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March 7, 2023
Single-Family Market Share Continues to Shift from Large Population Centers
By Elizabeth Thompson and Stephanie Pagan, National Association of Home Builders --While nationwide single-family housing starts have slowed in the past year, the largest drop on a percentage basis is occurring in the most dense counties, where housing costs are highest. Meanwhile, multifamily growth was robust throughout much of the nation at the end of 2022, with the notable exception in high-density markets, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the fourth quarter of 2022.
“While the largest single-family market continues to be core counties of large and small metropolitan areas, the urban core market share has fallen compared to pre-Covid levels,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “During the fourth quarter of 2019, urban core markets of small and large metro areas represented 47.2% of the single-family market. This share declined to 44.5% in the fourth quarter of 2022, representing a persistent shift in buyer preferences to live outside of densely populated areas.”
The largest growth in single-family market share came in rural markets (micro counties and non-metro micro counties), rising from 9.4% in the fourth quarter of 2019 to a share of 11.8% in the fourth quarter of 2022.
“Due to aggressive federal reserve monetary policy and high mortgage rates, all submarkets in the HBGI posted lower single-family growth rates in the fourth quarter of 2022 than a year earlier,” said NAHB Chief Economist Robert Dietz. “Rural areas were the only market with a positive single-family home building growth rate in the final quarter of 2022.”
The fourth quarter HBGI shows the following market shares in single-family home building:
Meanwhile, the multifamily construction market remains elevated above historical levels, with six of the seven submarkets experiencing growth rates above 15% during the final quarter of 2022. However, large metro core counties were an outlier and registered the smallest growth rate, up only 1.5% from the fourth quarter of 2022.
February 23, 2023
The housing industry is on a mortgage rate roller coaster
The 30-year fixed-rate mortgage climbed to 6.5% after dropping to low 6% levels this month
By Connie Kim, Housing Wire – The mortgage industry has been on a roller coaster ride this year due to a resilient economy. In the span of a month, mortgage rates shot up near 7% after dropping to the low 6%-levels.
“The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist.
The latest economic data, including the job market, consumer spending — which remained robust — and inflation numbers, which displayed unexpected staying power, led investors to bet that the Federal Reserve will continue to raise its federal funds rate through the summer.
Even before these data were released, minutes from the Jan. 31-Feb. 1 Fed officials’ meeting showed that they needed to do more to wrestle rapid inflation back to 2%.
“With inflation still well above the committee’s longer-run goal, participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2% is appropriate from a risk management perspective,” the minutes, released on Wednesday, said.
The 10-year Treasury yields, which act as a benchmark for mortgage rates, rose to 3.93% on Wednesday, up from the previous week’s 3.81%.
Following the climb in the 10-year Treasury yield, the Freddie Mac fixed rate for a 30-year loan also continued to rise.
The 30-year fixed-rate mortgage rose again to 6.5% as of February 23, up 18 basis points from the previous week’s 6.32%, Freddie Mac’s latest survey showed. Rates were at 3.89% a year ago this time.
Just about three weeks ago, Freddie Mac’s mortgage rates dropped to 6.09% — despite the Fed’s hawkish tone to keep inflation at a target of 2%.
At HousingWire’s Rate Center, the Optimal Blue data showed rates at 6.64% on Wednesday, up compared to 6.48% the previous week. Mortgage News Daily showed rates were at 6.88% as of Wednesday, up one bps from the previous day.
Realtor.com economist Jiayi Xu said that while it’s hard to predict whether the Fed is going to make an aggressive move next month, if companies tighten belts in preparation for a potential economic downturn, it could endanger jobs in the tech industry and service sectors.
“This means that the housing market will continue to be a ‘nobody’s market’ — not friendly to buyers nor to sellers. Mortgage rates are likely to move in the 6% – 7% range over the next few weeks, which continues to pose a significant challenge to affordability,” Xu said.
In turn, potential buyers could opt to stay in the rental market, driving up the already high rental demand, Xu explained.
Higher mortgage rates also make it less appealing for people to list their homes to sell and buy another, Logan Mohtashami, lead analyst at HousingWire, said.
“As we saw after June of last year, when mortgage rates got above 6%, new listing data started to decline year over year and is still falling year over year,” he said.
But for those looking to buy in a rate-rising environment, borrowers are recommended to shop among lenders to find a better rate.
“Our research shows that rate dispersion increases as mortgage rates trend up. This means homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders to find a better rate,” Khater said.
February 3, 2023
Why Mortgage Rates Hold the Key to Improved Affordability in 2023
By Ksenia Potapov, First American Economic Insights – By all respects, 2022 was a tumultuous year for the housing market. Annual house price appreciation remained at a double-digit pace for most of the year, mortgage rates increased by nearly 4 percentage points in less than 12 months and, as a result, affordability plummeted. By October, housing affordability had declined by a record 68 percent year-over-year, according to First American’s Real House Price Index (RHPI). Given the dramatic shift in affordability in 2022, some rebalancing in the housing market is natural. To better understand the ongoing rebalancing in the housing market, it is helpful to analyze the relationship between the components of affordability, specifically whether changes in mortgage rates or prices have a greater influence on affordability.
Housing affordability is the result of the tug-of-war between purchasing power, which is the product of household income and mortgage rates, and nominal house price growth. House price appreciation reduces affordability, while falling mortgage rates and rising incomes increase affordability.
Changes in income play a smaller part in short-term affordability fluctuations, so they’re excluded from this analysis. In the early days of the pandemic, fast-falling mortgage rates were winning the tug-of-war, despite double-digit annual house price appreciation, and, as a result, affordability was improving. But just as fast-falling mortgage rates improved affordability in 2020 and 2021, the fast-rising mortgage rates of 2022 were responsible for nearly 80 percent of the overall decline in affordability. It’s clear that fluctuations in mortgage rates have a much more acute impact on affordability than house price appreciation or depreciation.
As mortgage rates moderate from their late 2022 high point and house prices decline from their mid-2022 peak nationally and in many top U.S. markets, it is helpful to quantify the tradeoff between mortgage rates and house prices—a rate-price “exchange rate.” According to our RHPI, a one percentage-point decline in mortgage rates has the same impact on affordability as an 11 percent decline in house prices.
What Does the Rate-Price Exchange Rate Mean for 2023?
Mortgage rate forecasts for 2023 range from the low 5’s to the low 6’s, while annual house price growth forecasts range from modest increases to modest declines, generally between -5 and 5 percent. Using the December 2022 average mortgage rate of 6.36 percent as the baseline, if mortgage rates fall to 5.5 percent from 6.36 percent, but house prices remain flat, affordability would improve by approximately 9 percent relative to December. If mortgage rates remain at December’s average of 6.36 percent while house prices decline 5 percent, affordability would improve by 5 percent. If mortgage rates instead increase to 7.5 percent, even a house price decline of 5 percent would not be enough to offset the impact from higher mortgage rates, and affordability would still fall.
House prices are generally downside-sticky—while they may move up quickly, they do not easily move down. Indeed, considering the consensus range for both mortgage rates and house prices, this rate-price exchange rate suggests that movements in mortgage rates will have the greatest impact on housing affordability in 2023.
Historically, neither mortgage rates under 3 percent, nor house price appreciation in the double-digits is considered normal. Housing affordability is dynamic, and a new affordability equilibrium will emerge as house prices, mortgage rates and household incomes shift. In the short run, however, affordability will be largely dictated by movements in mortgage rates.
January 31, 2023
House Prices Declining Fastest in Overvalued Markets Share
By Mark Fleming, First American Economic Insights – In November 2022, the Real House Price Index (RHPI) increased by 60 percent on an annual basis. This rapid annual decline in affordability was driven by two factors -- a 7.6 percent annual increase in nominal house prices and a 3.7 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 3.5 percent since November 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and still-strong nominal house price growth. The loss of affordability has prompted buyers to pull back from the market, putting downward pressure on prices. While still elevated by historical standards, nominal house price appreciation has slowed considerably since early 2022. Nationally, annual nominal house price growth peaked in March 2022 at nearly 21 percent, but has since decelerated by more than 13 percentage points to 7.6 percent in November.
"As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners over the last few years,” says Mark Fleming of First American Economic Insights.
Real estate dynamics are local, yet nearly every market in the country during the pandemic was characterized as a seller’s market. Wherever you turned, multiple-offer bidding wars were the rule, not the exception. However, as house prices adjust to the reality of higher mortgage rates, the pace of adjustment will vary significantly by market.
Real Estate is Local, Again
Nominal house prices declined from their recent peaks in 37 of the top 50 markets we track in November. The market with the biggest decline was San Francisco, where nominal house prices peaked in April 2022, but have since declined by nearly 10 percent as the housing market rebalances. San Jose, Calif. follows closely behind, as nominal house prices have declined 7.8 percent from the recent peak in March 2022. However, house prices have only recently hit their peaks and have yet to decline in markets such as Louisville, Ky., Kansas City, Mo., Hartford, Conn., and several others.
Of course, repeat-sales price indices, such as the one used in this analysis, are based on the prices from closed sales, which are a lagging indicator of price changes in the housing market because the contracted prices for these closed sales were agreed to months earlier. Even so, it’s clear that some markets are weathering the adjustment to higher mortgage rates better than the coastal markets, where price declines are greatest.
Overvalued Markets Correcting Faster
Many of the markets with the largest price declines from peak, such as San Francisco, San Jose, and Phoenix, are also some of the more overvalued markets, meaning the median existing-home sale price exceeded house-buying power in these markets. If housing is appropriately valued, house-buying power should equal or exceed the median sale price of a home. Many of the markets where house prices have not yet declined, such as Louisville, Ky. and Kansas City, Mo., are still considered undervalued, meaning house-buying power exceeded the median existing-home sale price in November. There are exceptions to this relationship, but generally it seems that the most overvalued markets are correcting the fastest.
The Silver Lining
While price changes vary by market, there is one trend that bodes well for all top 50 markets – much of the homeowner equity gained during the pandemic remains. For example, in both San Francisco and San Jose, house prices increased by 31 and 29 percent from February 2020 to their respective peaks in 2022. Kansas City and Hartford gained 48 and 40 percent from February 2020 to their respective peaks in 2022. As the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners over the last few years.
For more analysis of affordability, please visit the Real House Price Index. The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of February 27, 2023.
November 2022 Real House Price Index Highlights
The First American Real House Price Index (RHPI) showed that in November 2022:
November 2022 Real House Price State Highlights
November 2022 Real House Price Local Market Highlights
This month’s Real House Price Index (RHPI) included a revision to the First American Data & Analytics House Price Index.
About the First American Real House Price Index
The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American’s proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.
The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power.
January 24, 2023
Fitch*: Overvaluations Shifting East, Home Price Growth To Slow
Ratings agency [Fitch Ratings, Inc.*] says U.S. homes were overvalued by 10.5% in Q3.
By David Krechevsky, National Mortgage Professionals -- KEY TAKEAWAYS
The ratings agency, however, expects overvaluation to continue moderating as home price growth trends downward in 2023. Prices dropped 0.5% in October, marking the fourth consecutive month of declines, the agency said.
