Realogy (RLGY) reported a first-quarter net loss of $46 million, or $0.32 per share, missing analyst expectations by $0.11.
Additionally, Realogy's net revenue for first quarter 2014 hit $1 billion, a 5% increase compared to first quarter of 2013, also missing analyst consensus by $100 million.
The net loss includes $70 million of interest expense, $46 million of depreciation and amortization expense and $10 million in pre-tax charges related to the repricing of its term loan and repurchases of $44 million of senior secured notes during the quarter.
Realogy's Adjusted EBITDA for first quarter 2014 was $53 million, down from $71 million in the first quarter of 2013, due to an approximately $20 million reduction in earnings related to the decrease in refinancing activity at its mortgage origination joint venture and within the company's title and settlement services segment.
And this is not estimated to end soon.
"This trend, which is expected to continue for much of 2014, along with a pause in the rate of growth in the housing recovery we are seeing this year, could make for challenging near-term comparisons, although current industry forecasts for 2015 are more favorable," said Richard Smith, Realogy's chairman, CEO and president.
Smith explained that the company witnessed two opposing trends in the market, causing an overall shift in Realogy's mix of business resulting in a higher average sale price and reduced transaction sides.
“Demand at the higher price points in markets served by our franchisees and company-owned brokerages was strong, while difficult credit standards and rapid home price appreciation, primarily caused by low inventory levels, constrained activity at the entry level of the housing market," Smith explained.
Looking ahead, the company expects homesale transaction volume in the range of -2% to +2% year-over-year in the second quarter of 2014.
"As we have moved into our spring selling season, thus far the level of open activity we expected has not materialized, particularly as it relates to homesale transaction sides," said Anthony Hull, Realogy's executive vice president, chief financial officer and treasurer.
"Having said that, we expect our aggregate number of homesale transaction sides to increase sequentially from 260,000 in the first quarter of 2014 to between 367,600 to 375,500 in the second quarter," Hull added.
Monday, May 5, 2014
Monday Morning Cup of Coffee: JPMorgan CEO tells all; Housing recovery divided
Monday Morning Cup of Coffee takes a look at stories across the HousingWire news desk, with more coverage to come on bigger issues.
As the first-quarter earnings season starts to come to a close, a new trend started to unfold in CEO letters to shareholders, according to an article in CNBC.
CEOs usually send the letters along with the company’s proxy statement in the spring because proxy statements are due within four months of every company’s fiscal year ending.
The article explained that most CEOs have a tendency to take this time to boast about their accomplishments.
But this year was a little different, with some CEOs taking the opportunity to rmark on recent, not-so-grand events. A full list of CEOs telling it like it is is available in the original USA Today article.
JPMorgan Chase (JPM) CEO Jamie Dimon dealt with a year filled billions of dollars of settlements, mostly related to mortgage securities.
Thousands of homeowners will open their mailboxes to a pleasant surprise as Everbank Financial is prepared to write $1,050 checks to 25,389 of its customers, even though no errors were found in reviews of their foreclosure files, an article in The Washington Post explained.
As HousingWire reported a week ago, Office of the Comptroller of the Currency released a status update on how much of that $3.9 billion payback fund has actually been paid out, and how much of the $6 billion in foreclosure prevention actions has been collected by the government.
EverBank was one of the last mortgage servicers to sign on to an amended government order born out of the rob-signing scandal, the article stated. And this particular situations comes out the foreclosure settlement that that the bank inked with the OCC and the Federal Reserve in August.
The Las Vegas housing market is doing much better, with widespread appreciation offering broad economic benefits to the Las Vegas Valley, the Las Vegas Review-Journal said in an article.
“Because the market has worked through a big chunk of its inexpensive, distressed homes, investor interest is starting to wane, sales will be driven more by people who are buying a place to live in,” Brian Gordon, a SalesTraq principal, which is the real estate research company that conducted the study.
“As availability creeps north, and the demand side of the equation becomes more sustainable, overall price appreciation is likely to slow,” Gordon added in the article.
Every ZIP code in the Las Vegas area enjoyed a 2013 boost, ranging from a low of 6.9% in Boulder City’s 89005 to a high of 53.2% in 89107, around Decatur Boulevard and U.S. Highway 95.
Continuing with the news on the housing recovery, the same type of positive reports cannot be found in South Florida.
A series in the Miami Herald, unfolds how far removed the poor neighborhoods in Miami are from the housing recovery.
Although Miami-Dade County is making international headlines for its swaggering resurgence from the housing crash, in the north-central neighborhoods comprising ZIP code 33147, the crisis still exists.
Meanwhile, many homes are still in the labyrinth of foreclosure, and those property owners who survived are struggling with the fallout from neighbors who lost their humble homes.
