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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.”

 

 

CoreLogic – 38,000 Completed Foreclosures in May 2016

CoreLogic released its May 2016 National Foreclosure Report which shows the foreclosure inventory declined by 24.5% and completed foreclosures declined by 6.9% compared with May 2015. The number of completed foreclosures nationwide decreased year over year from 41,000 in May 2015 to 38,000 in May 2016, representing a decrease of 67.9% from the peak of 117,813 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 8.3 million homes lost to foreclosure.

As of May 2016, the national foreclosure inventory included approximately 390,000, or 1.0%, of all homes with a mortgage compared with 517,000 homes, or 1.3%, in May 2015. The May 2016 foreclosure inventory rate is the lowest for any month since October 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 21.6% from May 2015 to May 2016, with 1.1 million mortgages, or 2.8%, in this category.

The May 2016 serious delinquency rate is the lowest in more than eight years, since October 2007.  “The foreclosure rate fell to 1% in May, which is twice the long-term average of 0.5%. However, this masks the underlying progress at the state level,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Twenty-nine states had foreclosure rates below the national average, and all but North Dakota experienced declines in their foreclosure rate compared to the prior year.”  “Delinquency and foreclosure rates continue to drop as we experience the benefits of a combination of tight underwriting, job and income growth and a steady rise in home prices.

We expect these factors to remain in place for the remainder of this year and for delinquency and foreclosure rates to decline even further,” said Anand Nallathambi, president and CEO of CoreLogic. “As we finally move past the housing crisis, we need to increase our focus on expanding the supply of affordable housing and access to credit for first-time homebuyers in sustainable ways to ensure the long-term health of the US housing market.”

 

Additional May 2016 highlights:

–  On a month-over-month basis, completed foreclosures increased by 5.5% to 38,000 in May 2016 from the 36,000 reported for April 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 3.0% compared with April 2016.

–  The five states with the highest number of completed foreclosures were Florida (63,000), Michigan (45,000), Texas (27,000), Ohio (23,000) and California (23,000).These five states account for almost half of all completed foreclosures nationally.

–  Four states and the District of Columbia had the lowest number of completed foreclosures: the District of Columbia (139), North Dakota (323), West Virginia (494), Alaska (648) and Montana (690).

–  Four states and the District of Columbia had the highest foreclosure inventory rate: New Jersey (3.6%), New York (3.2%), Hawaii (2.1%), the District of Columbia (2.0%) and Maine (1.9%).

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

 

Investors keep record cash on US election fears: UBS executive

Wealthy US investors are holding record cash balances out of fear that the US presidential election will wreak havoc on their retirement accounts, a senior UBS Group AG executive said.  Bob McCann, who chairs the Swiss bank’s Americas division, said in an interview this week that clients are confident about the economy but hesitant to invest because the Nov. 8 election seems so unpredictable.

Although the US stock market hit a new high this week, many clients would rather sit on the sidelines than risk the kind of losses they faced in 2008, he said.  “Historically, individual investors define risk as, ‘How much volatility can I live with in my portfolio?”‘ McCann told Reuters ahead of a UBS event in Hartford, Connecticut, on Monday evening. “The definition has changed to, ‘How much money can I afford to lose permanently?”‘  The event, featuring two former US Senate majority leaders, was intended to calm clients’ nerves about the election.

Unpredictable and sometimes fiery rhetoric from candidates has given them reason to worry.  A tweet from presumptive Democratic nominee Hillary Clinton in September sent biotech stocks crashing.  Republican candidate Donald Trump has promised to dismantle financial reform laws, force Canada and Mexico to renegotiate the North American Free Trade Agreement, and slap steep tariffs on Chinese and Mexican imports.

An UBS survey of 2,200 high net worth investors found that 84% of them think the election will have a significant impact on their financial health, McCann said, citing a report due to be released later in July. Individual investors have consistently held an average of 20% of their portfolio in cash over the past five years, according to UBS data.

 

MBA – mortgage applications increase in latest MBA weekly survey

Mortgage applications increased 7.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 8, 2016. This week’s results included an adjustment for the Fourth of July holiday.  The Market Composite Index, a measure of mortgage loan application volume, increased 7.2% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index decreased 14% compared with the previous week. The Refinance Index increased 11% from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. The unadjusted Purchase Index decreased 20% compared with the previous week and was 5% lower than the same week one year ago.

Last year, the Fourth of July fell on the prior week.  The refinance share of mortgage activity increased to 64.0% of total applications from 61.6% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.2% of total applications.

The FHA share of total applications increased to 10.0% from 9.5% the week prior. The VA share of total applications decreased to 12.1% from 12.8% the week prior. The USDA share of total applications remained unchanged at 0.6% the week prior.

 

US import prices rose 0.2% in June vs. 0.5% increase expected

US import prices rose less than expected in June as rising costs for petroleum products were offset by declining consumer and capital goods prices, suggesting inflation could remain benign for a while.  The Labor Department said on Wednesday import prices increased 0.2% last month after an unrevised 1.4% jump in May.

Economists polled by Reuters had forecast import prices rising 0.5% in June.  The modest increase likely reflects the lingering effects of the dollar’s surge between June 2014 and December 2015, which continues to dampen imported inflation pressures and keep overall inflation below the Federal Reserve’s 2% target.

US financial markets were little moved by the data.  In the 12 months through June, import prices fell 4.8%, the smallest drop since November 2014.  Last month, imported petroleum prices rose 6.4% after soaring 16.3% in May. Import prices excluding petroleum fell 0.3% as the cost of capital goods slipped 0.3% and consumer goods, excluding automobiles dropped 0.2%.

The cost of imported industrial supplies and materials excluding fuels decreased 0.3%. Imported food prices tumbled 1.3% last month.  The report also showed export prices increased 0.8% in June, after rising 1.2% in May. Export prices fell 3.5% from a year ago.

Prices for agricultural exports increased 2.4%, boosted by higher soybean and corn prices. Prices for nonagricultural exports rose 0.5% last month.  The increase was led by gains in prices for industrial supplies and material, as well as capital goods. But prices for consumer goods exports fell.

 

FHFA’s Watt: Congress needs to handle housing finance reform

In recent weeks, several different groups tried to exert public pressure on the Federal Housing Finance Agency in an attempt to end the housing finance system’s current status quo.  Recently, 32 Congressional Democrats attempted to push the FHFA to allow Fannie Mae and Freddie Mac to rebuild their dwindling capital base, while a group of the largest trade organizations in housing said that their view is that “comprehensive reform to the secondary housing finance system must come through Congress,” rather than from the FHFA.

The viewpoint of the Mortgage Bankers Association, National Association of Realtors, American Bankers Association, National Association of Home Builders, and the National Housing Conference was echoed by several of the Senate’s most ardent supporters of housing finance reform, who recently sent a letter of their own to the FHFA, stating their belief that Congress should be the ones to take on housing finance reform.

 

Up to this point, the FHFA and its director, Mel Watt, did not respond directly to these efforts, other than Watt’s inclusion in the Financial Stability Oversight Council’s annual report, in which the FSOC members stated that they too believe that Congress needs to take the lead on housing finance reform.  But now, Watt is responding to those public salvos, albeit much more quietly than the trade groups or the politicians.

As it turns out, Watt actually sent a letter of his own on Tuesday in response to the letter from the Mortgage Bankers Association, National Association of Realtors, American Bankers Association, National Association of Home Builders, and the National Housing Conference. Watt’s response was not made public, but it was revealed by the Wall Street Journal’s Nick Timiraos, who tweeted out a copy of the letter.

In the letter Watt agrees that Congress should “tackle” housing finance reform, but cautions that in the absence of Congressional action, the FHFA will continue down its current path.  “I continue to believe that conservatorship is not a desirable end state and that Congress needs to tackle the important work of housing finance reform,” Watt said.

“In the meantime, however, you can be assured that FHFA will continue to fulfill its responsibilities to manage the conservatorships of the Enterprises in a safe and sound manner and in accordance with our statutory responsibilities,” Watt said. “We appreciate very much the input and support that you and your members continue to provide as we fulfill those responsibilities.”

 

CoreLogic – Handicapping Brexit

The world has now had a couple of weeks to get over the shock of Brexit or the decision of Britain to exit the European Union. As week-three begins, global equity, debt and currency markets have stabilized.

What does Brexit mean for the US mortgage and real estate markets for the next few months?  Here’s a quick rundown on potential winners and losers in the mortgage and real estate industries.

–  Winners

The US Mortgage industry. That’s because the flight to safety has depressed yields and should give refinances a modest boost and provide further support to the purchase market. While the consensus is that mortgage rates will substantially fall, it’s important to keep in mind the components that determine rates.

Since Brexit occurred, the risk free benchmarks such as the 10-year treasury has declined by about 40 basis points. However, credit spreads rose which partly offset the drop in treasuries. That means wholesale mortgage rates fell by 29 basis points and have stabilized (Figure 1).

