Black Knight – “First Look” at October 2015

The Data and Analytics division of Black Knight Financial Services (NYSE: BKFS) reports the following “first look” at October 2015 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.​

–  Foreclosure Starts Down More Than 8%; Delinquencies Fall After Two Consecutive Monthly Increases

–  ​​Total foreclosure starts dropped 8.4% to 73,200; down 11.3% year-over-year

–  Delinquency rate improved by 1.9% from September; down nearly 12% from last year

–  At 721,000, inventory of loans in active foreclosure is lowest since December 2007

–  Prepayment activity (historically a good indicator of refinance activity) up slightly for the month

Average US gasoline prices resume slide

The average price of gasoline in the United States resumed its slide over the past two weeks, dropping 11 cents to $2.14 a gallon, the lowest since late January, according to a Lundberg survey released on Sunday.  The 5% decline in gasoline prices came as oil refiners and gasoline wholesalers and retailers passed along lower oil-buying prices to consumers, said survey publisher Trilby Lundberg in emailed comments.  Current retail gas prices were 70 cents below the year-ago period and at the lowest level since Jan. 23, when the average price was $2.07 per gallon. Benchmark crude oil prices were under pressure from hefty supplies and a strong US dollar, the report said.  “The pump price may well continue dropping during the rest of November and into December,” the report said, citing pressure from “abundant” supplies and higher run-rates at US refineries at the end of the seasonal maintenance period.  Lower costs have been passed along the supply chain, and refiners were also “sacrificing some of their gasoline margin,” Lundberg added.  In the panel of cities in the lower 48 states, the low average was Indianapolis at $1.79 and the high average was Los Angeles at $2.76 a gallon.  Prices had been up in the previous two-week period, snapping a 19-week slide.

NAR – existing-home sales dial back in October

With mortgage rates remaining below 4% for the third straight month, existing-home sales in October were at a healthy pace but failed to keep up with September’s jump, according to the National Association of Realtors (NAR). All four major regions saw no gains in sales in October.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.4% to a seasonally adjusted annual rate of 5.36 million in October from 5.55 million in September. Despite last month’s decline, sales are still 3.9% above a year ago (5.16 million).  The median existing-home price for all housing types in October was $219,600, which is 5.8% above October 2014 ($207,500). October’s price increase marks the 44th consecutive month of year-over-year gains.  Total housing inventory at the end of October decreased 2.3% to 2.14 million existing homes available for sale, and is now 4.5% lower than a year ago (2.24 million). Unsold inventory is at a 4.8-month supply at the current sales pace, up from 4.7 months in September.  The% share of first-time buyers increased to 31% in October, up from 29% both in September and a year ago. NAR’s annual Profile of Home Buyers and Sellers – released earlier this month4 – revealed that the annual share of first-time buyers fell to its second-lowest level since the survey began in 1981.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage stayed below 4% for the third consecutive month, declining in October to 3.80 from 3.89% in September. A year ago, the average commitment rate was 4.04%.  All-cash sales were 24% of transactions in October (unchanged from September) and are down from 27% a year ago. Individual investors, who account for many cash sales, purchased 13% of homes in October, unchanged from September but down from 15% a year ago. Sixty-two% of investors paid cash in October.  Distressed sales – foreclosures and short sales – declined to 6% in October, which is the lowest since NAR began tracking in October 2008; they were 9% a year ago. Five% of October sales were foreclosures and 1% were short sales. Foreclosures sold for an average discount of 18% below market value in October (17% in September), while short sales were discounted 8% (19% in September).

NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida, says Realtors overwhelmingly applaud the Federal Housing Administration’s announced changes to begin simplifying some of its overly-restrictive condo certification procedures. “With first-time buyers held back in several markets, affordable FHA financing needs to be a viable option in helping them achieve homeownership,” he said. “The new changes to FHA’s condo policy, including improving owner-occupancy requirements, streamlining the recertification process, and addressing restrictions on eligible property insurance for condos will go a long way in improving the ability for these young households to purchase a condo.”  Properties typically stayed on the market for 57 days in October, an increase from 49 days in September but below the 63 days in October 2014. Short sales were on the market the longest at a median of 90 days in October, while foreclosures sold in 67 days and non-distressed homes took 57 days. One-third of homes sold in October were on the market for less than a month.

Single-family and Condo/Co-op Sales

Single-family home sales fell 3.7% to a seasonally adjusted annual rate of 4.75 million in October from 4.93 million in September, but are still 4.6% above the 4.54 million pace a year ago. The median existing single-family home price was $221,200 in October, up 6.3% from October 2014.  Existing condominium and co-op sales declined 1.6% to a seasonally adjusted annual rate of 610,000 units in October from 620,000 in September, and are now down 1.6% from October 2014 (620,000 units). The median existing condo price was $207,100 in October, which is 1.6% above a year ago.

Regional Breakdown

October existing-home sales in the Northeast were at an annual rate of 760,000, unchanged from September and 8.6% above a year ago. The median price in the Northeast was $248,900, which is 1.3% above October 2014.  In the Midwest, existing-home sales declined 0.8% to an annual rate of 1.30 million in October, but are 8.3% above October 2014. The median price in the Midwest was $172,300, up 5.7% from a year ago. Existing-home sales in the South decreased 3.2% to an annual rate of 2.14 million in October, but are still 0.5% above October 2014. The median price in the South was $188,800, up 6.2% from a year ago.  Existing-home sales in the West fell 8.7% to an annual rate of 1.16 million in October, but are still 2.7% above a year ago. The median price in the West was $319,000, which is 8.0% above October 2014.

