Weekly Mortgage and Real Estate Report – Week of June 26, 2017

ECONOMIC COMMENTARY
Half-Way There

 

We are approaching the half-way point of 2017. We can make an observation that it has been a very strange year. And we are not just talking about the political turmoil. For example, despite the fact that the Federal Reserve Board has raised short-term interest rates for the third consecutive quarter, we still do not have a fix on how strong the economy is right now. In their statement accompanying the increase two weeks ago, the Fed expressed optimism that the economy was getting stronger. Yet, every economic report released that week was disappointing, including readings on retail sales and industrial production.

Even though just about everyone was expecting rates on home loans to rise significantly this year, this uncertainty is one reason that mortgage rates are lower than the analysts expected. One would hope that the upcoming June jobs report would lend some certainty to the equation, but thus far this year, we have even seen ambiguity within the employment sector. The unemployment rate is dropping, but the pace of jobs added has not accelerated from last year.

Despite this uncertainty, the stock market has remained strong this year as the post-election rally has continued. Does this mean that the markets are optimistic that it is only a matter of time before the economy shows signs that it is picking up? Or is this rally merely a reaction to improved corporate profits? We feel that the picture will become clearer over the next several weeks, as we see additional jobs reports and a reading on the growth of the economy for the second quarter. For now, the lower long-term rates should be helping the economy in conjunction with higher stock prices.

REAL ESTATE NEWS
  You’ve found the house you want. Now, where do you go for a home loan? If you’re buying a brand-spanking-new place, do you go with the builder’s in-house lender? His reason for being so magnanimous: He wants to keep your deal in-house so he can be on top of it and make sure everything goes according to Hoyle. If you’re buying an existing house, do you go with the lender your real estate agent recommends? After all, your agent has just as much riding on your deal as you do. If it doesn’t close because you can’t get a loan or something falls through at the last minute, he/she doesn’t get paid. Experienced agents know who handles glitches the best and who gets loans to the settlement table with as few blips as possible. Or do you listen to Mom and Dad’s advice? After all, they’ve probably done this a few times in their lives, so they should know what they are talking about. Shouldn’t they? As it turns out, buyers who chose a lender because of financial incentives provided by their builders were only marginally satisfied with their experiences. That’s according to the National Borrower Satisfaction Index produced by the Stratmor Group, a Colorado-based consulting firm. Those who listened to their realty agents were more satisfied, and those who paid heed to advice from their folks, a friend or another relative were even happier with their choices. But the borrowers who were most fulfilled were those who made a connection of their own with their loan agent. Their antennae wiggled. They hit it off. He or she was personable, but also took the time to answer all their questions, listen to their concerns and work with them every step of the way. In the Stratmor study, 31 percent of the huge 10,000-borrower sample chose their officer based on “loan officer interaction.” And that group reported a 95 out of 100 when asked about their overall “borrower satisfaction.” “Their loan officers engaged with them and made them feel comfortable,” says the company’s senior partner, Garth Graham. It’s why he believes that loan officers — also known as “humans” — remain a central part of the loan process. Source: Lew Sichelman, uExpressIn some of the hottest housing markets in the US, renters are looking outside of the city as urban renting is becoming more expensive, according to a new report from Zillow. For the first time in four years, the monthly cost of suburban rent is rising faster than the cost of urban rent. The monthly cost of rent in the suburbs is up 2.5%, versus a 2.3% increase in urban rent. “An increase in multifamily construction has slowed rent growth across the country, with rents rising at their slowest pace in five years. The suburbs often offer larger apartments and more single-family homes for rent with more space – about 19% of all single-family homes in the US are rentals, up from 13% in 2005,” the report said. Zillow Chief Economist Svenja Gudell listed hardship in rental affordability, an inclination to newer apartments and preference for the spatial capacity of single-family homes in the suburbs as some of the reasons for this new trend. “Rents themselves are still lower in the suburbs, but if demand keeps growing for suburban rentals and supply continues to lag, that will also start to change,” Gudell said. “As more formerly urban renters move to the suburbs in coming years, we’ll likely start seeing more apartment buildings and walkable amenities popping up in those communities.”Source: Zillow

