Weekly Mortgage and Real Estate Report – Week of October 14, 2019

ECONOMIC COMMENTARY

Quarter of Turmoil?

We described the last quarter as busy. This quarter may turn out to be more than just busy. Starting out with an impeachment inquiry, very weak manufacturing data and a mixed jobs report — the next two-plus months could be very interesting to watch. Certainly, the Federal Reserve Board will be taking note of the reaction the markets have to what happens from here. And if the stock market’s first few days of activity in October are any indication, there will be plenty of reactions.

Overall, the stock market has held up pretty well this year, despite heightened volatility. Stocks have certainly been helped by lower interest rates and an economy which is slowing, but still growing at a healthy pace. If the economy does continue to soften, we will lose one of these factors, but lower rates should continue to support the market and the economy as well.

One area of the economy that is starting to shine, while the overall economy slows down? The real estate market is picking up, with higher housing starts and existing home sales. This is not a surprise, because real estate benefits most from lower long-term interest rates. There is a lot of latent demand in this sector and any condition which increases affordability can spur this demand into action. That is exactly what lower rates are doing – spurring not only purchase demand, but refinancing as well. 

REAL ESTATE NEWS

 More than half of Americans admitted they do not know the minimum required down payment needed to purchase a home. The findings of Bankrate’s new research revealed that 51% of Americans have no clue when it comes to a home’s down payment. Twenty-eight percent guessed that the standard recommended amount of 20% or more of the purchase price is needed. Meanwhile, 2% calculated that the minimum requirement is between 0% to 5% of the price, depending on the loan program. Generally, the respondents’ perceptions indicated that consumers were not entirely aware of the various affordable loan programs, according to Bankrate. Deborah Kearns, an analyst at Bankrate, said — “Many homebuyers don’t realize that conventional loans require just 3% of the purchase price as a down payment and some VA and USDA loans don’t require anything at all,” Kearns said. “Local first-time homebuyer assistance programs can also lower your upfront, out-of-pocket costs substantially at closing.” Source: The Wall Street Journal

The average FICO score stands at 706, a record high, said Ethan Dornhelm, vice president of scores and predictive analytics at FICO. That compares with 686 at the 2009 end of the Great Recession and it eclipses the 690 at the 2006 height of the housing bubble. The key drivers are U.S. economic expansion that has propelled job growth and an increase in consumer education about protecting and improving scores, Dornhelm said in a blog post. In addition, the passage of time is helping to remove the credit scars from events that happened during the financial crisis, he said. “Consumers who suffered financial misfortune during the Great Recession have over the past few years had the associated missed payments from that time period purged from their credit file, in accordance with the Fair Credit Reporting Act,” he said. Measuring different credit events, the biggest improvement between April 2009 and April 2019 was the timeliness of housing, Dornhelm said. A decade ago, 7.2% of the population had been 90 days or more late on a home loan payment within the last two years. By April, it had dropped to 2.8%. Also showing big improvement was the percentage of the population who had been 90 days or more past due on a credit card in the last two years. A decade ago, it was 13%, and in April it was 8.6%. The jump in FICO scores was due to “score improvement, not score inflation,” Dornhelm said. Source: HousingWire

More than 1 in 4 Americans are not living in the type of location they would choose to. A survey by NerdWallet shows that 26% would prefer to switch their location, whether they are currently living in a city, suburb, small town or rural area, but many are constrained by the finances. “When it comes to where we live, some are cursed with more options than opportunities — it’s not as simple as packing up and going,” says NerdWallet’s Holden Lewis. “We long to leave our sleepy suburbs for the exciting city, or we dream of ditching the city for a quiet small town. But moving is expensive — you have your job and a new cost of living to think of, and you’re often leaving friends and family behind.” The survey allowed a free view of what respondents believed was a city, suburb, small town, or rural area, to determine whether they are living in their dream location or not. However, 69% of those not living where they want said they would do something to facilitate their dream including starting work or taking a second job (38%) or give up all leisure travel (28%). Source: Nerd Wallet 

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Weekly Mortgage and Real Estate Report – Week of October 7, 2019

ECONOMIC COMMENTARY

The Jobs Picture is Painted

With so many headlines using the terms impeachment and trade wars, we can often overlook the mundane release of economic data indicating to us how consumers seem to be weathering these political and international skirmishes. Thus far the economy seems to be holding up well with so many distractions going on. Yet we need to look at the data more closely to detect signs of wear and tear on the psyche of the long-term recovery we have enjoyed over the past decade.