The neighborhoods' main hope clings on the promise of an intensifying focus on redeveloping the 79th Street corridor.
The Federal Insurance Corp. reported no bank closing this week.
As the first-quarter earnings season starts to come to a close, a new trend started to unfold in CEO letters to shareholders, according to an article in CNBC.
CEOs usually send the letters along with the company’s proxy statement in the spring because proxy statements are due within four months of every company’s fiscal year ending.
The article explained that most CEOs have a tendency to take this time to boast about their accomplishments.
But this year was a little different, with some CEOs taking the opportunity to rmark on recent, not-so-grand events. A full list of CEOs telling it like it is is available in the original USA Today article.
JPMorgan Chase (JPM) CEO Jamie Dimon dealt with a year filled billions of dollars of settlements, mostly related to mortgage securities.
"The bad news was bad," he wrote. "The most painful, difficult and nerve-wracking experience that I have ever dealt with professionally was trying to resolve the legal issues we had this past year."However, Dimon stressed that despite all of the negative, JP Morgan came out strengthened. And, despite the loss, Dimon's 2013 compensation package was raised to $20 million.
Thousands of homeowners will open their mailboxes to a pleasant surprise as Everbank Financial is prepared to write $1,050 checks to 25,389 of its customers, even though no errors were found in reviews of their foreclosure files, an article in The Washington Post explained.
As HousingWire reported a week ago, Office of the Comptroller of the Currency released a status update on how much of that $3.9 billion payback fund has actually been paid out, and how much of the $6 billion in foreclosure prevention actions has been collected by the government.
EverBank was one of the last mortgage servicers to sign on to an amended government order born out of the rob-signing scandal, the article stated. And this particular situations comes out the foreclosure settlement that that the bank inked with the OCC and the Federal Reserve in August.
The Las Vegas housing market is doing much better, with widespread appreciation offering broad economic benefits to the Las Vegas Valley, the Las Vegas Review-Journal said in an article.
“Because the market has worked through a big chunk of its inexpensive, distressed homes, investor interest is starting to wane, sales will be driven more by people who are buying a place to live in,” Brian Gordon, a SalesTraq principal, which is the real estate research company that conducted the study.
“As availability creeps north, and the demand side of the equation becomes more sustainable, overall price appreciation is likely to slow,” Gordon added in the article.
Every ZIP code in the Las Vegas area enjoyed a 2013 boost, ranging from a low of 6.9% in Boulder City’s 89005 to a high of 53.2% in 89107, around Decatur Boulevard and U.S. Highway 95.
Continuing with the news on the housing recovery, the same type of positive reports cannot be found in South Florida.
A series in the Miami Herald, unfolds how far removed the poor neighborhoods in Miami are from the housing recovery.
Although Miami-Dade County is making international headlines for its swaggering resurgence from the housing crash, in the north-central neighborhoods comprising ZIP code 33147, the crisis still exists.
Meanwhile, many homes are still in the labyrinth of foreclosure, and those property owners who survived are struggling with the fallout from neighbors who lost their humble homes.
The neighborhoods' main hope clings on the promise of an intensifying focus on redeveloping the 79th Street corridor.
The Federal Insurance Corp. reported no bank closing this week.
Wednesday, April 23, 2014
New home sales plummet 14.5% in March-Spring buying season off with a whimper
Sales of new single-family homes in March plummeted 14.5% to a seasonally adjusted annual rate of 384,000, hitting the lowest level since July 2013, the U.S. Census Bureau reported Wednesday.
The March drop in new home sales was a year-over-year drop of 13.3%. The report showed there were drops in three of four U.S. regions.
The March results were well below analyst expectations. The report can be read here.
Home sales have been tepid in market facing rising interest rates, investor-driven home price increases, declining inventory, a rising affordability gap and the much tighter lending standards imposed on the industry.
“Another disappointing home sales report on the heels of yesterday's decline in existing home sales activity. As we noted yesterday, rising prices are becoming problematic,” said Sterne Agee chief economist, Lindsey Piegza. “While fueling existing homeowners' confidence with a sizable wealth effect, declining affordability is squeezing many potential home buyers out of the market. Without income growth or sizable savings to offset the cost increase, home sales are likely to remain tepid, at least in the near term.”
Sales did pick up in the Northeast region, while falling in the three much larger regions.
Home prices continued to climb through March, rising to a median price of $290,000, up 12.6% from March 2013.
“The sharp decline in March’s new home sales is further evidence that winter weather is not the catalyst for the sluggish housing data the past few months,” Quicken Loans vice president Bill Banfield. “The rise in interest rates and prices of new homes is leaving some potential buyers with sticker shock and ultimately prolonging their home search process.”
