Real estate housing and economic news for December 22 2016 including Existing Home Sales, mortgage applications and rates, rising rents, easing underwriting standards and more
US Existing Home Sales 15.4% Higher Than a Year Ago
A big surge in the Northeast and a smaller gain in the South pushed existing-home sales up in November for the third consecutive month, according to the National Association of Realtors®.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 0.7 percent to a seasonally adjusted annual rate of 5.61 million in November from a downwardly revised 5.57 million in October. November’s sales pace is now the highest since February 2007 (5.79 million) and is 15.4 percent higher than a year ago (4.86 million).
The median existing-home price for all housing types in November was $234,900, up 6.8 percent from November 2015 ($220,000). November’s price increase marks the 57th consecutive month of year-over-year gains.
Awesome news but remember this is national and NOT local!
Mortgage applications increased 2.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 16, 2016.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since May 2014, 4.41 percent, from 4.28 percent, with points increasing to 0.38 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to its highest level since April 2014, 4.36 percent, from 4.29 percent, with points increasing to 0.26 from 0.24 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to its highest level since April 2014, 4.15 percent, from 4.02 percent, with points decreasing to 0.29 from 0.33 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since January 2014, 3.64 percent, from 3.52 percent, with points decreasing to 0.34 from 0.38 (including the origination fee) for 80 percent LTV loans.
It appears that applications increased because the increasing mortgage rates are motivating some people!
Across the country, wages aren’t keeping pace with rent. According to the Bureau of Labor Statistics, average rent has increased 66 percent since 2000, while wages have only increased 34 percent. In an environment where rent alone can account for 30-50 percent of incomes, evictions are becoming almost commonplace.
Sadly, this means many renters will find it difficult to save money for down payment and closing costs.
Even more sad is that many people are unaware that they could buy a home with less money down than they think.
Check out the chart showing how rents have steadily risen since 1988:
Looking at the US economic landscape as it stands, it appears that in many parts of the country, the fallout from the financial crisis has been cleaned up.
The stock market is at an all-time high, the unemployment rate is at levels not seen since before the recession, and wages are on the rise. One notable exception, according to Scott Brown at Raymond James, is the housing market.
The growth of the housing market has been a relative laggard. Given that the epicenter of the financial crisis was the housing market, it’s no surprise that it has taken longer than the rest of the economy to recover.
“In a number of ways, the housing bust appears bigger than the boom,” Brown wrote in a note to clients. “The housing recovery was always expected to take several years, but improvement has been even slower than anticipated.”
Maybe some people were much too optimistic about how quickly the housing market could or would recover?
Many people were unable to take advantage of the home buying bargains of the past few years. Now with rising mortgage rates and home prices, my advice would be to get the lead out if you want to buy a home…
Underwriting practices among national banks and federal savings associations (FSAs) eased for a fourth consecutive year in 2016, according to a report released today by the Office of the Comptroller of the Currency (OCC).
In the OCC’s 22nd Annual Survey of Credit Underwriting Practices, examiners reported an incremental easing of underwriting practices within commercial and retail loans across 93 national banks and federal savings associations. The easing standards reflect the banks’ response to competitive pressures, expanding credit risk appetites, and a desire for loan growth.
Great news and could not come at a better time with mortgage rates increasing!
Check out this chart showing the FICO Score requirements in the past 12 months:
While it is too early to tell how the 2016 elections will affect the prospects for ending the government-sponsored enterprises’ (GSEs) lengthy conservatorship, stakeholders of all political stripes should be encouraged by Treasury Secretary-designate Steven Mnuchin’s intention to make housing finance reform a Trump administration priority. While there are many GSE reform proposals out there, the election has elevated interest in one particular proposal because its authors command broad professional respect, have extensive in-the-trenches experience, and enjoy deep Republican ties.
Michael Bright and Ed DeMarco’s proposal to end the GSEs’ conservatorships would use the Ginnie Mae platform to create a new secondary mortgage market and ensure the continuation of the 30-year fixed rate mortgage, a relatively low-cost product that has enabled millions of American families achieve their dream of homeownership. Ginnie Mae currently guarantees securities backed by government-insured mortgages.
Bright and DeMarco would expand Ginnie’s authority to wrap private sector credit-enhanced pools of mortgages whose mortgage-backed securities (MBS) would hopefully be as attractive to investors as are Ginnie’s current securities. Rather than doing away with Fannie Mae and Freddie Mac, they would run both GSEs through receivership and transform them into mutually owned and operated insurers that would become prominent credit enhancers in the reformed system.
