of 2013, mortgage rates were ridiculously low. The 30-year rate dipped to just above 3.3% at one point, and rates remained below 3.75% until summer. Now, even though rates are still very low on a historical basis, at around 4.1%, they are not the magnetic draw they once were.
Secondly, homes are simply much more expensive now. No matter how low your mortgage rate is, if the home is too expensive, you can't buy it. Period.
Since bottoming in 2012, U.S. home values have risen by more than 25% on average, and popped by nearly 14% during 2013 alone.
Sure, existing home sales have picked up recently, but don't read too much into that data. Home sales are very seasonal, with about half of all sales taking place in the summer months, according to realtor.com. So, it's to be expected that existing home sales will rise during the summer; the most recent data says existing home sales rose by 2.4% from June to July.
However, a more telling statistic is the year-over-year change, and sales are indeed down by 4.3% from last July's levels. Also, the inventory of homes on the market is up 5.8% year over year to its highest level in almost two years.
So, why are builders so optimistic?Despite the downward revisions in the forecast, home builders are surprisingly confident. In fact, the most recent data shows they are the most confident they've been so far this year.
They seem to believe that low mortgage rates and job growth will lead to strong sales and higher prices over the coming months. Some builders are even reporting a noticeable increase in the number of serious buyers coming into the market.
However, the builders still have to contend with the higher prices and the potential of rising mortgage rates. Plus, the very tight credit standards right now could make it tough for a lot of "serious buyers" to obtain a mortgage.
The laws of supply and demand could make a big impactMy natural instinct is to say that rising inventories combined with lower projected home sales could cause a dip in U.S. home values. This is especially true if confident home builders continue to add even more homes to the market.
Basic laws of supply and demand say that when you provide more inventory of a product than people are willing to buy, prices will go down until the market reaches equilibrium. And at the current pace of sales, it would take a half month longer to sell the inventory that's currently on the market.
While prospective buyers certainly wouldn't mind if home prices came back down, it could be rough for the economic recovery. Because homes have regained so much of their lost value, many homebuyers once again have positive equity in their homes. And if prices were to decline, millions of U.S. homeowners could once again find themselves underwater, which would be a very bad thing.
What negative equity does is eliminates options. If you owe more than your home is worth, you can't sell it unless you want to come out of pocket to make up the difference. And, when times get tough, homeowners with equity in their homes are more likely to do anything they can to make their payments and keep their home. Being underwater can make letting the home go into foreclosure seem like a better option.
With inventory already high, the market doesn't need a new influx of foreclosures, nor does it need a lot more people to be "stuck" in their homes at a time when the market could really use more buyers. If prices begin to drop, this could start a dangerous cycle of price drops.
Friday, September 5, 2014
REALTORS® Expect Modest Price Growth in Next 12 Months
REALTORS® expect home prices to increase modestly in the next 12 months, with the median expected price increase at 3.4 percent [1]. The expected price change is modest compared to the strong price growth in 2012-2013. Local conditions vary, but concerns about how borrowers are finding it difficult to obtain a mortgage and weak job recovery appear to be underpinning the modest price expectation.
The map below shows the median expected price change in the next 12 months by state of REALTOR® respondents in the May – July 2014 surveys.
[1] The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state.
The map below shows the median expected price change in the next 12 months by state of REALTOR® respondents in the May – July 2014 surveys.
[1] The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state.
Thursday, September 4, 2014
Vacancy Rate Expected to Rise Another 50 Basis Points By End of 2014, According to CoStar Forecast
As you read this, keep in mind that when vacancy rates rise, the rental investment goes down, and values will start falling as less investors want to buy rental properties:
New apartment completions and construction starts continue to trend upward, and the new supply of units is beginning to show up in rising vacancy rates in a number of high-growth U.S. markets.
Multifamily construction increased 8% in July, continuing a yearlong upward trend, with several large new projects starting last month, including a $350 million multifamily tower in Queens, NY; a $260 million condominium tower in Honolulu and the $160 million residential portion of the $300 million mixed-use building in Los Angeles.
According to U.S. Census Bureau numbers released this week, multifamily spending in the residential sector increased a slender 0.2% between June and July, rising from $43.2 billion to $43.3 billion. But the most significant story is the year-over-year comparison: spending improved 41% from July 2013.
New York City, Washington D.C., Los Angeles, Miami and Boston remained the top five metropolitan areas ranked by the dollar volume of new multifamily starts through the first seven months of 2014.
The apartment-building boom will continue through at least next year, according to an early survey of CRE executives' sentiments for 2015.
Asked how much development will commence in the U.S. in 2015, respondents to the Commercial Real Estate Outlook Survey released Wednesday by tax advisor KPMG LLP identified multifamily as the top construction sector, with 53% expecting a "significant amount" of new product to launch, up from 43% in last year's survey.
"The rapid migration of young adults and baby boomers to urban areas coupled with displaced homeowners following the housing crisis remain key drivers of multifamily housing development," said Greg Williams, national leader of KPMG's Real Estate practice. "Though investment opportunities exist, real estate executives should be mindful that the growth potential of multifamily housing could wane given the large influx of capital the sector has already received, driving prices up."