UAW leaders ratify new GM labor agreement

Leaders of the United Auto Workers union ratified a four-year labor agreement with General Motors on Friday, two weeks after most rank-and-file GM workers voted in favor of the new contract.  Ratification, announced by the union, was delayed two weeks because skilled trades workers, who are fewer than general production workers at GM’s US auto plants, had voted it down.  UAW leaders quizzed skilled trades workers on the reasons for their rejection and then went back to the negotiating table with GM seeking changes. Skilled trades workers in general maintain machines at auto plants, and include electricians, pipefitters, tool makers and millwrights.  The new contract goes into effect on Monday. It calls for raises for all workers and the end of the two-tiered pay system, although it will take a newly hired worker eight years to reach top pay rather than the three years it used to take before 2007.  Workers hired after 2007 have made less than those hired before that year.  The average labor costs, of which pay is nearly half, for GM workers will be $60 per hour by 2019, up from $55 an hour now, according to a new study by labor analysts released on Friday.  In a statement, GM said ratification of the contract was “good for employees and the business.”

The UAW said its leadership ratified the deal after GM and union negotiators worked through objections of the skilled trades workers, which included “core trades classifications and seniority rights.”  GM and the two other Detroit automakers, Ford Motor and Fiat Chrysler Automobiles, have worked for years to lessen the number of classifications of skilled trades workers.  The UAW defended the ability of a minority of its members to hold up ratification even if the majority has voted for a proposed contract.  “Since its inception, the UAW has put in place a process to ensure that minority groups have a voice,” the union said.  Meanwhile, Ford’s new four-year contract was still being voted on by UAW members on Friday, with the prospects for passage bleak.  On Wednesday, UAW leaders said that with three-fourths of the vote counted, 52% of workers were against the new pact. That was before a big auto plant in Chicago voted 68% against the contract.  The UAW may go back to the negotiating table if the Ford contract fails, and it could take workers out on strike.

WSJ – Fed sets deadline for claiming checks under foreclosure agreement

Hoping to bring its foreclosure review process to an end, the Federal Reserve is giving borrowers in the program until next year to cash the checks they are entitled to under a 2013 agreement.  Uncashed funds will be divvied up and sent to those borrowers who deposited their checks, the central bank announced Thursday.  The Fed said borrowers had until the end of March 2016 to deposit the checks they would have received from one of six mortgage servicers overseen by the Fed. They have until Dec. 31 to ask for replacement checks if they have lost the original.  With Thursday’s announcement, the Fed anticipates bringing an end next year to the foreclosure review process it adopted in 2013.  Under the agreement, Fed-regulated lenders agreed to compensate borrowers whose homes may have been improperly foreclosed on. As of mid-October, about $798 million of the $878 million agreement had been deposited. A broader program, involving lenders overseen by both the Fed and the Office of the Comptroller of the Currency has provided $3.9 billion for borrowers, of which $3.5 billion had been claimed by borrowers.  The six Fed-regulated lenders involved in the agreement are GMAC Mortgage, SunTrust, Goldman Sachs’ servicing operation, Morgan Stanley’s servicing operation, HSBC and J.P. Morgan Chase.

WSJ – Why the housing rebound hasn’t lifted the US economy much

American homeowners are finally digging out of the hole created by the housing crisis. But their housing wealth is playing a much smaller role in the overall economy than it did before the downturn.  Home equity has roughly doubled to $12.1 trillion since house prices hit bottom in 2011, according to the Federal Reserve. As a result, a key gauge of housing wealth—homeowners’ equity as a share of real-estate values—is nearing the point seen a decade ago, before the downturn.  Such a level once would have offered a double-barreled boost to the economy by providing owners with more money to tap and making them feel more flush and likely to spend. But today, that newfound wealth has had little effect on behavior. While the traditional ways Americans tap their home equity—home-equity loans, lines of credit and cash-out refinances—are higher than last year, they are still depressed.  In the first half of the year, owners borrowed $43.5 billion against their homes with home-equity loans and lines of credit, according to trade publication Inside Mortgage Finance. That was 45% higher than in the first half of 2014, but scarcely a quarter of the amount seen when equity was last as high in 2007.

Meanwhile, cash-out refinances, which let homeowners take out a new mortgage and tap some of the home’s value at the same time, were up 48% in the three months ended in August from the year-earlier period, according to Black Knight Financial Services. But they remain below the level seen in the summer of 2013. The average cash-out refinance in the three months ended in August left the borrower with mortgage debt of about 68% of the home’s value—not a risky level by any stretch.  Home equity’s effect on consumer spending is at its lowest ebb since the early 1990s, according to Moody’s Analytics. The research firm estimates that every $1 rise in home equity in the fourth quarter of 2014 would translate to about two cents of extra consumer spending over the next 1 to 1½ years. That was a third of the impact home equity had before the bust, Moody’s said.  The impact is more muted now despite the fact that home equity per homeowner has roughly doubled. At the end of the second quarter, the figure was about $156,700, up from $81,100 in the second quarter of 2011, according to Moody’s Analytics chief economist Mark Zandi. Though the homeownership rate has fallen, the total number of households has increased, meaning the number of households that own hasn’t changed much since the housing bubble burst in 2006, Mr. Zandi said.

Why aren’t homeowners feeling flush again? For one thing, since rising home prices over the past few years largely have made up for ground lost during the recession, many owners might not even realize they have equity to tap.  The percentage of homeowners who were underwater, or owing more on their mortgage than the home’s value, dropped to 8.7% by mid-2015 from 21% at the end of 2011, according to CoreLogic. Yet the percentage of homeowners who thought they were underwater fell by merely one percentage point to 27%, according to housing-finance company Fannie Mae.  The bust looms large and home equity is seen as more fleeting than it used to be, said Fannie Mae chief economist Doug Duncan.  Consumers are definitely more conservative financially than they were 10 years ago. They’ve seen that house prices can be volatile,” Mr. Duncan said.  Mortgage lenders also aren’t giving owners access to as much equity as they used to. While it was common during the boom to see loans that took out 100% or even more of a home’s value, now few will let an owner take out more than 80%.  Finally, other kinds of loans are cheaper, removing one incentive to tap home equity.  Six years ago, for example, the average five-year new-car loan had an interest rate of 6.83%, versus 5.56% for a $30,000 home-equity credit line. But in the week ended Nov. 11, the average interest rate for a five-year new-car loan was 4.3%, according to, versus 4.74% for the HELOC.

