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Black Knight Financial Services – First Look at April 2017    

The Data and Analytics division of Black Knight Financial ​Services reports the following “first look” at April 2017 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.

–  Calendar-driven spike in delinquencies results in largest monthly rise in more than eight years

–  First-lien mortgage delinquencies rose by 13%, the largest monthly increase since November 2008

–  Month-over-month, the number of borrowers past due on mortgage payments increased by 241,000

–  April’s delinquency rate increase was primarily calendar-driven (due to both the month ending on a Sunday and March being the typical calendar-year low) and largely isolated to early-stage delinquencies

–  The inventory of loans in active foreclosure continues to decline, hitting a 10-year low in April

–  At just 52,800, April saw the fewest monthly foreclosure starts since January 2005

–  Prepayment speeds (historically a good indicator of refinance activity) fell by 11% from March​

Oil prices steady as market await US data, extended output cut

Oil prices were little changed on Wednesday as investors awaited official data on inventories in the United States and the outcome from Vienna where ministers from OPEC and other exporting countries were discussing whether to extend production cuts. Data from the US Energy Information Administration is due to be released at 10:30 a.m. EDT (1430 GMT). Late Tuesday, data from industry group American Petroleum Institute showed crude inventories fell by 1.5 million barrels to 521.9 million barrels in the week to May 19, compared with analysts’ expectations for a decrease of 2.4 million barrels. Benchmark Brent crude oil was up 11 cents a barrel at $54.26 at 9:47 a.m. EDT. US light crude was up 1 cent at $51.48. Both benchmarks have gained more than 10% from their May lows below $50 a barrel, rebounding on a consensus that the Organization of the Petroleum Exporting Countries and other producers will maintain strict limits on oil production in an attempt to drain a global oversupply. OPEC has promised to cut supplies by 1.8 million barrels per day until June and was expected on Thursday to extend that cut as long as nine months.

CoreLogic – US economic outlook: May 2017

Mortgage originations are affected by economic growth and the level of mortgage rates.  Economic growth is expected to be stronger in 2017 than last year, which creates jobs, income, and additional construction, each of which supports purchase-mortgage lending.  However, higher mortgage rates work in the opposite direction: as mortgage loans become more expensive, originations generally fall.  Mortgage rates have begun to move higher.  To date, rates on 30-year fixed-rate mortgages are up more than one-half percentage point from the 3.5% low of last summer, and are predicted to rise to about 4.5% by year-end 2017. In the past, when mortgage rates have moved up from a recent low, refinance activity has fallen sharply, and we expect this to happen with the latest rise in rates.  For example, the interest rate on fixed-rate mortgages rose by just over one percentage point during 2013, and the refinance volume in 2014 fell about 50%.  With interest rates up from last summer’s lows and expected to trend higher, housing economists project refinance volumes to drop during 2017. Serving as a partial offset to the drop in refinance, home-purchase lending is expected to rise because of more new-home building and stronger income growth. (Figure 2)  Also, homeowners who want to tap home equity for remodeling are likely to turn to HELOCs or other second-lien products to finance their home improvements, rather than refinance their low-rate first mortgage.  Still, the expected increase in home-purchase and HELOC activity will offset only a portion of the reduction in refinance. Overall, housing economists are expecting about an 18 to 20% decline in the dollar amount of single-family originations in 2017, or about a 23 to 25% drop in new loan counts after adjusting for the projected 5% rise in home prices during 2017.  Moreover, after the drop in 2017, no further big declines are expected:  Origination volumes in 2018 are expected to be similar to 2017, as home-purchase gains match any further erosion in refinance volume.

House speaker Ryan says confident tax reform will pass in 2017

Republicans will be able to push through tax reform by the end of this year even as they continue to debate whether or not a final plan will include a border adjustment tax, US House Speaker Paul Ryan said an interview with Axios news outlet on Wednesday. Asked if he could envision a scenario where tax reform passes the House of Representative without including a border adjustment tax, Ryan said yes but added that internal negotiations are still ongoing.

NAHB – new home sales slip in April after strong start to year

Sales of newly built, single-family homes in April dropped for the first time in 2017, falling 11.4% to a seasonally adjusted annual rate of 569,000 units, according to newly released data by the US Department of Housing and Urban Development and the US Census Bureau. Sales numbers for the first three months of the year were all upwardly revised, and the March sales pace was the highest since October 2007. “Despite some slowness this month, total new home sales in 2017 are up more than 11% from this time last year and builders are optimistic about future market conditions,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. “We should see further gains in the months ahead as more prospective home buyers enter the market.” “New home sales were strong in the first three months of 2017, so some pullback in April is to be expected,” said NAHB Chief Economist Robert Dietz. “However, our forecast calls for new home sales to increase throughout the year, buoyed by rising household formations, continued job growth and tight existing home inventory.”The inventory of new home sales for sale was 268,000 in April, which is a 5.7-month supply at the current sales pace. The median sales price of new houses sold was $309,200. Regionally, new home sales decreased 4.0% in the South, 7.5% in the Northeast, 13.1% in the Midwest and 26.3% in the West.

NAR – existing-home sales slip 2.3% in April; days on market falls to under a month

Stubbornly low supply levels held down existing-home sales in April and also pushed the median number of days a home was on the market to a new low of 29 days, according to the National Association of Realtors (NAR).  Total existing-home, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dipped 2.3% to a seasonally adjusted annual rate of 5.57 million in April from a downwardly revised 5.70 million in March. Despite last month’s decline, sales are still 1.6% above a year ago and at the fourth highest pace over the past year. The median existing-home price for all housing types in April was $244,800, up 6.0% from April 2016 ($230,900). April’s price increase marks the 62nd straight month of year-over-year gains. Total housing inventory at the end of April climbed 7.2% to 1.93 million existing homes available for sale, but is still 9.0% lower than a year ago (2.12 million) and has fallen year-over-year for 23 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.6 months a year ago.  Properties typically stayed on the market for 29 days in April, which is down from 34 days in March and 39 days a year ago, and surpasses last May (32 days) as the shortest timeframe since NAR began tracking in May 2011. Short sales were on the market the longest at a median of 88 days in April, while foreclosures sold in 46 days and non-distressed homes took 28 days. Fifty-two% of homes sold in April were on the market for less than a month (a new high).

Inventory data from realtor.com reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in April were San Jose-Sunnyvale-Santa Clara, Calif., 23 days; San Francisco-Oakland-Hayward, Calif., 25 days; Denver-Aurora-Lakewood, Colo., 27 days; and Seattle-Tacoma-Bellevue, Wash., 28 days.  According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage declined for the first time in six months, dipping to 4.05% in April from 4.20% in March. The average commitment rate for all of 2016 was 3.65%. Matching the highest percentage since last September, first-time buyers were 34% of sales in April, which is up from 32% both in March and a year ago. NAR’s 2016 Profile of Home Buyers and Sellers – released in late 20164 – revealed that the annual share of first-time buyers was 35%. President William E. Brown says it’s not only prospective homebuyers who are facing housing issues; many middle-income homeowners who benefit from the mortgage interest deduction could be slapped with a tax increase if some of the tax reform proposals currently being discussed go through. A recently released study commissioned by NAR titled, “Impact of Tax Reform Options on Owner-Occupied Housing,” (link is external) estimated taxes would rise on average by $815 each year for homeowners with adjusted gross incomes between $50,000 and $200,000. Furthermore, home values could shrink by an average of more than 10%, with areas with higher property taxes or state income taxes experiencing an even steeper decline.  “Realtors support tax reform, but any plan that effectively nullifies the current tax benefits of owning a home is a non-starter for the roughly 75 million homeowners and countless prospective first-time buyers that see owning a home as part of their American Dream,” said Brown. Thousands of Realtors® took this message to Capitol Hill last week during NAR’s annual legislative meetings in Washington, D.C.

All-cash sales were 21% of transactions in April, down from 23% in March and 24% a year ago. Individual investors, who account for many cash sales, purchased 15% of homes in April, unchanged from March but up from 13% a year ago. Fifty-seven% of investors paid in cash in April. Distressed sales – foreclosures and short sales – were 5% of sales in April, down from 6% in March and 7% a year ago. Three% of April sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 18% below market value in April (16% in March), while short sales were discounted 12% (14% in March). Single-family home sales decreased 2.4% to a seasonally adjusted annual rate of 4.95 million in April from 5.07 million in March, but are still 1.6% above the 4.87 million pace a year ago. The median existing single-family home price was $246,100 in April, up 6.1% from April 2016. Existing condominium and co-op sales declined 1.6% to a seasonally adjusted annual rate of 620,000 units in April, but are still 1.6% higher than a year ago. The median existing condo price was $234,600 in April, which is 5.6% above a year ago. April existing-home sales in the Northeast dipped 2.7% to an annual rate of 730,000, and are now 2.7% below a year ago. The median price in the Northeast was $267,700, which is 1.6% above April 2016. In the Midwest, existing-home sales increased 3.8% to an annual rate of 1.36 million in April, but are 0.7% below a year ago. The median price in the Midwest was $194,500, up 7.8% from a year ago.  Existing-home sales in the South in fell 5.0% to an annual rate of 2.30 million, but are still 3.6% above April 2016. The median price in the South was $217,700, up 7.9% from a year ago.  Existing-home sales in the West declined 3.3% to an annual rate of 1.18 million in April, but are still 3.5% above a year ago. The median price in the West was $358,600, up 6.8% from April 2016.

MBA – refi apps up, purchase apps slightly down in latest MBA weekly survey

Mortgage applications increased 4.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 19, 2017. The Market Composite Index, a measure of mortgage loan application volume, increased 4.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index increased 11% from the previous week to its highest level since March 2017. The seasonally adjusted Purchase Index decreased 1% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 3% higher than the same week one year ago. The refinance share of mortgage activity increased to 43.9% of total applications from 41.1% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 8.2% of total applications.  The FHA share of total applications increased to 10.8% from 10.6% the week prior. The VA share of total applications decreased to 10.5% from 10.7% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

CoreLogic – US mortgage loan performance health continues to strengthen

– The delinquency rate decreased 0.5 percentage points year over year

– The foreclosure rate for February was 0.8%

– Early-stage delinquencies remained steady in February

CoreLogic released its monthly Loan Performance Insights Report which shows that, nationally, 5% of mortgages were delinquent by 30 days or more (including those in foreclosure) in February 2017. This represents a 0.5 percentage point decline in the overall delinquency rate compared with February 2016 when it was 5.5%. As of February 2017, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.8% compared with 1.1% in February 2016. The serious delinquency rate, defined as 90 days or more past due including loans in foreclosure, was 2.2% in February 2017, down from 2.8% in February 2016. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To more comprehensively monitor mortgage performance, CoreLogic examines all stages of delinquency as well as transition rates that indicate the% of mortgages moving from one stage of delinquency to the next. Early-stage delinquencies, defined as 30-59 days past due, were trending slightly higher in February 2017 at 2.14% compared with 2.08% in February 2016, an increase of 0.06% year over year. The share of mortgages that were 60-89 days past due in February 2017 was 0.7%, unchanged from a year earlier.

Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30-days past due was 1% in February 2017, up from 0.8% in February 2016. By comparison, in January 2007, just before the start of the financial crisis, the current to 30-day transition rate was 1.2% and it peaked in November 2008 at 2%. “Serious delinquency and foreclosure rates continue to drift lower, and are at their lowest levels since the fourth quarter of 2007,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Moreover, the past-due share dropped to 5%, the lowest since September 2007.  However, current-to-30-day past-due transition rates ticked up in February, and 30-day-to-60 day delinquency rates held mostly steady, recording only a 0.06% increase.” “While national-level delinquency rates declined, the serious delinquency rate remained elevated in many mid-Atlantic and northeast states led by New York and New Jersey,” said Frank Martell, president and CEO of CoreLogic. “February-to-February increases in both 30-day-or-more delinquency rates and in serious delinquency rates were also observed in Alaska, Louisiana and Wyoming relating to the impact of the downturn in the global oil market.”

US import prices rose 0.5% in April, vs 0.2% increase expected

– Prices increased more than expected in April amid rising costs for petroleum products and a range of other goods, which could help boost domestic inflation.

– The Labor Department said on Wednesday that import prices jumped 0.5% last month after an upwardly revised 0.1% gain in March.

– Import prices have now increased for five straight months.

The Labor Department said on Wednesday that import prices jumped 0.5% last month after an upwardly revised 0.1% gain in March. Import prices have now increased for five straight months. Economists polled by Reuters had forecast import prices increasing 0.2% in April after a previously reported 0.2% drop in March. In the 12 months through April, import prices rose 4.1%, slowing from March’s 4.3% increase. Import prices shot up 4.7% on a year-on-year basis in February, the biggest gain in five years. In April, prices for imported petroleum rebounded 1.6% after declining 0.4% in March. Import prices excluding petroleum gained 0.4%, the biggest increase since July 2016, after edging up 0.1% in the prior month. Import prices excluding petroleum have now increased for four straight months, in part reflecting an ebb in the US dollar’s rally. Import prices excluding petroleum rose 1.4% in the 12 months through April, the largest increase since March 2012. Prices for imported capital goods nudged up 0.1%, rising for a third straight month. The cost of imported motor vehicles surged 0.5%, the biggest gain since April 2012. Prices for imported consumer goods prices excluding automobiles rose 0.1%, while the cost of imported food increased 0.3%. The report also showed export prices increased 0.2% in April after rising 0.1% in March. Export prices rose 3.0% year-on-year after increasing 3.4% in March. Prices for agricultural exports advanced 0.3% last month as a 37.9% jump in vegetable prices offset falling prices for soybeans, corn and wheat.

MBA – mortgage applications up

Mortgage applications increased 2.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 5, 2017.  The Market Composite Index, a measure of mortgage loan application volume, increased 2.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index increased 3% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier to its highest level since October 2015. The unadjusted Purchase Index increased 2% compared with the previous week and was 6% higher than the same week one year ago. The seasonally adjusted Conventional Purchase Index increased 2% from the previous week to its highest level since April 2009. The refinance share of mortgage activity increased to 41.9% of total applications from 41.6% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.2% of total applications. The FHA share of total applications increased to 10.5% from 10.4% the week prior. The VA share of total applications remained unchanged at 10.8% from the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

New FBI acting director McCabe considered a respected, bureau man

The man taking over an FBI under the spotlight after the firing of director James Comey — is described as a respected and a fast-rising member of the bureau with a past focus on terrorism. The shakeup of the federal investigation agency — in the midst of probes into alleged Russian interference in the US presidential election — took some Democratic lawmakers by surprise and raised charges of a “Nixonian” move by the Trump administration. Andrew McCabe, who joined the FBI 20 years ago and was promoted to deputy director last year, was named acting FBI director, a Justice Department official said. It’s unclear who Trump will nominate to replace Comey, but Senate Democrats could insist on a special prosecutor for the Russia campaign probe as a condition of voting for a replacement, a senior Democratic aide said. McCabe, who is considered to be well-respected inside the FBI, recently surfaced in reports that Trump’s chief of staff sought agency help to knock down stories about Russia and the campaign late last year. In the end, the FBI did not get involved, and the White House said there was nothing improper. A law enforcement source said FBI officials also did not consider any lines to have been crossed. McCabe joined the FBI as a special agent in 1996 working out of New York, where he focused on organized crime. He was promoted to a unit focusing on counterterrorism and extraterritorial investigations of Sunni extremists in 2006, and in 2016 was promoted to deputy director of the FBI. At the time Comey said in a statement that “Andy’s 19 years of experience, combined with his vision, judgment, and ability to communicate make him a perfect fit for this job.”

Repeal and replace a boon for businesses

Last week, House Republicans narrowly passed their healthcare bill that would repeal and replace Obamacare.  As it turns out, this new healthcare bill would have an even greater impact on business owners than President Donald Trump’s planned corporate tax cut, according to an article by Julia Horowitz for CNN Money.  From the article:  “It is a huge tax cut for guys like me,” [Billionaire Warren] Buffett said Saturday at the annual shareholder meeting of Berkshire Hathaway.  Buffett, speaking to a crowd of tens of thousands in Omaha, said the cost of health care hurts businesses way more than corporate taxes. And it’s hurting the economy.  He explained that healthcare costs are what’s holding back economic competitiveness as this year’s gross domestic product came in at its slowest pace since 2014.  The bill cuts most of Obamacare’s taxes that are used to fund it, including two taxes on Americans with high incomes, according to an article by Brianna Ehley for Politico.  However, the bill has yet to make it past the Senate, and its chances are looking slim as the Senate makes plans to start from scratch with its own healthcare bill.

Oil prices slip as rising us drilling offsets opec-led cuts

Oil prices slipped on Monday, reversing gains made earlier in the session as evidence of rising US drilling offset news that OPEC and other producers may extend their production cuts.  Brent crude was down 37 cents on the day at $48.73 a barrel at 1246 GMT, having risen to a high of $49.92 earlier in the session. US light crude fell by 30 cents to $45.92 a barrel, down from a intra-day high of $46.98.  Both futures contracts have dropped by more than 10% in the last month despite moves by the Organization of the Petroleum Exporting Countries and other exporters, including Russia, to restrict supply in the first half of 2017.  The OPEC-led efforts to reduce bulging global oil inventories have been undermined by a surge in drilling in the United States, filling much of the gap left by OPEC.  OPEC meets on May 25 when it is expected to discuss extending the cuts to the end of 2017, although analysts say a further six-month extension may not be enough.  “The market is in a very dangerous condition,” said Robin Bieber, technical chart analyst at London brokerage PVM Oil Associates. “The trend is still down, but just correcting.”  Data from the InterContinental Exchange on Monday showed investors cut their bullish bets on Brent to the lowest level since late November.  Russia said on Monday it was discussing prolonging cuts with other producers beyond 2017, without giving a clear timeline. Saudi Arabia’s Energy Minister Khalid Al-Falih also talked of the possibility of prolonging curbs beyond 2017.

Day 1 Certainty

This past week DataVerify, a provider of risk mitigation and verification services, CBCInnovis, a provider of mortgage credit and data validation services and Factual Data, a provider of mortgage credit and verification services, announced the availability of 4506-T tax transcript verification services from Desktop Underwriter validation service, Day 1 Certainty.  Day 1 Certainty from Fannie Mae, announced in October 2016, provides Fannie Mae customers with freedom from representations and warranties on key aspects of the mortgage origination process. Lenders using Desktop Underwriter from Fannie Mae, now have access to DataVerify’s 4506-T IRS Tax Transcript Verification services through DataVerify Validation Services. Combine standardization with so-called “big data” and that’s the power behind the DU validation service – another Day 1 Certainty offering. Data power enables a more accurate, simpler digital process. With electronic validation of income, assets, and employment, lenders and borrowers benefit by moving away from the manual processes prevalent in the industry today. Pilot lenders who test-drove the DU validation service told us it brought efficiencies to their business processes, shortening originations by four to seven days with quicker pre-approvals and meaningful time savings for loan processors and underwriters.

Fed’s goals largely met, US rate hikes on track

The US Federal Reserve has now met its employment goal and is nearing its inflation goal, despite some weak recent economic data, so it should continue raising interest rates, Cleveland Fed President Loretta Mester said on Monday. In a speech that largely reinforced her upbeat view of the US economy, Mester, a hawkish Fed policymaker, said that while risks are “roughly balanced” the central bank should not delay further policy tightening until its two key mandates are fully met.  “We have met the maximum employment part of our mandate and inflation is nearing our 2% goal,” Mester, who regains a vote on the Fed’s policy committee next year under a rotation, said at the Chicago Council on Global Affairs.  “Although we live in a high-frequency world, we cannot overreact to transitory movements in incoming data,” she said in prepared remarks.  The comments reinforced the expectation among most investors and Fed officials that the central bank will likely raise rates another notch in June, after having tightened twice since December, and do so yet again before year end.  Mester also repeated she would back starting the process later this year of shedding some of the $4.5 trillion in bonds in the Fed’s portfolio. She largely dismissed a weak inflation reading in March and soft overall economic growth in the first quarter as one-off events.  US unemployment was 4.4% in April.

Lawsuits pile up at Wells Fargo

Struggling to shake off its fake accounts scandal, Wells Fargo (NYSE:WFC) has warned its litigation bill could be $200M higher than previously thought as it sheds new light on a series of lawsuits.  In a quarterly filing, the bank said “reasonably possible” losses from legal actions could exceed its existing provisions by $2B – up from a $1.8B figure it disclosed three months ago.

CoreLogic – US home price report shows prices up 7.1% in March 2017

 

–  National Forecast Indicates Home Prices Will Increase 4.9% by March 2018

–  Home Prices Projected to Increase 0.6% between March and April 2017

–  Home Prices Increased 1.6% between February and March 2017

CoreLogic released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ for March 2017 which shows home prices are up both year over year and month over month.  Home prices nationwide, including distressed sales, increased year over year by 7.1% in March 2017 compared with March 2016 and increased month over month by 1.6% in March 2017 compared with February 2017,* according to the CoreLogic HPI.  The CoreLogic HPI Forecast indicates that home prices will increase by 4.9% 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% from March 2017 to April 2017. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.  “Home prices posted strong gains in March 2017, and the CoreLogic Home Price Index is only 2.8% from its 2006 peak,” said Dr. Frank Nothaft, chief economist for CoreLogic. “With a forecasted increase of almost 5% over the next 12 months, the index is expected to reach the previous peak during the second half of this year.

Prices in more than half the country have already surpassed their previous peaks, and almost 20% of metropolitan areas are now at their price peaks. Nationally, price growth has gradually accelerated over the past half-year, while rent growth for single-family rental homes has slowly decelerated over the same period, according to the CoreLogic Single-Family Rental Index, recording a 3% rise over the year through March.”  “A potent mix of strong job gains, household formation, population growth and still-attractive mortgage rates in the face of tight inventories are fueling a continuing surge in home prices across the US,” said Frank Martell, president and CEO of CoreLogic. “Price gains were broad-based with 90% of metropolitan areas posting year-over-year gains. Major metropolitan areas were especially hot with CoreLogic data indicating that four of the largest 10 markets are now overvalued. Geographically, gains were strongest in the West with Washington showing the highest appreciation at almost 13%, and Seattle, Tacoma and Bellingham posting gains of 13 to 14%.

