Weekly Mortgage and Real Estate Report – Week of January 30, 2017

ECONOMIC COMMENTARY
The Fed and the State of Interest RatesThe start of a new year is a good time to reflect as we previously have on the state of jobs and real estate. Another important factor we are monitoring is the movement of interest rates. There is no doubt about the fact that one benefit of our very slow and steady recovery from the Great Recession has been incredibly low interest rates. These rates have made homeownership and other large purchases such as cars more affordable for tens of millions of Americans. In addition, these rates have spurred millions of Americans to refinance their home loans, which has provided another boost for the economy.

Even as the recovery has moved forward and the unemployment rate has moved down near pre-recession lows, rates have stayed low. As a matter of fact, Freddie Mac has reported that last year, rates on home loans were the lowest in the history of their survey. The previous low of 3.66% was also post-recession in 2012. Just to give a perspective, rates on 30-year fixed loans averaged approximately 6.0% in the years before the recession and during the first part of the recession. And before the real estate boom at the turn of the century, rates averaged in the 7.0% range.

Since the election, rates have moved up from their record lows to just over 4.0% on 30-year loans. Where they will go from here is a complete mystery. Most analysts predict they will move upward from here, but analysts have been known to be wrong. Here is a point to consider. If rates stay where they are today, they will be the lowest in history, save for a few months in the previous few years. This means that getting a loan is still a bargain. And even though the Federal Reserve Board is meeting this week, their actions are not expected to change things at the present time. Thus, we can continue to enjoy the good times — for now.

REAL ESTATE NEWS
  One of the nation’s leading credit scoring companies has released a study that shows the use of trended credit data along with a traditional credit report could expand consumer access to credit to 1.5 million consumers per year. The Equifax Consumer Credit Impact Analysis determined that the inclusion of trended credit data could result in an approximate increase of four percent more mortgages—or 267,000 home loans—being issued to borrowers that would have previously been rejected as ineligible. Equifax also stated that 4.1 percent home equity lines of credit—or 65,000 accounts—could be issued with this realignment to credit scoring. “Giving weight to how borrowers pay off credit debt puts more power in their hands to manage their credit evaluation.” said Peter Maynard, senior vice president global analytics at Equifax. “New ways of assessing consumer credit behavior through unique insights is something we are continuing to develop at Equifax, and opportunities to expand credit to consumers and mitigate for risk for lenders make these type of approaches solid ones for the entire marketplace.” Source: National Mortgage ProfessionalConstruction of single-family homes is expected to gradually rise this year, as a growing economy, solid employment gains, and rising household formation buoys builders’ forecasts. Last year, the National Association of Home Builders projected 1.16 million total housing starts in 2016, which was up nearly 5 percent from the previous year. Now NAHB is forecasting a 10 percent increase in single-family production for 2017 and a 12 percent rise for 2018. Still, there will be pressing challenges as builders look to increase their supplies this year. “While positive developments on the demand side will support solid growth in the single-family housing sector in 2017, builders in many markets continue to face supply-side constraints led by the three Ls — lots, labor and lending,” says NAHB chief economist Robert Dietz. Sixty-four percent of builders reported “low” or “very low” lot supplies. “The industry needs to recruit more workers and get more land in the pipeline, but it will take time.” Builders are particularly facing challenges building $200,000-range entry-level homes. Regulatory requirements comprise nearly 25 percent of the cost of a new home, which has made construction on lower-cost homes more difficult, Dietz says. Nevertheless, townhome construction, which tends to appeal to younger buyers, is already showing significant growth, comprising 12 percent of all single-family starts, Dietz says. “As millennials age, that is a big potential base to expand the home buyer market,” adds Frank Nothaft, CoreLogic’s chief economist. Source: NAMB

