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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.

RealtyTrac – one in four US housing markets less affordable than historic affordability averages in first quarter of 2017

ATTOM Data Solutions released its Q1 2017 US Home Affordability Index, which shows that one in every four county housing markets analyzed for the report were less affordable than their historic affordability averages in the first quarter of 2017.  A total of 95 counties out of 379 counties analyzed for the report (25%) posted an affordability index below 100 in Q1 2017 — the highest share of markets below the normal affordability index of 100 since Q4 2009. An affordability index below 100 means that the share of averages wages needed to buy a median-priced home is above the historic average for a given market.  Nationally the affordability index in the first quarter of 2017 was 103, down from 108 in the previous quarter and down from 119 a year ago to the lowest level since Q4 2008 — a more than eight-year low. The index of 103 translates to 33.6% of average weekly wages needed to buy a median-priced home nationwide, below the historic average of 34.6% but the highest share of wages needed since Q4 2008.  “Home affordability continued to worsen in the first quarter, not surprising given the continued strong growth in home prices combined with the recent rise in mortgage rates,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Stronger wage growth is the silver lining in this report, outpacing home price growth in more than half of the markets for the first time since Q1 2012, when median home prices were still falling nationwide. If that pattern continues, it will help turn the tide in the eroding home affordability trend.”

Average wage earners would need to spend more than 43% of their income — the maximum debt-to-income ratio allowed for a “qualified mortgage” under guidelines from the Consumer Financial Protection Bureau (CFPB) — to buy a median-priced home in 97 of the 379 counties (26%) analyzed for the report.  Markets above the 43% threshold included Los Angeles, San Diego, Orange, Riverside and San Bernardino counties in Southern California; Kings (Brooklyn), Queens, New York (Manhattan) and Bronx counties in New York City; King and Snohomish counties in the Seattle metro area; Santa Clara, Alameda, Contra Costa, San Francisco, San Mateo and Marin counties in the Bay Area of Northern California; and nine counties in the Washington, D.C. metro area.  “Many homebuyers have been priced out of the Seattle housing market, forcing them to buy in other counties and commute,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle housing market, where all three counties in the metro area posted worsening affordability compared to a year ago. “The data also shows that the affordability level in King County has eroded to levels we haven’t seen since 2010. Moreover, I believe that it will get worse before it gets better thanks to our growing population, inadequate infrastructure, and land constraints, which are all driving up home prices in and around the Seattle area.”  Average wage earners would need to spend more than 100% of their income to buy a median-priced home in five of the 379 counties analyzed:

–  Kings County (Brooklyn), New York (121.4%)

–  Santa Cruz County, California (111.9%)

–  Marin County, California (109.9%)

–  New York County (Manhattan), New York (100.5%)

–  Maui County, Hawaii (100.2%).

Average wage earners would need to spend less than 15% of their income to buy a median-priced home in 12 of the 379 counties analyzed:

–  Clayton County, Georgia, in the Atlanta metro area (10.8%)

–  Baltimore City, Maryland (11.8%)

–  Bibb County, Georgia, in the Macon metro area (12.2%)

–  Saginaw County, Michigan, in the Saginaw metro area (12.4%)

–  Trumbull County, Ohio, in the Youngstown metro area (12.5%)

–  Wayne County, Michigan, in the Detroit metro area (12.6%)

–  Richmond County, Georgia, in the Augusta metro area (14.2%)

–  Cuyahoga County, Ohio in the Cleveland metro area (14.4%)

–  Saint Lawrence County, New York, in the Ogdensburg-Massena metro area (14.6%)

–  Summit County, Ohio, in the Akron metro area (14.7%)

–  Greene County, Ohio, in the Dayton metro area (14.7%)

–  Milwaukee County, Wisconsin (14.8%).

“Consumer confidence is increasing, as we are seeing a year-over-year wage increase. The wage increase, coupled with shortage of inventory, is creating a market where we are seeing median home prices increase over historic pricing,” said Matthew Watercutter, senior regional vice president and broker of record for HER Realtors, covering the Dayton, Columbus and Cincinnati markets in Ohio. “This is good news for sellers, but there is still great news for buyers. The percentage of wages needed to buy have decreased, which shows the median wages are growing at a faster pace than the sales prices. This means that Central, Western and Southwestern Ohio are still among the most affordable places to live in the nation.”

Annual wage growth outpaced annual growth in median home prices in 199 of the 379 counties (53%) analyzed in the report. It was the highest percentage of counties with wage growth outpacing home price growth since home prices bottomed out nationwide in Q1 2012.  In contrast to the trend over the past year, however, home price growth has consistently outpaced wage growth over the past five years of the housing recovery. A total of 363 of the 379 counties (96%) have seen home prices rise at a faster pace than wages since hitting bottom, and nationwide median home prices have increased 57% since hitting bottom in Q1 2012 while average weekly wages have increased 4% during the same time period.  Counter to the national trend, affordability improved compared to a year ago in 35 of the 379 counties (9%) analyzed in the report. Annual wage growth outpaced home price growth in all 35 of the counties with improving affordability.