For the first time in years, home sizes are getting smaller. That’s the main finding of the U.S. Census Bureau in its annual report on characteristics of new housing. The report said the median home size fell to 2,422 square feet in 2016, down from a record high 2,467 feet in 2015. Relatively speaking, however, home prices are still 8 percent higher than the pre-crisis peak in 2007 and nearly 50 percent bigger than in 1978. The report said the share of new homes in excess of 3,000 feet declined; the share of new homes under 2,000 feet increased. Source: The MBA

Weekly Mortgage and Real Estate Report – Week of June 19, 2017

ECONOMIC COMMENTARY
The Deed is Done

 

The Federal Reserve Board’s Open Market Committee met last week to consider raising short-term interest rates. As we approached the meeting, the consensus was that the Fed would move their Discount and Federal Funds Rate higher by one-quarter of one percent. The weaker than expected jobs report put a bit of doubt in some analysts’ minds; however, most were still expecting the increase to be approved.

Thus, no increase would have been somewhat of a surprise and an increase of more than one-quarter of a percent would have been a major surprise. Therefore, the fact that the Fed moved by one-quarter of one percent was seen as somewhat of a non-event. Just as importantly, their statement released at the conclusion of the meeting provided us clues as to what the members thought of the state of the economy. The statement lauded the progress of the economy and downgraded their forecast for inflation. They continue to espouse a gradual rise in rates and, in the fourth quarter, the Fed expects to start selling off some of the assets they have amassed in the past to help the economy.

Anytime we are focused upon actions by the Federal Reserve Board, we have to remind our readers which interest rates the Fed controls directly. The Federal Funds Rate and the Discount Rate are rates the Fed charges member banks and member banks charge each other for overnight funds to balance their sheets. Thus, when we indicated that these are short-term rates, they are very short term. In reaction, other short-term rates such as three- and six-month T-Bills are affected most directly. On the other side of the coin, long-term rates, such as home loans, can move in tandem or have a different reaction, especially if the markets feel that the Fed is staying ahead of any threat of inflation. Thus, an increase in interest rates for home loans are not guaranteed to follow suit, though certainly the Fed’s action last week does pose that possibility.