Vacancy rates in the 54 largest markets tracked by CoStar Group remain at a 10-year low. However, the trend has clearly begun to reverse course. The national vacancy rate has risen roughly 30 basis points over the last three quarters to about 5.5% as supply has overtaken demand, and CoStar is forecasting another 50-basis-point rise in vacancies through the second half of 2014.
New supply, rather than diminished demand, is driving the vacancy rise, real estate economist Francis Yuen noted during the recent CoStar Midyear 2014 Multifamily Review and Outlook, co-presented with CoStar director of U.S. research, multifamily Luis Mejia and quantitative analyst Mark Hickey.
Apartment developers delivered roughly 170,000 units last year with an additional 260,000 units scheduled to be completed by the end of 2014, CoStar data indicates.
Multifamily starts and permits are well above historic levels nationally and continue to trend upward, and markets like Dallas, Houston, Seattle and Washington, D.C. have each logged more than 10,000 deliveries. In the first two quarters of 2014, construction started on more than 160,000 apartment units, putting the nation on pace to exceed last year’s 290,000 starts.
And while new construction for multifamily housing has picked up in recent months, analysts have also noted that demand for rental housing continues to show strength. As a result, the vacancy uptick has been restricted to Four- and Five-Star properties in markets such as Boston, Austin, Minneapolis and Washington, D.C. Vacancies in Three Star properties haven’t yet seen much movement.
"While the impact of new product will certainly trickle down to the Class B space, it hasn’t happened yet," Yuen said.
New apartment completions and construction starts continue to trend upward, and the new supply of units is beginning to show up in rising vacancy rates in a number of high-growth U.S. markets.
Multifamily construction increased 8% in July, continuing a yearlong upward trend, with several large new projects starting last month, including a $350 million multifamily tower in Queens, NY; a $260 million condominium tower in Honolulu and the $160 million residential portion of the $300 million mixed-use building in Los Angeles.
According to U.S. Census Bureau numbers released this week, multifamily spending in the residential sector increased a slender 0.2% between June and July, rising from $43.2 billion to $43.3 billion. But the most significant story is the year-over-year comparison: spending improved 41% from July 2013.
New York City, Washington D.C., Los Angeles, Miami and Boston remained the top five metropolitan areas ranked by the dollar volume of new multifamily starts through the first seven months of 2014.
The apartment-building boom will continue through at least next year, according to an early survey of CRE executives' sentiments for 2015.
Asked how much development will commence in the U.S. in 2015, respondents to the Commercial Real Estate Outlook Survey released Wednesday by tax advisor KPMG LLP identified multifamily as the top construction sector, with 53% expecting a "significant amount" of new product to launch, up from 43% in last year's survey.
"The rapid migration of young adults and baby boomers to urban areas coupled with displaced homeowners following the housing crisis remain key drivers of multifamily housing development," said Greg Williams, national leader of KPMG's Real Estate practice. "Though investment opportunities exist, real estate executives should be mindful that the growth potential of multifamily housing could wane given the large influx of capital the sector has already received, driving prices up."
Vacancy rates in the 54 largest markets tracked by CoStar Group remain at a 10-year low. However, the trend has clearly begun to reverse course. The national vacancy rate has risen roughly 30 basis points over the last three quarters to about 5.5% as supply has overtaken demand, and CoStar is forecasting another 50-basis-point rise in vacancies through the second half of 2014.
New supply, rather than diminished demand, is driving the vacancy rise, real estate economist Francis Yuen noted during the recent CoStar Midyear 2014 Multifamily Review and Outlook, co-presented with CoStar director of U.S. research, multifamily Luis Mejia and quantitative analyst Mark Hickey.
Apartment developers delivered roughly 170,000 units last year with an additional 260,000 units scheduled to be completed by the end of 2014, CoStar data indicates.
Multifamily starts and permits are well above historic levels nationally and continue to trend upward, and markets like Dallas, Houston, Seattle and Washington, D.C. have each logged more than 10,000 deliveries. In the first two quarters of 2014, construction started on more than 160,000 apartment units, putting the nation on pace to exceed last year’s 290,000 starts.
And while new construction for multifamily housing has picked up in recent months, analysts have also noted that demand for rental housing continues to show strength. As a result, the vacancy uptick has been restricted to Four- and Five-Star properties in markets such as Boston, Austin, Minneapolis and Washington, D.C. Vacancies in Three Star properties haven’t yet seen much movement.
"While the impact of new product will certainly trickle down to the Class B space, it hasn’t happened yet," Yuen said.
Confounded Interest: Why Housing Continues to Perplex Lenders
Craig Blunden started Provident Financial Holdings' mortgage shop in 1987, and has witnessed a lot of cycles. The "craziest" time, not surprisingly, came in the mid-00s. Real estate in California's Inland Empire was white hot, and lenders willingly tossed fuel on the fire.
"Stated-income loans were big here; option ARMs were big. You had four hairdressers pooling their money to buy a house and flip it," recalls Blunden, now Riverside, Calif.-based Provident's CEO. "We had to participate in those things to compete. If we didn't do it, we would have needed to lock up our doors."
