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WSJ – US new home sales rise to highest level since 2007

Sales of newly built homes rose in July to the highest level in nearly a decade, a sign of solid momentum in the US housing market.  Purchases of new single-family homes rose 12.4% in July from a month earlier to a seasonally adjusted annual rate of 654,000, the Commerce Department said Tuesday.

That was the highest level since October 2007.  “New home sales soared again,” said Ralph McLaughlin, economist at real estate website Trulia. “This is a continued sign that demand for new homes remains solid in a low interest rate, low unemployment environment.”  Economists surveyed by The Wall Street Journal had expected home sales in July to slow to a pace of 580,000. Sales in June were revised down to a pace of 582,000 from an initially estimated 592,000.

Through the first seven months of the year, new home sales also rose 12.4%, compared with the same period in 2015.  The housing market has been a bright spot in the economy this year. Historically low mortgage interest rates, improving income growth and steady job creation have supported buying of both new and existing homes.

 

Sales of previously owned homes rose to their strongest pace in nearly a decade in June, according to the National Association of Realtors. The group will release July figures on Wednesday.  Sales of newly built homes account for less than a tenth of total US homebuying activity.

Also, data on such purchases are volatile from month to month and subject to later revision. July’s increase came with a margin of error of plus or minus 12.7 percentage points.  New-home sales in July were up 31.3% from a year earlier. The latest figure brings new-home sales back to the level recorded just before the recession began.

But the pace remains well below the peak level of 1.39 million in July 2005. Last month was the first when the rate exceeded 600,000 since early 2008. Before the recession, the last full year below that mark was 1991.  Tuesday’s report showed there was a 4.3-month supply of newly built homes available at the end of July. That was the smallest supply in three years. The median sale price of a new home sold in July was $294,600, down slightly from $296,000 a year earlier.

 

Oil extends losses after EIA data show US crude supplies up 2.5 mln barrels

Oil futures lost more ground on Wednesday after the US Energy Information Administration reported that domestic crude supplies rose by 2.5 million barrels in the week ended Aug. 19.

That was significantly above the 200,000-barrel climb expected by analysts polled by S&P Global Platts, but the American Petroleum Institute late Tuesday reported a rise of nearly 4.5 million barrels, according to sources. Gasoline supplies were flat for the week, while distillate stockpiles edged up by 100,000 barrels, according to the EIA. October crude fell $1, or 2.1%, from Tuesday’s settlement to $47.10 a barrel on the New York Mercantile Exchange. Prices traded at $47.50 before the data.

 

NAR – existing-home sales lose steam in July

Slowed by frustratingly low inventory levels in many parts of the country, existing-home sales lost momentum in July and decreased year-over-year for the first time since November 2015, according to the National Association of Realtors (NAR).

Only the West region saw a monthly increase in closings in July.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June. For only the second time in the last 21 months 2, sales are now below (1.6%) a year ago (5.48 million).

The median existing-home price  for all housing types in July was $244,100, up 5.3% from July 2015 ($231,800). July’s price increase marks the 53rd consecutive month of year-over-year gains.  Total housing inventory at the end of July inched 0.9% higher to 2.13 million existing homes available for sale, but is still 5.8% lower than a year ago (2.26 million) and has now declined year-over-year for 14 straight months. Unsold inventory is at a 4.7-month supply at the current sales pace, which is up from 4.5 months in June.

 

The share of first-time buyers was 32% in July, which is below last month (33%) but up from 28% a year ago. First-time buyers represented 30% of sales in all of 2015.  All-cash sales were 21% of transactions in July, down from 22% in June, 23% a year ago and the lowest share since November 2009 (19%). Individual investors, who account for many cash sales, purchased 11% of homes in July, unchanged from June and down from 13% a year ago. Seventy% of investors paid in cash in July.

According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage dropped from 3.57% in June to 3.44% in July. Mortgage rates have now fallen five straight months and in July were the lowest since January 2013 (3.41%). The average commitment rate for all of 2015 was 3.85%.

NAR President Tom Salomone says in addition to affordability concerns, an issue seen earlier in the housing recovery may be reemerging. Realtors® are indicating that appraisal complications are appearing more frequently as the reason why a contract signing experienced a delayed settlement.  “Appraisal-related contract issues have notably risen over the past year and were the root cause of over a quarter of contract delays in the past three months,” he said.

“This is likely a combination of sharply growing home prices in some areas, the uptick in home sales this year and the strong refinance market overworking the already reduced number of practicing appraisers. Realtors® are carefully monitoring this trend, and some have already indicated they’re extending closing dates on contracts to allow extra time to accommodate the possibility of appraisal-related delays.”

 

Coming in at the lowest share since NAR began tracking in October 2008, distressed sales – foreclosures and short sales – were 5% of sales in July, down from 6% in June and 7% a year ago. Four% of July sales were foreclosures and 1% were short sales. Foreclosures sold for an average discount of 18% below market value in July (11% in June), while short sales were discounted 16% (18% in June).

Properties typically stayed on the market for 36 days in July, up from 34 days in June but down from 42 days a year ago. Short sales were on the market the longest at a median of 95 days in July, while foreclosures sold in 54 days and non-distressed homes took 34 days. Forty-seven% of homes sold in July 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 July were Denver-Aurora-Lakewood, Colo., San Francisco-Oakland-Hayward, Calif., San Jose-Sunnyvale-Santa Clara, Calif., and Seattle-Tacoma-Bellevue, Wash., all at a median of 32 days; and Vallejo-Fairfield, Calif., at a median of 36 days.

Single-family home sales decreased 2.0% to a seasonally adjusted annual rate of 4.82 million in July from 4.92 million in June, and are now 0.8% under the 4.86 million pace a year ago. The median existing single-family home price was $246,000 in July, up 5.4% from July 2015.

Existing condominium and co-op sales dropped 12.3% to a seasonally adjusted annual rate of 570,000 units in July from 650,000 in June, and are now 8.1% below July 2015 (620,000 units). The median existing condo price was $228,400 in July, which is 4.1% above a year ago.

 

July existing-home sales in the Northeast descended 13.2% to an annual rate of 660,000, and are now 5.7% below a year ago. The median price in the Northeast was $284,000, which is 3.3% above July 2015.  In the Midwest, existing-home sales fell 5.2% to an annual rate of 1.28 million in July (unchanged from a year ago). The median price in the Midwest was $194,000, up 5.0% from a year ago.

Existing-home sales in the South in July declined 1.8% to an annual rate of 2.22 million, and are now 1.8% below July 2015. The median price in the South was $214,500, up 6.6% from a year ago.  Existing-home sales in the West rose 2.5% to an annual rate of 1.23 million in July, but are still 0.8% below a year ago. The median price in the West was $346,100, which is 6.4% above July 2015.

 

Foundation donors who met, talked with Clinton

Hillary Clinton met or talked by phone with at least 154 people from private interests, such as corporations, during her time as secretary of the state. More than half those people had donated either personally or through companies or groups to the Clinton Foundation or pledged to donate to specific programs through the charity’s international arm. Among them:

 

— Joseph Duffey, who once worked for Laureate Education, a for-profit education system based in Baltimore, was one of 20 people at a higher education policy dinner with Clinton in August 2009. Weeks earlier, Clinton emailed her staff looking for Duffey’s phone number. Duffey, whom Bill Clinton appointed as director of the US Information Agency, gave between $10,000 and $25,000 to the foundation in 2012. Laureate, which paid Bill Clinton more than $17 million as a consultant between 2010 and 2015, donated between $1 million and $5 million to the Clinton Foundation. Laureate also has seven commitments with the Clinton Global Initiative.

— Jeffrey Skoll, a Canadian engineer and technology investor who was the first president of internet auction site eBay. He cashed out with $2 billion in assets and used the money to finance his foundation, a technology investment firm and a Hollywood production company. The Skoll Foundation contributed between $100,000 and $250,000 to the Clinton Foundation and has partnered in at least 21 commitments to programs through the Clinton Global Initiative. In May 2009 Sally Osberg, CEO of Skoll’s charity, messaged longtime Clinton friend Jan Piercy about “the possibility of Hillary’s speaking at next year’s Skoll Forum” — a message that was relayed to Clinton. Clinton told aides by email she wanted to attend the Skoll event in the U.K. in March 2012 but was unable to attend. Instead, in April 2012, Clinton met privately with Skoll and Osberg during a State Department-sponsored forum on government-business partnerships. The same month, USAID, the State Department’s foreign aid arm, announced a partnership with the Skoll Foundation to invest in health, energy, governance and food security innovations.

— Haim and Cheryl Saban. Haim Saban is an entertainment magnate, long-time Clinton and Democratic Party fundraiser and founder of the Saban Center for Middle East Peace, a Mideast policy think tank based in Washington. His wife, Cheryl Saban, is a psychologist and writer who has been a Clinton Foundation board member since 2013. The Sabans donated between $10 million and $25 million to the Clinton Foundation — among the largest gifts to the charity. Saban met privately with Clinton at least once in September 2009 and also hosted her twice at events put on by his think tank in June 2012 and again in November 2012. Messages from both Sabans were relayed to Clinton during her tenure. In one following Clinton’s appearance at his center luncheon in June 2012, Haim Saban told her: “Very much was looking forward to hangin’. Tx again for today.” Clinton replied: “Not to worry. Loved seeing you and Cheryl and looking forward w Bill to White House tonight. See you then.”

— John Mack, the former chairman and CEO of Morgan Stanley and a political donation bundler for Clinton’s 2008 presidential campaign. In September 2011, as Morgan Stanley chairman, Mack was among a group who met with Clinton on China trade issues. In July 2012, he and his wife were scheduled to have dinner with her. They were again to have dinner with Clinton in September 2012, but Clinton canceled at the last minute, according to her emails and calendars. The Macks’ personal charity has given between $1 million and $5 million to the Clinton Foundation. Other Morgan Stanley organizations, including the bank itself, have given between $360,000 and $775,000. Morgan Stanley has also given money to six different programs through the Clinton Global Initiative.

— Randi Weingarten, president of American Federation of Teachers, a national teachers union that has backed and funded Clinton’s presidential run and allied political action committees. Under Weingarten, the AFT donated between $1 million and $5 million to the Clinton Foundation and pledged partnership commitments with other interests in four separate Clinton Global Initiative programs. Weingarten had two private meetings with Clinton in 2009 and 2012 and also joined her at a photo shoot in 2010. Her union also lobbied federal agencies on education, work, safety and other issues. In emails, Weingarten aide Tina Flournoy — now a top deputy for Bill Clinton — told Hillary Clinton in September 2009 that she and Weingarten “would like to visit you re: child labor issues.” Less than a month later, the two women met with Clinton for a half-hour. A union spokeswoman later told AP that Weingarten spoke with Clinton about refugees, global education and child labor abuses.

 

MBA – mortgage applications decrease in latest MBA weekly survey

Mortgage applications decreased 2.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 19, 2016.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3% compared with the previous week.

The Refinance Index decreased 3% from the previous week. The seasonally adjusted Purchase Index decreased 0.3% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 8% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 62.4% of total applications from 62.6% the previous week.

The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4.6% of total applications.  The FHA share of total applications decreased to 8.9% from 9.6% the week prior. The VA share of total applications decreased to 12.4% from 13.2% the week prior. The USDA share of total applications remained unchanged from 0.6% the week prior.

 

 

Black Knight Financial Services – First Look at July 2016    

The Data and Analytics division of Black Knight Financial Services reports the following “first look” at July 2016 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.

–  Delinquency rate rose to just over 4.5%, though July ending on a Sunday suggests a historically likely August decline

–  Prepayment activity fell in July despite overall growth in the number of refinance candidates and 30-year interest rates remaining at or below 3.45% for much of the month

–  July foreclosure starts fell 12% from last month, marking the second lowest monthly total in 10 years

–  Foreclosure inventory continues to decline as well, now down 20% from the start of 2016 and to its lowest point since July 2007

 

Stocks open slightly lower as oil retreats

US stocks opened slightly lower Monday, with investors taking a cue from a retreat by oil futures as they await a speech by Federal Reserve Chairwoman Janet Yellen at the end of the week. The S&P 500 fell 4 points, or 0.2%, to 2,180, while the Dow industrials declined 69 points, or 0.4%, to 18484. The Nasdaq Composite lost 8 points, or 0.1%, to trade at 5,230.

Oil futures pulled back, with traders citing doubts about a potential production freeze. The week’s main event is expected to be Yellen’s speech Friday at an annual Fed retreat in Jackson Hole, Wyo., which will be watched for clues to the timing of the central bank’s next rate increase.

 

Zillow – July home sales forecast: is the party over?

–  Zillow expects existing home sales to fall 1.9% in July from June, to 5.46 million units at a seasonally adjusted annual rate (SAAR), ending a string of four consecutive monthly gains.

–  New home sales should fall 6.65% to 553,000 units (SAAR) after a stronger than expected June.

–  Given the recent string of home sales beating forecasts, we view risks to the upside and would not be surprised if results are slightly stronger than we expect.

 

Thus far, it has been a pretty sweet ‘16 for home sales. But according to our July home sales forecast, the party looks like it could be coming to an end, at least temporarily and especially for sales of existing homes that must eventually face the harsh reality of tight inventory and rising prices.

Despite tight inventory, existing home sales have been surprisingly buoyant lately, beating or meeting expectations in each of the four months from March to June. We expect that streak to end in July. If nothing else, the odds that home sales continue to rise are increasingly dim.

Since the series began in February 1999, runs of five months or more of consecutive monthly gains have only occurred five times – and only one of those streaks lasted six consecutive months or more.  Shifting seasonal patterns may be behind some of this apparent resiliency. By some reports, the height of the home shopping season – historically most concentrated during the summer months – shifted earlier this year as buyers sought to get ahead of the competition.

But sooner or later, tight supply and rising prices should take their toll.  Our forecast for existing home sales points to a 1.9% decline from June to 5.46 million units at a seasonally adjusted annual rate (SAAR). This would place existing home sales down 0.3% compared to a year earlier.  New home sales have also proven surprisingly strong, beating expectations for the past eight months.

Our forecast suggests that new home sales should fall 6.65% in July to 553,000 units (SAAR), which would be the largest month-over-month decline since last September. That decline, however significant, would still leave new home sales up 11% over the year – a sign of just how strong the new home sales market has been so far in 2016.

And while our forecast points to fewer new home sales in July compared to June, given the recent record of beating expectations, we view forecasts risks to the upside and would not be surprised if new home sales come in slightly above our forecast for July.