Counties with improving affordability included Kings County (Brooklyn), New York; Fulton County, Georgia in the Atlanta metro area; San Francisco County, California; Delaware County, Pennsylvania, and New Castle County, Delaware in the Philadelphia metro area; and Summit County, Ohio in the Akron metro area.

US consumers increase spending at weakest pace in 6 months

US consumers increased their spending at the weakest pace in six months, while the 12-month rise in consumer prices was the largest in nearly five years.  The Commerce Department says consumer spending edged up a tiny 0.1% in February following a 0.2% increase in January. The small gain supports the view of many economists that overall economic growth probably slowed in the first quarter.  Incomes, however, were up a solid 0.4% in February, offering hope for stronger consumer spending in coming quarters.  Meanwhile, an inflation gauge closely watched by the Federal Reserve increased 2.1% in February compared to a year ago. It is the sharpest 12-month rise since March 2012 and slightly above the Fed’s 2% inflation target.

MBA – mortgage applications down

Mortgage applications decreased 0.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 24, 2017.  The Market Composite Index, a measure of mortgage loan application volume, decreased 0.8% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 0.4% compared with the previous week. The Refinance Index decreased 3% from the previous week. The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index increased 2% compared with the previous week and was 4% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 44.0% of total applications, its lowest level since October 2008, from 45.1% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.5% of total applications.  The FHA share of total applications decreased to 10.8% from 10.9% the week prior. The VA share of total applications increased to 11.0% from 10.1% the week prior. The USDA share of total applications increased to 1.0% from 0.9% the week prior.

US Upper Midwest factory activity at highest since 2014

A measure of factory activity in the US Upper Midwest rose in March to its strongest level in over two years, marking a fifth straight month of manufacturing growth in the region, a private survey released on Friday showed. Marquette University and the Institute for Supply Management-Milwaukee said their seasonally adjusted index on manufacturing in the Milwaukee region climbed to 61.77 in March, the highest since November 2014. It was up from 58.69 in February.  A reading above 50 indicates regional factory activity is expanding.  The survey’s component on new orders, a proxy on future activity, rebounded to 65.12 from 62.76 last month, but its production gauge fell to 64.94 from 69.83.  The overall employment index jumped to 66.91 from 52.48 last month. The survey’s measure on “blue collar employment” surged to 65.3 from 52.5, while its “white collar employment” gauge increased to 55.4 from 50.2.  The six-month outlook gauge fell to 68.18 from 72.50 in February, while the survey’s price barometer retreated to 79.55 from 81.82.

NAHB – attention regulators: listen to small businesses

The National Association of Home Builders (NAHB) today called on Congress to work with federal regulators to fix the regulatory rulemaking process by ensuring that effects on small businesses are a primary focus for existing and future regulations.  Testifying before the Senate Small Business and Entrepreneurship Committee, NAHB First Vice Chairman Randy Noel, a home builder from LaPlace, La., told lawmakers that builders must navigate an ever-increasing tangle of regulations.  “On average, regulations imposed by government at all levels account for nearly 25% of the final price of a new single-family home,” said Noel. This is not just a problem for the small businesses that build them. According to NAHB research, approximately 14 million American households are priced out of the market for a new home by government regulations.  “It is therefore imperative that new and existing regulation must address policy objectives while acknowledging the burdens of compliance, particularly for small businesses,” said Noel.  While considering the impact of regulations on small businesses is critical to informing balanced rulemaking that achieves statutory objectives while minimizing the burdens of regulation, well-crafted regulations must also consider the challenges of implementing new rules in the field.  “This can only happen with direct input from affected small businesses,” said Noel.  Compliance with the Regulatory Flexibility Act, which requires federal agencies to review regulations for their impact on small businesses and consider less burdensome alternatives, continues to fall far short of the act’s objective, Noel told lawmakers.  As an example, he cited a proposed rule issued by the Occupational Safety and Health Administration (OSHA) to regulate worker exposure to crystalline silica that OSHA said carried a cost estimate to the construction industry of approximately $511 million per year.  An independent study found that the true cost would be nearly $5 billion per year.