Today, things are much calmer — too calm for Blunden's taste really. After two years of healthy home price increases and activity, the market is stalling. Inventories of for-sale properties have shrunk and affordability — the median price of a house in southern California is around $300,000 — has become an issue.
In its fiscal fourth quarter, ended in June, Provident's originations of single-family mortgages fell to $477 million, down 43% from the year-earlier period. With the home lending business under pressure, Blunden recently redeployed manpower from mortgage originations to commercial real estate, a sector that he says looks promising, but is still weak. "It's been really slow coming out of this recession," Blunden says.
The herky-jerky revival of the housing market is causing headaches and strategic concerns for banks everywhere. Though the residential real estate market is starting to recover in some places, it remains dormant in others and, perhaps most unsettling for bankers, is prone to yo-yo in areas like southern California and Las Vegas, where big jumps in prices and sales volumes have been followed by lulls.
Average prices are up nationally — 9.3% for the year ended in June, according to the S&P/Case-Shiller Index. The National Association of Realtors reports that sales of existing homes jumped 2.6% in June, the third consecutive month of increases. But new home sales, considered vital to the broader economy, fell 4.9% nationally during the first half of the year, according to the Census Bureau.
The Mortgage Bankers Association predicts that total originations will come in right around $1 trillion for the year, which would be the lowest level in two decades and a steep drop from last year's $1.7 trillion.
"The real disappointment this year has been a weaker purchase market than expected," says Mike Frantantoni, the MBA's chief economist. "We're looking at about a 10% decline in purchase volume relative to 2013."
The housing market's struggles are an issue for revenue-starved banks. According to Keefe Bruyette & Woods, more than 30 percent of industry balance sheets — roughly $3.5 trillion — are directly related to the buying and selling of homes. Throw in loans to ancillary commercial business, such as contractors and retailers, and the figure climbs higher.
"The strength of the housing market is a pretty good indicator for what makes banks profitable," says KBW analyst Fred Cannon. In a healthy market, "collateral values are going up, people feel confident and borrow more, and credit quality is usually pretty good."
KBW notes that the stocks of banks in California and Nevada, where home prices have shown stronger appreciation, have higher median valuations than those in the Midwest or Northeast, where house prices have been more stagnant. "When housing suffers, banks usually don't do as well," Cannon says.
At Wells Fargo, the nation's largest housing lender, second-quarter revenues declined to $21.1 billion from $21.4 billion a year earlier; over the same period, revenues from mortgage originations and sales plunged 71%, to $688 million from $2.4 billion. Earnings rose 3%.
"If you exclude mortgage, they're humming on all cylinders," says Scott Siefers, an analyst with Sandler O'Neill & Partners. "There's no question about it. If you had a normal housing market, they'd be flying high."
The story is much the same elsewhere. In the first quarter — admittedly a rough one due to particularly heavy snowfall in the Northeast and Midwest — the industry's mortgage banking fees were down from the year-earlier period by a whopping 53.6%, to $4 billion, according to the Federal Deposit Insurance Corp. Originations, at $235 billion, were the lowest in recent memory.
The second quarter saw originations jump to an estimated $267 billion, according to the MBA, and many banks reported higher mortgage-related revenues. But it's all a pittance relative to recent years, and profits remain under pressure — especially when the escalating cost of regulation is added to the equation.
The typical lender has been losing money on every new loan, due to rate competition, mandated caps on origination fees and, of course, higher compliance costs, says the MBA's Frantantoni. "Even when the revenues are doing fine, the expenses are going through the roof."
The housing market has obviously caused the banking industry a lot of pain. Beyond the hundreds of billions in losses and mountains of regulatory fallout, bank reputations took a huge hit from which they have yet to recover. It seems barely a week goes by without one bank or another reaching a big-money settlement with the Justice Department or some agency related to the subprime crisis.
The frustration among bankers is palpable; there's a sense that housing owes the industry after six years of saga. As Ed Wehmer, CEO of the $19 billion-asset Wintrust Financial in Chicago, says: "Housing got us into this mess. Housing has to get us out of it."
Yet finding a catalyst remains elusive. While many other lending segments, including auto and commercial, are showing impressive gains, the jumpstart that the housing market — and the broader economy — needs has yet to emerge.
"Everyone believed that the recovery would be spurred by housing," says Liz Jordan, a director who specializes in credit and lending for Deloitte & Touche LLP. "Now that things have slowed, we're seeing concern about the implications for a full recovery."
Originations were thrown a lifeline by the Federal Reserve's Quantitative Easing program, which in recent years fueled an unprecedented refinancing boom that kept lenders busy. In 2013, refis accounted for $1.1 trillion, or 66% of all originations, according to the MBA.
Rates jumped near the end of 2013 when the Fed began signaling a reduction in bond purchases, and the refi boom abruptly halted. In the first half of this year, just north of $200 billion of refi originations were expected.
Barring an unforeseen drop in rates to rekindle refis, it's now up to purchase transactions to keep the momentum going, and that's not happening. At a projected $273 billion in the first half of the year, purchase mortgage volume was off about 15% from the same period last year.