 

Morgan Stanley neglected warnings on broker

One of the company’s top financial advisers in Mississippi, Steve Wyatt, was struggling with medications and was “not sleeping, coming in 3 and 4 a.m.,” his assistant said on the call, according to notes taken by the person who answered the phone. Mr. Wyatt, a broker, was also trading client money “erratically,” the assistant said.

Morgan Stanley is one of the top banks on Wall Street, operating one of the most sophisticated financial advisory businesses in the world. But when the call came in, there was little effort to help fix the problems, Mr. Wyatt’s colleagues — and Mr. Wyatt himself — testified in arbitration.

This was not the only time Morgan Stanley did not heed warnings about Mr. Wyatt, who managed tens of millions of dollars of customer money, according to a settlement this week and documents from arbitration cases against him and the company.

During Mr. Wyatt’s five years at the company, supervisors and compliance officers noted his problematic behavior and business patterns many times and failed to step in, documents show. Lawyers for his former clients claim that they lost about half their money, or around $50 million.

 

Mr. Wyatt’s case, while involving just one broker, sheds light on the difficulty that even sophisticated companies can encounter in supervising their far-flung networks of brokers, who manage the retirement savings of millions of people nationwide.

Wall Street companies have been expanding into wealth management and brokerage services, as profits from other businesses have been under pressure from regulations imposed after the 2008 financial crisis. Morgan Stanley now has nearly 16,000 financial advisers, one of the largest such forces of any company.

Mr. Wyatt, who oversaw more than $100 million in client money, was fired in 2012, more than two years after that phone call and after more concerns were raised.  In an interview, Mr. Wyatt, now 44, described falling into depression and having suicidal feelings, set off by the chaos of financial crisis and its aftermath.

He said his supervisors never offered help or expressed concern. “If they thought I was suicidal, if they thought I was depressed, nobody mentioned anything to me — concerned or otherwise,” he said.  This week, the Mississippi secretary of state said in a settlement with Morgan Stanley that it had “failed to reasonably supervise” Mr. Wyatt. “Clearly, they had warning signs — they had indications of personal issues,” Delbert Hosemann, the Mississippi secretary of state, said of Morgan Stanley.

“All of those were either dealt with in a cursory manner or not dealt with at all.”  The settlement barred Mr. Wyatt and his immediate supervisor from the securities industry for life. Morgan Stanley was also instructed to create a $4.2 million fund to reimburse clients, a small part of what customers claim they lost with Mr. Wyatt.  Morgan Stanley did not admit or deny the accusations in the state settlement.

 

WSJ – Lenovo operating profit boosted by property sale

Electronics manufacturer Lenovo Group Ltd. posted fiscal first-quarter earnings Thursday that beat analysts’ estimates, but only because of the sale of a property in Beijing. Its sales of PCs and mobile devices continued to decline.

Lenovo reported operating profit, a metric that investors use to gauge a company’s performance, of US$245 million for the quarter ended June 30, more than doubling from US$96 million a year earlier. Executives, speaking on a conference call, attributed 49% of the latest sum, or US$120 million, to the property sale.

Chief Financial Officer Wong Wai Ming said during the call that the sale of the property, which it will lease back, was part of efforts to “monetize our noncore operating assets” to free up cash to reinvest in the business, according to a transcript provided by the company.  “This transaction resulted in recording over US$120 million in capital gains, which is shown in other operating income in our financial statements,”

Mr. Wong said, according to the transcript. “We will continue to look for such asset-monetization opportunities to fund some of our investments to drive our business growth.”  Some industry analysts questioned the company’s decision to include the property sale in its operating profit, given that real estate isn’t a continuing business for the technology company.

“At my first glance at the numbers, I thought it was great,” said Arthur Hsieh, a tech-sector analyst at UBS. “But the more I dive into the details, the more I think it is really not that great.”  Lenovo said the company has consistently classified property sales as operating income, “as these transactions form an integral part of the operating activities of Lenovo.”

 

The earnings highlight an accounting difference between the US and countries such as China, said Wang Xin, an assistant professor of accounting at the University of Hong Kong. Under the US Generally Accepted Accounting Principles, or GAAP, a property sale by a tech company would be listed as a one-time, nonoperating item, he said.

But companies using International Financial Reporting Standards, or IFRS, have the option to list it as an operating or nonoperating item, he said.  The reported operating-profit figure of US$245 million easily trumped expectations of US$187 million, according to Thomson One Analytics. Lenovo shares jumped sharply early Thursday on the initial earnings report, but gave up some ground to close at 5.47 Hong Kong dollars (71 US cents)—still a 2.2% rise from Wednesday’s close.

The company said its net income rose 64% from a year earlier to US$173 million. Sales fell 5.6% to US$10.1 billion, from US$10.7 billion.  Lenovo said revenue for its PC and smart-device business declined 7%, while mobile sales fell 6% and its data-center business rose 1%.

The company is facing the same stiff winds affecting its industry rivals. World-wide, PC shipments declined 4.5% in the second quarter and growth in the smartphone market slipped to 0.3%, according to market-research firm IDC.  Lenovo said this year that integrating its acquisitions of Motorola Mobility and an IBM server unit has been more challenging than expected.

Lenovo Chief Executive Yang Yuanqing said on a separate call with reporters that the company was investing heavily in marketing and retail channels for its smartphone business.  “We definitely believe we are on track to turn around the business,” he said.

MBA – mortgage applications down

Mortgage applications decreased 4.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 12, 2016.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 5% compared with the previous week.

The Refinance Index decreased 4% from the previous week.  The seasonally adjusted Purchase Index decreased 4% from one week earlier to the lowest level since February 2016, but remained 10% higher than the same week last year. The unadjusted Purchase Index decreased 5% compared with the previous week.

The refinance share of mortgage activity increased to 62.6% of total applications from 62.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.6% of total applications.  The FHA share of total applications decreased to 9.6% from 10.0% the week prior. The VA share of total applications increased to 13.2% from 13.0% the week prior. The USDA share of total applications remained unchanged at 0.6% from the week prior.

 

Ford self-driving cars to ditch pedals, steering wheel by 2021

Ford is getting super serious about self-driving taxis.  The auto maker on Monday said it intends to begin mass producing self-driving vehicles in 2021 for a ride-hailing service. To achieve that goal, the company is investing in or collaborating with four start-ups to bolster its autonomous vehicle development, doubling its Silicon Valley Team and more than doubling its Palo Alto campus.

Ford is going all-in with this plan — the company’s first fully autonomous vehicle will lack several key parts of cars today: a steering wheel and gas and brake pedals. Because the car will be able to drive itself, it won’t need them. The vehicle is being “specifically designed for commercial mobility services … and will be available in high volumes,”

Ford said in its announcement Opens a New Window. In 2014, Google also ditched the steering wheel Opens a New Window.  in its self-driving prototype vehicle, but was required by California to add it back Opens a New Window.  when testing on public roads, so a human driver could intervene in an emergency.

Ford is already testing autonomous vehicles in California, and plans to ramp up these efforts in a big way this year, tripling its fleet to be “the largest test fleet of any automaker.” By the end of the year, the company plans to have about 30 self-driving Fusion Hybrid sedans on the roads in California, Arizona, and Michigan Opens a New Window. , and it plans to triple that number again next year.  “The next decade will be defined by automation of the automobile, and we see autonomous vehicles as having as significant an impact on society as Ford’s moving assembly line did 100 years ago,”

Ford president and CEO Mark Fields said in a statement. “We’re dedicated to putting on the road an autonomous vehicle that can improve safety and solve social and environmental challenges for millions of people — not just those who can afford luxury vehicles.”  To deliver on its plan, Ford has announced new investments in and collaborations with four companies: Silicon Valley LiDAR sensor company Velodyne, Israel-based computer vision and machine learning firm SAIPS, machine vision company Nirenberg Neuroscience, and Berkeley, Calif.-based 3D mapping company Civil Map.

 

NAHB – multifamily uptick pushes overall housing starts up 2.1% in July

 

Nationwide housing starts rose 2.1% in July to a seasonally adjusted annual rate of 1.21 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. This is the highest reading since February. Multifamily housing was up 5% to a seasonally adjusted annual rate of 441,000 units in July while single-family production edged up 0.5% to 770,000 units.

“New household formations are upping the demand for rental housing, which in turn is spurring the growth of multifamily production,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “Meanwhile, single-family housing continues to hold firm.”  “Single-family starts, on a year-to-date basis, are up 10.6% and builders are cautiously optimistic about market conditions,” said NAHB Chief Economist Robert Dietz.

“However, the permit trends indicate that supply-side headwinds, such as shortages of lots and labor, continue to affect the housing sector.”  Regionally in July, combined single- and multifamily starts increased in the Northeast, Midwest and South, with respective gains of 15.5%, 2.3% and 3.5%. The West registered a 5.9% loss.

Overall permit issuance inched down 0.1% to a seasonally adjusted annual rate of 1.15 million. Multifamily permits increased 6.3% to a rate of 441,000, while single-family permits fell 3.7% to 711,000.  Permit issuance increased 10.5% in the Midwest and 2.6% in the South. Meanwhile, the West and Northeast posted respective losses of 8% and 10.2%.

 

Ex-Wall Street banker convicted for giving father insider tips

A former Wall Street investment banker was convicted on Wednesday for engaging in insider trading by tipping his father off to unannounced healthcare mergers, in a victory for prosecutors after an appellate ruling made pursuing such cases harder.

Sean Stewart, who previously worked at Perella Weinberg Partners and JPMorgan Chase, was found guilty by a federal jury in Manhattan on all nine counts he faced, including securities fraud.  Stewart, 35, was one of 107 people accused of insider trading since 2009 by prosecutors under Manhattan US Attorney Preet Bharara. His trial was Bharara’s first since a 2014 appellate ruling narrowed the scope of insider trading laws.

 

Zillow – urban ascendant: home values in and around Washington, D.C.

–  Since the onset of the Great Recession, home value growth within the District of Columbia has outpaced home value growth in the D.C. suburbs.

–  At the start of the Bush Administration, DC homes were worth 14% less than homes in the nearby suburbs; now they are worth 27% more.

–  Since 2012, the historically less affluent Northeast and Southwest quadrants have led the District of Columbia in home value appreciation.

 

The housing market in and around Washington, D.C., has fundamentally transformed over the past decade. Perhaps more than any other US market, the nation’s capital sharply illustrates the extent of urban renaissance experienced in many cities nationwide, and the diverging post-Recession fortunes of the nation’s urban and suburban communities.

Until recently, the Washington, D.C. area was a study of contrasts. Leafy, upscale neighborhoods like Georgetown and gleaming suburbs like Arlington, Virginia and Bethesda, Maryland stood in stark contrast to the majority of the District itself. This “other” D.C. was particularly hard-hit in the 1980s and 1990s by a combination of drugs, crime, AIDS and systematic underinvestment in communities of color.

In January 2000, when George W. Bush first assumed the presidency, the median home in the District of Columbia was worth $136,200. This was 14% less than the typical home in the nearby suburbs inside the Capital Beltway – the 64-mile interstate surrounding the city and its nearest suburbs in Maryland and Virginia – and 17% less than homes in suburbs beyond the Beltway.

Today, homes in the District of Columbia are 27% more expensive than homes inside the Beltway but not in the District, and 44% more expensive than homes outside the Beltway. Per square foot, homes in the District were 6% less expensive than homes in the nearby suburbs at the start of the Bush Administration, but are now 50% more expensive than other homes inside the Beltway.

 

Two periods in particular account for the widening gap between home values in the District of Columbia and its suburbs.  First, the federal government’s first-time home buyer tax credits in 2009 and 2010 had a much larger effect on home values in the District of Columbia than in its suburbs.

Between September 2009 and August 2010, median home values in the District of Columbia rose 5.3%, from $344,900 to $363,200. Over the same time, home values in the close-in suburbs inside the Beltway increased 2% (from $341,900 to $348,700); beyond the Beltway, home values increased 1.1% (from $312,300 to $315,800).

Second, and perhaps more dramatically, home value growth in the District of Columbia has strongly outpaced home value growth in the suburbs over the past three years. The median home value in the District of Columbia rose 19% from the end of 2013 through today. Over the same period, home values in the inner-Beltway suburbs rose 4%; outside the Beltway, the median home value is up 5%.

Since December 2013, home value growth in the suburbs overall – both inside and outside the Beltway – has averaged 4% per year. Inside the District of Columbia, home value growth has averaged 9% per year over the same time, more than double the suburban pace.

 

The District of Columbia itself is organized into four quadrants with sharply different incomes and demographics. Historically, the Northwest (NW) quadrant – which includes the toney neighborhoods of Georgetown, Foggy Bottom, Embassy Row and Kalorama (soon to be the home of President Obama), among others – has been the most affluent. But over the past half-decade, home values have been on the rise elsewhere in the District. The Northeast (NE) quadrant is home to rapidly gentrifying, and rapidly appreciating, neighborhoods including Eckington and NOMA (North of Massachusetts Avenue).

Home values in neighborhoods that straddle the border between the Northwest and Northeast quadrants have appreciated particularly quickly. In spring 2015 the median home value per square foot in the Bloomingdale neighborhood – south of Howard University, bordering the two northern quadrants – surpassed the median home value per square foot in the historically more affluent Northwest neighborhood of Cathedral Heights for the first time.

The Southwest (SW) quadrant, until recently dominated by federal offices, has also experienced strong home value growth in the wake of major redevelopment efforts surrounding the Southwest Waterfront and Nationals Park, home of the city’s Major League Baseball franchise.

The Southeast (SE) quadrant has also experienced rapid home value appreciation in popular neighborhoods such as Capitol Hill and Eastern Market, and surrounding new developments like Navy Yard. But broad swathes of the Southeast quadrant across the Anacostia River have not experienced the same degree of home value appreciation as elsewhere in DC.

 

In January 2000, the median home in the Northwest quadrant was worth $150 per square foot, 52% more than the median home in the Northeast quadrant ($99 per square foot). Today, the gap is much smaller.

The median home in the Northwest quadrant is worth $533 per square foot, 18% more than the median home in the Northeast quadrant ($450 per square foot).  During the housing bust, home values in Northwest DC hardly dropped at all, and have since increased strongly.

More recently, until mid-2013, home values in the Northeast and Southwest quadrants were roughly similar. Since then, home values in the Northeast quadrant have increased by 40% while home values in the Southwest quadrant have increased 19%. Between late 2012 and late 2014, annual home value appreciation in the Northeast quadrant was fastest among the four quadrants – peaking at 22% in May 2014, more than double the pace of appreciation observed elsewhere.

For much of 2015, homes in the Southeast quadrant were appreciating twice as fast as homes in the Northwest, although by early 2016 the pace of appreciation largely converged across quadrants.