“Overvaluation is shifting from the West Coast to the East,” Fitch said in the report, titled “U.S. RMBS Sustainable Home Price Report (Fourth-Quarter 2022)." As of the third quarter, the report continued, “the most overvalued states were Hawaii, South Carolina, and North Carolina vs. Idaho and Nevada a year prior.”
Among the top 100 most populated metropolitan statistical areas (MSAs), the report estimates that Buffalo-Cheektowaga-Niagara Falls, N.Y., is the most overvalued, followed by Fayetteville-Springdale-Rogers, Ark.-Mo., and Rochester, N.Y. A year ago, Boise City, Idaho, was the most overvalued MSA, Fitch said.
High mortgage rates continue to pressure home prices, Fitch said, noting that 30-year fixed mortgage rates reached 6.33% as of Jan. 12, up from 6.27% two weeks prior, according to Freddie Mac. The housing market remains stagnant, with declining sales, low inventory, and falling prices. Both homebuying and home-selling sentiment are significantly lower than in 2022, according to Fannie Mae.
Fitch said it expects nominal home-price growth to slow substantially in 2023 due to cooling demand and worsening affordability. Fitch’s Global Housing and Mortgage Outlook forecasts nominal national home prices to fall by between 0% and 5% in 2023, with a 30-year mortgage rate remaining between 6.5% to 7%.
Fitch added, however, that uncertainty driven by high inflation and federal interest rate hikes will intensify the volatility of mortgage rates and the downside risk in 2023.
On the supply side, Fitch said it does not expect a sharp drop in the near term, with active listings in the 50 largest U.S. metros increasing by 62.8% over the last year and housing completions at a 6% annual increase (as of November 2022), according to Realtor.com.
Last week, Rocket CFO Brian Brown discussed the housing market for 2023 with Fitch. He predicts a 5% drop in home prices and first-time home buyers will be a major purchasing segment.
*Fitch Ratings Inc. is an American credit rating agency and is one of the "Big Three credit rating agencies",the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.
January 17, 2023
Single-family rental market slammed by headwinds
Some nonbank lenders are positioned to profit from the market gale
By Bill Conroy, Housing Wire – The nation’s single-family investment-property sector and the lenders serving those borrowers face some major challenges in 2023 as rent growth is slipping, vacancy rates growing, home-value growth faltering, and a possible recession looms.
For the non-QM lenders serving the single-family investment-property space who have managed interest-rates well to stay ahead of the market, however, there’s still plenty of opportunity to pick up market share, industry observers argue.
In addition, secondary market investors continue to show interest in well-underwritten, higher-rate loans secured by single-family rental properties. That, in turn, could lead to improved liquidity outlets for loans secured by single-family investment properties — through the private-label securitization (PLS) market and via insurers, pension funds and other institutional investors that hold loans or mortgage-backed securities in portfolio.
Ben Hunsaker, a portfolio manager focused on securitized credit for California-based Beach Point Capital Management, said there are already at least three investment-property backed PLS deals in the cue this year. They include a $405.2 million offering backed by 842 loans, OBX 2023-NQM1 Trust, which is sponsored by Onslow Bay Financial, according to abond presale report released by Kroll Bond Rating Agency (KBRA) on Jan. 5. “Approximately 36.8% of the subject [loan] pool is secured by investment properties,” the presale report states.
Another of the planned offerings is a $485.9 million deal backed by 902 loans that is sponsored by VMC Asset Pooler LLC, an affiliated of Invictus Capital Partners. The offering is dubbed Verus Securitization Trust 2023-1, according to a KBRA bond presale report released on Jan. 11. The fling shows that 460 loans in the offering, or nearly 40%, are investment properties, with the balance being non-QM loans secured by owner-occupied properties and a handful of second-home loans.
The third deal in motion, also backed in part by investment properties, is now undergoing due-diligence review. It is an estimated 470-loan securitization — with no value yet assigned in the due-diligence documents filed with the U.S. Securities and Exchange Commission. The pending offering, called NRMLT 2023-NQM1, is sponsored by Rithm Capital, formerly known as New Residential.
“It looks to be about 50% investor properties,” Ben Hunsaker said of the planned NRMLT offering.
The PLS deals in the pipeline are a sign that investment-property mortgages are still in demand — both by borrowers and bond investors.
Still, it’s far from all good news for nonbank lenders. High interest rates and inflation are projected to shrink overall mortgage originations in 2023 — including in the investment-property space— compared with 2022, a year in which the bleeding had already begun.
National real estate brokerage platform Redfin reports that investor home purchases dropped more than 30% year over year in the third-quarter of 2022, which is “the largest decline since the Great Recession, aside from the second quarter of 2020,” at the height of the pandemic.
The Mortgage Bankers Association’s (MBA’s) most recent market forecast projects that overall mortgage origination this year will dip to $1.45 trillion — down by 15% compared with 2022. Mortgage production in 2022 nationally was down about 50% from $4.44 trillion in 2021 — a year in which 30-year fixed mortgage rates were about half of what they are today.
“We are expecting a recession in the first half of 2023, which will result in the unemployment rate increasing … to 5.5% by the end of 2023,” the MBA’s December market-forecast report states. The nation’s unemployment rate stood at 3.5% as of December — with an estimated 5.7 million unemployed people.
That market contraction, along with a more difficult inflationary operating environment for property owners and businesses generally, is also expected to be a drag on the potential volume of loan originations secured by single-family rental properties. That is happening in the context of a shrinking universe of lenders capable of serving that market, however, creating an opportunity for the healthier non-QM lenders to expand their market share, according to Hunsaker.
“I think if you look at the landscape for originators … the guys [non-QM lenders] who survived, who thrived, managed their interest-rate risk well and are still able to quote and lock [loans],” Hunsaker said. “They were quoting and locking [loans] at probably [a range of] 8.75% to 10.5%, and while you’re seeing investor non-QM origination rates down, [they’re down] less than owner-occupied non-QM loans.”
He added, however, there also are many non-QM lenders that have not fared as well and now don’t have the warehousing capacity or the interest-rate risk-management capacity to excel in the current market.
“And so, what do you have to do? You have to cut your production and keep it to what you can fund with cash on hand or with a relatively conservative warehouse capacity,” he added. “I think that cohort of the origination market [those not prepared for the current market dynamics] has probably seen more volume declines than the cohort that either has balance-sheet capacity or has forward-flow agreements or has some sort of a [liquidity] take off.”
Although there is already some PLS deal activity involving investment-property loans cued up early in 2023, projections from the Kroll Bond Rating Agency (KBRA) show that overall PLS issuance in 2023 will be down by as much as 40% in 2023, compared with 2022. And 2022 was off by some 17% from 2021. Securitization has traditionally been one of the major liquidity channels for many nonbank lenders.
PLS offerings backed by investment properties across the prime and nonprime space, based on deals tracked by KBRA, slowed considerably as interest rates rose in 2022 — with the rate on a 30-year fixed mortgage starting the year at 3.22% and ending 2022 near 6.5%, according to Freddie Mac. Rising rates and associated volatility made executing securitization transactions profitably incredibly difficult for most deal sponsors.
KBRA’s data show that for the full year in 2022, there were some 43 PLS offerings valued at $17.5 billion that were backed in whole or in part by investment properties. Only 10 of those deals, worth about $3.3 billion, were issued in the final six months of 2022, however. Those deals involve investment properties owned by individuals or small “mom and pop” landlords and do not include securitizations undertaken by large institutional owners of investment properties — the so-called Wall Street investors.
“There’s some of that [investment-property collateral] going into securitizations [now], but we don’t think the backlog is very big relative to where you historically have seen it in the December-January time frame,” Hunsaker said, adding on a positive note, however, that “we’ve seen securitization spreads firm up over the past 20 or 30 days.” That is happening in the context of inflation showing signs of abating as well — down from annualized high of 9.1% in June to 6.5% as of December, based on the Consumer Price Index.
“We’ve also heard a lot of it [single-family investment-property collateral] has gone to … more balance-sheet oriented end users, such as insurance companies, banks, and some non-securitization [players] using private credit funds,” Hunsaker added. “I think [institutions] like that are stoked to get a 9% to 10% yield range on those assets — maybe a little bit less.”
Empty sails in single-family
The economic doldrums slowing growth in the overall housing market, including rental rates more recently, if not reversed, will continue to negatively affect both new loan originations in the year ahead and the profit margins for single-family rental investors. That includes rentals owned by so-called mom-and-pop landlords — with 10 or fewer properties. Those smaller-scale landlords account for the bulk of the nation’s single-family investment-property market.
Although the single-family rental market is distinct from the multifamily apartment market, they both compete for the nation’s pool of renters. And across the apartment market over the past four months, rental and occupancy rates been declining, with “more multifamily units under construction than at any point since 1970,” according to a recent report by rental marketplace Apartment List, which has some 6 million rental units listed on its platform,
“We estimate that the national median rent fell by 0.8 percent month-over-month in December … the fourth consecutive monthly decline, and the third largest monthly decline in the history of our estimates, which start in January 2017,” the Apartment List report states. “The preceding two months (October and November 2022) are the only two months with sharper declines.
“… In the most recent four months from August through November, it [the vacancy rate] has increased by 0.8 percentage points, reaching 5.9% this month [December, up from 4.1% in October 2021]. …We expect that 2023 will be a year of flat to modest rent growth, but it is unlikely that prices will fall significantly throughout the year.”
Short term rental growth is slowing
In addition to the economic strain being felt by mom-and-pop landlords due to increasing costs fueled by inflation as rental and occupancy rates plateau, market experts say the economic drag will hit even harder the short-term rental sector — which is dominated by less-experienced investors listing their rental properties through online platforms like Airbnb and Expedia’s Vrbo.
A recently released report by short-term rental analytics firm AirDNA projects that this year the supply of short-term rental units will increase by 9% while demand for rooms is projected to increase at only a 5.5% clip. The result, according to the report, is that revenue per available room is expected to decrease in 2023 by 1.6% year over year — compared with a 2.1% year-over-year gain in 2022 and a nearly 28% bump in 2021.
“So, in 2022, we saw about 20% demand growth,” said Jamie Lane, vice president of research at AirDNA. “[This] year, we’re expecting [less than] 6%.
“That is a significant slowing.”
Lane added that the projected supply growth for 2023 is likely to come, to a large degree, from homeowners who now have very low interest rates, compared with the current market, and “maybe were thinking of moving, but they don’t necessarily want to give up their home with that 3% mortgage, so they’ll rent it out” instead.
“What you’ve seen [in the short-term rental market] is you go from premiums of about 80% [in 2021] — i.e., the revenue that you’d earn is almost double what the cost of that revenue is,” Lane said. “And that’s gone down [as of late 2022] to about 10% or so.
Staying alive in single-family
There is opportunity ahead in the single-family investment property sector, however, for lenders and borrowers alike who do their homework and understand the peculiarities of the markets they are operating in today — and act accordingly, market experts say.
“In certain markets, like in Phoenix, certain parts of Florida and the Southeast, [for example], I agree there were basically fields of homes built, and they were built based off the extreme growth we saw in 2020, 2021 … and that [development] may have outpaced the demand growth in those areas,” said Doug Faron, a founding partner of Florida-based Shoreham Capital, a build-for-rent and multifamily residential developer. “We’re really thinking about rental yields.
