Talking about resetting HELOCs, consumer spending, construction spending, construction employment, home prices, rising rents and much more…
Black Knight just reported in their Mortgage Monitor for March 2017 that 19% of HELOCS are scheduled to reset this year. These HELOCs are the last of the pre-crisis lines of credit – those originated from between 2004 and 2007. This doesn’t sound very important but believe me, it is…
Black Knight Data & Analytics Executive Vice President Ben Graboske said:
In 2017, 19 percent of active HELOCs are facing reset. This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016. With the lines beginning to reset this year and early into 2018, we’re seeing the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014.
On average, borrowers facing resets this year are looking at a ‘payment shock’ of about $250 per month over their current HELOC payments – more than doubling their current payments, in fact. Historically, those increases have impacted HELOC performance significantly; delinquency rates of 2006 vintage HELOCs – which reset last year – jumped by 74 percent. That was marginally lower than the 2004 and 2005 vintages, which saw delinquency rates rise by 90 and 88 percent, respectively.
Payment shocks remain high for lines resetting in 2018 but then drop along with the overall volume of resets in 2019. One-third of borrowers whose HELOCs will reset in 2017 have less than 20 percent equity in their home, making refinancing problematic. One in five have less than 10 percent, and one in 10 are actually underwater. Even that reflects improvement in home prices, though; last year 45 percent of borrowers facing reset had less than 20 percent equity and nearly 20 percent were underwater.
Are we going to see a dramatic increase in delinquent HELOCs? Let’s hope not but it does not look good. If the average borrower has their monthly HELOC payment increase by $250, it will be more than twice their current monthly payment.
The good news is that because home prices have increased and mortgage rates are low, some home owners will be able to refinance. The bad news is this isn’t true for everyone.
Let’s look at some other tidbits from Black Knight:
- The national delinquency rate to the lowest level in 11 years
- At the national level, the non-current rate has now been below 2000-2005 norms for four consecutive months
- Foreclosure starts Q1 2017 were down 18% from Q1 2016
- Loans in foreclosure decreased 29% year-over-year but are still 45% above normal levels
While the news about resetting HELOCs is scary, most of the rest of this report is good news. If your HELOC is going to reset this year that you go ahead and start looking at your options ASAP.
Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 95th consecutive month according to the latest Manufacturing ISM® Report On Business®. This is the eighth consecutive month that saw indications of growth in manufacturing.
This is good news! While many say that manufacturing will never get back to where it once was in the US, it is good to see it growing. Manufacturing jobs are usually good paying jobs for the middle class.
And the middle class needs all the help they can get…
Consumer Spending Stalls
From the BEA:
Personal income increased $40.0 billion (0.2 percent) in March. Disposable personal income (DPI) increased $35.0 billion (0.2 percent) and personal consumption expenditures (PCE) increased $5.7 billion (less than 0.1 percent). Real DPI increased 0.5 percent in March and Real PCE increased 0.3 percent. The PCE price index decreased 0.2 percent. Excluding food and energy, the PCE price index decreased 0.1 percent.
Not good at all! Will this convince the Fed to delay any rate increases?
From the Census Bureau:
Construction spending during March 2017 was estimated at 0.2 percent (seasonally adjusted) below the revised February 2017 estimate. The March figure is 3.6 percent above the March 2016 estimate. During the first 3 months of this year, construction spending was 4.9% higher than the the same period in 2016.
Spending on private construction in March 2017 was nearly the same as the revised February 2017 estimate ($940.2B versus $940.1B). Residential construction in March 2017 was 1.2% higher than the revised February estimate. Residential construction in March 2017 was 7.5 higher than March 2016 and is a new post recession high! New single family construction was up 4.7% YoY. Nonresidential construction in March 2017 was 1.3% lower than the revised February estimate.
In March 2017, the estimated seasonally adjusted annual rate of public construction spending was 0.9% lower than the revised February 2017 estimate. Educational construction was 2.0% lower than the revised February estimate. Highway construction was 0.5% higher than the the revised February estimate.
While we did see decreases from the level in March, I would look at the YoY changes. Not quite as depressing and more of an apples to apples comparison.
The U.S. Supreme Court ruled Monday that cities can pursue banks over lost tax revenue on foreclosed properties that were allegedly the result of discriminatory lending practices, but asked lower courts to determine just what types of damages can be linked to those foreclosures. The U.S. Supreme Court ruled 5-3 Monday that Miami has standing to sue Bank of America and Wells Fargo over claims their bad lending practices led to shortfalls in tax revenue.
The article is behind a pay wall but it appears that BofA is being accused of “reverse redlining” by targeting predatory practices at African-American and Latino neighborhoods and residents with predatory lending practices. Miami is saying that BofA gave minority borrowers worse terms than equally creditworthy nonminority borrowers and induced defaults by failing to extend refinancing and loan modifications to minority borrowers on fair terms.
