Weekly Mortgage and Real Estate Blog – Week of April 25, 2015

And They Are Off…


Yes, today we are talking about politicians. And we don’t mean “off their rocker” — just in case you are wondering. What we mean is that they are off and running in a Presidential race. The primaries are in the home stretch and there certainly has been a lot of noise. But as the candidates are finalized, the noise will get even louder. Or, should we say, the rhetoric.

Why is the Presidential race important for the markets? The markets obsess over everything. And if a Presidential candidate says something that upsets or is joyful to the markets, the markets will react as if they are already President, even though they are not. Basically, this will be just one more variable factor the markets will have to contend with for most of the year. Along with jobs (next week), the Federal Reserve Board’s interest rate decision (this week), oil prices, China and about one hundred other factors.

Speaking of the Federal Reserve Board, they announce their decision tomorrow. Most are expecting the Fed not to raise rates at this meeting. Even though the jobs machine has been humming, inflation is nowhere to be seen and most economic reports here and overseas have been less than overwhelming. If they don’t raise rates, speculation will be humming when we get to their next meeting, which is in the middle of June. Just in time for the Presidential conventions!

 Officials from residential finance giant Freddie Mac have made a bold prediction: This year housing starts and home prices will reach their highest levels since 2006. The main reasons behind its bullish forecast is low interest rates, an improving job market, and a gradual increase in housing supply. “Housing markets are poised for their best year in a decade,” says Sean Becketti, Freddie Mac’s chief economist. “In our latest forecast, total home sales, housing starts, and home prices will reach their highest levels since 2006. Expect the 30-year fixed interest rate to remain very attractive throughout the spring home-buying season, staying below 4 percent until the second half of the year,” according to Freddie Mac’s monthly Outlook for March. For home sellers, they’ll be able to enjoy more home price increases. “In 2015, house prices increased about 6 percent on a year-over-year basis,” Freddie notes in its outlook. “Expect house prices to continue to rise, but at a moderating pace, with annual price appreciation slowing to 4.8 percent in 2016.” Also, gains in employment across the country will help to fuel hotter housing markets, according to Freddie Mac. The unemployment rate dropped below 5 percent recently. Despite some headwinds, officials remain mostly upbeat. The “nation’s housing markets should sustain their momentum from 2015 into 2016 and 2017,” the outlook notes. Source: Freddie MacHome prices last month experienced a 6.8 percent year-over-year increase and a 1.1 monthly uptick, according to new data from CoreLogic. Furthermore, CoreLogic’s Home Price Index Forecast is pointing to a 5.2 percent increase in between February 2016 and February 2017, while the month-over-month forecast is for a modest 0.6 percent bump-up in March. “Home prices continue to rise across the U.S. with every state posting year-over-year gains during the last 12 months,” said Anand Nallathambi, president and CEO of CoreLogic. “Improved economic conditions and tight inventories continue to drive exceptionally strong gains in many markets, especially for homes priced below $500,000.” Source: National Mortgage Professional

When it comes to marketing the value of environmentally friendly homes, you’ll want to watch your words. They can make a big difference in how consumers perceive the value of the home — even if some of the words mean the same thing. For example, homebuilders often use the word “green” to describe a house that is more environmentally friendly. Yet, consumers surveyed say that they perceive more value when they see the word “eco-friendly” instead. Indeed, 68 percent of about 3,370 consumers who purchased a home in the last three years say they feel the most value comes from an “eco-friendly” home compared to 32 percent who said a “green” home offered more perceived value, according to the 2015 study on consumer preferences by the National Association of Home Builders. Researchers also discovered other word preferences surface in describing sustainable products. For example, words like “comfortable” trump “livable,” the study found. Eighty-three percent of potential consumers say they find more value in a property that is marketed as “comfortable” over “livable.” Source: NAHB


Weekly Mortgage and Real Estate Report – Week of April 18, 2016

Corporate Profits

Recently we have been discussing a variety of factors affecting the markets. These factors have included oil prices, the international economy, terrorism, inflation, job growth and more. When there are so many other important things going on around us, sometimes we neglect to focus upon factors which are not a major explosion, but give us a good reading as to the direction of the economy and the markets. That is why this week we are talking about corporate profits.

Our first quarter has ended and major companies have been reporting their profits for several days now. Corporate earnings growth fell throughout 2015. It is no coincidence that the stock market rally stalled last year and interest rates stayed lower than we expected. Stocks were volatile in the first quarter of this year, but by the end of the quarter, things were pretty much where they were for the past year — which is flat. And rates are still lower than expected.