Oil dips on small US crude stock drop, weak gasoline demand

Oil prices edged lower Wednesday after US government data showed a smaller-than-expected decline in domestic crude inventories and weak demand for gasoline, feeding concerns about a supply glut.  US West Texas Intermediate (WTI) crude was down 18 cents at $47.48 a barrel at 11:33 EST (1633 GMT). Benchmark Brent crude was down 8 cents at $50.38 a barrel.  The US Energy Information Administration (EIA) said weekly crude stocks fell by 930,000 barrels to 527.8 million, less than half the 2.3 million-barrel draw that had been forecast. “US domestic production rose again, and continues its steady climb,” said John Kilduff, partner at energy hedge fund Again Capital in New York. He noted that a sharp decline in imports turned what would have been an increase in stocks into a small drawdown.  EIA data also showed gasoline stocks rose by 191,000 barrels, which was much less than the 1.3 million-barrel gain that had been forecast. However, gasoline demand slipped 2.7% over the last four weeks from the same period a year ago.  “This is continuing a trend since the beginning of the year in which sales have been lower and that is casting a shadow on the market and pressuring crude oil prices,” said Andrew Lipow, president of Lipow Oil Associates in Houston.  “Gasoline demand is going to be the story going forward.”

While the market remains fixated on US production, oil investors continue to watch whether producing countries have been complying with their 2016 deal to cut output around 1.8 million barrels per day (bpd) by the middle of the year.  Russia, contributing the largest production cut outside OPEC, said that as of May 1, it had curbed output by more than 300,000 bpd since hitting peak production in October.  This means Russia has achieved its reduction target a month ahead of schedule, just as the latest Reuters survey of OPEC production showed the group’s compliance had fallen slightly.  More oil from Angola and higher UAE output than originally thought meant OPEC compliance with its production-cutting deal slipped to 90% in April from a revised 92% in March, the Reuters survey showed.  “Although OPEC is expected to extend a self-imposed output cap by another six months, it would be a challenge convincing several non-OPEC members to join the endeavor,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

MBA – purchase applications up

Mortgage applications decreased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 28, 2017.  The Market Composite Index, a measure of mortgage loan application volume, decreased 0.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1% compared with the previous week. The Refinance Index decreased 5% from the previous week. The seasonally adjusted Purchase Index increased 4% from one week earlier. The unadjusted Purchase Index increased 5% compared with the previous week and was 5% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 41.6% of total applications from 44.0% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.4% of total applications.  The FHA share of total applications increased to 10.4% from 10.0% the week prior. The VA share of total applications decreased to 10.8% from 10.9% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

GOP heath care bill gains key support

The Latest on congressional action on the GOP health care bill and the $1.1 trillion government-wide spending bill: Two pivotal Republican lawmakers who had opposed GOP health care legislation are now prepared to support it after meeting with President Donald Trump.  Congressmen Fred Upton of Michigan and Billy Long of Missouri made their announcement to reporters at the White House after meeting with Trump Wednesday.  They said they will back the bill with inclusion of a new amendment Upton authored adding more money to protect people with pre-existing conditions.  Upton and Long both had announced their opposition earlier this week over the pre-existing conditions issue. Their defections dealt a major blow as House GOP leaders hunt for votes to salvage their top legislative priority.  Upton, a respected leader on health care issues, says he now believes the bill will be able to pass the House.  House Speaker Paul Ryan sought to assure conservatives on Wednesday that a massive government-wide spending bill is a win for President Donald Trump and Capitol Hill Republicans, citing “a really good down payment” on rebuilding the military and “the biggest increase in border security in a decade.”

Ryan told conservative radio host Hugh Hewitt that the most important win for Republicans was breaking loose from former President Barack Obama’s edict that increases in defense spending be matched with equal hikes for nondefense programs.  The House is scheduled to vote on the bipartisan $1.1 trillion measure Wednesday afternoon. It is a product of weeks of Capitol Hill negotiations in which top Democrats like House Minority Leader Nancy Pelosi successfully blocked Trump’s most controversial proposals.  A government-wide spending bill that President Donald Trump seemed to criticize Tuesday morning but now calls “a clear win for the American people” is headed for a House vote.  The House is scheduled to vote on the bipartisan $1.1 trillion measure Wednesday afternoon. It is a product of weeks of Capitol Hill negotiations in which top Democrats like House Minority Leader Nancy Pelosi successfully blocked Trump’s most controversial proposals, including a down payment on oft-promised Trump’s Mexico border wall, cuts to popular domestic programs, and new punishments for so-called sanctuary cities.  The White House instead boasted of $15 billion in emergency funding to jumpstart Trump’s promise to rebuild the military and an extra $1.5 billion for border security.

Olick – home prices will not fully recover until 2025?

Check out any one of the many national home price reports, and headlines scream of new peaks and growing gains each month. Home prices are rising faster than inflation, faster than incomes and faster than some potential buyers can bear. Those reports are heavily weighted toward large metropolitan housing markets. In fact, most of the US housing market has not recovered from the epic crash of the last decade. Only about one-third of homes have surpassed their pre-recession peak value, according to a new report from Trulia, a real estate listing and analytics company. Price growth in most markets is so slow that it will take about eight years for the national housing market to fully recover — that is, for all home values either reaching or surpassing their previous peaks.  Huge price gains during the last housing boom were juiced almost entirely by an incredibly loose mortgage lending market that no longer exists. To say that the housing recovery has been uneven is an understatement. Some markets that have seen huge employment and population growth in the last decade, such as Denver, Seattle and San Francisco, lead the news with bubble-worthy headlines.  Not only have home prices there surpassed their recent peaks, they continue to rise at double-digit paces. Nearly all the homes in Denver and San Francisco (98%) have exceeded their pre-recession peak, according to Trulia. Other less obvious markets, like Oklahoma City and Nashville, Tennessee, have also seen the prices of most homes surpass their peak.  In areas hit hardest by the foreclosure crisis, fewer than 4% of homes have recovered to pre-recession price peaks. These include Las Vegas; Tucson, Arizona; Camden, New Jersey; Fort Lauderdale, Florida; and New Haven, Connecticut.

Rising incomes are the leading cause of home price growth, according to Trulia, which looked at four factors: job growth, income growth, population growth and post-recession housing vacancy rates. Income growth showed the greatest correlation to home price growth.  The intuition here is this: “Housing is what economists call a ‘normal good,’ so when incomes rise, households tend to spend more on housing, which pushes up prices,” wrote Ralph McLaughlin, Trulia’s chief economist, in the report.  Job growth didn’t correlate at all because more jobs don’t necessarily mean higher incomes. Of course job growth does matter tangentially, as more jobs often mean a growing population.  More people create more demand, which can push prices higher if there is not enough supply. Colorado Springs, Colorado, is a good example of that: Population has grown dramatically in the last decade, but incomes have not followed pace. Home prices are near their pre-recession peak there and continue to rise.  The very limited supply of homes for sale has dominated the narrative in this spring’s market and also been blamed for bubble-like prices in some areas. That is definitely a factor, but only at certain price points and in certain areas.  “In essence, income growth led home value recovery coming out of the recession, but low inventory is now increasingly playing a role in recent price appreciation across the largest US housing markets,” said McLaughlin.  Overall, the housing recovery has been limited to a mix of markets in the West seeing huge economic growth and in parts of the South where the housing crash didn’t hit as hard. Outside of major markets, the recovery is strongest in the heartland and the Pacific Northwest, which are both seeing bigger employment and income growth.

CoreLogic – earthquake risk: spotlight on probabilistic loss modeling

Catastrophic risk models and analytics are commonly used by the insurance, reinsurance, financial and mortgage industries to help understand and quantify risk exposed to natural catastrophes including earthquakes, hurricanes, floods, wildfires and hail storms. The first step in developing a view of risk is understanding the landscape of the hazard. For earthquakes, the preferred view of hazard is generally a country-specific national seismic hazard map.  As their names suggest, seismic hazard maps assess hazard, but the insurance and financial industries often require more information and seek to obtain a quantitative view of risk. When hazard intersects with exposure – what can potentially be damaged by the hazard – it changes the focus from hazard to risk. For example, there can be areas of extremely high hazard, but if there is nothing in the areas to be damaged, the risk will be lower.  When quantifying catastrophe risk, the full spectrum of risk must be evaluated, ranging from the more frequent and generally less damaging events to the extreme, catastrophically damaging events. This is where probabilistic modeling is advantageous. Probabilistic modeling – or more specifically, probabilistic loss modeling –  offers a quantitative view of risk for all potentially feasible events that may occur, including their frequency of occurrence. Risk managers in the insurance and financial industries use these models to estimate financial losses from catastrophic events. From a financial perspective, the higher-frequency events are often smaller and less damaging, but multiple events in one year can have an impact on the cash flow of a company. On the opposite end of the spectrum, low-frequency, high-consequence events can impact the solvency of a company. To assess the financial losses for each event through a probabilistic loss model, much more is required than an understanding of the hazard.

Typically, there are four components that make up a probabilistic loss model: hazard definition of all possible events, determination of hazard footprint for each event, vulnerability assessment of structures impacted by each event, and financial loss calculation.

– Component 1: Definition of hazard through development of a stochastic event set. This is defined by defining all possible earthquake sources (i.e. faults or areas of active earthquake activity), defining a range of magnitudes on each source and a probability of each magnitude occurring on each source.

– Component 2: For each possible event in the stochastic event set, the ground motion propagation is calculated to understand the extent of potential impact of each event. This step involves an understanding of the underlying soil conditions and equations for propagation of earthquake ground motion.

– Component 3: Relates hazard to damage by assessing the vulnerability or damageability of each structure (e.g. residential, commercial or industrial properties) within the footprint of hazard for each event. To assess the vulnerability of structures, local building codes, building practices and features including the age, type of construction and height of the building are used.

– Component 4: The final step relates damage to loss through a sophisticated financial calculation to estimate a quantitative loss estimate for each possible event.

Risk managers utilizing probabilistic loss models use portfolios of their assets as input to understand the loss impact specific to their exposure. With the goal of being able to measure and manage their risk, risk managers seek to understand the specific details of their exposure – where are their assets, how concentrated are they, how vulnerable are they? This allows them to measure the financial losses for their portfolio of assets and understand which features are driving their risk.  When understanding drivers of earthquake risk, a probabilistic loss model can help risk managers understand which fault sources or magnitudes are the greatest contributors to the risk. By obtaining a deeper understanding of the distribution and severity of the risk, risk managers can more adequately manage their risk.  An assessment of hazard is often the quickest and simplest way to get a snapshot of areas to be concerned with, but by evolving this method to include the vulnerability of different types of structures exposed to the hazard, risk managers can obtain a more comprehensive view of risk and financial losses.  Risk managers have several tasks when it comes to managing earthquake risk within the insurance and financial industries, ranging from policy pricing, to capital management, capital allocation or meeting solvency requirements. Every step forward in evaluation of catastrophe risk is a step towards the ultimate goal of becoming more resilient. By leveraging analytical tools like probabilistic loss models to help quantify financial losses, identify the distribution risk and additional impacts such as business continuity, the industry can achieve a more measurable view of their risk and ultimately become more resilient.