If future turbulence occurs and drops treasuries further, keep in mind the pass through to mortgage rates will be more muted.  First time buyers and Consumers with ARM loans. The likelihood that the Federal Reserve will raise rates has been further delayed.

So first time buyers can count on continued low mortgage rates to help with affordability issues. Similarly, re-setting adjustable rate loans will have less of a rate shock, and in some cases may even go down. In addition to the downward pressure on 30-year rates from market events, there is a push to drop both the FHA mortgage insurance premium and the GSE’s loan-level price adjustments, which will increase affordability.

–  Losers

High-end sellers, developers and realtors. The US equity markets have plateaued over the last 18 months and volatility has increased. This is an important development for the high end because as we have seen earlier (link to blog) there is a strong correlation between stock market indices and high-end ($1 million-plus) sales.

The private label securities market. Issuers and securitizers need more yield to make these deals work, and re-start the non-agency RMBS market. Continued low interest rates will push these deals even farther into the future.

 

 

CoreLogic – 10 years after the bubble, home prices are hitting new highs

 

This July marks the 10-year anniversary of the US home price bubble. The national CoreLogic Case-Shiller Home Price Index peaked in July 2006 and then dropped 27% over the next six years. Nearly a decade later, the national index still remains 4% below its peak nominal value.  Many local markets have already fully recovered from the bubble collapse.

In fact, in 40% of metro areas prices are at new peaks and another 30% are within 10% of their previous peak. Nationally, we will likely hit or surpass 2006 levels by next spring or summer. Both mortgage default rates and foreclosure inventories have fallen to their lowest levels in eight years, and the economy is generating about 2.5 million new jobs per year.

Since the last housing market crash nearly took down the US financial system and led to the most severe recession since the Great Depression, it’s natural to be concerned as US home prices move toward new record highs. Could we be headed for another housing market crash?

The short answer is most likely no, because the current run-up in prices is being driven almost entirely by fundamentals – solid job growth boosting housing demand and limits on supply as new home construction slowly drifts upward from record-low levels – and not by easy credit and investor frenzy.

 

The pre-bubble housing market was very different. Although job growth was strong during the housing bubble years, much of it was driven directly or indirectly by real estate speculation. In many markets, such as the Inland Empire in Southern California, the drivers of economic growth were housing construction, real estate brokerage, mortgage finance, and retail sales associated with home purchases (e.g., home improvement, furniture, and appliances).

Think of it as a real estate perpetual motion machine in which housing became the proverbial tail wagging the economy. Unfortunately, there is no such thing as a perpetual motion machine and eventually reality in the form of economic fundamentals took hold. Speculation morphed into fear, and the housing market and, to a lesser extent, the job market gave back nearly all of their bubble-era gains.

The current rebound in housing markets, on the other hand, is mostly a story of solid jobs gains driving the rebound in home sales and price appreciation. Figure 1 lists ten large metro areas in which home prices have increased the most compared to their previous peak.

Employment growth in all of these metro areas, with the exception of Pittsburgh, has been strong, exceeding the 9.6% national growth rate. (Pittsburgh is one of the few markets in the US that escaped the home price bubble, so its current peak price level reflects steady price increases over the past twenty years.)

 

Another difference, this time around, is underwriting. Gone are the affordability mortgage products—think pay option ARMs and no income, no asset verification—that fueled speculation.  Despite the fact that the economic dog is now wagging the housing market tail, it is likely that home price appreciation will weaken going forward.

The May jobs report was disappointing, and some markets continue to experience slow recoveries from the Great Recession (e.g., Philadelphia: 6% employment growth since March 2011, home prices still 9% below peak). But there is very little speculation occurring in most housing markets, so the downside risk to prices is most likely limited to any potential weakness in the job market.

 

June private sector jobs rose by 172,000 vs 159,000 expected: ADP

Employment in the private sector rose more than expected in June, led by gains in small-business jobs, according to a report Thursday from ADP and Moody’s.  “Job growth revived last month from its spring slump. Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors.

Large multinationals are struggling a bit, and Brexit won’t help, but small- and mid-sized companies continue to add strongly to payrolls,” Mark Zandi, chief economist at Moody’s Analytics, said in a statement.  Private sector jobs grew by 172,000, while economists polled by Reuters forecast a gain of 159,000.

The May number was revised down to 168,000 from 173,000.  Small businesses, those with fewer than 50 employees, accounted for 95,000 of those jobs, up from 84,000 in May.  Medium-sized businesses, those with an employee count between 50 and 499, added 52,000 jobs, down from 60,000 in May, while large businesses accounted for an extra 25,000.

However, the employment picture is not as positive within some industries.  ADP said construction jobs fell by 5,000 in June, offsetting a 9,000 gain from the previous month. Manufacturing shed 21,000 jobs last month, an acceleration in losses from May.  “Since the start of 2016, average monthly job creation has slightly dropped,”

Ahu Yildirmaz, vice president and head of the ADP Research Institute, said in a statement. “Lackluster global growth, low commodity prices and an unfavorable exchange rate continue to weigh on US companies, especially larger companies.”

 

RealtyTrac – are these three housing bubbles re-inflating?

Could we be headed towards another housing bubble?  Ten years ago, easy credit and lax banking lending standards in the US residential real estate market were partly to blame for a housing bubble that popped and caused over 7 million borrowers to lose their homes to foreclosure during the 2008 housing downturn, which triggered the Great Recession and unleashed a global financial meltdown.

Today, housing prices are steadily increasing again due to a shortage of new and existing homes for sale. And in some regions of the United States home prices are seriously overvalued, especially in coastal communities like San Francisco, New York and Miami.

According to Barron’s, home price increases have been fueled by real estate investors searching for yield in a low interest rate world and by foreign investors seeking a safe haven to store cash.  Rising home prices are bringing out more home flippers too. Last year, 180,000 home were flipped, according to RealtyTrac.

Home flips increased in 75% of US markets and accounted for 5.5% of all US home sales in 2015. Last year was the first increase in flips in four years.  Now, the question many experts are asking is no longer if, but rather when and how far, home prices will fall in the coming housing crash. Nationwide, we are not in a bubble, but some markets are getting frothy, experts claim.

 

Bay Area Bubble?

For years, it looked like San Francisco real estate boom would never end, but the tech go-go days may be slowing down, as home prices in the Bay Area have fallen for the first time in five years.  In San Francisco County, the median price of a single family home has nearly doubled since April 2006, ballooning from $900,442 to $1.4 million in April 2016, according to California Association of Realtors (CAR).

In Marin County, the median price has jumped from $985,072 to $1.2 million. And San Mateo County home prices have inflated from $798,387 in April 2006 to $1.3 million in April 2016.  Statewide, only 34% of families can actually buy a home today in the Golden State. It’s worse in San Francisco, where prices have risen so fast that only 12% can afford a home in Q1 2016, according to CAR’s affordability index.

In Los Angeles, only 31% can afford to buy, while Orange County 22% can afford a home.  The last time affordability levels were this low was in Q3 2007, when San Francisco’s housing affordability index reached 8%. Shortly after that, prices tanked, plummeting from nearly $800,000 in May 2007 to nearly $300,000 two years later.  But San Francisco incomes can’t keep pace with rising home prices.

The median household income in San Francisco is $78,000, according to the Census Bureau. That means that the price-income ratio that historically nationwide has been three times is more than 10 times the median household income in San Francisco.

Thanks in large part to the rise of Silicon Valley, San Francisco is now a city of moneyed technology workers, where hordes of Chinese and Indian nationals, with their newly minted H-1B work visas, are flooding the Bay Area seeking high-paying jobs and affordable housing.

 

To understand how tech money is transforming San Francisco’s rabid housing market look no further than the super-charged real estate market. As technology companies have moved in — Apple, Google, Facebook, Twitter, to name a few — the influx of high-paying workers has pushed rents and home prices through the roof. Google minted 1,000 millionaires when it went public in 2004.

In 2012, Facebook’ IPO created 1,000 millionaires too. Twitter added 1,600.  But the San Francisco venture capitalists are starting to get nervous. Twitter is laying off people. Yahoo is for sale and downsizing too. Numerous other tech companies have started the same process.

This year’s dramatic drop in tech stock sucked some of the life out of San Francisco’s real estate market, and created conditions for further decline in home prices, according to local real estate experts.  Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at U.C. Berkeley, said the San Francisco real estate market is interconnected with global markets.

Any slowdown in international markets, especially China, will affect the local Bay Area real estate market.  “We have one of the strongest economies in the country,” said Rosen. “We’ve created 500,000 jobs in the last few years. And our real estate market is a demand-driven market. But when job creation slows, we’re going to see a leveling off in home prices.”

 

New York Sand Castles

Like San Francisco, Manhattan’s real estate market has been sizzling several years. But now cracks are starting to show in the once red-hot real estate landscape. Price growth is starting to slow amid concerns of a supply glut, particularly in $5 million and above luxury market.