Ninety-nine percent of Americans say they’re a good neighbor, finds a new survey by the Community Associations Institute, a community association governance and education group. What is a good neighbor? Being quiet, friendly, respecting your neighbor’s privacy, and cleaning up after your pet, CAI’s 2016 National Good Neighbor Day Survey finds. Eighty-three percent of respondents say face-to-face interactions are the most common way they communicate with their neighbors. Also, having a dog helps to meet your neighbors, the survey found. Eighty-three percent of respondents said they get to know their neighbors while walking their dog. Many people say they’re proud of the neighborhood they live in. Eighty-six percent say they are proud to live in their neighborhood and actively recommend it to their friends and colleagues. Source: Community Associations Institute

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Weekly Mortgage and Real Estate Report – January 23, 2017

ECONOMIC COMMENTARY
The InaugurationWe now have a new President to go along with a new Congress. During the past year or so, we have endured what can only be described as an excruciatingly long election season mired in controversy and then even more controversy leading up to this time. With all this has come an endless amount of speculation as to the changes that will come about and what the effects will be on our economy.

Some of the questions center around trade agreements, regulations, foreign policy, health care and more. It has always been our policy to avoid political discussions and also not to get into speculation. This will not change. We don’t know what exactly will take place and certainly don’t know what effects these changes will have on the economy. Thus, we will discuss changes in policies which can affect the economy, real estate and jobs — but we have no better crystal ball than we have previously carried.

We do want to wish President Trump well, along with his administration and Congress. They certainly have a daunting task head of them, as does every new government. As an example, President Obama came in facing the deepest recession we had seen since the Great Depression — quite a challenge. Though there is a new direction, the economy and life will go on. For example, the Federal Reserve Board’s Open Market Committee meets next week for the first time since they raised rates in December. Most are not expecting another increase so quickly, and the change in administrations should not alter those expectations.

Note: Speaking of changes, we do know that upon the administration transition, the previously announced reduction in FHA Mortgage Insurance Premiums was suspended indefinitely by HUD. These changes were to take place January 27. HUD did not give a date by which they would revisit the policy. 

REAL ESTATE NEWS
  Will Congress reinstate deductions for MI premiums as part of its overhaul of the federal tax code? Depending on your situation as a buyer or owner, it could mean thousands of dollars in tax write-offs. M.I. premiums are charged by lenders when borrowers make less than a 20 percent down payment. During the past year, 43 percent of all home purchases were made with down payments of 5 percent or less, according to analytics firm CoreLogic Inc., often by millennials, first-timers and minority buyers. Under current law, these premium charges can be deducted on eligible borrowers’ income tax filings, along with home loan interest — including insurance charged by FHA. During 2014, the most recent year for which the Internal Revenue Service has statistics, MI premium deductions were claimed by 4.2 million homeowners. Since the right to take full premium write-offs is restricted by law to borrowers with incomes of $109,000 or lower, the benefit is targeted at non-wealthy families and is off-limits to everybody else. Roughly 40 percent of all taxpayers who filed for the deduction in the latest year had incomes of less than $75,000. But here’s the problem: The current statutory authorization for this benefit to middle income owners expired December 31. It will not be available for borrowers during 2017 and beyond unless reauthorized or given permanent authorization through congressional action. There’s a possibility this could happen if — as expected — Congress responds to President’s Trump call for a major tax reform bill to be passed as early as possible in the new year. Trump did not specifically address M.I. premium deductions during his campaign, but they clearly support one of his key priorities: greater recognition of the financial needs of blue collar and middle income families. Source: Mortgage DailyThe total value of the U.S. housing stock grew to a record-high $29.6 trillion in 2016, according to a new Zillow® analysis. The housing market saw a strong year of appreciation, growing 5.7 percent in value, or $1.6 trillion. The U.S. housing market has regained all the value lost during the housing crisis. The cumulative value of all homes in the U.S. declined by $6.4 trillion between 2006 and 2012 as the housing market collapsed. A home is typically the biggest part of an individual or family’s wealth, and the cumulative value of the U.S. residential housing stock is similarly significant to the national economy. The U.S. GDP is an estimated $18.7 trillion, nearly $10 trillion less than the value of all homes in the country. “Housing is incredibly important to us personally and to the economy as a whole,” said Zillow Chief Economist Dr. Svenja Gudell. “The U.S. housing stock is worth more than ever, which is a sign of the ongoing housing recovery. As buying a home gets more expensive, affordability remains a concern for many, and these numbers highlight just how much people are spending on housing. The total value of the housing stock grew nearly 6 percent this year, a pace that will likely mean some American families are priced out of homeownership.” Renters this year paid $478.5 billion, a $17.7 billion increase from 2015. About 635,000 new renter households formed in 2016, contributing to the amount of rent spent even as rent appreciation slowed. Source: Zillow