This is why last week’s employment report was watched extra closely — even amid all of the other noisy headlines. The creation of 135,000 jobs last month was considered slightly disappointing, but this number was mitigated somewhat by an upward revision of last month’s numbers. The unemployment rate came in at 3.5%, better than forecasted and the lowest in five decades. Wage inflation was lower than expectations.

All in all, this report seems to indicate that the Federal Reserve Board was justified in their recent lowering of interest rates. It also points to a decent chance of additional rate decreases this year. The report is an indication that interest rates could stay low in the short-term, which means that those who are interested in purchasing or refinancing homes should consider this opening a significant opportunity to take advantage of these low rates. The consensus of analysts before this report was that the Fed will not act again on short-term interest rates at this next meeting this month and this report will leave this question a bit more open, especially when combined with recently released weak economic data.

REAL ESTATE NEWS

 Homeownership in the United States is complicated. On the one hand, it has been inextricably linked with the American Dream. On the other hand, it has offered U.S. taxpayers a substantial deduction on their annual tax payments. The influence of the other hand fell off a cliff in the 2018 tax year. The number of 2018 tax year returns claiming the mortgage interest deduction plunged from nearly 30.1 million in tax year 2017 to around 11.5 million in 2018, a drop of 62%. By way of contrast, the number of returns filed claiming the standard deduction jumped. In 2017, nearly 98 million Americans took the standard deduction when they filed their tax returns, while in 2018 that number rose to more than 126 million, an increase of about 29%. Of nearly 140.5 million 2017 returns filed, 70% took the standard deduction. In 2018, 141.2 million tax returns were filed and 92% of filers claimed the standard deduction. The Internal Revenue Service (IRS) recently reported the data, which compares tax returns received in the first 30 weeks of both tax years. The IRS data represents approximately 95% of all individual filers, 87% of total adjusted gross income and 82% of total tax liability. The differences are likely the result of the increase in the standard deduction between 2017 and 2018 that was included in the 2017 tax reform bill. In 2017, the standard deduction ranged from $6,350 for a single or a married person filing separately to $9,350 for a head of household to $12,700 for a married couple filing jointly. In 2018, the standard deduction rose to $12,000 for single taxpayers, $18,000 for heads of households and $24,000 for married filers. Source: 24/7 Wall Street

A new report from Bungalo reveals that not only are millennials buying larger starter homes, they see these homes as a long-term investment. According to the report, 74% of millennials (ages 25-34) want to purchase pre-owned single-family homes. Just 16.5% want a condo and 16% would prefer a townhouse. While the report finds that millennials are buying homes later in life—at the average age of 32—those who do buy homes prioritize space. Fifty-seven percent of first-time buyers surveyed said they want more space, and it is the main reason they want to move. Only 13% of millennials say they moved to downsize. “The trends are telling us that millennials want more room to grow into over time, and more bang for their buck than dense urban areas will allow,” the report says. Additionally, millennials’ way of thinking about moving and starter homes has evolved, as most “don’t have the time or budget” to renovate, and most millennials desire move-in ready homes. Of those surveyed, 76% of millennials want a home that is completely move-in ready, with just 1% disagreeing with that sentiment. Source: MReport