Inventory is rising and the global economy is starting to show signs of strain.  Jonathan J. Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm, says a bit of a chill has set in the New York City residential real estate market. Miller said the high-end luxury market is small sliver of the overall market.

He said “chronically low inventor” was pushing prices higher.  “New sales are 10 to 15% of the market,” said Miller, referring to the super tall skyscraper around Midtown on the West 57th Street corridor known as Billionaires’ Row, and the clusters towers in the financial district and downtown. “It’s a lot more interesting to write about the sale of a $100 million apartment than a $2 million condo.”  According to Real Estate Weekly, Manhattan’s skyline is filled with construction cranes, with 70 cranes dotting Gotham’s skyline are building high rise residential developments.

This construction boom is confirmed by Census data. In 2014, New York developers were issued 47,984 building permits. Last year, at 86,400 new building permits, developer nearly doubled the number of New York new building permits. In the first fourth months of 2016, builders added another 4,200 new building permits. (See chart “New York New Home Building Permits By Year”).

 

Miami: Condo Bust Looms — Again!

In Miami, the Brazilians, Canadians and Russians have disappeared just as a new crop of high rise condo towers are hitting the market. Miami condo developers are starting to cancel projects, slash prices and offering incentives to spur sales, according to Jack McCabe, a Florida-based real estate analyst with McCabe Research and Consulting in Deerfield, Florida.  McCabe, who called the last housing crash a decade ago, believes the luxury condo market is in a bubble.

He said the South Florida housing scene looks eerily similar to the 2008 housing bust, and the inventory of unsold luxury condos is ballooning. But instead of the US housing market taking down the global economy, the global economy will crater South Florida’s housing market this time, claims McCabe.

“The last housing downturn was cause by the subprime loan crisis domestically that eventually turned into global recession,” said McCabe. “This time, the global recession is going to cause a US recession. Here in Miami, 70% of the sales are to foreign nationals, most of which pay with cash. Only 10 to 15% of home buyers are Floridians.”

With the disappearance of international buyers, McCabe worries that South Florida’s real estate market is drifting back into bubble territory.  “In the upper-end condo market, we are in the ninth inning,” said McCabe, using a baseball analogy to describe the slowing Miami luxury condo market. “Sales numbers are dropping, prices are flattening, and we are starting to see the return of concessions by developers in the market such as private jet services to spur sales. South Florida is in a big bubble for high-end condos. We are at the end of the expansion phase and entering the hyper-supply phase, especially in condos.”

 

US weekly jobless claims total 254,000 vs 270,000 estimate

The number of Americans filing for unemployment benefits unexpectedly fell last week, offering further confirmation that the labor market remains on solid footing despite tepid job gains in May.  Initial claims for state unemployment benefits declined 16,000 to a seasonally adjusted 254,000 for the week ended July 2, the Labor Department said on Thursday.

The drop left claims close to a 43-year low of 248,000 touched in mid-April.  Claims for the prior week were revised to show 2,000 more applications received than previously reported. Economists polled by Reuters had forecast initial claims rising to 270,000 in the latest week.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 70 straight weeks, the longest stretch since 1973.  The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,500 to 264,750 last week.

A Labor Department analyst said there were no special factors influencing last week’s claims data. However, claims for Hawaii, Kansas, Nebraska, Puerto Rico, Virginia and Wyoming were estimated because of the Independence Day holiday on Monday.  Last week’s claims report has no impact on June’s employment report, which is scheduled for release on Friday.

Claims were low through the month, suggesting job gains probably picked up in June after increasing only 38,000 in May, the smallest gain since September 2010.  According to a Reuters survey of economists, nonfarm payrolls likely increased 175,000 last month. The unemployment rate is forecast rising to 4.8% in June from an 8-1/2-year low of 4.7% in May.

The claims report showed the number of people still receiving benefits after an initial week of aid dropped 44,000 to 2.12 million in the week ended June 25. The four-week average of the so-called continuing claims rose 3,000 to 2.15 million.

 

CoreLogic – FHA fraud risk on the rise

CoreLogic recently published its inaugural Mortgage Fraud Brief highlighting the latest mortgage fraud risk level dynamics across the industry. The CoreLogic Mortgage Application Fraud Risk Index tracks changes in fraud risk among multiple loan segments, and the national trend is a weighted aggregation from those segments.

Although the national trend has been upward overall in recent quarters, the index values varied by loan segments. Based on Q1 2016 results, CoreLogic research shows that since 2010, the fraud risk for home-purchase loan applications with loan-to-value (LTV) ratios of 95 or greater (predominantly FHA-insured mortgages) exhibits a consistent growth trend while the fraud risk level of several other larger segments remained flat or even decreased, including the conforming residence purchase segment.

Local market conditions have been one of the primary integral influences on real estate characteristics. As a result, more pronounced risk level changes are often observed at the state and Core Based Statistical Area (CBSA) levels. At the state level, Florida still ranked the highest for mortgage application fraud risk as of Q1 2016, followed by New York, New Jersey, Hawaii and Washington D.C.

 

At a more granular level, of the 100 most populated CBSAs, the five metros that had the highest mortgage fraud risk as of Q1 2016 were:

–  Miami-Fort Lauderdale-West Palm Beach, FL.

–  Tampa-St. Petersburg-Clearwater, FL.

–  Deltona-Daytona Beach-Ormond Beach, FL.

–  New York-Newark-Jersey City, N.Y.-N.J.-PA.

–  Lakeland-Winter Haven, FL.

Two new metro areas entered the highest fraud risk ranking for in Q1 2016. New Haven, CT has been identified by CoreLogic as an emerging risk area for the past two quarters due to significant price increases in new construction sales in the area, which typically correlate to a higher level of mortgage fraud risk.

The significant risk level increase in Fresno, CA could be influenced by multiple factors: Investor purchases have jumped up year over year, and population growth has outpaced the national average. All of these factors have shown stronger correlations with higher levels of mortgage fraud risk, according to CoreLogic research findings.

One of the key characteristics of mortgage fraud is its ever-shifting migration pattern. It morphs from one scheme to another depending on local economic and real estate market conditions. It is critical for the real estate industry to monitor the dynamics of fraud risk in these “hot spots.” A metric that analyzes multiple dimensions of risk factors, such as the CoreLogic Mortgage Application Fraud Risk Index, can help derive market-relevant intelligence.

CoreLogic – US home price report shows prices up 5.9% year over

Year in CoreLogic released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ data for May 2016 which shows home prices are up both year over year and month over month.  Home prices nationwide, including distressed sales, increased year over year by 5.9% in May 2016 compared with May 2015 and increased month over month by 1.3% in May 2016 compared with April 2016,* according to the CoreLogic HPI.

The CoreLogic HPI Forecast indicates that home prices will increase by 5.3% on a year-over-year basis from May 2016 to May 2017, and on a month-over-month basis home prices are expected to increase 0.8% from May 2016 to June 2016. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables.

Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state. “Housing remained an oasis of stability in May with home prices rising year over year between 5% and 6% for 22 consecutive months,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The consistently solid growth in home prices has been driven by the highest resale activity in nine years and a still-tight housing inventory.”

“Price appreciation continues to be fairly broad-based across the US From a regional perspective, the Pacific Northwest continues to be the hottest area for home-price growth, with Oregon and Washington leading the way,” said Anand Nallathambi, president and CEO of CoreLogic. “The recent turbulence in financial markets should lead to modestly lower mortgage rates, which will provide even more support to the steadily improving real estate recovery.”

 

The US consumer is winning from Brexit

As the fallout from the U.K.’s recent vote to leave the European Union continues, there are some silver linings for consumers:

  1. Mortgage Rates

And just when you thought mortgage rates couldn’t go any lower! The fallout is causing investors to pour money into safe investments like US treasuries and that’s putting downward pressure on interest rates. “Rates are now near all-time lows, giving prospective homebuyers some additional buying power and opening the door to refinancing for more homeowners,” says Greg McBride, chief financial analyst at Bankrate Opens a New Window.

Consider this: At the current average rate of 3.4% for a 30-year fixed mortgage loan (That’s down 12 basis points from a week ago.), you’ll pay about $443 per month in principal and interest for every $100,000 you borrow.

  1. Home Values

It may seem odd that a political decision in the U.K. could have any impact on housing prices here in the US, but real estate experts say Britain’s exit from the European Union could boost demand for American real estate—especially in major markets like New York and Los Angeles.

  1. European Travel

As deep uncertainty about the future of the nation’s economy has encouraged traders to pull money out of the country, the British pound has now slumped to its lowest level in 31 years. What this means to you: That trip across the pond, historically expensive, is now looking downright cheap — everything from hotels to restaurants to souvenirs is 15%-20% off, says travel expert John DiScala, of Johnny Jet Opens a New Window. . Pack your bags!