Rental apartments continue to face little competition from for-sale condominiums, but that can’t last, according to market experts. “We expect homeownership to return to favor, likely in the form of entry-level condos that offer the same amenities many urban apartment dwellers prefer,” says John Affleck, research strategist with CoStar. Currently, demand for rental apartments is high. Nearly all of the new units of multifamily housing—92 percent of multifamily housing starts in the third quarter—were being built as rental apartments, according to the National Association of Home Builders (NAHB). “I expect additional growth in the condo market,” says NAHB chief economist Robert Dietz. Condominium (and cooperative) completions in the second quarter of 2016 totaled 2,800, essentially unchanged from the second quarter of 2015 (when there were 2,700 completions). However, the condominium absorption rate picked up slightly, going from 63 percent in the second quarter of 2015 to 66 percent in the second quarter of 2016, according to NAHB. “The for-sale market and the single-family rental space will start posing more of a challenge to apartment operators as we move forward,” says Jay Denton, senior vice president of analytics for Axiometrics. Source: The National Real Estate Investor

Weekly Mortgage and Real Estate Report – Week of January 16, 2017

ECONOMIC COMMENTARY
Where The Real Estate Market StandsLast week we focused upon the employment situation in the long-term — looking back at 2016 and for the past eight to ten years. If there is one economic indicator which rivals the importance of the employment situation, it is real estate. Looking back, the real estate boom contributed to the great economic times we enjoyed just over a decade ago. And it was the collapse of that boom that sparked the financial crisis and the great recession we faced. Though the full year numbers have not come in for 2016, there has been plenty of news regarding the recapture of the real estate equity America lost during the great recession.

The numbers are not even across the country, but in general, real estate has finished the year at an all-time high in many areas. According to Zillow, the total value of U.S. housing stock grew to a total of $29.6 trillion in 2016, reaching this all-time high. Zillow also reports that the housing stock showed an increase of $1.6 trillion from 2016, a 5.7% increase in value. These are pretty impressive numbers, but when you factor in that these numbers represent a “break even” since 2016, the data takes on a different meaning.

Fortunately, we don’t want to stop there when looking at the performance of real estate. For example, in 1986, the average existing home price in the United States was $98,500. In November of 2016, the average was $276,800. This means that the total appreciation rate has been close to 300% over 30 years, or about 6.0% per year compounded annually. Of course, the rate of return is much higher when we figure that the purchaser of a home did not typically pay cash for their home in 1986, and nor would they today. The bottom line? If someone bought a home 30 years ago, and paid their regular 30-year loan payment over 30 years, they would now have an asset of approximately $300,000 free and clear — even if they only invested $10,000 to purchase that home. Thus, a short-term view of real estate is not necessarily the best view, as real estate is a long-term investment for the average homeowner.

