Weekly Mortgage and Real Estate Report – Week of September 24, 2018

ECONOMIC COMMENTARY
  Fed Meets Today

 

Let us assume that the prognosticators are correct, and the Federal Reserve Board will hike short-term rates by one-quarter of one percent when they finish their two-day meeting tomorrow. What questions does that leave us with? For one, will the Fed’s announcement also give us a hint about whether there will be a fourth rate increase next year? Secondly, what kind of surprise could the Fed have in store?

Surprises could consist of the Fed not hiking rates or moving rates by one-half of one percent instead. There is no way to predict how the markets would react to either surprise and these hypotheticals are not likely if you believe most market analysts. How would the markets react to the expected increase? Typically, we see long-term rates moving up several days or a few weeks before the meeting. That has already happened. Then rates move down a bit as the meeting approaches or right after the announcement. Markets often move in anticipation of an event.

Where do we go from here? The Fed’s announcement may or may not give us a clue. Thus far we have had no indication that the Fed feels that we are close to neutral range with regard to short-term rates. The economic news from now and November or December will give the Fed enough clues as to whether to act again or hold off. Next week we have another jobs report and that data will be an important factor the Fed considers. Other than the real estate market, most areas of the economy continue to be moderately strong.

REAL ESTATE NEWS
 It’s been a decade since the onslaught of the Great Recession, and the housing market has healed and changed drastically since then. Home prices in many markets have hit record highs—beating their prerecession levels—and foreclosure rates are historically low, according to the National Association of Realtors®. Stronger lending and regulatory reforms in recent years also have prevented the formation of another housing bubble, says NAR Chief Economist Lawrence Yun. “Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher-than-normal credit scores of those who are able to obtain a mortgage and near record-low defaults and foreclosures, which contributed to the last recession,” Yun says. “Today, even as interest rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases.” Though inventory shortages continue to plague many housing markets, Yun believes some of the nation’s most overheated will see sales slow down. Many of these markets are experiencing rising prices because of insufficient supply, not due to weak buyer demand, he says. New construction rose 7.2 percent year over year in July, but Yun says that even more is needed to fill national shortages. Yun forecasts that existing-home sales will increase 2 percent in 2019, and home prices will rise by 3.5 percent. Source: National Association of Realtors®Home buyers want the home loan process to be less onerous and faster. But they also want more personal interaction as they navigate a transaction and very big decision in their life, according to Fannie Mae’s National Housing Survey, a survey of about 3,000 recent home buyers. “As the Amazons and Ubers of the world continue to raise the bar for ‘consumer-grade’ experiences, home buyers have made it clear that it’s also time for the home purchasing and mortgage processes to change,” writes Henry Carson, senior vice president of digital products, at Fannie Mae’s Perspectives blog. Overall, borrowers say they want less paperwork. They said gathering the necessary financial information to apply and get approved for a loan is the most difficult part of the mortgage process, which was particularly true for those over the age of 45 or those who’ve purchased more than one home in their lifetime. Respondents were asked whether they would prefer a fully digital process, where every step could be completed online. The majority said they would be “somewhat” or “very” interested. They do like the idea of a digitizing the application if it would speed up the process. The majority of home buyers surveyed said they’d like to see the process—from application to closing—completed in one month. That is five days less than the current median process takes, which averages about 35 days, Carson notes. But home buyers still want personal interaction in the process too. They noted they want personal interaction in the review of final loan documents and understanding terms and options. Source: Fannie Mae

Snooping online proves to be an easier way of finding out what a homeowner paid for a property. A recent poll of more than 500 homeowners found that 52 percent of respondents admit they have spied online to track how much friends and family paid for their houses, according to a poll by Branded Research. Homeowners say they are simply curious what someone else paid for a property, how much it’s worth currently, and how much is paid in taxes. Many real estate sites offer a place where you can plug in an address to see a home’s worth and often even more information. Certain age groups are more likely to snoop than others. Seventy-six percent of survey respondents between the ages of 35 to 44 admitted to checking out their friends’ real estate deals online. Seventy-two percent of respondents ages 25 to 34 admitted to snooping. The least likely to snoop are homeowners aged 65 and up. Just a quarter of that age group said they checked out what their friends paid online. Source: Realtor.com®

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Weekly Mortgage and Real Estate Report – Week of September 17, 2018

ECONOMIC COMMENTARY
 Fed Meeting Looms 

Taking into account recent statements by the members of the Federal Reserve Board and recent economic reports, as we mentioned previously, the markets are counting upon a rate increase next week when the Fed meets. The acceleration of wage growth has the markets particularly worried and right now many analysts are expecting another increase in December. All told, that would make four hikes this year, with the pace of increases accelerating.