The study found that the OSHA cost analysis had omitted some 1.5 million workers in the construction industry who routinely perform dusty tasks on silica-containing materials and it failed to account for a variety of indirect costs associated with set-up, clean-up, materials, and productivity penalties.  “Complying with the resulting rule is both technologically and economically infeasible for businesses and more importantly, the rule will do little to improve the health and safety of my workers,” said Noel.  “Congress must provide some direction to address the problem of poor or non-existent economic impact analyses,” he added. “NAHB believes it is critical to include indirect costs as part of any economic impact analysis. Additionally, economic analysis should be reviewed by a non-partisan, third party. Implementing these changes will undoubtedly improve the analysis and provide a more accurate accounting of the burdens small businesses face in complying with regulations.”  The Regulatory Flexibility Act includes a requirement that proposed rules be reviewed by an industry panel. However, agencies sometimes ignore this rule. In 2014, the Environmental Protection Agency proposed a rule changing the definition of “waters of the United States” under the Clean Water Act. The agency certified the rule, and in doing, avoided the initial economic analysis and small business review panel requirements which is so critical to the rulemaking process.  “When agencies evade their responsibility to convene review panels, they remove small business input entirely from the process and deny these businesses an opportunity to provide input on the rulemaking as Congress intended,” said Noel. “NAHB believes the Regulatory Flexibility Act should be amended to include judicial review of the panel requirements to ensure that the agencies adhere to the law.”

NAR – pending home sales leap 5.5% in February

Pending home sales rebounded sharply in February to their highest level in nearly a year and second-highest level in over a decade, according to the National Association of Realtors (NAR). All major regions saw a notable hike in contract activity last month.  The Pending Home Sales Index (PHSI) jumped 5.5% to 112.3 in February from 106.4 in January. Last month’s index reading is 2.6% above a year ago, is the highest since last April (113.6) and the second highest since May 2006 (112.5).  Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.3% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 4%. In 2016, existing sales increased 3.8% and prices rose 5.1%.  The PHSI in the Northeast rose 3.4% to 102.1 in February, and is now 6.6% above a year ago. In the Midwest the index jumped 11.4% to 110.8 in February, but is still 0.6% lower than February 2016.  Pending home sales in the South climbed 4.3% to an index of 127.8 in February and are now 4.2% above last February. The index in the West increased 3.1% in February to 97.5, but is still 0.2% higher than a year ago.

Oil rises

Oil prices extended gains on Wednesday despite an increase in US crude inventories, lifted by Libyan supply disruptions and expectations of an OPEC-led output cut being extended.  Front-month Brent crude futures rose 25 cents to $51.58 a barrel by 1217 GMT, while West Texas Intermediate (WTI) crude futures were up 22 cents at $48.59 a barrel.  Oil production from the western Libyan fields of Sharara and Wafa has been blocked by armed protesters, reducing output by some 250,000 barrels per day (bpd) and prompting the National Oil Corp to declare force majeure on Tuesday.  “That (Libya), along with the Iranian oil minister saying there is likely to be an extension to the production cut deal, helped crude oil rally overnight,” Greg McKenna, chief market strategist at futures brokerage AxiTrader, said.  OPEC member Libya was excluded from the cuts, agreed late last year, as the country’s oil sector suffered from the unrest that followed the toppling of Muammar Gaddafi in 2011.  Iranian Oil Minister Bijan Zanganeh said on Tuesday that the agreement between OPEC and other producers led by Russia to cut output by 1.8 million bpd in the first half of 2017 was likely to be extended.  The higher prices came despite US crude stocks rising by 1.9 million barrels to 535.5 million barrels. But fell at the Cushing hub, while gasoline and distillate stocks declined, the American Petroleum Institute said.  The US Energy Information Administration (EIA) is due to publish official US crude and fuel product data on Wednesday. “If a similar picture is painted by the official data, the oil price should be able to hold its own at well above the $50 per barrel mark until the OPEC production estimates for March are released,” analysts at Commerzbank said.

Olick – homebuilders struggle to fill jobs ‘Americans don’t want’

At a sprawling construction site barely 15 minutes from downtown Denver, workers move ground, pour foundations and frame walls and windows, but the work goes slowly because of the slim workforce.  Homes here take about two months longer than normal to build, and, in some cases, contractors are doubling their wages just to keep workers from skipping to the next site.  That’s the backdrop as potential homebuyers in the mile-high city pile up and the supply of homes for sale continues to fall. Fierce competition pushes home prices higher at one of the fastest rates of any local market in the nation.  Housing industry veteran Gene Myers says he could be adding 50% more homes if he just had the people to build them. After weathering more than one recession, not to mention the worst housing crash in history, Myers says he has never seen anything like this.  “Especially the fact that it seems like we’re at capacity at such a low level of actual absorption [sales],” said Myers, CEO of Thrive Home Builders, a midsized, privately owned builder in Denver. “In previous recessions, when we’ve recovered, we tend to see prices go up and labor starting to get tight after we’ve recovered to at least an average absorption.”  He noted that Denver’s average sales rate would normally be about 15,000 homes per year, and the market is now operating at just over half that rate. “We’re feeling so much stress on the capacity of the industry.”

