Weekly Mortgage and Real Estate Report – Week of July 23, 2018

      The Housing Shortfall 

We are now more than half-way through the year and the biggest problem within the real estate sector continues to haunt the markets. The shortage of inventory is not only a drag for the real estate markets, but the economy as a whole. For decades, owning a home has been associated with the American dream. This is one of the few times in our history that we do not have enough homes for those who are ready to purchase.

The reasons for this shortfall are many. The financial crisis caused home building to fall significantly for years and we are still not building enough units. The Chief Economist of the National Association of Homebuilders recently estimated that builders would have to build 1.2 million units per year just to keep up with population growth and replacing aging housing stocks. At the current pace of below 950,000 units, there is a shortage of 250,000 units per year. That does not figure in the ground lost when even less units were being built in the earlier stages of the recovery.

The good news is that each year, builders are building more homes — despite obstacles such as labor shortages and higher lumber prices. But the shortages will not be made up all at once. Also contributing to the shortage is the fact that the baby boomers are holding on to their homes longer, as they delay retirement and/or downsizing. These homes will become available — again, not all at once. The housing shortage will eventually go away, but for now we will have slower growth in the real estate markets and thus a drag upon the overall economy.

      If buying a home is anywhere in your sights, you’ll probably want to act fast. According to a new forecast, average payments will jump nearly 10 percent by early next year. It seems on-the-fence homebuyers need to pull the trigger. According to new data from CoreLogic, the typical payment on a home loan will likely jump 9.7 percent by March 2019, thanks to rising rates, inflation and higher home prices. All in all, the typical payment will come out to around $942 – a steep jump from the average $859 seen in March this year. “The U.S. median sale price has risen by just under 7 percent over the past year and the principal-and-interest payment on that median-priced home has increased nearly 10 percent,” according to CoreLogic’s Andrew Lepage. “Moreover, the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 5.8 percent year-over-year in March 2019 and some interest rate forecasts suggest the payments homebuyers face will rise as well.” Fortunately, for buyers who want to act before the impending rise, it seems homebuilders may be able to help. According to the recent data from the U.S. Census Bureau and the Department of Housing and Urban Development, housing starts were up more than 20 percent over May 2017’s numbers. Source: The Mortgage ReportsFifty-five percent of homeowners who have a child under the age of 18 say their kids’ opinions factored into their homebuying decision, according to a Harris Poll survey of more than 2,000 U.S. adults. What’s more, 74 percent of millennial parents—those up to age 36—indicate they took their kids’ opinions under consideration when buying a home. Renters pay even more attention to their children: 83 percent say their kids’ opinions mattered in their housing decisions. Though the trend is strong, real estate professionals and psychologists are torn on how much kids should be involved in real estate matters. Moving is a big decision, and involving the children more in the process may help them feel a greater sense of control and ownership, clinical psychologist Ryan Hooper told the Chicago Tribune. On the other hand, children could feel rejected if their parents are unable to fulfill their requests, Hooper says. Adam Lietman Bailey, a New York real estate attorney and author of the children’s book Home, says young children can be part of the homebuying decision without actually making the choice. He encourages parents to make their kids feel included by asking questions regarding what they like about the backyard or where their toys would go in the house. Still, “most parents already know [their kids’] desires and needs,” and “moving decisions are likely at a level above the child’s thinking capacity when choosing a home,” Bailey says. Source: The Chicago Tribune

The U.S. apartment market suffered its worst spring since 2010, near the depths of the housing crisis, as a flood of new supply and weakening demand resulted in rising vacancy rates and little or no rent increases in many major cities. Rents rose 2.3% in the second quarter compared with a year earlier, the weakest annual increase since the third quarter of 2010, according to data from RealPage Inc. While average rents continued to grow, individual landlords cut rents in some markets. In addition, landlords are offering tenants incentives. Landlords have enjoyed a record 32 straight quarters of annual rent growth on average, as the U.S. economy strengthened, and millennials delayed homeownership. But the reports of slowing, which began in a few markets in late 2016, have intensified to the point that the balance is shifting towards renters and away from landlords. Greg Willett, chief economist at RealPage, predicted average rents nationwide could flatten if current trends continue. “It’s kind of telling as we look at some of these individual markets that are losing momentum,” Mr. Willett said. The cause of the slowdown is primarily new supply. Developers responded to escalating rents by building the most new apartments in 30 years, sending a flood of new high-end units to downtown areas across the country. Developers are expected to add 300,000 new units over the next year across the U.S., Mr. Willett said. Source: The Wall Street Journal


Weekly Mortgage and Real Estate Report – Week of July 16, 2018

Rates in Perspective


Each time the Federal Reserve Board raises short-term interest rates, everyone seems to be expecting rates on home loans to follow suit. And sometimes this does happen, but often times it does not. Thus, we always find it helpful to remind our readers why the relationship is not a “one-to-one” phenomenon. For one, the Fed controls short-term rates indirectly. Fixed home loan rates are tied to long-term rates which do not always react in the same direction as short-term rates, though certainly there is a relationship.

