Is History Repeating Itself?

Warning signs are flashing in the housing market, says Lakshman Achuthan, COO and Co-Founder of the Economic Cycle Research Institute in New York. Achuthan recently published an article with Bloomberg in which he discussed the decline in growth in real home price since the summer of 2018 began.

This drop in home prices has been closely monitored across the industry, as seen in a recent report on the Redfin Housing Demand Index showing demand flat for a third consecutive month. But Achuthan goes further, claiming research done at his institute indicates real home price growth hasn’t just declined in recent months, but rather has “entered a cyclical downturn that is likely to intensify.”

This trend in decline home price growth, he suggests, very well could lead to an actual drop in housing values, reversing significant gains made since housing prices plummeted in the wake of the subprime mortgage crisis.

“With rates rising and the broader economy in a stealth slowdown that few recognize,” Achuthan warns, “stock prices are vulnerable to corrections… In this context, the home price downturn raises the risk of generalized asset price deflation that could result in a negative wealth effect for the first time since the financial crisis.”

As underlying factors fueling this downturn, Achuthan points to forecasts in data which reveal a drop in housing starts and existing home sales, both trends have been discussed by our sister publication, MReporthere and here.

Another factor Achuthan cites for his belief that home prices have entered a cyclical decline is the affordability issue, which continues to be a serious problem for many potential homebuyers who feel locked out of the market. But affordability is likely to persist as a dampener for home sales for the foreseen future—and will likely to be exacerbated by mortgage rates also widely expected to increase (as reported on by Deborah Kearns in a recent Bankrate article). Achuthan believes the increase in mortgage rates outpacing home prices combined with a paucity of new housing starts and rising costs in construction all together signal a real driver in a cyclical downturn in home prices across the nation.

“If nothing else,” Achuthan insists in closing, “the prospect of this scenario warrants serious monitoring.”

Posted on December 31, 2018 at 4:33 PM
Guy Arnone | Category: Real Estate

Worrying Delinquency Trends

Mortgage delinquencies rose more than 13 percent in September registering the largest single-month rise since November 2008 according to Black Knight’s First Look at the mortgage performance data for September.

Black Knight said that while September delinquency increases are quite common, three factors led to the large surge seen during the month this year.  “Sixteen of the last 19 Septembers have seen delinquencies increase, averaging a 5.2 percent rise over that time frame, the largest of any month during the calendar year,” the report stated.

While that may be the case, the fact that September ended on a Sunday and cut short the number of days for mortgage payments to be processed also contributed to the increased number of delinquencies. Though both these factors have been a common occurrence over the years and were by far the bigger reason for the spike, the report indicated that Hurricane Florence also contributed to the surge in delinquencies during the month.

Hurricane Florence-related delinquencies increased 38 percent month-over-month, with more than 6,000 borrowers already missing a payment as a direct result of the storm, Black Knight said in its report.

These three factors—the impact of Hurricane Florence, the fact that the month ended on a Sunday, and that historically September has been a month where delinquencies increase—have resulted in the sudden spike.

Despite this increase, the report revealed that foreclosure starts posted a double-digit monthly decline and hit an 18-year low with 40,000 starts recorded during the month. The report also indicated that the inventory of loans in active foreclosure and the foreclosure rate fell below their pre-recession averages for the first time since the financial crisis.

However, monthly prepayment activity fell by 25 percent from August 2018. The report attributed this fall to rising interest rates and home prices that were putting pressure on home affordability as well as prepayment speeds.

Regionally, Mississippi saw the highest non-current percentage of loans at 10.33 percent followed by Louisiana, Alabama, West Virginia, and Arkansas.

Colorado led the states that saw the least number of non-current percentage of loans at 2.01 percent, followed by Oregon, Washington, Idaho, and North Dakota.

Posted on December 15, 2018 at 4:32 PM
Guy Arnone | Category: Real Estate

HUD Awards $47M in Housing Counseling Grants Share 

“HUD-approved housing counselors are on the front lines, guiding people through their first home purchase and the ups and downs of homeownership,” says HUD Secretary Ben Carson. “Their efforts give families a real opportunity to realize their dream of owning a home is obtainable by offering advice on affordable rental housing, home financing, and tools to prevent foreclosure.”