 

CoreLogic – a walk down memory lane

On May 26th, 2016, the granddaddy of all equity indexes—the Dow Jones Industrial Average (DJIA)—turned 120. The 30 blue-chip companies that comprise the DJIA have evolved over time –General Electric is the one that has been in the index the longest, since 1907–and today many are no longer in heavy industry.

Nonetheless, the DJIA remains a gauge of equity-market performance.  Few sectors of the economy have indices that trace activity for more than a century. In the housing market, one can merge various metrics and survey data to develop a house-price index that stretches back to 1890, before the inception of the DJIA.

Professor Robert Shiller has done just that, and even though the geographic composition of prices has not been constant over that period, neither has the composition of the DJIA.  By taking the ratio of the DJIA to Prof. Shiller’s house-price series, and setting the ratio to 1 in 1896, we can compare how the DJIA and home prices have compared.

For much of the first half century, equities and home values largely moved together, with the exception of the “roaring ‘20s” that preceded the Great Depression. Even as recently as the early 1980s, equity values had cumulative growth that was only slightly more than home values. Since then, however, equity values have soared relative to home values, increasing several fold compared with home-price indexes.

 

While the valuation gain on equities (rather, on the firms that comprise the DJIA) has exceeded the price gain on houses, equities also have more risk. A general principle is that investments that have more risk should also compensate the investor for holding that risk.

A true investment ‘return’ would reflect both valuation gain and income earned from the asset over time (for example, dividends or rent) and net out any costs (such as home improvements), but for simplicity we can compare the valuation change with volatility over time:While equity values have grown more than house prices since 1896, the annual volatility in the equity market has also been far greater than the volatility of house prices.

That’s not to say that house prices are not volatile; the boom-bust cycle in housing over the past decade has shown that house prices can have significant year-to-year movement, both up and down. And while house prices have not kept up with stock values, homes appear to have held up well relative to general inflation: Since 1913, the inception year for the Consumer Price Index, house prices have grown about 0.5% per year faster than inflation.

Financial advisors caution that past performance should not be used as a gauge of future returns. While the past century cannot foretell the valuation trend of the next, at least two outcomes are likely over the next 120 years: First, equity values will likely grow more than home prices but with more volatility; and second, housing will generally be a good inflation hedge for owners with long holding periods.

NAHB – builder confidence rises two points in August

Builder confidence in the market for newly constructed single-family homes  in August rose two points to 60 from a downward revised reading of 58 in July on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).  “New construction and new home sales are on the rise in most areas of the country, and this is helping to boost builder sentiment,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill.

“Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July,” said NAHB Chief Economist Robert Dietz.  “Historically low mortgage rates, increased household formations and a firming labor market will help keep housing on an upward path during the rest of the year.”

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.

Two of the three HMI components posted gains in August. The component gauging current sales conditions rose two points to 65, while the index charting sales expectations in the next six months increased one point to 67.  The component measuring buyer traffic fell one point to 44.  Looking at the three-month moving averages for regional HMI scores, the South registered a two-point uptick to 63, the Northeast rose two points to 41 while the West was unchanged at 69. The Midwest dropped two points to 55.

 

Empire State manufacturing contracts in August

Factory activity across New York state fell in August and producers signaled layoffs in the months ahead, the latest sign that many US manufacturers are still facing weaker customer demand amid economic and political uncertainty.

The Empire State’s business conditions index declined to -4.2 from 0.6 in July. The gauge has been swinging around the zero mark, which separates expansion from contraction, in recent months.  Economists surveyed by The Wall Street Journal expected the index to edge up to 2.5.  The Empire report is the first in this month’s batch of regional factory surveys conducted by Fed banks, looked to by economists and investors for clues about the state of the nation’s manufacturing sector.

While conditions across the country have improved in recent months, producers are still contending with softer demand from overseas, exacerbated by the strong dollar’s effect on pricing, and with a sharp drop off in business investment. According to the most recent report on gross domestic product, businesses still aren’t spending on capital investments.

Nonresidential fixed investment fell at a 2.2% pace in the quarter, and equipment spending dropped for the fourth time in five quarters. Many firms have expressed caution ahead of the presidential election and Brexit’s effect on exports, in addition to lingering economic headwinds.  In the New York report, firms said new orders rose slightly from July and shipments hit a 12 month high.

But manufacturers reduced head counts, a trend they signaled would accelerate, and inventories continued to contract.  Looking ahead six months, factories across the state expressed ongoing optimism that conditions would pick up, but sentiment was more cautious than in recent months.

A gauge of overall expectations slipped to 23.74 from 29.24 as firms pulled in demand expectations. Meanwhile, an index of future hiring slid seven points to -6.19, and producers reported sharp reductions in capital spending and technology investment plans.  “Actual business activity is OK but firms remain anxious, perhaps waiting to see how the aftermath of the Brexit referendum affects their export business,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

 

Rental demand spurs $4 billion deal

Mid-America Apartment Communities Inc said it would buy Post Properties Inc for about $3.88 billion to create the largest publicly traded multifamily apartment real estate investment trust by units.  The combined company would have a market capitalization of about $17 billion, the companies said on Monday.

Post Properties shareholders will get 0.71 newly issued Mid-America Apartment shares for each share they own, the companies said.  The deal, first reported by the Wall Street Journal, would combine companies buoyed by the rising demand for rental properties, creating an entity with 317 properties and 105,000 multifamily units.

Mid-America Apartment, based in Memphis, Tennessee, owns all or part of 254 multifamily properties and 79,496 units in 15 states, according to its website and Thomson Reuters data.  Atlanta-based Post Proprieties, has about 24,000 apartment units in more than 60 communities in Atlanta, Dallas, Washington, and Tampa, Florida, according to Thomson Reuters data.  Citigroup Global Markets Inc is the financial adviser to Mid-America Apartment, while JP Morgan is advising Post Properties.

 

Crude RISES

Oil prices rose on Monday to their highest in nearly a month, with benchmark Brent crude trading more than 10% above the start of August, as speculation intensified about potential producer action to support prices in an oversupplied market.

Brent crude oil futures rose to a high for the month of $47.67 a barrel on Monday before dipping back to $47.17 per barrel at 1230 GMT, up 20 cents from their last settlement, and more than 11% above the last close in July.  US West Texas Intermediate (WTI) crude futures rose to a high of $45.15 a barrel before dipping to $44.69 a barrel, still up 20 cents from their last close. WTI has gained more than 7% in August.

On Monday, Russian Energy Minister Alexander Novak bolstered hopes that oil producing nations could take action to stabilize prices, telling a Saudi newspaper that his country was consulting with Saudi Arabia and other producers to achieve market stability.  Still, analysts were skeptical that the market could maintain its strength, particularly as the excess of supply that has dogged producers for the past two years showed little sign of quickly abating.

“In our view a renewed price correction cannot be ruled out if market participants start focusing on the supply side again, for the latest drilling activity figures in the US cast doubts that the oversupply is really being eroded,” Commerzbank analyst Carsten Fritsch said in a note.  Baker Hughes data released on Friday showed the number of rigs operating in the US rose by 15 last week to 396.

 

Americans are starting to get worried about the ‘new housing crisis’

Americans are catching on to the rise in home prices.  The gap between the demand for new homes and the supply coming onto the market, which we’ve dubbed “the new housing crisis,” has caused prices to soar and priced out many first-time homebuyers.  In fact, San Jose became the first city in the US to have a median house price of $1 million for a single-family home in the second quarter, according to the National Association of Realtors.

According to Friday’s University of Michigan Consumer Sentiment Survey, people are taking notice of record-low interest rates, which could be a reason for the incredibly high number of people who are planning to buy a new home in the next six months.  “Home buying has become particularly dependent on low interest rates, with net references to low interest rates spontaneously mentioned by 48% — this figure has been exceeded in only two months in the past ten years,” said the release accompanying the survey.

The read through here is that Americans are beginning to see the writing on the wall that record-low mortgage rates may soon begin to rise if the Federal Reserve hikes rates. Therefore, the urgency to buy a home may increase.  While these low rates may spur people to buy houses, they’re also making it less likely for people to move.

This is drying up the stock of existing homes that could help alleviate the supply crisis and rising prices.  The only issue is barely anyone is saying that home prices are low.  “In contrast, low housing prices were cited by just 25%, the lowest figure in ten years,” said the release.

So you’ve got people recognizing that interest rates are incredibly low, and that’s driving them to buy houses. But they’ve also recognized that prices are no longer low.  This isn’t a direct measure on whether Americans recognize the source of the problem, but at some level it appears they are aware.

 

It’s not about race

The Department of Housing and Urban Development needs to shed some delinquent loans from the Federal Housing Administration-backed portfolio, this we know.  A subsidiary of Lone Star Funds wins bids for these NPLs, and others, from time to time.  But all is not well with these deals, according to the New York Times.

Authors Jessica Silver-Greenberg and Michael Corkery write that the practice of selling NPLs to private firms disproportionately impacts blacks; so much so that it reminds us of the days of redlining accusations.  If the comparison isn’t enough to get you scratching your head, the mortgage modification race card will.  The slant of the article is that blacks are being unfairly targeted.

Yet the article states, “from 2012 to 2014, more than 61% of the government-backed mortgages sold to investors were in predominantly black neighborhoods, according to the lawsuit,” hardly a definitive majority.

So unless the new owners of these distressed loans offer horrible mortgage mods only to black homeowners, it stands to reason that what’s happening here is the natural process of tragic foreclosures. And it’s happening to all poor souls involved.  Besides, not long ago, nonprofits argued for HUD to speed up this very solution.  So sorry, NY Times, no one gets to have it both ways in lose-lose situations.

MBA – delinquencies and foreclosures continue to drop

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased 11 basis points to a seasonally adjusted rate of 4.66% of all loans outstanding at the end of the second quarter of 2016.  This was the lowest level since the second quarter of 2006.

The delinquency rate was 64 basis points lower than one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.  The percentage of loans on which foreclosure actions were started during the second quarter was 0.32%, a decrease of three basis points from the previous quarter, and down eight basis points from one year ago.

This foreclosure starts rate was at its lowest level since the second quarter of 2000.  The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the second quarter was 1.64%, down 10 basis points from the previous quarter and 45 basis points lower than one year ago.

The foreclosure inventory rate was at its lowest level since the second quarter of 2007.  The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.11%, a decrease of 18 basis points from previous quarter, and a decrease of 84 basis points from last year. The serious delinquency rate was at its lowest level since the third quarter of 2007.

 

Marina Walsh, MBA’s Vice President of Industry Analysis, offered the following commentary on the survey:  “Mortgage performance improved again in the second quarter primarily because of the combination of lower unemployment, strong job growth, and a continued nationwide housing market recovery.

The mortgage delinquency rate tracks closely with the nation’s improving unemployment rate.  In the second quarter of 2016, the mortgage delinquency rate was 4.66%, while the unemployment rate was 4.87%. By comparison, at its peak in the first quarter of 2010, the delinquency rate was 10.06% and the unemployment rate stood at 9.83%.  “In addition, the delinquency rate of 4.66% for the second quarter of 2016 was lower than the historical average of 5.36% for the time period 1979 to the present.

Among the various loan types, the delinquency rate improved for conventional loans as well as FHA loans.  The FHA delinquency rate dropped to 8.46%, its lowest level since 2000.  “The percentage of new foreclosures initiated in the second quarter was 0.32, the lowest rate since 2000, and 13 basis points below the historical average of 0.45%.

 

FHA loans saw a 15 basis point drop in the percentage of new foreclosures, which pushed the rate down to 0.48%, its lowest level since 1993.   “Continuing a downward trend that began in the second quarter of 2012, the foreclosure inventory rate fell again to 1.64% in the second quarter of 2016.

The FHA foreclosure inventory rate dropped 26 basis points from the previous quarter to 2.15%, its lowest level since 2001.  “Of the 50 states and Washington, DC, 47 states either had no change or saw declines in the foreclosure inventory rate in the second quarter of 2016. New Jersey and New York had the highest percentage of loans in foreclosure, at 5.97 and 4.48, respectively.

Florida’s percentage of loans in foreclosure dropped to 2.72, a significant improvement over 2011, when it was the state with the nation’s highest percentage of loans in foreclosure at 14.49%.  California’s percentage of loans in foreclosure was 0.66, the eighth lowest among all states in the nation.”

 

US producer prices fell 0.4% and inflation stays low

A gauge of prices paid by US businesses fell in July, as global economic weakness and another drop in energy prices outweighed a strengthening domestic labor market.  The producer-price index, measuring what companies pay other firms for goods and services ranging from dairy products to warehousing, fell a seasonally adjusted 0.4% in July from a month earlier, its largest one-month fall since September 2015, the Labor Department said Friday.

Excluding the volatile food and energy categories, so-called “core” prices were down 0.3%.  Economists surveyed by The Wall Street Journal had expected overall prices to rise 0.1% and core prices to increase 0.2%.  Producer prices for goods fell 0.4% in July, with prices falling for both food and energy.

Lower food prices, especially for beef and veal, drove the decline.  Prices for services fell 0.3%, led by a steep 6% decline in margins for apparel and accessories retailing.  Excluding food, energy and trade services, prices were flat from a month earlier and up 0.8% from a year earlier.  Producer prices can provide a preview of how more closely watched measures of consumer prices will move, since businesses will often charge more in order to offset their own cost increases.

 

Federal Reserve officials are looking for signs of inflation as they weigh their first rate increase of the year amid mixed signals from the economy.  July’s figures suggest inflation pressures remain muted. Increases in producer prices had accelerated of late, posting consecutively larger monthly gains in April through June. But over the year, producer prices are down 0.2%, and core producer prices have risen just 0.7%.

Some of the factors that should contribute to firming inflation are present. Job growth has picked up in the past two months, wage growth has strengthened, and consumer spending was robust in the second quarter. Average hourly earnings for private-sector workers rose by 2.6% in July from a year earlier.

Most inflation measures have shown steady increases this year, but it has been largely on the back of oil prices that have risen from roughly $30 a barrel in the early months of the year.  And overall economic growth has been weak and business investment even weaker in recent quarters, suggesting firms are uncertain about future demand and raising questions about whether hiring and wage growth can be sustained.

 

CoreLogic – mortgage origination dollars increased 30% in 2015

It’s that time of year again. The annual Home Mortgage Disclosure Act (HMDA) data is expected in mid-September at which point the details on mortgage lending for 2015 will be made public. HMDA contains information for lenders and policy makers, including details on mortgage denial rates, borrower and applicant details, mortgage pricing and the level of mortgage originations.

The headline figures from the HMDA data include the amount and number of first-lien mortgage originations.  A year ago, in advance of the HMDA release, CoreLogic reported estimates of the 2014 mortgage origination dollars using public records deed information, with only a 4% difference compared with the amount reported in HMDA.