Home equity as a share of real-estate values at the end of the second quarter was 56%, according to the Federal Reserve, not quite back to the level of 60% seen in the boom. That means Americans’ mortgage debt is still elevated relative to home values, which could be another factor affecting the decision of whether or not to cash out equity.  Could home equity start to flex its muscle sometime soon?  Some economists think it might. One reason: In many metro areas, home prices have overtaken or are about to overtake their boom-era peak.  About 38% of metro areas had prices above their pre-2009 peak at the end of the third quarter, up from a 30% level last year, according to Moody’s Analytics and CoreLogic. A further 13% of metros are within 5% of their prebust peak.  That’s important, because it means new home equity is being created rather than merely making up for lost ground. It also means fewer homeowners are underwater, freeing them up for a home sale and potential move-up purchase while also making home improvements and renovations seem less like throwing good money after bad.  “We’re at an inflection point,” Mr. Zandi said. “Since the crash, it’s all been about repairing homeowners’ equity but now that house prices are returning to prerecession levels, we will see homeowners’ equity driving consumer spending, home improvements and economic activity.”

CoreLogic – cash sales on track to reach pre-crisis level by mid-2017

Cash sales accounted for 31.7% of total home sales in August 2015, down from 34.9% in August 2014. On a month-over-month basis, the cash sales share increased by 0.8 percentage points in August 2015 compared with July 2015. The cash sales share typically increases month over month in August, but due to seasonality in the housing market, cash sales share comparisons should be made primarily on a year-over-year basis.  The cash sales share peaked in January 2011 when cash transactions accounted for 46.5% of total home sales nationally. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%. If the cash sales share continues to fall at the same rate it did in August 2015, the share should hit 25% by mid-2017.  Real estate-owned (REO) sales had the largest cash sales share in August 2015 at 57.9%. Resales had the next highest cash sales share at 31.1%, followed by short sales at 29% and newly constructed homes at 15.5%. While the percentage of REO sales that were all-cash transactions remained high, REO transactions accounted for only 6% of all sales in August 2015. In January 2011 when the cash sales share was at its peak, REO sales represented 23.9% of total home sales. Resales typically make up the majority of home sales (about 82% in August 2015), and therefore have the biggest impact on the total cash sales share.  Alabama had the largest share of any state at 47.5%, followed by Florida (45.2%), New York (42.4%), West Virginia (39.6%) and Missouri (39.5%). Of the nation’s largest 100 Core Based Statistical Areas (CBSAs) measured by population, Miami-Miami Beach-Kendall, Fla. had the highest cash sales share at 51.7%, followed by Philadelphia, Pa. (51%), West Palm Beach-Boca Raton-Delray Beach, Fla. (50.8%), North Port-Sarasota-Bradenton, Fla. (48.5%) and Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (47.7%). Washington-Arlington-Alexandria, D.C.-Va.-Md. had the lowest cash sales share at 13.6%.

WSJ – surge in subprime auto lending draws attention

Subprime auto lending is shifting into higher gear, raising some concerns in Washington where top financial regulators have sounded alarms about this category of loans.  Over the six months through September, more than $110 billion of auto loans have been originated to borrowers with credit scores below 660, the bottom cutoff for having a credit score generally considered “good,” according to a report Thursday from the Federal Reserve Bank of New York. Of that sum, about $70 billion went to borrowers with credit scores below 620, scored that are considered “bad.”  This rise in subprime auto lending comes against a backdrop of gradually improving credit across the economy. Overall household borrowing has climbed to $12.1 trillion, the highest level in more than 5 years, with rising balances for mortgages, auto loans, student loans and credit cards in the third quarter, according to the report.  But when it comes to auto loans, in particular, a rising volume of loans is going to borrowers with poor credit. The sum in that category has nearly reached the same level as in 2006, raising questions about the health of the nation’s auto-lending portfolio and drawing uncomfortable comparisons to the rise in subprime mortgages that helped fuel the housing collapse, financial crisis and recession.  The comptroller of the currency, Thomas Curry, said in a speech last month that some of the activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.”

NAHB – apartment and condominium market remains steady in the third quarter

The Multifamily Production Index (MPI), released today by the National Association of Home Builders (NAHB), increased one point to a level of 56 for the third quarter of 2015. This is the 15th consecutive quarter with a reading of 50 or above.  The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.  The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. The MPI component tracking low-rent units increased one point to 55 and market-rate rental units rose four points to 64 while for-sale units dropped three points to 50.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, increased five points to 39, with higher numbers indicating more vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011.  “Multifamily builders and developers continue to report that the market is doing quite well,” said W. Dean Henry, CEO of Legacy Partners in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “We did see a slight rise in the MVI, primarily due to large supply coming online in the previous quarter, but with demand remaining strong we expect those vacancies will be absorbed.”  “The consistent MPI reading over 50 aligns with the fact that the multifamily market has recovered and will continue to do well,” said NAHB Chief Economist David Crowe. “This positive growth is due in part to a strengthening labor market, which has enabled millennials to find jobs and create their own households.”