Certainly corporate profits are a function of the economy and we expect a stronger economy to boost profits. Thus, the first quarter’s earnings reports are being watched carefully in this regard. The price of commodities, especially oil, has really hurt profits in the energy sector. You can see how inflation, the economy and all of these factors are intertwined. Thus when the Fed meets next week, they will also have a fresh batch of data in the form of earnings reports. And if these reports continue to be weak, there will be less chance of a rate increase. It is not the only factor, but certainly one to watch this month.

 Writer Jason Zweig recently wrote a forward-looking letter to his grandchildren for The Wall Street Journal that documents the joys of home ownership and what many young adults may miss out on if they continue to be lifelong renters. Zweig writes that it took him decades to learn the true value of home ownership, beyond the advantages of equity building. Zweig reminisces in the letter as he and his brother help to move out their 87-year-old mother from the place she called home for half a century. The home contained memories for the family – where the family grew up and even where her husband died in 1981. Their mother had turned the home almost into a museum of family treasures over the years. As the mother told her sons: “I have no emotional attachment to the house; I never liked it physically. But everything important that ever happened in our life as a family is here, and I can’t just leave all that behind.” Zweig’s letter talks about the true treasures of owning a home and the difficulty in saying goodbye to a place you call home for so many years. “A home is more than an investment,” he writes. “It is the place that helps shape who we are. Your generation may well be thankful that you don’t have to bear the burdens of owning one – the mortgage, the maintenance, the pain of pulling up roots that run decades deep. My generation, and my mother’s, are thankful we had the blessings.” Source: NARA large number of homes have been converted to rental units in recent years. Most of these homes had been sold as a foreclosure or in a short sale. But many of these homes will soon filter back into the owner-occupied housing stock, which some experts say could be one answer to alleviating inventory shortages. It also could propel remodeling activity. Researchers from Harvard University’s Joint Center for Housing Studies recently took a look at the process of reconverting these rental units back into the owner-occupied housing stock. To evaluate, they looked at owner-occupied homes in 1995 that were tracked over 20 years from the American Housing Survey. Nearly a quarter of the homes in the 1995 group were converted to a rental at least once in that period. “The pattern of home improvement spending on converted homes is particularly interesting,” notes JCHS researchers on their Housing Perspectives blog. “For homes that were converted to rentals and then converted back to home ownership, spending on home improvement projects was over 20 percent below average prior to being converted to a rental unit, and almost 20 percent above average after that same rental unit was converted back to home ownership. For every million rentals converted back to home ownership, therefore, there is expected to be almost a billion dollars more spent each year on home improvement activity. Source: JCHS’ Housing Perspectives Blog 

Economists to real-estate agents have debated whether the housing boom and bust of the last decade has dramatically remade the way Americans live or merely created a temporary disruption. U.S. Census data released recently provides strong support for the latter thesis—that shifts in where Americans move were merely temporary, according to analysis by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. For one thing, the rate at which Americans are moving to the suburbs is once again outpacing the rate at which they are moving to cities. That picks up on a decades long trend that only very temporarily reversed during the recession. Urban counties grew by 0.8% in 2015 to roughly 77 million people, compared with suburban counties, which grew by nearly 1% to 159 million people. Mr. Kolko defines counties as urban based on how dense they were as of the 2010 census. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of April 11, 2016

Best of All Worlds RevisitedThe first quarter of 2016 is in the books. It was a pretty wild quarter to say the least. We started the quarter with the news that the Federal Reserve had started raising interest rates and plenty of international turmoil. The stock market underwent a healthy correction and based upon the preliminary data for the fourth quarter’s economic growth, the economy ended 2015 limping. Many were pessimistic regarding the outlook for 2016 and it seems with good reason.

Then the unforeseen happened. The economy created over 600,000 jobs in the first quarter, interest rates moved lower and the stock market recovered all of it’s losses to move into “break-even” territory for the year. The fourth quarter’s economic growth also turned out to be higher than previously reported with subsequent revisions and even oil prices, which also plunged in the first quarter, recovered somewhat.

So where does that leave us for 2016? Are we going to continue to produce jobs, enjoy low interest rates and see the stock market continue to go up from here? That would indeed be the best of all worlds, but unfortunately we can’t guarantee this scenario. It would be nice. One factor we should be watching is corporate profits, which are starting to be released for the first quarter. If corporate profits don’t start growing again, it is unlikely stocks will continue to prosper. When they meet at the end of the month, the Fed’s assessment will be interesting to see.