Denver housing starts in 2016 were 22% higher than in 2015, but production is still historically low since the housing crash. Homes with base prices above $400,000 now represent 68% of the market, and homes priced above $500,000 represent 27%, according to Metrostudy, a housing analytics company. Both all-time highs are being fueled by steady demand from move-up buyers coupled with the rising costs of land, labor and materials.  Thousands of construction workers left the industry during the recession, many of them heading to the energy sector. The assumption was that they would return when energy lagged and homebuilding recovered. They did not. The labor shortage in building actually worsened in 2016 — a surprise to most analysts.  “We thought we’d see a flow back of workers from the energy sector,” said Rob Dietz, chief economist with the National Association of Home Builders. “The labor shortage has basically grown and accelerated. It’s the top challenge in the building industry right now.” Dietz points to both an immigration and a generational challenge. The workforce is aging, with the typical age of a construction worker now 42. More Americans are going to college now, and so they are less likely to pursue a career in construction. Simply put, young Americans don’t want to build houses anymore. That leaves the business to immigrant laborers.  “These jobs, Americans don’t want,” Myers said. “We have a hard-working Hispanic labor force here in Denver that really is the foundation for the construction industry.”

Immigrants make up about a quarter of the overall construction workforce, but that share is likely higher for residential homebuilding, partly due to a large number of undocumented workers. Builders say they make sure their contractors are legal to work, but they have less control over the subcontractors who often move from site to site. Even that group is shrinking, as President Donald Trump tries to impose travel bans and threatens to build a wall between the US and Mexico.  “There is a fear to get out into the labor force, I think there is an uncertainty,” Myers said. “I had one of our trades who became a citizen last year ask me if that could be taken away from him. Even for the people who are legal and documented, it’s a factor that is holding back the labor force.” And it’s costing builders more money. Wages in the residential building industry are growing at twice the rate of wages in the overall economy. Labor is the top concern among the nation’s builders, according to an NAHB survey, and worry over its cost and availability is growing.  “Because the building industry is highly decentralized — there are 40,000 homebuilding companies in the country — you do see poaching. There are situations where you can recruit a worker, and they can work for you for a quarter or two, and then they’re working for another subcontractor down the road,” Dietz said.  Myers says he tries to build relationships with subcontractors. He has one-on-one meetings to build brand loyalty, but he admits, it often comes down to cold, hard cash. Some builders will spray paint a piece of plywood offering higher wages and drive it by a competitor’s site.  “The crews, we would hope, would be loyal to subcontractors and to builders, but in reality, many of the crews are just going to the highest bidder,” he said.  Myers has employed Juan, a Mexican immigrant, for more than a decade as an excavator. Juan, who didn’t want to give his last name, said he became a citizen in 1999, and last year he and his brother-in-law started their own excavation company. Juan said some of his friends in Denver are buying property back in Mexico and planning to move back there.

CoreLogic – potential homebuyers seek affordability and warmth

Labor mobility in the US has declined in recent years. Home owners are staying in their homes longer than in previous years. Corelogic data show homeowner mobility declining gradually over the past three decades. Those homeowners who have wanted to move seem to be driven by economic opportunities, affordability and weather. This blog uses the CoreLogic Loan Application Database to highlight the recent trends in owner-occupant homebuyer mobility and migration for 2016, focusing on the states with the most in- and out-migration of potential homebuyers.  According to CoreLogic data, homebuyers from high-cost states, such as California and New York, moved to more affordable states, such as Florida, Texas, Arizona and the Carolinas in 2016. California had the largest number of out-migrants in 2016, followed by New York and Virginia. In contrast, Florida had the largest number of in-migrants in 2016, followed by Texas and North Carolina.  New York ranked highest in the ratio of homebuyers moving out to homebuyers moving in (3.9), followed by California (3.4), Illinois (2.3), Virginia (1.3), and Pennsylvania (1.2). On the other hand, Florida ranked the highest in the ratio of homebuyers moving in to homebuyers moving out (2.9), followed by South Carolina (2.6), Arizona (2.3), North Carolina (1.7), Georgia (1.4), and Texas (1.3). A ratio of 3.9 for New York means that for every out-of-state loan applicant moving into New York, there were about four loan applicants moving out of New York. Similarly, a ratio of 2.9 for Florida means that there were almost three out-of-state loan applicants coming to Florida for every one moving out of Florida. The trend shows overall homebuyers were moving to more affordable and warmer states.