With the reduction of carbon emissions and energy usage vital to meeting climate change targets, a new report shows how the real estate industry is rising to the challenge. The industry has made significant progress in both areas over the past 10 years according to the Greenprint Center for Building Performance. The center is an alliance of the world’s leading real estate owners, investors, and financial institutions. The report shows that energy use intensity (annual energy consumption divided by gross floor area) has improved by 17% over the decade, while the center’s members are on target to cut their carbon emissions by 50% by 2030. “For the past ten years Greenprint has worked with the real estate investment community to help expand and improve upon sustainability best practices within the commercial real estate sector,” said Daniel M. Cashdan, president, HFF Securities (a JLL Company) and chairman of The Center for Sustainability and Economic Performance, which houses the Greenprint Center. “As the race against climate change’s various impacts on our cities picks up, the focus of global fiduciaries has become sharpened. Greenprint, as part of our Center for Sustainability and Economic Performance, exists to serve as a resource hub for investors across the globe.” Source: Greenprint

Weekly Mortgage and Real Estate Report – Week of September 30, 2019


A Busy Quarter Comes to an EndWe are now three-quarters of the way through the year. We ended the quarter with an important reminder with regard to the markets. Simply put — you can’t predict the future. Take interest rates. Everyone was convinced that rates were going to continue to rise this year. Yet for most of the year, rates have fallen. And finally, when everyone is convinced that rates will be falling for the rest of the year, they spike upward. Though they are still much lower than originally predicted.Oil was pretty calm this quarter–until the attack of the Saudi oil fields. The attack brought an immediate reaction in the oil markets with the price of oil topping $60 per barrel before easing a bit. Actually, the spike was pretty tame compared to previous oil scares. Yet, no one could have predicted this attack — and no one knows what might be coming next. Because you can’t predict the future.We can’t even predict what the employment numbers will be like on Friday. Generally, job growth has quieted down this year, but the individual months have been quite volatile. We had one month where job gains hit 300,000 and another month in which job gains were closer to 50,000. That is a lot of variation. The Federal Reserve Board meets again later this month after lowering rates in their last meeting and this report will be watched closely as we try to guess what the Fed may do. Our guess is that the members of the Fed don’t know what they will do. After all, they can’t predict the future, either. 
 A new survey conducted by Bank of America has found the vast majority of homeowners are highly satisfied with owning their residences and would never go back to renting. According to the new report that polled 1,919 adults, 93 percent of respondents said they were happier because they bought a home, with 88 percent stating it was the best decision they have ever made and 79 percent claiming that owning a home has changed them for the better. Two-thirds of respondents who are homeowners said their relationships with family and loved ones have changed for the better since purchasing a home, and 78 percent are satisfied with the quality of their social life–a higher share than the 58 percent of prospective homebuyers who were quizzed on the quality of their social life. As for giving up homeownership, 83 percent of respondents that own a residential property said they would never go back to renting. “We know how much homeownership means, and we see examples every day of how owning a home gives our clients the power to build personal wealth and make memories,” said D. Steve Boland, head of Consumer Lending. Source: NP MagazineHome shoppers may be able to breathe a sigh of relief. They’re facing fewer bidding wars for the homes they want to buy. About 10% of offers written by Redfin real estate agents on behalf of their customers faced a bidding war in August, down from higher than 42% a year earlier, according to the brokerage’s index that measures competitive offers nationwide. August’s percentage is also the lowest bidding-war rate on record since at least 2011. The national rate of bidding wars peaked at 59% in March 2018, but has since been dropping. “Despite remaining near three-year lows, rates have failed to bring enough buyers to the market to rev up competition for homes this summer,” says Redfin Chief Economist Daryl Fairweather. “Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase. But assuming a recession doesn’t arrive this fall or winter, consumers will likely adjust to the new ‘normal’ of continued volatility in the stock and global markets, and the people who need and want to make a move will take advantage of low rates. As a result, I still expect home-buying competition to pick back up in the new year.” Source: Redfin