The new home supply is at six months given the March sales pace, which is up from five months supply in February.
Wednesday's report comes as the latest bit of bad news for the housing industry.
The Mortgage Bankers Association notes that mortgage applications are down 16% from this time last year, and mortgage activity is actually at its lowest level since 1997. Mortgage originations in general are at a 14-year low according to Black Knight Financial Services.
Housing starts in March rose less than expected and much less than expected given the supposed demand pent up from the bad weather in January and February.
The March drop in new home sales was a year-over-year drop of 13.3%. The report showed there were drops in three of four U.S. regions.
The March results were well below analyst expectations. The report can be read here.
Home sales have been tepid in market facing rising interest rates, investor-driven home price increases, declining inventory, a rising affordability gap and the much tighter lending standards imposed on the industry.
“Another disappointing home sales report on the heels of yesterday's decline in existing home sales activity. As we noted yesterday, rising prices are becoming problematic,” said Sterne Agee chief economist, Lindsey Piegza. “While fueling existing homeowners' confidence with a sizable wealth effect, declining affordability is squeezing many potential home buyers out of the market. Without income growth or sizable savings to offset the cost increase, home sales are likely to remain tepid, at least in the near term.”
Sales did pick up in the Northeast region, while falling in the three much larger regions.
Home prices continued to climb through March, rising to a median price of $290,000, up 12.6% from March 2013.
“The sharp decline in March’s new home sales is further evidence that winter weather is not the catalyst for the sluggish housing data the past few months,” Quicken Loans vice president Bill Banfield. “The rise in interest rates and prices of new homes is leaving some potential buyers with sticker shock and ultimately prolonging their home search process.”
The new home supply is at six months given the March sales pace, which is up from five months supply in February.
Wednesday's report comes as the latest bit of bad news for the housing industry.
The Mortgage Bankers Association notes that mortgage applications are down 16% from this time last year, and mortgage activity is actually at its lowest level since 1997. Mortgage originations in general are at a 14-year low according to Black Knight Financial Services.
Housing starts in March rose less than expected and much less than expected given the supposed demand pent up from the bad weather in January and February.
Tuesday, April 22, 2014
Fitch: 7 factors that will shape the housing market in 2014
Despite the anemic housing market start so far in 2014, housing metrics should improve later this year, according to Fitch Ratings’ Chalk Line report.
The pickup will be driven, Fitch says, by faster economic growth, some acceleration in job growth, and it will happen despite somewhat higher interest rates, as well as more measured home price inflation.
“Comparisons have been a challenge so far this year, with most housing metrics falling short of expectations from a year ago,” said Robert Curran, managing director and lead homebuilding analyst for Fitch Ratings. "Though the severe winter throughout much of North America has restrained some housing activity, buyer sensitivity to home prices and finance rates and the slowing of job growth at year-end is resulting in diminished consumer momentum.”
Fitch expects stable ratings for most issuers within the homebuilding sector in 2014, reflecting a continued, moderate cyclical improvement in overall construction activity as the year progresses.
Digital Risk's CAO Tom Showalter takes a slightly more pessimistic approach.
Showalter says that the market is currently experiencing friction as a result of economic factors such as Fitch points out, including rising home prices, stagnant income levels, and investor participation in the marketplace.
He believes this friction will keep the housing market from revving up in 2014.
"You know what happens in an engine when you get too much friction and the car just doesn't rev as fast? Its one of those friction based arguments rather than a 'catastrophic change' based arguments. What I’m saying is that there is so much friction here; the friction from the regulators, the friction from the lenders, friction from the borrowers (median incomes aren't going up, coming up with down payments are tough, they aren't sure the house is priced correctly) every one of those reasonable propositions is a source of friction," Showalter said.
Fitch is tapering its forecast to reflect the subpar spring selling season. Single-family starts are now projected to improve 15% to 710,000 as multifamily volume grows about 9% to 335,000.
Fitch projects new home sales to advance about 16% to 500,000 and existing home volume to remain flat at 5.10 million.
This is largely due to fewer distressed homes for sale. New home price inflation should moderate in 2014, at least partially because of higher interest rates. Average and median new home prices should rise about 3.5% in 2014.
“The investors are gradually leaving the market as prices rise, and the retail buyer is waiting in the wings. There are some markets, like Miami and San Francisco, that are driven by outside factors, but markets like St. Louis and Omaha and parts of California and Nevada that aren't driven by structural factors that are unique and powerful, they are going to suffer the friction as the retail buyer struggles to get back into the marketplace," Showalter said.
What are the seven dynamics that Fitch says will shape the housing market through the rest of 2014?