The Fed raised rates one time in 2015 and 2016 and three times in 2017. While two more hikes this year are not guaranteed, by next week we will likely have met last year’s pace of increases. When will the Fed stop raising rates? Mostly likely this will not happen until the pace of economic growth slows down or at least levels off. More growth increases the risk of inflation and this is exactly what the Fed is trying to prevent.

Will the increase slow the economy down? While this has not happened as of yet, there are some signs that a slower pace of growth could be on the horizon. Certainly, the real estate market has slowed down in the face of higher rates and higher home prices. But another factor within this sector is the shortage of inventory. One could surmise that more homes for sale would speed the pace of real estate sales. Thus, we can’t yet call the real estate market a precursor to a slower economy –but if sales continue to stagnate and inventory rises significantly, that could be a turning point.

REAL ESTATE NEWS
 Millennials could stand to make some improvements to their credit files. Only 39 percent of millennials without a home loan have a prime or better score, and the majority are facing higher delinquency rates on personal loans, shows a newly released study from Experian, an information services company. Eighty-six percent of millennials recently surveyed say they believe that buying a house is a good financial investment, according to the National Association of REALTORS®’ data. However, Experian’s research shows that only 15 percent are owners today. Further, 61 percent of millennials may need to improve their personal loan and bank card usage habits in order to obtain lower rates for when they are ready to purchase a home. “This data presents good news for younger, thin file millennials interested in buying a home,” says Michele Raneri, vice president of analytics and business development at Experian. “We’re seeing that small changes in financial behaviors such as building a history of on-time payments and improved credit practices can help lenders shift from viewing millennials as high-risk to low-risk relatively quickly. Knowing where you stand from a credit perspective is critical to improving your financial well-being.” Experian evaluated personal loan trends, credit scores, bank card behaviors, and mortgage trends of about 60 million millennial consumers. “Often, young people start their credit journey with a couple of mistakes first, but in the end, these mistakes create opportunities to learn how to use and build credit responsibly,” says Rod Griffin, director of consumer education and awareness at Experian. Millennial home buyers are, on average, 31 years old with an income of $64,000, Experian’s data shows. Source: ExperianDifferences in household composition and financing options incentivize homebuying demand for veteran and active military, according to the 2018 Veterans & Active Military Home Buyers Profile, which evaluated the differences of recent active-service and veteran home buyers and sellers to those who have never served. The results revealed quite a few contrasts between active-service military buyers and buyers who have never served. At a median age of 34 years old, the typical active-service buyer was a lot younger than non-military buyers (42 years old) and was more likely to be married and have multiple children living in their household. Active-service members typically bought a larger home that cost more than those purchased by both non-military buyers and veterans. Despite lower median incomes ($84,000), more stable job security and no down-payment financing options give aspiring military homeowners an advantage over their civilian peers. Fifty-six percent of active duty and 41 percent of veterans put no money down when buying a home, compared to 7 percent of non-military. As for household composition, 77 percent of active duty and 78 percent of veterans are married, compared to 63 percent of non-military. Source: National Association of Realtors®

The median age of owner-occupied homes in the U.S. is 37, indicating that more properties may become pricier to maintain as they grow older and vulnerable to disrepair, according to the 2016 American Community Survey. But builders view the aging housing stock as an opportunity. Rising home prices may prompt more households to spend more on home improvement, the National Association of Home Builders notes on its Eye on Housing blog. Further, “this indicates a strong rising demand for new construction over the long run, as current owner-occupied housing stock is older,” the NAHB writes. More than half of the owner-occupied homes were built prior to 1980, and 38 percent before 1970. Sixteen percent of the housing stock was built between 2000 and 2009. The 3 million units that came to the market between 2010 and 2016, however, added only 4 percent to the owner-occupied housing stock. A decline in new construction has prompted the share of homes that are six or fewer years old to fall greatly since 2006, according to the NAHB. Meanwhile, the number of homes that are 46 years old or older has jumped from 31 percent in 2006 to 38 percent in 2016. Source: National Association of Homebuilders

Weekly Mortgage and Real Estate Report – Week of September 10th, 2018

ECONOMIC COMMENTARY
     The Jobs Machine Rolls 

Leading up to the jobs report released last week, all indications were that the good times would continue. We had an upward revision in the measure of economic growth for last quarter, consumers continue to spend, and confidence is soaring. Therefore, the markets were predicting another strong employment report, especially considering that last month’s numbers were a bit lighter than expected. Of course, each release is subject to revisions which is what makes the reports harder to interpret from month-to-month.