REAL ESTATE NEWS
  Recent data has shown that renting can cost more than owning a home, and with millennials gearing up to the responsibility of owning a home, home builders are shifting their strategy in order to cater to this age group. In the first quarter of 2017, more new US households preferred to purchase a home than rent in the first quarter of 2017– the first time the scale has tipped that way in more than a decade, according to a Wall Street Journal report. Data from the Census Bureau indicated that 854,000 new-owner households were formed in the first quarter of the year, handily beating the 365,000 new-renter households formed in the same quarter. “They’re crawling out of their parents’ basements, they’re forming households and they’re looking to buy,” Doug Bauer, chief executive of home builder Tri Pointe Group told the Journal. Zelman & Associates, a housing-research firm, said that in Q1 2017, 31% of homes built by major builders were reportedly in the starter-home range (2,250 square feet). Millennials recently eclipsed baby boomers as the nation’s largest generation, so it is imperative that they have quality long-term housing options,” Steve Hovland, director of research for HomeUnion, told the Journal. Source: The Wall Street JournalToday, homebuyers have returned to the market in full force, but the lack of new construction over the last decade has contributed to an inventory shortage that’s pushed home prices out of reach for many. Now, the same young homebuyers who must cope with bidding wars to buy a first home may face a shortage in another key resource: schools for their kids. State and local governments spent $12.6 billion on elementary school construction in 2016, according to Census Bureau data—the highest amount in six years, but a 31 percent decrease compared with 2008, even before adjusting for inflation. Meanwhile, while construction spending has plummeted, enrollment has increased by four percent. Most funding for school construction comes from local governments, said Alex Donahue, deputy director for policy and research at the 21st Century School Fund, a Washington-based nonprofit. With local finances continuing to suffer years after the collapse, there is less money for school funding in general, and facilities upgrades in particular. “Spending declined during the recession mainly because 80 percent of that spending is local dollars, and the local governments didn’t have the money,” Donahue said. The shortfalls were compounded by state and federal funding cuts to education. Thirty-five states provided less total funding per student for primary and secondary education in 2014 as compared to 2008, according to a report last year from the Center for Budget and Policy Priorities (CBPP) that covers the most recent available data. Quality of local schools, meanwhile, has long been a key selling point for house-hunters—part of a feedback loop that helps rich school districts get richer. “If there’s a period of under-investment, particularly in places that haven’t recovered yet, that has implications for subsequent generations,” said Ralph McLaughlin, chief economist at Trulia. “That potentially is widening income equality for the next generation.” Source: BloombergImmigration is increasing to swell America’s population and foreign buyers will have a greater impact on future demand in the US housing market. That was a key message delivered at an international real estate forum as part of the 2017 Realtors’ Legislative Meetings & Expo. NAR’s Danielle Hale, managing director of housing research, was joined by Alex Nowrasteh, immigration policy analyst at the Center for Global Liberty and Prosperity at the Cato Institute, delivering presentations at the meeting. Nowrasteh spoke of the growing number of immigrant households with the 2015 American Community Survey estimating 43.3 million foreign-born residents. “Immigration affects rents and home prices far more than it affects the labor market,” said Nowrasteh. “An expected 1% increase in a city’s population produces a 1% uptick in rents, while an unexpected increase results in a 3.75% rise.” He also said that each immigrant adds 11.6 cents to housing value in the low-to-middle income counties in which they tend to reside. In total, $3.7 trillion was added to US housing wealth by 40 million immigrants in 2012. “A majority of foreign buyers in recent years are coming from China, which surpassed Canada as the top country by dollar volume of sales in 2013 and total sales 2015,” said Hale. “Foreign buyers on average purchase more expensive homes than U.S. residents and are more likely to pay in cash.” Source: MPA

Weekly Mortgage and Real Estate Report – Week of June 12, 2017

ECONOMIC COMMENTARY
Fed Meeting Amid Shortages

 

We have previously brought up the listing shortages which seems to be constraining the real estate market while price growth continues. This shortage of listings presents a major opportunity for builders. Of course, builders are facing several shortages as well and these are constraining their ability to keep up with demand, especially within the first-time buyer market. These shortages include a lack of skilled labor and a lack of buildable lots in many areas. Thus, there are several shortages which are constraining the growth of the real estate market.

Could these shortages be related to the labor situation? We had another jobs report recently which showed a similar pattern. The number of jobs added was disappointing again. Yet, the unemployment rate moved to lows not seen since 2001. Could it be that we are running into a labor shortage? With the overall labor participation rate low, we expected that people would be coming back into the labor force as jobs were created, but perhaps their skills do not match the types of jobs that are open. Similarly, there are plenty of buildable lots in America, but not near many cities which are growing.

If the Federal Reserve Board meets this week feeling that we are facing a labor shortage and that wages are about to rise, they are likely to raise rates. If they feel that we just need to create more jobs, then they may not raise rates. While this one question may be an over-simplification of the situation and will not be the only one they face, it will be interesting to hear their statement after the meeting.