1) Lack of Momentum
The pickup will be driven, Fitch says, by faster economic growth, some acceleration in job growth, and it will happen despite somewhat higher interest rates, as well as more measured home price inflation.
“Comparisons have been a challenge so far this year, with most housing metrics falling short of expectations from a year ago,” said Robert Curran, managing director and lead homebuilding analyst for Fitch Ratings. "Though the severe winter throughout much of North America has restrained some housing activity, buyer sensitivity to home prices and finance rates and the slowing of job growth at year-end is resulting in diminished consumer momentum.”
Fitch expects stable ratings for most issuers within the homebuilding sector in 2014, reflecting a continued, moderate cyclical improvement in overall construction activity as the year progresses.
Digital Risk's CAO Tom Showalter takes a slightly more pessimistic approach.
Showalter says that the market is currently experiencing friction as a result of economic factors such as Fitch points out, including rising home prices, stagnant income levels, and investor participation in the marketplace.
He believes this friction will keep the housing market from revving up in 2014.
"You know what happens in an engine when you get too much friction and the car just doesn't rev as fast? Its one of those friction based arguments rather than a 'catastrophic change' based arguments. What I’m saying is that there is so much friction here; the friction from the regulators, the friction from the lenders, friction from the borrowers (median incomes aren't going up, coming up with down payments are tough, they aren't sure the house is priced correctly) every one of those reasonable propositions is a source of friction," Showalter said.
Fitch is tapering its forecast to reflect the subpar spring selling season. Single-family starts are now projected to improve 15% to 710,000 as multifamily volume grows about 9% to 335,000.
Fitch projects new home sales to advance about 16% to 500,000 and existing home volume to remain flat at 5.10 million.
This is largely due to fewer distressed homes for sale. New home price inflation should moderate in 2014, at least partially because of higher interest rates. Average and median new home prices should rise about 3.5% in 2014.
“The investors are gradually leaving the market as prices rise, and the retail buyer is waiting in the wings. There are some markets, like Miami and San Francisco, that are driven by outside factors, but markets like St. Louis and Omaha and parts of California and Nevada that aren't driven by structural factors that are unique and powerful, they are going to suffer the friction as the retail buyer struggles to get back into the marketplace," Showalter said.
What are the seven dynamics that Fitch says will shape the housing market through the rest of 2014?
1) Lack of Momentum
Comparisons are challenging through first-half 2014, and so far this year most housing metrics seem to have defied expectations and fallen somewhat from a year ago. Though the severe winter throughout much of North America has restrained some housing activity, nonetheless, there is an absence of underlying consumer momentum this spring, perhaps due to buyer sensitivity to home prices and finance rates and the slowing of job growth at year end.2) Recovery Supports Ratings, Likely Some Upgrades
Fitch Ratings expects stable ratings for most issuers within the homebuilding sector in 2014, reflecting a continued, moderate, cyclical improvement in overall construction activity during the year. Of course, financial performance will vary among issuers, reflecting customer, geographic and product strengths. However, there is the potential for a few upgrades.3) Public Builders Continue to Outperform
Generally, the major public builders realized much stronger operating results, year over year, during fourth-quarter 2013 and, for the full year, they gained market share. On average, fourth-quarter net orders were down 1.7%. The unit backlog typically improved 8.5% (22.6% on a dollar basis). The implied price in backlog grew 12.8%, largely due to price increases.4) 2014 Volume Should Increase Moderately
Housing metrics should improve in 2014 due to faster economic growth, and some acceleration in job growth, despite somewhat higher interest rates, as well as more measured home price inflation. However, we are tapering our forecast to reflect the subpar spring selling season. Single-family starts are now projected to improve 15% to 710,000 as multifamily volume grows about 9% to 335,000. Thus, total starts this year should top 1 million. New home sales are forecast to advance about 16% to 500,000, while existing home volume is flat at 5.10 million, largely due to fewer distressed homes for sale.5) Positive Valuations and Affordability
Still-attractive home prices in most markets, low absolute mortgage rates and a moderate rise in nominal incomes have driven improved affordability and valuations. Mortgage rates remain well below their historic averages and housing pricing remains undervalued versus incomes.6) Challenges Persist
Demand will continue to be affected by narrowing of affordability, diminished but persistent and widespread negative equity, challenging mortgage-qualification standards and lot shortages. As Fitch has noted in the past, the recovery will likely remain fitful.7) Caution on Land Spend and Liquidity
The improving economy warrants reasonable optimism on the part of builders, but some restraint should be exercised as to excessive new land purchases and meaningful depletion of liquidity in these still-uncertain times.
Thursday, April 17, 2014
17% of homes with a mortgage seriously underwater
Fully 9.1 million U.S. residential properties were seriously underwater, representing 17% of all properties with a mortgage in the first quarter, according to RealtyTrac’s U.S. Home Equity & Underwater Report for the first quarter of 2014.