The majority of foreclosure sales to third-party buyers are owner-occupied within a year, according to a new study from Auction.com. Auction.com’s Seller Strategy Report notes that 56% of properties sold to third parties at foreclosure sale in Q2 2018 were Owner-Occupied a year later, compared to 43% that reverted to the lender. Additionally, third-party foreclosure sales executed higher relative to credit bid at the foreclosure sale than did properties sold as REO, and properties sold via “Day 1” REO online auction sold on average 95 days faster than REOs sold via the MLS. “By synthesizing the rich transactional data from our market-leading platform with public record and MLS data, we’re able to provide a holistic view of the disposition metrics that matter to distressed property sellers,” said Jason Allnutt, CEO at Auction.com. “At the top of that list are execution of the sale price relative to credit bid, time to sell a property, and impact on the surrounding neighborhood.” Homes in Opportunity Zones are cheaper, in general, as well. ATTOM Data Solutions reports that 80% of these zones had median home prices in the Q2 of 2019 that were below the national figure of $266,000, and that half had median prices of $150,000. Source: MReport  

Weekly Mortgage and Real Estate Report – Week of September 23, 2019

ECONOMIC COMMENTARY

The Fed Speaks Amid Chaos

The past week was the best example of an axiom we have always followed — you can’t predict the future. It looked like the Federal Reserve Board was locked into a rate cut before they met. As we said, the die was cast. Then we had several things come up. The trade war rhetoric started to ease. Oil fields were attacked in Saudi Arabia and oil prices spiked. Meanwhile, after falling for several months, interest rates spiked upward, even before the attack in Saudi Arabia.

At the least, these events would prove to make the Fed meeting last week a bit more interesting. We went from 95% of analysts predicting an interest rate cut, to 65% in just a few days. Even so, the markets were not particularly surprised by the .25% rate cut decision. In the absence of a surprise, there was little reaction in the markets–though the action did take a bit of steam out of the recent rate spike. On the other hand, the markets have been so volatile lately that it is hard to detect a lack of reaction. For the past few months, it seems the markets are reacting to just about everything.

When there is no surprise, there is more attention paid to the Fed’s statement following their meeting. In this case, the markets were hanging on every word, especially in light of recent events. The short statement was also pretty much as expected. It talked about the economic headwinds the economy faces which supported the rate cut decision. With regard to future rate cuts, this is where the Fed must be transparent, but also vague. Thus, while they may see future rate decreases, they did not say if they will happen this year and they also indicated that the future direction of the economy and trade wars will guide them as the year progresses. The next Fed meeting is in late October and the minutes of this meeting will be released before that meeting. Perhaps we will know more by then.

REAL ESTATE NEWS

 The profile of first-time homebuyers in the U.S. is changing, according to researchers at the Joint Center for Housing Studies at Harvard University. In a paper titled “The Shifting Profile of First-Time Homebuyers: 1997-2017,” researchers found that in the past 20 years, there has been a significant shift from married households to never-married households among first-time homebuyers. To examine trends in this group of homebuyers, researchers used the 1997-2017 American Housing Surveys. The 2017 AHS suggests that first-time homebuyers purchased approximately 1.8 million housing units in 2016, making up approximately 1.5% of U.S. households that year. “While discussions of first-time home buying often tie homeownership entry to life-stage changes like marriage and the birth of a first child, a growing share of first-time homebuyers do not fit this profile,” the paper stated. According to AHS, 35% of first-time homebuyers in 2017 had never been married, compared to 23% twenty years prior. Married homebuyers made up 61% of the first-time homebuyers in 1997 and declined to 46% in 2013. But, that percentage increased over the next three years, hitting 52% in 2017. Surprisingly, the average age of first-time homebuyers hasn’t changed very much in 20 years. In 2017, the mean age for first-time homebuyers was 34, compared to 32 in 1997. The group hit its youngest average in 2009, with the average first-time homebuyer was only 30 years old. Source: HousingWire