Secondly, many times long-term rates rise in anticipation of a move by the Fed. Thus, rates have already risen by the time they announce their decision and the result may be either stable long-term rates or even a slight move downward if the move was fully anticipated. Finally, there are typically intervening factors that might change the direction of rates after a decision is announced. For example, after the most recent increase by the Fed, the trade war rhetoric heated up and this has caused some consternation in the stock market. If investors are selling stocks, often they are buying bonds which can cause interest rates to fall a bit.

The bottom line? If the Federal Reserve is raising short-term rates in response to a strong economy, we would expect long-term rates to rise as well. But not necessarily by the same amount or at the same time. For example, the Fed has raised short-term rates by close to 2.0% within the past three years. Rates on home loans have risen approximately 1.0% from their lowest point, which was the lowest on record. Meanwhile, both short-term rates and long-term rates are below where they were a decade ago and their historic averages. Where are rates going from here? As we watch for indications by the Fed, the Fed will be watching the strength of the economy when they meet again at the end of the month.

 Homeowners and renters will put $13.2 billion in savings generated by the recently passed Tax Cuts and Jobs Act back into the housing market in 2018 through the purchase or rental of new homes, according to a data analysis by Zillow. Furthermore, an additional $24.7 billion in savings from the tax reform legislation will be spent this year on home renovations. The Tax Policy Center estimated that the average taxpayer received a $1,610 tax cut this year from the new law, and Zillow forecast renters will spend about 11 cents for every dollar from their tax cuts on buying or renting a larger home, while homeowners are expected to spend 15 cents on the dollar on home renovations. Lower income households are expected to spend more of their tax cut on buying or renting a larger home than higher income households. However, Zillow added that the amount of tax cut funds that lower income households are expected to spend—$200 million—could have been as high as $4 billion if the tax cut had been uniformly distributed instead of providing larger cuts to higher income households. “Despite new limits to two longstanding tax benefits for homeowners, the typical American taxpayer saw their tax burden fall in 2018 as a result of tax reform,” said Zillow Senior Economist Aaron Terrazas. “Some of these tax savings will still find their way into the American housing market, even though they were not explicitly targeted there, as renters and homeowners decide to use their tax savings to rent or buy a bigger home or renovate their existing home. Lower income households will spend more of their tax cut on buying or renting a bigger home, adding demand to an already rapidly appreciating housing market.” Source: National Mortgage ProfessionalThe majority of homeownership conversations focus on the impact from millennials, but senior citizens may actually have more influence in shaping the future market, according to the Joint Center for Housing Studies of Harvard University’s 2018 State of the Nation’s Housing report. The median age of homeowners is on the rise, increasing from 50 in 1990 to 56 in 2016. Americans over the age of 65 were the only age group who had a higher homeownership rate in 2017 (78.7 percent) than in 1987 (75.4 percent), according to the report. Further, the report states that “the only reason the national [homeownership] rate is near the 1994 level is because older adults now make up such a large share of households.” Many seniors say they want to stay put in their homes. Eighty-eight percent of seniors said they intend to stay in their current home as they age, according to a 2014 survey. This could create growth in home improvements and renovations that are focused on accessibility and aging while staying in one place. But that also could place more pressure on younger adults to find a home to buy. Aging baby boomers of 65 and older have grown by more than 7 million households over the past decade. There have been fewer home sales from this demographic than there used to be, which is also contributing to the shortage of existing homes for sale, the report notes. Source: The Joint Center for Housing Studies of Harvard University

Renters are less likely to be evicted or skip out on their leases thanks to improving economic conditions in the U.S., according to a new report from TransUnion. The report shows that renter risk decreased by 2% year-over-year as 34% of renters now have renter scores of 720 or higher. The score is based on a TransUnion proprietary scoring method. According to TransUnion Senior Vice President of Rental Screening Mike Doherty, landlords can thank a strong economy and low unemployment levels for the rise in renter dependability. “Strong local economies coupled with low unemployment rates are likely driving the improvement in the average ResidentScore,” Doherty said in a statement. “This is positive news for renters as fewer applicants are likely to be declined or be subject to higher deposits. For property management companies, this is a major plus as the likelihood of evictions, which can cost thousands of dollars, drops precipitously when renters have a higher ResidentScore,” he added. Source: HousingWire

Weekly Mortgage and Real Estate Report – Week of July 9, 2018

The Jobs Picture — More Questions 

With the release of the June employment report we have now seen six months of data for 2018. This gives us a pretty good indication of how the economy is doing this year. The economy has added approximately 1.25 million jobs in the first six months of the year. And though the last two months are still subject to revisions, it is not expected that the average number of jobs added over six months will change that much.

