Discussing a housing recovery without an increase in homeowners, sexual harassment in housing, new home purchase mortgage applications, a return of subprime mortgages, qualifying for a mortgage after a bankruptcy, apartment construction and how affordability could decline dramatically this year
Can You Have a Housing Recovery Without More Homeowners?
Common sense would say no but check out this interesting article from the St. Louis Fed:
Historically, the cost of buying a house, relative to renting, has been positively correlated with the percent of households that own their home. From 1996 to 2006, both the price of houses and the homeownership rate increased in the U.S. This increasing trend ended abruptly with the global financial crisis that drove house prices and homeownership rates to historically low levels.
It is reasonable to expect prices and homeownership to move in the same direction. A decrease in the number of people who want to buy homes to live in could lead to a decrease in both prices and homeownership. Similarly, an increase in the number of people buying homes to live in could lead to an increase in both prices and homeownership.
However, recent evidence indicates that the cost of buying a home has increased relative to renting in several of the world’s largest economies, but the share of people owning homes has decreased. This pattern is occurring even in countries with diverging interest rate policies.
They say that the decreased number of starter and midsize homes is part of the reason for the decrease. We are all painfully aware of the limited inventory of affordable homes and how it is hurting the housing market.
They also mention the decrease in the number of people wanting to become a home owner. Some of this is due to the people that experienced foreclosure during the housing bust NOT wanting to again.
They also say there is less demand due to the tighter lending conditions after the housing bust. I would say this is not a bad thing as anyone with good credit can still buy a home.
Buying a home does require more paperwork and documentation than before but it is still relatively easy for the credit worthy.
They also say that investors have seen the attractive returns from owning rentals and that builders increased the supply of apartments while decreasing the number of homes being built. This has made it much easier to find a place to rent than a home to buy in many areas of the country.
While we all want every credit worthy person to be able to own a home, we do not want a return to the mistakes of the past. Too easy lending standards combined with the mortgage shenanigans of the big banks and Wall Street caused the global economy to go haywire.
We want a sustainable level of home ownership and a healthy economy. The only thing that MIGHT need changing is how home builders are faced with high regulatory costs.
This could be limiting the number of affordable homes being built. And that is the biggest problem in housing today in my opinion.
Fighting Sexual Harassment in Housing
Today, as the U.S. Department of Housing and Urban Development (HUD) and the Department of Justice recognizes the 50th Anniversary of the Fair Housing Act, Secretary Carson and Attorney General Jeff Sessions announced the nationwide rollout of an initiative aimed at increasing awareness and reporting of sexual harassment in housing. The announcement includes an interagency task force between the Department of Housing and Urban Development and the Justice Department to combat sexual harassment in housing, an outreach toolkit, and a public awareness campaign. This three-pronged approach will strengthen the Department’s efforts to combat sexual harassment in housing.
HUD and the DOJ are going to create a task force to fight sexual harassment in housing. They will do a public awareness campaign to help victims know how to report this type of unacceptable behavior.
You my remember my post about HUD changing their mission statement to not specifically mention discrimination. It is very appropriate to see this announcement as we are celebrating the 50th anniversary of the Fair Housing Act.
New Home Purchase Mortgage Applications Decreased 2.6% Year over Year
From the Mortgage Bankers Association:
The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for March 2018 shows mortgage applications for new home purchases decreased 2.6 percent compared to March 2017. Compared to February 2018, applications increased by 14 percent.
Joel Kan, Associate Vice President of Economic and Industry Forecasting at the MBA, said:
Applications taken for new home purchases decreased year over year in March. We saw a strong January and February, and that may have pulled some activity forward. We did, however, see the third straight month over month increase, which is in line with the typical seasonal pattern at this time of the year. Our estimate of new home sales for March was 682,000 units, a rebound of almost 8 percent after a February decrease.
The MBA did not include anything in this report that might help us understand what type of new homes are being bought. As I mentioned before, the lack of starter or affordable homes is severely hurting the housing market in many areas of the US.
