Weekly Mortgage and Real Estate Report – Week of September 25th, 2017

Amazing Resiliency 

Earlier this month, the bull market in stocks became the second strongest in history with a gain of over 260% from the bottom reached in 2009. It was already the second longest bull market in history. This is still way short of the strongest bull market in history, which achieved gains of almost 600% for the period of 1987 to 2000, but still very, very impressive. The secret to this market’s success? Steady growth with low inflation. Of course, you can also add that this bull market followed precipitous drops during the financial crisis and thus much of it was clawing its way back up.

Regardless of where it has come from, stocks have moved a long way through significant challenges and the question on everyone’s mind is — how long can this rally go on? As you would guess, there are opinions on both sides, with many analysts saying there is room to run, and others saying that stocks are being inflated by artificially low rates courtesy of the Federal Reserve Board.

The Fed met last week amid this rally, but at the same time also had to consider additional challenges, such as national disasters and a ramp-up of international tensions. The Fed’s decision to keep short-term interest rates unchanged and begin the paring of assets in October was right in line with pre-meeting expectations, though some had hoped for a delay based upon the recent challenges. Is the Fed justified in keeping rates so low, or should they hold off on the next hike expected in December — until they see how well our economy recovers longer-term from the hurricanes which have hit so hard? Only time will tell, as we cannot predict the future any better now than we could in 2009.

  National residential lenders are easing credit standards to keep the housing market moving, though the changes bring lending nowhere near the ultra-loose credit environment that sparked the financial crisis. Fannie Mae and Freddie Mac – the government-controlled companies that purchase home loans from lenders to keep the market on even keel – are rolling out new programs to encourage homeownership. Earlier this year, the GSEs flagged affordability challenges as the biggest barrier to housing growth. In response, Fannie Mae is now allowing borrowers to have higher debt levels and still qualify for a home loan. This includes raising the debt-to-income ratio limit to 50% of pre-tax income from 45% previously for manually underwritten loans — loans not approved through their automated underwriting system. The nation’s three major credit agencies – Equifax, TransUnion and Experian – are also dropping tax liens and civil judgments from some consumers’ credit profiles. This will enable more Americans to qualify for a home loan. More recently, Fannie Mae and Freddie Mac also announced programs to allow for purchase loans without appraisals, although the loans that qualify are limited to start out with. Sources: GoRion, Fannie Mae and Freddie MacImmigration is among the most hotly debated issues in America right now, but regardless of the political arguments about how to manage the country’s borders, there’s no denying that an uptick in foreign residents in the U.S. is a boon for real estate, according to Alex Nowrasteh, immigration policy analyst with the Cato Institute’s Center for Global Liberty and Prosperity. “No other market is more affected by immigration than real estate,” Nowrasteh said at a session called “Housing Markets Are International” at the Realtors® Legislative Meetings & Trade Expo. “The effect of immigration on the labor market is, at worst, one-tenth the size that it is on real estate.” He noted that immigrants gravitate toward construction jobs at a much higher rate than American-born citizens. When immigration rates increase, the homebuilding industry may benefit. Nowrasteh also said the Cato Institute research has shown that on a local level, a 1 percent rise in the immigrant population corresponds to a 1 percent hike in rental rates. And with 22.6 percent of the U.S. population—or 43.3 million people—being foreign-born, according to Census Bureau data, the economy is getting a huge influx of cash. In 2012, Nowrasteh noted, immigrants added $3.1 trillion to U.S. housing wealth, mostly in mid- to low-income counties. According to the NAR’s latest research on international buying activity in the U.S. in 2016, foreign buyers purchased $102.6 billion worth of U.S. real estate. Source: Realtor® Magazine.

A Redfin report said for every dollar of home equity single men earned over five years, single women earned just 92 cents. Redfin examined nearly 200,000 home sales in 18 large metros in 2012, of which nearly 40 percent were purchased by single women. On those home purchases, women earned a median $171,313 of home equity over five years, compared to $186,403 of equity earned by men–a difference of $15,090 or 8.1 percent. Redfin Chief Economist Nela Richardson attributed the disparity in home equity to gaps in pay, lower down payments made by women and higher student debt among women. “Despite differences in equity appreciation, purchasing a home can help level the playing field between men and women,” Richardson said. “In addition to setting labor standards that encourage pay equity, more can and should be done at the federal and local levels to support female homeownership through affordable housing policies like down payment assistance.” Redfin blogger and editor Natalie Schwab said the first major cause behind the home equity accumulation gap is income. She noted women’s median income has flattened since 1979, according to the National Bureau of Economic Research. Coupled with a continuing gender pay gap in the workplace, women are typically unable to save and therefore spend as much as men on housing. Source: The MBA