The Markets. Rates on home loans fell to their lowest point in over a year in reaction to the Fed announcement in mid-March and subsequent comments by the Fed. Freddie Mac announced that, for the week ending April 7, 30-year fixed rates fell to 3.59% from 3.71% the week before. The average for 15-year loans was also lower at 2.88%. The average for five-year adjustables decreased to 2.82%. A year ago, 30-year fixed rates were at 3.66%, virtually the same as today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “Rates on home loans this week registered the delayed impact of last week’s sharp drop in Treasury yields, as the 30-year rate fell 12 basis points to 3.59 percent. This rate marks a new low for 2016 and matches last year’s low in February 2015. Low rates and a positive employment outlook should support a strong housing market in the second quarter of 2016.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated April 8, 2016
Daily Value Monthly Value
April 7 March
6-month Treasury Security  0.36%  0.47%
1-year Treasury Security  0.52%  0.66%
3-year Treasury Security  0.83%  1.04%
5-year Treasury Security  1.14%  1.38%
10-year Treasury Security  1.70%  1.89%
12-month LIBOR  1.179% (Mar)
12-month MTA  0.410% (Mar)
11th District Cost of Funds  0.670% (Feb)
Prime Rate  3.50% (Dec)
 A little ­known program sponsored by the Department of Housing and Urban Development allows police officers, teachers, firefighters and emergency medical technicians to buy certain homes for half price. But financing these purchases comes with some strings attached. Called Good Neighbor Next Door, this program deeply discounts foreclosure properties in areas designated as in need of revitalization. The homes are owned by HUD and first offered only to full­time educators and emergency responders who serve these areas. In return, the workers must agree to live in the home for at least three years. To be eligible, buyers may not own any other residential property or have owned a home within the previous year. Although the home price is halved, buyers must still be able to qualify for a loan equal to the full price, said John Zubretsky Jr., the owner­broker of Weichert Realtors, the Zubretsky Group in Wethersfield, Conn. The loan amount, though, will be only for the discounted price, said Mr. Zubretsky, a specialist in HUD properties. But in order to make the buyers accountable for the three­ year commitment, HUD also requires that they sign a “silent second” mortgage for the amount that the property was discounted. No interest or payments are required on this loan as long as the buyer lives in the home for at least 36 months. “That second note gets ripped up after three years,” said Kevin Kelly, a local listing broker for HUD homes in the Buffalo area. Source: The New York TimesThe 2006-2009 housing slump reduced wealth by $7 trillion. Since then, the value of homeowners’ equity in real estate has more than doubled from a low in the first quarter of 2009, a Federal Reserve report today showed. What’s more, housing wealth is poised to reach a new record as early as the second quarter, say economists at the Federal Reserve Bank of St. Louis and Pantheon Macroeconomics Ltd. Improving property values are allowing homeowners to shake off recent stock-market volatility and keep spending. From the end of 2013 through last year’s fourth quarter, home equity climbed 22 percent compared with a 11 percent gain in the Standard & Poor’s 500 Index. “The increase in housing wealth is a kind of stealth offset to stock prices,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, who predicts record home equity values next quarter. “Home ownership is much wider than stock ownership. The consumption effect from a given rise in holdings has been bigger for homes.” The number of homeowners with at least 20 percent equity is “rising rapidly,” Anand Nallathambi, president and chief executive officer of CoreLogic, said in a statement. “In 2016, we expect home equity levels to continue to build.” Source: Bloomberg

Young adults are key to boosting future household formation, but those households may look different than in previous generations. With declining marriage rates, households headed by married couples may no longer dominate the landscape. The number of 30-somethings who are married has fallen about 10 percent in the last decade, while the percentage of unmarried couples living together has nearly doubled from 7 percent to 13 percent, according to Gallup Analytics. Most notably, the “rise of singledom,” as Gallup calls it, is most evident among 18- to 29-year-olds. The number of people in that age range who are single and living alone has risen from 52 percent in 2004 to 64 percent in 2014. Among 30- to 39-year-olds, the number has increased from 15 percent to 19 percent in the same period. “It is widely known that fewer young people today are getting married. But Gallup’s data reveal that young adults are not simply swapping marriage for living together, but rather staying single longer,” Gallup’s report notes. “This doesn’t necessarily mean young adults are staying out of relationships, just that they are less likely to be making the more serious commitment associated with moving in together — whether in marriage or not.” Gallup’s report notes “the important question for society is whether the dramatic shift in living arrangements seen among 20-somethings persists into their 30s, furthering the revolution in U.S. household and family structure.” Source: Gallup

April Fools’ Jobs Report – April 4, 2016

April Fools’ Jobs ReportWe personally do not think that the government’s employment report should be released on what is known as April Fools’ Day. However, this is how the calendar is aligned this year and we doubt the government is about to change their minds, because that would be “tomfoolery,” if you would excuse the pun. Actually, writing this sentence prompted us to do research on the concepts of April Fools’ Day and tomfoolery, and it turns out that their origins are both attributed in history to Europe, but there is more than one theory about their actual origins. Suffice to say that the concept of April Fools’ Day precedes that of our employment report.