  1. Cheap Gas

Oil prices continue to tumble on concerns over global growth prospects (Prices were down more than 4% on Tuesday; they’re now at $46/barrel.), and that’s putting downward pressure on prices at the pump, which were already falling before the vote, says Patrick DeHaan, a senior petroleum analyst at GasBuddy Opens a New Window. Today’s average price per gallon is $2.26.  That’s down a few pennies from last week’s average of $2.30 and is over 10 cents cheaper than last month’s average of $2.37.

 

MBA – mortgage applications up

Mortgage applications increased 14.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 1, 2016.  The Market Composite Index, a measure of mortgage loan application volume, increased 14.2% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index increased 14% compared with the previous week.  The Refinance Index increased 21% from the previous week to the highest level since January 2015.  The seasonally adjusted Purchase Index increased 4% from one week earlier. The unadjusted Purchase Index increased 4% compared with the previous week and was 23% higher than the same week one year ago.

“Interest rates continued to drop last week as markets assessed the impact of Brexit, downgrading the likelihood of additional rate hikes by the Fed, and mortgage rates for 30-year conforming loans dropped to their lowest level in over 3 years,” said Mike Fratantoni, MBA’s Chief Economist.  “In response, refinance application volume jumped almost 21% last week to its highest level since January 2015.”  The refinance share of mortgage activity increased to 61.6% of total applications, the highest level since February 2016, from 58.1% the previous week.

The adjustable-rate mortgage (ARM) share of activity decreased to 5.6% of total applications.  The FHA share of total applications decreased to 9.5% from 10.6% the week prior. The VA share of total applications increased to 12.8% from 12.2% the week prior. The USDA share of total applications decreased to 0.6% from 0.7% the week prior.

 

Fed’s Tarullo says no rate hikes needed until inflation is more solid

Federal Reserve Governor Daniel Tarullo on Wednesday said there is no need to raise US interest rates until there is convincing evidence inflation is moving towards the Fed’s target on a sustained basis.  Tarullo, who as a governor has a vote at every Fed policy meeting, said the cautious approach was particularly warranted as the world digests the impact of Britain’s vote to leave the European Union.

“I want to be more convinced that the underlying rate of inflation is around 2%,” Tarullo said at a Wall Street Journal event in Washington.  US inflation outside of food and energy has edged higher since late 2015 but Tarullo said recent inflation movements were “not enough to convince me that the rate is heading in a non-transitory way to 2%.”

Fed officials and other central bankers are still digesting the fallout from Britain’s “Brexit” vote and Tarullo suggested it may be sometime before it is clear how that will impact different economies.  “We’ll have to watch and see over the medium term. There is a good bit of uncertainty,” he said.  The Fed held interest rates steady in June and cut the number of rate hikes it sees over the coming years, but still signaled two rate increases were likely this year.

Many investors, however, doubt the Fed will raise rates at all this year.  While cautious about the outlook for inflation, Tarullo said world financial markets appeared well prepared for the impact of Brexit and that they are behaving well.  “None of us really knows the magnitude and I doubt there will be a moment when people say Brexit is done. It will be something that attenuates over time,” he said.

 

NAR – International home sales dollar volume retracts in US, Chinese lead purchases

Waning economic growth in many countries and higher home prices further enhanced by a strengthening US dollar resulted in a slight decline in international sales dollar volume of US property over the past year and a significant retreat in buying from non-resident foreigners.  This is according to an annual survey of residential purchases from international buyers released today by the National Association of Realtors (NAR).

The survey also amazingly revealed that the dollar volume of sales from Chinese buyers exceeded the total dollar sales figure of the next top four ranked countries combined.  NAR’s 2016 Profile of International Activity in US Residential Real Estate, covering US residential real estate sales to international clients between April 2015 and March 2016, found that foreign buyers purchased $102.6 billion of residential property, a 1.3% decline from the $103.9 billion of property purchased in last year’s survey.

Overall, a total of 214,885 US residential properties were bought by foreign buyers (up 2.8%), and properties were typically valued higher ($277,380) compared to the median price of all US existing home sales ($223,058). According to the survey, sales to non-resident foreign buyers pulled back by approximately $10 billion to the lowest dollar volume since 2013 ($35 billion).

The decline was largely caused by the decrease in the share of non-resident foreign buyers to foreign residential buyers to 41% – down from the almost even split between the two in previous years (48% in 2015).  For the fourth year in a row, buyers from China exceeded all countries by dollar volume of sales at $27.3 billion, which was a slight decrease from last year’s survey ($28.6 billion) but over triple the total dollar volume of sales from Canadian buyers (ranked second at $8.9 billion).

Chinese buyers purchased the most housing units for the second consecutive year (29,195; down from 34,327 in 2015), and also typically bought the most expensive homes at a median price of $542,084.  In addition to the slightly diminished sales activity from Chinese buyers, the total number of sales and the sales dollar volume from buyers from Canada, India ($6.1 billion) and Mexico ($4.8 billion) also retracted from their levels one year ago. Only buyers from the United Kingdom – after a decrease in the 2015 survey – saw an uptick in total sales and dollar volume ($5.5 billion).

 

Slightly over half of all foreign buyers purchased property in Florida (22%), California (15%), Texas (10%), Arizona or New York (each at 4%). Latin Americans, Europeans and Canadians – who tend to buy in warm climates for vacation purposes – mostly sought properties in Florida and Arizona.

California and New York drew the most Asian buyers, while Texas mostly saw sales activity from Latin American, Caribbean and Asian buyers.  The median purchase price over the survey period was a tad lower ($277,380) compared to the 2015 survey ($284,900) as a result of the fewer non-resident foreign buyers. Overall, foreign buyers most commonly purchased a home priced between $250,001 and $500,000, while 10% paid over $1 million or more.

Exactly half of all international transactions were all-cash purchases, which was slightly down from a year ago (55%) but still roughly double the overall share of existing sales.3 All-cash purchases were more common by non-resident foreign buyers (73%) and those from Canada, China and the United Kingdom.  A majority of foreign buyers over the past year purchased a single-family home, and nearly half bought in a suburban area.

Two–thirds or more of buyers from each China, India, Mexico and the United Kingdom purchased detached single-family homes, while Canadian buyers were the most likely to buy a multi-family home.

 

Thirty-one% of Realtors® surveyed said they worked with international clients, a decrease from the 34% share in last year’s survey but up from two years ago (27%). Seventeen% had one to two foreign clients; 5% of respondents had six or more.

This year’s survey asked seller’s agents for the first time about their international clients who sold residential property. With Florida and California leading the way, the list of states where foreign buyers sold or bought their US property was very similar. The median price of a sold US home was $245,331, and respondents reported several cases of Canadians selling their US home to take advantage of the stronger US dollar.

Approximately 14% of responding Realtors® reported that they had a client who was seeking to purchase property in another country, which is over double the amount in last year’s survey (6%). Mexico – at almost triple the amount (13%) – generated the most inquiries about purchasing abroad, followed by Costa Rica, Philippines, Colombia and Canada (each at 4%). Most US clients interested in buying in another country (87%) were looking to use the property as a vacation home or residential rental unit.

“Especially in the local markets attracting a hefty share of international buyers and sellers such as those in California, Florida and Texas, it’s advantageous for Realtors® to consider earning the Certified International Property Specialist, or CIPS, designation,” says NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “The specialized training on critical aspects of an international transaction such as exchange rate and tax issues and regional market conditions best prepare Realtors® for the increasingly globally connected world of real estate.”

CoreLogic – US economic outlook: July 2016

 

For most of the last 25 years, large annual swings in home mortgage origination have been common, driven by a refinance boom-and-bust cycle. And while refinance will continue to be an important segment of the market, home purchase is expected to dominate the lending landscape in the coming years.

What this means for the lending industry is that mortgage volumes will likely be more steady on a year-to-year basis.  Home sales and home-purchase lending vary each year and are largely affected by the business cycle and the level of mortgage rates, but that variation is far less than the year-to-year change in refinance.

Comparing annual originations since 1990, the standard deviation of refinance was about triple that of home purchase. The cause of this heightened variability has been the gradual disinflation in the US economy over this period leading to a sequence of ever-lower mortgage rates.  Historically, each time the mortgage rate reached a new low, it triggered a wave of so-called “rate-and-term” refinancing.

These are homeowners who elected to refinance to lower their mortgage cost, shorten their term or do both. The universe of potential refinancers are all owners with a mortgage. Since 2000, this population has generally been around 50 million homeowners, and the number of refinance origination has varied from as little as 1 million to as many as 14 million loans per year.

Compare that with the number of home-purchase loans, which has varied between three million and seven million per year since 2000, and it becomes clear why a refinance “boom-and-bust” tied to the ups and downs in mortgage rates has caused the wide annual swings in past lending.

 

Projections of home mortgage lending reveal a “new normal.” Mortgage volumes will vary each year, but the large peaks and valleys of the past are far less likely in coming years. That’s because the historic period of economic disinflation that began in the early 1980s is behind us, and lower inflation expectations have translated into lower interest rates.