Potential homebuyers have seen prices rise but affordability has still improved as lower interest rates give buyers extra power. According to First American’s Real House Price Index (RHPI) real house prices have decreased by 4.6% in the year to June 2019 and by 2.2% in between May and June 2019. The RHPI tracks price changes in single-family properties nationwide adjusted for the impact of changes in income and interest rates. “Two of the three key drivers of the RHPI, household income and interest rates, swung in favor of increased affordability in June,” said Mark Fleming, chief economist at First American. “When household income rises, consumer house-buying power increases. Declining rates have a similar impact on affordability, so in June home buyers received a double shot of house-buying power to jolt affordability in their favor nationally.” Interest rate changes boosted homebuying power by $35,000 while income increases added a further $8,600. “The net effect of these dynamics? Consumer house-buying increased by $44,000 (12.2%) in June compared with one year ago, more than enough to overcome the 7% increase of nominal house price appreciation,” said Fleming. In fact, house-buying power is the highest it’s been since we began tracking it in 1991.” Source: First American

A report on The Exchange on CNBC revealed that while the rate of millennial moving to the suburbs isn’t new, what they’re looking for once they get there has changed. “They want close knit, they want walkable, and they want it around smaller cities,” Diana Olick of CNBC. Olick added that suburbs around smaller cities will need to expand to accommodate the growing demand for these communities. The report by CNBC stated that 175 million people now live in suburbs or in smaller metros, opposed to just 98 million who live in an “urban core.” Forty-six million people reside in rural areas of the country. Valerie Bauerlein of the Wall Street Journal added that this is a stark contrast from a decade ago when people wanted to live closer to the cities. The current trend, she said, is for millennial to “flock to the suburbs,” as many of them, now between the ages of 23-38, can afford a house and start a family. Bauerlein also added millennial are very selective to where they move, as it must have good weather and good job opportunities. And it is millennials that are beginning to reshape the housing market, as a report last month by Genworth Mortgage Insurance revealed that first-time buyers make up 38% of single-family homebuyers and 57% of new purchase borrowers. “First-time homebuyers are typically different from other homebuyers, having less income and savings, but also are more likely to buy because they are starting a family versus changing jobs, retiring, or upgrading their home,” said Genworth Chief Economist Tian Liu. Since 2014, home sales to first-time homebuyers have accounted for most of the growth while sales to repeat buyers have been largely flat.” Source: DS News 

Weekly Mortgage and Real Estate Report – Week of September 16, 2019

ECONOMIC COMMENTARY

The Die is Likely Cast

The Federal Reserve Board is meeting this week with an announcement to be made on Wednesday. Many times, there is a lot of drama and speculation surrounding these meetings. We believe the die will likely have been cast before the meeting happened. The markets truly believe that the Fed must lower short-term interest rates. After all, it is the markets which have driven down long-term rates significantly over the past several weeks.

Had the jobs report came out to be a shocker on the strong side, perhaps there would be more debating. But even outside the employment numbers, we have seen evidence of a slippage in economic growth. Consumers are still spending, but business investment is weak, and the housing sector has lost its vigor over the past year. Though, it remains to be seen whether these lower long-term rates will insert some life into the housing sector. Certainly, there is some recent evidence of this happening.

One thing to keep in mind. The Fed lowering short-term rates will not necessarily cause long-term rates to fall further. The markets have made their move in anticipation of the Fed moving. If for some reason they did not lower rates, we could see long-term rates rise. This would be especially true if the Fed’s announcement indicates that the economy is on sound footing and more help is not needed. As a matter of fact, with the die likely cast, the wording of the announcement is more likely to move the markets than the rate decision.