Square set to debut after prices 25% below expectations

Square Inc priced shares at $9 for its initial public offering, about 25% less than it had hoped, as it struggled to win over investors skeptical about its business and valuation before trading begins on Thursday.  The mobile payments company said it along with a selling stockholder would offer 27 million shares, raising $243 million in its Wall Street debut, about $80 million less than expected.  The San Francisco-based company earlier this month set a price range of $11 to $13 per share, well below the $15.46 investors paid in Square’s most recent private financing round last year.  The steeper discount to $9 – a 42% drop from a year ago – suggests widespread uncertainty about the profitability of the payments industry and the future of Square itself, which has seen slowing revenue growth.  The weaker price puts Square’s market capitalization at $2.9 billion, a far cry from the $6 billion valuation it had earned from private investors.  “The way that Square was valued as a private company is they were just going to disrupt everything and change payments,” said Andrew Chanin, chief executive of PureFunds, an exchange-traded fund that includes mobile payments companies. “And the reality is not that.”

The IPO is among the strongest indications yet that valuations set by private market investors can be fleeting.  Fidelity Investments recently cut the estimated value of its stake in some high-profile private tech companies, including Snapchat, Zenefits and Dropbox.  Compounding concerns is Square CEO Jack Dorsey’s dual role running Twitter Inc, a social media company struggling for a turnaround.  Investors have criticized Dorsey and Square for not better communicating how he plans to split his time between the two companies.  Only on Monday did Square touch on Dorsey’s dual roles in an updated IPO filing that states Dorsey will give his “full business efforts and time to the company, other than with respect to (his) work with Twitter Inc.”  Founded in 2009, the company started as a way for small businesses to accept credit card payments through mobile devices. It has evolved into a suite of small-business services, relying on partnerships with companies such as Apple and Visa.  The valuation cut triggered a ratchet, or protections investors wrote into a previous funding round. Investors had expected shares to price at more than $18, and Square must sell several million additional shares to make up the difference.

The company will sell 25.65 million Class A common shares, while the Start Small Foundation, a charity created by Dorsey, will offer 1.35 million.  Square will begin trading on Thursday on the New York Stock Exchange under the symbol “SQ”.  The company joins Wall Street at a time when dozens of well-funded banks, credit card companies and big tech firms are expanding into mobile payments.  “They are competing with Visa and American Express and PayPal, and more and more with Apple and Google,” said James Gellert, CEO of Rapid Ratings, which rates the financial health of companies. “These are formidable competitors.”  For the nine months ended Sept. 20, Square made $892.8 million in revenue, a 49% increase from the same period in 2014, but slower revenue growth compared with prior years.  It posted $131.5 million in losses, up from $117 million the prior year.  “What you see here is a deterioration,” Gellert said. “They are losing more money, and cash from operations continues to be negative.”

Zillow – October market reports: home value growth accelerates, while rent growth slows

–  Rents appreciated 4.5% year-over-year, down from 5.3% in September 2015.

–  Rents in large multifamily buildings rose 3.9% annually, rents of single-family homes grew 4.5%.

–  Home values grew 4.3% year over year to a Zillow Home Value Index of $182,800 in October.

As the US housing market enters the fourth quarter of 2015, the dominant trends from the first quarter have reversed. Annual home value appreciation, previously slowing down, has accelerated; while growth in rents, previously accelerating, has begun to slow down.  In each of the first three months of 2015, annual home value growth was slower than the month prior. US median home values grew 3.1% year-over-year in January (down from 3.7% in December 2014), 2.9% in February and 2.8% in March. The annual pace of rental appreciation over the same period was consistently speeding up. Median US rents grew 3.6% year-over-year in January (up from 3.2% in December 2014), rising to 4% in February and 4.7% in March.  The main reason for the reversal likely hinges on the supply of homes for sale and rent. After years under construction, more rental units are beginning to come online in many cities nationwide, helping to ease rental appreciation in some areas. At the same time, the number of homes available for sale nationwide has fallen in each of the past two months, keeping some upward pressure on home values.  Still, rents continue to grow at a rapid clip, and are growing faster annually than home values overall: 4.5% year-over-year growth for rents, compared to 4.3% year-over-year growth for home values.  As rents have grown and rental affordability continues to suffer, the stability and relative affordability of homeownership may be pushing some qualified renters to make the jump to homeownership. A widely expected December rate hike from the Federal Reserve could be an additional incentive for buyers to enter the market while mortgage interest rates remain low. Reflecting this, home values are growing at their fastest pace since November 2014.

The Pace of Home Value Appreciation is Picking Up

home-values-october-2015-2The October Zillow Real Estate Market Report covers home values in 542 metropolitan and micropolitan areas, in addition to thousands of cities, counties, neighborhoods and ZIP codes nationwide. In October, the median US home was worth $182,800, according to the Zillow Home Value Index, up 4.3% from October 2014.  Among the 35 largest metro areas in the country, 24 experienced annual home value growth that was faster than the nation’s 4.3% yearly pace of appreciation. Home values grew by more than 10% per year in six of those large metro markets: Denver (16.2%), Dallas (15.2%), San Jose (13.3%), San Francisco (12.2%), Portland (11.4%) and Miami (10.3%). Two large metros, Washington, D.C. (-0.4%) and Baltimore (-1.2%), experienced annual declines in home values.

