Commercial and multifamily mortgage bankers closed $490.6 billion of loans in 2016, according to the Mortgage Bankers Association’s (MBA) 2016 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation released today. “Last year was a strong year for commercial real estate finance,” said Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research. “For originations, 2016 was the third highest year on record, after 2007 and 2015. Borrowing and lending backed by multifamily properties made up the largest share of the market, and Fannie Mae and Freddie Mac drove much of that activity.” “The post-election rise in interest rates has taken a bit of wind out of the sails of the transactions’ market in the first quarter of 2017. The degree to which it and other potential market changes- such as tax reform proposals, general economic growth, foreign investment, and consumer confidence- will affect borrowing and lending in 2017 is still to be seen,” Woodwell continued. Commercial banks were the leading investor group for whom loans were originated in 2016, responsible for $157.4 billion of the total. Government Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) saw the second highest volume, $105.8 billion, and were followed by life insurance companies and pension funds, commercial mortgage-backed securities (CMBS) issuers and REITS, mortgage REITS and investment funds. In terms of property types, multifamily properties saw the highest origination volume, $214.1 billion, followed by office buildings, retail properties, hotel/motel, industrial and health care. First liens accounted for 97% of the total dollar volume closed. The reported dollar volume of commercial and multifamily mortgages closed in 2016 was three% lower than the volume reported in 2015. Among repeat participants in the survey, the dollar volume of closed loans declined by one%.
Retail socks March job gains, jobless rate drops to ’07 low
As the battered retail sector again bled jobs last month, US hiring hit its slowest pace in ten months. But an unexpected drop in the unemployment rate coupled with continued wage growth pointed to a labor market that’s still tightening. Retail trade lost 30,000 jobs in March, as employment in general merchandise stores dropped by 35,000 – pushing total job losses for the struggling sector to 89,000 since a recent high in October. The declines were a continuation of a drop-off in February, after a bump in hiring and fewer post-holiday season layoffs at the start of the year. Pressuring the sector is an ongoing shift in the way consumers spend, as they increasingly prefer to shop online rather than in physical stores. The trend has forced traditional retailers to quickly adjust to the new environment, but not all are moving fast enough. This week alone, Payless ShoeSource filed for bankruptcy protection, J.Crew lost its president, and Ralph Lauren said it plans to shutter its flagship Polo store on New York’s famed Fifth Avenue. “Like their stocks, retail is a sector in a state of flux right now and it’s trying to deal with e-commerce,” said Sean Lynch, co-head of global equity strategy for Wells Fargo Investment Institute. “On top of the equity volatility [for retail stocks], you have confidence and sentiment strong. So that’s a disconnect in how and where customers are spending and it’s what markets are trying to figure out.”
While retail suffered last month, March saw employment gains in financial services and continued strength in health care, specifically hospitals and outpatient care centers. After a solid February gain, construction employment was little changed in March, as was manufacturing, trade, transportation, leisure and hospitality, and government employment. Overall, the US economy added 98,000 net new jobs in March, far below Wall Street expectations for a 219,000 pickup. What’s more, January and February job gains were revised lower by a combined 38,000 jobs, though the three month average came in at 178,000 – well above the 75,000 to 100,000 per month range needed to keep up with population growth. Though job growth wasn’t as robust as analysts had expected, the labor force participation rate remained steady while the jobless rate unexpectedly dropped to 4.5% from 4.7% during the month as average hourly earnings showed a 12-month gain of 2.7%.
Combined with seasonality factors like weather and the reset in the retail sector, Lynch said full-year economic growth is still set for a “modest” 2.3% annualized rate, and he doesn’t expect to see a big hit to first-quarter GDP growth. “There’s enough noise with retail, and weather-related issues and weakness on service side that it doesn’t mean the economy is slowing down or in trouble here,” Lynch said. “Until we start to see this data stack up on each other – whether it’s another jobs report next month or data over the next couple of weeks that portrays an economy falling more than people expect, I don’t see, in isolation, that this number will have a big impact on the market.” Indeed, as the labor market continues to tighten and employers find it more difficult to find skilled workers, they will likely continue to respond by raising wages – which is good news not only for households, but for the Federal Reserve, which has been on the hunt for higher inflation rates as it presses forward on its rate-rise path this year, said Luke Bartholomew, investment strategist at Aberdeen Asset Management. “Yes, the data was a little weaker, but it won’t change the outlook on monetary policy. The Fed is still on course for at least two more hikes this year,” he projected.