"The refi business is where we thought it would be, but the purchase market hasn't been nearly as robust as we expected," says Michael Todaro, senior vice president for residential mortgage at M&T Bank in Buffalo.
M&T originated about $1.8 billion of mortgage loans in the first half, well under half its production in the year-earlier period. "We thought there was some pent-up demand out there, but it hasn't materialized yet," Todaro says.
Most mortgage professionals agree the big overarching hang-up is a shortage of first-time homebuyers. First-timers accounted for 28% of existing home sales in recent quarters, compared with about 50% in normal times, Frantantoni says.
"We just haven't seen the household formation from the millennial generation that everyone is expecting to materialize," says Peter Boomer, executive vice president of production for PNC Mortgage. "A lot of young adults are still living at home or renting."
Franklin Codel, executive vice president of production for Wells Fargo Home Mortgage, says low buyer demand caused by "misinformation" about the difficulties of qualifying for mortgages, is a key culprit. "There's a widespread belief out there that you can't buy a house without a 20% down payment or perfect credit," he says.
But, Codel notes, the Federal Housing Administration, Fannie Mae and Freddie Mac all offer programs for borrowers with less-than-perfect credit scores and down payments of less than 10%, "provided you have full documentation."
It doesn't help that there aren't as many houses to buy. In June, 2.3 million existing homes were on the market, according to NAR, representing about 5.5 months' supply. In 2007, both figures were double that.
In some markets, such as Baltimore, only about three months' supply is available. "In many of our markets, we're just not seeing normal inventories," Modaro says.
Many would-be sellers are reluctant to put their homes on the market, "because they know it will sell extremely quickly and they'll have nowhere to go," Codel says. Others are still trying to make up losses in equity following the housing crash or are reluctant to give up low rates locked in during the recent refi boom. "If you're sitting on a 3.5% rate, you want to hang on to it," Modaro says.
The sluggish housing recovery is forcing some hard decisions by bank managements. In the past year, most banks have announced significant staffing cutbacks. Wells Fargo, with about 16% of the origination market, saw mortgage banking revenue drop 42 %, to $3.2 billion, in the first half of 2014, and has laid off more than 10,000 employees in the past year.
Overall mortgage industry employment has fallen to 279,000 in June, compared to more than 500,000 during the boom times. That is a particularly dramatic change, though flux in staff levels is a familiar reality for mortgage lenders. "You need to keep your fixed costs as low as possible, and then be able to cut your variable costs very quickly when the market moves away from you," Wehmer says.
Smaller banks are wrestling with how much to invest in a business that now requires pricey systems, processes and personnel. While mortgages are certain to remain a foundational product for most banks, the "profitability dynamics" of the business have changed, says Siefers, of Sandler O'Neill.
Margins are tighter, costs are higher and mortgages — once considered the safest loans on the books — now look a little risky. "When you know a loan can get pushed back on you
10 years later if it goes bad, it changes your perspective," Siefers says.
Many lenders, like Provident, have been slashing or redeploying origination staff to control costs. Some have gotten out of the business altogether — or at least tried to. Following the announcement of its $680 million merger with MB Financial, Chicago-based Taylor Capital Group attempted to sell its mortgage unit, but couldn't find any takers.
"You're seeing a lot of banks at a crossroads. They're struggling with low demand, tighter credit and lower profits," says Jordan, of Deloitte & Touche. "They're asking, 'Where does that leave me with this product? Is it something to bet heavy on? Or do I only offer it as a convenience to my valued customers?'"
Lenders with the capital and patience to withstand a slump — and the scale to efficiently manage stiff new compliance costs — figure to have an advantage. "The challenge, especially for the smaller guys, is, 'Do you have enough volume to spread those high fixed costs around?'" Frantantoni says.
Wintrust has acquired four independent mortgage companies over the past three years, all of them challenged by the costs of higher regulation. It is looking for more deals, confident the market will rebound.
"The market is going to consolidate, and strategically, we think being in the mortgage business is a nice long-term play for us," Wehmer says, adding that he expects a "slow-but-steady return to normalcy" fueled by broader economic growth.
The underlying rationale behind Wehmer's bet — that homeownership remains a vital part of the American Dream — is, not surprisingly, shared by most bankers. But the foundations of that belief have been shaken by the crisis and changing economic, demographic and regulatory landscapes.
Younger families that comprise the bulk of first-time buyers are buried in student loan debt. According to the New York Federal Reserve Bank, some 30 million Americans carried $1.08 trillion in student loan debt at the end of 2013, up more than 10 percent last year alone.
And while jobs are once again being created, real disposal per-capita income, at $37,226 in May, is about 1% lower than it was six years earlier, according to the St. Louis Federal Reserve Bank.
The mechanics and rules of lending also are tougher. Everywhere a bank turns nowadays, there's a regulator focused on either the institution's risk profile or preventing borrowers from overextending themselves.
There are no more low-doc/no-doc loans, no negative amortization or interest-only loans being made to questionable borrowers. In fact, pretty much anyone with a FICO score of 600 or lower is out of luck when it comes to securing housing-related credit.
The Consumer Financial Protection Bureau earlier this year introduced its "qualified mortgage" standards, which among other things limits a homeowner's debt to 43% of gross income — a particularly high hurdle for the growing number of self-employed workers, who often have trouble documenting their incomes.