Single-Family Rents Rising Faster than Multi-Family Rents

Nationwide, rents of single-family, condo, co-op and apartment homes grew 4.5% year-over-year in October, to a US Zillow Rent Index of $1,382, down from 5.3% annual appreciation in September. As recently as July, overall rents were growing 6.6% year-over-year. Though rents continue to rise fairly quickly, we’re beginning to see signs of a slowdown in the national rental market.  Perhaps owing to their rising popularity as a rental option for young families and those displaced by foreclosure in recent years, rents for single-family homes are growing more quickly than rents for more traditional apartments in larger multifamily buildings. Single-family home rents grew 4.5% year-over-year in October, while rents for apartments in multifamily properties grew just 3.9% over the same period. A limited supply of single-family homes for rent compared to more traditional apartments could also be a factor in their more rapid rental appreciation, especially given weak construction activity for new single-family homes in general.  Among the largest 35 metros for which we have data for both single-family and multi-family rents, single-family rents grew faster than multifamily rents in 19 markets. Multifamily (10.3%) and single-family (11.1%) rents each grew by more than 10% year-over-year in October in Portland, Oregon. Of the 16 large markets where annual multifamily rents rose faster than single-family rents in October, appreciation was highest for multifamily units in the San Francisco metro (17.7% for multifamily units).

Fewer Homes For-Sale

Inventory-October-2015-4Seasonally adjusted, the number of homes for-sale nationwide has declined the last two months, and is 6.8% below its level during October 2014.  Of the nation’s largest 35 metro markets, Atlanta, Austin and Washington, D.C., experienced the biggest increases in inventory over the past year. The Charlotte, San Diego and Seattle metros all experienced decreases in for-sale inventory of 25% or more.


Over the next year, the pace of home value growth is expected to slow, growing 2.6% from October 2015 to October 2016, according to the Zillow Home Value Forecast. Over the past year, home values grew 4.3%. Of the largest metro areas covered by Zillow, Las Vegas, Dallas, Seattle and Sacramento, Denver, Riverside and Portland are expected to have home values grow by 5% or greater over the next year. No metro areas are expected to have home values fall, although appreciation for Baltimore is expected to be flat.  Rental appreciation has started to slow down in part due to more rental supply. Many of the bigger multifamily rental projects that were begun a couple years ago in cities nationwide are finally starting to open for occupancy, easing pressure on rents somewhat. But make no mistake: Despite this recent slowdown in rental appreciation, the rental affordability crisis we’ve been enduring for the past few years shows no signs of easing, especially as income growth remains weak. It will take a lot more supply, and a lot more renters-turned-homeowners, to fully reverse this trend.

MBA – mortgage applications up

Mortgage applications increased 6.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 13, 2015.  This week’s results included an adjustment for the Veterans Day holiday.  The Market Composite Index, a measure of mortgage loan application volume, increased 6.2% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 6% compared with the previous week.  The Refinance Index increased 2% from the previous week.  The seasonally adjusted Purchase Index increased 12% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week and was 19% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 58.6% of total applications from 59.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications. The average loan size for purchase applications rose to a survey high of $301,200.  The FHA share of total applications increased to 14.4% from 14.1% the week prior. The VA share of total applications increased to 11.7% from 10.9% the week prior. The USDA share of total applications remained unchanged from 0.7% the week prior.

Expect a market meltdown before the 2016 election: Stockman

The markets are in for a “rough patch of time,” at least according to market contrarian David Stockman.  The Federal Reserve has reached a “ridiculous point” keeping interest rates this low for this long and its those policies that could spark a massive correction between now and the 2016 election, the former director of the OMB said Tuesday on CNBC’s “Futures Now.”  “To be with emergency zero interest rates this late in the cycle has simply left the Fed between the biggest rock and hard place that I think is known in monetary history,” he said. We’re currently in month 83 of zero interest rates.  “I suspect unless the market crashes between now and [December], they will have to raise interest rates by 25 basis points,” added Stockman. “[But] they will try to say one and done and wrap it in incoherent Fed speech.”  According to Stockman, by not raising rates thus far, the US central bank is only proving that it is “playing by the seat of their pants.” And it’s only a matter of time before its “gibberish and incoherent” language weighs on the market and brings about the next correction, he said.  “The market has been cycling back and forth and people are beginning to realize the whole thing is a farce,” he said.

The S&P 500 has seen red for much of the past two weeks, having rallied in only four sessions since the start of November and now tracking for its third down month in the last four.  “The central banks have lost control and you have a few daredevils left who are trying to bid it up,” he said. “One of these times we are going to plunge and there won’t be any bid when we go down.”  Stockman used the economic slowdown in China, hardships in Japan as well as the crash in commodities and a decelerating US earnings picture as examples of some of the indicators pointing to the undercurrents of a weak US economy and stock market.  Despite his conviction, he did admit it’s difficult to tell when the next shoe will drop, as he has been calling for a “major market meltdown” for quite some time. Still, he believes the market is in “utterly uncharted waters” and as fewer stocks are making new highs, the market is “vulnerable to an unexpected and huge plunge.” Nearly 70% of stocks in the S&P 500 are trading 10% or more from their respective 52-week highs, according to FactSet.  “This is really the final spasm of the bull. When this one is over I think we are going down for the count,” Stockman added. “That will happen I think sometime between now and the next election.”

Housing starts drop to seven-month low, permits rise

US housing starts in October fell to a seven-month low as single-family home construction in the South tumbled, but a surge in building permits suggested the housing market remained on solid ground.  Groundbreaking dropped 11% to a seasonally adjusted annual pace of 1.06 million units, the lowest level since March, the Commerce Department said on Wednesday. September’s starts were revised down to a 1.19 million-unit pace from 1.21 million units.  Still, October marked the seventh straight month that starts remained above 1 million units, the longest stretch since 2007. That suggested a sustainable housing market recovery.  Rapidly rising household formation, mostly driven by young adults leaving their parental homes and a strengthening labor market, is supporting the housing sector.  Although residential construction accounts for just over 3% of gross domestic product, housing has a broader reach in the economy, with rising home prices boosting household wealth and, as a result, supporting consumer spending.

