10 Reasons Why People Don't Get A Mortgage

Want to know why mortgage applications continue at historic lows? Well, as it turns out, there are many reasons why homeownership continues to drop.
Even while there is still a widespread preference for homeownership in America, 35% of households still rent, and of them, 20% report no intentions to buy, according to a report from Rachel Bogardus Drew, a post-doctoral fellow with the Harvard Joint Center for Housing Studies.
And when looking at the latest numbers, the U.S. Census Bureau’s third-quarter homeownership report found that the national vacancy rate hovered around 7.4% for rental housing and 1.8% for homeowner housing, barely moving from the second quarter’s results.
So why aren’t people wanting to own a home?
“We know from my prior research that some demographic groups are less likely to expect to own in the future, including whites, older renters, those with lower incomes, and those without families,” Drew said.
“Yet regression analyses based on demographic variables alone can account for only about 10% of the variation in renters’ future tenure plans. Thus we must consider some attitudinal factors when seeking to understand what drives intentions to rent for the long term,” she added.
The chart below lists the 10 main reasons people either don't want or can't get a mortgage.
(Source HJCHS; click to enlarge)

Drew explained that the results show a third of renters, or 10% of all households, rent because of lifestyle and personal preferences. However, more than half of lifetime renters see their tenure as constrained, either by their own financial circumstances or by macroeconomic conditions.
And looking toward future trends, renters and unlikely to change their plans anytime soon due to tight mortgage lending, home prices rising and sluggish income growth.

This is why California is in the middle of another housing crisis-Affordability and mortgage lending issues abound

Decades from now, when history writes the story of the Millennials, they may well be remembered as the first generation for whom using smartphones and social media was as natural as taking a breath. Yet unless things change, there’s a good possibility they’ll also be known as the generation that couldn’t afford to buy or rent a home.
It’s ironic that when the first Millennials were born, their Baby Boomer parents couldn’t afford a home either. Looking back to October 1981, interest rates on a 30-year, fixed-rate mortgage exceeded 18%. It wasn’t until rates fell below 10% in 1986, and to the 7% range in the early 2000s, that affordability ceased to be a major impediment to homeownership.
Today, California’s housing affordability problem is back – only this time it is fueled by rising home prices and lack of access to capital rather than double-digit interest rates.
On Nov. 14, the California Association of Realtors will convene economists, policymakers, and practitioners for “The Real Estate Summit: Partnering for Change in California.” The summit will explore the issue of housing affordability, as well as California’s infrastructure, foreign investment, consumer trends, housing finance, and policy implications.
So how serious is the problem?
CAR’s Housing Affordability Index – which tracks the percentage of households that can afford a median-priced, single-family detached home assuming current interest rates and 20% down – fell from 33% in the first quarter of 2014 to 30% in the second quarter, a 26% decline from a peak of 56% in early 2012. While home buyers needed to earn an annual income of $56,320 to purchase the median-priced house two years ago, today they need an additional $37,270, or $93,590 total annually, to qualify.
The reasons behind the decline in affordability are many:  slower-than-expected economic growth, incomes that haven’t kept pace with rising home prices or rents, pent-up demand, lack of supply, tighter lending criteria in response to new mortgage regulations from Congress, and indecision about the future of Fannie Mae and Freddie Mac, to name a few.
What the numbers don’t reveal is the impact the problem is having on individuals and families. Nationally, more than half of adults surveyed say they’ve taken a second job, postponed retirement contributions, run up credit cards, or moved to a cheaper neighborhood in order to cover their rent or mortgage over the past three years, according to the MacArthur Foundation. Another study reports that 45% of college-educated Millennials have moved back in with their parents because they can’t find a job or the one they have doesn’t cover student loans and a place to live.
A lack of new home construction is likely to cause further affordability issues unless housing starts increase in line with local job gains, according to the National Association of Realtors. Its analysis found that too few homes are being constructed in relation to local job market conditions, and that lack of construction has “hamstrung” supply and slowed home sales.
Here in California, it has been estimated that the post-recovery real estate market could easily absorb 250,000 new units of owner-occupied or rental housing – a need that isn’t even close to being fulfilled.
What's the key reason?
Many small builders continue to experience limited access to credit and rising construction costs. Despite strong demand, the number of single-family housing permits issued in August 2014 declined by nearly 21% from the same month in 2013, while the number of multifamily permits was down almost 24% year over year.
There are some who believe California’s housing affordability problem will work itself out as the economy improves and consumer expectations align with real estate market realities.