“We’re thinking about what the end buyer wants, which with us is an institutional fund. What yields are they [the end buyers] targeting for their investments and can we — because of where we think rents are going [in a specific area] and how we’re going to manage this asset — achieve a yield and exit that makes sense.”
It may well be a case of not letting the good be the enemy of the perfect when it comes to investment-property plays in the current dour housing market. As evidence that some investors seem to see it that way, loan-aggregation platform MAXEX reveals in a December market report that its investment-property loan-trading volume has expanded significantly over the past few months, with nearly two-thirds of locks “coming in the form of investment-property loans.”
Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors, also provides some indirect rational for continued optimism about the single-family investment-property market overall in the current high-rate environment.
“With the qualifying income near the $100,000 threshold, 32% of all households and [only] 15% of all renters can currently afford to buy the median-priced home,” she said.
The MAXEX report concludes that the high cost of financing a home purchase “has relegated many would-be homebuyers to the sidelines, where renting is the more affordable option for the time being.”
“… This has created a strong market for real estate investors who continued to buy homes despite elevated home prices and higher interest rates,” the MAXEX report concludes.
Rick Sharga, executive vice president of marketing for real-estate research firm RealtyTrac, explained in a prior interview that the time horizon for most investors in the rental-property market tends to be longer-term.
“So, even if there is a [home]-price correction, with a longer time horizon, you’re more likely to be able to ride that out and get back to where you were, and actually ahead of where you were,” he explained. “In the meanwhile, you’ve been renting it out, at least at a breakeven number for that that whole period of time, and in most cases probably cashflow positive.
“I personally think the rental sector of the market is a little less vulnerable to bubbles, to price increases and decreases.”
January 3, 2023
Agents gear up for a turbulent 2023 housing market
By Brooklee Han, Housing Wire – The housing market looks a lot different than it did just 12 months ago in cities and metropolitan areas across the country, and agents and brokers have had to adapt. From continuing education to increased advertising spend and fine tuning their businesses, agents are changing their strategies to better suit the needs of current housing market
“If anyone thinks they are going to sell real estate in ’23 like they did in ’20, ’21 or early ’22, they aren’t going to make it,” Nick Bailey, the president of RE/MAX said.
As of December 18, 2022, the nationwide median for days on market was 70 days, up from 49 days a year ago. The share of homes with price decreases jumped from 26% a year prior to 41% this year, and the Altos Research Market Action Index score fell from a 90-day average of 54.86 to 40.09, according to data from Altos Research.
In addition, mortgage rates are currently hovering around 6.3% compared to 3.28% a year ago, and Redfin reports that the bidding war rate on offers written by its agents is 44.6%, down 22.7 percentage points from a year ago. It’s a tough housing market, and experts don’t think it will improve much in the first half of 2023.
“The uniqueness of the COVID market and what it took to be successful in that market, those skills probably aren’t going to mean as much going forward,” Ken Johnson, a real estate professor at Florida Atlantic University and a former agent, said. “We are going into a cycle where it is very difficult to sell property.”
“All of these things that we kind of took a little for granted we are going back to. We are going back to marketing spans of 60, 120, 180 days. If I am going to take a listing forward, I’ve got to be good at marketing my property through the MLS and marketing it to other brokers,” Johnson continued. “We are going to see more heavily negotiated sales agreements, whereas before everything was sold as is for really high cash prices with no contingencies. Agents on both sides of the transaction are going to develop or dust off those skills, as they haven’t really been used for a few years.”
Or, as Keller Williams’ Marc King told RealTrends in June: “Right now, we are leaving a speed-based market and entering into a skill-based market.”
For Bryce Schuenke, a top-producing Re/MAX agent in the Minneapolis-Saint Paul metro area and member of The Minnesota Real Estate Team, this has meant spending more time being an educational resource for his clients.
“During this time it will be super important to maintain your prospecting — making phone calls to current and past clients, checking in to see how they are doing and asking any questions they have about the market or inflation, and just calm any fears they might have,” Schuenke said.
Schuenke also noted that it is now more important than ever to set realistic expectations with sellers.
“In the last couple of years, I think people got used to the idea that a home would sell in a day or two, or maybe within a few hours, but that isn’t the case anymore. So it is really important to let clients know what they can expect prior to entering the market and making it clear that marketing is now key,” he said.
Out in the Pasadena metro area, Tracy Do, a local Coldwell Banker agent and leader of the Tracy Do Team, is also increasing her marketing efforts.
“With prices leveling and demand decreasing, we are being mindful of our overall operating budget, but still increasing our advertising dollars,” Do said. “We are doing a lot of social media advertising and then Google ads as well and increasing the budgets on those campaigns — and then also making sure our print campaigns are also effective.”
Alison Elder, a top-producing Lake Tahoe-based Berkshire Hathaway Homeservices Drysdale Properties agent, is working on better targeted campaigns.
“We are spending a ton of time reaching into our database and designing and launching advertising that is pertinent as we work to better touch our sphere,” Elder said.
In addition to refining her digital marketing campaigns, Elder said she is using some of the “down time” afforded by the slower market conditions to organize her business.
“It is a good time really for any agent to take a look at their local market and set reasonable goals,” Elder said. “We are setting schedules for seasonal launches, working on better integrating with Berkshire (she moved her operation to BHHS earlier this month), developing our advertising budget, and evaluating all of the programs we have launched and what we are paying for. Are there any wasteful dollars? We are budgeting a profitable business at 20% less than this year.”
In addition to retooling their business plans, many top agents are working on furthering their real estate education through coaching and continuing education courses.
“I think no matter what profession someone is in, even if they have been doing it a long time, I don’t think you can have enough education,” Schuenke said. “Continuously figuring out and learning different things is important to staying on top of the game. Personally, I take as many classes as I can. I have a master’s degree from before I got into real estate, so education has always been a cornerstone of how I started and how I continue to conduct my business. Anytime you can grab a class that is relevant for today’s marketplace, do it.”
While agents know they will most likely never see a housing market like 2021 or early 2022 again, they are grateful that the market shift has provided them with an opportunity to catch their breath.
“I have checked in with everyone on my team about the market forecast for 2023, and after the last couple of years where the work has been so intense, everybody is kind of happy to have a little bit of downtime,” Do said. “If that downtime extends too long, that will be another story, but for now, no one is concerned.”
Scott Michaels, who works in the formerly white-hot city of Austin, Texas, shares a similar sentiment.
“I’ve never experienced anything like what we did from the middle of 2020 through March of 2022 and I wasn’t alone. Realtors all over were saying the same thing,” the Compass agent said. “You just did what you could to keep yourself healthy and sane.”
Michaels said the housing market slowdown has freed up time to work on parts of his business that got neglected during the height of the pandemic housing market.
“Farming your area, keeping in contact with past clients, the slowdown has allowed us to refocus on those things that are vital to keep our business thriving into the future,” Michaels said.
January 3, 2023
Inside mortgage lenders’ strategies for 2023
Now that the refi party is over and total volume is down, lenders are fighting to gain market share
By Flávia Furlan Nunes, Housing Wire – Executives at Plaza Home Mortgage expect things to get worse before they get better. During the first three quarters of 2022, the San Diego, California-headquartered mortgage lender’s originations declined by about 38% compared to the same period of 2021, ending at $5.5 billion, according to Inside Mortgage Finance.
Like many competitors, Plaza is losing money operationally. In turn, it has reduced its workforce and sold mortgage servicing rights (MSRs) to add some extra revenue, top executives said.
“Obviously we had a very negative impact on the business compared to the previous year, which would be expected given the rapid rise in interest rates in 2022,” said Kevin Parra, who co-founded the mortgage lender two decades ago with James Cutri.
“I’ve been in the business since 1985, and mortgage rates are still historically low. It’s just a matter of the homebuyer psyche and, of course, an affordability problem,” Parra added.
Parra expects the landscape to remain tough for a while.
“Builders aren’t building because they are pessimistic about buyers being able to buy homes. Sellers aren’t selling because they got a great mortgage rate in 2020 and 2021 and there’s less reason to move. So, activity will remain subdued, and home prices will fall in certain markets, but not radically,” he said.
What Parra described are a few of the reasons that 2023 will be a challenging year for mortgage lenders — and strategies will have to pivot to accommodate for the rough landscape. Over the last few weeks, HousingWire interviewed analysts and executives to learn their expectations for 2023 and find out how they plan to run their businesses successfully in spite of challenges.
The refi party is over for mortgage lenders
David Battany, executive vice president of capital markets at Guild Mortgage, defines 2022 as the year in which the U.S. exited the “largest government stimulus for the mortgage market in history.”
That’s because the Federal Reserve, as part of its inflation-busting strategy, has decided to hike rates and cease new purchases of agency mortgage-backed securities, or MBS, dialing back from a program launched in 2020.
As a result, the mortgage industry “exited the largest refi boom in U.S history,” according to Battany.
To illustrate, mortgage originations reached $4.4 trillion in 2021, with a 62% share of refinancing. This year, the volume is expected to decline to $2.2 trillion, with the percentage of refis at 33%, per the Mortgage Bankers Association (MBA).
When the refi party ended, the consequences were seen all over the country. Mortgage lenders imposed several rounds of layoffs, cutting thousands of underwriters, processors and loan officers. The cuts at Better.com and loanDepot are some of the most dramatic examples.
Companies exited production channels to focus on their most profitable avenues. For example, Finance of America shut down its forward mortgage business to focus on reverse mortgages and other products.
Mergers and acquisitions have accelerated, with the latest case being Ohio-based Union Home Mortgage, which struck a deal to acquire Michigan-based Amerifirst Home Mortgage. And, for those companies not rescued by acquisitions, such as First Guaranty Mortgage Corp. and Sprout Mortgage, executives decided to abruptly close doors.
For those who survived 2022, there’s a crossroads to face at the start of 2023, Battany said.
“We will find out, in the next few months, if the Fed strategy is working or not to get inflation under control,” he said.
“You can say the markets are betting there’s an 80% chance the Fed strategy will work and we will have a recession. But what if the 20% that doesn’t work happens? I think there’s a lot of hope that the strategy will work, but it’s not certain. And that uncertainty will result in volatility,” Battany added.
Questions on the efficiency of the monetary policy were raised because, among the causes of inflation, there are many factors that the Fed does not control, such as the war between Russia and Ukraine and supply chain issues. If the monetary policy works, mortgage rates can start a downward trend, bringing relief to the mortgage market in the second half of 2023. If not, the market may become a scary place.
Are we reaching the bottom?
Amid uncertainties, economists and analysts have already started to make their estimates for 2023.
The MBA expects mortgage originations will decline 14% year over year to $1.9 trillion in 2023 – with tighter monetary policy and more restrictive financial conditions causing a recession in the first half of the year. According to the trade group, mortgage rates will be 5.2% in December 2023.
Analysts at Keefe, Bruyette and Woods (KBW) believe that volumes will decline 23%, with home prices down by 12.5%.
“Overcapacity was the case this year, and it’s going into year-end. So, it seems like that won’t get resolved anytime soon,” said Bose George, mortgage sector analyst at KBW.