"In a market where total debt-to-income is now a regulatory constraint on being able to get a loan, we're seeing stagnant incomes keeping people from qualifying for a mortgage," Frantantoni says.
FHA-guaranteed loans, intended to help less-qualified borrowers, filled much of the post-subprime vacuum, with originations of 1.1 million loans in 2009, or roughly 44% of the total. But a recent hike in the premiums for required mortgage insurance has squeezed as many as 1 million potential homebuyers out of the market, officials say.
Some fret that we could be witnessing more of a structural shift, with younger families preferring to rent instead of buy. Multifamily construction has exploded in markets like Chicago, where Wintrust's Wehmer worries about a rental bubble.
Since 2006, the U.S. market has added 5.5 million renter households, while losing 1.6 million owner-occupied households, according to the MBA.
Getting those young renters out of their apartments and into houses has become an emphasis. The question is, how does that happen?
Banks, and even government agencies, are working to get more buyers into the pipeline. The CFPB has granted a seven-year exemption from the QM rule to Fannie Mae and Freddie Mac, meaning that any loan accepted by the two government-sponsored enterprises' automated underwriting systems is accepted, even if it exceeds the debt-to-income ratio.
Banks are making so-called "non-QM" loans to good borrowers who don't quite fit in the box. Earlier this year, Wells Fargo reduced the minimum FICO score for applicants to 600 from 640. Those applications aren't approved as often, come with higher rates and usually are held in Wells Fargo's portfolio. "We see quality borrowers in that cell that, when properly underwritten, demonstrate an ability to repay," Codel says.
Wintrust has resurrected an adjustable-rate mortgage that it used to offer before the subprime rage for "good customers with some issues, such as being newly self-employed," Wehmer says. Those loans don't qualify for sale on the secondary market. "We charge a little premium on it and hold it in portfolio, and then eventually shift the customer into a long-term fixed rate loan," Wehmer explains. "We think we can build that into a four- or five-hundred-million-dollar portfolio that will churn quickly over time."
This is the way the banking industry works. Cycles happen, paradigms change and individual players react. They find ways to innovate around the roadblocks placed in front of them, and others copy them. No good idea remains proprietary for long.
Today's market might be maddening for those who pine for a quick housing rebound, but longtime market observers say what we're seeing is about as normal as things have been in over a decade, before the artificial support of subprime lending created a bubble. It's just going to take some time to work through things. Despite the bumps along the way, the general direction will be upwards.
"As the economy improves,the housing market will get better," Provident's Blunden says. For bankers, that day can't come soon enough.
"Stated-income loans were big here; option ARMs were big. You had four hairdressers pooling their money to buy a house and flip it," recalls Blunden, now Riverside, Calif.-based Provident's CEO. "We had to participate in those things to compete. If we didn't do it, we would have needed to lock up our doors."
Today, things are much calmer — too calm for Blunden's taste really. After two years of healthy home price increases and activity, the market is stalling. Inventories of for-sale properties have shrunk and affordability — the median price of a house in southern California is around $300,000 — has become an issue.
In its fiscal fourth quarter, ended in June, Provident's originations of single-family mortgages fell to $477 million, down 43% from the year-earlier period. With the home lending business under pressure, Blunden recently redeployed manpower from mortgage originations to commercial real estate, a sector that he says looks promising, but is still weak. "It's been really slow coming out of this recession," Blunden says.
The herky-jerky revival of the housing market is causing headaches and strategic concerns for banks everywhere. Though the residential real estate market is starting to recover in some places, it remains dormant in others and, perhaps most unsettling for bankers, is prone to yo-yo in areas like southern California and Las Vegas, where big jumps in prices and sales volumes have been followed by lulls.
Average prices are up nationally — 9.3% for the year ended in June, according to the S&P/Case-Shiller Index. The National Association of Realtors reports that sales of existing homes jumped 2.6% in June, the third consecutive month of increases. But new home sales, considered vital to the broader economy, fell 4.9% nationally during the first half of the year, according to the Census Bureau.
The Mortgage Bankers Association predicts that total originations will come in right around $1 trillion for the year, which would be the lowest level in two decades and a steep drop from last year's $1.7 trillion.
"The real disappointment this year has been a weaker purchase market than expected," says Mike Frantantoni, the MBA's chief economist. "We're looking at about a 10% decline in purchase volume relative to 2013."
The housing market's struggles are an issue for revenue-starved banks. According to Keefe Bruyette & Woods, more than 30 percent of industry balance sheets — roughly $3.5 trillion — are directly related to the buying and selling of homes. Throw in loans to ancillary commercial business, such as contractors and retailers, and the figure climbs higher.
"The strength of the housing market is a pretty good indicator for what makes banks profitable," says KBW analyst Fred Cannon. In a healthy market, "collateral values are going up, people feel confident and borrow more, and credit quality is usually pretty good."
KBW notes that the stocks of banks in California and Nevada, where home prices have shown stronger appreciation, have higher median valuations than those in the Midwest or Northeast, where house prices have been more stagnant. "When housing suffers, banks usually don't do as well," Cannon says.