The number of jobs added was reported at 201,000 for August. This was higher than expected. The previous months were revised downward by 50,000. The headline number was the unemployment rate, which came in at 3.9%. This number carries more importance when looking at the labor participation rate, which measures how many people are coming back to the workforce. The rate came in at 62.7%, which was down from last month because of more individuals re-entering the work force.

The Fed will be meeting at the end of the month, and certainly these numbers will be considered when they decide whether to raise short-term interest rates. Right now, the markets are banking on another 1/4% increase, especially considering the statements recently made by the members of the Fed, including Chairman Powell. Even more important than the gain in jobs, the acceleration in wage growth reported for last month certainly supports this prediction.

 

REAL ESTATE NEWS
An overhaul in how several major credit reporting agencies factor in negative credit information is prompting millions of consumers’ credit scores to rise. Collection events were struck from 8 million consumers’ credit reports in the 12 months ending in June. The New York Federal Reserve reported that consumers who had at least one collections account removed from their credit reports are seeing an 11-point increase to their scores. Critics have long claimed such dings to scores are prone to errors or that they’ve unfairly kept many out of the borrowing market. Equifax, Experian PLC, and TransUnion have all agreed to revamp reports, which stems from a 2015 settlement with state attorneys general on the matter. In the settlement, the firms agreed to remove some non-loan related items that were sent to collection firms, such as gym memberships, library fines, and traffic tickets. They also agreed to strike medical-debt collections that have been paid by a patient’s insurance company. The majority of consumers who benefited from the recent changes are those who had scores below 660 before the collection events were removed, according to the New York Fed. Source: The Wall Street Journal — Want to see if your score has changed? Contact us and we will help you find out and help interpret your score “picture.” Zillow is aiming to take more ground in the rental market. Recently, the online real estate giant rolled out new online tools that allow renters to apply for multiple rentals with one application that includes a background check and eviction history through Checkr and credit reports through Experian. The new functions also allow renters to pay rent through Zillow. Yes, you heard that right. Pay rent directly through Zillow, which will then pass the funds directly along to the property manager or owner. “Renters tell us they want the entire rental process to happen online, from search to application to payment,” Zillow President Jeremy Wacksman said in a statement. “However, most landlords don’t have the resources to offer these services. We’re excited to provide the technology to help renters and landlords have a better experience.” According to Zillow, there are 35 million renters who visit Zillow’s rental sites and mobile apps each month, each of whom–if they’re not just window shopping–typically need to file about three applications with an average cost of $40 each. According to the company, these new products are part of the company’s effort to build an end-to-end solution that allows renters to complete the entire transaction using Zillow. The company said that once its rollout is complete, renters will be able to search for properties, schedule tours, apply, sign a lease and pay rent all from within Zillow itself. Source: HousingWire

Similar to the concept of rent control, Freddie Mac announced a new program to incentivize rental property owners to ease their continuous rent hikes. The housing agency is offering discounted financing to owners who agree to cap rent increases for the life of their loans. Owners who take part in the program must limit rent increases on 80 percent of their units. “Maybe there’s a way we can help change incentives,” says David Brickman, an executive vice president at Freddie Mac. “We can provide an economic basis for private, profit-oriented developers to pursue a strategy where they didn’t raise rents by quite as much.” Owners also must agree to make at least 50 percent of their units affordable to those earning the local median income or less. The program, now available across the country, is voluntary. Freddie Mac officials say they will check rents on an annual basis to make sure participating property owners are complying with the program’s rules. Those who are in violation will be assessed a penalty fee until they return rents to a level that Freddie deems compliant. The announcement comes on the heels of a recent report by RentCafé, which showed that average apartment rents reached an all-time high in July. The national average rent climbed to a record high of $1,409 in July, up 2.8 percent year over year, the rental listing service noted. Source: The New York Times

Weekly Mortgage and Real Estate Report – Week of September 3, 2018

ECONOMIC COMMENTARY
The Focus on Labor Day

 

The first Monday of every September is Labor Day. With the picnics, parades and back-to-school sales, we sometimes forget that the purpose of the holiday is to recognize the importance of the American worker. Labor Day became a national holiday at the turn of the 20th century. It was a time when American workers endured miserable conditions, from child labor to unsafe working conditions.

It was under these conditions that our workers built this country into what it is today. And even though the conditions of workplaces are nowhere near what they were one hundred years ago, the issues we face today significantly affects our workers’ livelihoods. Thus, when we talk about interest rates, trade wars, economic growth, the minimum wage and more — it is the lives of American workers that hang in the balance.