“At the same time, we’ve seen meaningful competition continue among the larger players, which is set up for a pretty challenging first half of the year,” George added.
KBW’s baseline scenario doesn’t forecast that the Fed will cut rates next year, and anticipates that mortgage rates will be between “5.75% to 6% something,” according to George.
“The MBA is assuming mortgage rates are down to the low fives in the next year. Their volume expectations are a little more positive than ours because that leads to an improvement in the back half of next year. But we’re not building that in at the moment,” he added.
For analysts at the credit analysis agency Fitch, the first quarter of 2023 may be the bottom line for the industry, despite volatility and uncertainty.
In terms of volume, “2023 is setting up to be at least lower than 2022 in the first half, but we will need to see what happens in the second half,” Shampa Bhattacharya, director for U.S. non-bank financial institutions, said during a webinar.
“We are going into the seasonally lower winter months, so we should expect lower volumes to continue at least for the next two quarters,” Bhattacharya said.
Bhattacharya added that for mortgage lenders, the main challenge in 2023 is to execute their strategies successfully. But what are these strategies?
Getting a larger slice of a smaller mortgage pie
The strategy for United Wholesale Mortgage (UWM), the largest mortgage lender in the country, to win in the purchase market is crystal clear. In June, the company announced an initiative dubbed ‘Game On,’ in which UWM slashed prices across all loans by 50 to 100 basis points, wreaking havoc on competitors with already compressed margins.
The company, which has about $800 million in cash as of the third quarter, intends to keep pushing its rivals in 2023.
“We don’t have any intention right now to stop Game On, which has been a big win for our company,” said UWM’s chief strategy officer, Alex Elezaj. “I don’t think we need to get more aggressive on it because we are very comfortable with where we are.”
UWM says Game On pricing is not the reason competitors exit the market, but their lack of commitment to the brokers’ community is. On the list are rivals such as loanDepot, Mountain West Financial, AmeriSave, Point Mortgage Corporation, Stearns Wholesale (owned by Guaranteed Rate) and Finance of America’s forward wholesale business. American Neighborhood Mortgage Acceptance Company LLC was also a victim.
However, the company’s executives say cutting prices led to attracting more loan officers to the wholesale channel and gaining market share when the market is down.
“Retail loan officers continue to convert over to wholesale, and this [Game On] was an extra incentive,” Elezaj said.
For Elezaj, 2023 will be challenging, but UWM’s executives will focus more on what they can control.
“I think we’ll be hovering around 6% to 8% for a little while. I don’t see any major items that would cause mortgage rates to drop in 2023,” he said. “Nobody has the crystal ball to know, but we are making sure that as the next refi opportunity comes, our wholesale brokers have the tools to execute for their borrowers.”
The growth strategy at the retail lender Guild Mortgage is quite different. With Guild, the company has an appetite for acquisitions.
“Whenever you see cycles like this, the value of two companies merging to become more efficient, there’s a lot of benefit to doing that,” Battany said.
He added, “As a company, we are very much committed to the mortgage market. We want to continue to grow and we look at acquisitions with companies of similar values and cultures that are high-quality retail lenders with a high customer service focus.”
The San Diego, California-headquartered retail mortgage lender reported a total in-house origination of $4.4 billion in the third quarter of 2022, compared to $5.7 billion in the previous quarter.
In December, Guild announced it has acquired the Wisconsin-based lender Inlanta Mortgage – which said earlier that it would be winding down operations in 2023 – to increase its purchase loans portfolio and market penetration in the Midwest. The financial terms of the acquisition were not disclosed.
Creating opportunities in an unforgiving market
Providence, Rhode Island-based Citizens Bank, the 25th largest mortgage lender in the country, originated $18 billion in the first three quarters of the year — a 44% decline compared to the same period in 2021.
“The first half of 2022 was very robust and the second half was challenging. We believe next year is going to be the flip prototype,” Sonu Mittal, head of mortgages, said. “We expect the market to normalize in the second half of 2023.”
According to Mittal, despite the changes in the landscape for 2022 and 2023, the company will stick to its strategy based on taking care of customers, building relationships and right-sizing the business. A challenge is that the execution is among three different channels, as Citizens is one of a few banks that operate in retail, wholesale and correspondent.
Mittal said that the bank continues to believe in all three channels: retail is here to serve customers; the correspondent is continuing to build healthy MSRs; and wholesale, which we know has had some intense competition, is almost 20% of the market.
With the wholesale space in particular, rival Plaza has prepared its operations for the storm in 2023.
Over the last few months, the mortgage lender took the opportunity to recruit former account executives from companies exiting the market, such as Stearns and loanDepot. It’s also planning to change its compensation structure, adopting a salary plus commission model rather than a draw against commission.
According to Parra, the new model is safer from a regulatory standpoint and rewards the best producers.
With these changes, Parra hopes for a slow return to profitability in 2023, likely in the first quarter.
“We are using the opportunity of attrition in the industry to grow market share. If the pie is a little bigger or smaller, it doesn’t matter. What matters is how much of the pie we can get,” he said.
As a final message, Parra said, “There’s always amazing opportunities in markets like this, which are very unforgiving markets.”
December 27, 2022
The 2022 housing market: A tale of two halves
By Connie Kim, Housing Wire – Marty Green thinks of the housing market in 2022 as two very different movies. The first half of the year, with mortgage rates in the 3s and 4s, was like “Fast and Furious.” Houses were selling at a fever pitch in a matter of days, with multiple offers, waived contingencies and buyers paying $100,000 over asking price. High octane stuff.
But the housing market in the second half of 2022? “The Big Chill” or “Frozen,” says Green, principal at real estate law firm Polunsky Beitel Green. The number of home listings dried up, contracts were canceled, the few buyers still out there demanded concessions, mortgage rates spiked to 7% and homebuilder sentiment hit rock bottom.
By September, a full-fledged housing market recession had set in.
“The 2002 housing market has been a tale of two halves,” said Green.
And, the market looks likely to remain frozen well into 2023, experts told HousingWire.
A mortgage rate lockdown freezes the housing market
Homeowners who refinanced during the pandemic simply aren’t going anywhere, according to Nick Smith, managing partner and CEO at Rice Park Capital Management.
“They are not selling and have a lot of equity in their homes. The higher mortgage rates are also putting a wet blanket on demand for new housing,” he said.
Thanks to the Federal Reserve’s benchmark rate being near zero for two full years and generating record-low mortgage rates, a tiny minority of homeowners now have an incentive to refinance at all in 2023. The elevated mortgage rate environment has created a mortgage rate lockdown effect of sorts, limiting the pool of customers for the mortgage industry.
With homes taking longer to sell, due in part to higher mortgage rates, buyers in 2022 had negotiating power to get concessions or credits to lower rates down for a limited period. Those trends are likely to continue in 2023.
Temporary rate buydowns have become a popular concession, especially among homebuilders, in which one out of 10 loans feature a seller-paid buydown, said Peter Idziak, senior associate at Polunsky Beitel Green. Adjustable-rate mortgages are also in vogue, enabling buyers to partially combat historically bad home affordability.
Homeowners in 2022 also tapped into their home equity, which peaked at $11.5 trillion in the second quarter of 2022, capitalizing on home equity loans and home equity line of credit (HELOC). In the third quarter of 2022 alone, HELOC and home equity loan originations rose 47% and 43% year over year respectively, according to Transunion‘s latest available data.
With debt levels rising and a recession looming, it’s easy to see more people turning to the equity in their homes to pay down credit cards or make up for a liquidity shortfall caused by job loss.
“With the economics of cash-out refinance worsening amidst higher rates, homeowners are showing increased willingness to use home equity lines of credit (HELOC) and home equity loans to tap equity,” a Housing Finance Policy Center report states.
Layoffs, LOs leaving the industry for good
The mortgage industry shrinking by more than half to an estimated $1.7 trillion in 2022 from 2021 meant mortgage lenders have had to cut costs – primarily through layoffs.
Top 10 lenders, including Wells Fargo, Pennymac, Guaranteed Rate and loanDepot, have gone through multiple layoffs throughout the year, and smaller local lenders, which aimed to expand by targeting the purchase market, were hit just as hard, if not harder.
Other smaller lenders, including real estate tech startup Reali and Sprout Mortgage, shuttered, while First Guaranty Mortgage Corp filed for Chapter 11 bankruptcy. Some smaller players, including Inlanta Mortgage, which were hiring LOs and branch managers in the summer, abruptly announced to shut down earlier this month, citing an “unanticipated drop in mortgage product demand.”
The top loan originators, who exceeded the landmark $1 billion in origination volume in each of the past two years, weren’t immune to rising rates either. Shant Banosian, executive vice president of sales at Guaranteed Rate, laid off about 50% of his team, and Thuan Nguyen, CEO of Loan Factory, reduced his company size by half this year.
The top producing LOs who focused on purchase mortgages were positioned in a better spot than those whose business depended on refis. Banosian, whose loan origination volume will be close to $1 billion in 2022, said he turned housing market headwinds into an opportunity to target new geographic markets.
With a huge increase in remote work and his core group of clients buying homes across the country – whether it be vacation homes, more affordable areas, or for new work opportunities – Banosian was at risk of losing clients when they went to states his team wasn’t operating in.
“As they (existing clients) went to do business in these new states, we figured out where the real estate agents are, and who the players are, where the markets they’re buying and did some research and started making phone calls,” he said in an interview with HousingWire.
The LOs who are in it for the long haul have gone old school: meeting up with real estate agents, getting licenses in multiple states and utilizing social media to get their names out. Those who joined during the refi boom or didn’t build referral relationships have permanently exited the industry. Or will soon.
Loan officer headcount in the industry could decline by 45% from last year’s estimated 353,120 LOs nationwide, which expanded by 34% from 2019, according to projections from Stratmor Group.
If the industry experiences a 65% drop in origination volume from the peak in the fourth quarter of 2020 to a trough in the first quarter of 2023, the Mortgage Bankers Association projects production employment will likely need to be scaled back by 24 to 31%.
“We are also going into the seasonally lower winter months, so we should expect lower volumes to continue at least for the next two quarters,” said Shampa Bhattacharya, director for U.S. non-Bank financial institutions at Fitch Ratings.
“Everybody is going to have a black eye here. It’s not a lack of desire for loans, the loans don’t exist,” Brian Hale, founder and CEO at Mortgage Advisory Partners, said.
November 28, 2022
House Prices Decline, But Equity Buffers Remain Robust
By Mark Fleming, First American Economic Insights -- In September 2022, the Real House Price Index (RHPI) jumped up by 60.6 percent on an annual basis. This rapid annual decline in affordability was driven by two factors – a 13.5 percent annual increase in nominal house prices and a 3.2 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago. Even though household income increased 3.1 percent since September 2021 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and fast-rising nominal prices. As affordability wanes and prompts buyers to pull back from the market, nominal house price appreciation has slowed. Nationally, annual nominal house price growth peaked in March at nearly 21 percent but has since decelerated by approximately 7 percentage points to 13.5 percent in September.
“Potential home sellers gained significant amounts of equity over the pandemic, so even as affordability-constrained buyer demand spurs price declines in some markets, potential sellers are unlikely to lose all that they have gained.”
