Discussing the Federal Reserve raising their benchmark rate and what it means for housing, some interesting data on mortgage originations, it is getting easier to get a mortgage, the difference between homeowner and appraiser opinions of value, the shortage of homes and much more!
Federal Reserve Raises Their Rate
Yesterday the Federal Reserve announced that they are raising interest rates. This isn’t a surprise but they also hinted that they may raise rates 2 more times this year.
While the Fed does NOT directly set mortgage rates, their actions do have an impact on mortgage rates and the economy. Like I said, this is not surprise since the economy appears to be doing pretty good.
If we do see mortgage rates continue to increase, it could cause some home buyers to lower the price range they are looking in. This will cause even more competition for affordable or lower priced homes.
Originations Down 3% YoY
From Attom Data Solutions:
More than 1.8 million (1,813,691) loans secured by residential property (1 to 4 units) were originated in Q1 2018, down 5 percent from the previous quarter and down 3 percent from a year ago.
665,887 of the residential loans originated in Q1 2018 were purchase loans, down 16 percent from the previous quarter but still up 2 percent from a year ago.
799,939 of the residential loans originated in Q1 2018 were refinance loans, down 2 percent from the previous quarter and down 11 percent from a year ago.
347,875 Home Equity Lines of Credit (HELOCs) were originated on residential properties in Q1 2018, up 18 percent from the previous quarter and up 14 percent from a year ago
The headline number sounds bad but since purchase originations are up 2%, I think we can remain calm. The decrease in refinances appears to be the main reason for the decrease.
Paul Doman, president and CEO of Accurate Group, which provides appraisal and title solutions for home equity lenders, said:
While there was early speculation that tax law changes related to home equity loans might dampen demand, that is not playing out in the market. The strong HELOC growth in Q1 is consistent with the results of our March 2018 Home Equity Lender Survey, in which lenders were nearly unanimous in their belief that tax savings is not the primary driver for HELOC demand.
I am not a big fan of abusing the equity in your home BUT using it in a smart way can be a very financially savvy maneuver.
One interesting tidbit in the report destroys the common misconception that you must put 20% down to buy a home: the median down payment was 6.6% of the median sales price.
Of course, that is comparing the median down payment to the median sales price and some people will put down less and some will put down more. The key thing to remember is that you do NOT have to put 20% down to buy a home!
Mortgage Credit Availability Increases
From the Mortgage Bankers Association:
Mortgage credit availability increased in May according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool.
The MCAI increased 1.5 percent to 180.6 in May. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 2.0 percent) and the Government MCAI increased (up 1.0 percent). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 2.2 percent while the Conforming MCAI increased by 1.9 percent.
It appears that loans are getting easier to get. How much of this loosening is due to competition among lenders in a higher rate environment? Or is it a sign that lenders are fighting over fewer borrowers?
Much of the increase was due to increased investor interest in jumbo and high balance conforming loans. We have to wonder if we would see this loosening if rates were lower or sales volume was higher?
Tiny Gap Between Owner Perception and Appraiser Opinion of Home Value
From Quicken Loans:
Homeowners and appraisers are coming closer to being on the same page, and in an increasing number of metro areas appraisals are even higher than what owners expected. In May, appraised values were 0.34 percent lower than expected, according to Quicken Loans’ National Home Price Perception Index (HPPI). This is a vast improvement from the year prior, when the gap between the appraisers’ and owners’ opinions was five times larger.
Home appraisal values rose 0.71 percent in May, according to the Quicken Loans HVI – the only measurement of home value changes based solely on appraisal data. Annually, home values posted healthy growth, increasing 6.56 percent year-over-year.
Awesome to see that home owners are being more realistic about the value of their home. Remember that when it comes time to sell your home, you MUST be realistic about the list price!
The Good Guys Win For a Change
From American Banker:
U.S. District Judge Lee Yeakel on Tuesday denied the request by acting CFPB Director Mick Mulvaney that the court delay the payday rule’s effective date, which is set for next year.
Mulvaney had sided with two industry trade groups — the Community Financial Services Association of America and Consumer Service Alliance of Texas — that sued the CFPB in April to invalidate the tough restrictions on small-dollar loan providers. The rule was written under former CFPB Director Richard Cordray.
I know that many will sat this will put a burden on some consumers. But I do not think it is unreasonable to require lenders to make sure the borrower can repay the loan.
The really interesting thing is that Mulvaney dropped an investigation into a lender that made campaign contributions to hm through a political action committee. Which sounds like the kind of behavior that Trump promised to eliminate when he drained the swamp…
The Shortage of Homes
Home prices around the country are continuing to surge—and they are not likely to slow down any time soon. In the last three years, the national median home price has increased about 20 percent, with annual gains of six percent on average. Meanwhile, in some areas, home prices are hitting warp speeds.
Lack of housing inventory is considered the main reason that drives up home prices. Although new home construction has picked up, it is still not enough to accommodate the increased housing demand. Recently, the pace of permit issuance has been only about half the peak level in 2005. Furthermore, the unemployment rate has dropped below 4 percent due to a strong economy. As more people enter back into the work place the demand for housing is expected to increase as Americans set their sights on homeownership.
This is a very interesting report because NAR is looking at how many building permits are issued for every new job. Sadly, they look at metropolitan areas and not at the county level.
For example, they looked at the Greenville-Anderson-Mauldin area and found that there is sufficient supply since there is a new single-family permit for every 2 new jobs. We know there is a difference between Greenville and Anderson PLUS there is a huge difference if you start looking at the supply in some price ranges.
That being said, we are lucky that properly prepared home buyers that are working with an experienced Realtor can buy a home in our area without too much drama. I am not saying it will be easy or that buyers can drag their feet.
It could be much worse BUT a GOOD Realtor will ensure your home buying success in the Anderson SC area!
CountryTime to Pay Fines of Kids Whose Lemonade Stands Get Shut Down
Popular lemonade brand CountryTime said Thursday that it is “taking a stand for lemonade stands” and pledging to help kids cover the costs of city permits when young entrepreneurs get their lemonade stands shut down.
My problem is NOT with CountryTime for paying the fines. I think this is both a great PR move and more importantly, it is the right thing to do.
My problem is that we have government officials wasting time on busting lemonade stands. I think there are much more important issues to focus on.