WSJ – U.S. new home sales up 5.8% in March

Sales of new homes increased sharply for the third consecutive month in March, an indication that demand is picking up as the crucial spring selling season heats up.  Purchases of newly built single-family houses, which account for about a 10th of overall U.S. home sales, increased 5.8% last month from February to a seasonally adjusted annual rate 621,000, the Commerce Department said Tuesday.  That was the strongest level since July, when sales reached a 9-year high.  The data were clouded by a margin of error of 15.5 percentage points that is much larger than the reported increase. Still, momentum appears to be building in the market. New home sales have increased every month so far this year, and were up 15.6% year-over-year in March, slightly more than the margin of error in the report. The median sales price for a newly built home rose just over 1% from a year ago to $315,100.  Economists expect new home sales to continue to increase this year as builders step up construction of single-family homes and more first-time buyers come back into the starter-home market.  Real-estate consultant John Burns said one reason the market for new homes hasn’t been stronger is that many of the big markets for new construction, such as Las Vegas and Phoenix, are only now starting to boom again. “You need those big construction markets to take off,” Mr. Burns said. “It’s starting to pick back up in those markets, just off of a very low level.”

New construction has been sluggish since the recession, due to labor shortages, a lack of available credit to small home builders and, more recently, the rising cost of raw materials such as lumber. U.S. housing starts decreased 6.8% in March, although the overall trend in recent months has been one of acceleration in the pace of new construction. The existing-home market has been going strong, although a shortage of supply is holding back sales numbers. Purchases of previously owned homes, which account for the vast majority of U.S. sales, increased 4.4% in March to their highest level in a decade, the National Association of Realtors said last week. New-home construction has improved steadily over the past six years but remains well short of levels before and during the housing bubble. Over the past year, for example, builders have started construction on almost 792,000 single-family homes. From 1995 to 2000, a fairly normal stretch for the market, the average was 1.2 million a year. By some measures the supply of inventory of new homes is more robust than that of existing ones. It would take just 3.8 months to exhaust the supply of previously owned homes on the market at the current sales pace, versus 5.2 months for new homes, Commerce said Tuesday.  The number of new homes for sale was the highest since July 2009.

Trump tax plan billed as ‘largest tax reform’ in US history

President Donald Trump is proposing “the biggest tax cut” ever even as the government struggles with mounting debt, in an effort to fulfill promises of bringing jobs and prosperity to the middle class. White House officials on Wednesday were to release broad outlines of a tax overhaul that would provide massive tax cuts to businesses big and small. The top tax rate for individuals would drop by a few percentage points, from 39.6 percent to the “mid-30s,” according to an official with knowledge of the plan. Small business owners would see their top tax rate go from 39.6 percent to 15 percent, said the official, who was not authorized to publicly discuss the proposal before the White House announcement and spoke on condition of anonymity. Treasury Secretary Steve Mnuchin, in a Wednesday morning speech, said the proposed overhaul would amount to “the biggest tax cut” and the “largest tax reform” in U.S. history. White House officials already have said the top corporate tax rate would be reduced from 35 percent to 15 percent. The plan will also include child-care benefits, a cause promoted by Trump’s daughter Ivanka. Trump sent his team to Capitol Hill on Tuesday evening to discuss his plan with Republican leaders. “They went into some suggestions that are mere suggestions and we’ll go from there,” said GOP Sen. Orrin Hatch of Utah, chairman of the Senate Finance Committee.

The White House’s presentation will be “pretty broad in the principles,” said Marc Short, Trump’s director of legislative affairs. In the coming weeks, Trump will solicit more ideas on how to improve it, Short said. The specifics should start to come this summer. Short said the administration did not want to set a firm timeline, after demanding a quick House vote on a health care bill and watching it fail. But, Short added, “I don’t see this sliding into 2018.” Republicans who slammed the growing national debt under President Barack Obama have said they are open to Trump’s tax plan, even though it could add trillions of dollars to the deficit over the next decade. Echoing the White House, Republicans argue the cuts would spur economic growth, reducing or even eliminating any drop in tax revenue. “I’m not convinced that cutting taxes is necessarily going to blow a hole in the deficit,” Hatch said. “I actually believe it could stimulate the economy and get the economy moving,” Hatch added. “Now, whether 15 percent is the right figure or not, that’s a matter to be determined.”

NAHB – proposed lumber duties will harm consumers, housing affordability

The National Association of Home Builders (NAHB) today denounced the decision by the U.S. Department of Commerce to impose a 20 percent countervailing duty on Canadian lumber imports, saying it will harm American home buyers, consumers and businesses while failing to resolve the underlying trade dispute between the two nations. “NAHB is deeply disappointed in this short-sighted action by the U.S. Department of Commerce that will ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. Thirty-three percent of the lumber used in the U.S. last year was imported. The bulk of the imported lumber – more than 95 percent – came from Canada. “This means that imports are essential for the construction of affordable new homes and to make improvements on existing homes,” said MacDonald. The trade agreement that has governed Canadian imports of softwood lumber since 2006 effectively expired at the end of 2016. Uncertainty surrounding a new trade pact is the primary catalyst for the 22 percent spike in the Random Lengths Composite Price Index for lumber since the beginning of the year.

These price hikes have negative repercussions for millions of Americans. It takes about 15,000 board feet to build a typical single-family home and the lumber price increase in the first quarter of this year has added almost $3,600 to the price of a new home. NAHB believes the best way to resolve this trade impasse and avoid these negative economic repercussions is to:

– Urge the U.S. and Canada to work cooperatively to achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber.

– Increase domestic production by seeking higher targets for timber sales from publicly-owned lands and opening up additional federal forest lands for logging in an environmentally sustainable manner.

– Reduce U.S. lumber exports.

“Taking these steps to meet our nation’s lumber needs is essential because tariffs needlessly increase the volatility of the lumber markets, resulting in higher prices for U.S. home buyers and other consumers and businesses who use lumber,” said MacDonald.

Olick – lowest mortgage rates since election push refinances up 7%

The refinance market came back to life last week, as mortgage rates fell further. Homebuyers, however, were not as easily swayed by rates.  Total mortgage application volume rose 2.7 percent, seasonally adjusted, for the week, according to the Mortgage Bankers Association. Volume was 18 percent lower compared with the same week one year ago. Mortgage refinance volume remains far weaker than it was last year, when interest rates were lower, but it did rise 7 percent week to week as rates sank to the lowest level since just after following the presidential election. The size of the average refinance loan also increased, as large-balance borrowers are more rate sensitive. Refinances are still 34 percent below where they were a year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less decreased to 4.20 percent from 4.22 percent, with points increasing to 0.37 from 0.35, including the origination fee, for 80 percent loan-to-value ratio loans. “The drop was driven by continued investor concerns about the French election, though Sunday’s first-round voting results apparently have alleviated some investor fears,” said Lynn Fisher, MBA vice president of research and economics.

Homebuyers were less concerned with mortgage rates and more frustrated with the lack of homes for sale. Mortgage applications to purchase a home fell 1 percent for the week and are just 0.4 percent higher than the same week last year. The supply of homes for sale continues to drop amid strong demand and low production from the nation’s homebuilders.  Mortgage rates may eventually become a bigger concern. They began rising again this week, as investors turned from the French election to the possibility of U.S. tax reform. “In general, investors have piled back into riskier assets like stocks because the French election reduces long-term risks to the European Union,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The prospects for tax reform have a similar effect in that they encourage investors to favor riskier assets at the expense of bonds. When demand for bonds decreases relative to supply, rates move higher.”

Oil prices slip ahead of US stock data after surprise API build

Oil prices edged lower on Wednesday ahead of data that will shed light on U.S. crude inventories after an industry report indicated a surprise build in fuel stocks, underscoring the persistence of global oversupply. Brent crude, the international benchmark for oil prices, was down 50 cents to $51.60 per barrel at 1350 GMT. Brent is now around 8.5 percent below its April peak. U.S. West Texas Intermediate (WTI) was down 40 cents at $49.16 per barrel, heading for its eighth fall in nine sessions. U.S. inventory data issued late on Tuesday by the American Petroleum Institute (API) weighed on prices and showed the difficulty OPEC and non-OPEC producers are having in eliminating a supply glut despite output cuts they have made since January. The report showed crude stockpiles rose 897,000 barrels in the week to April 21, defying expectations of a fall of 1.7 million barrels, and also showed a large build in gasoline stocks, unusual for this time of the year. The U.S. Energy Information Administration (EIA) will issue its inventory data at 1430 GMT on Wednesday. “Should these figures be mirrored by the EIA, widespread concerns over stubbornly high OECD oil stocks will have been justified in what would be a setback to the global oil rebalancing process,” analysts at PVM said.

 

Black Knight Financial Services – First Look at March 2017

The Data and Analytics division of Black Knight Financial ​Services (NYSE: BKFS) reports the following “first look” at March 2017 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.

–  Delinquencies declined 14% month-over-month, hitting their lowest level since March 2006 and the fourth lowest point since the turn of the century

–  Total non-current inventory – all loans 30 days or more past due or in active foreclosure – fell below 2.3 million, the lowest volume in 11 years​

–  After hitting a three-year low in February, prepayment speeds (historically a good indicator of refinance activity) rose 20% in March; still 26% below last year’s level

–  Foreclosure starts were up 4.15% for the month, but Q1 2017’s 189,000 starts represented an 18% decline from Q1 2016

NAR – existing-home sales jumped 4.4% in March

Existing-home sales took off in March to their highest pace in over 10 years, and severe supply shortages resulted in the typical home coming off the market significantly faster than in February and a year ago, according to the National Association of Realtors (NAR). Only the West saw a decline in sales activity in March.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, ascended 4.4% to a seasonally adjusted annual rate of 5.71 million in March from a downwardly revised 5.47 million in February. March’s sales pace is 5.9% above a year ago and surpasses January as the strongest month of sales since February 2007 (5.79 million). The median existing-home price for all housing types in March was $236,400, up 6.8% from March 2016 ($221,400). March’s price increase marks the 61st consecutive month of year-over-year gains.  Total housing inventory at the end of March increased 5.8% to 1.83 million existing homes available for sale, but is still 6.6% lower than a year ago (1.96 million) and has fallen year-over-year for 22 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (unchanged from February).  Properties typically stayed on the market for 34 days in March, which is down significantly from 45 days in February and 47 days a year ago. Short sales were on the market the longest at a median of 90 days in March, while foreclosures sold in 52 days and non-distressed homes took 32 days (shortest since NAR began tracking in May 2011). Forty-eight% of homes sold in March were on the market for less than a month.

Inventory data from realtor.com reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in March were San Jose-Sunnyvale-Santa Clara, Calif., 24 days; San Francisco-Oakland-Hayward, Calif., 25 days; Seattle-Tacoma-Bellevue, Wash., and Denver-Aurora-Lakewood, Colo., both at 28 days; and Vallejo-Fairfield, Calif., 31 days.  According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage rose for the fifth straight month in March to 4.20% from 4.17% in February. The average commitment rate for all of 2016 was 3.65%.  First-time buyers were 32% of sales in March, which is unchanged from February and up from 30% a year ago. NAR’s 2016 Profile of Home Buyers and Sellers – released in late 2016 – revealed that the annual share of first-time buyers was 35%.  NAR President William E. Brown says patience is a virtue for prospective first-time buyers this spring. “Realtors in most markets are saying interest from first-timers is up this year, but competition is stiff for listings in their price range,” he said. “The best advice is to lean on the guidance of a Realtor® throughout the home search and be careful about stretching the budget too far. Don’t get frustrated by losing out on a home and know the right one will eventually come along in due time.”  All-cash sales were 23% of transactions in March, down from 27% in February and 25% a year ago. Individual investors, who account for many cash sales, purchased 15% of homes in March, down from 17% in February but up from 14% a year ago. Sixty-three% of investors paid in cash in March.