To be seriously underwater, the combined loan amount secured by the property is at least 25% higher than the property’s market value. The first quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012.
In the fourth quarter of 2013, 9.3 million residential properties representing 19% of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26% of all properties with a mortgage were seriously underwater.
“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”
The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties representing 29% of all properties with a mortgage were seriously underwater.
The universe of equity-rich properties — those with at least 50 percent equity — grew to 9.9 million representing 19% of all properties with a mortgage in the first quarter, up from 9.1 million representing 18% of all properties with a mortgage in the fourth quarter of 2013.
Another 8.5 million properties were on the verge of resurfacing in the first quarter, with between 10% negative equity and 10% positive equity. This segment represented 16% of all properties with a mortgage in the first quarter.
That was compared to 8.3 million properties representing 17% of all properties with a mortgage in the fourth quarter of 2013.
Fewer distressed properties had negative equity in the first quarter, with 45% of all properties in the foreclosure process seriously underwater — down from 48% in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013.
Conversely, the share of foreclosures with positive equity increased to 35% in the first quarter, up from 31% in the fourth quarter and up from 24% in the third quarter of 2013.
“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted. “But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable.”
“Underwater properties have become an insignificant part of the housing market in Orange County,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market. “Out of the nearly 40,000 properties we currently have listed only about 3,000 of those are distressed or short sale properties, proving that the continual rise in home prices is relieving the housing market of underwater homeowners.”
To be seriously underwater, the combined loan amount secured by the property is at least 25% higher than the property’s market value. The first quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012.
In the fourth quarter of 2013, 9.3 million residential properties representing 19% of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26% of all properties with a mortgage were seriously underwater.
“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”
The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties representing 29% of all properties with a mortgage were seriously underwater.
The universe of equity-rich properties — those with at least 50 percent equity — grew to 9.9 million representing 19% of all properties with a mortgage in the first quarter, up from 9.1 million representing 18% of all properties with a mortgage in the fourth quarter of 2013.
Another 8.5 million properties were on the verge of resurfacing in the first quarter, with between 10% negative equity and 10% positive equity. This segment represented 16% of all properties with a mortgage in the first quarter.
That was compared to 8.3 million properties representing 17% of all properties with a mortgage in the fourth quarter of 2013.
Fewer distressed properties had negative equity in the first quarter, with 45% of all properties in the foreclosure process seriously underwater — down from 48% in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013.
Conversely, the share of foreclosures with positive equity increased to 35% in the first quarter, up from 31% in the fourth quarter and up from 24% in the third quarter of 2013.
“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted. “But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable.”
“Underwater properties have become an insignificant part of the housing market in Orange County,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market. “Out of the nearly 40,000 properties we currently have listed only about 3,000 of those are distressed or short sale properties, proving that the continual rise in home prices is relieving the housing market of underwater homeowners.”
Tuesday, April 15, 2014
Here's proof the housing bubble is about to burst- from Housing Wire
Many housing industry experts and economists (especially “celebrity economists”) have been touting their belief that the housing recovery has been very real over the past year to 18 months, and see things only getting better.
We, on the other hand, have seemingly been a rare contrarian.
For many months we have privately and publicly stated that the current housing “recovery” is an illusion – a false recovery built upon a sandy foundation above a slippery slope.
But the truth is, things are even worse.
In a recent article published by the Daily Real Estate News, (February 12, 2014 – “Rising Prices Chip Away at Housing Affordability”), evidence seems to suggest there are signs of a new housing bubble.
In the aforementioned piece it was stated that according to the National Association of Realtors’ latest quarterly report, “strong year-over-year price gains are starting to take a bite into housing affordability.” It also noted that the median single-family home price rose in 119 out of 164 metro areas in the fourth quarter of 2013, which is 73%, with 26% of those metros posting double-digit increases.
That sounds like good news on the surface of it, but when one takes into consideration that incomes for the middle class in America have not come close to keeping pace with the rise in home prices, and that interest rates are expected to rise noticeably into 2015, you see that housing affordability is being negatively impacted.
This will impact prices.
Without housing affordability there cannot be a rise in first-time buyer participation. Without the entrance of first-time buyers, those wishing (or hoping) to move up to a larger home or relocate into other neighborhoods will not be able to so, at least not readily. This can produce a cascade effect on housing prices, starting to drive them downward to reflect a decrease in demand.
In another recent article by Christopher Matthews featured in Fortune, the author poses the question, “Is the housing recovery losing steam?” Additional evidence certainly seems to answer his question in the affirmative.