At Wells Fargo, the nation's largest housing lender, second-quarter revenues declined to $21.1 billion from $21.4 billion a year earlier; over the same period, revenues from mortgage originations and sales plunged 71%, to $688 million from $2.4 billion. Earnings rose 3%.
"If you exclude mortgage, they're humming on all cylinders," says Scott Siefers, an analyst with Sandler O'Neill & Partners. "There's no question about it. If you had a normal housing market, they'd be flying high."
The story is much the same elsewhere. In the first quarter — admittedly a rough one due to particularly heavy snowfall in the Northeast and Midwest — the industry's mortgage banking fees were down from the year-earlier period by a whopping 53.6%, to $4 billion, according to the Federal Deposit Insurance Corp. Originations, at $235 billion, were the lowest in recent memory.
The second quarter saw originations jump to an estimated $267 billion, according to the MBA, and many banks reported higher mortgage-related revenues. But it's all a pittance relative to recent years, and profits remain under pressure — especially when the escalating cost of regulation is added to the equation.
The typical lender has been losing money on every new loan, due to rate competition, mandated caps on origination fees and, of course, higher compliance costs, says the MBA's Frantantoni. "Even when the revenues are doing fine, the expenses are going through the roof."
The housing market has obviously caused the banking industry a lot of pain. Beyond the hundreds of billions in losses and mountains of regulatory fallout, bank reputations took a huge hit from which they have yet to recover. It seems barely a week goes by without one bank or another reaching a big-money settlement with the Justice Department or some agency related to the subprime crisis.
The frustration among bankers is palpable; there's a sense that housing owes the industry after six years of saga. As Ed Wehmer, CEO of the $19 billion-asset Wintrust Financial in Chicago, says: "Housing got us into this mess. Housing has to get us out of it."
Yet finding a catalyst remains elusive. While many other lending segments, including auto and commercial, are showing impressive gains, the jumpstart that the housing market — and the broader economy — needs has yet to emerge.
"Everyone believed that the recovery would be spurred by housing," says Liz Jordan, a director who specializes in credit and lending for Deloitte & Touche LLP. "Now that things have slowed, we're seeing concern about the implications for a full recovery."
Originations were thrown a lifeline by the Federal Reserve's Quantitative Easing program, which in recent years fueled an unprecedented refinancing boom that kept lenders busy. In 2013, refis accounted for $1.1 trillion, or 66% of all originations, according to the MBA.
Rates jumped near the end of 2013 when the Fed began signaling a reduction in bond purchases, and the refi boom abruptly halted. In the first half of this year, just north of $200 billion of refi originations were expected.
Barring an unforeseen drop in rates to rekindle refis, it's now up to purchase transactions to keep the momentum going, and that's not happening. At a projected $273 billion in the first half of the year, purchase mortgage volume was off about 15% from the same period last year.
"The refi business is where we thought it would be, but the purchase market hasn't been nearly as robust as we expected," says Michael Todaro, senior vice president for residential mortgage at M&T Bank in Buffalo.
M&T originated about $1.8 billion of mortgage loans in the first half, well under half its production in the year-earlier period. "We thought there was some pent-up demand out there, but it hasn't materialized yet," Todaro says.
Most mortgage professionals agree the big overarching hang-up is a shortage of first-time homebuyers. First-timers accounted for 28% of existing home sales in recent quarters, compared with about 50% in normal times, Frantantoni says.
"We just haven't seen the household formation from the millennial generation that everyone is expecting to materialize," says Peter Boomer, executive vice president of production for PNC Mortgage. "A lot of young adults are still living at home or renting."
Franklin Codel, executive vice president of production for Wells Fargo Home Mortgage, says low buyer demand caused by "misinformation" about the difficulties of qualifying for mortgages, is a key culprit. "There's a widespread belief out there that you can't buy a house without a 20% down payment or perfect credit," he says.
But, Codel notes, the Federal Housing Administration, Fannie Mae and Freddie Mac all offer programs for borrowers with less-than-perfect credit scores and down payments of less than 10%, "provided you have full documentation."
It doesn't help that there aren't as many houses to buy. In June, 2.3 million existing homes were on the market, according to NAR, representing about 5.5 months' supply. In 2007, both figures were double that.
In some markets, such as Baltimore, only about three months' supply is available. "In many of our markets, we're just not seeing normal inventories," Modaro says.
Many would-be sellers are reluctant to put their homes on the market, "because they know it will sell extremely quickly and they'll have nowhere to go," Codel says. Others are still trying to make up losses in equity following the housing crash or are reluctant to give up low rates locked in during the recent refi boom. "If you're sitting on a 3.5% rate, you want to hang on to it," Modaro says.
The sluggish housing recovery is forcing some hard decisions by bank managements. In the past year, most banks have announced significant staffing cutbacks. Wells Fargo, with about 16% of the origination market, saw mortgage banking revenue drop 42 %, to $3.2 billion, in the first half of 2014, and has laid off more than 10,000 employees in the past year.