Distressed sales – foreclosures and short sales – were 6% of sales in March, down from 7% in February and 8% a year ago. Five% of March sales were foreclosures and 1% were short sales. Foreclosures sold for an average discount of 16% below market value in March (18% in February), while short sales were discounted 14% (17% in February).  Single-family home sales climbed 4.3% to a seasonally adjusted annual rate of 5.08 million in March from 4.87 million in February, and are now 6.1% above the 4.79 million pace a year ago. The median existing single-family home price was $237,800 in March, up 6.6% from March 2016.  Existing condominium and co-op sales increased 5.0% to a seasonally adjusted annual rate of 630,000 units in March, and are now 5.0% higher than a year ago. The median existing condo price was $224,700 in March, which is 8.0% above a year ago.  March existing-home sales in the Northeast surged 10.1% to an annual rate of 760,000, and are now 4.1% above a year ago. The median price in the Northeast was $260,800, which is 2.8% above March 2016.  In the Midwest, existing-home sales jumped 9.2% to an annual rate of 1.31 million in March, and are now 3.1% above a year ago. The median price in the Midwest was $183,000, up 6.2% from a year ago.  Existing-home sales in the South in March rose 3.4% to an annual rate of 2.42 million, and are now 8.5% above March 2016. The median price in the South was $210,600, up 8.6% from a year ago. Existing-home sales in the West decreased 1.6% to an annual rate of 1.22 million in March, but are still 5.2% above a year ago. The median price in the West was $347,500, up 8.0% from March 2016.

Trump’s budget chief says money for border wall a must

Money for the wall President Donald Trump wants to build along the US border with Mexico must be part of the massive spending bill Congress is preparing, the White House budget director says.  Additional funding also must be included to hire more immigration agents, Mick Mulvaney told The Associated Press in an interview in which he laid out the top priorities of the president.  Lawmakers hope to unveil the catchall spending bill next week. Democratic negotiators are likely to resist providing the down payment that Mulvaney says Trump wants for construction of the wall, but the former GOP congressman from South Carolina adds that “elections have consequences.”  Mulvaney also said the administration is open, though undecided, about a key Democratic demand that the measure pay for cost-sharing payments to insurance companies that help low-income people afford health policies under the Affordable Care Act. The $1 trillion-plus legislation is leftover business from last year’s election-season gridlock and would cover the operating budgets of every Cabinet department except for Veterans Affairs. Talks on the measure have hit a rough patch as a deadline to avert a government shutdown looms late next week. Trump’s presidency is approaching the symbolic 100-day mark, but his GOP allies in Congress have been tempering expectations that the president would emerge as a big winner.  Democratic votes are likely to be needed to pass whatever bill emerges from the talks, and Senate Democrats could bottle it up entirely if they object to provisions that they deem to be “poison pills” – such as the money for the wall. Trump campaigned for president on the promise of building the wall and sticking Mexico with the tab.  GOP leaders on Capitol Hill are eager to avert a shutdown, and the slow pace may make it necessary to enact another temporary spending bill to avert a shutdown next weekend. Mulvaney’s hard line could foreshadow a protracted impasse and increases the chances of a government shutdown.  “A shutdown is never a desired end and neither is it a strategy,” Mulvaney said.

NAHB – increases in remodeling market indicators reflect broad-based confidence

The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) rose to 58 in the first quarter of 2017, an increase of five points from the fourth quarter of 2016 and the highest reading since 2015.  An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.  “A milder than usual winter has led to increased remodeling activity and a positive outlook for spring,” said NAHB Remodelers Chairman Dan Bawden, CAPS, GMB, CGR, CGP, a remodeler from Houston. “Remodelers are seeing stronger market conditions with customers more willing to spend money on both small and large projects.”  Regaining strength from a three-point dip in the previous quarter, the current market conditions increased five points to 58. Among its three major components, all saw an increase from last quarter, with major additions and alterations up four points, demand for smaller remodeling projects increasing by seven points and the home maintenance and repair component rising six points.  The index measuring future market indicators also reached 58, meeting the highest point of 2016. Calls for bids rose significantly from 49 to 59, amount of work committed grew from 50 to 58, the backlog of remodeling jobs increased from 55 to 62, and appointments for proposals remained constant at 54.  “At 58, the Remodeling Market Index is seeing broad-based improvement with all major components well over 50,” said NAHB Chief Economist Robert Dietz. “However, remodelers will face challenges meeting the demand as the labor shortage continues and costs for materials, such as lumber, are rising.”

Trump taking action against regulations put into place after the financial crisis

President Donald Trump is expected to issue directives Friday aimed at unwinding regulations put into place after the financial crisis.  The moves will target two key areas — “living wills” that banks must formulate to show how they would be broken up if they are in danger of failure, and the designation of what institutions will come get more intense federal scrutiny under the financial reforms.  In addition to the banking measures, the administration also will be ordering a review on rules regarding inversions, or when companies switch their domiciles to other countries to escape US tax burdens.  The banking orders “signal that the Administration will continue a push to remove key regulations that were implemented as part of the Dodd-Frank Act,” analysts at FBR said in a note to clients.  One part will deal with the Orderly Liquidation Authority, which aims to reduce the burden of too-big-to-fail banks that endangered the financial system during the crisis. Large institutions posed widespread risk because of their interconnected nature, and the Dodd-Frank reforms sought to establish procedures for how to pull those banks apart in the case of another crisis.

However, some nonbanks also came under the measure’s umbrella. MetLife last year successfully sued to have itself removed from the list of so-called systemically important financial institutions, but American International Group and Prudential remain on the list.  AIG was a central figure in the crisis, requiring a taxpayer bailout after insurance it issued against mortgage defaults exploded and posed serious risk to the business.  Trump likely will order regulators to review the process used to designate SIFIs, with the result being that nonbanks will be removed from the list.  On the living will issue, Trump will instruct the Treasury Department to review the provisions that require companies either to pass muster or face having to shed businesses or raise capital.  Ultimately, the OLA provisions could be repealed and replaced with a new system.  “Systemically important banks would benefit from this change: It would decrease their compliance costs in preparing their living wills, reduce the likelihood of higher capital requirements, and prevent regulators from shutting down certain business lines,” FBR said.  Trump has said that he believes Dodd-Frank is unfair, and he’s targeted it for significant changes.  Treasury Secretary Steve Mnuchin will get 180 days to report back to Trump on changes to the bank designation and living will provisions. Parts of the bankruptcy code could be used as an alternative to the living wills.  “These expected memos show a continued commitment to undo many of the changes

implemented by Dodd-Frank , and we expect … other federal financial regulators to accelerate this process,” FBR said.

MBA – MBA offers detailed GSE reform proposal

The Mortgage Bankers Association (MBA) today released a white paper GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market which provides a detailed picture of a reformed and revitalized secondary mortgage market. It also attempts to shed light on two critical areas that have tested past reform efforts – the appropriate transition to the reformed system and the role of the secondary market in advancing an affordable housing strategy.  “This paper not only lays out a detailed end state solution that will work for the residential and multifamily markets, but also the transition steps to accomplish this goal,” said Rodrigo Lopez CMB, Executive Chairman of NorthMarq Capital and Chairman of MBA. “We look forward to working with Congress and the Administration to find a permanent, sustainable solution to the government’s role in housing finance that doesn’t repeat the mistakes that led to the crisis.”  “Key leaders on Capitol Hill and in the new administration have made it clear that GSE reform should be accomplished through bipartisan legislation,” said David H. Stevens, CMB, MBA’s President and CEO. “While progress has been made during conservatorship, only Congress has the power to ensure lasting reform.”

Specifically, MBA developed an approach to GSE Reform that will:

–  Inject much higher levels of risk-bearing private capital into the mortgage system, while dramatically reducing the system’s reliance on government support.

–  Enhance the stability of the mortgage system with multiple Guarantors that will operate as privately-owned utilities.

–  Protect taxpayers and consumers with a clear set of market conduct rules, prudential requirements, and a new federally-backed Mortgage Insurance Fund (standing behind the mortgage backed securities, not the Guarantors themselves) financed with appropriately priced insurance premiums.

–  Ensure that mortgage lenders of all sizes and business models have equal access to the secondary market.

–  Improve service and performance in the secondary market with multiple Guarantors competing on operations and systems development, customer service, product parameters and innovation, and pricing and execution.

–  Minimize disruption during the transition to the new system by preserving what works in the current system and utilizing the existing regulatory framework where appropriate.

–  Meet the needs of the full continuum of households, from families requiring the most directly subsidized, affordable rental homes to those served by the completely private jumbo single-family lending market.

This paper is a follow up to GSE Reform: Principles and Guardrails, which MBA released in January.

Both white papers derive from the work of MBA’s Task Force for a Future Secondary Mortgage Market, made up of individuals from MBA member companies representing a broad cross-section of the residential and multifamily real estate finance industries, including entities of varying sizes and business models.  “The secondary mortgage market plays a vital role in promoting access to credit for prospective homeowners, the development and preservation of affordable rental housing, and support for underserved market segments.  MBA’s proposal will help ensure lower housing costs and affordability for all Americans,” said Debra W. Still, CMB, President and CEO of Pulte Mortgage, and a Task Force member. “Furthermore, GSE reform must be done with the objective of maintaining a level playing field for all lenders. The secondary mortgage market is strongest when it is well-positioned to serve the most diverse group of lenders possible, thus promoting broad competition which is ultimately beneficial for consumers.  MBA’s proposal meets these complementary goals.”  “The GSEs provide crucial support to the multifamily market. MBA’s detailed end state solution preserves this role and expands its ability to support affordable housing and workforce housing for owners and for renters,” said Michael C. May, Executive Managing Director, Berkeley Point Capital, and a Task Force member.

CoreLogic – is the credit cycle turning?

The contours of a typical economic expansion and recession are strongly driven by loan performance. When times are good, lenders expand loan production to more marginal borrowers but when loan performance begins to deteriorate, lenders become more conservative, which often exacerbates an economic downturn. Therefore, an understanding of the credit cycle is important to understanding the economic cycle. While loan performance improved across various loan types throughout the first five years of the expansion, over the last year three of the four major types of loans began experiencing a deterioration in loan performance. The exception to the deterioration in credit performance was real estate, which continues to improve. However, a closer look reveals performance is deteriorating, albeit from pristine levels of performance. The most common methods of evaluating mortgage performance are delinquency or foreclosure rates. While they are fine to gauge credit trends, they are backward looking and a lagging performance indicator. There are several methods to address that shortcoming, such as transition rate analysis, which tracks early stage changes in performance and is forthcoming in our new Loan Performance Insights Report, or vintage analysis, which controls for time by typically focusing on only a year’s worth of loan production and allows for a much more nuanced view of performance. Analyzing the vintages for the performance of the first 10 months of each year allowed me to evaluate 2016 using the most recent data. While loan performance after only 10 months for any vintage may seem to be an early starting point to evaluate performance, historically after 6 to 9 months performance has very strong persistence and remains on a similar track years later. Since 2010 was the first full year of the expansion vintage and underwriting has remained roughly similar since then, it is a good starting point for the analysis in the post great recession world.