How does this number differ from the number of jobs added in 2016 and 2017? We added 2.1 million jobs in 2016 and 2.2 million jobs in 2017. That comes out to approximately 170,000 jobs per month. Thus, the number of jobs added has increased moderately this year. That leads us to two questions. Can we assume that the tax plan as implemented is creating additional jobs? We think that six months is too short of a time period to come to that conclusion, but it certainly is a possibility.

Secondly, why did the unemployment rate increase last month? One possible answer is that the labor participation rate may be returning to normal. In the past month 600,000 workers joined the workforce and the labor participation rate ticked up to 62.9%, though it is still below where it was a decade ago. We may never move to the level of participation we saw before the recession because, as the baby boomers have aged, many have retired. Neither of these questions have been answered fully, but we are seeing some good evidence in last month’s jobs report. Perhaps the answers will come into focus during the second half of the year.

 Many potential homebuyers may be putting off their purchase due to a lack of accurate knowledge about the state of the market and their ability to enter it. A new survey from FDIC-insured bank Laurel Road asked college-educated Americans about their homebuying plans. The poll found many misconceptions about the housing market and arranging financing, with down payments, interest rates, and affordability all weighing on potential buyers. “Purchasing a home is a life-changing decision, yet despite the range of resources, people often aren’t aware of the personalized options available to fit their specific situation,” said Alyssa Schaefer, Chief Marketing Officer of Laurel Road. The survey found that almost half of respondents are unaware of alterative down payment options, believing that 20% is barrier to their homeownership dreams. There is also a misconception about interest rates with many thinking they will hit 6% by year-end, well above the 4.6% forecast by the Mortgage Bankers Association. Americans estimate they will buy a home in the next six years, on average. First-time buyers plan to buy in two years on average (when their average age will be 36) and 62% of those who are concerned about affordability are currently looking or plan to buy in less than five years, compared to 33% of those who aren’t concerned. Among those who have bought or plan to buy a home, 85% have plans for their equity if they refinanced their loan: 48% would put it into savings; 41% would pay off debt, such as credit cards or student loans; 27% would remodel their home. Source: Mortgage Professional AmericaThe old adage of “beauty’s only skin deep” may be true, but when it comes to real estate listings, try telling that to potential buyers. Even in today’s tight market buyers are still more likely to be drawn to a home that look’s great in an online listing and that means more than just taking a photograph. “Online listings have to capture the attention of buyers or the home is less likely to sell, and there are two approaches to do that effectively,” says Jeff LaGrange, Vice President of the RE/MAX Northern Illinois Region. He says that buyers benefit from being able to see more of a home in online listings, but it is a challenge for sellers. “One route is to price the home very aggressively. That certainly gets buyers’ attention,” he says. “The other is to present the home via an alluring series of photos that make buyers think, ‘Gee, that place looks great. Let’s ask for a showing.’ ” Key to making that work is ensuring the home is prepped to minimize clutter, emphasizing cleanliness, and adding a bit of staging. Sellers should always be encouraged to have a professional photographer take the images for an online listing according to RE/MAX brokers surveyed. “Not long ago a couple contacted me after their home failed to sell for a year,” recalls Madonna Egan of RE/MAX 1st Service in Orland Park, Ill. “I looked at the listing, and the photos were dark and clearly not of professional caliber. Plus, the home hadn’t been prepared fully.” Egan says they made sure the home was prepared correctly and then had a professional photographer take the images with almost immediate results for the seller. “The home was under contract in a week,” she says. Source: DSN News

With home prices up in most markets, homeowners aren’t being shy about tapping into their newfound equity. Home equity lines of credit were up 18 percent in the first quarter, and up 14 percent from a year ago, according to ATTOM Data Solutions’ First Quarter U.S. Residential Property Loan Origination Report. “Putting home equity to work is the name of the game in the 2018 housing market,” says Daren Blomquist, senior vice president at ATTOM Data Solutions, a real estate data firm. “With interest rates rising and home price appreciation accelerating, current homeowners are increasingly turning to home equity lines of credit, rather than refinances to tap their home’s equity.” “While there was early speculation that tax law changes related to home equity loans might dampen demand, that is not playing out in the market,” says Paul Doman, president and CEO of Accurate Group, which provides appraisal and title solutions for home equity lenders. “The strong HELOC growth in Q1 is consistent with the results of our March 2018 Home Equity Lender Survey, in which lenders were nearly unanimous in their belief that tax savings is not the primary driver for HELOC demand.” Source: ATTOM Data Solutions

Weekly Mortgage and Real Estate Report – Week of July 2, 2018

Happy 4th!