CoreLogic – the more, the merrier
The housing market is hot this spring with many families trying to buy their dream home or first home before interest rates become too high, and yet housing inventory is still low. The inventory has been low for the past few years, and is one of the main factors that drive home prices higher and higher in many areas across the United States. CoreLogic Chief Economist Frank Nothaft previously pointed out in his CoreLogic November 2015 US Economic Outlook that newly built houses were much larger, which helped to moderate price appreciation for the higher-priced tier in the market, based on Census Bureau New Residential Construction data. Using CoreLogic public records data for single-family homes and townhouses, a new analysis shows that, indeed, homebuilders are building larger homes, and interestingly, on smaller lots. This new analysis also looks at possible reasons behind this trend. The median size of newly built homes increased from 1,938 square feet in 1990 to the pre-crisis high of 2,230 square feet in 2006. It then dropped slightly in 2007, 2008 and 2009, rising again and reaching the 2,300-square-feet territory after 2013. Meanwhile, the median square footage of resales has been almost flat, ranging from 1,646 square feet in 1990 to 1,724 square feet in 2016. The median size of a lot for a newly built home decreased from 8,250 square feet in 1990 to 6,970 square feet in 2016, which is about a 16-percent decrease. Meanwhile, the median size of a lot for a resale appears to fluctuate between 9000 to 9500 square feet. On average, the newly built homes had much smaller lot sizes, and the difference between new homes and resales is getting bigger.
But why are homebuilders building larger homes on smaller lots? First of all, there are demands from certain populations of buyers desiring larger homes, and homebuilders are responding accordingly. If we take a closer look at the median home and land square footage for resales, we can see that between 2006 and 2011 when home prices hit rock bottom in many areas across the US, Americans turned to larger homes as well as larger lots. As a result, the median size of resale homes increased from 1,601 square feet in 2006 to 1,801 square feet in 2012, and the lot size increased from 9,000 square feet in 2006 to 10,019 square feet in 2012. Hence, it appears Americans do appreciate large homes and large outdoor spaces, and will pursue them when affordability makes it possible, which explains the demand for larger new homes. Secondly, homebuilders are profit driven. Larger homes can bring in more revenue and smaller lots can keep costs down. My colleague, David Stiff, concluded that the land value is more volatile than home prices in his blog, Land Values Drive Home Price Volatility. When home prices appreciate at a fast pace, the land value rises even faster, which, in turn, drives the cost of homes higher. In order to mitigate the high cost of the land value, homebuilders reduce the size of the lots to bring the cost of the new home down so they can price these homes at a reasonable level. A closer look at the median land square footage for newly built homes reveals that there are actually only two periods of time in which we see lot sizes decline: between 2000 and 2005, and between 2014 and 2016. Both of these two time periods registered large home price gains, which put a lot of pressure on the cost of acquiring and developing land, as well as the cost of attracting skilled laborers. What did the homebuilders do? They built larger homes on smaller lots.
Oil rises, near one-month high after US missile strike in Syria
Oil prices rose on Friday, trading near a one-month high after the United States fired missiles at a Syrian government air base, roiling global markets and raising concern that the conflict could spread in the oil-rich region. The toughest US action yet in Syria’s six-year-old civil war has ramped up geopolitical uncertainty in the Middle East. This supported oil futures, which were on track for a 3% weekly increase on signs of higher US demand and lower product inventories. “Oil markets are back in bullish mode after the setback of the previous weeks. This news flow seems to bring geopolitical risks back on the radar,” said Frank Klumpp, oil analyst at Landesbank Baden-Wuerttemberg, based in Stuttgart, Germany. The market could get a further boost when the Baker Hughes US rig count is released on Friday afternoon, if it shows a slower pace of increase in oil drilling. Although Syria has limited oil production, any escalation of the conflict feeds fears about oil supplies due to the country’s location and alliances with big oil producers in the region. Oil, gold, foreign exchange and bond markets reacted strongly to the attack but reversed some of the sharp moves after monthly US employment figures came in weaker than expected.