Analyzing the 2010 to 2016 vintages reveals three important trends. First, the 2016 vintage was the first year in which the serious delinquency rate after 10 months was worse than the prior year. Second, there is clear clustering for certain years when the economy was weak versus when it was healthy. For example, ten months into the year, the 2010 and 2011 vintages had a 0.32% serious delinquency rate compared with 0.21% average for 2012 through 2014. Performance in 2010-2011 was weaker because the economy was still recovering from the recession and home price growth was nascent. Third, the trough in performance was during 2015 when the serious delinquency rate 10 months into the year was only 0.13%, the lowest rate in the last two decades. The stellar 2015 performance reflects a combination of the highest economic growth since the Great Recession, a labor market approaching full employment and steady home price growth. During 2016, economic growth slowed by a substantial full percentage point and affordability cracks began to show, causing the serious delinquency rate for that vintage to worsen modestly to 0.17% at the 10-month mark. While performance for the 2016 vintage is still very good from relative to the last two decades, it is beginning to worsen. Historically, when the mortgage credit cycle begins to deteriorate it continues to do so until the economy bottoms and the credit cycle begins to improve again. While the deterioration in mortgage performance is very small and rising from very low levels, it is important to track because turning points are critical but difficult to identify in real time.

Oil recoups losses, but US oil output growth weighs

Crude oil recouped earlier losses on Monday in subdued trading, but signs that the United States is continuing to add output largely counteracted strong economic growth in China and OPEC-led efforts to cut production. Benchmark Brent crude futures were down 14 cents at $55.75 at 1350 GMT, after trading as much as 58 cents lower. US West Texas Intermediate crude futures were down 14 cents at $53.04 a barrel, after falling by as much as 55 cents earlier in the day. Both benchmarks rose last week for a third consecutive week, and were trading close to 12% above their 2017 lows. Speculators in the week to April 11 also increased their bets on bullish performance in both contracts. But in thin trading due to holidays across Europe, the focus was on indications that shale oil output in the United States was creeping higher. “All the signs of an ever-growing bull market are starting to fade away, (with) Libya and geo-political tensions easing, but also because the Texans are back and they are pumping like there’s no tomorrow,” said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai. “If I were OPEC, I’d be pretty worried.” Although the failure of a ballistic missile launch in North Korea brought some respite, markets were braced for further tensions in the region. In Libya, fighting between rival factions has cut oil output, but state oil company NOC was able to reopen at least one field and was pushing to reopen another. US drillers last week added rigs for a 13th straight week, bringing it to its highest in roughly two years. Investors are also pouring money into the industry, suggesting US output gains will continue.

NAHB – builder confidence holds firm in April

Builder confidence in the market for newly-built single-family homes remained solid in April, falling three points to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after an unusually high March reading. “Even with this month’s modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “The fact that the HMI measure of current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” said NAHB Chief Economist Robert Dietz. “However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three HMI components posted losses in April but remain at healthy levels. The components gauging current sales conditions fell three points to 74 while the index charting sales expectations in the next six months dropped three points to 75. Meanwhile, the component measuring buyer traffic edged one point down to 52. Looking at the three-month moving averages for regional HMI scores, the West and Midwest both rose one point to 77 and 68, respectively. The South held steady at 68, and the Northeast fell two points to 46.

Keep the change: Travelers left behind nearly $1 million in coins, currency in airports last year

In the rush to get through airport security checkpoints, it is not uncommon for distracted travelers to leave laptops, cellphones, jewelry and other valuable items in the plastic bins needed to scan their belongings. As it happens, they also leave behind lots of accumulated cash. For its fiscal year 2016, the Transportation Security Administration reported that passengers left behind more than $867, 812.39 in coins and currency in the plastic bowls and bins at various US airport checkpoints. That’s about $102,000 more than the amount left behind in 2015, and the more than $484,000 left behind in 2008. Over the years, the amount of change left behind by travelers at airports has been steadily climbing—jumping from about $489,000 in 2011 to almost $675,000 in 2014, and hitting $766,000 in 2015. “There is no real way for TSA to know why this happens,” spokeswoman Lisa Farbstein told CNBC. “It makes sense to point to an increase in the number of travelers as one likely reason, but other than that, we have no theories.” Last year, passengers at New York’s John F. Kennedy International Airport were the most forgetful (or generous, perhaps): Travelers there left behind $70,615 in unintentional ‘tips’ for TSA. Back in 2005, Congress passed a law saying TSA gets to keep that unclaimed cash, and spend it on any sort of civil aviation security efforts it deems fit. In at least two previous years’ reports, TSA stated that the unclaimed money collected from airports would be used to support the expansion of the TSA Precheck program, which gives travelers expedited screening privileges. Precheck allows fliers to keep shoes and lights jacks on, and their laptops and quart-sized bag of liquids and gels inside their carry-ons. When it filed its report on 2016’s unclaimed cash haul, TSA said it had not yet determined how it would spend those funds.

Builders bet tiny apartments will lure renters

A Pittsburgh developer is betting that more 20-somethings will pay more than $1,500 a month for the tiny studios in its new building, called Ollie at Baumhaus, even though space is so tight the beds double as couches. It is a big risk in a city where the average apartment rents for a modest $979 a month, compared with nearly $3,400 in the New York metropolitan area and more than $2,800 in San Francisco, according to data provider Reis Inc. The seven-story, 127-unit Ollie at Baumhaus building in Pittsburgh is set to open in June. A trend that started in pricey coastal cities as a response to rising rents is spreading to smaller cities that often have an abundance of relatively inexpensive housing options. In Milwaukee, Cleveland, Detroit, and Kansas City, Mo., developers are betting on demand from young people to live in tiny quarters even when cost isn’t the primary consideration. Micro apartments generally come fully furnished with amenities such as wireless internet and in some cases maid service, at a price similar to those of larger traditional apartments. The cramped units encourage people to use the common spaces more, creating a greater sense of community, developers say. The developers are gambling that such amenities will help set the units apart in a crowded marketplace, where a rush of new building is coming online despite ample supply of affordable older housing stock. “I think it will be an adjustment, for sure,” said Dan Mullen, president at Bedrock, the development arm of mortgage magnate Dan Gilbert’s family of companies. But the tall ceilings and windows help make it feel larger, he added. “When you get in one of these units, it feels very spacious.” Bedrock’s new micro-unit building is set to open this summer, with 218 furnished units averaging 260 square feet each.

Mr. Mullen points to perks such as free high-speed internet, a flat-screen TV and a rooftop terrace where tenants can watch movies. The units will rent for less than $1,000 a month—roughly in line with larger studios in other new buildings, which typically don’t include utilities and internet. The Pittsburgh building, which has 127 units in total and was developed by local firm Vitmore, will feature not just tiny apartments but also three-bedroom units designed to be shared by roommates—some of whom might never have met before. Christopher Bledsoe, co-founder and chief executive of Ollie, a real estate startup that is managing the project, said the building, which is set to open in June, will feature a community garden where renters can grow their own fruits and vegetables, an on-site manager who is a fitness instructor and bartender, and cooking classes from local chefs. “What would cause a 20-something graduate to leave Pittsburgh and come to New York City?” he said. “It’s the desire to not come home to an empty apartment.” The buzz around the mini units could help distinguish the building. Nearly 2,300 new apartment units were completed in Pittsburgh in 2016 and an additional roughly 1,800 are expected this year, according to MPF Research, a division of RealPage . That compares with the historical average dating back to 2000 of 1,000 units a year.

In Kansas City, a developer is installing queen-sized beds in case would-be residents want to get even cozier and share their 300-square-foot flats with a roommate. The units will rent for $700 to $800 a month—about in line with the average rent for apartments of all sizes, according to Reis. “Young people today seem to be able to group together,” said John Hoffman, a partner at UC-B Properties, which is developing the 50-unit building that is set to break ground in the coming months. Mr. Hoffman said he modeled the design of the units on a cruise ship cabin. The sink doubles for both the kitchen and the bathroom, the microwave doubles as an oven and the fridge can handle “a 6-pack of long neck beer and a 12-inch pizza,” he said, which is all he figures young people these days need.

CoreLogic – 5.3% of homeowners were late with their mortgage payments in January 2017

–  the rate of delinquent mortgages decreased by 1.1 percentage points

–  the foreclosure rate fell to 0.8%

–  early-stage delinquencies trending lower

CoreLogic released a new monthly Loan Performance Insights Report which shows that 5.3% of mortgages were delinquent by at least 30 days or more (including those in foreclosure) in January 2017. This represents a 1.1 percentage point decline in the overall delinquency rate compared with January 2016 when it was 6.4%.  As of January 2017, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.8% compared with 1.1% in January 2016. The serious delinquency rate, defined as 90 days or more past due including loans in foreclosure, was 2.5%, down from 3.2% in January 2016.  Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To more comprehensively monitor mortgage performance, CoreLogic examines all stages of delinquency as well as transition rates that indicate the% of mortgages moving from one stage of delinquency to the next.  Early-stage delinquencies, defined as 30-59 days past due, were trending lower in January 2017 at 2.1% compared with a year ago at 2.4% in January 2016. The share of mortgages that were 60-89 days past due in January 2017 was 0.7%, down from 0.8% in January 2016.

Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.9% in January 2017 compared with 1.2% in January 2016. By comparison, in January 2007, just before the start of the financial crisis, the current to 30-day transition rate was 1.2% and peaked in November 2008 at 2%.  “Steady job and income growth, combined with full-doc underwriting, has led to low early-stage delinquencies,” said Dr. Frank Nothaft, chief economist for CoreLogic. “January’s 0.9% transition rate for current to 30 days late is lower than a year ago and much lower than the 1.5% average from 2000 and 2001, during which the foreclosure rate was, conversely, lower than it is today.”  “The 30-plus delinquency rate, the most comprehensive measure of mortgage performance, is at a 10-year low and rapidly declining,” said Frank Martell, president and CEO of CoreLogic. “While late-stage delinquencies remain in the pipeline in selected markets, early-stage delinquency performance is stellar and the lowest it’s been in two decades. The continued improvement in mortgage performance bodes well for the health of the market in 2017.”

Oil rises on potential Saudi output cut extension

Oil prices rose on Wednesday, putting crude futures on track for their longest streak of gains since August 2016, as Saudi Arabia was reported to be lobbying OPEC and other producers to extend a production cut beyond the first half of 2017.  Brent crude futures were up 20 cents, or 0.36%, at their highest since early March at $56.43 per barrel at 0656 GMT (02:56 a.m. EDT).  If Wednesday’s rise holds, it would mark the seventh straight daily increase. That would beat a six-day bull-run from August 2016, although the price jump then was 17.5% versus a 6-percent rise in the current rally.  US West Texas Intermediate (WTI) crude futures were up 18 cents, or 0.34%, at $53.58 a barrel, also their highest since early March.  Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), has told other producers that it wants to extend a coordinated production cut beyond the first half of the year, the Wall Street Journal reported.  OPEC and other producers, including Russia, have pledged to cut output by around 1.8 million barrels per day (bpd) during the first half of 2017 in an effort to rein in oversupply and prop up prices.  While compliance from some participants has been patchy, Saudi Arabia has made significant cuts, with production down 4.5% since late 2016, despite a slight increase in March to 9.98 million bpd.  “(The) Saudi Arabian production reduction appears to be ahead of forecast and gave oil a boost,” said Jeffrey Halley of futures brokerage OANDA in Singapore.  Despite this, there are still concerns that oil markets remain bloated and oversupplied.