To make all this possible, Bright and DeMarco would remove Ginnie from the U.S. Department of Housing and Urban Development and create a “standalone Government Corporation like the FDIC [Federal Deposit Insurance Corporation], with authority over its own budget, hiring, and compensation.”
It amazes me that after all these years, what to do about housing finance reform still hasn’t been settled.
Keep an eye on the various proposals and who they TRULY benefit…
Chemical Activity Barometer Ends Year on Strong Note; Suggests Expanded Business Growth in Early 2017
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), ended the year on a strong note, posting a monthly gain of 0.3 percent and a year-over-year gain of 4.4 percent, a significant improvement over the first half of the year, and a pace not seen since September 2010. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.6 percent in December, and 4.8 percent for the year.
The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators.
In December all of the four core categories for the CAB improved. Production-related indicators were positive, despite last week’s announcement that housing starts tumbled. “Housing starts were at a nine-year high,” noted ACC Chief Economist Kevin Swift. “The foundation remains strong. Overall trends in construction-related resins, pigments, and related performance chemistry were positive and suggest further gains in housing next year,” he added. Other indicators, including equity prices, product prices, and inventory were also positive.
Sounds very positive for the new year!
Freddie Mac Reports Third Consecutive Month of Multifamily Growth
Freddie Mac announced multifamily investing fundamentals grew stronger in the third quarter, both nationally and in all 13 major metro markets tracked by the Freddie Mac Multifamily Apartment Investment Market Index. This marks the third consecutive quarter of positive growth tracked by AIMI.
Nationally, AIMI values increased just 0.4% in the third quarter to 110.9 from 110.4 in the second quarter. A rise in AIMI from one quarter to the next implies an increasingly favorable environment for multifamily investment opportunities, while a decline suggests that attractive investment opportunities are becoming more difficult to find.
The AIMI index has been indicating a favorable investment environment for apartments since 2009. A move up in the index in the third quarter marked the third consecutive quarterly increase in the index, but it is down slightly year-over-year. The Index has been in a consistent range since 2013.
Because of the decrease in home ownership since the housing bust, it makes sense that multifamily real estate would be strong. But how long until supply exceeds demand?
All eyes have been on Washington these days as President-elect Trump continues to name key players to his team. Two of the appointments that will have a big impact on commercial and multifamily real estate include Dr. Ben Carson for Secretary of the Department of Housing and Urban Development (HUD) and Steven Mnuchin for Secretary of the U.S. Department of Treasury.
The two nominees have vastly different resumes for their respective positions. Mnuchin has extensive experience in banking, finance and securities. Carson, on the other hand, will face a steep learning curve in getting up to speed on HUD—a massive agency that has an annual budget of more than $48 billion. Although both will first need to secure Senate confirmation, the real estate industry is already speculating on how these two individuals could influence key policies and programs.
One of the biggest questions facing the multifamily sector is what might happen to GSE reform under a Trump administration, and ultimately, how much government control, oversight or support Fannie and Freddie will have in the future. GSE reform can occur in one of two ways—either through the Treasury Department or through Congress.
2 things to remember:
- Neither has made it through their Senate confirmation (they should)
- Mnuchin is a Wall Street veteran that MAY work to help Wall Street NOT Main Street
Since the election, mortgage rates have risen from 3.54 percent to 4.16 percent. What does this mean for home prices?
On one hand, rising interest rates mean higher inflation, which is good for real assets and should push up home prices. Rising interest rates also usually mean a healthy economy, which is good for wages, allowing borrowers to afford a higher mortgage payment.
On the other hand, rising interest rates reduce affordability, since fewer borrowers can make the higher interest payments.
Which effect dominates? Based on the historical evidence, it appears rising interest rates in a healthy economy generally produce higher home prices.
Should we fear home prices rising even faster? Well that probably depends on whether or not the economy is really truly healthy…
Check out impact that rising mortgage rates will have on what you can afford:
Today’s Ugly But Honest Truth:
Donald Trump is increasingly looking like Wall Street’s back up plan in the event that the Wall Street Democrats didn’t triumph in the 2016 election. Trump has appointed two Goldman Sachs alumni and the current President of Goldman Sachs to top posts in his administration.
Apparently, in Trump’s view, having Wall Street run the U.S. Treasury Department and his economic team is no longer adequate. A high frequency trader will now govern the largest branch of the U.S. military.
Trump’s billionaire-buddy administration couldn’t come at a worse time for an America still feeling the aftermath of the greatest economic upheaval since the Great Depression – produced by the same brand of crony-corruption and devious schemes on Wall Street that crashed the economy in the 1930s.
I am sure this criticism will upset the Trump supporters.
Make no mistake, I am not a supporter of the Democrats either…