The Federal Reserve has indicated it would prefer slightly more inflation, with a target of 2% inflation per year, and that it expects to increase short-term interest rates in the future. Thus, mortgage rates are expected to rise.

With the average interest rate on mortgage debt outstanding at about 3.8%, and with mortgage rates generally projected above 4% in 2017 and beyond, refinance will diminish to a much smaller share of the lending market. Current forecasts show the refinance share by 2018 at or near the lowest percentage since the late 1980s. Thus, the large swings in annual lending that have characterized the market will likely be substantially lessened. This market characteristic – less annual lending volatility – will likely be part of the “new normal” for the lending industry.

 

Obamacare enrollment drops

Federal health officials in a new report say that about 11.1 million people were enrolled in Obamacare insurance plans as of the end of March.  That’s 1.6 million or so fewer people than had actually selected a plan on one of the government-run health marketplaces by the close of the third season of open enrollment in February.

The drift-down, which was expected, is largely a result some people who had selected a plan not making their first month’s premium payments once they came due. For enrollment to be considered official that payment has to be made.  In 2014, Obamacare’s first enrollment season, 8 million people selected plans but only 7.3 million people ended up being enrolled by mid-year. Last year, 11.7 million signed up, but 10.2 million people actually ended up paying.

After big gains in enrollment in individual insurance plans in Obamacare’s first two seasons, the new, slightly higher tally raises the question about how much potential there is for significant growth in enrollment via the exchanges in coming years.

Enrollment in Obamacare plans stood at 9.1 million at the end of 2015, as some people moved into different forms of coverage or dropped their plans for other reasons.  The Health and Human Services Department said Thursday that it continues to project that by the end of this year, enrollment likewise will continue to drift down from the current level of 11.1 million people to 10 million.

 

Zillow – negative equity falling faster among less-expensive homes

The overall negative equity rate among bottom-tier homes nationwide was 21.8% in Q1, compared to 7.3% among top-tier homes, 11.4% for middle-tier homes and 12.7% for all US homes.  The negative equity rate among bottom-tier homes has fallen 3.7 percentage points in the past year. Middle-tier negative equity has fallen by 2.7 percentage points and top-tier negative equity has fallen by 1 percentage point. Over the same period, the negative equity rate among all US homes fell 2.7 percentage points.

Owners of the east-expensive homes were roughly three times more likely to be underwater on their mortgage than owners of the most-expensive homes in markets nationwide as of the end of Q1 2016. But the negative equity rate for those less-expensive, entry-level homes has fallen faster over the past year than for middle- and top-tier homes as entry-level home value appreciation picked up.

Figure 1 US NE Time SeriesThe overall negative equity rate among bottom-tier homes nationwide was 21.8% in Q1, compared to 7.3% among top-tier homes, 11.4% for middle-tier homes and 12.7% for all US homes. Among the 35 largest metros, Detroit (43.9%), Cleveland (37.7%) and Atlanta (37.1%) had the highest share of bottom-tier homes in negative equity in Q1.

 

That the bottom third of the market was hit disproportionately hard by negative equity, and has been slow to recover, is not exactly a new story. But comparing negative by tiers over time reveals a somewhat different, if not exactly surprising, story: Over the past year, negative equity in the bottom tier has been receding more quickly than other tiers. And in some markets, much more quickly.

As of Q1 2015, the bottom-tier negative equity rate stood at 25.5%, compared to 8.3% at the top and 14.1% for the middle. In other words, the negative equity rate among bottom-tier homes has fallen 3.7 percentage points in the past year. Middle-tier negative equity has fallen by 2.7 percentage points and top-tier negative equity has fallen by 1 percentage point. Over the same period, the negative equity rate among all US homes fell 2.7 percentage points.

In Seattle, bottom-tier negative equity fell 9.2 percentage points from Q1 2015 to Q1 2016 (23.8% to 14.7%), compared to just a 1 percentage point drop among top-tier Seattle homes (5.69% to 4.64%) – the largest such difference among big US metros. In Columbus, bottom-tier negative equity fell 8.8 percentage points, compared to 1.2 points at the top. The bottom-tier negative equity rate in Atlanta fell 8.9 points, compared to just 2.1 points among top-tier homes.

 

There’s a few reasons for this trend, not the least of which is that negative equity in the bottom tier simply has farther to fall compared to already-low levels of negative equity at the top. But the most obvious reason behind the different speeds at which negative equity is falling among different home value tiers boils down to simple differences in home value growth.

Growing home values means shrinking negative equity. And while home values have grown across the board fairly consistently since the housing market hit bottom in early 2012, over the past year bottom-tier home values have grown much faster, in most markets, than top-tier values and home values overall. Between Q1 2015 and Q1 2016, bottom-tier median home values grew 7.6%. Over the same period, top-tier median home values grew 4.3%.

In the long-run, this combination of faster home value growth and more quickly receding negative equity at the bottom end of the market should prove to be a positive. It’s true that rapid appreciation on its own at the bottom end may price some entry-level buyers out of the market before they even have a chance to get in.  But for owners of bottom-tier homes, this rapid appreciation is a boon, especially if they’re underwater. And a big reason why appreciation is so rapid at the bottom is precisely because so few homes are available for sale in part because so many are locked in negative equity.

If this fast growth continues, it’s more likely bottom-tier underwater owners will be able to get back into positive equity more quickly (assuming they’re not too far deep underwater to begin with). For buyers, this means it’s more likely they’ll be able to find a home to buy as more previously underwater owners re-surface and begin to list their homes for sale.  At least, eventually. In the meantime, the slow march back to a balanced market will continue.

 

US auto sales on track for best June since 2005

Robust sales of pickup trucks and SUVs put the US auto industry on track to record its best June in more than a decade despite a dip in sales at General Motors.  Total vehicle sales came in at 16.7 million at a seasonally adjusted annual rate in June, versus a 17.5 million rate in May, according to Autodata.

Ford Motor said on Friday that its US sales rose 6.4% to 240,109 vehicles in June, helped by strong consumer demand for its trucks.  “Consumer demand for Ford SUVs also continues to surge to all-time highs,” Ford Vice President Mark LaNeve said.  General Motors, the biggest US automaker, said its sales fell 1.6% to 255,210 vehicles due to lower sales of Buick and GMC vehicles.

However, GM Chief Economist Mustafa Mohatarem said historically low interest rates, stable fuel prices, rising wages and near-full employment would drive strong auto sales in the second half of the year.  Fiat Chrysler Automobiles reported a 7% rise in June US auto sales, while Nissan Group said US sales for the month increased 13%, raising hopes that the industry may meet analysts’ expectations of a nearly 5% rise in the month.

Fiat Chrysler said it sold 197,073 vehicles in June, compared with 185,035 a year earlier. The company said it was the group’s best June sales in 11 years.  Nissan said the past month was its best June ever as US sales rose to 140,553 vehicles from 124,228 a year earlier. Sales were led by higher demand for its Frontier pickups and Roguecrossover SUVs.  Honda’s June US sales were up 3.2% at 138,715 vehicles. Honda division sales in the US were up 3%, or 127,363 vehicles.

Toyota’s US motor sales fell 5.6%, or 198,257 units from last year.  Marketing research firm J.D. Power and LMC Automotive expects US light vehicle sales for June to rise 5% to 1.55 million.  There was one extra selling day in June compared with a year earlier.  However, J.D. Power, unlike Edmunds.com, does not expect sales in 2016 to break the record of 17.47 million set last year.

 

New York launches “first of its kind” program; will buy delinquent mortgages from FHA

In what officials are calling a “first of its kind” program, the city of New York announced Thursday that it is plans to buy a number of delinquent loans from the Federal Housing Administration as part of an effort to keep struggling homeowners from losing their homes to foreclosure.

According to the office of New York Mayor Bill de Blasio, the “Community Restoration Program” will see the city purchase 24 distressed mortgages for one- to four-family homes – with a total of 41 residential units – in the Bronx, Brooklyn, Queens, and Staten Island.

The goal of the program? According to de Blasio’s office, the program is designed to stabilize neighborhoods that are not yet recovered from housing crisis.  And what makes this program unique, according to de Blasio’s office, is that marks “one of the first times” that a municipality buys distressed Federal Housing Administration mortgages that would otherwise have been sold at auction to the highest bidder.

“We are fighting to help homeowners stay in the neighborhoods they helped build. And we won’t let predators force them out,” said Mayor Bill de Blasio. “The Community Restoration Program is the first of its kind, and it puts government squarely on the side of struggling families so they can keep their homes.”  The program will cost $13 million, which is being funded by a combination of several sources.

 

 

US homeowners could gain from Brexit vote

Britain’s decision to leave the European Union could benefit a group thousands of miles away: US homeowners.  Several lenders posted rates for 30-year, fixed-rate mortgages of about 3.5% on Monday, nearing a 3.5-year low, and analysts expect coming reports to show that average US mortgage rates have decreased since the Brexit vote Thursday.