Preferences and priorities for location to buy a house to live in vary by age. In 2016, Texas had the largest number of millennial in-migrants, whereas Florida had the largest number of baby boomer in-migrants. Job opportunities, cheaper homes, no income tax and lower cost of living could be the main triggering factors for the millennials’ move to Texas. Better natural amenities (warm weather, proximity to beach, sunny days), lower taxes (no state income tax, no inheritance tax or estate tax), lower cost of living and affordable housing could be the main factors causing baby boomers to move to Florida.  Data indicates that millennials were applying for mortgages in bordering states with lower home prices. For instance, millennial applicants from New York applied for home-purchase mortgages mostly in New Jersey and Pennsylvania; from California, they applied for mortgages in Nevada, and from Illinois they applied for mortgages in Indiana and Wisconsin. Millennials seemed to be moving for affordable homes, employment opportunities, lower taxes and open spaces.  In contrast to millennials, data show that baby boomers preferred warmer states, along with affordability. Baby boomers from New York, Illinois, Virginia, Pennsylvania, Ohio and Maryland applied for home-purchase mortgages in Florida the most. Baby boomers seemed to be moving for warmer weather, lower taxes and affordable homes.

Fed’s Evans says he supports one or two more rate hikes this year

One of the Federal Reserve’s most consistent supporters of low interest rates on Wednesday said he is with the majority of his colleagues in supporting further rate hikes this year, given progress on the US central bank’s goals of full employment and stable inflation.  A drop in the US jobless rate to 4.7%, near what many economists see as full employment, and an improved outlook for inflation help explain “why my current dual mandate outlook allows me to support another one or two increases this year,” Chicago Fed President Charles Evans said in remarks prepared for delivery at the DZ Bank-OMFIF International Capital Markets Conference in Frankfurt.  “For the first time in quite a while, I see more notable upside risks to growth,” he said.  Evans voted along with all but one of his colleagues earlier this month to raise the Fed’s short-term borrowing rate target a quarter of a percentage point, marking only the third increase since the Great Recession.  Most Fed officials see at least two more rate hikes in the cards for this year.  For many years Evans argued vigorously for holding off on rate increases in part because he believed that with rates as low as they were the Fed had little scope to ease policy should the economy falter.  But with a stronger economy and expectations now in place for further rate hikes, the Fed has more ammunition than it did, he said. If the economy is hit by a shock, the Fed may not even need to cut rates, but could simply signal easier policy by forecasting slower rate hikes, he said.  Evans said he expects recent weakness in consumer spending to prove transitory and sees signs that business spending, which has lagged for much of the recovery, is beginning to pick up. And while fiscal policies under President Donald Trump remain uncertain, “the general thinking is that such policies could boost growth for a time.”  If growth does pick up and inflation expectations do as well, “a sturdier economy would be able to handle a steeper path of rate increases,” he said. But even inflation of 2.5% “for a time” would be consistent with the Fed’s 2% goal, he said.

NAHB – statement from NAHB Chairman Granger MacDonald on President Trump’s executive order on the Clean Power Plan

Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas, today issued the following statement regarding President Trump’s new executive order on the Clean Power Plan rule:  “NAHB commends President Trump’s executive order calling on the EPA to rework the Clean Power Plan rule. If implemented, it could have resulted in the adoption of rigorous building energy codes that would harm housing affordability while doing little to reduce carbon dioxide emissions from housing.”

Black Knight Home Price Index Report: January 2017 Transactions

The Data and Analytics division of Black Knight​ Financial Services, Inc. released its latest Home Price Index (HPI) report, based on January 2017 residential real estate transactions. The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states. Non-disclosure states do not include property sales price information as part of their publicly available county recorder data. Black Knight is able to obtain the sales price information for these states by combining and matching records across its unique data assets.

–  US Home Prices Up 0.1% for the Month; Up 5.4% Year-Over-Year

–  US home prices at the start of 2017 continued the trend of incremental monthly gains, rising 0.1% from December

–  New York continues to lead the states on a monthly basis, with prices rising 1.3% there in January, more than double the rate of appreciation of the next best-performing state​

–  The New York City metro area was the month’s best-performing metro, with prices rising 1.3%, followed by Seattle and San Jose, each up 0.8% from December​

–  After home prices fell 3.2% last month, Tuscaloosa, Ala., was once again the worst-performing metro area in January; with prices falling another 4% in January, Alabama became the worst-performing state for the month​

Home prices in three of the nation’s 20 largest states and nine of the 40 largest metros hit new peaks​