We updated the analysis for 2015, and show that mortgage originations rebounded last year. The accompanying chart shows a comparison of CoreLogic and HMDA purchase money, refinance and total origination dollar volumes from 2006 to 2014, as well as 2015 CoreLogic public record origination volume. We estimate that in 2015 the number of mortgage originations increased by 20% from 2014 to approximately seven million mortgages and the mortgage origination dollar volume rose 30% to about $1.7 trillion.

 

On average between 2006 through 2014 the CoreLogic estimate of mortgage origination dollar volume was 1% below the HMDA estimate. Therefore, the $1.7 trillion shown in the chart is a slightly lower level of what we expect the HMDA release to report for 2015.

Some lenders are exempt from HMDA reporting, and many analysts estimate that lenders reporting under HMDA cover about 95% of the mortgage market; therefore, we estimate that total market originations—after accounting for under coverage—was probably closer to $1.8 trillion.  The increase in mortgage originations in 2015 compared with 2014 was due to an increase in both purchase-money loans and refinancing activity.

According to CoreLogic data, the number of purchase money originations increased 13% and the dollar volume increased 18%. The number of purchase originations rose due to an increase in home sales and a decrease in cash sales, while strong home price appreciation and more leverage boosted the purchase origination dollar volume3. The number of refinance originations increased 29% and the refinance dollar volume increased 44%.

 

US retail sales flat in July vs. 0.4% increase expected

US retail sales were unexpectedly flat in July as Americans cut back on purchases of clothing and other goods, pointing to a moderation in consumer spending that could temper expectations of an acceleration in economic growth in the third quarter.

The Commerce Department said on Friday that the unchanged reading last month followed an upwardly revised 0.8% increase in June. Retail sales in June were previously reported to have increased 0.6%.  Sales rose 2.3% from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales were also unchanged last month after an unrevised 0.5% increase in June.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast overall retail sales rising 0.4% and core sales climbing 0.3% last month.  Robust consumer spending helped to cushion the blow on the economy from an inventory correction and prolonged drag from lower oil prices, which restricted GDP growth to an average 1.0% annualized rate in the last three quarters.

 

Friday’s data suggested consumer spending was cooling after the second quarter’s brisk 4.2% rate of increase.  Despite the surprise weakness in July, consumer spending remains supported by a strong labor market, as well as rising home and stock market prices.

The economy created a total of 547,000 jobs in June and July.  The Atlanta Fed is currently forecasting the economy to grow at a 3.7% annualized rate in the third quarter.  Automobile, furniture and online sales were the only bright spots in July. Sales at auto dealerships increased 1.1% in July after rising 0.5% in June.

Online retail sales jumped 1.3%, while receipts at clothing stores fell 0.5%.  With consumers cutting back on discretionary spending, sales at sporting goods and hobby stores fell 2.2%. Receipts at building materials and garden equipment retailers fell 0.5%.  There were declines in sales at electronics and appliance outlets and service stations. Americans also cut back on spending at restaurants and bars.

 

NAHB – rising home prices affect housing affordability in the second quarter

Solid home price appreciation more than offset a modest reduction in mortgage interest rates to push housing affordability lower in the second quarter of 2016, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.

“Firm job growth, historically low interest rates and healthy price appreciation in many markets are all positive signs that the housing recovery continues to move forward,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “At the same time, regulatory hurdles and rising costs for buildable lots and skilled labor continue to put upward pressure on the cost of building a home.”

“Though we have seen a modest drop in affordability in the second quarter, the HOI is still fairly high by historical standards,” said NAHB Chief Economist Robert Dietz. “Rising employment, favorable mortgage rates and increasing household formations will keep the housing market on a gradual, upward path during the rest of the year.”

In all, 62% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the US median income of $65,700. This is down from the 65% of homes sold that were affordable to median-income earners in the first quarter.

 

The national median home price increased from $223,000 in the first quarter to $240,000 in the second quarter. Meanwhile, average mortgage rates edged lower from 4.05% to 3.88% in the same period.  For the third consecutive quarter, Youngstown-Warren-Boardman, Ohio-Pa. was rated the nation’s most affordable major housing market.

There, 91.1% of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $53,900.  Rounding out the top five affordable major housing markets in respective order were Scranton-Wilkes-Barre-Hazleton, Pa.; Syracuse, N.Y.; Harrisburg-Carlisle, Pa.; and Indianapolis-Carmel-Anderson, Ind.

Meanwhile, Kokomo, Ind. claimed the title of most affordable small housing market in the second quarter of 2016. There, 98.2% of homes sold during the second quarter were affordable to families earning the area’s median income of $60,900.  Smaller markets joining Kokomo at the top of the list included Cumberland, Md.-W.Va.; Fairbanks, Alaska; Davenport-Moline-Rock Island, Iowa-Ill; and Monroe, Mich.

 

For the 15th consecutive quarter, San Francisco-Redwood City-South San Francisco, Calif. was the nation’s least affordable major housing market. There, just 8.5% of homes sold in the second quarter were affordable to families earning the area’s median income of $104,700.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Rafael.  The five least affordable small housing markets were also in California.

At the very bottom of the affordability chart was Santa Cruz-Watsonville, where 14.7% of all new and existing homes sold were affordable to families earning the area’s median income of $85,100.  Other small markets at the lowest end of the affordability scale included Salinas; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and Santa Maria-Santa Barbara.

 

MBA – applications for new home purchases see year over year increase in July

The Mortgage Bankers Association (MBA) Builder Applications Survey (BAS) data for July 2016 shows mortgage applications for new home purchases increased 2.4% relative to a year ago. Compared to June 2016, applications decreased by 8%.

The month over month change does not include any adjustment for typical seasonal patterns.  “Mortgage applications to home builders in July increased at the slowest year over year pace to date in 2016 at just 2.4% over a year ago,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “Month over month declines in applications are part of the normal seasonal pattern this time of year and the Builder Applications Survey index has not maintained the momentum we saw during February and March.”

By product type, conventional loans composed 68.5% of loan applications, FHA loans composed 17.2%, RHS/USDA loans composed 0.7% and VA loans composed 13.6%. The average loan size of new homes decreased from $326,175 in June to $325,843 in July.  MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 540,000 units in July 2016, based on data from the BAS.

The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.  The seasonally adjusted estimate for July is an increase of 1.9% from the June pace of 530,000 units. On an unadjusted basis, MBA estimates that there were 45,000 new home sales in July 2016, a decrease of 4.3% from 47,000 new home sales in June.

 

WSJ – home equity loans come back to haunt borrowers, banks

The bill is coming due for many homeowners on a type of loan that was widely popular in the run-up to the housing bust, causing a rise in delinquencies at banks.  More homeowners are missing payments on their home-equity lines of credit, or Helocs, a type of loan that allows borrowers to withdraw cash from their house to pay for renovations, college tuition or almost any other expense.

These loans typically require interest-only payments for the first 10 years, but then principal payments kick in for the next 15 or 20 years.  The increased cost of the loan can become a strain for some borrowers. This is becoming an issue now because many borrowers signed up for Helocs in the run-up to the housing bust as home values kept rising. Roughly 840,000 Helocs taken out in 2006 are resetting this year, with principal payments on an additional nearly one million loans expected to hit in 2017.

Borrowers who signed up for Helocs in early 2006 were at least 30 days late on $2.8 billion of balances four months after principal payments kicked in this year, according to Equifax. That represents 4.4% of the balances on outstanding 2006 Helocs. Delinquencies were at 2.9% before the reset.

Resets can lead to payments jumping by hundreds, or in some cases thousands, of dollars a month. Consider a Heloc with a $100,000 balance and a 4.5% interest rate. It would have a $376 interest-only monthly payment, which would then rise to $632 when principal payments kick in, assuming a 20-year repayment period.

 

Large banks, including Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc., reported higher Heloc delinquencies in the second quarter, according to securities filings this month. Unlike with most mortgages, Helocs are primarily held on banks’ books, which means lenders are generally more exposed to losses when the loans don’t get repaid.

Worsening Heloc performance underscores that banks aren’t completely past all the problems sown in the run-up to the housing bust. While delinquencies on mortgages used to purchase or refinance homes have dropped substantially in recent years, Heloc delinquencies are rising and some large banks are warning of the risk of more to come.

Despite this, banks have been ramping up new originations, extending the largest dollar amount of credit lines in 2015 since 2007. This time around, the borrowers getting approved have high credit scores and at least 10% to 15% equity in their homes in most cases. Some banks have taken additional steps to lessen risk.

Wells Fargo & Co. and Bank of America no longer permit interest-only payments on new Helocs given to most borrowers.  While delinquencies for Helocs are rising, charge-offs are also up. Lenders wrote off 1.4% of defaulted balances from 2006 Helocs so far this year, up slightly from a year prior, according to Equifax.

 

Heloc delinquencies are unlikely to spur broader banking problems. It is generally harder to foreclose on a home, for example, if borrowers are paying their primary mortgage on time. Heloc balances, while rising, are small—averaging $55,400 for those resetting this year—compared with regular mortgages.

An improving housing market could also help limit defaults. As home values rise, more borrowers have the equity to refinance their Heloc with a new one, effectively starting the interest-only period from the beginning. Or some borrowers would be able to roll both their first mortgage and Heloc into a refinance mortgage.  Still, borrowers with a mortgage and a Heloc are at greater risk of owing more on their home than it is worth. Only 6% of homes with one mortgage are underwater, compared with 17% of homes with two mortgages, according to mortgage-data firm CoreLogic Inc.

As the bulk of precrisis Helocs starts to reset, the dollar amount of unpaid balances is increasing at many banks.  Bank of America, the largest home-equity lender by volume, reported $250 million of Helocs that had transitioned to requiring principal payments were at least 30 days delinquent in the second quarter, up 56% from a year prior, according to company filings. The bank says that accounts for just 2% of Heloc balances that are in repayment.

 

At J.P. Morgan, $647 million of Helocs that reset were behind on payments in the second quarter, up 21% from a year prior, according to company filings. A spokeswoman said the bank gets in touch with borrowers before Helocs reset to help them prepare for the change and offers modifications to eligible borrowers.  At Citigroup, delinquent balances totaled $338 million in the second quarter, up 105% from a year prior. The bank declined to comment.

Concerns around Heloc repayments were largely ignored during the peak of the financial crisis. Most banks focused on addressing defaults on primary mortgages—and most Helocs only required minimum payments then.  “Home-equity loans got pushed on the back burner—we’re being forced to deal more with that now,” said Guy Cecala, publisher of Inside Mortgage Finance.

The Office of the Comptroller of the Currency has been pushing banks to modify Helocs for borrowers who have trouble keeping up with payments, in an attempt to avoid another wave of home-related defaults. Those modifications include extending repayment periods and lowering interest rates to reduce monthly required payments.

Another headwind for Helocs could also be on the way: Most Helocs have variable interest rates that move in tandem with rates set by the Federal Reserve. A rising-rate environment would push up monthly loan payments further, a risk Citigroup warned of in a company filing this month.

CoreLogic – 38,000 completed foreclosures in June 2016

CoreLogic released its June 2016 National Foreclosure Report which shows the foreclosure inventory declined by 25.9% and completed foreclosures declined by 4.9% compared with June 2015. The number of completed foreclosures nationwide decreased year over year from 40,000 in June 2015 to 38,000 in June 2016, representing a decrease of 67.5% from the peak of 117,835 in September 2010.

The foreclosure inventory represents the number of homes at some stage of the foreclosure process and completed foreclosures reflect the total number of homes lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 6.3 million completed foreclosures nationally, and since home ownership rates peaked in the second quarter of 2004, there have been approximately 8.4 million homes lost to foreclosure.

As of June 2016, the national foreclosure inventory included approximately 375,000, or 1.0%, of all homes with a mortgage compared with 507,000 homes, or 1.3%, in June 2015. The June 2016 foreclosure inventory rate is the lowest for any month since August 2007.

 

CoreLogic also reports that the number of mortgages in serious delinquency (defined as 90 days or more past due including loans in foreclosure or REO) declined by 21.3% from June 2015 to June 2016, with 1.1 million mortgages, or 2.8%, in this category.

The June 2016 serious delinquency rate is the lowest in nearly nine years, since September 2007.  “Mortgage loan performance depends on the economic health of local markets, with varied differences even within a state,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Within Texas, the serious delinquency rate in the Dallas metropolitan area has fallen by 0.5% from a year earlier, as home prices and employment have continued to rise.

The rate in the Midland area, on the other hand, has jumped 0.5%, reflecting the weakness in oil production and job loss over the past year.”  “The impact of the inexorable reduction over the past several years in both foreclosure trends and serious delinquencies is driving the long-awaited return to more historic norms for the US housing market,” said Anand Nallathambi, president and CEO of CoreLogic.

“We expect the combination of continued home price appreciation of more than 5% and rising employment levels in the year ahead will help cement the gains we have had and perhaps accelerate them.”

 

Additional June 2016 highlights:

–  On a month-over-month basis, completed foreclosures increased by 5.1% to 38,000 in June 2016 from the 36,000 reported for May 2016. As a basis of comparison, before the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.

–  On a month-over-month basis, the foreclosure inventory was down 3.6% compared with May 2016.

–  The five states with the highest number of completed foreclosures in the 12 months ending in June 2016 were Florida (60,000), Michigan (47,000), Texas (27,000), Ohio (23,000) and California (22,000). These five states account for almost 40% of all completed foreclosures nationally.

–  Four states and the District of Columbia had the lowest number of completed foreclosures: The District of Columbia (179), North Dakota (321), West Virginia (487), Alaska (639) and Montana (675).

–  Four states and the District of Columbia had the highest foreclosure inventory rate: New Jersey (3.4%), New York (3.1%), the District of Columbia (2%), Hawaii (2%) and Maine (1.9%).

–  The five states with the lowest foreclosure inventory rate were Colorado (0.3%), Michigan (0.3%), Minnesota (0.3%), Nebraska (0.3%) and Utah (0.3%).

 

US budget deficit little changed in July

The US budget deficit was little changed in July as growth in both revenue and spending slowed.  Over the past year, the deficit totaled $487 billion, down 0.3% from a year earlier, the Treasury Department said in a monthly update Wednesday.

The past year has seen a decline in corporate tax revenue. Personal income taxes have been on the rise so far this year, thanks to steady job growth. But corporate taxes haven’t kept pace as corporate profits suffered due in part to low productivity growth and a tight job market that has firms paying out a larger share of revenues in wages.