Tomorrow we get to say happy birthday to America. Today the nation moves closer to the ripe old age of 250 years. Many generations have passed since the birth of our country and while 250 years seems like a long time, we are actually pretty young as a nation — as compared to other sovereign states such as Greece, China, Japan and Portugal. And while we have accomplished much in the past 200+ colorful years, we must remember that as a country we are still evolving.

During this time of celebration, it is important to remember history as it helps us to keep things in perspective. Less than two hundred years ago, we were at war with Mexico. Less than 150 years ago, we suffered through a civil war. One hundred years ago we were fighting in the first of two world wars. Though the world has evolved with us, certainly the world has its share of conflicts today — especially with regard to the new brands of terrorism. In the future, wars may be fought in space — including cyberspace.

While we bemoan how divided as a country we are today, this perspective gives us an understanding of where we have come from. Often conflicts, both internal and external, have led us to become stronger. Let us hope that we again move to resolve our conflicts and again move to become stronger as we approach our 250th birthday in less than ten years. So, Happy Birthday America — and for today, let’s forget about trade wars and conflicts and enjoy the short summer sojourn.

 Primary residences remain important to long term financial security and continue to be the largest asset of most US households. They account for a quarter of all household wealth according to the Board of Governors of the Federal Reserve System’s Survey of Consumer Finances. The figures have been hailed by the National Association of Home Builders during National Homeownership Month. “Homeownership is a primary source of net worth for many Americans, and is an important step in accumulating personal financial assets over the long term,” said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La. In the fourth quarter of 2017, US households had a record $14.4 trillion of equity in their homes, but with the homeownership rate at 64.2% it is well-below the 25-year average of 66.3%. “We must continue to address the obstacles that remain for many potential home buyers, including factors that increase the cost to build new homes. Skyrocketing costs for lumber is the number one challenge for builders right now,” Noel said. Source: Mortgage Professional AmericaMany Americans recently surveyed say they prefer to live in a neighborhood with a homeowners association, also called a community association, according to the 2018 Homeowner Satisfaction Survey, conducted by Zogby Analytics on behalf of the Foundation for Community Association Research. Ninety percent of survey respondents say their association’s rules protect their investment and enhance their property values. Survey respondents said some of the best aspects of living in a community association are having a clean or attractive neighborhood; a safe neighborhood; a maintenance-free neighborhood; and having the association help maintain property values. On the other hand, respondents said the worst aspects of living in a community association are restrictions on exterior home improvements and paying dues. The most common monthly assessments range from $100 to $300. Condo assessments tend to be higher than HOA fees, with 17 percent being more than $500 per month. Nearly 73 percent of residents living in an HOA said they felt their community managers provide value and support to residents and their associations. Further, 84 percent of respondents said that neighbors elected to the governing board “absolutely” or “for the most part” serve the best interests of their communities. Sixty-nine million Americans live in 342,000 common-interest communities, according to the 2016 National and State Statistical Review for Community Association Data. Source: Community Associations Institute

A new report from Zillow reveals that more Millennials live with their mothers now than at any other time in the last decade. In 2005, 13.5% of adults age 24 to 36 lived with their moms. That number now is up around 25% now, which means that about 12 million Millennials reside in casa de madre. According to the report, rising rents and slow income growth are keeping the kiddos in mom’s basement. Of all recent college graduates, 28% of them live with their parents. Back in 2005 this was true of only 19% of recent graduates. Furthermore, 12% of the Millennials living with mom are unemployed. “As rents outpaced incomes over the past decade, young people turned to their families in large numbers to ease the housing cost crunch,” Zillow Senior Economist Aaron Terrazas said in a statement. “But even as the labor market has improved, the family safety net has yet to unwind,” Terrazas added. “Living with parents may allow young adults to pursue work or a passion that may not be especially lucrative, or save enough money for first and last month’s rent or a down payment on a home of their own.” Already high U.S. rents continue to rise due to high occupancies and strong demand. Right now, the median rent in the U.S. is $1,447, a 3% increase over last year. The concentration of Millennials living at home is particularly acute in cities with the highest rents, all of which have more than 30% of Millennials living with their parents. Source: HousingWire