According to Matthews, new home construction has severely lagged behind the growing demand for housing with only 880,000 new homes under construction in January of this year, which is 16% below the revised December estimate of 1,048,000 and 2% below the January 2013 rate of 898,000. Without the accompanying job growth created by a real, sustainable increase in new housing starts there cannot be a “real” housing recovery.
These numbers above, along with continued dismal employment figures should sound alarm bells. In addition, much of the rise in home prices is also due to the participation of large and even smaller investors who have entered or are now entering the new REO-to-rental or long-existing single-family rental market.
Many of these hedge funds or individual investors paid higher than listing prices in order to secure these properties. By doing so, believing that purchasing homes above list price but below replacement cost would be a wise investment, available homes went to investors, not owner-occupants.
This practice, in addition to the government’s continuing efforts to modify loans and stall the foreclosure process has contributed to over-inflated home “values.” If housing prices begin to fall, wouldn’t one expect the investors to at least consider dumping homes onto the market to minimize potential losses? If they did so, the aforementioned cascade-effect would drive prices down even further.
If that isn’t enough to convince you that we may be seeing another housing bubble, consider the fact that traditional mortgage lenders have much stricter lending guidelines today.
This has pushed many buyers into FHA loans or even loans provided by non-banks.
In 2010 for example, over 40% of all mortgages were financed with FHA backing. It can be argued that many of these loans are riskier. Some have very low down payments or are adjustable-rate loans. Higher risk loans simply means more people have received mortgages on homes they cannot afford. That translates into more and more loans going into default. That should certainly sound familiar.
Additionally, millions of loans that went through the Home Affordable Modification Program are soon to be recast. Some economists are predicting that 30% or more of those loans will go back into default. Many others believe that government agencies will not let that happen. If those economists who believe the government will continue to intervene are right, the outcome would further fuel a false demand for available housing – once again prolonging the inevitable. But will this government or even a new one want to step in again to bail out consumers?
Haven’t we learned anything over the past five years? Much of what we covered here contributed to the housing crash of 2008, and an artificial recovery. Surely I am not the only one who sees this latest bubble coming – perhaps not simmering up to the boiling point as did the last one, but a bubble nonetheless.
We, on the other hand, have seemingly been a rare contrarian.
For many months we have privately and publicly stated that the current housing “recovery” is an illusion – a false recovery built upon a sandy foundation above a slippery slope.
But the truth is, things are even worse.
In a recent article published by the Daily Real Estate News, (February 12, 2014 – “Rising Prices Chip Away at Housing Affordability”), evidence seems to suggest there are signs of a new housing bubble.
In the aforementioned piece it was stated that according to the National Association of Realtors’ latest quarterly report, “strong year-over-year price gains are starting to take a bite into housing affordability.” It also noted that the median single-family home price rose in 119 out of 164 metro areas in the fourth quarter of 2013, which is 73%, with 26% of those metros posting double-digit increases.
That sounds like good news on the surface of it, but when one takes into consideration that incomes for the middle class in America have not come close to keeping pace with the rise in home prices, and that interest rates are expected to rise noticeably into 2015, you see that housing affordability is being negatively impacted.
This will impact prices.
Without housing affordability there cannot be a rise in first-time buyer participation. Without the entrance of first-time buyers, those wishing (or hoping) to move up to a larger home or relocate into other neighborhoods will not be able to so, at least not readily. This can produce a cascade effect on housing prices, starting to drive them downward to reflect a decrease in demand.
In another recent article by Christopher Matthews featured in Fortune, the author poses the question, “Is the housing recovery losing steam?” Additional evidence certainly seems to answer his question in the affirmative.
According to Matthews, new home construction has severely lagged behind the growing demand for housing with only 880,000 new homes under construction in January of this year, which is 16% below the revised December estimate of 1,048,000 and 2% below the January 2013 rate of 898,000. Without the accompanying job growth created by a real, sustainable increase in new housing starts there cannot be a “real” housing recovery.
These numbers above, along with continued dismal employment figures should sound alarm bells. In addition, much of the rise in home prices is also due to the participation of large and even smaller investors who have entered or are now entering the new REO-to-rental or long-existing single-family rental market.
Many of these hedge funds or individual investors paid higher than listing prices in order to secure these properties. By doing so, believing that purchasing homes above list price but below replacement cost would be a wise investment, available homes went to investors, not owner-occupants.
This practice, in addition to the government’s continuing efforts to modify loans and stall the foreclosure process has contributed to over-inflated home “values.” If housing prices begin to fall, wouldn’t one expect the investors to at least consider dumping homes onto the market to minimize potential losses? If they did so, the aforementioned cascade-effect would drive prices down even further.