Oil falls towards $50 on doubts over duration of output cut

Oil fell further towards $50 a barrel on Monday, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.  A committee of ministers from OPEC and outside producers agreed on Sunday to look at prolonging the deal, stopping short of an earlier draft statement that said the committee recommended keeping the measure in place.  International benchmark Brent crude was down 70 cents at $50.10 by 1333 GMT, after falling as low as $50.06. US crude was down 84 cents at $47.13.  “These are troubling times for oil bulls,” said Stephen Brennock of oil broker PVM. “Against a backdrop of rising US crude output and underwhelming OPEC-led efforts to normalize bulging global oil inventories, positives are in short supply.”  A number of ministers from the Organization of the Petroleum Exporting Countries and other producers met in Kuwait to review the progress of their supply cut, which initially runs until the end of June.  OPEC and 11 other producers including Russia agreed in December to reduce their combined output by almost 1.8 million barrels per day in the first half of this year.  While many in OPEC have called for prolonging the curbs, Russia has been less definitive. Energy Minister Alexander Novak said on Sunday it was too early to say whether there would be an extension.  “We would see the relative lack of reaction in the price perhaps as a reflection of some disappointment that nothing more concrete was forthcoming,” analysts at JBC Energy said in a report, referring to the conclusion of Sunday’s talks.  There is “increasing skepticism” in the market as to whether a rollover of the cuts can be agreed, JBC added.  Oil also came under pressure from further evidence that higher prices as a result of the OPEC-led supply cut are helping boost supplies in the United States.

WSJ – sluggish housing recovery took $300 billion toll on US economy, data show

The decline in homeownership rates to near 50-year lows is partly to blame for the US economy’s sluggish recovery from the last recession, new data suggest.  If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8% boost to gross domestic product, according to a study expected to be released Monday by the Rosen Consulting Group, a real-estate consultant.  In 2016, total spending on housing declined to 15.6% of GDP, a broad measure of goods and services produced across the US, compared with a 60-year average of nearly 19%. The share of spending specifically linked to new-home construction and remodeling likewise declined to 3.6% of GDP, just over half its prerecession peak in 2005.  If lenders were to ease credit standards back to their early 2000s levels, that could jump-start home purchases and construction activity, said Ken Rosen, chairman of Rosen Consulting and chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.  “If you want to get the economy going, housing is typically the flywheel,” he said.  Of course, lax lending standards was a primary culprit of the 2008 financial crisis, and Mr. Rosen isn’t suggesting a return to that easy-money era. Still, housing-industry executives say the pendulum has swung too far in the other direction, to the detriment of middle-class families and economic growth.  Housing serves as an economic engine through home construction as well as ancillary activities such as appliance purchases, spending on home renovations and jobs for real-estate agents. Each new single-family housing unit built typically creates three jobs, according to the National Association of Home Builders.  The homeownership rate stood at 63.7% in the fourth quarter of 2016, according to the US Census Bureau. That was down from a high of 69.2% during the housing boom and below the 65% economists say is a normal level.  Strict mortgage lending standards, younger households putting off marriage and children and a lack of inventory of homes for sale are combining to depress homeownership.

It is unlikely that easing credit alone would be enough to bring the share of households who own back up to historic norms. Even in hot markets where demand is strong despite tight credit standards, builders can’t construct enough homes to meet demand because of labor shortages and regulatory barriers, said Robert Dietz, chief economist at the National Association of Home Builders.  “It’s certainly the case that you would get more economic activity. You would get more activity, but there are limits on how fast you can grow in any given year,” Mr. Dietz said.  Ed Brady, president of Bloomington, Ill.-based Brady Homes, said his company built 150 homes in 2006. Last year, it built 15.  Mr. Brady said part of the reason activity has fallen off is that he doesn’t build in as many markets as he used to. Tight credit—both for builders and buyers—is another factor.  “I’m not suggesting that we go back to the maverick days, but I do think that there are a lot of people that could afford to repay their loans but are not buying because they’re afraid to go in for the inquisition of trying to get a loan,” he said. Tighter mortgage lending has led to sharp declines in default rates and helped produce a market in which price growth is linked to economic prosperity.  But some experts argue default rates are too low. Under typical conditions, similar to those in the early 2000s, about 12% of mortgages are at risk of default, but in the third quarter of 2016, just 5.1% of mortgages were at risk of default—a level that indicates that lenders aren’t making loans to thousands of people who pose little risk, according to the Urban Institute, a nonprofit think tank.  Mr. Rosen said many middle-class families have missed out on the appreciation that has occurred over the past five years because they haven’t been eligible for mortgages.  “We’re being paternalistic in our regulatory environment and it’s forcing lower middle-class people…to rent,” he said.

Plateau in US auto sales heightens risk for lenders

As US auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody’s Investors Service said in a report released on Monday.  “The combination of plateauing auto sales, growing negative equity from consumers and lenders’ willingness to offer flexible loan terms is a significant credit risk for lenders,” Jason Grohotolski, a senior credit officer at Moody’s and one of the report’s authors, told Reuters.  Motor vehicle sales have boomed in the years since the Great Recession. US sales of new cars and trucks hit a record annual high of 17.55 million units in 2016.  Industry consultants J.D. Power and LMC Automotive on Friday reiterated their forecast for a 0.2% increase in sales in 2017 to 17.6 million vehicles.  But Moody’s says it expects US new vehicle sales to decline slightly to 17.4 million units in 2017.  In its view, that would mean lenders will be chasing fewer loans, “which could cause them to further loosen loan terms and loan to value criteria.”