NAR – affordability, tight supply cause vacation home sales to plummet in 2016; investment sales climb 4.5%

Last year’s strongest pace of home sales in a decade included a sizeable drop in activity from vacation buyers and a jump from individual investors, according to an annual second-home survey released today by the National Association of Realtors (NAR). The survey additionally found that vacation and investment buyers in 2016 were more likely to take out a mortgage and use their property as a short-term rental.  NAR’s 2017 Investment and Vacation Home Buyers Survey 1, covering existing- and new-home transactions in 2016, revealed that vacation home purchases last year descended to an estimated 721,000, down 21.6% from 2015 (920,000) and the lowest since 2013 (717,000).  Investment-home sales in 2016 rose 4.5% to 1.14 million from 1.09 million in 2015. Owner-occupied purchases jumped 12.5% to 4.21 million last year from 3.74 million in 2015 – the highest level since 2006 (4.82 million).  Lawrence Yun, NAR chief economist, says vacation sales in 2016 tumbled for the second consecutive year and have fallen 36% from their recent peak high in 2014 (1.13 million). “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale,” he said. “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”  Added Yun, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the election.”

Tight inventory conditions pushed the median sales price of both vacation and investment homes last year to levels not seen in roughly a decade. The median vacation home price was $200,000, up 4.2% from 2015 ($192,000) and the highest since 2006 (also $200,000). The median investment-home sales price was $155,000, up 8.0% from 2015 ($143,500) and the highest since 2005 ($183,500).  With home prices steadily rising, an increasing share of second-home buyers financed their purchase last year. The share of vacation buyers who paid fully in cash diminished to 28% (38% in 2015), while cash purchases by investors decreased to 35% from 39% in 2015 and 41% in 2014.  “Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners,” said Yun. “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.”  Vacation sales accounted for 12% of all transactions in 2016, which was the lowest share since 2012 (11%) and down from 16% in 2015. The portion of investment sales remained unchanged for the third consecutive year at 19%, and owner-occupied purchases increased to 70% (65% in 2015).

Given the rising popularity of short-term rentals in locales throughout the country, it’s no surprise there were slightly more investment and vacation buyers renting their property for less than 30 days. Forty-four% of investors (42% in 2015) and 29% of vacation buyers (24% in 2015) did or tried to rent their property last year and plan to do so in 2017. Twenty-one% of investment buyers and 15% of vacation buyers did not rent their home for short-term purposes last year but plan to try it in 2017.  Vacation buyers’ typically earned $89,900 ($103,700 in 2015), while investment buyers had a household income of $82,000 ($95,800 in 2015). Both were most likely to purchase a single-family home in the South, with vacation buyers preferring a beach location and investors choosing a suburban area.  The top two reasons for buying a vacation home were to use for vacations or as a family retreat (42%) and for future retirement (18%), while investors mostly bought to generate income through renting (42%) and for potential price appreciation (16%).

US import prices fell 0.2% in March, matching expectations

US import prices recorded their biggest drop in seven months in March as the cost of petroleum declined, but the underlying trend pointed to a moderate rise in imported inflation as the dollar’s rally fades.  The Labor Department said on Wednesday import prices fell 0.2% last month, the largest drop since August, after a 0.4% increase in February.  That lowered the year-on-year increase in import prices to 4.2% from 4.8% in February.  Economists polled by Reuters had forecast import prices slipping 0.2% last month. US financial markets were little moved by the report.  The drop in import prices is unlikely to be sustained with oil prices pushing higher in recent days amid rising geopolitical tensions following last week’s US missile strike on Syria and reports that Saudi Arabia wants to extend production cuts enacted in January for another six months.  Despite weak imported price pressures, domestic inflation is rising. Most consumer inflation measures have pushed above the Federal Reserve’s 2% target. A report on Thursday is expected to show producer prices unchanged in March, but rising 2.4% on a year-on-year basis, according to a Reuters survey of economists.

MBA – mortgage applications increase in latest MBA weekly survey

Mortgage applications increased 1.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 7, 2017.  The Market Composite Index, a measure of mortgage loan application volume, increased 1.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index remained unchanged from the previous week. The seasonally adjusted Purchase Index increased 3% from one week earlier. The unadjusted Purchase Index increased 5% compared with the previous week and was 3% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 41.6% of total applications, the lowest level since September 2008, from 42.6% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8.5% of total applications. The average loan size for purchase applications reached a survey high at $318,700.  The FHA share of total applications decreased to 10.7% from 11.1% the week prior. The VA share of total applications increased to 11.3% from 11.1% the week prior. The USDA share of total applications remained unchanged at 1.0% from the week prior.

CoreLogic – US economic outlook: April 2017

Interest rates on fixed-rate mortgages are up nearly three-quarters of a percentage point from last summer, and most economists are expecting mortgage rates to gradually move higher.  Higher interest rates lessen home-buyer affordability and will lead to a substantial drop in refinance originations.  And higher rates can also affect other aspects of the housing market, such as homeowner mobility.  Using CoreLogic’s public records data, one can measure homeowner mobility by the number of years between the home purchase and its subsequent sale to another buyer, and then calculate the% of owners that sell after 1 year, 2 years, and so on.  We found that the peak re-sale period comes about 3 to 6 years after purchase, and then the mobility rate declines gradually after that. When we compare the re-sale frequency when mortgage rates had risen by 1½ percentage points compared with their level as of the original purchase, we found that the mobility rate was lower.  Conversely, when mortgage rates had fallen by 1½ percentage points, the homeowner was more likely to resell sooner. (Figure 2) When rates had moved lower, one-quarter of owners had re-sold their home within 5 years, but when rates had moved higher, it took about one year longer before one-fourth of the owners had re-sold.  This suggests that the for-sale inventory may continue to remain lean for the foreseeable future, adding upward pressure to home-price growth.  During 2015 and 2016 30-year mortgage rates averaged about 3¾%, and there were close to 12 million home sales.  Thus, if mortgage rates had remained about where they had been and resale rates were the same as in our historical analysis, then we would expect to have about 3 million of these homes re-sell during the next five years.  But if mortgage rates average about 1½ percentage points higher, or about 5¼%, over the next five years, then about 0.5 million less homes will have re-sold, based on our historical analysis, or an average of 100,000 fewer sales per year.  This simple comparison ignores other factors that will add to home sales in coming years, such as income growth and new construction, but it illustrates the effect higher rates may have on homeowner mobility.

WSJ – Chicago entices companies to return downtown

–  Nearly 90% of the more than 330,000 jobs created in Illinois from 2011 through 2016 were added in the metro area

The tide of companies moving back to big cities in search of talent and better transportation links is rising, reviving many downtowns at the expense of suburbs and smaller communities.  Chicago’s resurgence has been especially sharp. Nearly 90% of the more than 330,000 jobs created in Illinois from 2011 through 2016 were added in the Chicago metro area, the Bureau of Labor Statistics said.  Over 80 companies have moved their headquarters to or expanded in the Chicago area since 2008, including Archer Daniels Midland Co. , Kraft Heinz Co. , ConAgra Foods Inc. and Motorola Solutions Inc., most of them from elsewhere in Illinois. Caterpillar Inc. recently announced plans to relocate its headquarters to the Chicago area from its longtime home three hours away in Peoria, Ill., while McDonald’s says it will move from suburban Oak Brook, Ill., to the city’s downtown area.  These companies have leased 5.7 million square feet of office space, the biggest corporate relocation rental binge in any city in the US, according to real-estate firm Jones Lang LaSalle . Chicago’s prime office rents rose 20% last year, the highest rate in the nation, according to commercial real-estate brokerage CBRE Group Inc.  “We had to be in a city where we could attract talent,” said Diane Pearse, chief executive of food company Hickory Farms LLC, which moved to Chicago last month after 65 years in Toledo, Ohio. “Staying in Toledo was just not an option.”

As with other major cities, many companies left Chicago decades ago as suburbia expanded and crime rose in urban centers. Big companies built sprawling campuses far from downtown. Now the need to attract new employees as baby boomers age out of the workforce is pulling some back, said Darin Buelow, head of Deloitte Consulting’s real estate and location strategy practice.  “The pain that companies have been experiencing in talent recruitment has outweighed the inconvenience and expense of picking up and moving to the city,” he said.  Companies, he added, are seeing their employees leave the suburbs for city jobs and are unable to backfill those, as they find it harder to persuade talent to move to suburban campuses.  More young people are living in the biggest US cities than anytime since the 1970s. And 35 of the country’s largest metropolitan areas had lower unemployment than the nationwide rate of 4.9% in February, according to the Bureau of Labor Statistics.  That is bad news for the communities companies leave behind, like Caterpillar’s longtime home of Peoria. With a population of about 115,000, Peoria lacks the cultural and sporting events available in Chicago, as well as the quick travel links via the city’s two major airports.  Caterpillar plans to move its global headquarters from its complex in downtown Peoria, Ill., above, to Chicago. The maker of construction and mining equipment last year opened an office for data analysts in downtown Chicago. Months later, Caterpillar shocked residents of Peoria with plans to move its headquarters and about 300 employees to the Chicago area. The company hasn’t said whether it will move to the city or its suburbs.  Recruiting in Peoria was too difficult, said Amy Campbell, Caterpillar’s director of investor relations. “Our customers, our employees, our shareholders, our potential investors are all global and outside Illinois,” she said. “It’s so much easier to get into Chicago than…to drive or connect down to Peoria.”

US Rep. Darin LaHood, the Republican whose district includes Peoria, called the move a betrayal. Some residents fear that Caterpillar will move more of the remaining 12,000 workers from the Peoria area. Others worry that the chunk of downtown where Caterpillar was planning a new headquarters will remain vacant.  Peoria Mayor Jim Ardis said developers already have expressed interest in the site. He said health care, medical research and higher education are growing in the city. “It’s not the end of the world for us,” Mr. Ardis said.  In Chicago, the relocations are giving Mayor Rahm Emanuel a boost while he battles a surge in violent crime. Homicides were up 58% in 2016, a bigger single-year increase than any major US city has seen in a quarter-century. President Donald Trump has said Chicago’s crime wave is the result of failed Democratic policies.  Mr. Emanuel has taken a personal role in recruiting companies. Ms. Pearse of Hickory Farms said the mayor called her early last summer. Motorola Solutions decided to move to Chicago after Mr. Emanuel made a pitch to Chief Executive Greg Brown during a 2011 Bulls game.  “I said, ‘Rahm, you know it might be possible to move a couple of hundred jobs downtown,’” Mr. Brown said. “Every time I threw out one number, he would raise it.”  Chicago gives tax breaks to businesses on the West and South Sides where crime has surged, but not to companies moving downtown.  Mr. Emanuel makes unsolicited calls to executives at companies he believes might consider a move to Chicago. He recently emailed 100 chief executives in the San Francisco Bay Area a report citing Chicago’s lowest cost of living among the 10 biggest US cities.  But the mayor says the attention he gives employers is as valuable as the city’s low residential rents. “If you move here, you know that this isn’t the last time we’re talking,” he said.