The government posted a deficit for the month of July, as outlays exceeded revenues by $113 billion. That was a smaller deficit than the $149 billion monthly shortfall posted in July 2015. The higher figure from last July was partly due to an acceleration of $42 billion of August benefit payments that were pushed forward into July.

In the 12 months through July, the deficit represented 2.6% of the nation’s economic output, or gross domestic product. That was down from 2.8% of GDP in the 12 months through June. The longer-term trends show a rising deficit.  Revenues over the past year climbed just 1.2% compared with the 12 months through July 2015, the lowest annual rate in nearly six years.

Earlier in the current economic expansion, revenues routinely grew by 6% or more year-over-year. By contrast, government outlays have been steadily rising partly as a result of increased spending on Social Security and Medicare as the country’s population ages. Overall outlays rose 1.0% in the past 12 months compared with the year through July 2015, the slowest pace in more than two years.

 

NAR – home-price gains unfettered in most metro areas during second quarter

Home prices maintained their robust, upward trajectory in a vast majority of metro areas during the second quarter, causing affordability to slightly decline despite mortgage rates hovering at lows not seen in over three years, according to the latest quarterly report by the National Association of Realtors (NAR).

The report also revealed that for the first time ever, a metro area – San Jose, California – had a median single-family home price above $1 million.  The median existing single-family home price increased in 83% of measured markets, with 148 out of 178 metropolitan statistical areas (MSAs) showing gains based on closed sales in the second quarter compared with the second quarter of 2015.

Twenty-nine areas (16%) recorded lower median prices from a year earlier. There were slightly fewer rising markets in the second quarter compared to the first three months of this year, when price gains were recorded in 87% of metro areas.

Twenty-five metro areas in the second quarter (14%) experienced double-digit increases – a small decrease from the 28 metro areas in the first quarter. A year ago, 34 metro areas (19%) experienced double-digit price gains.

The national median existing single-family home price in the second quarter was $240,700, up 4.9% from the second quarter of 2015 ($229,400), which was previously the peak quarterly median sales price. The median price during the first quarter of this year increased 6.1% from the first quarter of 2015.

 

Total existing-home sales, including single family and condos, rose 3.8% to a seasonally adjusted annual rate of 5.50 million in the second quarter from 5.30 million in the first quarter of this year, and are 4.2% higher than the 5.28 million pace during the second quarter of 2015.

At the end of the second quarter, there were 2.12 million existing homes available for sale 3, which was below the 2.25 million homes for sale at the end of the second quarter in 2015. The average supply during the second quarter was 4.7 months – down from 5.1 months a year ago.

Despite falling mortgage rates and a small increase in the national family median income ($68,774)6, swiftly rising home prices caused affordability to decline in the second quarter compared to a year ago. To purchase a single-family home at the national median price, a buyer making a 5% down payment would need an income of $52,255, a 10% down payment would require an income of $49,504, and $44,004 would be needed for a 20% down payment.

The five most expensive housing markets in the second quarter were the San Jose, California, metro area, where the median existing single-family price was $1,085,000; San Francisco, $885,600; Anaheim-Santa Ana, California, $742,200; urban Honolulu, $725,200; and San Diego, $589,900.

The five lowest-cost metro areas in the second quarter were Youngstown-Warren-Boardman, Ohio, $85,400; Cumberland, Maryland, $94,900; Decatur, Illinois, $95,600; Binghamton, New York, $105,500; and Rockford, Illinois, $109,000.

Metro area condominium and cooperative prices – covering changes in 59 metro areas – showed the national median existing-condo price was $227,200 in the second quarter, up 4.8% from the second quarter of 2015 ($216,700). Forty-four metro areas (75%) showed gains in their median condo price from a year ago; 14 areas had declines.

 

Total existing-home sales in the Northeast jumped 7.6% in the second quarter and are 11.3% above the second quarter of 2015. The median existing single-family home price in the Northeast was $273,600 in the second quarter, up 1.6% from a year ago.  In the Midwest, existing-home sales leaped 10.4% in the second quarter and are 6.6% higher than a year ago.

The median existing single-family home price in the Midwest increased 5.1% to $191,300 in the second quarter from the same quarter a year ago.  Existing-home sales in the South inched forward 0.3% in the second quarter and are 4.2% higher than the second quarter of 2015. The median existing single-family home price in the South was $214,900 in the second quarter, 5.9% above a year earlier.

In the West, existing-home sales climbed 1.4% in the second quarter but are 2.2% below a year ago. The median existing single-family home price in the West increased 6.5% to $346,500 in the second quarter from the second quarter of 2015.

 

Oil futures gain after EIA reports declines in US gasoline, distillate supplies

Oil futures gained on Wednesday after the US Energy Information Administration reported Opens a New Window.  that domestic crude supplies climbed, but inventories of gasoline and distillates, which include heating oil and diesel, declined in the week ended Aug. 5.

Crude supplies rose 1.1 million barrels. That was contrary to the 1.75 million-barrel fall expected by analysts polled by S&P Global Platts, but the American Petroleum Institute late Tuesday reported a larger climb of 2.1 million barrels, according to sources.

Gasoline supplies fell 2.8 million barrels, while distillate stockpiles declined by 2 million barrels last week, according to the EIA. September crude tacked on 51 cents, or 1.2%, from Tuesday’s settlement to trade at $43.28 a barrel on the New York Mercantile Exchange. Prices traded at $42.98 before the data.

 

MBA – mortgage applications increase

Mortgage applications increased 7.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 5, 2016.  The Market Composite Index, a measure of mortgage loan application volume, increased 7.1% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index increased 7% compared with the previous week. The Refinance Index increased 10% from the previous week. The Government Refinance index was up 27% and the Conventional Refinance Index was up 6% from one week earlier. The seasonally adjusted Purchase Index increased 3% from one week earlier.

The nonadjustable Purchase Index increased 2% compared with the previous week and was 13% higher than the same week one year ago.  The refinance share of mortgage activity increased to 62.4% of total applications from 60.7% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4.7% of total applications.

The FHA share of total applications increased to 10.0% from 9.4% the week prior. The VA share of total applications increased to 13.0% from 12.1% the week prior. The USDA share of total applications decreased to 0.6% from 0.7% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.65% from 3.67%, with points increasing to 0.34 from 0.30 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

 

Zillow – new job growth expected to drive migration back to middle America

Panelists surveyed by Zillow said they expected home values to end 2016 up 4.5% year-over-year, on average, and for the median US home value to exceed its pre-recession peak by November 2017.  A majority of panelists with an opinion said markets in the middle of the country were likely to regain popularity compared to coastal markets in coming years as cost-conscious employers start creating more jobs in Middle America.

A marked shift in fortunes between coastal America and Middle America since the housing recovery began – rapid growth in the former, stagnation in the latter – is likely to eventually reverse as cost-conscious companies look for cheaper places to grow, according to a panel of more than 100 experts.

The Q3 Zillow Home Price Expectations Survey, sponsored by Zillow and administered by Pulsenomics LLC, asked a panel of 113 economic and real estate experts nationwide to offer their expectations for home value growth through 2020. The survey also asked the experts to share their views and expectations on changing dynamics in the middle of the country versus the coasts and in urban versus suburban communities.

 

Since the housing boom and bust gave way to recovery, the US housing market has seemingly split into two unequal parts: Middle America, and coastal America. Home values are growing rapidly in markets on both coasts as hot job markets help keep demand for housing high, and more slowly in the Midwest and Heartland – where negative equity is still pervasive and job growth scant.

As a result, Americans – especially younger millennials – are moving away from Middle America and to the coasts in large numbers, whether for jobs, lifestyle preferences or both.  But more than half of those experts with an opinion (56%) said they believed this trend has either already begun to reverse or will reverse in coming years.

Another 11% said this trend was actually an illusion, and that coastal markets are no more or less popular now than they’ve always been relative to Middle America. Just 25% of experts with an opinion said the coastal/Middle America split was likely to be permanent.

Of those experts who said the trend was likely to reverse, a majority (56%) said job growth in the middle of the country – driven by companies looking for cheaper alternatives to the coasts in which to expand – would eventually lure residents back to the Heartland.

Similarly, almost a quarter (24%) said Americans would migrate inland in search of more affordable housing and 13% said Americans will start to seek the more traditional lifestyle that the middle of the country has to offer. Only 2% said climate change is likely to force residents away from the coasts.

In addition to the coastal/inland divide, the US housing market has also experienced a notable shift between urban and suburban communities. The suburban home – long a symbol of success, stability and the American Dream – appears to be losing some of its luster as urban homes grow in value more quickly.

Panelists were asked if they believed this swing was permanent, temporary or overstated. A majority of those with an opinion (57%) said the shift was temporary and that suburbs were already regaining popularity or were likely to in coming years. The same portion of respondents (22%) said the shift was permanent as those that said the trend was overstated.

 

On average, panelists said they expected home values to end 2016 up 4.5% year-over-year, a bump in expectations from 4% annual growth for this year the last time the survey was conducted. Looking farther ahead, panelists on average said they expected the annual pace of home value appreciation to slow to 3.6% in 2017, 3.2% in 2018, 3.1% in 2019 and to 2.9% in 2020.

Despite predictions for a slowdown in home value growth through the end of the decade, panelists’ expected five-year average annual growth rate for home values actually rose slightly for the first time in three years.  When divided into more optimistic and more pessimistic camps, panelists’ expectations diverged markedly.

The most optimistic quartile of panelists said they expected US home values to rise 5.2% through the end of this year. The most pessimistic 25% of panelists said they expected home values to rise just 3.7% year-over-year through 2016. Looking farther out, the most optimistic panelists said they expected home values to grow at an average annual rate of 4.8% over the next five years.

Pessimists predicted a much slower 2.1% annual rate of growth over the next five years.  Median US home values peaked at $196,600 in April 2007. On average, panelists said they expected the median US home value to surpass this peak by November 2017 – more than a decade after pre-recession peaks.

 

WSJ – lopsided housing rebound leaves millions of people out in the cold

The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans.

Home prices rose in 83% of the nation’s 178 major real-estate markets in the second quarter, according to figures released Wednesday by the National Association of Realtors. Overall prices are now just 2% below the peak reached in July 2006, according to S&P CoreLogic Case-Shiller Indices.  But most of the price gains, economists said, stem from a lack of fresh supply rather than a surge of buyers.

The pace of new home construction remains at levels typically associated with recessions, while the home ownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows.

The lopsided recovery has shut out millions of aspiring homeowners who have been forced to rent because of damaged credit, swelling student loans, tough credit standards and a dearth of affordable homes, economists said.

In all, some 200,000 to 300,000 fewer US households are purchasing a new home each year than would during normal market conditions, estimates Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at the University of California at Berkeley.

“I don’t think we are in a normal housing market,” said Lawrence Yun, chief economist at the National Association of Realtors. “The losers are clearly the rising rental population that isn’t able to participate in this housing equity appreciation. They are missing out on [a big] source of middle-class wealth.”

 

Anxiety about missed economic opportunities is a key driver of the anti-incumbent anger on both sides of the political spectrum that has shaken up the 2016 election season, helping fuel the insurgent presidential campaigns of Donald Trump and Bernie Sanders.

“You have these people who can’t get housing, and it’s turning into this rage,” said Kevin Finkel, executive vice president at Philadelphia-based Resource Real Estate, which owns or manages 25,550 apartments around the US  While economists expected the home ownership rate to begin edging up this year, the rate fell to a 51-year low of 62.9% in the second quarter from 63.4% in the same quarter last year.

The rate could fall to 58% or lower by 2050, according to a recent prediction by housing experts Arthur Acolin of the University of Southern California, Laurie Goodman of the Urban Institute and Susan Wachter of the Wharton School at the University of Pennsylvania.

Long-term declines could erase gains made by middle-class Americans since World War II. Owning a home provides protection against rising rents and has been a key component of retirement saving and wealth creation.  “The default savings mechanism for American households has been home ownership,” Ms. Wachter said. “Today we have historic lows for young households in terms of ownership so they’re not getting on this path.”  That, in turn, can ripple throughout the economy.

Homeowners often use home equity to pay for college tuition, vacations or home renovations, all of which help boost consumer spending. The mere knowledge that home values are rising can make consumers comfortable spending money other places, a process known as the wealth effect.  “We’re seeing a divide between the wealth of homeowners and the wealth of renters,” said Nela Richardson, chief economist at real-estate brokerage firm Redfin.

 

After peaking in July 2006, the Case-Shiller index plunged 27% over the next six years. Since then the recovery has been swift, particularly in markets with strong job growth and limited supply, creating problems for entry-level buyers in particular.

Across the country the recovery has been divided between strong West Coast markets and Texas, which have rebounded swiftly beyond their 2006 peaks, while prices from the Rust Belt to southern Florida may not return to those levels for decades.  Prices in the Boulder, Colo., metro area are 45% above their prior peak, while those in Dallas are 26% above their boom-time highs, according to data provider CoreLogic Inc.

Meanwhile, prices in the Saginaw, Mich., area remain nearly 40% below their peak levels and those in Atlantic City are still 38% lower.  In Sacramento, prices have jumped 64% since the beginning of 2012, according to CoreLogic.  The main reason for falling home ownership, economists say: mortgage availability.

Lenders chastened by the financial crisis have been fearful of making loans to borrowers with dings on their credit, student debt or credit-card bills, or younger buyers with shorter credit histories.  “I’m not sure that we’ll see some of those conditions change in any material way in the foreseeable future,” said Tim Mayopoulos, the president and chief executive officer of mortgage giant Fannie Mae, in an interview last week.  “Right now our mortgage finance system is still not working well for lower- and middle-income households and first-time buyers,” added Mr. Rosen.

 

A dearth of home construction, especially at the lower end, is taking a toll. Nationally, the inventory of homes for sale has dropped more than 37% since 2011, according to Zillow, a real estate information firm. Some of that reflects the clearing away of distressed inventory, but economists said the pendulum has swung toward a housing shortage.

An estimated 1 million new households were formed last year, but only 620,000 new housing units were built, according to the Urban Institute. An analysis of census data by the Urban Institute showed that all of the net new households formed between 2006 and 2014 were renters rather than owners.

In 2006 home builders produced 40% more single-family homes than the 30-year long-run average. Last year, by contrast, single-family home construction was still 30% below that mark, according to Census Bureau data.  “We went so many years without building there are in many places in the country a shortage of housing,” said Richard Green, the Lusk Chair in Real Estate at the University of Southern California. “I think that overshadows everything else in terms of normalcy.”

 

In the early years of the recovery only top earners could afford to buy homes, as new buyers struggled with joblessness or tarnished credit histories, so builders focused almost exclusively on the high-end.  “The entry-level buyer, up until recently, has not been that involved in buying houses,” said Dale Francescon, co-chief executive of Century Communities, a publicly traded builder that operates in four states. “That’s historically where a significant amount of the volume has come from.”