Today, the employment report is a bit more significant than April Fools’ Day, and with the Federal Reserve Board set to meet at the end of April, they will have plenty of time to absorb this data before deciding whether to raise interest rates again. The markets did not have to wait that long and the market’s initial reaction to the report was positive, though the report itself was mixed. Over 200,000 jobs were created, but there was an uptick in the unemployment rate to 5.0% from 4.9%, and only a slight movement in wage growth.

While many will view an increase in the unemployment rate a negative, when we look deeper at the data, we can see that the increase in unemployment was a direct correlation in the labor force participation rate. In other words, more have decided to rejoin the workforce and this is encouraging for the economy. Because of the low participation rate, as well as millions working part-time but desiring full-time positions, there is plenty of room for us to add jobs without overheating the economy. Hopefully the Fed will see it that way when they review the data as well.

 More home owners are adopting smart-home technology, and that will likely impact buyers’ purchase decisions in the future, according to a new joint survey of about 4,000 Americans by Coldwell Banker and CNET. Twenty-eight percent of respondents say they own at least one smart-home product, and nearly half of millennials, ages 18 to 34, say they plan to adopt smart-home technology. Of those who currently use it, 81 percent say they would be more likely to buy a home if smart products — such as connected lighting and thermostats, remote-access security, and smart locks — were already installed. “Smart-home technology is catching on because it is literally changing the way we live in our homes,” says Sean Blankenship, chief marketing officer for Coldwell Banker. “Not only is it shifting the financial perception of the home, but it’s also transforming our emotional connection to our homes. We believe that in three to five years, home buyers will expect smart-home technology — it will become the new norm.” Eighty-seven percent of smart-home owners say the technology makes their lives easier, and more than half say it saves them time (an average of nearly 30 minutes per day). Forty-five percent also say that, on average, they’ve saved more than $1,000 a year with smart-home technology. Also among the survey’s findings: 76 percent of those with smart-home products say they control them via a mobile device. Fifty-one percent say the living room is the most common place for smart-home technology, followed by the bedroom at 45 percent; family/rec room at 35 percent; and kitchen at 30 percent. Source: Caldwell Banker Real EstateForget what you’ve read about the millennial generation not buying homes in the suburbs. The latest surveys show they are, and not only that, they are leaving a powerful footprint on the feel of suburbia. Millennials make up one-third of buyers nationwide, and represent the largest segment of all home buyers, according to research from the National Association of Realtors®. “Their buying power is huge,” says Jessica Lautz, NAR’s managing director of survey research. “They are definitely a force in the market. They are overtaking the baby boomers.” They are moving out of city centers, bypassing the small starter properties in the city in favor of larger homes in the suburbs – just like previous generations before them have, notes Tommy Choi with Weinberg Choi Realty. In the suburbs, millennials are increasingly opting for very traditional homes too – a single-family, detached home with three bedrooms and two baths, Lautz says. They also are often purchasing older properties – which might be less expensive – and then remodeling these properties to match their style. When they do move out to the suburbs, they are showing a desire for the “anti-suburb suburb,” Alison Bernstein, founder of Suburban Jungle Realty, told MarketPlace. Bernstein says her clients want to hold onto at least some elements of the urban lifestyle even though they are in suburbia. Builders and cities are taking notice. For example, some communities are repurposing shopping malls and parking lots into green space. They’re creating retail hubs. They are also looking for ways to improve walkability and add more convenient access to public transportation. Source: MarketPlace

It’s an excellent time to be a landlord. Amid a U.S. recovery that has been frustratingly slow for most folks, property owners’ share of the economic pie has grown larger than at any point in the past seven decades. As just about anyone renting in a major U.S. city can attest, the past 10 years have produced a brutal squeeze in the property market. The subprime bust, stricter credit requirements, marriage-delaying millennials and weak income growth have added millions to the ranks of renters. Meanwhile, restrictive zoning laws and a lack of low-income housing construction have kept supply from keeping pace. The result has been a bonanza for anyone lucky enough to own rental property. According to the latest data from the Federal Reserve, property owners’ rental income — a number that includes the estimated benefit they gain from homes they occupy — added up to $168 billion in the last three months of 2015, or about 4.3 percent of U.S. national income. That’s up from just 1.5 percent at the beginning of 2007, and the highest level going back to 1946. Source: Bloomberg