The main reason: Investors have flocked to the safety of US Treasurys, pushing interest rates lower as riskier assets such as stocks tumbled. Mortgage rates tend to move up and down with 10-year Treasury rates, though the relationship isn’t perfect.  The yield on the 10-year Treasury note was 1.460% on Tuesday, down from 1.579% before the result of Thursday’s vote was announced and 2.273% at the end of 2015, according to Tradeweb.

Last Wednesday, the Mortgage Bankers Association reported that the average rate for a 30-year, fixed-rate mortgage was 3.76%. Housing-market analysts will be watching closely on Wednesday when the MBA releases its next weekly report.  If mortgage rates decline, that could be a boon both to prospective home buyers and to homeowners who qualify for refinancing. Refinancing could make sense for many people locked into rates of 4% or higher, according to mortgage experts.

Lenders are expecting a mini-wave of refinancing in coming weeks. In all, 40% of borrowers have loans with a rate of 4.5% or higher, according to CoreLogic Inc., a real-estate analytics firm, meaning they could save about $90 a month on average by refinancing at 3.5%.  Lenders across the country said refinancing applications since Thursday are up between 10% to 40% compared with typical volume this time of year.

 

Fox – US bank CEOs jumped the gun on Brexit fallout – Brexit not so bad after all

For months, executives running large US banks have warned that a UK exit from the European Union would cause so much turmoil that they would have to slash staffing and move executives out of the country.  But now that the ‘leave’ vote, known as ‘Brexit’ or Britain exiting the EU has passed, these same bankers are conceding that such predictions were overblown and premature.

In fact, they tell the FOX Business Network that their firms plan to maintain a large presence in the UK that will probably allow London to maintain its status as one of Europe’s premier banking hubs at least for the immediate future. Maybe the biggest Brexit about face among the top US banks comes from the nation’s largest financial institution, J.P.Morgan (JPM).

Just weeks ago, the bank’s chief executive Jamie Dimon publicly warned that if the ‘remain’ forces lost the referendum– a move he feared could lead to a trade war and other dire consequences for the big banks—J.P.Morgan may slash as much as 25% of its UK staff of about 16,000. But last Friday after the victorious ‘leave’ vote, Dimon said in a memo to employees “regardless of today’s outcome…will maintain a large presence in London” and elsewhere in the UK.

 

People with knowledge of the plans of the other big US banks say they too are not planning to send employees out of the country despite earlier warnings that such moves would be likely in the event of the UK exiting the European Union.  “I don’t think any bank will just up and leave London,” said a senior banker at Morgan Stanley (MS).  “It was all a threat to try to drive the remain vote.

UK is a big important economy and there’s lots of old money there.”  This banker said inside Morgan Stanley there’s been an “internal debate here about moving some traders” outside the country to either Dublin or  Frankfurt, two European cities that have been discussed as relocation sites from London. But no decisions have been made and won’t be made until more information is known about the impact of Brexit on the UK financial sector and economy.

A Morgan Stanley spokesman said in a statement that the bank “has no plans in place to move staff out of the UK and will only consider adjustments to our operating model.”  Press officials for Goldman Sachs (GS), Citigroup (C) and even the big mutual fund Fidelity Investments, said they have no plans to leave London or move significant numbers of employees out of the country.

 

To be sure, much of the economic impact of the Brexit vote is unknown despite the initial skeptical reaction by the markets, which saw global stock prices tanking and the British currency losing value. The big worry among US bankers was that Brexit would lead to regulatory confusion for the big banks who do business in the UK in that they would have comply not just with EU rules but new UK rules.

 

Bankers like Dimon also worried that a trade war might develop between the UK and EU, and most economists agree that a trade war would have serious economic consequences for Europe leading to a possible recession and volatility in the currency and stock markets.

The flow of investment banking deals—the lifeblood of the big banks—would slow as well.  But over the past two days both the UK Pound and the markets have stabilized as world leaders, including German Chancellor Angela Merkel, and UK Prime Minister David Cameron have made statements that fears of a British-EU trade war are overblown, while British officials have said they plan to quickly deal with such regulatory concerns the banks have in Brexit’s aftermath.

Indeed any move on the part of the EU to isolate Britain as revenge for Brexit could backfire since the UK economy is one of the continent’s largest; Germany, for instance, sells more of its cars in the UK than anywhere else in the world.  In fact, UK officials who are part of the ‘leave’ campaign tell the FOX Business Network they will soon announce a series of economic reforms that will be designed to pump up the British economy. Details of the plan were unavailable.

 

Meanwhile, executives at the big banks say there are many structural issues that make London a place to keep thousands of jobs whether the UK is in or out of the EU. Dublin, one of the possible alternative banking hubs, doesn’t have the resources available to the big banks including the access to workers they have in London. And in Frankfurt, the other possible alternative, there is a language barrier making it more difficult for US banks to operate efficiently.

Another reason US banks want to stay in the UK: They believe it’s an easy place to launch an attack on the clients of big foreign banks like Deutsche Bank (DB), which has been reeling recently as it tries to shore up its weak capital levels and improve profits.  “With so many of the European banks in various degrees of trouble right now, it’s more important than ever that American banks be there to try to capture market share across all of Europe,” another banker told the FOX Business Network.

 

MBA – mortgage applications decrease in latest MBA weekly survey

Mortgage applications decreased 2.6% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 24, 2016.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6% 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 2% from the previous week.  The seasonally adjusted Purchase Index decreased 3% from one week earlier. The unadjusted Purchase Index decreased 4% compared with the previous week and was 13% higher than the same week one year ago.

The refinance share of mortgage activity increased to 58.1% of total applications from 57.7% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.9% of total applications.  The FHA share of total applications decreased to 10.6% from 11.7% the week prior. The VA share of total applications increased to 12.2% from 11.1% the week prior. The USDA share of total applications increased to 0.7% from 0.6% the week prior.

 

Bank of America passes the stress test and boosts dividend 50%

It’s been three years in the making, but it’s finally happened: Bank of America emerged from both rounds of this year’s stress test unscathed, clearing the way for the nation’s second biggest bank by assets to boost its dividend by 50% and repurchase $5 billion worth of stock over the next 12 months.

After the market closed on Thursday, the Federal Reserve released the results Opens a New Window. from the stress test’s second round, the comprehensive capital analysis and review, or CCAR.

While shares of Bank of America were up nearly 4% during the trading day, they’ve headed even higher in after-hours trading in response to the news.  “Over the last few years, we have significantly strengthened our company and increased our earnings as we execute a straightforward strategy focused on responsible growth,” said Opens a New Window.  chairman and CEO Brian Moynihan. “This improvement has allowed us to take a significant step toward returning more capital to shareholders.”

The purpose of the first round of the stress test, the results of which were announced last week Opens a New Window. , is to determine whether the nation’s biggest banks have enough capital to survive a severe economic downturn. The second round then examines banks’ capital planning processes and approves or denies requests to boost dividends and/or share repurchase programs.

 

Bank of America sailed through this year’s first round with far more capital than it needed to satisfy regulators. It entered the Fed’s hypothetical nine-quarter scenario, which resembled a combination of the 2008 financial crisis and the 2011 European sovereign debt crisis, with a common equity tier 1 capital ratio of 11.6% and exited with a 8.1% ratio.

The latter comfortably exceeded its regulatory minimum 5.9% common equity tier 1 capital ratio.  But even though Bank of America passed muster on the first round of the stress tests over the past two years — the quantitative round — it has struggled on the second round — the qualitative round. In 2014, it belatedly discovered that it had mismarked the value of debt securities inherited in its 2008 acquisition of Merrill Lynch.

This led the Fed to require Opens a New Window.  the bank to resubmit its capital plan and suspend planned increases in capital distributions until the issue was resolved, which it was Opens a New Window.  Last year, meanwhile, the Fed took issue with Bank of America’s capital planning process more generally.

The North Carolina-based bank was thus required to submit a new capital plan to “address certain weaknesses” in its processes, though the bank was nevertheless allowed to boost its share buyback plan.  The consequences of these struggles have been threefold. First, Bank of America rearranged the executives in charge of its annual stress test submission.

Second, the issues have fueled skepticism among investors, which helps explain why its shares continue to trade for a nearly 20% discount to tangible book value eight years after the financial crisis. And third, unlike many of its peers, who have raised their dividends annually since 2011, Bank of America has boosted its quarterly payout only once — in 2014.

 

One consequence of retaining so much capital is that Bank of America’s return on equity is roughly half its 12% cost of capital. Over the last 12 months, for instance, it returned only 6.6% on its equity. That compares to an 8.7% average on the KBW Bank Index, which tracks shares of the nation’s 24 biggest commercial banks.

Meanwhile, Wells Fargo’s return on equity over the same period is 13.3%, according to data from YCharts.com. This also goes a long way toward explaining why Bank of America’s shares trade for such a large discount to its tangible book value.