But real estate is local, and there are markets where annual price growth isn’t just slowing, but prices are falling from recent peaks. Nominal house prices in many markets are poised to fall further as the hot sellers’ market of the pandemic turns in favor of buyers, but not all that was gained in the pandemic will necessarily be lost.
Not All that was Gained Will be Lost
The pandemic housing market was unprecedented in multiple ways. The housing market was already strong prior to 2020, yet the pandemic redefined the role of a home, creating a surge in demand. As work-from-home became the new normal, a house was no longer just a dwelling or a vehicle for wealth creation, but also an office, a classroom, a daycare and even a gym. The broadening role of the home in American life, coupled with record-low mortgage rates and limited housing supply, powered the housing market to multiple records during this unprecedented time -- the fastest annual house price appreciation, the lowest days on market in the history of record-keeping, and a near-record annualized pace of sales. Yet the pandemic housing market was the exception, not the norm. Double-digit house price growth was not sustainable in the long run. As the saying goes, what goes up, must ‘eventually’ come down. Sellers may be anchored to yesterday’s prices, but buyers won’t buy unless sellers adjust prices down to meet the affordability-constraining reality of higher mortgages rates. Sellers are beginning to recognize this and price cuts are becoming more common.
Nominal house prices declined in September from their recent peaks in 15 of the top 50 markets we track. The market with the biggest decline was San Francisco, where nominal house prices peaked in March 2022, but have since declined by 6.8 percent as the housing market rebalances. San Jose follows closely behind, as nominal house prices have declined 5.9 percent from the recent peak in April 2022.
While prices are declining from the peak in these markets, much of the homeowner equity gained during the pandemic remains. For example, in both San Francisco and San Jose, house prices increased 29 percent from February 2020 to their respective peaks in 2022. House price declines would have to be substantial to eat away at all the equity that many homeowners have accumulated over the last few years.
Rebalancing is Healthy
House-buying power has declined by $145,500 compared with one year ago, primarily due to higher mortgage rates. Affordability will likely remain a drag on the housing market until house-buying power recovers as house prices decline. House prices have already begun to adjust to the reality of higher mortgage rates in many markets, which will help bring more balance to the housing market heading into 2023. Potential home sellers gained significant amounts of equity over the pandemic, so even as affordability-constrained buyer demand spurs price declines in some markets, potential sellers are unlikely to lose all that they have gained.
For more analysis of affordability, please visit the Real House Price Index. The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of December 26, 2022.
October 28, 2022
Pending home sales fell 10% in September, much worse than expected
Diana Olick, cnbc.com
Pending home sales, a measure of signed contracts on existing homes, dropped a much worse-than-expected 10.2% in September from August, according to the National Association of Realtors.
Economists had predicted a 4% decline. Sales were down 31% year over year.
This marks the lowest level on the pending sales index since June 2010, excluding April 2020, when the Covid pandemic was in its early days.
Realtors point squarely to sharply higher mortgage rates, which had sat at record lows for the first two years of the pandemic. The average rate on the popular 30-year fixed mortgage was right around 3% at the start of this year, but then rose swiftly, crossing 6% in June, according to Mortgage News Daily. It pulled back a bit in July and August, but then began rising again, crossing 7% in September, when these contracts were signed.
“Persistent inflation has proven quite harmful to the housing market,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
Mortgage demand and new listings are dropping, too, because homeowners are unwilling to give up their record-low interest rates to trade up to a much higher one. For potential buyers, the increase in rates means the monthly payment on a median-priced home, with a 20% down payment, is now close to $1,000 higher than it was in January.
“With wages falling behind on account of inflation, and rates rising, buyers’ purchasing power has been reduced by over $100,000,” said George Ratiu, senior economist at Realtor.com.
“As we look to the remainder of the year, we can expect interest rates to continue their upward trajectory. The Federal Reserve’s monetary tightening has not yet made a dent in inflation, which means that the bank is expected to hike its policy rate further,” he added.
While red-hot home prices are starting to cool and even drop in some local markets, the decline is not enough to make up for the increase in interest rates. Home prices are up more than 40% since the start of the pandemic, fueled largely by those rock-bottom interest rates early on.
Regionally, pending home sales dropped 16.2% month to month in the Northeast and were down 30.1% year over year. In the Midwest, sales were down 8.8% for the month and 26.7% from one year ago.
In the South, sales retreated 8.1% for the month and were down 30.0% year over year, and in the West, the most expensive region in the nation, sales fell 11.7% for the month and were down 38.7% from the year before.
October 18, 2022
What’s the Outlook for Housing Market Potential for the Rest of 2022?
By Todd Fleming and Odeta Kushi, First American Economic Insights – Housing market potential sagged to its lowest point since May 2020 in September, falling 3.6 percent from August to an estimated 5.38 million at a seasonally adjusted annualized rate (SAAR). Year over year, the market potential for existing-home sales is down 16.7 percent. Market dynamics and the broader economic outlook have changed dramatically in the last 12 months, and that has strongly influenced the fundamentals that drive buyer and seller behavior and the potential for existing-home sales compared with a year ago.
"The higher the mortgage rate, the more sellers will go on strike and the more potential buyers will feel the impact of reduced house-buying power, but price appreciation will further slow and potential buyers can use adjustable-rate mortgages to regain some of that lost house-buying power."
Then vs. Now
In September 2021, which marked the highest level for housing market potential since 2007, the average 30-year fixed mortgage rate was 2.9 percent. Since then, average mortgage rates have increased to 6.1 percent in September of this year and they have continued to drift higher in October, approaching 7 percent. Higher mortgage rates have a dual effect on the housing market. First, rising rates reduce home-buying power, all else held equal, dampening home-buying demand and decreasing the market potential for existing-home sales. House-buying power is down 29 percent compared with September 2021. The decline of house-buying power has reduced market potential by 695,000 home sales.
Higher mortgage rates also incentivize homeowners to stay put by strengthening the rate “lock-in” effect. Consider that 93 percent of outstanding mortgages had mortgage rates below 6 percent in the second quarter of 2022. As mortgage rates approach 7 percent and the gap between most homeowners current mortgage rate and the prevailing market rate grows, the financial disincentive for homeowners to sell their homes and buy a new home at the higher prevailing mortgage rate increases. The rate lock-in effect prevents more new supply from reaching the market and reduces the number of home sales. Homeowners staying put reduced housing market potential by 84,000 sales in September compared with one year ago.
The other factor that is different today compared with one year ago is an uncertain economic landscape, and that is reflected in tighter credit conditions. When lending standards are tight, fewer people can qualify for a mortgage to buy a home. Tighter credit conditions resulted in 424,000 fewer potential home sales compared to one year ago.
While house price growth is slowing as the housing market cools, prices still remain higher than one year ago and homeowners, in aggregate, have historically high levels of home equity. For some of those equity-rich homeowners, that means moving and taking on a higher mortgage rate isn’t a huge deal—especially if they are moving to a more affordable city. Higher home prices compared with one year ago boosted housing market potential by 113,500 home sales in September.
It’s clear that lower mortgage rates super-charged housing market potential in 2021, but what’s next for potential home sales now that rates are rising? Falling house-buying power combined with tighter credit conditions have been the largest factors sapping potential demand. As long as inflation remains high, there will be upward pressure on mortgage rates as the Federal Reserve continues to aggressively tighten monetary policy. The higher the mortgage rate, the more sellers will go on strike and the more potential buyers will feel the impact of reduced house-buying power, but price appreciation will further slow and potential buyers can use adjustable-rate mortgages to regain some of that lost house-buying power. While not the frenzy of 2021, the largest living generation, the millennials, will continue to age into their prime home-buying years, creating a demographic tailwind for the housing market.
September 2022 Potential Home Sales
For the month of September, First American updated its proprietary Potential Home Sales Model to show that:
What Insight Does the Potential Home Sales Model Reveal?
When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That is difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time. Historical context is critically important. Our potential home sales model measures what we believe a healthy market level of home sales should be based on the economic, demographic and housing market environments.
About the Potential Home Sales Model
Potential home sales measures existing-home sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, homeowner tenure, house-buying power in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month.
September 26, 2022
Foreclosure starts had a 15% jump in activity from July but remain 44% below pre-pandemic levels.
By Katie Jensen, National Mortgage Professional
Black Knight’s first look at August 2022 month-end mortgage performance statistics shows the total U.S. loan delinquency rate (loans 30 days or more past due, but not in foreclosure) fell 3.6% in August to 2.79%, just four basis points above May’s 2022 record low. Year-over-year change in loan delinquency is down 30.26%.
Improvement was broad based with the number of borrowers a single payment past due fell by 4% and those 90 or more days delinquent down 4.5%. After dropping steadily over recent months, cure activity also improved in August with 62K seriously delinquent loans curing to current status, up from 58K in July.
The month’s 20.3K foreclosure starts represent a 15% jump in activity from July but remain 44% below August 2019 levels. Likewise, starts were initiated on 3.4% of serious delinquencies, up slightly from July but still less than half the rate seen in the years leading up to the pandemic.
Prepays (SMM) edged up 1.5% for the month, due to calendar-related effects, but are still down by 69% year-over-year as rising rates continue to put downward pressure on both purchase and refinance lending.
Foreclosure sales as a percentage of 90 days or more delinquent were up 0.53%, increasing 1.83% month-over-month and down 173.93% year-over-year.
The total number of properties that are 30 or more days past due, but not in foreclosure, is 567,000, dropping 27,000 month-over-month and 772,000 year-over-year. While the number of properties in foreclosure pre-sale is 185,000, increasing by 1,000 over the previous month and improving by 43,000 from last year.
The total number of properties that are 30 or more days past due or in foreclosure is 1,674,000, down by 54,000 month-over-month and down by 590,000 year-over-year.
Black Knight listed the top five and bottom five states in various stages of delinquency by non-current percentages. Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.
Top 5 States by Non-Current Percentage
Mississippi: 6.28 %
Louisiana: 5.63 %
Oklahoma: 4.71 %
Alabama: 4.62 %
West Virginia: 4.43 %
Bottom 5 States by Non-Current Percentage
Oregon: 1.98 %
California: 1.81 %
Colorado: 1.77 %
Idaho: 1.72 %
Washington: 1.70 %
Top 5 States by 90+ Days Delinquent Percentage
Mississippi: 2.37 %
Louisiana: 2.02 %
Alaska: 1.72 %
Alabama: 1.68 %
Arkansas: 1.55 %
Top 5 States by 6-Month Change in Non-Current Percentage
Hawaii: -27.50 %
Vermont: -26.11 %
New York: -22.48 %
California: -21.75 %
Utah: -20.52 %
Bottom 5 States by 6-Month in Non-Current Percentage
Iowa: -4.32 %
South Dakota: -6.19 %
Illinois: -7.77 %
Alaska: -8.34 %
Oklahoma: -8.43 %
September 15, 2022
U.S Houses Passes VA Appraisal Modernization Legislation
By Katie Jensen, National Mortgage Professional -- 'This legislation is an important first step towards broad modernization of VA appraisal processes.'