MBA – commercial/multifamily originations totaled $491 billion in 2016

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.”

Black Knight – February Mortgage Monitor: tappable equity hit $4.7 trillion in 2016, highest since 2006

–  44% of Q4 refis were cash-outs, most equity drawn in eight years

–  Annual home price appreciation of 5.5% in 2016 helped raise number of –  US mortgage holders with tappable equity to 39.5 million

–  68% of tappable equity belongs to borrowers with current interest rates below today’s 30-year interest rate; 78% belongs to borrowers with credit scores of 720 or higher

–  $31 billion in equity extracted via cash-out refinances in Q4 2016 was up eight% from Q3 and 50% year-over-year

–  Resulting post-cash-out refinance loan-to-value (LTV) ratio of 65.6% was lowest on record, with an average credit score of 750

The Data and Analytics division of Black Knight Financial Servicesreleased its latest Mortgage Monitor Report, based on data as of the end of February 2017. This month, Black Knight revisited the equity landscape, finding that continued annual home price appreciation at the national level has helped to both further drive down the number of underwater borrowers and increase the level of tappable, or lendable, equity available to homeowners with a mortgage. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, today’s equity landscape – in conjunction with a higher interest rate environment – will likely impact mortgage lending trends over the coming year.  “December 2016 marked 56 consecutive months of annual home price appreciation,” said Graboske. “That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to US mortgage holders by an additional $568 billion. There are now 39.5 million homeowners with tappable equity, meaning they have current combined loan-to-value (CLTV) ratios of less than 80%. Cash-out refinance data suggests that they have been increasingly tapping that equity, though perhaps more conservatively than homeowners had in the past. In Q4 2016, $31 billion in equity was extracted from the market via first lien refinances. While that was the most equity drawn in over eight years, borrowers are still tapping equity at less than a third of the rate they were back in 2005, and they’re doing so more prudently. In fact, the resulting post-cash-out loan-to-value-ratio was 65.6%, the lowest on record.

“However, it’s important to remember that we’ve also seen prepayment speeds – which are historically a good indicator of refinance activity – decline by nearly 40% since the start of 2017 in the face of today’s higher interest rate environment. Given the fact that nearly 70% of tappable equity belongs to borrowers with current interest rates below today’s prevailing 30-year interest rate, the incentive for many of these borrowers is shifting away from tapping equity via a first lien refinance and instead to home equity lines of credit. The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50%, but rate-term refinances decline by 75%. Based on past behavior, we may see a decline in first lien cash-out refinance volume, but it’s still likely that cash-out refinances – and purchase loans – will drive the lion’s share of prepayment activity over the coming year in any case. That’s why it’s so critical that those in the industry ensure that their prepayment models account for refinancing not just in terms of rate/term incentive, but also equity incentive as well. Additionally prepayment models will need a stronger focus on housing turnover as purchase transactions become a larger fraction of total prepayments.”​  Black Knight looked more closely at the nearly 40% decline in prepayment speeds thus far in 2017, finding varying degrees of impact by investor category, loan vintage and borrower credit score. While the GSE, FHA/VA, and portfolio markets have all seen prepayment activity decline between 41 to 43% since the start of the year, prepays on mortgages held in private-label securities have only dropped by seven%. Likewise, prepayments on older loans – 2008 and earlier vintages – have only slowed by 11%, whereas 2014-2015 vintage loans have seen prepays drop by over 50%. Prepays on loans with borrower credit scores of 720 or higher dropped by 45% year-to-date, while those on mortgages with borrower credit scores below 620 declined by less than a quarter of that rate. The data also shows far more geographical diversity in 2017 than was seen in late 2016, with western states – along with Florida – leading the nation in prepayment rates. A correlation was observed between the states with the highest prepayment rates today and the lowest mark to market combined loan-to-value ratios, which would suggest that cash-out refinances may be driving a higher share of prepayment activity in these states. These states tend to have higher-than-average loan amounts for the most part, which may be a factor as well.

As was reported in Black Knight’s most recent First Look release, other key results include:

​-  Total US loan delinquency rate:  4.21%​

​-  Month-over-month change in delinquency rate:  -0.98%

​-  Total US foreclosure pre-sale inventory rate:  0.93%

​-  Month-over-month change in foreclosure pre​-sale inventory rate:  -1.88%

​-  States with highest percentage of non-current loans  ​MS, LA, AL, WV, NJ

​-  States with the lowest percentage of non-current loans:  ID, MT, MN, CO, ND,

​-  States with highest percentage of seriously delinquent loans:  MS, LA, AL, AR, TN

America’s love affair with SUVs, trucks continued in March

America’s love affair with SUVs and trucks continued in March as General Motors, Honda and Nissan reported sales increases for both. But that’s being offset by falling car sales, pushing overall sales for Honda and Ford down compared with last year.  Ford experienced a big sales drop for the month, falling 7.5% from March of 2015. Honda’s sales also were off, by 2%. GM reported nearly a 2% gain, while Nissan sales were up just over 3%.  Most major automakers report sales through the day on Monday. Despite falling sales for Honda and Ford, industry analysts expect a 2% to 3% increase for the industry overall in March, the first monthly sales jump this year, and possibly the best March in 17 years.  At Ford, car sales fell a staggering 24%, due in part to big fleet sales reported in March of last year. SUV sales fell 3%, but truck sales rose 2.5%, led by a 10% increase sales of the F-Series pickup, the top-selling vehicle in America. General Motors, the nation’s top-selling automaker, reported a 2% gain led by small and midsize SUVs with a 21% increase. Truck sales rose 0.5%. Sales of most GM cars were down, except for the compact Cruze, with sales nearly doubling from last year. Chevrolet Silverado pickup sales fell nearly 12%, but that was offset by smaller SUVs. For example, the Buick Encore compact SUV saw a 29% increase.  Honda said its March sales fell just under 1%, dragged down by sagging demand for its Acura luxury brand. Car sales were off 8.7%, while truck and SUV sales rose 8.4%. Honda brand sales were up 2%, and Acura sales down more than 21%. The company sold nearly 33,000 CR-V small SUVs, a 23% gain.  Nissan’s overall sales rose 3.2% with trucks and SUVs rising 29% for the Nissan and Infiniti brands combined. Nissan was once again led by the Rogue small SUV, which set a March sales record of nearly 40,000 vehicles for a 20% increase. Car sales fell 15%.

Olick – homeowners are pulling cash out again; this time it’s the millennials

Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years.  Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with “tappable” equity up to 39.5 million, according to Black Knight Financial Services. Those borrowers have at least 20% equity in their homes.  But the fact that mortgage rates were lower last year makes it less likely today’s borrowers would want to refinance this year. About 68% of tappable equity belongs to borrowers with mortgage rates below today’s levels. The vast majority of these borrowers, more than three-quarters, also have FICO credit scores well above average, which gives them more options for cashing out on their homes.  Enter the HELOC. Home equity lines of credit are second loans taken outside the primary mortgage, and millennials are leading the pack to cash in.  “The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50%,” said Ben Graboske, executive vice president at Black Knight. He expects to see more HELOCs instead.  And more millennials are using HELOCs than Gen-Xers or baby boomers, according to a survey by TD Bank. In fact, more than a third of millennials said they are considering applying for a HELOC in the next 18 months, which is more than twice the rate as Gen-Xers and nine times that of baby boomers.  “We were a little surprised about that,” admitted Mike Kinane, general manager of home equity products at TD Bank. “I think millennials are taking a more conservative approach, but they recognize that HELOCs have a good purpose, especially for remodeling.”

Home remodeling was the No. 1 reason for taking out a HELOC last year, according to TD Bank, with debt consolidation coming in second. The home remodeling industry has seen a huge boost in the last year, as home prices rise and the supply of homes for sale shrinks. Homeowners are finding it harder to find and afford a suitable move-up home, so they’re increasingly choosing to stay and remodel.  Millennials are entering the housing market more slowly than previous generations, and those who have in the past few years tended to buy cheaper fixer-uppers. In just a few years, however, they’ve gained enough equity from rising prices to be able to pull cash out and remodel. They are, however, still very conservative. Borrowers doing cash-out refinances last year still had close to 35% equity left in their home, the lowest on record, with an average credit score of 750, according to Black Knight. Borrowers are still using HELOCs at barely one-third the rate they did in 2005.  Cash-out refinances accounted for nearly half of all refinances in the last quarter of 2016, as homeowners withdrew $31 billion. That was the most since 2006 and represented a 50% increase from the same quarter of 2015.  Millennials appear to be more focused on value than amenities. Close to half said they would renovate their homes to increase value, according to TD Bank, while other generations said they wanted the house to look more “up to date.” Millennials seem to want to avoid leveraging their homes the way their parents did, choosing to hold on to more equity and try to grow it as much as possible. Banks are also more conservative in offering these loans, but Kinane said a lot of homeowners are still leaving a lot of money on the table … or in the home.  “Customers are borrowing a lot less than they could borrow if they needed to,” he added.

US factories expand again in March but at slower pace

American factories expanded for the seventh straight month in March but at a slightly slower pace than they did in February.  The Institute for Supply Management says its manufacturing index slipped to 57.2 last month from 57.7 in February. But anything above 50 signals growth, and the March reading was slightly better than economists expected.  New orders and production grew more slowly last month, but hiring and new export orders grew faster.  Seventeen of 18 manufacturing industries grew in March, led by makers of electrical equipment and appliances.  American factories have bounced back after being hurt in early 2016 and late 2015 by cutbacks in the energy industry, a reaction to low oil prices and a strong dollar, which makes US products costlier in foreign markets.

Student loan debt may mean fewer homeowners, expensive schools, and less consumer spending, Fed’s Dudley says

Rising student loan debt in the United States could ultimately hurt overall home ownership and consumer spending and erode colleges’ and universities’ ability to elevate lower-income students, a top Federal Reserve policymaker said on Monday.  New York Fed President William Dudley, an influential monetary policymaker who was citing research from his institution, pointed to rising costs of higher education and student debt burdens as culprits in the troubling trend.  Overall US household debt is expected to surpass its pre-recession high later this year. Proportionally, Americans have shifted away from housing-related debt and toward auto and student loan debt, with aggregate student loan balances $1.3 trillion at the end of last year, up 170% from 2006.  Dudley, whose Fed monitors economic indicators but who does not have any control over fiscal policies like college funding, noted that overall delinquency rates “remain stubbornly high” and repayments have slowed, even while the job market improved the last few years.  There are “potential longer-term negative implications of student debt on homeownership and other types of consumer spending,” he said at a news conference.  “Continued increases in college costs and debt burdens could inhibit higher education’s ability to serve as an important engine of upward income mobility, (and) these developments are important and deserve increased attention.”  The New York Fed data showed a shift among lower-income borrowers to auto and student loans, and away from mortgages, and that higher debt levels bring about lower homeownership rates.  Dudley added that sharp rises in the value of housing and stock prices, jobs growth and moderate strength in wages mean that, overall, “the household sector’s financial condition today is in unusually good shape for this point in the economic cycle.”  He did not comment on interest rates in his prepared remarks.

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