The Mortgage Bankers Association has lowered its mortgage origination forecast again and it looks like 2014 could be the slowest year for the industry in 14 years.
The trade group's economists estimate that lenders will originate $1.065 trillion in single-family loans this year, down 39% from 2013.
The last time originations were at this level was in 2000 when lenders made $1.067 trillion in mortgages, according to National Mortgage News’ Quarterly Data Report.
Economists were hoping for a significant pickup in mortgage applications in March and early April when the spring home buying season kicks in.
"That just hasn't happened," said Joel Kan, director of economic forecasting for MBA, in an interview.
Mortgage application activity has increased over the past three weeks, "but this is coming off a really low base and the increases haven't been large enough to boost overall production," Kan said.
Originations fell to $226 billion in the first quarter, from $293 billion in the fourth quarter of 2013, according to MBA estimates. The group predicts that originations will bounce back to $267 billion in the second quarter.
Lenders made $1.75 trillion in single-family loans in 2013.
"You would have to bank on a really big second half of the year for originations to come in at the 2013 level," Kan said Friday.
MBA economists released their first 2014 forecast back in October. It called for $1.18 trillion in loan production. That estimate was ratcheted down to $1.12 trillion in January.
Monday, April 14, 2014
Thursday, April 10, 2014
FOMC: Weather slows economic growth- Tapers another $ 10 million
Economic growth slowed early this year, largely due to the temporary effects of the unusually cold and snowy winter weather, the minutes from the March 18-19 Federal Open Market Committee meeting said.
“Information received since the FOMC met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated,” the minutes said.
“Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable,” it continued.
The committee decided that it would add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion.
“While making a further measured reduction in its pace of purchases, the committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial more accommodative,” the minutes stated.
In addition, the committee continues to seek conditions in reserve markets consistent with federal funds trading in a range from 0 to 1⁄4 percent.
Narayana Kocherlakota, Minneapolis Fed president, was the only dissenting vote, saying that a part of the guidance would weaken the credibility of the committee’s commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2% target and by suggesting that the committee views inflation persistently below 2% as an acceptable outcome.
“Moreover, he judged that the new guidance would act as a drag on economic activity because it provided little information about the desired rate of progress toward maximum employment and no quantitative measure of what constitutes maximum employment, and thus would generate uncertainty about the extent to which the Committee is willing to use monetary stimulus to foster faster growth,” the minutes said.
“Information received since the FOMC met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated,” the minutes said.
“Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable,” it continued.
The committee decided that it would add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion.
“While making a further measured reduction in its pace of purchases, the committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial more accommodative,” the minutes stated.
In addition, the committee continues to seek conditions in reserve markets consistent with federal funds trading in a range from 0 to 1⁄4 percent.
Narayana Kocherlakota, Minneapolis Fed president, was the only dissenting vote, saying that a part of the guidance would weaken the credibility of the committee’s commitment to its inflation goal by failing to communicate purposeful steps to more rapidly increase inflation to the 2% target and by suggesting that the committee views inflation persistently below 2% as an acceptable outcome.
“Moreover, he judged that the new guidance would act as a drag on economic activity because it provided little information about the desired rate of progress toward maximum employment and no quantitative measure of what constitutes maximum employment, and thus would generate uncertainty about the extent to which the Committee is willing to use monetary stimulus to foster faster growth,” the minutes said.
Wednesday, April 9, 2014
Break Down of Jobs Numbers
There are some good things in the JOLTS (Job Openings and Labor Turnover Survey). There were 4.2 million new job postings in February, 300,000 more than in January. We're at January 2008 levels now.
But let’s have our fresh numbers with a side of pickled context shall we?
First, these are mostly low wage jobs: restaurant jobs, temp jobs, for example. This is typical of any post-recession recovery; these are the jobs that rebound first. We may not like them, but at least they’re rebounding. Second, we still have 2.5 times as many people as job postings. That means 60 percent of people looking for a job in February weren't going to get hired no matter what they did. In this kind of environment, employers have little incentive to bid up wages.
If employers aren’t bidding up wages and there aren’t nearly enough jobs to go around, then, thirdly, people aren’t going to really feel very comfortable with their job prospects. Which is reflected in the Quits Rate – that’s the number of job quits/total employment. It’s low, at *1.9 percent and it hasn’t really changed meaningfully in three years.
Finally, job postings don’t mean job hirings. Employers appear to be taking their time filling these positions. That’s why the Hires Rate (number of hires during the entire month as a percent of total employment) is still depressed at 3.3 percent. But let’s not get all doom and gloom here. Things are improving without a doubt. They’re just doing so very slowly.