Even as first-time buyers have started returning to the market, many builders have been slow to respond. Building lower-priced homes means finding cheaper land, and that tends to be farther away from job centers on the suburban fringes.  Those areas were the hardest hit during the housing bust, and many investors have been hesitant to encourage builders to return.

As a result, builders have tended to focus on ever-dwindling and increasingly expensive land in core areas, pushing up the prices.  Tom Farrell, director of business development for Landmark Capital Advisors, which counsels investors on real-estate projects, said risk appetite is low, particularly outside core markets.  “We’re often saying ’You all want to be in the same spot, and you’re tripping over each other,” he said. “It’s just difficult to get people out to those secondary markets.”

CoreLogic – US housing policy update: August 2016

 

Now that Congress has gone home and the country is in the thick of the political convention season, this month we’d like to take a look at what the parties and their presidential nominees have to say about housing policy.  To be candid, so far, housing has not rated as a first-tier issue for either party. Discussion of housing policy was conspicuously absent in most of the debates and primary stump speeches.

But now, with the conventions and nominations at hand, we have the benefit of the party platforms. And while these platforms are not binding, they do frame each party’s high-level thinking on a wide variety of issues, including housing policy.  The Republican National Convention was up first. Most of its platform’s policies on housing reform, financial markets and government regulations echo the recent efforts of the Republican-controlled Congress.

They center on the concept that the federal government should scale back its role in housing and promote individual responsibility on the part of borrowers and lenders. The party wants to expand home ownership opportunities, but it intends to achieve this goal through clear and prudent underwriting standards and acceptable lending practices rather than government intervention.

The party says Fannie Mae and Freddie Mac should be wound down in size and scope and the Federal Housing Administration downsized.  Pivoting to financial market regulation, the Republican platform vows to overturn parts of the Dodd-Frank legislation – particularly those that affect community banks. The platform also seeks to either abolish the Consumer Financial Protection Bureau or subject it to congressional appropriation.

The platform advocates for ending the notion of “too-big-to-fail” financial institutions and supports legislation to ensure that any problems of those institutions can be resolved through the Bankruptcy Code.  The Republican platform did have one major surprise. It calls for the reinstatement of the Glass-Steagall Act, which prohibited commercial banks from engaging in investment banking but was repealed in 1999. On this issue, Mr. Trump finds himself closer to a position associated more recently with Democrats.

 

Let’s now turn to the Democratic Party platform. It also echoes many of the positions of Congressional Democrats. For example, it seeks to promote affordable housing availability through increased funding to the National Housing Trust Fund and the Housing Choice Voucher Program, strengthening the Fair Housing Act and preserving the 30-year fixed rate mortgage.

The platform also conveys a desire to implement credit score reform, expand access to housing counseling, clarify lending rules and even permit the US Post Office to offer basic banking services.  In stark contrast to the Republican platform, the Democratic party wants to protect and strengthen the Dodd-Frank Act. The platform strongly supports the Consumer Financial Protection Bureau (CFPB) and applauds its ongoing efforts to prevent predatory lending.

The party opposes efforts to weaken the CFPB or change its governance structure.  One of Secretary Clinton’s toughest challenges in her primary fight against Senator Bernie Sanders was finding a way to distance herself from Wall Street financial institutions. The Democratic platform seeks to reign in Wall Street through a number of steps. These include regulation of shadow-banking activities, the establishment of a financial transaction tax and adoption of an updated and modernized version of Glass-Steagall.

No matter who wins in November, both of these platforms suggest that housing issues and financial reforms will be on the agenda for the administration that takes office in January 2017. Although as we’ve seen in recent years, unless one party controls Congress and the White House, absent a crisis or perceived urgent need, it will likely be difficult for a president to pass even a portion of the housing policy agenda reflected in the platforms.

 

Wall Street opens higher on strong jobs report

Wall Street was set to open higher on Friday after robust monthly payrolls data pointed to strength in the US economy.  The report by the US Labor Department showed that 255,000 jobs were added in July, handily beating economists’ estimate of 180,000.  The report also showed that the unemployment rate was flat at 4.9%, staying below the 5% mark associated with full employment.

Average hourly wages rose by 8 cents.  The Federal Reserve’s move to raise interest rates is contingent on a number of economic indicators, including a strong labor market and inflation meeting the central bank’s 2% target.  However, the markets have priced in little chance of the Fed raising rates this year as global growth worries persist.  Wall Street closed flat on Thursday as investors were wary of making big bets ahead of jobs data.

Kraft Heinz rose 4% in thin trading after the company posted quarterly earnings that beat estimates.  FireEye dropped 17% after the company cut its forecast and said it would lay off about 10% of its workforce.  Priceline shares rose 5.7% to $1,437 after the company reported a better-than-expected second-quarter profit.

 

MBA – mortgage credit availability increases in July

Mortgage credit availability increased in July 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.

Starting this month, MBA has updated its methodology to better measure credit availability and has released a new historical series based on this updated methodology. As part of this change the Conforming and Jumbo MCAIs have been updated to only include conventional, non-government loan programs.  The MCAI increased 1.0% to 165.3 in July.

A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The index was bench marked to 100 in March 2012. Of the four component indices, the Jumbo and Government MCAIs saw the greatest increase in availability (both up 1.3%) over the month followed by the Conventional MCAI (up 0.7%), and the Conforming MCAI (up 0.1%).

“In the three years since its inception, we have been monitoring the MCAI, always looking for opportunities to improve the series and provide a more accurate gauge of credit availability. We expanded our historical series to cover over 10 years of historical data, and followed that with the introduction of four MCAI sub-indices (Conventional, Government, Conforming, and Jumbo) to help users better understand what is driving changes in the overall MCAI.

 

Today we are excited to announce an updated methodology that responds more effectively to changes in the marketplace and better accounts for the frequent addition and subtraction of investor offerings,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “While using the exact same data, this updated methodology does a better job of reflecting new loan programs that did not exist in the base month of the index (March 2012). In addition we are redefining our conforming and jumbo indices to be restricted to conventional loan programs only.

Previously, conforming and jumbo status was determined solely by loan size.  In the new methodology, high balance FHA and VA loan programs are not included in the jumbo category.”  “The main difference with this change is that the prior methodology had shown a tightening of credit over the past few months.  The new methodology shows a modest loosening of credit availability over this time period, in line with other indicators of credit availability.

This is a result of new jumbo loan offerings that did not exist in our 2012 base period becoming more popular and prevalent in recent periods. Our new methodology captures the addition of these new loan offerings more effectively and better aligns with anecdotal evidence of loosening credit conditions over the last seven months.”  Fisher continued, “The overall credit availability increase in July was driven by an uptick in programs that allow for refinancing among relatively lower credit score borrowers. We observed this trend in both the conventional and government programs.”

 

Of the four component indices, the Jumbo and Government MCAI saw the greatest loosening (both up 1.3%) over the month followed by the Conventional MCAI (up 0.7%), and the Conforming MCAI (up 0.1%). The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index.

The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs.

The Jumbo and Conforming MCAIs are a subset of the Conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits.

The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.

 

US trade deficit rises to ten-month high in June

The US trade deficit rose to a 10-month high in June as rising domestic demand and higher oil prices boosted the import bill while the lagging effects of a strong dollar continued to hamper export growth.  The Commerce Department said on Friday the trade gap increased 8.7% to $44.5 billion in June, the biggest deficit since August 2015.

May’s trade deficit was revised slightly down to $41.0 billion.  June marked the third straight month of increases in the deficit. Economists polled by Reuters had forecast the trade gap widening to $43.1 billion in June after a previously reported $41.1 billion shortfall. When adjusted for inflation, the deficit rose to $64.7 billion from $60.9 billion in May.

The government in its snapshot of second-quarter gross domestic product published last week said trade had contributed two-tenths of a percentage point to the 1.2% annualized growth pace during the period.  The dollar’s sharp rally against the currencies of the United States’ main trading partners between June 2014 and December 2015 has undercut export growth.

 

With the dollar weakening this year on a trade-weighted basis, some of the drag on exports had started to ebb. But the dollar has been regaining strength in the wake of Britain’s June 23 vote to leave the European Union, and economists say that could renew pressure on exports.

Exports of goods and services edged up 0.3% in June.  Exports to the European Union jumped 7.8%, with goods shipped to the United Kingdom soaring 18.2%. China bought more US-made goods in June, with exports to that country rising 3.6%.  Imports of goods and services increased 1.9% to $227.7 billion in June, with oil prices accounting for part of the rise.

Oil prices averaged $39.38 per barrel in June, the highest level since October of last year, from $34.19 in May.  The $5.19 increase in the average oil price in June from May was the biggest since May 2011.  June’s increase in imports also reflected a pickup in domestic demand. Imports from China increased 2.8%. With imports outpacing exports, the politically sensitive US-China trade deficit rose 2.5% to $29.8 billion in June, the biggest gap since last November.

 

CoreLogic – US economic outlook: August 2016

Buying a home is an important decision and one that incurs large transaction costs – financing charges, moving expenses, recordation and settlement fees are just some of the costs. Because of these, buyers generally plan to own their home for many years.

Prior to the Great Recession and home-price crash, the typical length of ownership had been fairly stable, but after 2008 the length of time that owners have kept their home has lengthened. And the trend is consistent whether looking at how long recent sellers had owned their home, or looking at how long current homeowners have been in their home.

Using public records data, CoreLogic found that the median number of years that home sellers had owned their home increased by three years between 2007 and 2013, and has increased an additional year for each year since then to 10 years between sales. Likewise, government survey data for all homeowners shows a similar lengthening of ownership period after 2007.

Labor market, housing and demographic trends are some of the reasons why homeowners have chosen to keep their homes longer. Recent labor market research indicates that the severity and broad geographic impact of the Great Recession may have discouraged workers from relocating. In addition, there has been a gradual, secular decline in worker mobility, perhaps related to advances in communication and office technology.

Further, the substantial drop in home values during the housing crash may have posed a significant financial disincentive for owners who may otherwise had planned to sell and move either because the value loss had eliminated all their housing wealth or because their adult children had moved back to the family house. And demographics are at work too.

A large segment of the Baby Boom cohort is in their 50s – most are still working, have put down roots in their communities and are less willing to relocate at this part of their life cycle.  A comparison of the length of owning a home in the United States with other countries shows more similarity than differences.

CoreLogic public records data for Australia and New Zealand show a similar length of ownership for recent sellers compared with the US. Survey data for the United Kingdom and Canada also show the typical length of ownership is close to a decade. Despite differences in national housing markets, transaction costs in trading homes are leading homeowners to keep their homes for many years.

 

NAHB – housing markets continue gradual climb back to normal

Markets in 146 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the second quarter of 2016, according to the NAHB/First American Leading Markets Index (LMI) released today. This represents a year-over-year net gain of 66 markets.

The index’s nationwide score ticked up to .97, meaning that based on current permit, price and employment data, the nationwide average is running at 97% of normal economic and housing activity. Meanwhile, 91% of markets have shown an improvement year over year.  “This gradual uptick is in line with NAHB’s forecast for a slow but steady recovery of the housing market,” said NAHB Chairman Ed Brady.

“With a strengthening economy, solid job growth and low mortgage interest rates, the market should continue on an upward trajectory throughout the rest of the year.”  “Among the LMI components, house prices are making the most far-reaching progress, with almost 97% of markets having returned to or exceeded their last normal levels.

 

Meanwhile, 78 metros have reached or exceeded normal employment activity,” said NAHB Chief Economist Robert Dietz. “Single-family permits have edged up to 50% of normal activity, but remain the sluggish element of the index.”  “More than 85% of all metros saw their Leading Markets Index rise over the quarter, a signal that the overall housing market continues to move forward,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.

Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.61 – or 61% better than its last normal market level. Other major metros leading the list include Austin, Texas; Honolulu; and San Jose, Calif. Rounding out the top 10 are Houston; Provo, Utah; Spokane, Wash.; Nashville, Tenn.; Los Angeles; and Oklahoma City.

Among smaller metros, both Odessa and Midland, Texas, have LMI scores of 2.0 or better, meaning that their markets are now at double their strength prior to the recession. Also at the top of that group are Manhattan, Kansas; Walla Walla, Wash.; and Grand Forks, N.D.; respectively.

 

NAR – NAR identifies top markets where renters can afford to buy

The US home ownership rate has slowly fallen in recent years to currently its lowest level since 1965, but new research from the National Association of Realtors (NAR) reveals that there are affordable metro areas right now with above-average hiring and a large segment of current renters who earn enough income to qualify to buy a home.

NAR reviewed employment growth, household income and qualifying income levels in nearly 100 of the largest metropolitan statistical areas across the country to determine which areas with employment gains above the recent national average also have the largest share of renters who can currently afford to buy a home. Of the top 10 metro areas with the highest share of renters who earn enough to buy, nine were either in the South or Midwest — including three cities in Ohio.

Lawrence Yun, NAR chief economist, says there’s been a significant increase in renter households — both young adults and those who lost their home — since the Great Recession, and especially in metro areas that have seen robust job creation and a resulting influx of new residents.

This has led to a multi-year run-up in rents in several markets that have contributed to many of these renters’ inability to advance into home ownership.  “Even in a time of expanding home sales, steady job growth and historically low mortgage rates, the home ownership rate recently tumbled to its lowest level in over five decades as many renters struggle to juggle escalating rents without commensurate income gains,” he said. “However, this new study reveals that there are several affordable, middle-tier markets with solid job gains and a large segment of renters who earn enough to buy.”

 

The top 10 metro areas highlighted in NAR’s study were all outside of the West Coast and each had a share of renters who qualify to buy that was well above the national level (28%).  The top markets with the highest share of renters who can afford to purchase a home are:

Toledo, Ohio (46%)

Little Rock, Arkansas (46%)

Dayton, Ohio (44%)

Lakeland, Florida (41%)

St. Louis, Missouri (41%)

Columbia, South Carolina (41%)

Atlanta (40%)

Columbus, Ohio (38%)

Tampa, Florida (38%)

Ogden, Utah (38%)

According to Yun, it’s no surprise that many of the markets with the most renters qualified to buy are in the Midwest and South. The median existing-home sales price in these two regions continue to be lower than the Northeast and West, and while many of these areas were slower to recover from the recession, improvements in their local labor markets in the past year have pushed their hiring levels to at or above the national average growth rate.

“Overall housing affordability and local job market strength play a pivotal role in a renter’s decision on whether to buy a home or sign another lease,” adds Yun. “The good news is that other recent NAR survey data shows that those residing in the two regions were the most likely to say that now is a good time to purchase a home.”  Concludes Yun,

“With mortgage rates now at their all-time low, these identified markets are well-suited for the many renters financially capable and interested in taking advantage of the stability and wealth-building benefits owning a home can provide.”