S&P Case-Shiller: Home price growth continues to slow-Gains drop below 6% as Sunbelt reports worst returns since 2012

Home price growth continues to slow, according to the latest S&P/Case-Shiller Home Price Indices for August 2014.
The 10-City Composite gained 5.5% year-over- year and the 20-City 5.6%, both down from the 6.7% reported for July. The National Index gained 5.1% annually in August compared to 5.6% in July.
On a monthly basis, the National Index and Composite Indices showed a slight increase of 0.2% for the month of August.
Detroit, of all places, led the cities with the gain of 0.8%, followed by Dallas, Denver and Las Vegas at 0.5%. Gains in those cities were offset by a decline of 0.4% in San Francisco followed by declines of 0.1% in Charlotte and San Diego.
“After several months in a row of slowing home value growth, it’s fair to say now the market has officially turned a corner and entered a new phase of the recovery. We’re transitioning away from a period of hot and bothered market activity, characterized by low inventory and rapid price growth, onto a more slow and steady trajectory, which is great news,” said Zillow Chief Economist Dr. Stan Humphries. “In housing, boring is better. As appreciation cools and more inventory comes on line, buyers will start to gain a more competitive advantage, after years of sellers being in the driver’s seat. More sedate home value growth, coupled with interest rates that remain incredibly low, will also help housing stay affordable, which is critical to drawing in the next generation of younger, first-time buyers that had been sitting on the sidelines.”
Click the chart to enlarge

The chart above depicts the annual returns of the U.S. National, the 10-City Composite and the 20- City Composite Home Price Indices.
“Homeowners may be disappointed to see home prices slow their monthly gains, but the sky is not falling,” said Quicken Loans vice president Bill Banfield. “Nationally, home prices are still making healthy yearly gains to grow household equity and throw a lifeline to those that may still be underwater.”
The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.1% annual gain in August 2014. The 10- and 20- City Composites posted year-over-year increases of 5.5% and 5.6%.
“The deceleration in home prices continues,” says David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego. Despite the weaker year-over-year numbers, home prices are still showing an overall increase, as the National Index increased for its eighth consecutive month.
Click the chart to enlarge

“The large extent of slower increases is seen in the annual figures with all 20 cities; the two composites and the national index all revealing lower numbers than last month. The 10- and 20-City Composites gained 5.5% and 5.6% annually with prices nationally rising at a slower pace of 5.1%. Las Vegas continues to see a sharp deceleration in their annual home prices with a 10.1% annual return, down just below three percent from last month. Miami is now leading the cities with a 10.5% year-over-year return. San Francisco, which has shown double-digit annual gains since November 2012, posted an annual return of 9.0% in August.
“Despite softer price data, other housing data perked up. September figures for housing starts, permits and sales of existing homes were all up. New home sales and builders’ confidence were weaker. Continued labor market gains, low interest rates and slower increases in home prices should support further improvements in housing,” Blitzer said.
All cities except Cleveland saw their annual gains decelerate. Las Vegas showed the most weakness in its year-over-year return; it went from 12.8% in July to 10.1% in August. As a result, Las Vegas lost its leadership position as it moved to second place behind Miami with a 10.5% year-over-year gain. San Francisco posted 9.0% in August, down from its double-digit return of 10.5% in July.
All cities except Boston and Detroit posted lower monthly returns in August compared their returns reported for July. San Francisco showed its largest decline since February 2012; it was the only city that showed a negative monthly return two months in a row from -0.3% in July to -0.4% in August.

Foreclosure inventory lowest since February 2008

At 1.76% of active mortgages, the nation’s inventory of loans in foreclosure is now at its lowest point since February 2008, according to the September report from the Data and Analytics division of Black Knight Financial Services.
That equates to 893,000 loans in the foreclosure process, a decline of 435,000 from last year.
Click to image enlarge

Mortgage delinquencies reversed last month’s increase, dropping 3.9% - or 117,000 loans - nearly erasing August’s increase.
Total non-current inventory (30 or more days past due or in foreclosure) declined by 117,000 (almost 400K since last year).
Foreclosure starts rose nearly 12% in September, with 91,000 new (or repeat) foreclosure actions.
The inventory of seriously delinquent loans (those 90 or more days past due) declined by 25,000, reaching its lowest point August 2008.
Click image to enlarge

September’s monthly prepayment rate (historically a good indicator of refi activity) declined by almost a full percentage point.
Looking at the states with the highest and lowest share of non-current inventory, Minnesota entered the top 5 best performing states, knocking out Alaska.
Additionally, Florida, which showed the best rate of improvement over the past 6 months, is now at the bottom of the 5 states with the highest share of non-current loans.