But let’s have our fresh numbers with a side of pickled context shall we?
First, these are mostly low wage jobs: restaurant jobs, temp jobs, for example. This is typical of any post-recession recovery; these are the jobs that rebound first. We may not like them, but at least they’re rebounding. Second, we still have 2.5 times as many people as job postings. That means 60 percent of people looking for a job in February weren't going to get hired no matter what they did. In this kind of environment, employers have little incentive to bid up wages.
If employers aren’t bidding up wages and there aren’t nearly enough jobs to go around, then, thirdly, people aren’t going to really feel very comfortable with their job prospects. Which is reflected in the Quits Rate – that’s the number of job quits/total employment. It’s low, at *1.9 percent and it hasn’t really changed meaningfully in three years.
Finally, job postings don’t mean job hirings. Employers appear to be taking their time filling these positions. That’s why the Hires Rate (number of hires during the entire month as a percent of total employment) is still depressed at 3.3 percent. But let’s not get all doom and gloom here. Things are improving without a doubt. They’re just doing so very slowly.
Monday, April 7, 2014
Black Knight: Originations fall to lowest level in 14 years- 95% of Mods to Reset
Black Knight Financial Services mortgage data for February data showed that monthly mortgage originations dropped to the lowest number in at least 14 years.
Real estate sales, they found, have been mainly buoyed by cash investor transactions.
“February’s data showed the continued trend of declining origination activity we’ve been observing since mid-2013, with monthly originations falling to their lowest recorded point since at least 2000,” said Herb Blecher, senior vice president of Black Knight’s Data and Analytics division. “In spite of this decline, residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions.
In addition, while total transaction levels were flat on a year-over-year basis, traditional sales were up almost 15% from last year as the share of distressed transactions continues to decrease.
Credit standards have shown little sign of easing -- only about 30% of 2013 loans went to borrowers with credit scores below 720 -- which indicates that significant opportunity to expand mortgage origination activity is available, if risk appetites allow.
“As the inventory of distressed loans continued to resolve during 2013, loan modification activity also declined significantly, ending the year with near post-crisis lows,” Blecher said. “However, new changes to FHA’s Home Affordable Modification Program have increased such activity in the first months of this year. We continue to see that as industry modification efforts have matured, including offering more effective modification types (including HAMP’s interest rate reductions), far fewer borrowers are experiencing re-defaults than in the early years post-crisis.”
More than 95% of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many of these set to begin adjusting this fall.
“As these are controlled resets, we do not expect drastic changes in monthly mortgage payments at first, but will monitor these loans closely to assess the level of risk. We do see that, even after modification, borrower equity continues to play a significant role, with re-default rates approximately 30% higher for underwater borrowers,” he said.
Black Knight also examined the impact of the implementation of the Consumer Financial Protection Bureau’s new rules in January and observed a sharp shift in the timing of foreclosure starts.
As the CFPB rules dictate that foreclosure cannot begin until after 120 days of delinquency, the data showed foreclosure starts at the 90-day mark have all but ceased, while four-month delinquency starts have risen over 100% since December.
At the same time, foreclosure sales hit the lowest levels since 2007. With fewer loans in the foreclosure process, these numbers will continue to decline, but the result has been an increase in pipeline ratios (the time necessary to clear through the backlog of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales).
This has been most pronounced in non-judicial states such as California and Nevada where legislative actions have contributed to the slowdown more significantly over the last several months.
Other key findings include:
Real estate sales, they found, have been mainly buoyed by cash investor transactions.
“February’s data showed the continued trend of declining origination activity we’ve been observing since mid-2013, with monthly originations falling to their lowest recorded point since at least 2000,” said Herb Blecher, senior vice president of Black Knight’s Data and Analytics division. “In spite of this decline, residential real estate sales have remained strong due at least in part to investor activity and the fact that cash sales account for almost half of all transactions.
In addition, while total transaction levels were flat on a year-over-year basis, traditional sales were up almost 15% from last year as the share of distressed transactions continues to decrease.
Credit standards have shown little sign of easing -- only about 30% of 2013 loans went to borrowers with credit scores below 720 -- which indicates that significant opportunity to expand mortgage origination activity is available, if risk appetites allow.