Black Friday deals: retailers repeat last year’s sales

If retailers’ doorbuster deals are giving you a sense of deja vu this holiday shopping season, it may not be all in your head.  New analysis by NerdWallet, which examined Black Friday advertisements from 21 retailers, found all but one of these companies listed at least one product for the same price as it did in its 2014 ad.  What’s more, the financial education site said several retailers this month have already offered the same or lower prices as their Black Friday deals.  “This is the fourth year we’ve conducted this analysis, and we’re still seeing repetitive deals every year,” said NerdWallet shopping manager Katrina Chan. “Just because a retailer promotes a certain product as a ‘deal,’ consumers shouldn’t take that at face value. Shoppers still have to do their homework early.”

NerdWallet listed Belk as the biggest offender for repeat deals, saying it duplicated at least 80 in this year’s Black Friday ad. Macy’s came in second, with more than 60 repeated deals. Only Dell did not advertise any of the same deals, according to NerdWallet.  NerdWallet’s findings follow similar results from WalletHub, which said Monday that 11% of the Black Friday deals from 17 major retailers have been recycled from last year.  Both announcements come as shoppers have become increasingly skeptical of Black Friday deals, as promotions proliferate the shopping scene year round.

WSJ – US home-builder confidence declines in November after October surge

US builders’ confidence in the housing market declined this month but remained near a 10-year high, suggesting the industry is sustaining momentum despite troubles in the global economy.  The National Association of Home Builders’ housing-market index fell three points to 62 in November, the industry group said Tuesday.  A reading over 50 indicates most builders are optimistic about conditions in the market for single-family homes.  October’s reading, revised to 65 from an initially reported 64, marked the highest level since October 2005, during the last housing boom.  Confidence this month fell below the consensus estimate of 63 in a Wall Street Journal survey of economists. But the report did little to alter the view that a key segment of the US economy is strengthening as more Americans get jobs and position themselves to buy a home.  ”The November report is pullback from an unusually high October, and is more in line with the consistent, modest growth that we have seen throughout the year,” said NAHB Chief Economist David Crowe. “A firming economy, continued job creation and affordable mortgage rates should keep housing on an upward trajectory as we approach 2016.”  NAHB Chairman Tom Woods added that “our members continue to voice concerns about the availability of lots and labor.”

The latest survey showed that a measure of builder expectations for sales over the next six months fell five points to a still relatively high 70. A measure of present sales conditions declined three points to 67.  The index’s final component, a measure of buyer traffic, rose a point to 48. Builder confidence climbed steadily since the summer, driven by strong home sales, sustained low interest rates and a growing labor market. Rising sentiment could ultimately translate into a pickup in construction, which would stir job growth and boost the economy.  Home construction remains historically weak despite the pickup in confidence this year. The number of housing starts has more than doubled since the depths of the recession but remains roughly half of its 2006 peak.

RealtyTrac – new financing rules brighten condo market

For millions of Americans, “home” is a condo. There are roughly 6.2 million financed condo units, according to RealtyTrac, and with the publication of new Federal Housing Administration (FHA) rules on Nov. 13, they should now be easier to finance and refinance. With financial barriers reduced, condo sales and values will likely get a boost and that’s good news across the housing market.  But has the FHA gone far enough? The new FHA rules are both “temporary” and unlikely to fully please the housing industry. For many the changes could have been far stronger and the result is that the matter may well be fought out on Capitol Hill.  Title to a “little house with the white picket fence” is usually in the form of what is called “fee simple” real estate. That means the owners own both the property and any “improvements” on it such as a house. Fee simple owners have the largest possible “bundle of rights” for the property — within local zoning and housing laws they can finance and refinance it as they like, rent it, remodel it, or use it only on Tuesdays. The owners can paint it puce if they like and the neighbors can do nothing more than shield their eyes. Most importantly, those who own fee simple real estate can easily get financing because the rights of ownership are so clear.

In contrast, a condo typically represents a form of shared ownership. Condo owners hold exclusive title to the unit in which they live plus they have a non-exclusive right to all common property. In turn, condo owners agree to abide by the rules of the condo association as a condition of ownership. This means the condo association can determine when the pool will be open and what architectural restrictions will be in place.  Financing a condo is a lot more complicated than financing a fee simple property because now the lender wants to see not only the owner’s information but also condo documents and budgets. Is the association solvent? Does it have reserves? What percentage of the units are rented? What percentage of the units are in foreclosure? Does the association have adequate liability insurance for common areas? Is the unit subject to a huge “special” assessment?  These questions are important because the financial stability of a condo unit is not solely related to the owner. If enough units are foreclosed then the condo association will not collect the dues it needs to fund the amenities and common areas and that means lower values for the lender’s collateral. Or, if a large percentage of units are rented then all properties will be treated as investment real estate, including those which are owner occupied. In that case new buyers will need to finance with investment mortgages even if they intend to occupy. Since investment mortgages typically require 10 or 20% down versus 3.5% for FHA financing, individual unit sales and prices will take a hit if the entire condo project is defined as “investment” property.

Industry FHA Complaint

For a very long time the real estate industry has complained about FHA condo standards and with good reason: according to the National Association of Realtors “FHA data show approximately 60% of condo projects seeking approval in 2013 were denied, that’s up from 2011 when only 20% of projects were denied.”  Why are so many condo projects denied FHA approval? According to NAR the top reasons for denials include “financial instability, pending litigation, insufficient insurance coverage and outdated or missing documentation, among others.”  Access to FHA financing is hugely important because FHA loans are often the best form of financing available to first-time buyers and individuals with limited incomes. If a condo project does not qualify for FHA financing then the pool of potential buyers is far smaller so there is less demand and thus less pressure to push up prices.  Alternatively, if the FHA has to have special condo rules — and it does because condos have different ownership and financial characteristics when compared with fee-simple ownership — can the rules be loosened without driving up FHA insurance claims?