REAL ESTATE NEWS
  The Federal Housing Administration has released a letter announcing that they will be lowering the FHA annual mortgage insurance premiums (MIP) effective for FHA loans closed on or after January 27, 2017. FHA is very popular with first-time homebuyers. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track,” commented William E. Brown, president of the National Association of Realtors. Brown thanked the FHA and HUD leadership for the move but added that there was still more to be done, including cutting the requirement for borrowers to maintain FHA insurance even when their equity position has improved. FHA’s announcement lowers the annual premiums by 0.25% for 30-year loans and 0.20% for 15-year loans. The up-front premium remains the same at 1.75% of the loan amount. In addition, there is no change with regard to the policy concerning the cancellation of MIP premiums, which means that loans with less than 10% down are not eligible for cancellation of the annual premiums in the future. The new annual premium on 30-year loans is 0.60% for loans with a down payment of less than 5.0% and 0.55% for loans with a downpayment of 5.0% or more.Source: FHA and NAR — If you would like a flyer which covers the 2017 changes in the industry, including loan limits and Rural Housing Fees, contact us.Home loans through the Department of Veterans Affairs more than tripled in the wake of the 2007-2009 financial crisis, providing a critical line of lending credit to tens of thousands of veterans trying to buy a house, according to a report recently released. Researchers say those numbers show the quiet importance of the VA program, a benefit used by millions of veterans but often getting less attention than initiatives like health care coverage and education stipends. “This is a stable, accessible form of credit that has helped a lot of families,” said Keith Wiley, a research associate at the Housing Assistance Council and co-author of the report. “And over the years it has been expanding.” The report, funded in part by the Home Depot Foundation, found nearly 9 percent of all home loans in America in 2014 were backed by VA, up from 2 percent a decade earlier. Before the recession, those loans totaled around 140,000 a year. Today, those numbers are closer to 510,000, making them the third-largest home loan type in the country — behind conventional loans and loans backed by the Federal Housing Administration. VA officials said nearly 40 percent of the loans approved in recent years were issued free of service charges, since the applicants qualified for disabled veteran status. HAC officials said they hope the new report will be used as part of broader planning efforts on veteran homelessness and financial health, and to drive national policies on those issues. Source: The Military Times

According to data released by the US Census, in 2016 the U.S. population grew at the lowest rate since the Great Depression. The overall slowdown was due to an uptick in deaths, a slowdown in births and a fractional drop in immigration, all of which dampened American population growth for the year ended July 1. The 0.7% increase, to 323.1 million, was the smallest on record since 1936-37, according to William Frey, a demographer at the Brookings Institution. The Census Bureau revised downward its estimates of immigration for each year since 2010 by an average of 10%. For this year, it estimated that 999,000 immigrants arrived, down 4% from the prior year. Source: The Wall Street Journa

Weekly Mortgage and Real Estate Report – Week of January 8, 2017

ECONOMIC COMMENTARY
The Employment SituationWe just saw the last unemployment report of 2016. The December numbers came in at 156,000 jobs added for the month, which was a bit lower than expected–but the previous two months were revised upward by almost 20,000. The unemployment rate came in at 4.7%, as expected. Wage growth came in higher than expectations. With the year ending and a changeover in Presidents, it also gives us the chance to see how this important economic indicator is doing, not only for the past year, but for the past several years as well.

For all of 2016, the economy gained just over 2 million jobs. This is an impressive number, but it was down from 2.7 million jobs added the year before and 3.1 million jobs added in 2014. In addition, the unemployment rate started 2015 at 5.0% and ended the year at 4.7%. Finally, the labor participation rate started the year at 62.6% and ended the year at 62.7%, virtually flat for the year. It was over 66.0% before the recession hit. Looking back eight years, at the end of 2008, the unemployment rate was 7.3% and reached 10.0% during the first year of the Presidency, when the country was mired in recession.

Overall, the economy lost 8.7 million jobs during the recession, which bridged two administrations. Since the end of the recession, we have averaged a net gain in jobs of 190,000 per month, or just under 2.3 million per year. This means we have recovered the jobs lost during the recession and more, but if you average the job gains over 10 years, to include the first stages of the recession, the annual average job gains have totaled much less. In conclusion, we have made up much ground, especially when looking at the unemployment rate. However, there is more work to be done with regards to adding more jobs and increasing the labor participation rate.

REAL ESTATE NEWS
  Various real estate entities have weighed in with their prognostications for the 2017 housing market. Most observers expect home sales and prices to moderate in the coming year. They say suburbs will make a comeback while the days of historic low rates are over. Of course, a lot depends on the actions of the new administration. Although President-elect Donald Trump said little about housing during the campaign, some of the issues he highlighted will have an effect on the residential real estate market, such as infrastructure spending, regulatory and tax reform, and immigration policies.