If that isn’t enough to convince you that we may be seeing another housing bubble, consider the fact that traditional mortgage lenders have much stricter lending guidelines today.
This has pushed many buyers into FHA loans or even loans provided by non-banks.
In 2010 for example, over 40% of all mortgages were financed with FHA backing. It can be argued that many of these loans are riskier. Some have very low down payments or are adjustable-rate loans. Higher risk loans simply means more people have received mortgages on homes they cannot afford. That translates into more and more loans going into default. That should certainly sound familiar.
Additionally, millions of loans that went through the Home Affordable Modification Program are soon to be recast. Some economists are predicting that 30% or more of those loans will go back into default. Many others believe that government agencies will not let that happen. If those economists who believe the government will continue to intervene are right, the outcome would further fuel a false demand for available housing – once again prolonging the inevitable. But will this government or even a new one want to step in again to bail out consumers?
Haven’t we learned anything over the past five years? Much of what we covered here contributed to the housing crash of 2008, and an artificial recovery. Surely I am not the only one who sees this latest bubble coming – perhaps not simmering up to the boiling point as did the last one, but a bubble nonetheless.
Lending Drops to 17-Year Low as Rates Curb Borrowing
Mortgage lending is contracting to levels not seen since 1997 as rising interest rates and home prices drive away borrowers.
Wells Fargo & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that's part of an industrywide drop off. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington.
Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40% has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association.
"Banks large and small are going to have to adapt to a new reality because mortgage origination volumes going forward aren't going to support the big businesses they've had in place for the last few years," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. "They're going to have smaller, leaner operations, and we're seeing them make that shift."
At Wells Fargo, home-loan originations exceeded $100 billion for seven straight quarters, ending in June 2013. The figure plunged to $36 billion in the three months through March, the San Francisco-based bank said April 11.
Wells Fargo's results show the shift in the housing market away from refinancings as interest rates climb. Just 34% of its originations went to customers refinancing loans, compared with 69% in the same period of 2013.
Timothy Sloan, Wells Fargo's chief financial officer, said a combination of forces, including tougher standards following the housing crash, account for the falloff in lending.
"It's too early to call it a secular shift," Sloan said in an interview. "This recovery has just been more complicated because of the impact of rates being low, and now they are backing up a little bit. We've had a lot of regulatory changes, we've had a change in underwriting standards that the market is getting used to."
The average interest rate for a 30-year fixed mortgage was 4.34% last week, up from 3.54% a year ago, according to a statement from Freddie Mac.
Lenders also are tightening credit standards, requiring higher FICO scores. More than 40% of borrowers in 2013 had scores above 760, compared with about 25% in 2001, according to a Feb. 20 report by Goldman Sachs Group Inc. analysts Hui Shan and Eli Hackel.
JPMorgan originated $17 billion of home loans in the first quarter of 2014, lower than at any time during the housing crash. The New York-based bank made $52.7 billion of mortgages a year earlier. Marianne Lake, JPMorgan's CFO, cited severe winter weather as among the reasons for the first-quarter drop.
"We view JPM and WFC's mortgage banking results as lower than expected," Keefe, Bruyette & Woods analysts led by Frederick Cannon said Friday in a research note, referring to the bank's stock symbols. "Mortgage volumes and applications were down materially."
The lenders are cutting staff in the slump. JPMorgan said it reduced the number of jobs at its mortgage unit by 30%, or 14,000 positions, since the start of last year. That includes 3,000 reductions in the first quarter. Wells Fargo said it got rid of 1,100 jobs in its residential mortgage business in the first period.
JPMorgan projected on April 11 that it will lose money on mortgage production this year because of the drop in demand.
All-cash purchases, dominated by investors, are surging as lending drops. Deals in cash accounted for more than 43% of U.S. residential sales in February, up from 20% a year earlier, with the most in Florida, New York and Nevada, according to data firm RealtyTrac.
Wells Fargo said last week that it's seeing more cash buyers in the housing market.
"Some of those cash buyers were investors, both individuals and private equity firms and the like, and that had an impact on home prices," Wells Fargo's Sloan said. "If you look at the year-over-year increase in home prices being in the low teens, our folks think probably a third of that increase was due to the impact of investors as buyers."
Private-equity firms, hedge funds, real estate investment trusts and other institutional landlords have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35% from the 2006 peak and rental demand rose from the almost 5 million owners who went through foreclosure since 2008.
Investors focused on the markets hardest hit by the real estate crash, including Phoenix, Las Vegas and Atlanta, and have helped push prices higher in those areas.
"This is an investor-heavy market recovery," said Daren Blomquist, vice president of RealtyTrac in Irvine, Calif. "We've seen a relatively high percentage of institutional investors as one segment, and regular mom-and-pop investors as another, jumping back in as they see the market hit bottom and start to rise."