Weekly Mortgage and Real Estate Report – Week of September 17, 2017

Significant News for the Fed 

Meetings of the Federal Reserve Board are very news worthy for the markets by themselves. On the other hand, thinking about how much news and data the Fed has to consider before they make a decision regarding interest rates and other activities is almost mind boggling. It is not as if they look at the jobs data and make a decision based upon that report. There are hundreds, if not thousands, of points of data to consider.

Add the current events happening today, and one would not want to be in that decision-making position. Between Korean nuclear tests, Hurricane Harvey, Hurricane Irma, legislative and administrative actions, and more; there is no lack of information which might influence the Fed. In other words, the economic data is very complex, but adding all these other factors make the decision-making environment totally convoluted.

Before the current events intervened, the betting line was that the Fed would announce tomorrow that they will start paring down their assets — most likely starting in October. They were expected to hold open the possibility of raising rates again before the end of the year, but were not likely to act at this meeting. We believe that the current events make it even less likely that the Fed will raise rates at today’s meeting and the decision to start paring down in October may still stand, but even this expected move could be delayed.

  Zillow Inc., Seattle, said home listings across the U.S. that receive 30 or more “favorites” on Zillow within their first week on the market sell in under two weeks and for more money, which Zillow Chief Economist Svenja Gudell said is a sign of how competitive the housing market has become. Conversely, Zillow said homes that get 10 or fewer favorites in their first week go for less money and take more than a month to sell. “Favoriting” a home on Zillow is a way for shoppers to save homes they’re interested in coming back to later, making it easy to show a friend, partner or real estate agent. And as home buyers skew increasingly younger and more savvy on social media, the language of social media counts for something. According to the Zillow Group Consumer Housing Trends Report, nearly 70 percent of sellers say seeing how well their home is performing compared to similar homes on the market is an important way for them to gauge interest. About 60 percent of sellers say an important way for them to gauge interest is to know how many people have looked at their home online. Source: ZillowThe United States is going through an energy revolution that within 20 years will reshape people’s homes and communities, experts said at the National Association of Realtor®’ 2017 Sustainability Summit in Washington, D.C. Most people aren’t aware of the revolution right now, but that will change as the cost of alternative sources of energy, such as solar panels, plummets and the use of smart technologies—particularly LED lighting—goes mainstream. “Smart cities are already here, but they’re unevenly distributed right now,” said Geoffrey Kasselman, executive managing director of commercial real estate advisory firm Newmark Knight Frank. Kasselman and other experts were on hand at the summit to give real estate professionals a better understanding of how sweeping changes in energy use and technology will impact what people want in their homes and communities. “Consumers are already telling us they want sustainable features in their home,” NAR President-elect Elizabeth Mendenhall said at the meeting. “What consumers don’t know is how to make their home more energy-efficient and what to ask for, and that’s where Realtors® can help.” “We’re transitioning from a petroleum- to a solar-based global economy,” Kasselman said. “We might never see a barrel of oil over $50 again. A new world order is emerging.” Source: Realtor® Magazine

The U.S. homeownership rate, which fell in 2014 to a 20-year low, is poised to recover some in the next few years, buoyed by positive underlying fundamentals, said First American Financial Corp., Santa Ana, Calif. The company’s annual Homeownership Progress Index noted that the homeownership rate fell under 64 percent in 2014, the lowest level since 1994, after peaking the previous decade at a record 69 percent. Despite some volatility since 2014, First American Chief Economist Mark Fleming said that the Millennial generation is now poised to boost homeownership over the next several years, noting increasing educational attainment indicates prospects for higher income–and subsequently, homeownership demand. “Even as Millennials continued to delay marriage and family formation and pursue higher education levels, the Homeownership Progress Index only declined moderately from 2015 to 2016,” Fleming said. “Yet, the prospect for future homeownership demand looks hopeful, as more households increase their educational attainment level and thus their prospect for higher income.” The Homeownership Progress Index measures how a variety of lifestyle, societal and economic factors influence homeownership rates over time at national, state and market levels. Source: Mortgage Bankers Association

Weekly Mortgage and Real Estate Report – Week of September 11, 2017

America is Tested Again and Again 

All through our economic commentaries we always are fearful of making predictions. No matter how much information we have, there are always unknown factors which can change the future to a significant degree. There is no better example of this than what Texas and Louisiana just faced with Hurricane Harvey. An entire region of our country devastated with an amazing amount of support pouring in throughout the country.