REAL ESTATE NEWS

 Although the majority of Americans favor homeownership, Fannie Mae’s latest National Housing Survey revealed many over-estimate the qualifications and what it takes to own a home. “Despite increased exposure to credit scores and online resources, consumer understanding about what it takes to qualify has not improved since our original study in 2015, potentially discouraging willing and qualified Americans from taking steps toward homeownership,” the GSE’s report stated. Fannie Mae said that a 2018 study, which included an online survey of more than 3,000 respondents, found that more consumers reported seeing their credit scores, but close to half cannot recall what it is. Also, consumers overestimate the necessary score and down payment needed to qualify for a home loan, remain unfamiliar with low down payment programs, and an overall lack of knowledge on qualification. “While viewing one’s score is a good start, consumers need to understand what to do with that information,” Fannie Mae said. “Monitoring a score is not the same as understanding how the score impacts their financial situation.” Fannie Mae added that education should be timely, customized, convenient, simple, and delivered when a potential borrower is making a decision on whether to buy or sell. Optimizing information for mobile devices will play a large role in closing the gap, especially for younger borrowers. Some mobile apps already help consumers budget, invest, and manage debt. Residential finance tools could be integrated into more of these apps to provide step-by-step advice, the Survey indicated. Source: DS News

Even as Millennials enter the homebuying market, many Baby Boomers indicate they plan to stay in their homes throughout their retirements, according to a new study from PropertyShark. The study showed that almost a third of adults over the age of 45 say they struggle with the cost of housing and a third also say they don’t plan on ever fully retiring. Beyond that, the study showed that more than half of Baby Boomers (56% to be exact) said they want to age in place and stay in the home they’re in now. A situation like that could have negative impact on the housing availability for younger buyers, with fewer homes coming on the market. Of those with a yearly income of $20,000 to $40,000, 42% said they struggle with housing costs. There’s also a knowledge gap for Baby Boomers and their future housing options. According to the survey, half of the people surveyed said they lacked knowledge of government programs in relation to senior housing. What’s the main concern for housing after retirement? Keeping up with maintenance and repairs, and cost of rising property taxes. Over half of respondents said they have less than $100,000 saved for retirement, and only 4% said they have more than $1 million saved. Another option for older homeowners? A third of the survey said they wouldn’t mind cohabiting. While more than half said they would rather not have someone move in with them, 41% said they’d be willing to live with someone if they’re vetted, help around the house and pay rent. Source: HousingWire

Declining interest rates have sparked interest in investors, as they are purchasing homes at a record pace, according to analysis from Deutsche Bank Research. “With declining interest rates … they’re searching for a better return for their money,” said Lawrence Yun, Chief Economist and SVP at the National Association of Realtors, to FOX Business. According to the report, the share of investors buying U.S. homes rose to more than 11%. Yun said in the report that real estate is a “more secure return” than most investments, mostly due to a steady gain. CoreLogic’s Case-Shiller U.S. National Home Price Index (HPI) found that home prices rose 3.4% in May 2019, which is a slight decrease from the 3.5% in April. “Growth in home prices, as measured by the Case-Shiller HPI, began to stabilize in May. The more than 100 basis point decrease in rates since November has revived home sales and given buyers additional purchasing power in the market,” said Tian Liu, Chief Economist at Genworth Mortgage Insurance. A separate report by CNBC found that companies such as Taylor Morrison, Lennar, and Toll Brothers have started building single-family, rent-only communities, aimed at selling to investors. Source: MReport 

Weekly Mortgage and Real Estate Report – Week of September 9, 2019

ECONOMIC COMMENTARY

Jobs Data To Influence the Fed?

The data is in and it looks like the Federal Reserve Board will likely lower rates again next week, as market analysts have predicted. There was plenty of data released in the past two weeks. First, we saw a revision of the estimate of the second quarter’s economic growth. While not final, the 2.0% growth rate is seen as evidence that the economy is slowing down.

This was followed by the release of personal income and spending statistics for July. The consumer has been propping up the economy with fairly robust spending during the first half of the year. The fact that personal spending increased by 0.6% in July tells us that this behavior is continuing even though spending is outpacing income growth. Finally, we had the employment report for August.