Mortgage job loss coming?

An analysis by PwC, reported on by the Los Angeles Times, says 38% of US jobs could be taken by robots in the next 15 years, which is significantly higher than countries like Britain, Germany and Japan. And the PwC analysis identified jobs in the financial and insurance sector as especially vulnerable in the US compared to other countries. The reason cited by the article? A lack of education by US bankers.  “While London finance employees work in international markets, their US counterparts focus more on the domestic retail market, and workers ‘do not need to have the same educational levels,’ the report said. Jobs that require less education are at higher potential risk of automation, according to the report.”  But it’s hard to see how more education would stop the juggernaut of automation. Would a master’s degree really benefit loan officers, identified by Salary.com as No. 2 on the list of jobs mostly likely to be taken over by robots? Seems pretty unlikely.  Treasury Secretary Steven Mnuchin, for one, doesn’t seem too worried about the coming robot apocalypse. In reaction to the report, Mnuchin said, “I think we’re so far away from that that it’s not even on my radar screen. I think it’s 50 or 100 more years.”  That did not sit well with the good folks at Wired.com, including Emily Dreyfuss, who published an article entitled “Hate to break it to Steve Mnuchin but AI is already taking jobs.”  Despite being slightly jealous of the familiarity Dreyfuss apparently has with Steve Mnuchin (we are still on a Steven basis), I thought she had some pretty valid points. “Artificial intelligence is not only coming for jobs, the jobs it’s coming for are the precious few left over after old-school automation already came for so many others,” Dreyfuss writes.

Dreyfuss attended a recent conference on the topic at MIT and observed lots of worry among experts on AI and employment, in stark contrast to those in Washington. The article quoted Gene Sperling, former chief economic advisor in both the Obama and Clinton administrations.

“When you are outside of Washington, this is often the most significant issue, but it’s not back in D.C.,” Sperling said.

WSJ – jump in US new home sales defies expectations

US new home sales increased sharply for the second consecutive month in February, an indication that growing demand and a pickup in construction activity could help propel a strong spring selling season for this segment of the market.  Purchases of newly built, single-family houses, which account for a small share of overall US home sales, jumped 6.1% from January to a seasonally adjusted annual rate 592,000 last month, the Commerce Department said Thursday. That marked the second-strongest month since the housing-market expansion began in 2012.  Economists surveyed by The Wall Street Journal expected new home sales to increase by 1.4% to 563,000 sales.  “Builders are seeing strong traffic,” said Brad Hunter, chief economist at HomeAdvisor, a home-improvement website. “We are expecting strong sales going into the spring.”  The data were clouded by a margin of error of 17 percentage points, much larger than the reported increase.  Still, momentum appears to be building in the market. New home sales increased in January by 3.7% compared with a month earlier.  February sales jumped by a substantial 12.8% compared with the same month a year ago, according to the Commerce Department.  In a sign that builders are responding to demand, the number of homes for sale at the end of February rose to the highest level since July 2009. At the current sales pace, that is enough supply for 5.4 months, below the six-month level that many economists say is indicative of a balanced market.  The median sale price for a newly built home fell slightly in February to $296,200.  “The pickup in sales coupled with low inventories suggests that single-family starts will rise further in coming months, as home builders attempt to meet increasing demand,” said David Berson, chief economist at Nationwide Insurance.

John Burns, chief executive of John Burns Real Estate Consulting, said the home builders his company surveys reported a 14% increase in sales in February compared with last year. He said expectations for the full year call for roughly 7% sales growth compared with last year.  Mr. Burns said builders got a boost from buyers looking to beat rising interest rates, but that is likely to last only a couple of months.  “We’re having a good spring but not some hockey stick recovery,” he said.  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 enter the starter-home market. Single-family housing starts rose to a 10-year high in February, thanks to a strengthening economy and unseasonably warm weather. Still, the housing market picture isn’t entirely rosy. Purchases of previously owned homes, which account for the vast majority of the market, decreased by 3.7% in February from a month earlier, the National Association of Realtors said Wednesday. Economists said rising prices and mortgage rates, along with a shortage of inventory, are keeping many first-time buyers out of the market.  Rates for a 30-year mortgage averaged 4.23% this week, according to mortgage company Freddie Mac, down from 4.3% a week earlier but up from about 3.5% in November.

Durable goods up 1.7% in February but not as good as expected

Greater demand for commercial aircraft helped US businesses increased their orders for long-lasting manufactured goods in February, but a key category that tracks business investment plans slipped slightly.  The Commerce Department says orders for durable goods rose 1.7% in February and an upwardly revised 2.3% in January. Orders so far this year are running 1.6% higher than in the first two months of 2016. But demand in a category that excludes aircraft and military goods — and reflects business investment plans — dipped 0.1%.  Orders for commercial aircraft saw a 47.6% jump in February. Orders also rose for primary metals. But demand for motor vehicles slumped.  Manufacturers are recovering from a rough patch that began in 2015 as oil prices fell and the dollar strengthened.