  • Realtor.com predicts “a year of slowing, yet moderate growth,” with its fourth quarter Housing Opportunities and Market Experience Survey finding that 70 percent of people believe that now is a good time to buy a home. Millennials and boomers will dominate the market and Realtor.com expects these two massive demographic groups to power demand for the next decade. Home prices will grow at 3.9 percent annually, compared to an estimated 4.9 percent in 2016. Inventory is down an average 11 percent in the top 100 metro markets, and it is not expected to improve next year. Homes will be selling 14 percent faster. The survey also found that 70 percent of people say now is a good time to buy a home.
  • Zillow says the homeownership rate will bounce back even as renting becomes more affordable. The real estate data firm also sees a reversal of a recent trend, predicting that “more Americans will drive in from the affordable suburbs for work, despite urban development efforts.” Additional predictions include: Cities will focus on denser development, more millennials will become homeowners, and buyers of newly built homes will have to spend more to cover rising costs of construction. “Those looking for more affordable housing options will be pushed to areas farther away from good transit options, in turn leading more Americans to drive to work,” said Svenja Gudell, Zillow chief economist.
  • Redfin predicts “strong buyer interest, better access to credit and a modest and much needed increase in inventory that will allow home sales to grow but not as much as in 2016.” Redfin expects median home sale prices to rise 5.3 percent annually in 2017 compared to 5.5 percent this year and existing home sales to increase 2.8 percent annually in 2017 compared to 3.4 percent last year. 2017 will be the fastest real estate market on record as homes stayed on the market an average of 52 days this year, according to Redfin. It expects them to sell even faster in 2017. Redfin expects rates on home loans to rise but no higher than 4.3 percent on the 30-year fixed rate next year.
  • The Mortgage Bankers Association predicts that rates on home loans will rise slightly but remain low, purchase applications will increase and refinance applications will decrease. “Strong household formation coupled with further job growth, rising wages and continuing home price appreciation will drive strong growth in purchases in the coming years,” said Mike Fratantoni, MBA’s chief economist. MBA expects rates on the 30-year fixed rate loans to remain below 5 percent through the end of 2018. “Historically low and, in some cases, negative rates around the world continue to put downward pressure on long-term U.S. [bond] rates, keeping them lower than the domestic growth environment would otherwise warrant,” Fratantoni said. Source: The Washington Post

Buyers are continuing to purchase bigger homes, according to the National Association of Realtors®’ 2016 Profile of Home Buyers and Sellers. In five out of the nine U.S. regions, buyers sought to trade up and buy bigger homes than last year. Forty-six percent of all buyers traded up in the size of their home, up from 42 percent in 2015, NAR’s report showed. As homeowners gain more equity, they may be looking to trade up for a bigger home. So far in 2016, sellers reported selling their homes for a median of $43,100 more than they purchased it, which is up from $40,000 in 2015 and $30,100 in 2014. The most common reason for selling a home was that the home was too small. Source: NAR

Weekly Mortgage and Real Estate Report – Week of January 2, 2016

ECONOMIC COMMENTARY
Predictions For 2017The predictions for 2017 are all over the board with regard to the economy and the housing market in particular. While major variations always exist, this year the predictions vary more widely because of two major factors. First, we have a new administration being installed and we still don’t know what policies will change and how these new policies will affect the economy. We do know that a new administration always promises change and we can anticipate these changes, but it surely makes the prediction game more interesting. Secondly, interest rates have been rising since the election. We don’t know if these increases will hold and whether they will continue. Even though rates continue to be historically low, we don’t know how higher rates will affect the economy in the long-run.

Certainly, predicting the future is always a hit-or-miss game. For example, just about everyone predicted higher rates for 2016. Even the Federal Reserve Board said they anticipated raising short-term rates several times. Looking back, this increase in rates never took place. Thus, if the Fed can’t predict the future even a few months out, then we don’t expect that market analysts will fare much better. Remember that there are always intervening variables that can affect the future. These variables can and have included natural occurrences, political events, the economics of foreign nations, or even instances of terror.