While Miami is a huge city and has deep pocket for an extended legal battle, I doubt it can win against BofA. I am not saying that Bof A isn’t guilty, evil and despicable…
I’m just saying that BofA has deeper pockets to fight any charges that they violated Fair Housing laws. I think BofA’s track record speaks for itself…
May’s edition of Zumper’s National Rent Index showed that one bedroom median rent increased slightly by half a percentage point and two bedroom median rent increased 1% to $1,390.
Sadly they don’t cover every market so I am just sharing the national statistics. You can check the report to see the top 100 metros and what rents did in each one.
Just remember that home owners with a fixed rate mortgage did NOT see their monthly payment increase…
Americans’ economic confidence weakened slightly in April, but they remain positive about the current state of the U.S. economy. Gallup’s U.S. Economic Confidence Index averaged +5 in April, down four points from March’s average. Despite the dip, confidence has been in positive territory for six consecutive months — the longest such streak in the past nine years.
Nonetheless, improved economic confidence has yet to translate into notable gains in “hard” measures of actual economic output, such as gross domestic product or consumer spending. “Soft” data — measuring general economic perceptions such as Gallup’s U.S. Economic Confidence Index — and “hard” data are telling two different stories of the U.S. economy. The soft data seem to suggest strong economic growth is just around the corner, while the hard data — as evidenced by Friday’s GDP report — currently depict an economy that is slowly growing. Right now, it isn’t clear which version is more accurate.
You have to wonder what it is going to take for the strong consumer confidence to translate into more economic growth?
March not seasonally adjusted (NSA) construction unemployment rates were down nationally and in 27 states and unchanged in two on a year-over-year basis. This was the lowest national NSA March construction unemployment rate on record, matching the 8.4 percent rate in March 2001.
Wow! Hopefully this means lots of affordable homes are being built in areas facing a tight inventory issue.
Home prices nationwide, including distressed sales, increased year over year by 7.1 percent in March 2017 compared with March 2016 and increased month over month by 1.6 percent in March 2017 compared with February 2017. The CoreLogic HPI Forecast indicates that home prices will increase by 4.9 percent on a year-over-year basis from March 2017 to March 2018, and on a month-over-month basis home prices are expected to increase by 0.6 percent from March 2017 to April 2017.
Good news and the predicted increase in home prices it could make some people take advantage of the historically low mortgage rates. Check out the price appreciation of different types of homes in 2016:
This is talking about home prices across the entire US and may not reflect what is happening in your local market.
According to many observers, housing credit markets played a key role in the US financial crisis of 2007/08 and the subsequent Great Recession. The Great Recession produced a deep contraction in the US economy. A sequence of interest rate cuts meant that the Fed ran out of options for conventional monetary policy interventions, and rolled out unconventional monetary policies that shored up housing credit markets through purchases of mortgage debt and mortgage backed securities.
The Great Depression triggered a long shadow on the US economy through the legacy of the housing GSEs. These institutions have influenced the supply of US housing credit. In this light, the Federal Reserve’s much discussed unconventional monetary policies may not be as unprecedented as usually thought, since to a considerable degree they involved the Federal Reserve taking on a role other government agencies have been carrying out since the Great Depression.
Moreover, our results indicate significant interactions and similarities between these housing credit policies and conventional monetary policy, suggesting that credit policy deserves more attention in the study of monetary policy.
Certainly something to consider with GSE reform becoming a strong possibility with Treasury Sec. Mnuchin saying the GSEs won’t stay AS-IS for long in an interview on Fox.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”
Among REALTORS® who responded to the March 2017 survey, the median expected home price change in the next 12 months was four percent (3.8 percent in February 2017; 3.7 percent in March 2016), based on the March 2017 REALTORS® Confidence Index Survey Report. Lack of supply amid strong demand has propped up home prices.
The survey results for South Carolina were projecting a 4 to 7 percent increase. I can see 4% increases but 7% could be pushing it in some areas around Anderson. It really depends on how much inventory there is in specific areas and price ranges.
Housing costs have never been so expensive – great news for those who already own, but not so great for renters on the sidelines trying to get into the market. Rental income as a share of gross domestic product hit an all-time high of 3.86% in the first quarter, according to government data out Friday. That makes sense: with lean supply and pent-up demand, it’s never been such a good time to be a landlord.
There is no doubt that owning rentals can be a great way to make money. Demand for rentals is extremely strong in the Anderson area but being a landlord isn’t for everyone. If you have any questions about buying income producing properties in the Anderson SC area, please contact me.
The Federal Reserve currently owns nearly 30 percent of the market that allows global capital to fund US mortgages: the agency mortgage-backed securities (MBS) market. The Fed began buying MBS in 2009 to support what was then a fragile housing market. With the economy now improving, the Fed may start unwinding its MBS holdings later this year or early next year.
The Fed is the single largest holder of MBS today, so there is no question that its pullback will have important implications for the mortgage market. But how the Fed approaches this exercise will matter almost as much, with consequences for housing affordability and beyond.
Sadly, no one knows exactly how the Fed will start getting rid of their MBS holdings. This is something that must considered when talking about changing the GSEs…
That’s it for today!