Overall mortgage industry employment has fallen to 279,000 in June, compared to more than 500,000 during the boom times. That is a particularly dramatic change, though flux in staff levels is a familiar reality for mortgage lenders. "You need to keep your fixed costs as low as possible, and then be able to cut your variable costs very quickly when the market moves away from you," Wehmer says.
Smaller banks are wrestling with how much to invest in a business that now requires pricey systems, processes and personnel. While mortgages are certain to remain a foundational product for most banks, the "profitability dynamics" of the business have changed, says Siefers, of Sandler O'Neill.
Margins are tighter, costs are higher and mortgages — once considered the safest loans on the books — now look a little risky. "When you know a loan can get pushed back on you
10 years later if it goes bad, it changes your perspective," Siefers says.
Many lenders, like Provident, have been slashing or redeploying origination staff to control costs. Some have gotten out of the business altogether — or at least tried to. Following the announcement of its $680 million merger with MB Financial, Chicago-based Taylor Capital Group attempted to sell its mortgage unit, but couldn't find any takers.
"You're seeing a lot of banks at a crossroads. They're struggling with low demand, tighter credit and lower profits," says Jordan, of Deloitte & Touche. "They're asking, 'Where does that leave me with this product? Is it something to bet heavy on? Or do I only offer it as a convenience to my valued customers?'"
Lenders with the capital and patience to withstand a slump — and the scale to efficiently manage stiff new compliance costs — figure to have an advantage. "The challenge, especially for the smaller guys, is, 'Do you have enough volume to spread those high fixed costs around?'" Frantantoni says.
Wintrust has acquired four independent mortgage companies over the past three years, all of them challenged by the costs of higher regulation. It is looking for more deals, confident the market will rebound.
"The market is going to consolidate, and strategically, we think being in the mortgage business is a nice long-term play for us," Wehmer says, adding that he expects a "slow-but-steady return to normalcy" fueled by broader economic growth.
The underlying rationale behind Wehmer's bet — that homeownership remains a vital part of the American Dream — is, not surprisingly, shared by most bankers. But the foundations of that belief have been shaken by the crisis and changing economic, demographic and regulatory landscapes.
Younger families that comprise the bulk of first-time buyers are buried in student loan debt. According to the New York Federal Reserve Bank, some 30 million Americans carried $1.08 trillion in student loan debt at the end of 2013, up more than 10 percent last year alone.
And while jobs are once again being created, real disposal per-capita income, at $37,226 in May, is about 1% lower than it was six years earlier, according to the St. Louis Federal Reserve Bank.
The mechanics and rules of lending also are tougher. Everywhere a bank turns nowadays, there's a regulator focused on either the institution's risk profile or preventing borrowers from overextending themselves.
There are no more low-doc/no-doc loans, no negative amortization or interest-only loans being made to questionable borrowers. In fact, pretty much anyone with a FICO score of 600 or lower is out of luck when it comes to securing housing-related credit.
The Consumer Financial Protection Bureau earlier this year introduced its "qualified mortgage" standards, which among other things limits a homeowner's debt to 43% of gross income — a particularly high hurdle for the growing number of self-employed workers, who often have trouble documenting their incomes.
"In a market where total debt-to-income is now a regulatory constraint on being able to get a loan, we're seeing stagnant incomes keeping people from qualifying for a mortgage," Frantantoni says.
FHA-guaranteed loans, intended to help less-qualified borrowers, filled much of the post-subprime vacuum, with originations of 1.1 million loans in 2009, or roughly 44% of the total. But a recent hike in the premiums for required mortgage insurance has squeezed as many as 1 million potential homebuyers out of the market, officials say.
Some fret that we could be witnessing more of a structural shift, with younger families preferring to rent instead of buy. Multifamily construction has exploded in markets like Chicago, where Wintrust's Wehmer worries about a rental bubble.
Since 2006, the U.S. market has added 5.5 million renter households, while losing 1.6 million owner-occupied households, according to the MBA.
Getting those young renters out of their apartments and into houses has become an emphasis. The question is, how does that happen?
Banks, and even government agencies, are working to get more buyers into the pipeline. The CFPB has granted a seven-year exemption from the QM rule to Fannie Mae and Freddie Mac, meaning that any loan accepted by the two government-sponsored enterprises' automated underwriting systems is accepted, even if it exceeds the debt-to-income ratio.
Banks are making so-called "non-QM" loans to good borrowers who don't quite fit in the box. Earlier this year, Wells Fargo reduced the minimum FICO score for applicants to 600 from 640. Those applications aren't approved as often, come with higher rates and usually are held in Wells Fargo's portfolio. "We see quality borrowers in that cell that, when properly underwritten, demonstrate an ability to repay," Codel says.
Wintrust has resurrected an adjustable-rate mortgage that it used to offer before the subprime rage for "good customers with some issues, such as being newly self-employed," Wehmer says. Those loans don't qualify for sale on the secondary market. "We charge a little premium on it and hold it in portfolio, and then eventually shift the customer into a long-term fixed rate loan," Wehmer explains. "We think we can build that into a four- or five-hundred-million-dollar portfolio that will churn quickly over time."
This is the way the banking industry works. Cycles happen, paradigms change and individual players react. They find ways to innovate around the roadblocks placed in front of them, and others copy them. No good idea remains proprietary for long.