Given its performance on this year’s test, though, it’s reasonable to assume that this valuation gap will begin to close. And if Bank of America is able to follow this up with a good earnings performance next month, investors could see them head even higher.

 

Zillow – May Case-Shiller forecast: april’s modest monthly slowdown should continue

April Case-Shiller data showed seasonally adjusted monthly home price growth that was slightly weaker than expected, and annual growth at a pace in line with recent months. Looking ahead, Zillow’s May Case-Shiller forecast calls for more of the same, with seasonally adjusted monthly growth in the 10- and 20-city indices falling slightly from April while annual growth stays largely flat.

The May Case-Shiller National Index is expected to grow 5% year-over-year and 0.1% month-to-month, both unchanged from April. We expect the 10-City Index to grow 4.7% year-over-year and 0.1% from April. The 20-City Index is expected to grow 5.3% between May 2015 and May 2016 and 0.1% from April.  Zillow’s May Case-Shiller forecast is shown in the table below.

These forecasts are based on today’s April Case-Shiller data release and the May 2016 Zillow Home Value Index (ZHVI). The May Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, July 26.

 

NAR – pending home sales skid in May

After steadily increasing for three straight months, pending home sales let up in May and declined year-over-year for the first time in almost two years, according to the National Association of Realtors (NAR). All four major regions experienced a cutback in contract activity last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, slid 3.7% to 110.8 in May from a downward revised 115.0 in April and is now slightly lower (0.2%) than May 2015 (111.0).

Lawrence Yun, NAR chief economist, says pending sales slumped in May across most of the country. “With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity,” he said. “Realtors are acknowledging with increasing frequency lately that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market.  ”Despite mortgage rates hovering around three-year lows for most of the   year, Yun says scant supply and swiftly rising home prices – which surpassed their all-time high last month – are creating an availability and affordability crunch that’s preventing what should be a more robust pace of sales.  “Total housing inventory at the end of each month has remarkably decreased year-over-year now for an entire year,” adds Yun. “There are simply not enough homes coming onto the market to catch up with demand and to keep prices more in line with inflation and wage growth.”

 

Looking ahead to the second half of the year, Yun says the fallout from the U.K.’s decision to leave the European Union breeds both immediate opportunity as well as potential headwinds for the US housing market.  “In the short term, volatility in the financial markets could very likely lead to even lower mortgage rates and increased demand from foreign buyers looking for a safer place to invest their cash,” he said. “On the other hand, any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for home buying.”

In spite of last month’s step back in contract signings, existing-home sales this year are still expected to be around 5.44 million, a 3.7% boost from 2015. After accelerating to 6.8% a year ago, national median existing-home price growth is forecast to slightly moderate to between 4 and 5%.  The PHSI in the Northeast dropped 5.3% to 93.0 in May, and is now unchanged from a year ago. In the Midwest the index slipped 4.2% to 108.0 in May, and is now 1.8% below May 2015.  Pending home sales in the South declined 3.1% to an index of 126.6 in May but are still 0.6% higher than last May. The index in the West decreased 3.4% in May to 102.6, and is now 0.1% below a year ago.

Black Knight – Home Price Index Report

Today, the Data and Analytics division of Black Knight Financial Services, Inc. released its latest Home Price Index (HPI) report, based on April 2016 residential real estate transactions. The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states.

Non-disclosure states do not include property sales price information as part of their publicly available county recorder data. Black Knight is able to obtain the sales price information for these states by combining and matching records across its unique data assets.

–  At $260K, the US HPI is up 30.4% from the market’s bottom and is just 2.9% off the June 2006 peak

–  For the third consecutive month, Washington led all states with 1.9% appreciation, with the Seattle and Walla Walla metro areas seeing 2.0% growth

–  Despite climbing nearly 45 and 43% from the national market’s bottom, Arizona and Florida remain approximately 24% off their respective peaks

–  All states and metro areas experienced positive price movement in April, with five of the 20 largest states and 14 of the 40 largest metros hitting new peaks

 

US international trade deficit at $60.6B in May vs. $57.5B expected

The US advance goods trade deficit totaled a wider-than-expected $60.59 billion in May.  The trade gap had been expected to come in at around $57.5 billion, nearly in line with the $57.53 billion reported a month earlier.

 

New Jersey Senator takes on ‘zombie foreclosures’

Proposed federal legislation could help New Jersey see far fewer zombies in the future.  Senator Robert Menendez’ bill, the “Preventing Abandoned Foreclosures and Preserving Communities Act of 2016,” would require mortgage servicers to tell borrowers at the beginning of a foreclosure that they are allowed to remain in the home until the process is completed under state law.

It would also require mortgage servicers to notify borrowers that they remain responsible for taxes, assessments, or other fees during foreclosure.  The bill also requires the servicer to notify both the borrower and the municipality if it or the mortgage-holder walk away from a foreclosure without completing it.

But it would prohibit servicers from walking away from mortgages backed by Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal National Home Mortgage Corp.) and insured by the Federal Housing Administration without notifying them and the municipality and releasing the lien.  Another element of the Menendez bill is that it would authorize the General Accountability Office and the Consumer Finance Protection Bureau to study the prevalence and impact of “zombie foreclosures.”

 

Housing advocates joined Menendez and other officials to praise East Orange for leading efforts to minimize the harm that “zombie” homes can do to property values and to public health and safety. With no one living in them or taking responsibility for their upkeep, these properties can become magnets for drug-taking, illegal dumping, or other ills, speakers said.

In East Orange, city officials have stabilized the old house that was the backdrop to the Menendez announcement, as well as a smaller one across the street. They boarded up doors and windows, cut the grass, and even chased out an off-the-books auto shop that operated in the backyard.  But as if to underline the challenges, a raccoon poked its snout through a crack in the house’s second-story eaves to follow the senatorial hubbub.

While the event was happening, the New Jersey court system recorded foreclosure case number 17,820 so far this year, in Burlington County. That is down from tallies in recent years, but compares to 18,000-20,000 for entire years before the bursting of the housing bubble in 2007 and the Great Recession.  RealtyTrac of Irvine, CA, lists 4,003 “zombie foreclosures” in New Jersey, more than one-fifth its nationwide total. But that methodology understates the problem, because it only counts units already identified as vacant.

The speakers credited East Orange as a leader among municipalities that have effectively used a 2014 state law that allows them to impose daily fines on foreclosing creditors who fail to maintain properties. “Code enforcement is the driver of change in a community,” said Dwight Saunders, the city’s property maintenance director. But in the fractured world of modern mortgage finance, tracking down those legally responsible “takes all your investigative skills,” he said.

 

Barclays and RBS shares suspended amid Brexit crash

Two British banks were briefly suspended from trading in London after heavy losses triggered emergency measures that froze their shares.  Barclays and Royal Bank of Scotland both tripped so-called circuit breakers after crashing more than 8% on Monday. When trading resumed, Barclays (BCS) extended its losses to more than 10% and RBS (RBS) shed 13%.

Both banks confirmed their shares were suspended, but did not comment further.  Bank stocks have been rocked since the U.K. voted to leave the European Union. Barclays shares are now 26% below their closing price on Thursday, while RBS has tanked by 30%.

The future of London as the financial capital of Europe has been put to question following the vote. Many global banks use Britain as a springboard for their business throughout the EU, because they have automatic license to operate across the bloc.  But many European leaders have warned that London cannot retain its privileges following the decision to leave.

The market plunge continued on Monday. The pound sank against the dollar to trade near $1.32, roughly 12% below its pre-vote level. The benchmark FTSE index in London was down about 1.2%, while stocks in France and Germany also dropped by more than 1%.

CoreLogic – the state of the nation’s housing

 

Today the Joint Center for Housing Studies of Harvard University released the 2016 State of the Nation’s Housing report, and the report included several references to CoreLogic data and analyses. The report highlighted four major themes: household growth is getting back on track, the homeowner market faces lingering headwinds but should improve, the rental market continues to lead the housing recovery and affordability challenges remain significant.

The pace of household growth picked up in 2015 with the number of households growing by 1.3 million[1] – the largest single-year increase in a decade. This was after very slow household formation following the housing crash. Further, over the next 10 years, the millennial generation is expected to form two million households per year.

Millennials are behind in terms of household formation, and the share of adult millennials living in their parents’ homes is still rising.  Years of elevated foreclosures, low household formation rates, low income growth and tight mortgage credit have left homeownership rates near 50-year lows. Completed foreclosures have eased and are now a little under 500,000 per year, well below the peak level of 1.2 million per year hit in 2010.

Household formation is increasing, and real income growth, especially among younger households should help shore up the homeownership rate. However, mortgage credit remains tight and demographic shifts, such as later age of first marriage, will have a dampening effect on the homeownership rate.

With the decrease in homeownership comes gains in rental demand. The rental market continued to grow in 2015 and drove the housing recovery. According to the Census Bureau’s Housing Vacancy Survey, 2015 saw the largest one-year increase in renter households. Demand for rentals rose across all ages groups, income levels and household types.