While we say goodbye to the “unofficial” summer, we must never forget to honor our workers. They are truly the backbone of America. At the end of this week, we will be looking at the employment numbers for August. These numbers represent more than statistics, they represent jobs. And each job is filled by an American worker, many of whom still fight for benefits and better working conditions. We hope everyone had a great Labor Day and are ready for school and cooler weather.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates were essentially flat in the past week. For the week ending August 30, Freddie Mac announced that 30-year fixed rates increased one tick to 4.52% from 4.51% the week before. The average for 15-year loans fell slightly to 3.97% and the average for five-year adjustables decreased to 3.85%. A year ago, 30-year fixed rates averaged 3.82%. Attributed to Sam Khater, Chief Economist, Freddie Mac –“While sales and price growth have softened these last few months, this leveling of rates may be helping more buyers reach the market. Heading into the fall, the recent slowdown in price appreciation in several markets is good news for the many prospective buyers who were priced out earlier this year. However, despite the economy in the second quarter expanding at its fastest rate in nearly four years, Freddie Mac is still expecting only a slight increase (0.2 percent) in total home sales in 2018 (6.14 million) compared to last year (6.12 million). Given the strength of the economy, it is possible for home sales to pick up even more before year’s end. The key factor will be if affordably-priced inventory increases enough to continue this recent trend of cooling price appreciation.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
August 31, 2018

Daily Value Monthly Value
August 30 July
6-month Treasury Security  2.28%  2.17%
1-year Treasury Security  2.47%  2.39%
3-year Treasury Security  2.72%  2.70%
5-year Treasury Security  2.75%  2.78%
10-year Treasury Security  2.86%  2.89%
12-month LIBOR  2.827% (July)
12-month MTA  1.844% (July)
11th District Cost of Funds  0.934% (June)
Prime Rate  5.00% (July)
REAL ESTATE NEWS
 FICO has created a new prescriptive “Score Planner” tool that the company says will allow you to improve your credit score within a set time period by following a customized, detailed set of steps. Although it’s only in the pilot stage with one of the three national credit bureaus, Experian, FICO officials indicated that in the months ahead it should become widely available through participating banks, residential finance companies, brokers and others. Tom Quinn, FICO’s vice president of scores, said in an interview that it may be offered “for a fee or free of charge,” depending on the source. How does it work? For this column, FICO prepared an example based on a hypothetical consumer’s credit report. The borrower currently has a sub-par 623 score but needs a 675 or higher for a home loan at an affordable interest rate. As with all the Score Planner’s scenarios, the home buyer sets a deadline — anywhere from a few months to as long as a year — to achieve a desired score. Doing so before you apply for a home loan not only will improve your chances for approval, it should also save you thousands of dollars. Source: Ken Harney, The Nation’s HousingThe growing US economy is making homebuyers feel more confident in splashing the big bucks for a home. The luxury segment of the housing market – the top 5% of all residential sales – has gained by double-digit percentages in 19 major markets and sales at $1 million or more are up 13% year-over-year. Realtor.com’s 2018 Luxury Home Index is an analysis of the luxury sector across 91 counties and reveals that days on market was down 11 days in July to 108 compared to a year earlier. The speed of sales was higher in two thirds of the luxury markets analyzed and was the fastest for July in the 6 years that the index has been tracking that metric. In 49 of the 91 markets analyzed, the luxury tier currently has an entry point of at least $1 million and the number of sales at or above the $1 million mark in the 91 markets is up 12% compared to last year. “The strong economy is bolstering demand for luxury homes,” said Danielle Hale, chief economist for realtor.com. “They are selling fast and demand for these homes has pushed the entry level price point to more than $1 million in half of the markets studied. Although there are some pockets of weaker performance, we’ve seen double-digit price growth in 19 markets for the first time in four years.” Source: NAR

Average rents for US multifamily apartments gained 2.8% in July to an all-time high of $1,409. The survey of 127 markets also shows that average rents grew 3% year-to-date in July, evidence that there is still growth opportunity despite affordability and supply issues. With some investors concerned that the current cycle may be ending, the gain reflects favorable economic conditions according to a new report from real estate software firm Yardi. “One could say the market is experiencing typical summer growth, a good sign considering the length of the cycle, which has some worried that the party might be nearing its end,” the report says. “Economic conditions remain favorable for the multifamily industry, especially in secondary markets that are leading the nation in employment growth.” Occupancy rates increased in the first half of 2018 to 95.2% from 95.0% at the end of 2017. Even those metros among the top 30 which saw the largest increase in supply, with rent growth decelerating as the occupancy rate fell; have seen some positive signs this year. Yardi says that the occupancy rates are healthy even as more supply is added due to the strong demand from growth of rental-age households, supported by economic fundamentals. Source: MPA

Weekly Mortgage and Real Estate Report -Week of August 27, 2018

ECONOMIC COMMENTARY
Trading PlacesBorrowing from the name of a classic movie title, it seems like the focus upon trade keeps moving around the world. From Canada to Europe to China to Turkey. Thus far, we have not seen any negative effect upon economic growth. Tomorrow we will see the first revision of the measure of economic growth for the second quarter, but with the preliminary number at more than a 4.0% rate of growth, few are expecting a surprise on the downside.