There is no doubt about the fact that this natural disaster will have a major effect upon our economy — as well as Irma and whichever storms follow. From the devastation of local economies to gas prices, there will be a multitude of factors we will be facing. In the long-term there will be an economic revival as we rebuild lives, houses and infrastructure. We have rebuilt successfully before and we will rebuild again. America has always demonstrated our resiliency.

However, there are major questions which will remain far beyond this event. For example, we all know that houses are expensive to build and “excessive” regulations are part of that equation. On the other hand, as the insurance companies continue to point out, the lack of adequate building and zoning standards in some areas of the country have increased the cost of rebuilding significantly. In other words, we have some very hard questions to address, questions which are very difficult to answer. And coming out with the right answers will help us pass this test in the future long after we rebuild this time around.

  In the wake of Hurricane Harvey, the Insurance Information Institute (I.I.I.) released a primer on the difference between water damage covered under a homeowners policy and damage covered by flood insurance. The Institute reported 40% of homeowners think that standard homeowners insurance covers flood damage caused by heavy rain, which it does not. “Hurricane Harvey has, once again, shown that tropical storm systems are often major rain events, rather than wind-related. This brings strong motivation for everyone to consider flood insurance, even if their mortgage lender does not require it,” said Loretta Worters, vice president of Media Relations with the I.I.I. According to the I.I.I.’s May 2016 Consumer Insurance Survey, only 12% of homeowners have flood insurance nationally, the lowest number since 2010 and down from 14% in 2015. Standard homeowners and renters insurance will cover wind damage from Hurricanes. Flood coverage, however, is excluded and is available in the form of a separate policy from the federal government’s National Flood Insurance Program (NFIP) and a few private insurers. The NFIP provides coverage for up to $250,000 for the structure of the home and $100,000 for personal possessions. Replacement cost coverage is available for the structure of a home but only actual cash value coverage is available for possessions. Excess flood insurance provides protection above the NFIP limits. It is available from private insurers for higher valued properties and for those living in a community that does not participate in the NFIP. Source: Builder More Americans are staying put. The overall mobility of the U.S. population is at its lowest level and has fallen by nearly half since its most recent peak in 1985. Americans who live in rural areas are not moving. The rate of people who moved across a county line in rural America was just 4.1 percent, down from 7.7 percent in the late 1970s, according to the analysis. The mobility rate in rural areas has fallen faster than metro areas. “We’re locking people out from the most productive cities,” said Peter Ganong, an assistant professor of public policy at the University of Chicago. “This is a force that widens the urban-rural divide.” It can stymie economic growth, adds David Schleicher, a professor at Yale Law School. The immobility of rural residents is preventing them from getting higher paying jobs and could even be choking off the labor supply for employers in areas where jobs are plentiful. Economists have indicated that the decline in rural mobility is mostly due to the escalating cost of housing. Small-town home prices have modestly recovered from the housing market crisis, while restrictive land-use regulations in metro areas have driven up prices. Source: The Wall Street Journal

More generations are sharing a roof as a growing number of adult children move back in with their parents and aging parents move in with their grown children. Nearly one in five Americans are now living in a multigenerational household (defined as a home with two or more adult generations or grandparents living with grandchildren). The number of multigenerational households in the U.S. has bloomed to the highest level since 1950. About 60.6 million adults, or 19 percent of the population, were residing with their extended family in 2014, according to data from the Pew Research Center on multifamily households. The number has increased from 57 million in 2012. Economists say the main reasons for the uptick are rising home prices, higher child care expenses, increasing college debt, longer life expectancies, and the growth in diverse communities. Multigenerational living is more prevalent among certain ethnicities and cultures. For example, 28 percent of Asians live in a multigenerational household; that number is 25 percent for both Hispanic and African American families. Whites have the fewest multigenerational households at 15 percent. Builders have been responding to the trend, constructing homes with more square footage and that contain a separate wing for extended family members. Source: realtor.com®

Weekly Mortgage and Real Estate Report – Week of September 4, 2017

More Jobs News


Last month we spoke about the data that will be coming out before the Federal Reserve Board meets towards the end of September. These economic reports included jobs, inflation, the quarterly reading on economic growth and more. The August job numbers released just before the Labor Day weekend was expected to be one of the major determinants contributing to the decision by the Fed — along with unexpected events that might come up. Certainly, the massive stormed named as Harvey has been a major example of such an unexpected event.