Increased rental demand and increased household growth have downsides. Construction has not kept up with demand, especially at the low-price end of the market, with much of the new rental units intended for the upper end of the market. The Joint Center reports that the number of cost-burdened renters[2] reached a record high in 2014 with 83% of the lowest-income renter households classified as cost-burdened.

 

DOJ unveils ‘largest takedown ever’ against Medicare fraud

The US Justice Department said Wednesday that federal law enforcement officials have hit a milestone in 2016 by completing the “largest takedown ever” against defendants allegedly trying to defraud Medicare and other federal insurance programs.

The 2016 takedown involves 301 defendants and a loss amount of $900 million, the department said. That exceeds a record last year, when 243 defendants faced charges in a combined $712 million in losses.  Among the defendants charged in the takedown include two owners of a group of outpatient clinics and a patient recruiter who stand accused of filing $36 million in fraudulent claims for physical therapy and other services that were not medically necessary.

To find patients, the Justice Department alleges the clinic operators and the recruiter targeted poor drug addicts and offered them narcotics so they could bill them for services that were never provided.  Another case that was highlighted on Wednesday involved home health fraud. In that case, a doctor was indicted for billing $38 million for home health services that were not needed or ever provided.  The Justice Department said that about 50% of the cases in the 2016 take down involve some form of home health fraud, and about 25% involve pharmacy fraud.

 

Black Knight – First Look at May

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

–  Foreclosure inventory now below 575,000 from over 800,000 just 12 months ago

–  Foreclosure starts up from 10-year low in April, but at 62,100 remain below pre-crisis levels

–  Prepayment speeds (historically a good indicator of refinance activity) continue to trail 2015 levels despite interest rates being lower than last year

–  Delinquencies inched up in May; still down by over 13% on an annual basis

 

IMF downgrades outlook for US economy

The International Monetary Fund is downgrading its forecast for the US economy this year and says America should raise the minimum wage to help the poor and offer paid maternity leave to encourage more women to work.

In its annual checkup of the US economy, the IMF predicts 2.2% growth this year, down from 2.4 per cent in 2015, and lower than the 2.4 per cent growth it forecast in April for this year.  Still, IMF managing director Christine Lagarde, noting low unemployment and strong hiring over the past year, says “the US economy is in good shape.”

The American economy got off to a slow start this year. A strong dollar hurt exporters by making their goods costlier overseas. Energy companies have also slashed spending due to low oil prices.

 

NAR – existing-home sales grow 1.8% in May; highest pace in over nine years

Existing-home sales sprang ahead in May to their highest pace in almost a decade, while the uptick in demand this spring amidst lagging supply levels pushed the median sales price to an all-time high, according to the National Association of Realtors (NAR). All major regions except for the Midwest saw strong sales increases last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.8% to a seasonally adjusted annual rate of 5.53 million in May from a downwardly revised 5.43 million in April. With last month’s gain, sales are now up 4.5% from May 2015 (5.29 million) and are at their highest annual pace since February 2007 (5.79 million).  Surpassing the peak median sales price set last June ($236,300), the median existing-home price for all housing types in May was $239,700, up 4.7% from May 2015 ($228,900).

May’s price increase marks the 51st consecutive month of year-over-year gains.  Total housing inventory at the end of May rose 1.4% to 2.15 million existing homes available for sale, but is still 5.7% lower than a year ago (2.28 million). Unsold inventory is at a 4.7-month supply at the current sales pace, which is unchanged from April.

“Existing inventory remains subdued throughout much of the country and continues to lag even last year’s deficient amount,” adds Yun. “While new home construction has thankfully crept higher so far this year, there’s still a glaring need for even more, to help alleviate the supply pressures that are severely limiting choices and pushing prices out of reach for plenty of prospective first-time buyers.”  The share of first-time buyers was 30% in May, down from 32% both in April and a year ago. First-time buyers in all of 2015 also represented an average of 30%.

 

According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage inched backward from 3.61% in April to 3.60% in May, which is the lowest since May 2013 (3.54%). The average commitment rate for all of 2015 was 3.85%.

Properties typically stayed on the market for 32 days in May (39 days in April), which is below a year ago (40 days) and the shortest time since NAR began tracking in May 2011. Short sales were on the market the longest at a median of 103 days in May, while foreclosures sold in 51 days and non-distressed homes took 30 days.

Forty-nine% of homes sold in May were on the market for less than a month — the highest percentage since NAR began tracking.  May inventory data from Realtor.com shows that the top five metropolitan statistical areas where listings stayed on the market the shortest amount of time were San Francisco-Oakland-Hayward, Calif., and Seattle-Tacoma-Bellevue, Wash., both at a median of 25 days; San Jose-Sunnyvale-Santa Clara, Calif., 26 days; and Denver-Aurora-Lakewood, Colo., and Vallejo-Fairfield, Calif., both at 30 days.

Earlier this month, NAR released a new survey looking at the home buying opportunities of student debt borrowers who are current in their repayment. The findings affirmed the notion that repaying student debt is a contributing factor to the low homeownership rate among young adults and the underperforming share of first-time buyers.

Nearly three-quarters of non-homeowners in the survey believed that their student debt is delaying them from buying a home, with most of them citing not being able to save for a down payment as the primary reason.  “At a time of historically low interest rates, responsible student loan borrowers should have the opportunity to refinance their loans from their current rates, which can oftentimes run over double-digit percentage points,” said NAR President Tom Salomone.

“In addition to policy proposals that streamline income-based repayment programs and allow student loan borrowers the ability to refinance into lower rates, NAR supports those that promote student loan simplification, clarity and education. Furthermore, it’s important that mortgage underwriting guidelines related to student loan debt are standardized and do not impair homeownership opportunities.”

 

All-cash sales were 22% of transactions in May, down from both 24% in April and a year ago. Individual investors, who account for many cash sales, purchased 13% of homes in May, unchanged from April and down from 14% a year ago. Sixty-three% of investors paid cash in May.

Distressed sales — foreclosures and short sales — declined to 6% of sales in May, down from 7% in April and 10% a year ago. Five% of May sales were foreclosures and 1% were short sales. Foreclosures sold for an average discount of 12% below market value in May (17% in April), while short sales were discounted 11% (10% in April).

Single-family home sales increased 1.9% to a seasonally adjusted annual rate of 4.90 million in May from 4.81 million in April, and are now 4.7% higher than the 4.68 million pace a year ago. The median existing single-family home price was $241,000 in May, up 4.6% from May 2015.  Existing condominium and co-op sales rose 1.6% to a seasonally adjusted annual rate of 630,000 units in May from 620,000 in April, and are now 3.3% above May 2015 (610,000 units).

The median existing condo price was $229,600 in May, which is 6.0% above a year ago.  May existing-home sales in the Northeast increased 4.1% to an annual rate of 770,000, and are now 11.6% above a year ago. The median price in the Northeast was $268,600, which is 0.1% below May 2015.  In the Midwest, existing-home sales dropped 6.5% to an annual rate of 1.30 million in May, but are still 3.2% above May 2015.

The median price in the Midwest was $190,000, up 4.8% from a year ago.  Existing-home sales in the South expanded 4.6% to an annual rate of 2.28 million in May, and are now 6.5% above May 2015. The median price in the South was $211,500, up 5.9% from a year ago.  Existing-home sales in the West jumped 5.4% to an annual rate of 1.18 million in May, but are still 1.7% lower than a year ago. The median price in the West was $346,900, which is 7.7% above May 2015.

 

MBA – rates drop, refi apps jump in latest MBA weekly survey

Mortgage applications increased 2.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 17, 2016.  The Market Composite Index, a measure of mortgage loan application volume, increased 2.9% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index increased 2% compared with the previous week. The Refinance Index increased 7% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 4% compared with the previous week and was 12% higher than the same week one year ago.

The refinance share of mortgage activity increased to 57.7% of total applications from 55.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.7% of total applications.  The FHA share of total applications decreased to 11.7% from 11.8% the week prior. The VA share of total applications remained unchanged at 11.1%. The USDA share of total applications remained unchanged at 0.6%.

 

Zillow – May existing home sales

–  May existing home sales were up 1.8% from April, to 5.53 million units (SAAR).

–  The median, seasonally adjusted price of an existing home sold in May fell 0.6% from April, to $229,850, but was up 4.7% from a year ago.

–  The inventory of existing homes for sale rose 0.3% from April, to 2.03 million units, but remains down 5.75% from last year.

It’s encouraging to see another month of growth, the third in a row, in today’s May existing home sales report. But beyond that, it offers buyers little good news to grasp onto. Prices were down slightly from last month, but remain very close to all-time highs set in October 2005.

Inventory, while up very modestly from April largely thanks to more condos coming up for sale, is still well below a year ago. And the time homes spend on the market has fallen by a week in just one month, to 32 days, making an already hyper-competitive market even more so. Buyers struggling to find an affordable home to buy will continue to do so, even given these very small improvements.

 

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