It is our low unemployment rate which is enabling consumer spending. The addition of 130,000 jobs in August is an indication that the boost we have seen from the creation of new jobs is waning. The report also included a revision of July’s report downward by 5,000 jobs. The overall unemployment rate remained at 3.7% and wage inflation was slightly higher than expected. Overall, the data shows that the economy is slowing, but not yet in danger of slipping into recession in the short-term. 

REAL ESTATE NEWS

 Now could be the best time to buy a home since early 2017 as rates on home loans have eased to help home affordability reach an 18-month high. But while home prices have been accelerating at a slower pace for the past 15 months, that factor appears to be easing, with potentially higher price growth ahead. So, we are potentially at something of a sweet spot with the average-priced home requiring 21.3% of the median household income, down from 23.3% in November 2018, when rates hit a 7-year high. Black Knight’s Mortgage Monitor Report shows that the affordability landscape has changed significantly. Black Knight Data & Analytics President Ben Graboske noted: “Despite the average home price rising by more than $12K since November, today’s lower fixed interest rates have worked out to a $108 lower monthly payment when purchasing the average-priced home with 20% down.” Graboske added that the homebuying power of first-time buyers of an average-priced home has been boosted by around 15% due to the lower rates. Source: Black Knight

A survey, titled “How America Views Homeownership,” was conducted by The Harris Poll among 1,004 U.S. adults 21 and older. It revealed that 49% of Americans who are saving to buy or renovate a home have worked outside their primary job to supplement their income in order to pay this expense. Thirty-seven percent supplemented their income by selling items online, followed by 21% who started a small business, 18% drove for a ridesharing company, and 16% took up chores such as dog sitting/walking to supplement their primary income. Potential homebuyers were also willing to make trade-offs on their preferred locations as well as the size of the home, the survey found. In fact, 78% of those surveyed said that they were “willing to accept their second choice of a city or town in order to afford their own home.” Nearly three-quarters of non-homeowners (74%) said they were willing to buy a smaller home with fewer amenities too. Looking at different generations, millennials were willing to make more trade-offs than any other generation. The survey indicated that 85% of millennials were ready to consider the second choice of city. While 70% were willing to take up a second job to save for down payment or renovation, 83% of millennials said that they were willing to cut expenses such as dining out, going for events, and vacations. Source: MReport

More than half of homebuyers with children consider the quality of the local school districts when moving into a neighborhood, according to the National Association of Realtors’ (NAR) 2019 Moving with Kids report. In comparison to the 53 percent of buyers with children who investigate the local school environment as part of their house hunting, only 10 percent of those polled who had no children said the quality of schools in choosing a neighborhood and six percent said “convenience to schools” influenced their decision. Among the respondents with children, the average dimension of a desired property covered 2,110 square feet with four bedrooms and two full bathrooms. In comparison, those without children were looking, on average, for 1,800 square feet in size with three bedrooms and two full bathrooms. However, 26 percent of buyers with children said that they needed to postpone their purchase due to childcare expenses. And for those who were able to make the purchase, 31 percent said they compromised on the size of the home and 24 percent said they compromised on the price of the home. “Parents inherently make sacrifices for their children and family, and that is no different when shopping for a home,” said Lawrence Yun, NAR’s chief economist. “Of course, affordability is a part of the decision, but we have seen buyers with kids willing to spend a little more in order to land a home in a better school zone or district.” Source: NAR 

Weekly Mortgage and Real Estate Report – Week of August 26, 2019

ECONOMIC COMMENTARY

Christmas in August

With the Chinese/American trade war carrying over, the markets were encouraged for at least a period of time with the Administration’s decision to delay additional tariffs on certain goods until December 15. This decision was announced so that consumers were not hurt during the Christmas shopping season. Apparently, the season is ending a few weeks early this year. We won’t quibble with the date, since we know the news on tariffs is likely to change plenty of times between now and then.

While the trade war news definitely is affecting the markets, which are embroiled in extreme volatility — we don’t have evidence that the war is actually affecting our economy as of yet. This week and next we will be seeing the release of data which might help give us some clarity in this regard. This data will include a revision of the measure of economic growth for the second quarter, personal spending and the August jobs report.