Black Knight Financial Services’ First Look at February 2017

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

–  Prepayment Activity Continues to Decline, Down 40% So Far in 2017

–  Prepayment speeds (historically a good indicator of refinance activity) declined 15% in February, marking a 40% overall year-to-date decline and the lowest monthly rate in three years

–  Delinquencies continued their seasonal decline, ticking down .98% from January

–  Foreclosure starts fell 18% from last month to 31% below last year’s levels

–  Active foreclosure inventory now stands at 470,000, the lowest such level since June 2007

President Trump approves construction of Keystone XL pipeline

President Donald Trump on Friday approved the construction of the Keystone XL pipeline linking Canadian oil sands to US refiners, a project blocked by former President Barack Obama.  TransCanada said earlier in the day the US Department of State had issued a presidential permit for the project.  Trump signed an executive order to advance the project, which will link Canadian oil sands to US refiners, soon after taking office in January, saying it would create thousands of jobs.  A senior administration official told Reuters that Trump will make the announcement alongside TransCanada Chief Executive Russell Girling and Sean McGarvey, president of North America’s Building Trades Unions.  “Our Government has always been supportive of the Keystone XL pipeline and we are pleased with the US decision,” a spokesman for Canada’s minister of natural resources said.  “The importance of a common, continental energy market cannot be overstated,” he added.  The move marks the beginning of lengthy process, which will involve getting approvals from state regulators. Expedited approval of projects is part of Trump’s approach for a 10-year, $1 trillion infrastructure package he promised on the campaign trail.  The multibillion-dollar pipeline would bring more than 800,000 barrels per day of heavy crude from Canada’s oil sands in Alberta into Nebraska, linking to an existing pipeline network feeding US refineries and ports along the Gulf of Mexico.

MBA – MBA releases 2016 rankings of commercial/multifamily mortgage firms’ origination volumes

According to a set of commercial/multifamily real estate finance league tables prepared by the Mortgage Bankers Association (MBA), Wells Fargo; JP Morgan Chase & Company; HFF, L.P.; Eastdil Secured; PNC Real Estate; CBRE Capital Markets, Inc.; Key Bank; Meridian Capital Group; Capital One Financial Corp.; and JLL were the top commercial/multifamily mortgage originators in 2016.  The MBA study is the only one of its kind to present a comprehensive set of listings of 132 different commercial/multifamily mortgage originators, their 2016 volumes and the different roles they play.  The MBA report, Commercial Real Estate/Multifamily Finance Firms – Annual Origination Volumes, presents origination volumes in more than 140 categories, including by role, by investor group, by property type, by financing structure type, and by the location of the originating office.    Nine different companies were at the top of the 11 lists reporting total originations by investor groups.

–  Wells Fargo topped the list of total origination volumes

–  JP Morgan Chase & Company, Deutsche Bank Securities, Inc., and Eastdil Secured were the top originators for commercial mortgage-backed securities (CMBS)

–  JP Morgan Chase & Company, PNC Real Estate, and Key Bank were the top originators for commercial bank loans

–  MetLife Real Estate, HFF, L.P., and PGIM Real Estate Finance were the top originators for life insurance companies

–  Wells Fargo, Walker & Dunlop, and CBRE Capital Markets, Inc. were the top originators for Fannie Mae

–  CBRE Capital Markets, Inc., Berkadia, and HFF, L.P. were the top originators for Freddie Mac

–  Berkadia, Greystone, and Red Mortgage Capital, LLC were the top originators for FHA/Ginnie Mae

–  TIAA, Barings, and CBRE Capital Markets, Inc. were the top originators for pension funds

–  HFF, L.P., CBRE Capital Markets, Inc., and Marcus & Millichap Capital Corporation were the top originators for credit companies

–  Capital One Financial Corp., Eastdil Secured, and Meridian Capital Group were the top originators for REITS, Mortgage REITS, and Investment Funds

–  Mesa West Capital, LLC, JLL, and Meridian Capital Group were the top originators for specialty finance

–  Wells Fargo, HFF, L.P., and Deutsche Bank Securities Inc. were the top originators for the “other investors” category

–  By dollar volume, the top five originators for third parties in 2016 were HFF, L.P.; Eastdil Secured; CBRE Capital Markets, Inc.; Meridian Capital Group; and Key Bank.

–  The top five lenders in 2016 were Wells Fargo, JP Morgan Chase & Company, Key Bank, Capital One Financial Corp., and Deutsche Bank Securities, Inc.

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