CoreLogic – distressed sales update: April 2016

 

–  Of total sales in April 2016, distressed sales accounted for 8.8% and real estate-owned (REO) sales accounted for 5.7%

–  The REO sales share was 22.2 percentage points below its peak of 27.9% in January 2009

–  Distressed sales shares fell in most states, including the oil markets

 

Distressed sales, which include REO and short sales, accounted for 8.8% of total home sales nationally in April 2016, down 3 percentage points from April 2015 and down 1.7 percentage points from March 2016.  Within the distressed category, REO sales accounted for 5.7% and short sales accounted for 3% of total home sales in April 2016. The REO sales share was 2.4 percentage points below the April 2015 share and is the lowest for the month of April since 2007.

The short sales share fell below 4% in mid-2014 and has remained in the 3-4% range since then. At its peak in January 2009, distressed sales totaled 32.4% of all sales, with REO sales representing 27.9% of that share. While distressed sales play an important role in clearing the housing market of foreclosed properties, they sell at a discount to non-distressed sales, and when the share of distressed sales is high, it can pull down the prices of non-distressed sales.

There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%. If the current year-over-year decrease in the distressed sales share continues, it will reach that “normal” 2-percent mark in mid-2017.

 

All but seven states recorded lower distressed sales shares in April 2016 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 19.5% in April 2016, followed by Connecticut (18.6%), Michigan (18.1%), Florida (16.4%) and Illinois (16.3%). North Dakota had the smallest distressed sales share at 2.4%.

Oil states continued to see year-over-year declines in their distressed sales shares in April 2016. Texas saw a 1.3 percentage point decrease and Oklahoma and North Dakota both saw a 0.2 percentage point decrease. Florida had a 5.3 percentage point drop in its distressed sales share from a year earlier, the largest decline of any state.

California had the largest improvement of any state from its peak distressed sales share, falling 60.1 percentage points from its January 2009 peak of 67.5%. While some states stand out as having high distressed sales shares, only North Dakota and the District of Columbia are close to their pre-crisis levels (each within one percentage point).

 

Of the 25 largest Core Based Statistical Areas (CBSAs) based on mortgage loan count, Baltimore-Columbia-Towson, Md. had the largest share of distressed sales at 19.5%, followed by Chicago-Naperville-Arlington Heights, Ill. (18.5%), Tampa-St. Petersburg-Clearwater, Fla. (17.9%), Orlando-Kissimmee-Sanford, Fla. (17.5%) and Newark, N.J. (15.7%).

Denver-Aurora-Lakewood, Colo. had the smallest distressed sales share at 2.5% among this same group of the country’s largest CBSAs. Three of the largest 25 CBSAs had year-over-year increases in their distressed sales share: Nassau County-Suffolk County, N.Y. was up by 1 percentage point, Cambridge-Newton-Framingham, Mass. was up by 0.8 percentage points and Newark, N.J. was up by 0.7 percentage points. Orlando-Kissimmee-Sanford, Fla. had the largest year-over-year drop in its distressed sales share, declining by 7.1 percentage points from 24.6% in April 2015 to 17.5% in April 2016. Riverside-San Bernardino-Ontario, Calif. had the largest overall improvement in its distressed sales share from its peak value, dropping from 76.3% in February 2009 to 10% in April 2016.

 

Murray Energy CEO: coal industry is virtually destroyed

Murray Energy CEO Robert Murray weighed in on the increasing amount of regulations on the coal industry, President Obama and presumptive Democratic presidential nominee Hillary Clinton’s support of green energies.

According to Murray, the Clinton Foundation and Hillary Clinton’s campaign are benefiting financially from her support of solar and wind energy.  “Why she is supporting the elimination of coal is she’s getting millions and millions of dollars from the manufacturers of windmills and solar panels. That electricity costs 26 cents a kilowatt hour, coal-fired electricity costs four cents. It gets four cents a kilowatt hour, the wind and solar, from the government, the taxpayer.

So she is getting a lot of kickback into her campaign and into the Clinton Foundation from the makers of windmills and solar panels – it’s called crony capitalism.  Murray then responded to claims that the coal industry is bad for the environment.  “You could close down every coal-fired plant in the United States and it wouldn’t affect global temperatures by 0.16%, unmeasurable. So it has nothing to do with the environment.”

Murray explained that it has been difficult keeping up with all the new regulations under the Obama Administration.  “The regulations are coming out faster from the Obama Administration than we can read them. In the last five years, the US EPA alone [has published] 38 times the words in our Holy Bible.”  Murray says the war on coal has been catastrophic for the industry.  “The coal industry is virtually destroyed.

There are 52 bankrupt coal companies, there are only four of us that are not – 140,000 [miners have been let go]. We had 200,000 miners before Obama, we now have 60,000.  On whether a Donald Trump Administration could reverse some of the job losses in the coal industry, Murray responded, “I don’t think those jobs can come back, but we can stop the destruction.”

 

MBA – mortgage applications down

Mortgage applications decreased 1.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 15, 2016. The prior week’s results included an adjustment for the July 4th holiday.  The Market Composite Index, a measure of mortgage loan application volume, decreased 1.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 24% compared with the previous week. The Refinance Index decreased 1% from the previous week.

The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index increased 23% compared with the previous week and was 16% higher than the same week one year ago.  The refinance share of mortgage activity increased to 64.2% of total applications from 64.0% the previous week.

The adjustable-rate mortgage (ARM) share of activity decreased to 5.1% of total applications.  The FHA share of total applications decreased to 9.9% from 10.0% the week prior. The VA share of total applications decreased to 11.2% from 12.1% the week prior. The USDA share of total applications decreased to 0.5% from 0.6% the week prior.

 

Currency trading executive charged with front-running orders

Mark Johnson, the global head of foreign-exchange cash trading at HSBC, was arrested Tuesday evening at JFK airport and charged with front-running customer orders, The Wall Street Journal reported Wednesday.

Federal prosecutors allege that Johnson and Stuart Scott, the former European head of currency trading, traded ahead of a client’s purchase of $3.4 billion worth of British pounds, WSJ reported. They have been charged with one count of conspiracy to commit wire fraud. Scott, who hasn’t been arrested according to WSJ, was fired by HSBC in December 2014 after the London-based bank paid a $618 million fine to regulators for its role in a foreign-exchange trading scandal.

 

NAHB – housing starts rise 4.8% in June

Nationwide housing starts rose 4.8% in June to a seasonally adjusted annual rate of 1.19 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department.

Overall permit issuance increased 1.5% to a seasonally adjusted annual rate of 1.15 million.  “This month’s uptick in production is an indicator that the housing market continues to move forward,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “At the same time, builders are adding inventory at a cautious pace as they face lot shortages and regulatory hurdles.”

“The June report is consistent with our forecast for a gradual but consistent recovery of the housing market,” said NAHB Chief Economist Robert Dietz. “Single-family production should continue to strengthen throughout the year, buoyed by job growth, new household formations and low mortgage interest rates.”  Single-family housing starts rose 4.4% to a seasonally adjusted annual rate of 778,000 units in June while multifamily production ticked up 5.4% to 411,000 units.

Regionally in June, combined single- and multifamily starts increased in the Northeast and West, with respective gains of 46.3% and 17.4%. The Midwest registered a 5.2% loss and the South fell 3.4%. However, single-family production rose in all four regions.  Both sectors posted permit gains. Single-family permits edged up 1% to a rate of 738,000 while multifamily permits rose 2.5% to 415,000.  Permit issuance increased 9.4% in the Northeast and 8.3% in the South. Meanwhile, the Midwest and West registered respective losses of 2.8% and 10.1%.

 

Zillow – June home sales forecast

Zillow expects existing home sales to fall 1.4% in June from May, to 5.45 million units at a seasonally adjusted annual rate (SAAR), ending a string of three consecutive monthly gains.  New home sales should rise 0.5% to 554,000 units (SAAR).

Sales of existing homes drove much of the overall growth in home sales in recent years. But new home sales are contributing more lately, although there remains a big gap.  For much of the housing recovery, economists (ourselves included) have puzzled over diverging trends in existing and new home sales: Sales of existing homes were growing strongly, while sales of new homes remained stubbornly low. But now the tables appear to be turning.

Exceptionally tight inventory has held back existing home sales through the first half of 2016, while home builders have begun to increase capacity. For the year ending June 2016, we expect existing home sales to be essentially flat compared to a year earlier. But new home sales should be up more than 17% from last year. Still, there’s a big gap to make up: Existing home sales remain 25% below their bubble-era peak, and new home sales remain 60% below their mid-2000s high.

 

We expect existing home sales to fall 1.4% month-over-month in June, to 5.45 million units at a seasonally adjusted annual rate (SAAR) from 5.53 million units in May. At the same time, we expect new home sales to increase, rising 0.5% to 554,000 units (SAAR). If so, this would mean that existing home sales will have been essentially constant since the end of last year, while new home sales will have increased 3% over the same time.

The number of existing homes for sale in May was down 5.75% from a year earlier, according to the National Association of Realtors (NAR), and has fallen year-over-year 12 consecutive months. Tight inventory has contributed to rising prices. We expect the median price of existing homes sold in June to rise to $231,000 – just shy of all-time highs recorded earlier this year – up 0.5% from May and 5.7% over the year.

But while existing home sales have stalled, new home sales have been unexpectedly buoyant. Construction permits, starts and homes under construction all rose through the spring. New home sales were particularly strong in April, even after downward revisions to the initial data. This trend should continue in June with steady upward movement in new home sales.

Builder confidence slips in July

Builder confidence in the market for newly built, single-family homes in July fell one point to 59 from a June reading of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

“For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “However, we are still hearing reports from our members of scattered softness in some markets, due largely to regulatory constraints and shortages of lots and labor.”

“The economic fundamentals are in place for continued slow, steady growth in the housing market,” said NAHB Chief Economist Robert Dietz. “Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses.”

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 edged lower in July. The components measuring current sales expectations and buyer traffic each fell one point to 63 and 45, respectively.

The index measuring sales expectations in the next six months posted a three-point decline to 66.  The three-month moving averages for regional HMI scores held remarkably steady. The Northeast, Midwest and South were unchanged at 39, 57 and 61, respectively. The West edged one point higher to 69.

 

Wall Street is turning out more car loans

The auto lending business is all revved up, thanks to Wall Street.  More auto loans and leases are being cranked out at banks like JPMorgan Chase and Wells Fargo at a time when consumers are piling on more debt — and lengthier loans — to cover new and used car purchases.

JPMorgan saw auto loan and lease origination volume jump by 9% year over year, to $8.5 billion, the bank reported in its second-quarter earnings. Overall, the bank said its auto loans and leases rose 17% year over year.

Wells Fargo also showed an increase in auto origination, with a 2% rise year over year and an 8% increase from the first quarter of $8.3 billion, it announced in its earnings Friday.  The total dollar amount lent to car buyers eclipsed the $1 trillion mark earlier this year, and it remains to be seen whether anything can stall growth in auto loans at a time when borrowing costs consumers so little.

JPMorgan CFO Marianne Lake said Thursday on the bank’s earnings call that it has “maintained our underwriting discipline with average FICO scores.” Later on the call, when pressed for specifics by an analyst who asked if JPMorgan had applied consistent standards to its auto lending, Lake said only that it has focused on consumers with “very high” scores.

 

Auto loans aren’t the only thing that’s growing; their size and duration are on the rise as well this year, according to data from Experian. The average monthly payment, around $500, is up to a record mark, according to a June report from the firm, and the industry’s average loan size for new cars is also at an all-time high, having eclipsed the $30,000 mark.

The average US transaction price for new, light vehicles was $33,652 in June, according to automobile price-tracking firm Kelley Blue Book.  The Experian report also highlighted that the average credit score for a new car loan borrower, at 710, has fallen slightly from the prior year.

The auto lending business has been juiced in part thanks to companies like Uber and Lyft, which hire new drivers and thereby push new buyers to car companies, such as General Motors.  But even leadership at the big banks pouring more cash into auto loans has wondered how long the car sales rally can continue.  Speaking at a New York conference last month, JPMorgan CEO Jamie Dimon issued a warning on auto lending, saying that “someone is going to get hurt” on loans.

 

Crude Prices Down 2% Amid Supply Rise

Oil prices fell 2% on Monday as rising stocks of crude and refined fuel intensified fears of another major glut building in the market.  Market intelligence firm Genscape reported that the Cushing, Oklahoma delivery hub for US crude futures saw a supply build of 26,460 barrels in the week to July 15, traders who saw the data said.

Morgan Stanley said in a report that demand for fuels such as diesel and gasoline were lagging petrochemicals, clouding the outlook for oil.  “A rapid rise of non-petroleum products (demand) is boosting total product demand, but this is unhelpful for crude oil. Based on the latest data, even our tepid 800,000 barrels per day growth estimate for global crude runs looks too high,” it said.

US gasoline and distillate stocks surged unexpectedly last week, government data showed, crimping margins for refiners at the height of summer driving season when demand for fuels were generally healthy.  Morgan Stanley said it still expected a supply-demand rebalancing in oil by mid-2017 but added that fundamental headwinds were growing the market.

“Tail risks are admittedly large in both directions, as geopolitics add to uncertainty.”  Brent crude was down 89 cents, or 1.9%, at $46.72 a barrel by 10:32 a.m. EDT (1432 GMT). It fell more than $1 earlier to a session low of $46.51.  US crude slid by 80 cents, or 1.8%, to $45.15 a barrel.

Oil prices are up nearly 75% since hitting 12-year lows of around $27 for Brent and about $26 for US crude in the first quarter. The rally has stalled since the two benchmarks breached the $50 a barrel mark in May as worries grew that higher prices will fuel more production.

Saudi Arabia’s energy minister said on Sunday the kingdom always reacts to oil market supply and demand and would continue to monitor crude markets for any developments.  Hedge funds cut their bullish bets on Brent to the lowest in four month lows last week even they raised their positive wagers on US crude, data showed.

 

CoreLogic – recent activity around condo project eligibility

Over the past few months, momentum has been building behind the efforts to standardize and streamline the project review processes that lenders use to determine if condominium projects meet eligibility requirements of the government-sponsored enterprises (GSEs).

Currently, condo sales represent about 10% of the overall home sales market or roughly 500,000 units per year. In 2015, this translated to approximately $125 billion in mortgages, approximately 80% of which were conventional loans, backed by the GSEs.  At the end of March, at the direction of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, the GSEs introduced a new Condominium Project Questionnaire (Full and Short Form) that lenders can use to collect the information their underwriters need to determine project eligibility.