The U.S. House of Representatives passed legislation that will improve access to VA home loans.
The move was praised by the Mortgage Bankers Association (MBA) as an "important first step" to modernizing the VA appraisals process.
U.S. Rep. Mike Bost of Illinois and U.S. Sen. Dan Sullivan introduced the bill to streamline the home buying process for veterans and their families.
“VA home loans have given millions of veterans and their families the opportunity to purchase a home,” said Bost. “Yet, on average, veterans wait longer and pay more during the closing process due to VA’s out-of-date appraisal requirements. That’s why I am introducing the Improving Access to the VA Home Loan Act of 2022 today. This bill will make sure that veterans are not unfairly disadvantaged during the home buying process and allow for a modern, digital appraisal process, which will get them into their new home faster.”
In today’s hot market, veterans struggle to gain access to the fastest and best appraisal resources to get them into their new home as quickly as possible. The appraisal modernization legislation will let veterans use the same modern purchasers tools that non-veteran buyers already use.
Last March, the FHFA allowed hybrid appraisal — which gained popularity during the pandemic — to become a permanent fixture. Fannie Mae and Freddie Mac also accept appraisals conducted remotely. Remote or “desktop” appraisals use public record listings for comps and tax appraisals for purchase loans.
MBA is grateful to the House for passing with bipartisan support this commonsense bill to make VA home loan financing more accessible and affordable to our nation’s servicemembers, veterans, and their families by accelerating the updating of the Department of Veterans Affairs’ (VA) rules and program guidelines that govern home appraisals,” Bob Broeksmit, CMB, President and CEO of MBA said.
“The bill will encourage important reforms to the agency’s requirements regarding when an appraisal is necessary, how appraisals are conducted, and who is eligible to conduct an appraisal. This legislation is an important first step towards broad modernization of VA appraisal processes and could make veterans’ home purchase offers more viable in today’s competitive housing market."
The bill is now headed to the U.S. Senate.
“MBA now urges the Senate to pass a companion measure, S. 4208, introduced by Sen. Dan Sullivan, as swiftly as possible to ensure active and retired service members throughout the country have access to more affordable, sustainable homeownership opportunities.”
MBA Vice Chair and CEO of Amerifirst Home Mortgage, Mark A. Jones, testified before the House VA Subcommittee on Economic Opportunity in May 2022 and commended Bost for introducing the bill to Congress.
However, Jones expressed concern about the future increase in VA mortgages financing fees.
“The MBA urges Congress to ensure that these funding rates are set at a level commensurate with the risks associated with VA-guaranteed housing loans, and to monitor and analyze past funding fee increases, rather than demanding further increases,” Jones said.
Jones added that past increases in funding fees may have led to a “mismatch of funding fees with the actual risk profile of veteran borrowers.”
August 26, 2022
Are Investors Fueling the Rapid Decline in Housing Affordabilty?
By Xander Snyder, First American Economic Insights -- According to data from First American Data & Analytics, investor purchases of residential homes as rental properties as a share of all residential home sales, have increased sharply in the last year, rising from 10.5 percent in May 2021 to nearly 18 percent in May 2022. Increasing investor participation in the residential housing market has coincided with remarkable growth in house prices, leading some to attribute the worsening housing affordability crisis to the increase in investor participation.
However, an equally plausible explanation is that rapid house price appreciation enticed greater investor participation in the market. Given the ongoing affordability crisis, understanding this dynamic can provide helpful insight into what we can expect as the market transitions.
It turns out, as one might expect, that house price growth and investor participation are positively correlated. While there is substantial variation from city to city, we found cities with a larger investor share of sales generally experienced greater house price growth over the last year. For example, Phoenix, Atlanta and Jacksonville had the largest investor share in May as well as some of the fastest year-over- year house price growth rates in the country.
The top five cities by investor share in May 2022 were:
August 4, 2022
Expected Slowing Driving Uptick in Mortgage Risk
By Kayle G. Horst, DSNews --According to Milliman’s latest Mortgage Default Index (MMDI) covering the first quarter of 2022, mortgage originations continued a decline recorded over the last three quarters due to increased interest rates and a decline in originations and refinances.
The index value of the MMDI rose to 2.39% for originations during the first quarter of 2022 compared to 1.90% recorded during the fourth quarter of 2021. For both purchase and refinances, the primary driver of this increased default risk is an expected slowdown of home price growth expected over the next several years.
Looking at borrower risk, the risk level for government sponsored enterprise (GSE) loans increased from 1.35% during the fourth quarter of 2021 to 1.43 in 2022. Refinance loans once again continued to make up the bulk of the loan originations at about 57% of total originations. This number is in line with numbers with the third and fourth quarters of 2021.
This means that for loans originating in the first quarter, the expectation is that 2.39% will become delinquent (180 days or more) over their lifetimes.
Due to the fact that Freddie Mac released data indicating refinance loan volume has declined in light of rising rates, Milliman stated that they expect the MMDI to increase starting with the next quarterly release, reflecting greater borrower risk from purchase mortgages.
July 12, 2022
The 0.3% decrease indicates that lending standards are constricting.
By Sarah Wolak, Nation al Mortgage Professionals.
Mortgage credit availability decreased in June, according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from ICE Mortgage Technology.
The MCAI fell by 0.3% to 119.6% in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.
The Conventional MCAI increased 1.2%, while the Government MCAI decreased by 1.7%. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 1.4%, and the Conforming MCAI rose by 0.6%.
“Mortgage credit availability decreased slightly in June, as significantly higher mortgage rates compared to a year ago slowed refinance and purchase activity and impacted the overall mortgage credit landscape," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "Credit availability was mixed by loan type, with the conventional index up 1.2% and the government index down 1.7%.”
Kan continued, "Although there was reduced supply of lower credit score, high LTV rate-term refinance programs, the decline was offset by increased offerings for conventional ARM and high-balance loans. With higher rates and elevated home prices, more prospective buyers are applying for ARMs, but activity remains below historical averages.”
He added, “The decline in the government index was driven by the reduction in offerings for streamline refinance products from FHA and VA, which is the continuation of an ongoing trend reported in prior months.”
June 27, 2022
Mortgage delinquency rate falls to historic low
Serious delinquency level is still 45% higher than pre-pandemic
By Connie Kim, Housing Wire -- The national mortgage delinquency dropped to an all-time low in May, continuing two consecutive months of a decline since March.
The overall delinquency rate slightly dropped five basis points from April to 2.75% in May, according to Black Knight. The delinquency rate is 42% lower than the same period a year ago.
A total of 1.46 million properties were in early-stage delinquencies, defined as borrowers who missed a single mortgage payment, which is a slight increase of 0.2% from April due to typical seasonal patterns. It’s more than a 71% drop from the same period in 2021.
“Mortgage performance continues to be strong, with inflow of new delinquencies still running below pre-pandemic levels,” said Andy Walden, vice president of enterprise research at Black Knight. “With fewer new borrowers becoming delinquent, both overall and early-stage delinquency rates continue to trend downward.”
Some 595,000 properties were considered seriously delinquent, in which loan payments are more than 90 days past due, but not in foreclosure. That metric dropped 7% in May from the previous month. However, the number of properties in serious delinquency were 45% above pre-pandemic levels.
The country is still working through a surplus from the serious delinquencies that surged in the second quarter of 2020 as borrowers struggled to pay back their loans at the start of the pandemic, Walden said.
June 8, 2022
Mortgage demand falls to the lowest level in 22 years amid rising rates and slowing home sales
By Diana Olick, CNBC News
Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand hit the lowest level in 22 years.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40% from 5.33%, with points rising to 0.60 from 0.51 (including the origination fee) for loans with a 20% down payment.
Refinance demand, which is most sensitive to weekly rate moves, fell another 6% for the week and was 75% lower than the same week one year ago. The vast majority of mortgage holders now have rates considerably lower than the current one, and even those who would like to pull cash out of their homes are choosing second mortgages, rather than refinancing their first liens.
“While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” said Joel Kan, an MBA economist.
Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago.
“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan said.
Mortgage rates moved even higher to start this week, according to a separate survey by Mortgage News Daily. Rates have been in a narrow range for several weeks after moving decidedly higher in the previous months.
“There’s some chance that the upper boundaries of that range end up being a ceiling for rates, but that will depend on inflation and other incoming economic data,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “With a key inflation report set to release on Friday morning, the potential for volatility remains high.”
June 2, 2022
Mortgage rates steady at 5% as housing supply increases
While the potential homebuyer pool has shrunk, supply is increasing
By James Kleimann, Housing Wire – Purchase mortgage rates this week averaged 5.09%, essentially flat from the prior week, according to the latest Freddie Mac PMMS.
A year ago at this time, 30-year fixed rate purchase rates were at 2.99%. The government-sponsored enterprise index accounts solely for purchase mortgages reported by lenders during the past three days.
“Mortgage rates continued to inch downward this week but are still significantly higher than last year, affecting affordability and purchase demand,” said Sam Khater, Freddie Mac’s chief economist. “Heading into the summer, the potential homebuyer pool has shrunk, supply is on the rise and the housing market is normalizing. This is welcome news following unprecedented market tightness over the last couple years.”
The purchase index has now fallen for three consecutive weeks. Black Knight’s Optimal Blue OBMMI pricing engine, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages – measured the 30-year conforming mortgage rate at 5.42% Wednesday, up from 5.32% the previous week.
The 30-year fixed-rate jumbo was at 4.97% Wednesday, also up from 4.90% the week prior, according to the Black Knight index. *This week, mortgage application volume dropped 2.3% from the past week to a four-year low: refi applications declined 5% and purchase apps decreased 1%, according to the MBA. The MBA found the adjustable-rate mortgage share dipped to 8.7% of total applications.
Mortgage rates are following the Federal Reserve’s (Fed) inflation-fighting monetary policy. Minutes from the Fed’s meeting earlier this month released Wednesday showed policymakers emphasized the need to quickly raise interest rates to bring consumer prices closer to the Fed’s 2% goal.
The central bank raised the interest rate by a half percentage point on May 4 and unveiled a plan to reduce its $9 trillion asset portfolio. The Fed also has repeatedly signaled it will continue to raise rates in 2022 and into 2023.
According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.32% with an average of 0.8 point, up from last week’s 4.31%. The 15-year fixed-rate mortgage averaged TK% *The 5-year ARM averaged 4.04%, with buyers on average paying for 0.3 point, up from 4.20% the week prior. The product averaged 2.64% a year ago.
Economists forecast the tightening monetary policy will reduce origination volume significantly in 2022 and 2023. The MBA expects loan origination volume to drop more than 35% to about $2.5 trillion this year, from last year’s $4 trillion. Meanwhile, the MBA expects 5.93 million home sales in 2022, compared to 6.12 million in 2021.
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May 2, 2022
Home affordability is nearly the worst on record as mortgage rates spike
By Diana Olick, CNBC.com
KEY POINTS :
Mortgage rates just hit their highest level since 2009, and home prices are continuing to experience double-digit gains. Now, nearly all of the major housing markets in the United States are less affordable than they have been historically, and affordability is near its worst point on record.