On the other hand, the markets seem to be reacting to the long-term possibilities of trade wars. More specifically, when tensions flare up, stocks lose their momentum. On the bright side, interest rates tend to ease down a bit when the markets are worried about these issues. Thus far, when these trade concerns subside or there is news of possible agreements, stocks have been regaining lost ground very quickly.

Where is this leading us? From at least one vantage point, a slight slowing of the economy would not be such a bad thing if it also slows down the pace of rate increases. Economic growth is a positive phenomenon as it creates jobs and wealth, but if the economy heats up too quickly, higher rates could slow the economy more significantly. So, for right now, the markets getting a bit uptight about trade struggles might be just what the doctor ordered — as long as they don’t get out of hand.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates inched down again this past week to their lowest level since mid-April. For the week ending August 23, Freddie Mac announced that 30-year fixed rates decreased to 4.51% from 4.53% the week before. The average for 15-year loans fell to 3.98% and the average for five-year adjustables decreased to 3.82%. A year ago, 30-year fixed rates averaged 3.86%. Attributed to Sam Khater, Chief Economist, Freddie Mac –“Backed by very strong consumer spending, the economy is red-hot this month, which is in turn rippling through the financial markets and driving equities higher. Unfortunately, the same cannot be said about the housing market, where it appears sales activity crested in late 2017. Existing-home sales have now stepped back annually for the fifth straight month, and purchase applications for home loans this week were barely above year ago levels. It is clear affordability constraints have cooled the housing market, especially in expensive coastal markets. Many metro areas desperately need more new and existing affordable inventory to break out of this slump.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
August 24, 2018

Daily Value Monthly Value
August 23 July
6-month Treasury Security  2.23%  2.17%
1-year Treasury Security  2.43%  2.39%
3-year Treasury Security  2.66%  2.70%
5-year Treasury Security  2.72%  2.78%
10-year Treasury Security  2.82%  2.89%
12-month LIBOR  2.827% (July)
12-month MTA  1.844% (July)
11th District Cost of Funds  0.934% (June)
Prime Rate  5.00% (July)
REAL ESTATE NEWS
 Millennials, millennials, millennials. It’s all we’ve heard about in the real estate market for the last several years, with a sprinkle of Baby Boomers thrown in. But here’s who we should be talking about: Women. Older women, to be exact. New data from the U.S. Census that was analyzed by economist Ralph McLaughlin “suggests single woman over 55 are the fastest-growing demographic of home buyers,” said Builder Magazine. That doesn’t mean they comprise the predominant buyer group; that goes to married couples, at 65 percent. But the numbers are interesting, nonetheless, especially when you consider that home purchases by single women last year measured 18 percent compared to only seven percent by their single male counterparts. The new U.S. Census Current Population Survey, which covered 60,000 households, showed that “the share of home purchases by single women in 2017 – including never-married individuals, widows and divorcées — hit 22.8 percent, the highest on record,” said the Washington Post. Perhaps most surprising is who comprises the largest percentage of single female buyers according to the National Association of Realtors (NAR) Generational Trends Report: 72 and older. So, what’s behind the trend? A number of things-

  • They’re downsizing. Women live longer than men, statistically, so many of these home purchases could be driven by the death of a spouse and/or the desire to trade a pricey and/or too large place for something better suited for one person. The study did not take into account how many of these buyers were already homeowners with a residence to sell.
  • Investment potential. “Primarily, older women are choosing to invest in real estate,” said CNBC.
  • Longer life spans mean more confidence in longevity. A couple of generations back, it would have been unheard of for a single woman to buy a home by herself, let alone at the age of 72. The dream of so many of our grandparents was to pay off their home and be free and clear. Entering into a 15- or 30-year home loan at an age when many are already retired is no longer a deterrent for these trailblazing women.
  • They want stability. “They want to have control over their monthly expenses,” said CNBC — “They’re going to be where their children or friends are. They’re not whimsical at that age.”
  • Rents are pricey...and still rising in many areas. The data shows that 23 percent “of single women cited rising rents as a ‘trigger’ motivation behind a home purchase,” said the Washington Post.