Olick – confidence in housing falls, as consumers worry about jobs
A monthly home purchase sentiment survey from Fannie Mae dropped in March, after hitting an all-time high in February. For most Americans, a home is their single largest investment, and both employment and income are major factors in deciding whether or not to buy. In March, the share of Americans who reported that now is a good time to buy fell 10 percentage points, according to Fannie Mae. Consumers also reported dramatically less confidence in the stability of their jobs. Those who reported that their household income is significantly higher than it was 12 months ago fell 8 percentage points compared with February. This as home price gains accelerate in most major markets, with some hitting new highs. “Strong home price appreciation has turned into a double-edged sword for the housing market as it boosted the net share of consumers saying it’s a good time to sell to a record high, surpassing the plunging good time to buy indicator for the first time in the history of the survey,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. The net share of Americans who say that mortgage rates will go down over the next 12 months fell 5 percentage points to a new survey low, even lower than it was during the so-called taper tantrum in 2013, when mortgage rates jumped decisively higher in just a few weeks. The fear of higher rates, however, could be positive. “The market could get a boost from homebuyers who decide to jump into the market before rates rise further,” said Duncan. The housing market could still see a tail wind from more new listings this spring, but whatever the jump in supply, it is highly unlikely to meet current demand. Homebuilders are still operating below historical norms, partly because they can’t find enough labor to put up the houses. The employment report released Friday showed only a very slight increase in construction jobs, not enough to make much of a difference. “Although growth in wages and labor force participation would have been good news for the future of the housing market, the critical metric right now is residential construction jobs,” said Nela Richardson, chief economist at Redfin. “This is the number to worry about from the homebuyer’s perspective.”
NAR – majority of realtors say clients interested in sustainability
Growing consumer interest and demand for greener, more sustainable properties is driving a dialogue between Realtors and homebuyers and sellers. Over half of Realtors® find that consumers have interest in real estate sustainability issues and practices, according to the National Association of Realtors’ (NAR) recent REALTORS and Sustainability report. The report, stemming from NAR’s new Sustainability Program, surveyed Realtors about sustainability issues facing consumers in the real estate market and ways Realtors are setting their own goals to reduce energy usage. “As consumers’ interest in sustainability grows, Realtors® understand the necessity of promoting sustainability in their real estate practice, such as marketing energy efficiency in property listings to homebuyers,” said NAR President William E. Brown. “The goal of the NAR Sustainability Program is to provide leadership and strategies on topics of sustainability to benefit members, consumers and communities.” To meet growing consumer interest, more Multiple Listing Services are incorporating data entry fields to identify a property’s green features; 43% of respondents report their MLS has green data fields, and only 19% do not. Realtors® see great value in promoting energy efficiency in listings with seven out of 10 feeling strongly about the benefits in promoting those features to clients.
The survey asked respondents about renewable energy and its impact on the real estate market. A majority of agents and brokers (80%) said that solar panels are available in their market; forty-two% said solar panels increased the perceived property value. Twenty-four% of brokers said that tiny homes were available in their market, compared to 61% that reported tiny homes were not yet available. When asked about involvement with clients and green properties, 27% of agents and brokers were involved with 1 to 5 properties that had green features in the last 12 months. Seventy% of members worked with no properties that had green features, leaving a great deal of room for future growth. The home features that Realtors said clients consider as very or somewhat important include a home’s efficient use of lighting (50%), a smart/connected home (40%), green community features such as bike lanes and green spaces (37%), landscaping for water conservation (32%), and renewable energy systems such as solar and geothermal (23%). When it comes to the sustainable neighborhood features for which clients are looking, 60% of Realtors listed parks and outdoor recreation, 37% listed access to local food and nine% listed recycling. The transportation and commuting features of a community that Realtors listed as very or somewhat important to their clients included walkability (51%), public transportation (31%) and bike lanes/paths (39%).
MBA – jumbo, government loans drive mortgage credit availability increase in March
Mortgage credit availability increased in March 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 3.2% to 183.4 in March. 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. Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 11.7%), followed by the Conventional MCAI (up 4.5%), and the Government MCAI (up 2.3%). The Conforming MCAI decreased 2.6%. “Credit availability increased in March driven by increased availability of Jumbo loan programs and Government loan programs,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “Led by a wave of adjustable rate Jumbo offerings, the Jumbo MCAI surged in March, more than offsetting its 4.4% decline in February, which was the first tightening of the that component index in 11 months. Increases observed in the Government MCAI were driven by increased availability of FHA’s Streamline Refinance and 203 K home rehabilitation loan programs.”