REAL ESTATE NEWS
  If you’ve heard that some people might get a boost to their FICO credit scores — without having to do anything — you’re right. According to a new study of 30 million credit files by score developer FICO, many Americans will experience bumps in the coming months, mainly modest increases of less than 20 points. But hundreds of thousands of the increases will be super-sized — in the range of 40 to 60 points and higher. That’s because, as part of an agreement with state attorneys general, in early July the three national credit bureaus will stop collecting public information on virtually all civil judgments and roughly half of all tax liens. Equifax, Experian and TransUnion have determined that the accuracy of the public records in these areas does not meet their standards. That means the wrong people too often got tagged with issues that affected their ability to get the terms they deserved. But unanswered questions remain: How many credit files contain civil judgment or tax liens, erroneous or otherwise? After all, though many consumers’ credit files include bad information, other consumers face legitimate judgments and liens. So, some applicants’ credit scores may be artificially inflated. Examining giant samples of credit files supplied by the credit bureaus, FICO estimated that between 12 million and 14 million Americans have judgments or tax liens listed that could be affected by the changes. When these items are purged, their FICO scores tend to jump. Most of the affected consumers’ files had score increases between 1 and 19 points — not a big deal. But between 1 million and 2 million consumers appear to be in line for score boosts of 20 points to 39 points. At least 300,000 people could see increases of 60 points or higher, simply because negative information will be expunged from their files. Source: Ken Harney, The Nation’s HousingAfter the recession, renters—particularly millennials—were flocking to urban areas, and as such, urban apartment construction surged to record-high levels. But now, a new study shows that’s changing. Renters are now targeting the suburbs in greater numbers. From 2011 to 2015, suburban areas outpaced urban areas in renter household gains in 19 of the 20 largest U.S. metros. Rent Café researchers speculate that cheaper rents may be one major factor driving new renters to the suburbs. In an analysis of a database of the 20 largest U.S. metros, Rent Café found that, on average, renters can save about a month’s worth of rent in one year by opting to rent in the suburbs over an urban area. Source: Rent Café Blog

Twenty-six percent of millennial college students say they plan to move back home as soon as they earn their degree in order to pay off some of their student loans, according to TD Ameritrade’s Young Money Survey of about 2,000 young adults. Thirty-two percent of millennials between the ages of 20 and 26 say they owe between $10,000 and $50,000 in student loans. The average student loan balance was $10,205. That is prompting more graduates to move back home with their parents to curb costs. Nearly half of the post-college millennials surveyed say they had “moved back to my parents’ home after college.” About one-fourth of those who are still in college say they expect to move back with their parents following graduation. “Today’s college grads are clearly under financial strain due to escalating tuition and stagnant wages,” says JJ Kinahan, chief strategist at TD Ameritrade. “Moving back in with mom and dad is a short-term sacrifice that could pay off in the long run. But that’s only if the ‘boomerang’ young adults are saving and wisely investing the thousands of dollars they would’ve spent on rent and other living expenses, and paying down their student debt.” Survey respondents ages 20 to 26 say they think it would be “embarrassing” to still be living with their parents by age 28. However, nearly 30 percent of respondents say they wouldn’t start to feel embarrassed until they were between the ages of 30 and 34. Eleven percent say they would not feel embarrassed about living with their parents beyond the age of 35. Source: USA Today

Weekly Real Estate and Mortgage Report – Week of June 5, 2017

ECONOMIC COMMENTARY
Cat and Mouse Game
For many years during and after the recession, the monthly jobs report was important to gauge the strength of the recovery. However, during the past two years, the release of the report has taken on a new meaning. Now we are not only measuring the strength of the economy, but also tying that information directly to actions by the Federal Reserve Board’s Open Market Committee. If we added 250,000 jobs in a particular month five years ago, that was good news. But we did not have to worry about the Fed raising interest rates as a result of that information. Today, a strong report can lead us to direct action by the Fed.And so it is with the report which came out on Friday. The increase of jobs of 138,000 and the revision of last month’s data was seen as weakness. However, the unemployment rate moved to 4.1%, another post-recession low, and monthly wage growth came in at forecast. The question at this point is — are we approaching full employment, which means we are also experiencing a shortage of labor? This information, taken together with the previous month’s report, tells us that there is still a decent chance that the Fed will act when they meet next week, but slightly less of a chance than before the report was released.

The meeting will also be accompanied by the release of economic projections which will give us a gauge of where the Fed thinks that the economy is heading in the next several months. Keep in mind that the Fed will be considering other information which measure the strength of the economy. For example, on Tuesday last week, measures of personal income and spending for April came in with moderate strength following weak readings in March. Until the Fed meets next week, we can’t say exactly how they will react, but certainly the data we saw last week give us some important clues.