In announcing the new forms, Freddie Mac said they are “a convenient way to collect information from the HOAs about the condominium project in a consistent and easy-to-understand format.”  At the recent Community Association Institute’s (CAI) annual meeting, reactions to the new forms were generally positive, and there was an expectation that the FHFA and the agencies would continue to make changes, based on lender and condo association feedback.

 

Recently, the Veterans Administration (VA) changed some of its condo project eligibility guidelines to make them more flexible and to expand lending opportunities to veterans and their families. Being able to use their VA entitlements to buy in multifamily communities’ benefits both veterans and condo sellers (more on this in a future blog).

So much so that at least one state, California, requires condo associations to disclose to their homeowners whether they are a VA-approved project.  Finally, the Federal Housing Administration (FHA) is reportedly preparing new guidelines that will loosen what some observers believe is currently the most restrictive condo approval process.

Housing and Urban Development (HUD) Secretary Julian Castro, speaking at the recent National Association of Realtors conference said, “[W]e’re moving forward on a rule change that’s going to make it easier for folks to buy one of the most attractive options for young professionals and retirees: Condominiums.

HUD’s Condo Rule is out the door and with OMB. That means we’re another step closer to giving more builders, sellers, and buyers the market flexibility they deserve.”  While details are still under wraps, housing advocates and COAs are hoping that the FHA will simplify the certification process, allow a greater proportion of commercial space and perhaps again allow for “spot loans.”

 

Harold Hamm chalks up stock gains to ‘Trump Rally’

Traders have credited a number of recent developments for last week’s all-time highs in the stock market, from expectations for additional central bank stimulus to the speedy resolution of Britain’s contest for prime minister.

On Monday, Continental Resources founder Harold Hamm offered another explanation: the prospect that America will get a business-friendly president in Donald Trump.  The Dow Jones industrial average, S&P 500, and Nasdaq all closed up about 1.5% or more last week and turned in their third consecutive week of gains.  “I think you could say that that’s the Trump rally,”

Hamm said on Monday in an interview from Cleveland, where he will give a speech at the Republican National Convention.  “Business people across the world are seeing the possibility of Donald Trump being president, and this is a big thing that I believe is inspiring people to put money here in America instead of Germany or other places where we have lot of things going on,” said Hamm,

Continental’s CEO and chairman and an energy adviser to Trump.  Hamm said the United States is the safest place in the world to invest, and Trump will be a job creator.  Hamm said the oil and gas industry had suffered death by a thousand cuts due to over-regulation under President Barack Obama.

The Obama administration has pushed through measures regulating hydraulic fracturing on government land and the release of methane from new and modified wells.  Asked whether higher US oil output would only make matters worse for American drillers, Hamm said future production would be needed and it underpinned the country’s national security.

533,813 US properties with foreclosure filings in first six months of 2016, down 11% from a year ago

RealtyTrac released its Midyear 2016 US Foreclosure Market Report, which shows a total of 533,813 US properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — in the first six months of 2016, down 20% from the previous six months and down 11% from the first six months of 2015.

Counter to the national trend, 19 states posted year-over-year increases in foreclosure activity in the first half of 2016, including Massachusetts (up 46%); Connecticut (up 40%); Virginia (up 18%); Alabama (up 11%); and New York (up 10%).

Among the nation’s 20 most-populated metro areas, five posted year-over-year increases in foreclosure activity: Boston (up 38%); Philadelphia (up 7%); New York (up 4%); Washington, D.C. (up 3%); and Baltimore (up 1%).  “Although there are some local outliers, the downward foreclosure trend continued in the first half of 2016 in most markets nationwide,” said Daren Blomquist, senior vice president at RealtyTrac.

“While US foreclosure activity is still above its pre-recession levels, many of the states hit hardest by the housing crisis have now dropped below pre-recession foreclosure activity levels. With some exceptions, states with foreclosure activity continuing to run above pre-recession levels tend to be those with protracted foreclosure timelines still working through legacy distress from the last housing bust.”

 

There were a total of 280,989 US properties with foreclosure filings in Q2 2016, down 3% from the previous quarter and down 18% from a year ago to the lowest level since Q4 2006.  Nationwide foreclosure activity in Q2 2016 was still 21% above the pre-recession average of 232,082 properties with foreclosure filings per quarter in 2005, 2006 and 2007, but Q2 2016 foreclosure activity was below pre-recession averages in 15 states, including Arizona (13% below pre-recession averages); California (25% below); Colorado (72% below); Georgia (33% below); Michigan (46% below); Nevada (18% below); Ohio (9% below); and Texas (46% below).

States where Q2 2016 foreclosure activity was still above pre-recession averages included Florida (26% above pre-recession levels); New Jersey (215% above); Illinois (36% above); New York (127% above); Indiana (2% above); South Carolina (376% above); Massachusetts (127% above); and Washington (29% above).  “It is pleasing to note the 30% drop in foreclosure filings in the Central Puget Sound region versus the prior six-month period and the number down by over 10% from the same period a year ago,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market.

“There is no reason to believe that we will see any increase in the level of foreclosure activity in the foreseeable future.  In fact, I would contend that we will see the number of foreclosures continue to contract as job growth — and home price growth — continue to outperform the nation as a whole.”  “South Florida saw a 34% drop in foreclosure filings year-over-year,” said Mike Pappas, president and CEO at Keyes Company, covering the South Florida market. “With strong employment, low interest rates, and with lenders continuing to carefully scrutinize borrowers — foreclosures will soon be at the lowest levels in a decade.”

 

There were a total of 94,469 US properties with a foreclosure filing in June, down 6% from the previous month and down 19% from a year ago to the lowest level since July 2006 — a nearly 10-year low.  Nationwide 0.40% of all housing units (one in 249) had a foreclosure filing in the first six months of 2016.

States with highest foreclosure rates were New Jersey (0.98% of housing units with a foreclosure filing); Maryland (0.90%); Delaware (0.78%); Florida (0.70%); and Nevada (0.68%).  Other states with foreclosure rates among the 10 highest in the first six months of 2016 were Illinois (0.61%); Ohio (0.54%); South Carolina (0.54%); Connecticut (0.48%); and Indiana (0.47%).

Among metropolitan statistical areas with at least 200,000 people, those with the highest foreclosure rates in the first half of 2016 were Atlantic City, New Jersey (1.85% of housing units with a foreclosure filing); Trenton, New Jersey (1.31%); Baltimore (0.96%); Lakeland-Winter Haven, Florida (0.91%); and Rockford, Illinois (0.91%).

Other metro areas with foreclosure rates among the 10 highest in the first six months of 2016 were Philadelphia (0.86%); Tampa-St. Petersburg, Florida (0.85%); Jacksonville, Florida (0.80%); Columbia, South Carolina (0.78%); and Chicago (0.76%).

 

A total of 253,408 US properties started the foreclosure process in the first half of 2016, down 17% from a year ago the lowest level for any half-year period since RealtyTrac began tracking foreclosure starts in 2006.  Counter to the national trend, 13 states and the District of Columbia posted a year-over-year increase in foreclosure starts, including Connecticut (up 91%); Massachusetts (up 35%); Arizona (up 12%); Ohio (up 10%); and Virginia (up 6%).

Lenders foreclosed (REO) on 197,425 US properties in the first half of 2016, down 6% from a year ago, but still 48% above the pre-recession average of 133,391 per half-year.  Counter to the national trend, 26 states and the District of Columbia posted a year-over-year increase in REO activity in the first half of 2016, including Alabama (up 73%); New York (up 65%); New Jersey (up 56%); Massachusetts (up 43%); and Virginia up 37%).

A total of 227,473 foreclosure auctions (which in some states is also the foreclosure start) were scheduled in the first half of 2016, down 23% from a year ago.  Based on separate sales deed data also collected by RealtyTrac, 27% of all properties sold at foreclosure auction were purchased by third-party investors, the highest share for the first six months of any year since 2000 — the earliest national data available.

 

The investor share of purchases at foreclosure auction reached 20% or higher in only two previous years: 2005 (20%) and 2015 (22%). The investor share of purchases at foreclosure auction dropped to a 17-year low of 11% in 2008.

Foreclosures completed in the second quarter of 2016 took an average of 629 days from the first public notice of foreclosure to complete the foreclosure process, up from 625 days the previous quarter and unchanged from a year ago.

States with the longest foreclosure timelines were New Jersey (1,249 days), Hawaii (1,236 days), New York (1,058 days), Utah (1,025 days), and Florida (1,012 days).  States with the shortest foreclosure timelines were Virginia (195 days), Minnesota (219 days), Mississippi (237 days), Tennessee (238 days), and Wyoming (242 days).

 

Consumer sentiment hits 89.5 in July vs. 93 estimate

A key measure of consumers’ attitudes was lower so far this month, as high-income consumers digested Britain’s surprise vote to leave the European Union.  The Index of Consumer Sentiment hit 89.5 in July’s preliminary reading, the University of Michigan said Friday.

Economists expected the preliminary July consumer sentiment index to hit 93, down slightly from 93.5 in June’s final reading, according to a Thomson Reuters consensus estimate.  “Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the US economy,” said Richard Curtin, the survey’s chief economist. “Following the Brexit vote, it was mentioned by record numbers of consumers, especially high-income consumers.”

The monthly survey of 500 consumers measures attitudes toward topics like personal finances, inflation, unemployment, government policies and interest rates.  Attitudes toward present and future economic conditions both dimmed in early July, the survey showed.  The index of current economic conditions hit 108.7, down from 110.8 in June.

The index of consumer expectations hit 77.1, down from 82.4 in June.  The decline in consumer sentiment was rather minor, Curtin said, and may recover in late July and early August. Jim O’Sullivan, chief US economist at High Frequency Economics, compared the timing of the Michigan survey to other similar indexes.

There was no sign of any ongoing weakening in confidence in yesterday’s weekly Bloomberg consumer comfort index report; the Bloomberg index rose to its highest since October,” O’Sullivan said. “Meanwhile, long-term inflation expectations continue to be fairly stable.”  Still, well-off consumers felt the personal wealth losses that accompanied the post-Brexit stock rout.

Nearly one in four households in the top third of incomes mentioned Brexit, Curtin said.  “While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded,” Curtin said.

 

MBA – applications for new home purchases decreased in June

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for June 2016 shows mortgage applications for new home purchases decreased by 0.2% relative to the previous month. This change does not include any adjustment for typical seasonal patterns.

“Thus far in 2016, average loan sizes for new homes have been higher than for the same period in 2015, but that gap has recently been declining,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “The three-month moving average loan size was $326,480 in June relative to a series high of $329,119 in February and just over 2% higher than June a year ago. On a year over year basis, our June estimate of 530,000 new home sales was up 7%.”

By product type, conventional loans composed 67.7% of loan applications, FHA loans composed 18.2%, RHS/USDA loans composed 0.7% and VA loans composed 13.4%. The average loan size of new homes decreased from $328,032 in May to $326,175 in June.  The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 530,000 units in June 2016, based on data from the BAS.

The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.  The seasonally adjusted estimate for June is an increase of 8.6% from the May pace of 488,000 units. On an unadjusted basis, the MBA estimates that there were 47,000 new home sales in June 2016, unchanged from 47,000 new home sales reported in May.

 

Empire State manufacturing slowed in July

Factory activity across New York state leveled off in July after climbing a month earlier, highlighting the modest and uneven nature of the recovery in the US manufacturing sector.  The Empire State’s business conditions index declined to 0.6 this month from 6.0 in June. The index has been seesawing around the flat line, with separates expansion from contraction, in recent months.

In May, the gauge registered at -9 after back-to-back gains.  Economists surveyed by The Wall Street Journal had expected the index to fall slightly to 4.5.  The Empire report is one of several factory surveys conducted by regional Fed banks, looked to by economists and investors for clues about the health of the national manufacturing sector, which accounts for about 10% of American jobs and output. The New York state report is the first in the July batch.

This month’s result underscores the shaky recovery happening across the nation’s producers. The strong US dollar and collapsing energy prices have pulled down activity for months, as exports became less competitive and energy-exposed customers halted capital spending. However, as those headwinds eased demand has resurfaced.

Still, the dollar remains a challenge given Brexit and expectations that Federal Reserve rate increases are in the pipeline, and while the price of oil has stabilized it is still below levels needed to spur meaningful investment.  Across New York, demand slipped back into negative territory this month and shipments, in turn, dropped. Inventories remain negative, suggesting firms continue to draw from existing stocks and aren’t replenishing.

New York factory owners, meanwhile, cut payrolls this month and existing workers logged fewer hours. Despite modestly better manufacturing conditions across the country in recent months, firm owners have remained hesitant to hire. Respondents to the New York Fed’s survey said this month that they expect to keep payrolls steady over the next six months, a signal that they are cautious in their overall outlook.

 

NAR – NAR-backed condo legislation passes US senate, offers relief for homebuyers

The US Senate tonight passed H.R. 3700, the “Housing Opportunity Through Modernization Act,” by unanimous consent. This legislation includes reforms to current Federal Housing Administration restrictions on condominium financing, among other provisions, and is long supported by the National Association of Realtors (NAR).

Changes include efforts to make FHA’s recertification process “substantially less burdensome,” while lowering FHA’s current owner-occupancy requirement from 50% to 35%. The bill also requires FHA to replace existing policy on transfer fees with the less-restrictive model already in place at the Federal Housing Finance Agency.

NAR testified last year in support of the bill, which passed in the House of Representatives 427-0 in February.  Tom Salomone, president of NAR and broker-owner of Real Estate II Inc. in Coral Springs, Florida, praised the legislation as a significant step towards eliminating barriers to safe, affordable mortgage credit for condos.  Following is a statement from Mr. Salomone:

 

“Condominiums often represent an affordable option that’s just right for first-time and low-to-moderate income homebuyers. Unfortunately, overly-burdensome restrictions on condo financing have for too long put that option out of reach for many creditworthy borrowers.  “This legislation meets those restrictions head on, putting the dream of homeownership back in reach for more Americans.

“Tight inventory and rising home prices are a reality of today’s market, and mortgage credit is hard to come by. We should take every opportunity to clear the path for well-qualified borrowers to purchase a home when they’re ready, and this legislation does just that.  “Sens.

Tim Scott (R-S.C.) and Robert Menendez (D-N.J.) have done tremendous work to see H.R. 3700 move forward, and we’re thankful for their support. Realtors made their voices heard as well, reaching out to their Senators and Representatives to remind them of how important this issue is to homeownership.”  “We look forward to seeing this legislation signed into law so homebuyers can start seeing some much-needed relief.”

 

 

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