We must also consider whether the volatility in the markets might affect consumer confidence. Though stocks are not owned by much more than 50% of American’s, the majority hears the news when stocks are skyrocketing upward or diving downward. On the other hand, it is possible that all these headlines about trade wars and the markets are getting stale, as our population does not have a long attention span. Either way, the data we see over the next several days may help us answer the key question of the connection between the headlines and consumer behavior, as well as the direction of the economy. 

REAL ESTATE NEWS

 Low interest rates have made 8.2 million U.S. mortgages “refi eligible,” meaning borrowers would save money by getting a new home loan even with the application and funding costs, according to Black Knight. The size of the “refinanceable population” could fluctuate with even small movements in the rate, Black Knight said in a report. The mortgage data firm measures loans that are at least 0.75% higher than currently available rates. “Another eighth of a percentage point decline in rates would increase the number of refinance candidates by 1.5 million to 9.7 million – an 18% rise in refi incentive,” the company said. “Likewise, an eighth of a percentage point increase in the 30-year rate would decrease the number of refinance candidates by 1.3 million to 6.9 million, a 16% decline.” Fannie Mae is forecasting U.S. rates for 30-year fixed loans probably will average 3.7% this quarter and every quarter through the end of 2020. That’s going to boost refinancings. “This continued decline in rates on home loans and our upwardly revised view on house price growth have led us to increase our forecast for single-family originations for the remainder of the year,” Fannie Mae said. “We now expect total originations to rise 7.0 percent from 2018 to $1.75 trillion, and we expect refinances to account for 32 percent of total originations in 2019, up from 29 percent in 2018.” Source: HousingWire

The homeownership rate fell slightly to 64.1% in the second quarter, according to U.S. Census Bureau data released recently. While the number of new households is rising, the homeownership rate was mostly flat during the quarter due to the increase mostly coming from new renter households. The number of new renters was larger than the number of new owners for the first time since the fourth quarter of 2016, according to census data. Indeed, the homeownership rate is below what it should be, Mark Fleming, chief economist of First American, noted in a separate report this month. In 2018, the homeownership rate under performed potential demand by 8.7%, and Fleming points to young adults and their lifestyle choices as the main culprit. “But the bulk of millennials have yet to turn 30, which signals higher potential homeownership demand may be on the horizon,” he notes. The largest group of millennials by birth year will turn 30 in 2020, which puts them entering their prime homebuying years, he notes. Millennials—the most educated generation–have the highest incomes across their generational cohorts, even when salaries are adjusted for inflation. “Higher income leads to higher house-buying power,” Fleming notes. Fleming says the homeownership rate is poised for a turnaround soon — “We expect the homeownership rate to further close the gap with potential in the years ahead as millennials continue to make important decisions, such as attaining an education and, later in life, getting married and having children.” Source: First American and CoreLogic

Redfin reports that 25% of home searchers on Redfin.com are looking to relocate to a new metro in Q2 2019—a slight increase from last year. The report states that 24% of Redfin users during Q2 2018 were looking to move. Redfin stated that the national share of home-searchers looking to move has been at the highest level on record since Q4 2018. Redfin’s latest migration stats are a sample of more than 1 million Redfin.com users, searching across 87 metros from April through June. Phoenix was once again No. 1 on Redfin’s list for highest new inflow of Redfin users during Q2 2019. Phoenix was followed by Sacramento, California, and Atlanta, Georgia. Boston, Massachusetts, appeared on the list for the first time at No. 9. “People are increasingly looking to leave expensive coastal metros like New York, San Francisco and Los Angeles,” said Redfin chief economist Daryl Fairweather — “The homebuyers who are heading out of town in search of affordability don’t just want to save a few hundred dollars per month, they want to save thousands of dollars per month, and the only way to achieve that kind of cost savings is to move somewhere more affordable.” Source: DS News