“As the inventory of distressed loans continued to resolve during 2013, loan modification activity also declined significantly, ending the year with near post-crisis lows,” Blecher said. “However, new changes to FHA’s Home Affordable Modification Program have increased such activity in the first months of this year. We continue to see that as industry modification efforts have matured, including offering more effective modification types (including HAMP’s interest rate reductions), far fewer borrowers are experiencing re-defaults than in the early years post-crisis.”
More than 95% of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many of these set to begin adjusting this fall.
“As these are controlled resets, we do not expect drastic changes in monthly mortgage payments at first, but will monitor these loans closely to assess the level of risk. We do see that, even after modification, borrower equity continues to play a significant role, with re-default rates approximately 30% higher for underwater borrowers,” he said.
Black Knight also examined the impact of the implementation of the Consumer Financial Protection Bureau’s new rules in January and observed a sharp shift in the timing of foreclosure starts.
As the CFPB rules dictate that foreclosure cannot begin until after 120 days of delinquency, the data showed foreclosure starts at the 90-day mark have all but ceased, while four-month delinquency starts have risen over 100% since December.
At the same time, foreclosure sales hit the lowest levels since 2007. With fewer loans in the foreclosure process, these numbers will continue to decline, but the result has been an increase in pipeline ratios (the time necessary to clear through the backlog of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales).
This has been most pronounced in non-judicial states such as California and Nevada where legislative actions have contributed to the slowdown more significantly over the last several months.
Other key findings include:
- While total real estate transactions were essentially flat Y/Y, non-distressed sales were up almost 15%
- Credit standards have shown little sign of easing -- only about 30% of 2013 loans went to borrowers with credit scores below 720
- Loan modification activity ended 2013 near post-crisis lows, but changes to FHA-HAMP regulations have increased such activity in the first months of this year
- Due to more effective loan modification efforts, there have been far fewer re-defaults in recent years, though underwater borrowers are approximately 30% more likely to re-default than those with equity
- More than 95% of the roughly 2.5 million interest rate reduction modifications still face rate resets, with many set to begin adjusting this fall
- Foreclosure sales (completions) hit their lowest level since 2007, resulting in an increase in pipeline ratios (after many months of declines), most pronounced in non-judicial states
Friday, April 4, 2014
Zillow-1 in 3 homes is unaffordable and a bubble is forming
More than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, and one-third of homes for sale are unaffordable by historic standards.
That’s the conclusion from a Zillow (Z) analysis of income, mortgage and home value data in the fourth quarter of 2013, which puts to question the regular industry claim that housing is more affordable than ever because of the current price and interest rate levels coming out of the housing crash.
“As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,” said Zillow chief economist Stan Humphries. “We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas.”
Homebuyers increasingly have to search on the perimeter of the country’s largest metro markets, as downtown properties become out of reach for buyers of typical means, the report found.
Zillow calculated affordability by analyzing the current percentage of an area’s median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000.
Zillow analysts took that data and if the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, the home was marked as unaffordable.
More than half of homes currently listed for sale in Miami (62.4%), Los Angeles (57.2%), San Diego (55.3%), San Francisco (55.2%), Denver (52.8%), San Jose (50.9%) and Portland, Ore. (50.3%) are unaffordable by historical standards.
Nationally, Zillow found that one-third of homes are currently unaffordable, and in many metro areas, the majority of homes remain more affordable now than they have been historically for buyers making the area’s median income.
But as mortgage interest rates rise along with home values, affordability will worsen, and buyers will need to spend ever-larger shares of their incomes to buy increasingly expensive homes.
Home buyers making the median income in Los Angeles, San Francisco and San Jose should already expect to pay a larger share of their income today toward a mortgage than during the pre-bubble years.
Zillow expects mortgage rates on a 30-year, fixed-rate mortgage to reach or exceed 5% by the first quarter of 2015. Assuming rates at that level and another year of forecasted home value growth, home buyers in San Diego; Riverside, Calif.; Portland, Ore.; Sacramento; and Miami will also soon be paying a larger share of their incomes to their mortgage than they were during the pre-bubble years.
That’s the conclusion from a Zillow (Z) analysis of income, mortgage and home value data in the fourth quarter of 2013, which puts to question the regular industry claim that housing is more affordable than ever because of the current price and interest rate levels coming out of the housing crash.
“As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,” said Zillow chief economist Stan Humphries. “We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas.”
Homebuyers increasingly have to search on the perimeter of the country’s largest metro markets, as downtown properties become out of reach for buyers of typical means, the report found.
Zillow calculated affordability by analyzing the current percentage of an area’s median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000.
Zillow analysts took that data and if the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, the home was marked as unaffordable.