Fitch: U.S. Home Price Growth Stalls for First Time in 2 Years

Fitch Ratings-New York-21 October 2014: The two-year streak of U.S. home price growth appears to have come to a close, according to Fitch Ratings in its latest quarterly index report.
National home prices fell by less than 1% between 1Q'14 and 2Q'14 after more than two years of steady increases. While the magnitude of the decline is benign, the relatively flat prices are in stark contrast to recent price gains. Home prices increased roughly 20% nationally between 4Q'11 and 1Q'14. 'The cooling of the US housing market comes as no surprise after several years of unsustainable growth rates,' said Director Sean Nelson. 'It's also worth noting that nearly all major cities are experiencing the same home price flattening at the same time. 'Most of the metro areas that experienced large home price increases since 2011 saw price growth either slow, stall or reverse in the first two quarters of 2014. The slowed rate of home price appreciation follows a roughly 100 bps increase in mortgage rates in 2013. 'While home price growth has slowed or stopped in most regions, several markets, many of which are in California and Texas, are still overvalued,' said Nelson.Fitch's index is published quarterly and highlights performance trends in legacy and new issue RMBS, house price conditions and mortgage market developments. The HPI index reflects Case-Shiller's seasonally-adjusted national home price index.The Mortgage Market Index -U.S.A. is part of Fitch's quarterly structured finance index reports. It is available at 'www.fitchratings.com' or by clicking on the above link.

Seriously underwater homes hit 2-year low-But it’s not all positive news

The amount of seriously underwater properties plunged to the lowest level in two years, with 8.1 million U.S. residential properties seriously underwater — where the combined loan amount secured by the property is at least 25% higher than the property’s estimated market value, RealtyTrac’s U.S. home equity and underwater report for the third quarter of 2014 said.
This represents 15% of all properties with a mortgage and an estimated $1.4 trillion in negative equity.
Last quarter, 9.1 million residential properties representing 17% of all properties with a mortgage were seriously underwater, and in the third quarter of 2013 10.7 million residential properties representing 23% of all properties with a mortgage were seriously underwater.
"The decrease in underwater properties is promising but the estimated $1.4 trillion in negative equity means that the flood waters are not receding as quickly as they were before, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac.
“Slower price appreciation means the 8 million homeowners seriously underwater could still have a long road back to positive equity,” he continued.
Additionally, the universe of equity-rich properties — those with at least 50% equity — grew to 10.8 million representing 20% of all properties with a mortgage in the third quarter, up from 9.9 million representing 19% of all properties with a mortgage in the second quarter of 2014.
Collectively these equity rich homeowners have an estimated $2.9 trillion in positive equity.
Another 8.5 million properties were on the verge of resurfacing in the third quarter, with between 10% negative equity and 10% positive equity. This segment represented 16% of all properties with a mortgage in the third quarter, and was down from 8.7 million properties representing 17% of all properties with a mortgage in the second quarter of 2014.
Fewer distressed properties had negative equity in the third quarter, with 39% of all properties in the foreclosure process seriously underwater — down from 44% in the second quarter of 2014 and down from 56% in the third quarter of 2013.
In comparison, the share of foreclosures with positive equity increased to 38% in the third quarter, up from 34% in the second quarter of 2014.
“We wanted to paint a picture of the typical seriously underwater homeowner and what we found was that homeowners who bought or refinanced during the housing bubble (2004 to 2008), own a home worth less than $200,000, live in the Sun Belt or Rust Belt and live in a Democratic Congressional District were more likely to be seriously underwater,” Blomquist noted.
“On the other end, the highest percentages of equity rich homeowners were those who bought or refinanced between 1994 and 1998, those with properties valued at $500,000 or more, live in NY, CA, DC and these folks also tend to live in Democratic Congressional districts,” he said.

Daily Economic Update

Wednesday's bond market has opened flat as stocks have done also. The Dow and Nasdaq are both up a couple points from yesterday's close while the bond market is nearly unchanged also at 2.22%. This should keep this morning's mortgage rates at yesterday's levels.

This morning's only economic data was September's Consumer Price Index (CPI) at 8:30 AM ET. It gave us mixed results but no big surprises. The overall reading rose 0.1% when it was expected to be unchanged and the core reading that excludes more volatile food and energy costs rose 0.1%, falling just short of the 0.2% forecast. The increase in the overall reading was a bit negative for bonds but the weaker core reading offsets that. Both readings indicate inflationary pressures at the consumer level of the economy remain subdued. That is generally good news for the bond market and mortgage rates. However, since both were close to expectations, we have seen little impact on this morning's trading.

Tomorrow has two pieces of data but neither are considered to be highly important. The first will be last week's unemployment figures at 8:30 AM ET. They are expected to show that 285,000 new claims for unemployment benefits were filed last week, up noticeably from the previous week's 264,000 initial claims. The higher the number of new claims, the better the news it is for mortgage rates because rising claims hints at a softening employment sector. It is worth noting though that because this is only a weekly report, it usually takes a surprisingly weak or strong number for the data to affect mortgage rates.

September's Leading Economic Indicators (LEI) will be released by the Conference Board at 10:00 AM ET tomorrow morning. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.5% from August's reading. This would indicate that economic activity is likely to increase over the next couple of months.