New FHA Condo Standards

On Nov. 13, HUD announced new FHA condo qualification standards — with the stipulation that they were “temporary.”  In Mortgagee Letter 2015-27, HUD described three condo rule changes.  First, the recertification process has been eased. Now, says HUD, it will no longer require a complete document package every two years but only paperwork showing important changes since the last approval.  Second, the standards change the way the owner-occupancy percentage is calculated. HUD still requires that at least 50% of all units must be owner-occupied, but now HUD says all units will automatically be non-investment properties unless they are tenant occupied, listed for rent, vacant and listed for sale, or under contract to an investor. If a condo unit is used as a vacation property it will be considered “owner-occupied,” a big deal in Florida and other vacation areas.  Third, the insurance standards for homeowners’ associations (HOAs) have been eased, something which should cut costs.

Capitol Hill

The changes made by HUD are unlikely to satisfy industry players. Normally after a HUD announcement that pleases the housing sector reporter mailboxes are filled with glowing news releases which praise the brilliance and insight of government officials. This time the reaction has been muted, all of which brings us to the industry fall-back position, H.R. 3700.  A few weeks ago, before the HUD changes, industry leaders were on Capitol Hill to support H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015.” Sponsored by Rep. Blaine Luetkemeyer (R-MO), the proposed legislation would reduce the required owner occupancy level from 50% to 35%, meaning that a condo owner could still get FHA-backed financing even though most of a project’s units were rented out. Also, the bill would make it easier to get FHA financing when as much as 50% of a project’s floor space is used for commercial purposes. This latter provision is designed to encourage the development of mixed-use projects.  “H.R. 3700 includes changes to FHA policies that will give current owners and potential buyers of condos access to more flexible and affordable financing and a wider choice of approved condo developments,” said NAR President Chris Polychron in Capitol Hill testimony.  The Luetkemeyer bill if passed would substantially change the condo market. For instance, at this time Fannie Mae and Freddie Mac require investment financing for projects where 51% of the units are rentals. If the FHA policy was at 35%, then a huge number of condo loans would flow into the FHA program.  It’s often hard to predict how proposed legislation will fare but H.R. 3700 is likely to get a serious review. Why? Despite headlines to the contrary, the economy remains fragile, condos represent about 9% of all mortgaged properties, and the housing industry could still use help, especially help which does not cost taxpayers a dime.

MBA – mortgage foreclosures and delinquencies continue to drop

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 4.99% of all loans outstanding at the end of the third quarter of 2015.  This was the lowest level since the first quarter of 2007.  The delinquency rate decreased 31 basis points from the previous quarter, and 86 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.  The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the third quarter was 1.88%, down 21 basis points from the second quarter and 51 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the third quarter of 2007.  The percentage of loans on which foreclosure actions were started during the third quarter was 0.38%, a decrease of two basis points from the previous quarter, and down six basis points from one year ago. The foreclosure starts rate is at the lowest level since the second quarter of 2005.  The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.57%, a decrease of 38 basis points from last quarter, and a decrease of 108 basis points from last year. This was the lowest serious delinquency rate since the third quarter of 2007.

Marina Walsh, MBA’s Vice President of Industry Analysis, offered the following commentary on the survey:  “Overall delinquency rates and the percentage of loans in foreclosure continued to fall in the third quarter and are at their lowest levels since the first quarter of 2007.  The serious delinquency rate – measured by those loans that are 90 days or more delinquent or in the process of foreclosure – declined for nearly every state in the nation.  The factors influencing this outcome include a nationwide housing market recovery, resolution of long-standing troubled loans that eventually proceeded through the foreclosure process, and an improving employment outlook that provided distressed borrowers viable alternatives to foreclosure.  “The overall delinquency rate for FHA loans dropped to 8.91% in the third quarter from 9.01% in the second quarter, as the 90 day or more delinquent category declined by 20 basis points and more than offset an 11 basis point increase in the 30 day delinquency rate. In addition, the FHA foreclosure inventory rate dropped to 2.65% in the third quarter, from 2.68% in the second quarter and 2.73% a year ago.   “While only 40% of loans serviced are in judicial states, these states account for a majority of loans in foreclosure.   For states where the judicial process is more frequently used, 3.01% of loans serviced were in the foreclosure process, compared to 1.06% in non-judicial states. States that utilize both judicial and non-judicial foreclosure processes had a foreclosure inventory rate closer that of the non-judicial states at 1.26%.

“As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation.  All three of these states primarily use a judicial foreclosure process.  “New Jersey’s foreclosure inventory rate remained the highest in the nation at 6.47%.  But its 84 basis point decline in the foreclosure inventory rate was the largest decline experienced by any state in the third quarter, and the second largest decline reported for New Jersey in any quarter.  “New York’s foreclosure inventory rate dropped to 4.77% in the third quarter, from 5.31% in the second quarter.  This 54 basis point decline in the foreclosure inventory rate in the third quarter was the largest decline reported for New York in any quarter.  “Florida’s foreclosure inventory rate dropped to 3.46% in the third quarter, from 4.24% in the second quarter, a decline of 78 basis points.  While this decline was substantial, Florida experienced its largest decline in the foreclosure inventory rate – 110 basis points – two years earlier in the third quarter of 2013.  “Legacy loans continued to account for the majority of all troubled mortgages.  Across all loans, 80% of the loans that were seriously delinquent were originated before the year 2009, even as the overall rate of serious delinquencies for those cohorts decreased.”