Home prices have surged 23% since a post-bubble low in March 2012, according to the S&P/Case-Shiller index. The gains have slowed as climbing values in the past two years started to reduce affordability.
Prices for single-family homes rose in fewer areas in the fourth quarter, with 73% of U.S. cities experiencing gains compared with 88% in the previous three months, according to the National Association of Realtors.
Higher values will make it harder for banks to find qualified borrowers this year.
"We're going to have a small market," JPMorgan's Lake said on an April 11 conference call. "We'd be hopeful that the market would be above $1 trillion for the whole year."
Wells Fargo & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that's part of an industrywide drop off. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington.
Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40% has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association.
"Banks large and small are going to have to adapt to a new reality because mortgage origination volumes going forward aren't going to support the big businesses they've had in place for the last few years," said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. "They're going to have smaller, leaner operations, and we're seeing them make that shift."
At Wells Fargo, home-loan originations exceeded $100 billion for seven straight quarters, ending in June 2013. The figure plunged to $36 billion in the three months through March, the San Francisco-based bank said April 11.
Wells Fargo's results show the shift in the housing market away from refinancings as interest rates climb. Just 34% of its originations went to customers refinancing loans, compared with 69% in the same period of 2013.
Timothy Sloan, Wells Fargo's chief financial officer, said a combination of forces, including tougher standards following the housing crash, account for the falloff in lending.
"It's too early to call it a secular shift," Sloan said in an interview. "This recovery has just been more complicated because of the impact of rates being low, and now they are backing up a little bit. We've had a lot of regulatory changes, we've had a change in underwriting standards that the market is getting used to."
The average interest rate for a 30-year fixed mortgage was 4.34% last week, up from 3.54% a year ago, according to a statement from Freddie Mac.
Lenders also are tightening credit standards, requiring higher FICO scores. More than 40% of borrowers in 2013 had scores above 760, compared with about 25% in 2001, according to a Feb. 20 report by Goldman Sachs Group Inc. analysts Hui Shan and Eli Hackel.
JPMorgan originated $17 billion of home loans in the first quarter of 2014, lower than at any time during the housing crash. The New York-based bank made $52.7 billion of mortgages a year earlier. Marianne Lake, JPMorgan's CFO, cited severe winter weather as among the reasons for the first-quarter drop.
"We view JPM and WFC's mortgage banking results as lower than expected," Keefe, Bruyette & Woods analysts led by Frederick Cannon said Friday in a research note, referring to the bank's stock symbols. "Mortgage volumes and applications were down materially."
The lenders are cutting staff in the slump. JPMorgan said it reduced the number of jobs at its mortgage unit by 30%, or 14,000 positions, since the start of last year. That includes 3,000 reductions in the first quarter. Wells Fargo said it got rid of 1,100 jobs in its residential mortgage business in the first period.
JPMorgan projected on April 11 that it will lose money on mortgage production this year because of the drop in demand.
All-cash purchases, dominated by investors, are surging as lending drops. Deals in cash accounted for more than 43% of U.S. residential sales in February, up from 20% a year earlier, with the most in Florida, New York and Nevada, according to data firm RealtyTrac.
Wells Fargo said last week that it's seeing more cash buyers in the housing market.
"Some of those cash buyers were investors, both individuals and private equity firms and the like, and that had an impact on home prices," Wells Fargo's Sloan said. "If you look at the year-over-year increase in home prices being in the low teens, our folks think probably a third of that increase was due to the impact of investors as buyers."
Private-equity firms, hedge funds, real estate investment trusts and other institutional landlords have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35% from the 2006 peak and rental demand rose from the almost 5 million owners who went through foreclosure since 2008.
Investors focused on the markets hardest hit by the real estate crash, including Phoenix, Las Vegas and Atlanta, and have helped push prices higher in those areas.
"This is an investor-heavy market recovery," said Daren Blomquist, vice president of RealtyTrac in Irvine, Calif. "We've seen a relatively high percentage of institutional investors as one segment, and regular mom-and-pop investors as another, jumping back in as they see the market hit bottom and start to rise."
Home prices have surged 23% since a post-bubble low in March 2012, according to the S&P/Case-Shiller index. The gains have slowed as climbing values in the past two years started to reduce affordability.
Prices for single-family homes rose in fewer areas in the fourth quarter, with 73% of U.S. cities experiencing gains compared with 88% in the previous three months, according to the National Association of Realtors.
Higher values will make it harder for banks to find qualified borrowers this year.
"We're going to have a small market," JPMorgan's Lake said on an April 11 conference call. "We'd be hopeful that the market would be above $1 trillion for the whole year."
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