Until now, most analysts were betting that the September Fed announcement would include an October start to the Fed’s previously announced program of paring down mortgage and government bonds. While the markets are dreading such a plan, because it could potentially raise long-term interest rates — the paring down is expected to be gradual. In addition, the Fed is not expected to raise short-term rates in September, but leave open the possibility of such a move before the end of the year.

Did the numbers released strengthen these assessments, or could there be another course for the Fed? The increase in jobs of 156,000 was seen as disappointing, especially when coupled with the downward revision of the numbers for the previous two months. The unemployment rate moved up slightly to 4.4% and wage inflation continued to be tame. The bottom line? Along with the devastating effects of the storm, this further decreases chances for a rate hike this month, but may not deter the Fed from starting to pare down their assets.

  Median home prices in the second quarter eclipsed a record high set in 2016, jumping 6.2 percent year over year as the inventory crunch continues to push property values higher, according to the National Association of Realtors®. The national median price for an existing single-family home was $255,600, up from $240,700—the previous high—in the second quarter of 2016, NAR reported. Prices for single-family homes rose in 87 percent of U.S. housing markets; 23 metros saw double-digit increases. “The 2.2 million net new jobs created over the past year generated significant interest in purchasing a home in what was an extremely competitive spring buying season,” says NAR chief economist Lawrence Yun. “Listings typically flew off the market in under a month—and even quicker in the affordable price ranges—in several parts of the country. With new supply not even coming close to keeping pace, price appreciation remained swift in most markets.” Yun continues to urge for more new-home construction to meet the demand in the housing market. Source: NARBaby boomers are expected to sell their homes in large numbers over the next decade. Arthur C. Nelson, a University of Arizona professor, predicts the “great senior sell-off” will occur in the mid to late 2020s. It’s a few years later than what Nelson had originally predicted in 2013 (he originally said by 2020). He says baby boomers are living in their homes longer, holding off on selling in the hopes of netting an even higher price later on. Indeed, homeowners are holding onto their properties significantly longer than they used to—now about nine to 10 years. With ample housing shortages across the country, they are having a tough time finding a replacement home—but they may also be waiting to recover even more in value from what they may have lost in the Great Recession, Nelson notes. “It’s not that boomers are going to ‘age in place,’” says Nelson. “They’re going to be stuck in place, and they’re going to make the best of it.” He says that those who can afford it will opt to remodel. But Nelson says it may not be easy for boomers to sell their homes. Millennials—who are largely expected to be the buyers of boomers’ homes—have differing tastes, with more opting to live in central cities or in the oldest, closest suburbs, or they’re showing preferences for smaller homes and not sprawling McMansions in the exurbs. Nelson says the surrounding cities likely will be the toughest for boomers to sell their homes in. Source: The Atlantic CityLab

A dearth of suitable land for residential development is posing a big challenge for the real estate market. The 2017 REALTORS® Land Institute (RLI) survey shows that the overall number of land transactions over the past year for residential use is up, clocking in at 25 percent of the total. Prices are rising, too. The survey shows a 5 percent increase in total dollar volume of closed residential land transactions compared to the previous year. Prices are rising, too. The survey shows a 5 percent increase in total dollar volume of closed residential land transactions compared to the previous year. “One challenge will be finding enough affordable land on the outskirts of populated areas,” says Jessa Friedrich, marketing manager for RLI, who recently blogged about the upswing in residential land transactions for RLI. “On the other hand, all of this is great news for current landowners and land real estate investors looking to sell, as well as those who serve them in those markets.” RLI expects this trend won’t wane in the coming year, either. “The lack of housing inventory across the country and the demand for residential land for new-home construction will continue to drive up land prices through 2018,” Friedrich says. Source: REALTOR® Magazine