More than half of homes currently listed for sale in Miami (62.4%), Los Angeles (57.2%), San Diego (55.3%), San Francisco (55.2%), Denver (52.8%), San Jose (50.9%) and Portland, Ore. (50.3%) are unaffordable by historical standards.
Nationally, Zillow found that one-third of homes are currently unaffordable, and in many metro areas, the majority of homes remain more affordable now than they have been historically for buyers making the area’s median income.
But as mortgage interest rates rise along with home values, affordability will worsen, and buyers will need to spend ever-larger shares of their incomes to buy increasingly expensive homes.
Home buyers making the median income in Los Angeles, San Francisco and San Jose should already expect to pay a larger share of their income today toward a mortgage than during the pre-bubble years.
Zillow expects mortgage rates on a 30-year, fixed-rate mortgage to reach or exceed 5% by the first quarter of 2015. Assuming rates at that level and another year of forecasted home value growth, home buyers in San Diego; Riverside, Calif.; Portland, Ore.; Sacramento; and Miami will also soon be paying a larger share of their incomes to their mortgage than they were during the pre-bubble years.
Wednesday, April 2, 2014
5 best and worst rental return markets
Home prices have increased year-over-year for two years straight and do not show any signs of slowing down, the latest CoreLogic report revealed. So how does this impact the rental community and investors?
While strong cash-flowing rentals are in many U.S. markets, rising home prices are slowly put a dent in the value.
This follow a strong rise in demand for REO-to-rental securitization.
RealtyTrac composed a list of the 5 best and worst markets for rental returns.
The list was created by taking the 2014 fair market rent for a three-bedroom home multiplied by 12 months and then dividing that 12-month total by the median sales price of residential properties in the county.
Here is what they came up with:
Best:
5. Baltimore City County, Md.
Media sales price: $85,000
The average fair market rent sits at $1,599, and the annual gross yield is 23%.
4. Bibb County, Ga.
Median sales price: $50,880
On the lower end of the best five, the average fair market rent is $1,008 and the annual gross yield is 24%.
3. Washington County, Miss.
Median sales price: $42,000
The county’s average fair market rent comes in at $862, posting a 25% annual gross yield.
2. Clayton County, Ga.
Median sales price: $50,750
Ranking in at number two, Clayton’s average fair market rent is $1,187, and the annual gross yield is 28%.
1. Wayne County, Mich.
Median sales price: $44,900
As the best rental market for rental returns, Wayne County posts an average fair market rent of $1,124 and an annual gross yield of 30%.
Now for the 5 worst markets for rental returns:
5. Marin County, Calif.
Median sales price: $745,000
The average fair market rent sits at $2,657, while the annual gross yield comes in at 4%.
4. Kings County, N.Y.
Median sales price: $573,000
One of two New York markets on the list, Kings County reported an average fair market rent of $1,852 and an annual gross yield of 4%.
3. San Francisco County, Calif.
Median sales price: $573,000
Significant above number 4, the average fair market rent hit $2,657, with a 4% annual gross yield.
2. Eagle County, Colo.
Median sales price: $525,000
This Colorado market recorded a $1,545 average fair market rent and a 4% annual gross yield.
1. New York, N.Y
Median sales price: $887,000
Holding the spot for the worst market for rental returns, New York posted a $1,852 average fair market rent and a 3% annual gross yield.
While strong cash-flowing rentals are in many U.S. markets, rising home prices are slowly put a dent in the value.
This follow a strong rise in demand for REO-to-rental securitization.
RealtyTrac composed a list of the 5 best and worst markets for rental returns.
The list was created by taking the 2014 fair market rent for a three-bedroom home multiplied by 12 months and then dividing that 12-month total by the median sales price of residential properties in the county.
Here is what they came up with:
Best:
5. Baltimore City County, Md.
Media sales price: $85,000
The average fair market rent sits at $1,599, and the annual gross yield is 23%.
4. Bibb County, Ga.
Median sales price: $50,880
On the lower end of the best five, the average fair market rent is $1,008 and the annual gross yield is 24%.
3. Washington County, Miss.
Median sales price: $42,000
The county’s average fair market rent comes in at $862, posting a 25% annual gross yield.
2. Clayton County, Ga.
Median sales price: $50,750
Ranking in at number two, Clayton’s average fair market rent is $1,187, and the annual gross yield is 28%.
1. Wayne County, Mich.
Median sales price: $44,900
As the best rental market for rental returns, Wayne County posts an average fair market rent of $1,124 and an annual gross yield of 30%.