New calculations from Black Knight, a mortgage technology and data provider, show that 95% of the 100 biggest U.S. housing markets are less affordable than their long-term levels. That figure was at 6% at the start of the Covid pandemic. Thirty-seven markets are less affordable than they have ever been.
Home price gains did pull back slightly in March, but they were still up 19.9% year over year. Compared with February, prices rose 2.3%, the fifth time since the pandemic began when home prices rose more than 2% in a single month. Prices were up 5.9% in the first three months of the year. Consumers are grappling with rising prices across categories, from real estate to airfare to groceries.
The average rate on the popular 30-year fixed started this year at 3.29% and hit 5.55% on Monday, according to Mortgage News Daily. Rates could move even higher after Wednesday’s Federal Reserve meeting, when markets will get more commentary on the Fed’s drive to curb inflation.
Homebuying affordability has not been this bad since July 2006, when rates were around 6.75%. Then, it took about 34% of the median income to cover the monthly mortgage payment, including principal and interest, for a home purchased with a 20% down payment.
As of April 21, that payment-to-income ratio had reached 32.5%. Historically, a ratio above 21% has caused the housing market to cool off, with the exception of the last two years. The pandemic has created an anomaly in the housing market, because demand is so high and supply is so low.
If rates were to rise just 50 basis points more or home prices were to increase just 5% more, home affordability would be the worst on record, according to Black Knight. (Of those two factors, the 5% rise in prices would be more likely.)
It is often said in the housing market that consumers don’t buy the home price, they buy the monthly payment. That payment is at a new high, up $552 (an increase of 38%) year to date to $1,809, and up $790 (or 72%) since the onset of the pandemic.
In reaction to weaker affordability, consumers are suddenly turning to adjustable-rate mortgages, which offer a lower interest rate. The ARM share of rate locks from potential homebuyers jumped from 2.5% in December to nearly 8% in March, according to Black Knight. As of last week, that share was more than 9%, according to the Mortgage Bankers Association.
April 8, 2022
Housing Bubble Pop Likely If Mortgage Rates Hit 5.75%
It may not be as destructive as 2008 due to some factors
By Keith Griffin, National Mortgage Professional News – The chief investment officer Americas, UBS Financial Services, is advising her clients a housing bubble is possible in the near future. The magic number is a 5.75% 30-year fixed rate mortgage - and that’s fairly near.
As National Mortgage Professional reported yesterday, the daily fixed rate has topped 5.25% this week. The Federal Reserve has already signaled interest rate increases for the remainder of 2022 to keep inflation at 2% down from its current rate of almost 8%.
In her client note entitled “Mortgage mania,” Solita Marcelli, GWM Chief Investment Officer Americas, UBS Financial Services, writes, “Monthly mortgage payment as a percentage of median household income, a metric of affordability, is now approximately 28% compared with 31% during the housing bubble of the mid-2000s. Assuming flat home prices, we estimate that mortgage rates would have to surpass 5.75% for the payment to income ratio to exceed the housing bubble.”
She adds, “In addition, although mortgage rates are still historically low, we expect the sudden move in rates to have some psychological impact on buying behavior in the near term, especially for entry level and first-time homebuyers. The impact would also likely vary across regions, with expensive coastal markets in California and Hawaii likely being more negatively impacted on a dollar payment basis.”
Attom, a research data company, said today the percentage of income stands at 26.3% of average wages needed to buy a median-price home. That is at the highest point since the third quarter of 2008. It was up from 24.9% in the fourth quarter of 2021 and 21.8% in the first quarter of last year – the largest annual increase since at least 2005. The Attom research says, in general, home affordability has gotten tougher across the U.S. as prices and mortgage rates surge.
Marcelli says there are benefits to a housing slowdown. “We believe a deceleration in the rate of home price appreciation would actually be a positive for the housing market as it would narrow the gap between wage and home price growth,” she said.
She also notes, though, this may not be an explosive housing bubble burst like that experienced in 2008. The primary reasons are better underwriting conditions, more responsible buyer behavior, and a substantial homeowner equity base.
While adjustable-rate mortgages obviously aren’t a sign of bad behavior, they can put people on the street if payments become unaffordable. Marcelli said, “The rise in mortgage rates is unlikely to affect homeowners as much this time around. In 2005, 40% of mortgages were adjustable rate – today that figure is about 1%.”
March 14, 2022
Share of Homes Selling Above List Price
Doubles Daily Dose, DSNews – This month marks the two-year anniversary of the coronavirus pandemic, which the World Health Organization officially declared on March 11, 2020. According to a new report from Redfin, the housing market has changed drastically as there are now half as many homes to choose from, as prices increased 34%. Overall, the number of homes on the market is down 49.9% from 2020 to a record low of approximately 456,000.
Remote work and record-low mortgage rates motivated scores of Americans to relocate during the pandemic, intensifying a housing shortage that began in the wake of the 2008 financial crisis. With few homes available to purchase, house hunters have waged fierce bidding wars, causing prices to rise. The median home sale price is now $369,125, the highest on record and up 33.6% from $276,225 in 2020. That’s a significantly larger jump than the prior two-year period, where home prices grew an estimated 10%.
The share of homes selling for above list price has doubled, while homebuyers are now twice as likely to pay more as they strive to beat out the competition. Nationwide, 46.3% of homes sell for more than the asking price, up from 21.8% in 2020. Nearly 6,000 homes have sold for $100,000 or more over asking price so far this year, up from 2,241 during the same period last year. The typical home sells in just 25 days, down from 53 days in 2020. A record 44.7% of homes sell within just one week, compared with 30.8% two years ago.
A record 70% of home offers written by Redfin agents faced bidding wars on a seasonally adjusted basis in January. That’s up from 33.4% in April 2020, the earliest month in Redfin’s records. An offer is considered part of a bidding war if a Redfin agent reported that it received at least one competing bid.
Some 32.4% of Redfin.com users nationwide looked to move to a different metro area in January, up from the previous peak of 31.5% in Q1 of 2021, and significantly higher than before the pandemic.* The most popular destinations in January were Miami, Phoenix, Tampa, Sacramento, and Las Vegas. Relatively affordable, warm metros usually top the list, and have only become more popular during the pandemic as people have left expensive coastal markets in search of lower prices and more space in the Sun Belt. San Francisco, Los Angeles, New York, Seattle and Washington, D.C. were the top metros homebuyers looked to leave in January.
Mortgage rates are back above pre-pandemic levels after hitting an all-time low of 2.65% in January 2021. The average 30-year fixed mortgage rate was 3.76% during the week ending March 3, 2022, according to the latest data from Freddie Mac. That’s up from 3.29% two years earlier, when early signs of the pandemic had already started to put downward pressure on mortgage rates. Rates surged at the end of 2021, though they’ve dropped slightly in recent weeks as Russia’s invasion of Ukraine has shaken global financial markets.
Homebuyer demand for second homes was up 87% from pre-pandemic levels in January—the most recent period for which data is available. That’s the highest level in a year and just shy of the record 90% gain in September 2020. It’s worth noting that preliminary February data suggests second-home demand slowed as mortgage rates jumped.
Interest in second homes surged during the pandemic because many affluent Americans purchased vacation properties to escape crowded, boarded-up cities. Additionally, some Americans bought second homes not as vacation properties, but as full-time residences to live in while they rent out their old homes.
To view the full report, including charts and methodology, click here.
March 9, 2022
Mortgage applications jump 8.5% as Russia’s war pressures rates
Borrowers’ demand for mortgages increased across the board, for purchases and refis
By Flávia Furlan Nunes, Housing Wire – Mortgage applications jumped 8.5% for the week ending March 4, as mortgage rates dropped for the first time in three months as a result of Russia’s war in Ukraine, the Mortgage Bankers Association (MBA) reported on Wednesday.
Borrowers’ demand for mortgages increased across the board. The MBA‘s seasonally adjusted refi index rose 8.5% from the previous week, with a larger gain in government refinances. Meanwhile, the purchase index was up 8.6% in the same period.
Compared to the same week one year ago, mortgage apps overall dropped 35.8%, with a sharp decline in refi (-49.9%) compared to purchase (-7.4%). The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.
According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, the “war in Ukraine spurred an investor flight to quality, which pushed U.S. Treasury yields lower.” Consequently, mortgage rates declined for the first time in 12 weeks, he said.
The trade group estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) decreased to 4.09% from 4.15% the week prior. For jumbo mortgage loans (greater than $647,200), rates dropped to 3.79% from 3.88% the week prior.
The survey showed that the refi share of mortgage activity decreased to 49.5% of total applications last week, from 49.9% the previous week. VA apps rose to 10.4% from 10.2% in the same period. The FHA share of total applications increased to 8.7% from 8.6% the prior week. Meanwhile, the adjustable-rate mortgage share of activity rose from 5.3% to 5.2%. The USDA went from 0.4% to 0.5%.
Regarding purchase applications, Kan said prospective buyers acted on lower rates and the early start of the spring buying season. He added: “The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth.”
Experts told HousingWire that the turmoil could lower mortgage rates at least in the short-term, because investors often flee to safer options during periods of conflicts, such as U.S. Treasury notes, bonds and mortgage-backed securities. On Thursday, Freddie Mac PMMS Mortgage Survey showed its rates at 3.76% for the week ending March 3, down from 3.89% in the previous week. Buyers on average bought 0.8 mortgage points.
“Looking ahead, the potential for higher inflation amidst disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other,” Kan said in a statement.
March 1, 2022
Will Rising Rates Bring Balance to the Housing Market?
By Mark Fleming, First American Economic Insights – In December 2021, the Real House Price Index (RHPI) increased 21.7 percent compared with December 2020, the highest annual growth rate since 2014. The record increase was driven by rising mortgage rates and rapid nominal house price appreciation, which make up two of the three drivers of the RHPI. The 30-year, fixed-rate mortgage and the unadjusted house price index increased by 0.4 percentage points and 21.4 percent respectively. Even though household income increased 5 percent since December 2020 and boosted consumer house-buying power, it was not enough to offset the impact of higher mortgage rates and rising nominal prices on affordability. In the near term, affordability is likely to wane further, as mortgage rates are expected to continue to rise and the pace of house price appreciation exceeds gains in household income. How buyers and sellers react to higher rates may help the housing market regain some balance.
Existing Homeowners Locked In? When mortgage rates fall, a potential home buyer can buy the same amount of home for a lower monthly payment or buy more home for the same monthly payment. The 40-year tailwind of declining mortgage rates has allowed homeowners to buy a home at one mortgage rate and then later sell and move into a more expensive home when rates are lower. This long-run decline in mortgage rates has encouraged existing homeowners to move out and move up.
Faster house price appreciation, modestly rising mortgage rates and record low levels of homes for sale have been the economic dynamics dominating the housing market during the second half 2021. While existing homeowners have historically high levels of equity and may feel wealthier because of it, many have also secured historically low fixed-rate mortgages. There is a financial “lock-in” effect that increases as mortgage rates rise and as the size of a mortgage increases. Rising mortgage rates increase the monthly cost of borrowing the same amount that a homeowner owes on their existing mortgage. The higher the prevailing market mortgage rate is relative to the homeowner’s existing mortgage rate, the stronger the lock-in effect. Why move out and move down?