HUD housing grants

© Pachai-Leknettip – iStock/Getty Images Plus

The grants will go toward supporting housing counseling services within 31 national and regional organizations, six multi-state organizations, 19 state housing finance agencies, and 207 local housing counseling agencies. Grant recipients will use the funds to address low- and moderate-income families’ housing needs, such as evaluating their readiness for a home purchase, helping them to understand financing and down payment options, and navigating the home buying process. The organizations will also help households find affordable rental housing and identify ways to repair any credit problems that may be restricting their housing choices. They also assist homeless people find transitional housing and senior citizens who are seeking reverse mortgages.

HUD and the Federal Reserve Bank of Philadelphia have published recent research that shows housing counselors provide significant benefits for first-time home buyers and families who are struggling to prevent foreclosure.

See the full list of all counseling agencies that have been granted funding.

Posted on November 30, 2018 at 6:00 AM
Guy Arnone | Category: Real Estate

Fixed-rate Mortgages Still the Loan of Choice

According to Fitch Ratings, 90 percent of Reverse Mortgage Backed Securities (RMBS) contain fixed interest rates for their full term this year, meaning U.S. mortgage borrowers still choose fixed-rate mortgages as their loan of choice. Fitch notes that even with the upcoming termination of the London Interbank Offered Rate (LIBOR) in 2021, the most commonly used index for U.S. adjustable-rate mortgages (ARMs).

The percentage of RMBS containing fixed rate mortgages increased from 80 percent to 90 percent year over year in 2018, with Fitch noting that market interest rates for ARMS have “not been highly compelling.” According to Fitch, “hybrid” form ARMS, or those with fixed rates for the first five or 10 years, after which they adjust based on movements in LIBOR, have been impacted by slow moving long term rates. Current seven-year hybrid ARM rates are typically only 0.25 percent to 0.375 percent lower than available fixed-rate loans, which Fitch notes is not enough to entice borrowers.

Though most borrowers tend to lean toward fixed rate loans, for non-prime mortgage borrowers, hybrid ARMs are an attractive lending alternative as even small differences in mortgage rates can increase affordability during the initial level payment period. Currently, over 50 percent of non-prime loans currently being originated are five- to 10-year hybrid ARMs with LIBOR cited as the reference index for the adjustable term.

With LIBOR no longer available to mortgage servicers once these new hybrid loans roll to adjustable-rate, the mortgage and securitization documents allow for replacement. Just five percent of RMBS include an unpaid principal balance floating off of LIBOR. The end of LIBOR gives RMBS programs the opportunity to explore alternative options.

“Typically the note holder or servicer will choose a new index based upon comparable information and will give notice of this choice,” said Fitch. “Servicers are expected to make applicable interest rate adjustments in compliance with servicing standards and document references to an alternative index for the affected mortgage loans.”

Posted on November 15, 2018 at 2:30 PM
Guy Arnone | Category: Real Estate

Study Finds: FSBOs Net ‘Significantly’ Lower Profits

For-sale-by-owners tend to sell their homes for lower prices than homes sold through traditional agents via the MLS, and in many cases below the average differential represented by the prevailing commission rate, according to a new study by Collateral Analytics.

The study examined the price differences between homes sold through traditional agents versus those sold by FSBOs from 2016 to the first half of 2017.

Some homeowners may be tempted to try to avoid commission costs to a broker and try to sell the home on their own. But that can backfire and turn into a much lower sales price, the study found.

Even successful FSBO sellers achieve prices “significantly below” those from similar properties sold more traditionally via REALTORS®, the study found.

The authors found that the differential in selling prices for FSBOs when compared to MLS sales is “remarkably close to average commission rates.” A FSBO sale, on average, nets nearly a 6 percent lower price than an MLS sale for a similar property.

“Assuming that both buyers and sellers pay the commission, one might have expected something less than this average,” the researchers note. “It appears that many sellers are avoiding commissions while netting home prices less than they would with an agent-represented MLS sale. They are avoiding commissions at any price, even one that exceeds a commission rate.”

Source: “Saving Real Estate Commissions at Any Price,” Collateral Analytics Research (Aug. 16, 2017)

Posted on October 30, 2018 at 4:17 PM
Guy Arnone | Category: Real Estate

To Own or to Rent: The Question Troubling Homebuyers

The cost of buying a home has risen by 14 percent over the past one year. That is more than three times the rate of monthly rental costs, according to research published by Realtor.com on Thursday. The research indicated that as home prices rose across the U.S. renting was becoming increasingly popular.