Now for the 5 worst markets for rental returns:
5. Marin County, Calif.
Median sales price: $745,000
The average fair market rent sits at $2,657, while the annual gross yield comes in at 4%.
4. Kings County, N.Y.
Median sales price: $573,000
One of two New York markets on the list, Kings County reported an average fair market rent of $1,852 and an annual gross yield of 4%.
3. San Francisco County, Calif.
Median sales price: $573,000
Significant above number 4, the average fair market rent hit $2,657, with a 4% annual gross yield.
2. Eagle County, Colo.
Median sales price: $525,000
This Colorado market recorded a $1,545 average fair market rent and a 4% annual gross yield.
1. New York, N.Y
Median sales price: $887,000
Holding the spot for the worst market for rental returns, New York posted a $1,852 average fair market rent and a 3% annual gross yield.
Tuesday, April 1, 2014
Housing's bad month, via the letter 'L'
Some pretty lackluster news from the housing market today.
Construction spending rose a measly .1% in February. Part of that was because of the wild weather we saw this winter, but economists say that only accounts for part of the lacklusterness. It seems we’re not building or buying homes like we used to. Pending home sales fell in February to their lowest level in more than 2 years. The housing market made big gains last year, but so far 2014 isn’t looking so hot.
The reason?
Brought to you by the letter "L" (and the number "3").
L is for Labor: The lackluster labor market means people don’t want to make big investments, like buying a house, says Susan Wachter, professor of real estate and finance at Wharton. "Jobs and affordability of mortgages are the two fundamental drivers of the housing market and they’re both weak right now."
L is for Loans: Namely, it's not easy to get a loan these days. Nicolas Retsinas teaches real estate at Harvard Business School. "The bread and butter of the housing market is first time homebuyers. They continue to have increasing difficulty getting a mortgage, accessing credit."
Those loans have to be a little larger because of the third L...
L is for Lumber: "Costs have been going up. The cost of lumber’s been going up," says Patrick Newport, an economist with IHS. He says demand from China and other elements have lifted lumber prices, making building less lucrative for builders and a lot costlier for buyers.
L is also for : Undeveloped or ripe for development real estate is getting expensive too, especially in urban areas.
And let's not forget the L for Lousy Weather: The winter freeze clamped a lid on the housing market on most of the Eastern Seaboard this year, and sales in the West and South just weren't enough to make up for it.
All of this is a big deal for the overall economy, says Newport, because it is (I know, you may be going into acute sugar shock at this moment) an economic...
L for Lynchpin: "Basically, the housing market has been sideways for the past six months and that’s very disappointing, because housing is supposed to be one of the key lynchpins that will get the economy back on track."
That's largely because it creates a lot of Lucrative construction jobs.
Construction spending rose a measly .1% in February. Part of that was because of the wild weather we saw this winter, but economists say that only accounts for part of the lacklusterness. It seems we’re not building or buying homes like we used to. Pending home sales fell in February to their lowest level in more than 2 years. The housing market made big gains last year, but so far 2014 isn’t looking so hot.
The reason?
Brought to you by the letter "L" (and the number "3").
L is for Labor: The lackluster labor market means people don’t want to make big investments, like buying a house, says Susan Wachter, professor of real estate and finance at Wharton. "Jobs and affordability of mortgages are the two fundamental drivers of the housing market and they’re both weak right now."
L is for Loans: Namely, it's not easy to get a loan these days. Nicolas Retsinas teaches real estate at Harvard Business School. "The bread and butter of the housing market is first time homebuyers. They continue to have increasing difficulty getting a mortgage, accessing credit."
Those loans have to be a little larger because of the third L...
L is for Lumber: "Costs have been going up. The cost of lumber’s been going up," says Patrick Newport, an economist with IHS. He says demand from China and other elements have lifted lumber prices, making building less lucrative for builders and a lot costlier for buyers.
L is also for : Undeveloped or ripe for development real estate is getting expensive too, especially in urban areas.
And let's not forget the L for Lousy Weather: The winter freeze clamped a lid on the housing market on most of the Eastern Seaboard this year, and sales in the West and South just weren't enough to make up for it.
All of this is a big deal for the overall economy, says Newport, because it is (I know, you may be going into acute sugar shock at this moment) an economic...
L for Lynchpin: "Basically, the housing market has been sideways for the past six months and that’s very disappointing, because housing is supposed to be one of the key lynchpins that will get the economy back on track."
That's largely because it creates a lot of Lucrative construction jobs.
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