Additionally, the record low level of houses for sale makes it difficult to find a better, more attractive house to buy, so sellers – who are also prospective buyers – don’t sell for fear of not finding something to buy. The good news is that builders have been breaking ground on more new homes, which may alleviate some of the supply crunch and encourage existing buyers to move. Nonetheless, buying a home is often prompted by lifestyle decisions more so than financial considerations. Despite the financial lock-in, homeowners will still make the decision to move based on lifestyle changes, such as needing more space to accommodate a growing family or relocating for a new job or other reason.
The Housing Market Will Adjust
Homeowners may feel rate-locked into their homes, but first-time home buyers have no such financial lock. Yet, first-time home buyers must also contend with the record low supply of homes in a declining affordability environment. But what goes up, must eventually moderate. Rising rates may be a housing market headwind in 2022, but as some buyers pull back from the market due to affordability and supply constraints and as new construction adds more supply, house prices will moderate, resulting in a more balanced housing market.
February 22, 2022
U.S. existing home sales accelerate; investors elbowing out first-time buyers
By Lucia Mutikani, Reuters -- U.S. home sales unexpectedly increased in January, but investors paying in cash are squeezing out first-time buyers from the housing market amid record low inventory and higher prices. The surge in sales of previously owned homes last month reported by the National Association of Realtors on Friday also reflected buyers rushing in to close contracts in anticipation of mortgage rates rising further. Investors made up the largest share of transactions in six years last month.
Mortgage rates have climbed to levels not seen since 2019 as the Federal Reserve is expected to start increasing interest rates next month to tame soaring inflation. Economists are anticipating as many as seven rate hikes this year.
"This is the rush to get in before borrowing costs move higher," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "Unfortunately, first-timers are being priced out of the increasingly expensive purchase."
Existing home sales jumped 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales rose in all four regions, with strong gains in the Midwest, the most affordable region. Sales soared 9.3% in the densely populated South, which is experiencing an influx of residents from other regions as companies embrace remote work.
Economists polled by Reuters had forecast sales decreasing 1.0% to a rate of 6.10 million units. Home resales, which account for the bulk of U.S. home sales, fell 2.3% on a year-on-year basis.
Strong demand for housing against the backdrop of a strengthening labor market and massive savings is outstripping supply, curbing sales. Builders have been unable to significantly ramp up construction because of shortages and higher prices for inputs like softwood lumber for framing as well as cabinets, garage doors, countertops and appliances. According to a report this week from the National Association of homebuilders, delivery of these products was taking "months," raising construction costs and delaying projects. The Commerce Department reported on Thursday that the backlog of homes approved for construction but yet to be started raced to a record in January. read more Stocks on Wall Street were trading lower amid building tensions in Ukraine. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.
Tight supply is keeping house prices elevated. The median existing house price increased 15.4% from a year earlier to $350,300 in January. Sales remained concentrated in the higher price brackets, where houses are less scarce.
Sales of homes $250,000 and below, the much sought after price category, continued to decline. First-time buyers accounted for 27% of sales last month, compared to 33% a year ago. Rising mortgage rates could make home buying even less affordable for this group. Individual investors or second-home buyers, who make up many cash sales, bought 22% of homes. That was the largest share since October 2015 and was up from 15% a year ago. Investors are renovating, and either reselling or renting the homes to take advantage of the hot housing market. All-cash sales made up 27% of transactions compared to 19% last January.
There were a record-low 860,000 previously owned homes on the market last month, down 16.5% from a year ago. At January's sales pace, it would take an all-time low 1.6 months to exhaust the current inventory, down from 1.9 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. In January, houses typically remained on the market for 19 days, down from 21 days a year ago.
Seventy-nine percent of homes sold last month were on the market for less than a month. The 30-year fixed-rate mortgage averaged 3.92% in the week ending Feb 17, the highest since May 2019, according to data from mortgage finance agency Freddie Mac. That was up from 3.69% in the prior week. Economists expect rising mortgage rates will contribute to slowing sales this year.
"Resilient demand and strong income gains will underpin the housing market, but limited supply and declining affordability from both higher prices and sharply higher mortgage rates will constrain the pace of sales," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.
February 17, 2022
U.S. Housing Starts Drop 4.1% in First Decline in Four Months
By Jordan Yadoo, yahoo!finance -- New U.S. home construction fell in January for the first time in four months, indicating pandemic-related labor absences and winter weather tempered recent progress on building activity. Residential starts dropped 4.1% last month to a 1.64 million annualized rate, according to government data released Thursday. Still, applications to build rose to an annualized 1.9 million units, the highest since 2006.
High materials costs and difficulty attracting skilled labor remain headwinds for builders, inhibiting new construction and aggravating home shortages across markets. Moreover, sky-high prices and the recent rise in mortgage rates risk hampering affordability.
At the same time, the increase in building permits and a pickup in the number of homes authorized but not yet started suggests residential construction will remain healthy in coming months. “Despite a somewhat slower start to 2022, builders have continued to make progress on their backlog of homes, and consumer demand continues to outpace supply,” Kelly Mangold at RCLCO Real Estate Consulting, said in a note. The median estimate in a Bloomberg survey of economists called for a 1.7 million pace of housing starts in January. New construction fell sharply in the Midwest, probably a reflection of winter. Starts of single-family homes in the Northeast also plunged.
Single-family starts declined 5.6% in January to an annualized pace of 1.12 million units as multifamily starts -- which tend to be volatile and include apartment buildings and condominiums -- decreased to 522,000. The number of one-family homes authorized for construction but not yet started climbed 5.6% to 151,000 in January, one of the highest levels in 15 years.
While residential construction will likely be underpinned by growing backlogs, sales could take a hit from higher borrowing costs. A recent survey showed a record-low 25% of Americans said now is a good time to purchase a house.
February 4, 2022
"Split Settlements" Prohibited in Virginia
From Virginia SCC Bureau of Insurance -- The Virginia Bureau of Insurance ("Bureau"), the Virginia oversight authority for the title insurance and real estate settlement industry within the Commonwealth, on February 4, 2022, issued an order prohibiting the current practice known as a "split settlement," where escrow, settlement and closing services subject to the Virginia Real Estate Settlements Act ("RES") and Real Estate Settlement Agents Act ("RESA"), are bifurcated between more than one settlement agent. This Bureau has notified all Virginia title licensed and registered settlement agents of its that “split settlements” violate RES and RESA procedures, and must, therefore cease within the Commonwealth of Virginia. During a typical "split settlement," the escrow, closing, or settlement tasks for which the settlement agent is responsible, are shared/divided between two settlement agents. Most often a split settlement occurs when the purchaser and the seller select separate settlement agents, and those agents divide the closing services, attempting to follow the respective the purchaser's and seller's responsibilities to the transaction. However, as detailed by the Bureau in its February 4th letter, Virginia statutes and regulations do not authorize split settlements.
Other entities, namely the Virginia State Bar and the Virginia Real Estate Board, respectively regulate Virginia licensed attorneys and Virginia real estate brokers acting as settlement agents. The Bureau avers that while the Code does not prohibit the settlement agent from retaining or engaging other individuals or entities to assist with performing certain administrative components of the settlement transaction, it is ultimately the buyer’s designated settlement agent, who must perform all of the settlement services prescribed by the Virginia Code. The Bureau's position, therefore, is that, “the title settlement agent's fiduciary responsibility cannot be transferred, delegated or substituted, and that there can only be one settlement agent involved in the settlement or closing.”
According to the Bureau, if multiple settlement agents were anticipated or authorized under the Code, there would be no need for the Code to designate the buyer as having the exclusive right to choose the settlement agent for the transaction and to specify that this right cannot be varied or waived. Additionally, § 55.1-907 of the Virginia Code clearly does not support the notion of bifurcation of settlement services. For a person attempting to seek penalties for the settlement agent's failure to cause disbursement under § 55.1-907 of the Code, a split settlement could create an unduly burdensome and complicated situation whereby each settlement agent could attempt to abdicate responsibility for causing the failed disbursement.
Accordingly, the Bureau's position is that Virginia's applicable laws and regulations provide for a single settlement agent, identified by the buyer, who is responsible for all of the escrow, closing or settlement services prescribed by the Code. As such, the Bureau views participation in split settlement arrangements by title settlement agents as a violation of applicable Virginia laws and regulations.
January 24, 2022
How Will Rising Mortgage Rates Impact Spring Home-Buying?
By Mark Fleming, First American Economic Insights – In November, year-over-year nominal house price appreciation reached 21.5 percent, the sixth consecutive month it has set a new record. According to our Real House Price Index (RHPI) - which measures housing affordability based on changes in income, interest rates and nominal house prices - affordability declined 21.0 percent compared with a year ago, as the growth in nominal house prices combined with the 30-basis point increase in the 30-year, fixed mortgage rate vastly outpaced the 4.4 percent increase in income. Affordability is likely to decline further in 2022, because both mortgage rates and nominal house prices are expected to rise. Fed Expected to Raise Rates Soon The Federal Reserve has signaled the end of the easy money era is near. In order to combat inflation, the Fed is expected to increase rates as soon as March. Mortgage rates typically follow the same path as long-term bond yields, which are expected to increase due to the Fed’s tightening of monetary policy, higher inflation expectations and an improving economy. The consensus among economists is that the 30-year, fixed mortgage rate will increase from its November rate of 3.1 percent to 3.7 percent by the end of 2022. Some forecasters predict rates will reach 4 percent, which is still historically low, but well above what buyers have grown accustomed to in recent years. Rising Mortgage Rates Likely to Reduce Affordability We can use the RHPI to model shifts in income and interest rates and see how they either increase or decrease consumer house-buying power and affordability. When mortgage rates increase, holding income constant, consumer house-buying power decreases. If the average mortgage rate remained at its current level of approximately 3.5 percent through the spring home-buying season, assuming a 5 percent down payment and holding average household income constant at the November 2021 level of $69,800, house-buying power falls by approximately $25,000. If rates increase to the anticipated end of 2022 level of 3.7 percent, house-buying power would fall by $36,000. Finally, if mortgage rates reach 4 percent as some industry experts anticipate, house-buying power would fall by nearly $52,000 compared with November 2021. Rising mortgage rates impact affordability, but one of the root causes of rising mortgage rates is an improving economy, and an improving economy often leads to stronger wage growth. Rising household income can blunt the negative impact that higher rates have on house-buying power. In fact, our estimate of average household income increased approximately 0.6 percent on a monthly basis in November 2021. If incomes continue to increase at this rate through the end of 2022, the income growth would reduce the projected end-of-year 2022 decrease in house-buying power to just $700, instead of $36,000. FOMO (Fear of Missing Out) or FOBO (Fear of Better Options)? While rates are expected to increase steadily throughout 2022, many potential home buyers may try to jump into the market now before rates rise further. The fear of missing out, or “FOMO,” on low rates and the potential loss of house-buying power may supercharge the housing market ahead of the spring home-buying season. However, housing supply tends to increase in the spring months as more sellers list their homes for sale. While home buyers may have FOMO because of rising rates, they may not want to succumb to the fear of better options, or “FOBO,” because there may be a better home option or options when there’s more homes for sale, even if it means they may pay more.
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