Today's market might be maddening for those who pine for a quick housing rebound, but longtime market observers say what we're seeing is about as normal as things have been in over a decade, before the artificial support of subprime lending created a bubble. It's just going to take some time to work through things. Despite the bumps along the way, the general direction will be upwards.
"As the economy improves,the housing market will get better," Provident's Blunden says. For bankers, that day can't come soon enough.
Wednesday, September 3, 2014
How to get a mortgage right now, even with bad credit
In his interview with HousingWire, Mel Watt, the director of Federal Housing Finance Agency urges the opening of the mortgage credit box to less-than-optimal borrowers.
"We are getting lenders to reduce some of the credit overlays," he said in the exclusive interview.
Furthermore, FICO scores will ignore debts that have been paid off or settled, and a lesser weight will be assigned to medical bill collections, which account for about half of all unpaid collections on consumers’ credit reports.
Nonetheless, the average FICOs have been going down steadily since 2006 and it’s not hard to see why, what with the housing crisis, the financial meltdown and the general recession and record unemployment and underemployment.
So what can those with a FICO that is under 620 do to get a mortgage?
1. Prepare to pay more
It is possible to get a mortgage with bad credit today. Possible, but still challenging.
"We are getting lenders to reduce some of the credit overlays," he said in the exclusive interview.
Furthermore, FICO scores will ignore debts that have been paid off or settled, and a lesser weight will be assigned to medical bill collections, which account for about half of all unpaid collections on consumers’ credit reports.
Nonetheless, the average FICOs have been going down steadily since 2006 and it’s not hard to see why, what with the housing crisis, the financial meltdown and the general recession and record unemployment and underemployment.
So what can those with a FICO that is under 620 do to get a mortgage?
1. Prepare to pay more
People with poor credit can still get a mortgage, but they will pay far more than even those with credit scores on the margin.2. Refinance ASAP
Guidelines from the U.S. Department of Housing and Urban Development and the GSEs, Fannie Mae and Freddie Mac, advise waiting at least two years after a short sale, so long as credit after the short sale is good.
Sellers should be advised to do their homework on the mortgage brokers they are working with – shady and dodgy operators are like bottom feeders, looking to prey on those who are more desperate and who aren’t financially savvy, which is how they see people with poor credit.
A bad credit mortgage may seem like the borrower is signing away their life on a bad deal, but so long as the borrower maintains their credit after the mortgage is signed, they can be eligible to refinance for a much better deal within two years, and their credit will have improved.3. Ask about options
In short, a bad credit mortgage is a short-term solution that gets them in a home. It's important to bear in mind that bad credit needn't follow the borrower longer than necessary.
The 30-year mortgage is a popular choice, but maybe not the right one if the borrower's credit is weak. Adjustable rate mortgages are also a possibility, depending on the circumstance, during which time the borrower can work on repairing and maintaining their credit while paying at a lower interest rate than are offered on fixed-rate mortgages.4. Get a co-signer
Many people who had their credit torn up in the recession were not the typical bill skippers. They were hard-working, responsible people whose world was upended through layoffs, downsizing, the loss of contract work, and a dozen other legitimate reasons.
Many have some other assets, or have family members who are responsible. These people may be willing to co-sign. Federal Housing Administration rules allow for a co-signer on loans.Above all, check with HUD, FHA, the FHFA, Fannie Mae and Freddie Mac for information on pathways to homeownership for those who have damaged credit.
It is possible to get a mortgage with bad credit today. Possible, but still challenging.
Tuesday, September 2, 2014
2.5 million borrowers face imminent payment shock
At least 2.5 million borrowers will face an average increase of $250 per month on their monthly mortgage payment due to the imminent reset in home equity lines of credit over the next three years, according to Black Knight Financial Services’ Mortgage Monitor Report.
However, depending upon borrower behavior between now and the time of the reset, payment increases could change, Kostya Gradushy, Black Knight’s manager of research and analytics, said.
Borrowers whose HELOCs will reset over the next three years are utilizing just under 60% of their available credit. If these borrowers utilize more of their credit, they could face even more payment shock as the monthly increase would rise above the $250.
And the news is not much better for the borrowers whose payments are not likely to reset until 2019. These borrowers are exhibiting even lower utilization ratios — about 40% of their available credit. Once reset, they will likely face an average monthly increase of $200.
"Should their drawing pattern match that of older vintages, we could be looking at a significantly higher risk of ‘payment shock’ for this segment,” Gradushy said.
However, depending upon borrower behavior between now and the time of the reset, payment increases could change, Kostya Gradushy, Black Knight’s manager of research and analytics, said.
Borrowers whose HELOCs will reset over the next three years are utilizing just under 60% of their available credit. If these borrowers utilize more of their credit, they could face even more payment shock as the monthly increase would rise above the $250.
And the news is not much better for the borrowers whose payments are not likely to reset until 2019. These borrowers are exhibiting even lower utilization ratios — about 40% of their available credit. Once reset, they will likely face an average monthly increase of $200.
"Should their drawing pattern match that of older vintages, we could be looking at a significantly higher risk of ‘payment shock’ for this segment,” Gradushy said.
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