The analysis also found that the number of places where it was cheaper to buy had significantly declined in the past one year.

“Even setting aside big upfront expenses like a down payment, rising month-by-month costs are likely keeping many people from purchasing,” said Danielle Hale, chief economist at Realtor.com.

The analysis found that only 41 percent of the nation’s population lived in a county where a median-income family could afford to buy a home. While the cost to buy a home rose by 14 percent year over year, cost to rent increased only 4 percent. It was cheaper to buy a home compared to renting in 35 percent of the counties in July, this compared to 44 percent during the same time last year.

“Today only 41 percent of people live in a county where the median income family can afford to buy a home at the median list price, and affordability declined significantly over the past year. Since home ownership has historically been an important source of household wealth creation, it could be problematic if this trend continues for too long. Still, even in places where renting is currently more affordable, rising home prices provide a wealth-building opportunity for home buyers,” Hale said.

The analysis found that the top five counties where purchasing a home was more affordable than renting were Clayton County, Georgia; Baltimore City, Maryland; Wayne County, Michigan; Cumberland County, North Carolina; and Madison County, Illinois. The share of income to buy was 4 percent to 14 percent lower than the share of income to rent in these counties.

In contrast renting remained less expensive than buying in Manhattan and Brooklyn in New York and in Monterey County, San Mateo County, and Santa Barbara County in California.

Read the full analysis here.

Posted on October 15, 2018 at 2:30 PM
Guy Arnone | Category: Real Estate

The Drivers Impacting Home Buying Decisions

Homebuyer enthusiasm is on the wane driven by rising home prices, according to the latest quarterly Modern Homebuyer Survey released by ValueInsured on Wednesday.

The survey revealed that housing confidence amongst American homebuyers, led by millennials, had seen a steady decline in the previous 12 months. In the third quarter of 2018, the survey said that the percentage of millennials who believed that buying a home today was a good investment dropped to 48 percent from 54 percent in the previous quarter. This was also a steep drop from the high of 77 percent recorded by the survey in 2016.

Millennials are also not very enthusiastic about buying a home over renting. The survey revealed that 61 percent of millennials believed it was beneficial to buy a home instead of renting one, down from 83 percent during the same period in 2016. “While 76 percent of all homeowners believe that now is a good time to sell a home, only 39 percent of millennials who want to become homeowners believe now is a good time to buy a home,” the survey said.

The ValueInsured Housing Confidence Index for millennials also registered a low score of 56.9 on a hundred-point scale in Q3 2018, declining 1.7 points from Q2 and 10.1 points from the same period last year.

“Conventional wisdom assumed millennials were buying homes later because they chose to get married and have children later,” says Joe Melendez, CEO, and Founder of ValueInsured.  “New research now suggests homeownership may be the cause, not the effect, of a delayed family formation. It is an alarming trend, and we see more acute evidence in the expensive housing regions.”

Even among millennials who are interested and motivated to buy a home today, their decision comes with a lot of anxiety, the survey revealed. The top concern? They would not save enough to buy the home they wanted. The survey found that 67 percent of millennials were concerned that they would not be able to save enough for a home that they actually liked. Fifty-two percent said that a home they bought now was likely to drop in value within a year, while 49 percent of those willing to buy a home now were concerned that rising mortgage rates could make homes that were currently within their budget become unaffordable later.

To learn more about what millennial homebuyers want and how lenders can reach out to them,  join MReport’s webinar Hottest Buyers on the Block: Reaching Millennials, presented by Ellie Mae. At this webinar, experts will discuss the latest millennial homebuyer trends, lender strategies to reach out to this market segment, and how digital channels can help. Click below to register for this webinar.

Posted on September 30, 2018 at 2:30 PM
Guy Arnone | Category: Real Estate

Sweeping Credit Score Overhaul Points to Positive Outcome for Real Estate Industry

Have you checked your credit score recently? Millions of potential homebuyers could now have easier access to mortgages, following a change to the way the three largest U.S. credit reporting firms handle negative credit events.

That change is the National Consumer Assistance Plan (NCAP). Launched by Equifax, Experian and TransUnion, the plan sets forth the goal of making credit reports more accurate for consumers and makes it easier for them to correct any errors they may find on their credit reports.