If you look back at 2016, we had the Brexit event. But looking further back, we have had intervening events such as a Tsunami, wars and many international incidents of terrorism. While we hope that these types of events do not reoccur, when dealing with an entire world of possibilities, we do know they are possible. Thus, while many market analysts are making predictions such as higher interest rates, a continuation of the stock rally and moderating housing growth, we must understand that no one has a handle on the future. Higher rates and moderating housing growth seem to be the consensus opinion, but there is always wiggle room in the prediction game.

REAL ESTATE NEWS
  Increasingly, seniors are going against the conventional retirement wisdom about mortgages which, always before, preached that a cornerstone of a good retirement was to enter it debt free. That meant without a home loan. And yet about one-third of homeowners 65 and older have a home loan now. That’s up from 22% in 2001. Among seniors 75 and older, the rate jumped from 8.4% to 21.2%. The appeal, of course, is that home loans are cheap with low interest rates. That puts the question in sharp focus: is this good financial planning or is it reckless? Paying off a home loan brings a sense of relief. Tim Shanahan of Compass Securities Corporation in Braintree, Mass. said: “It’s a great feeling to have no debt and a significant accomplishment to be able to tear up the loan.” But is this still the smartest planning? As more seniors take on home loans, experts are re-opening the analysis. “The short answer to the question is it depends,” said certified financial planner Kevin O’Brien of Peak Financial Services in Northborough, Mass. O’Brien continued: “It depends on how strong the person’s cash flow is or not. It depends on how much liquid savings and investments they have after they might pay it off. It also depends on the balance they need to pay off in relation to their sources of cash flow, and liquid assets.” About one senior in four has told researchers he plans to work past 70 years of age. Also, at age 70, a person has every reason to claim Social Security – there are no benefits in delaying – so that means many 70+ year-olds now have two checks coming in, plus what retirement savings and pensions they have accrued. That complexity is why Pedro Silva of Provo Financial Services in Shrewsbury, Mass offered this advice: “We like to see clients go into retirement without debt because the tax benefits are using less. If clients will carry a home loan, then the low rates are a great opportunity to lock in a low payment,” Silva continued. “We encourage those folks who don’t foresee paying off their home in retirement, to stretch the payments out as long as possible in order to achieve the lowest rate possible.” Source: The Street — Want to know more about what might be right for your situation? Contact us for a referral to a financial planner, if you are not already working with one.More homeowners are gaining equity and climbing out of negative territory, according to a report released by CoreLogic. Now, 93.7 percent of all financed properties—or 47.9 million homes—have more money invested in them than their estimated market value. Home equity has grown 10.8 percent in the third quarter compared to a year ago. “Home equity rose by $12,500 for the average homeowner over the last four quarters,” says Frank Nothaft, chief economist for CoreLogic. Meanwhile, the total number of financed residential properties that remain in negative equity are 3.2 million – or 6.3 percent of all financed homes, CoreLogic reports. Negative equity means that borrowers owe more on their loans than their homes are worth. In the fourth quarter of 2009, negative equity peaked at 26 percent of all financed properties and has steadily been declining ever since. “Price appreciation is the main ingredient for home equity wealth creation, and home prices rose 5.8 percent in the year ending September 2016,” says Anand Nallathambi, president and CEO of CoreLogic. “Pay-down of principal is the second key component of equity building. Many homeowners have refinanced into shorter-term loans, such as a 15-year loan, and by doing so, are able to build equity wealth faster.” Source: CoreLogic

Single-family houses are getting smaller, according to a new data analysis released by the National Association of Home Builders (NAHB). “After increasing and leveling off in recent years, new single-family home size continued to trend lower during the third quarter of 2016,” said Robert Dietz, NAHB’s chief economist and senior vice president for economics and housing policy. “This ongoing change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, including growth for townhouses, typical new home size is expected to decline. According to third quarter 2016 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was effectively unchanged at 2,402-square feet for the third quarter. Average (mean) square footage for new single-family homes fell from 2,620- to 2,602-square feet.” Dietz noted that this trend away from larger homes is typical of what occurs in a post-recession period, albeit with a significant change. “This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers,” Dietz said. “But the recent small declines in size indicate that this part of the cycle has ended and size should trend lower as builders add more entry-level homes into inventory.” Source: NAHB