Luckily, there are lot of starter homes being built in Anderson County SC. It is good that we are escaping the problems faced by other areas of the US.
A New Name for a Bad Idea
They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards.
California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.
Rick Sharga, executive vice president of Carrington Mortgage Holdings said:
We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten. We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.
Remember that those that forget the mistakes of the past are doomed to repeat them. If you want to buy a home, it may be better to improve your credit and financial situation than buying a home before you are truly ready.
While home prices are increasing and mortgage rates are predicted to increase, the cost of a mortgage with a higher rate and less favorable terms may be too expensive in the long run. It is best to talk to an experienced mortgage professional and your financial advisors before selecting a “nonprime” mortgage!
How Quickly You Can Qualify for a Mortgage After a Bankruptcy
I just talked about how many that were burned by the housing bust may not want to buy a home because of the stress and painful experience. After the economy and housing market crashed, some people were forced to declare bankruptcy.
Which leads me to answer the question of how quickly can you qualify for mortgage after bankruptcy. A new study from Lending Tree says people that have filed for bankruptcy can qualify for a mortgage in as little as 2-3 years!
This is very different from the widely held belief that it takes 7 to 10 years to recover from a bankruptcy. Lending Tree found that 43.2% of people that filed bankruptcy can improve their credit up to a 640 FICO Score in less than a year!
Almost 75% of those that had declared bankruptcy were able to improve their credit back to a 640 after 5 years. Check out this chart made using Lending Tree’s data:
Percentage of Bankruptcies with 640+ FICO Scores
The people that increased their credit scores to between 720-739 within 3 years of filing for bankruptcy were able to get the same financing as people that never filed bankruptcy. According to the most recent Ellie Mae Origination Insights Report, 53.5% of those who got a mortgage had FICO® Scores between 600-749 last month.
Check out this chart showing the FICO scores of approved mortgages last month:
As you can see, things have changed for those that have declared bankruptcy. If you declared bankruptcy, you may be able to qualify for a mortgage much faster than you thought.
And for those that have NOT declared bankruptcy but have less than perfect credit, you can see that increasing your credit score can happen pretty quickly. And the better your credit score, the better the interest rate and mortgage you will be able to obtain!
That being said, you will need to make sure that whatever happened in the past that hurt your credit will not happen again! Still, it shows that many people that THINK they cannot buy a home actually CAN!
Apartment Construction Decreases But Demand Still High
With homeownership rates sagging over the last 11 years thanks to shifts in demographic trends, apartments have become one of the most in-demand property types. As we wrote in our previous multifamily snapshot, apartment demand rose to its highest level in 25 years in 2017, which is a generational peak. However, some of the sector’s underlying financials are beginning to decelerate – at least when it comes to loans in CMBS. According to Trepp data, the average occupancy for multifamily CMBS loans has been trending downward over the past two years. Average occupancy was measured at a recent low of 93.1% in March, which is 60 basis points lower year over year.
As the report from the St Louis Fed mentioned, the demand for and construction of apartments has been very high for the past several years. We may be starting to see the supply of apartments outpacing the demand in some areas of the US.
Affordability Could Decline by 20% This Year
From Arch Mortgage Insurance:
The size of the monthly mortgage payment needed to buy a home rose nearly 5 percent over the past three months. A mortgage rate increase of roughly half a percentage point since the end of 2017 accounted for the lion’s share of the increase, with the remainder coming from home price increases, which varied substantially by location.
If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15 percent. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.
Pretty scary stuff! They point out that a 1% increase in mortgage rates means that mortgage payments will increase by 13 to 14%. And if home prices increase 5%, then mortgage payments will increase by 5%.
With both home prices and mortgage rates predicted to increase, it looks like affordability will be hammered this year. If buying a home makes sense for you, I strongly suggest not wasting any time.
Arch says that right now, affordability is 15 to 20% better than historic norms. In other words, it is still a good time to buy a home compared to the past.