Between June 2017, when the plan went into effect, and June 2018, collections were removed from eight million consumers’ credit reports, which resulted in an average increase of 14 points to their scores, according to a recently released Federal Reserve Bank of New York report.

NCAP removes “from credit reports any previously reported medical collections that have been paid or are being paid by insurance,” according to the plan’s site.

It also requires debt collectors to not only “include original creditor information with each account being reported for collection,” but to “regularly update the status of unpaid debts and remove debts no longer being pursued for collection,” as well.

At the same time, the total U.S. household debt has risen for a 16th straight month, to $13.3 trillion, according to the New York Fed’s Quarterly Report on Household Debt and Credit. Generally, confidence is connected to consumers’ financial picture, including borrowing, and when debt grows, demand for housing often rises in tandem.

Posted on September 5, 2018 at 3:00 AM
Guy Arnone | Category: Real Estate

What’s Causing an Uptick in Foreclosure Starts?

As mortgages that went delinquent because of last year’s catastrophic hurricanes continued to cure, the U.S. delinquency rate plummeted to its lowest point since March 2006, according to Black Knight’s First Look for July, which parses monthly mortgage performance data for foreclosures and delinquencies.

Simultaneous to that, foreclosure starts ticked up 11 percent over June’s dramatic 17-year low to hit 48,300—the highest amount reached in three months, Black Knight noted in its report. Although starts increased across the nation, foreclosure referrals in the hurricane-affected zones in Texas galloped by a higher-than-average 19 percent.

The upswing in starts coupled with fewer foreclosure completions led to the number of loans in active foreclosure climbing in July—albeit, the second monthly rise in three years, the report indicated. That said, the delinquency decrease was robust enough to outweigh the rise in active foreclosures, bringing total noncurrent inventory (30-plus days past due or in foreclosure) down to a more-than-12-year low, it noted.

The top five states ranked by non-current percentages in July were Mississippi at 9.61 percent; Louisiana (7.78 percent); Alabama (6.62 percent); West Virginia (6.36 percent); and Indiana (5.85 percent).

As for the bottom five states in order of non-current percentages, Washington led the list with 2.31 percent of its total active loans in foreclosure or delinquency followed by North Dakota (2.29 percent);  Idaho (2.25 percent); Oregon (2.13 percent); and Colorado (1.91 percent).

The top five States by 90-plus days delinquent percentages were led by Mississippi where 2.89 percent of loans were found delinquent followed by Louisiana (2.09 percent); Alabama (1.91 percent); Florida (1.79 percent); and Arkansas (1.64 percent).

According to the report, the top five states classified by six-month improvement in non-current percentage were Florida (37.2 percent); Texas (23.77 percent); Louisiana (16.68 percent); Rhode Island (15.3 percent); and Nevada (14.26 percent).

The top five states in terms of six-month deterioration in a non-current position were led by North Dakota (3.22 percent); Colorado (7.15 percent); Washington (7.45 percent); Delaware (8.14 percent); and Alaska (8.51 percent).

Posted on August 30, 2018 at 5:19 AM
Guy Arnone | Category: Real Estate

Forget a Garage—Buyers Won’t Budge on High-Rated Schools

uyers have their eyes on schools, and with the irrefutable link between the quality of schools and values, a district with high ratings trumps all—even coveted features of a home, according to a new realtor.com® survey.

To get into their desired district, 78 percent of the homebuyers surveyed had to let go of something on their wish list. When asked what they would compromise on, approximately one-fifth (19 percent) of respondents would forgo a garage, while 17 percent would go without a kitchen that has been remodeled. Another 17 percent would settle for less bedrooms.

Realtor_com_Schools

Being within an in-demand district is “important” to 73 percent of respondents to the survey, and even more so to those with children, and those who are younger. What are the characteristics of a “good” school? Accelerated programs, arts and music and diversity are all factors, but the most important is test scores, according to the survey.

“Most buyers understand that they may not be able to find a home that covers every single item on their wish list, but our survey shows that school districts are an area where many buyers aren’t willing to compromise,” says Danielle Hale, chief economist at realtor.com. “For many buyers, ‘location, location, location,’ means ‘schools, schools, schools.’”

Generally, homes in proximity to sought-after schools move quicker than others, and are pricier.

Posted on August 22, 2018 at 5:56 AM
Guy Arnone | Category: Real Estate

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