REAL ESTATE NEWS
  The pace of young adults leaving their parents’ homes is accelerating significantly, Fannie Mae’s Economic and Strategic Research Group notes in a new analysis. Young adults in their mid- to late 20s or early 30s living with their parents fell between 2013 and 2015—a period known as the economic recovery—much more so than between 2010 and 2012, when the economy and housing market were still recovering from the Great Recession, researchers note. Young adults aged 24 to 25 in 2013 and 26 to 27 in 2015 residing with their parents dropped by 7.6 percentage points. On the other hand, those who passed through that same age range between 2010 and 2012 saw a decline of only 5.4 percentage points, researchers note. “Stronger income growth and an accelerated rate of marriage are likely two primary reasons why millennials are starting to leave their parents’ homes at a faster pace,” researchers note. Millennials in their 20s or early 30s saw their income, adjusted for inflation, grow by at least 23 percent between 2013 and 2015 when compared to 2010 and 2012. Also, millennials in their late 20s and early 30s between 2013 and 2015 were getting married at a markedly faster rate than their predecessors did in that same age range during the recession and the recovery thereafter, Fannie Mae’s report notes. “Millennials’ accelerated rate of departure from their parents’ homes bodes well for housing demand,” Fannie Mae’s Economic and Strategic Research Group notes in the report. “Cohort analysis shows that the increased pace of leaving home has been accompanied by accelerated young-adult household formation.” Source: Fannie Mae Housing InsightsAlmost half of young American home buyers are opting to live in suburbs compared to 33 per cent choosing an urban lifestyle and 20 per cent living in rural areas. Research from Zillow shows that millennials made up 42 per cent of homebuyers in 2016, making them the single largest generational group, and most of them were first time buyers. They are also loyal to their city with 64 per cent remaining in the same city when they move; just 7 per cent moved state in 2016. Starter homes are less attractive for today’s young buyers; they want similar homes to those that older generations buy and will pay a median $217,000 for a 1,800 square foot house. “Millennials have delayed home buying more than earlier generations, but don’t underestimate their impact on the housing market now that they’re buying,” said Jeremy Wacksman, Zillow Group chief marketing officer. “As members of this huge generation start moving into the next stage of life, expect the homeownership rate to tick up and suburbs to change to suit their urban tastes.” Source: ZillowThere was a 12% increase in business activity in 2016 among members of the National Association of Realtors® but there is disparity in their finances. The association’s latest Member Profile report shows that a typical member saw gross income increase, with a median 8% rise. They also saw the highest number of transactions in recent years. Transactions hit an average 12 per agent despite the pressure of tight inventories; that’s the highest since 2014 when the average per agent was 11. Sales volume grew to a median $1.9 million, up $100,000 from the previous year and median income was up to $42,500 in 2016 from $39,200 in 2015. Gross income for 2016 was a median $111,400, up from $98,300 in 2015. However, the figures show that 24% of NAR members made less than $10k while another 24% made more than $100,000. “The return of pre-recession market levels and rising home sales and prices have led to increased business activity among Realtors. It is a highly entrepreneurial business, with some members earning six-figure incomes while others were barely scratching out less than $10,000,” said NAR chief economist Lawrence Yun. Experience makes a big difference for typical real estate agents. The NAR data shows that those who make the most (median $78,850 in 2016) had been in business for at least 16 years. Those who made the least ($8,930 median) had been in business for less than 2 years. There continues to be a steady stream of new entrants to the industry with those with less than 2 years making up 28% of NAR members in 2016 while 20% of members had less than 1 year of experience. Meanwhile, those aged 60 or over made up 30% of NAR members and the median age of a Realtor was 53. “It has become evident over the last few years that individuals are realizing the many benefits and business opportunities that working in real estate provides,” said NAR President William E. Brown. Source: NAR