WSJ – farmland prices decline across parts of midwest

Farmland values fell in parts of the Midwest in the third quarter, reflecting a downdraft in the agricultural sector driven by three years of lower crop prices, according to Federal Reserve reports on Thursday.  The average price of “considerably, the Fed bank said.  In the Kansas City Fed’s district, which includes Kansas and Nebraska, irrigated-cropland values declined 1%, quality” farmland in the St. Louis Fed’s district, which includes parts of Illinois, Indiana and Missouri, dropped 2.6% from a year earlier, as farm incomes weakened while the average price of nonirrigated land rose 0.4%, the bank said. Irrigated farmland depends on man-made water systems rather than rainfall.  In the Chicago Fed’s district, which includes Illinois and Iowa, prices for farmland remained largely the same in the third quarter compared with a year ago, and rose 1% versus the second quarter of this year, the bank said.  The reports largely underline a slowdown in the agricultural economy that has softened farmers’ demand for cropland after a yearslong run-up in prices. Both crop prices drought and burgeoning demand for grain from ethanol producers and overseas buyers. That led flush farmers to bid up land values. This autumn, however, farmers for the third straight year are harvesting bumper corn and soybean crops, further elevating global supplies and adding pressure to prices that have fallen by more than half since 2012.  Midwestern bankers surveyed by the Fed banks in both the St. Louis and Kansas City districts said farm income fell significantly in the third quarter, and many expect a continued cooling of land values in the current quarter as farmers adjust to leaner times.  “Because of some concern about the fall harvest and the recent dip in livestock prices, agricultural bankers have a rather dour view of farm income prospects in the fourth quarter of 2015,” the St. Louis Fed said in its report on Thursday.

The Chicago Fed said most Midwestern lenders it surveyed think farmland values will drop in the current quarter, implying that the lack of an overall decline in the third quarter “was merely a pause in a longer-term correction,” wrote David Oppedahl, senior business economist at the Chicago Fed, in Thursday’s report.  The report cited stable prices for corn in the third quarter, as well as a lack of available farms for sale as likely factors propping up land values in the Chicago region.  Agricultural land values in Iowa and Illinois, the two largest corn-producing states, both declined from a year earlier, though the losses were offset by higher prices in Wisconsin and Michigan.  Average ranchland values rose both in the St. Louis and Kansas City Fed’s district, though bankers in both regions expect prices for the land used to raise livestock to decline versus year-ago levels in the current quarter.  Both the Chicago and Kansas City Fed districts said financial conditions for farmers weakened in the third quarter, with loan repayment rates down and expected to decline further as the year wraps up. Mr. Oppedahl said an index of repayment rates for loans excluding real estate in the Chicago region could drop to the lowest level since 1999, while more farmers facing financial strain could be forced to hold farm sales or sell off assets in the next three to six months compared with year-ago levels.  “Land values have definitely been declining,” said Brandon Rutledge, who grows corn and soybeans and raises livestock in Le Roy, Ill.  Less farmland than normal is going on the market in Mr. Rutledge’s area because nearby land prices have dropped, he said.  The farmer added that he plans to drive a hard bargain with seed suppliers and apply less fertilizer to his cropland to cut costs and stay profitable for this year. Still, he said, “it’s going to be tight.”

Empire State manufacturing activity rooted in contraction

Business conditions in the state of New York continued to deteriorate in November, declining for a fourth straight month despite recent signs of stabilization in the US manufacturing sector, according to the Federal Reserve Bank of New York.  The Empire State’s business conditions index came in at -10.7 this month, compared with -11.4 in October and -14.7 in September. Economists surveyed by The Wall Street Journal expected the gauge to improve to -5. A reading above zero reflects expansion; a reading below that level denotes contraction.  The index is still firmly in contractionary territory and again fell short of the bounce economists expected.  The US manufacturing sector remains under pressure from weaker global demand and from the stronger US dollar, which makes exports more expensive. Recent reports from some pockets of the country have shown modest improvement, though producers in the northeast have continued to report unfavorable conditions.  The gauge follows the government’s latest employment report, which showed no change in overall manufacturing hiring activity last month but a slight improvement in the length of employees’ workweek.  The New York Fed survey is the first monthly factory report released by regional Fed banks. Economists use the Fed surveys to forecast the health of the national industrial sector as captured in the monthly manufacturing report released by the Institute for Supply Management, next due out Dec. 1.

NAR – drone landscape still evolving as realtor, other commercial use grows

The Federal Aviation Administration continues its work to integrate unmanned aerial systems, also known as drones, into the National Airspace System, and Realtors stand ready to take advantage of their many benefits.  That’s according to panelists at the “Using a Drone in Your Business: Knowing Your Risk” session held as part of the 2015 REALTORS Conference & Expo.  “This technology is an incredible tool for real estate professionals, but can be dangerous if the wrong person is in control,” said session moderator Kolleen Kelley, Realtor and 2015 Risk Management Committee vice chair.  Other panelists included Eric Myers, vice president of Victor O. Shinnerer & Company; Lesley M. Walker, National Association of Realtors associate counsel; and Dean Griffith with FAA’s Office of the Chief Counsel.  The panelists spoke about the extensive benefits of using drones in real estate, but also warned the audience that following the rules is of critical importance to mitigate potential risks and liabilities.  Wide-scale commercial use of drones is currently prohibited, but the FAA has streamlined a waiver process for individuals and businesses interested in using drones for commercial purposes. So-called Section 333 waivers are already in use by dozens of Realtors and other operators currently using drones for their business.

Panelists widely agreed that the use of drones for commercial purposes will only grow with time, even as issues related to safety, privacy, insurance and the regulatory framework continue to evolve. They advised the audience about the importance of hiring approved operators with strong risk management practices, sufficient insurance coverage and, most importantly, a Section 333 waiver from the FAA.  The speakers also reminded Realtors to be thoughtful about agreements with outside companies to ensure that ownership of any photographs taken is clear, as intellectual property laws and rules still apply.  Walker pointed to NAR’s policy statement in noting that the association supports the integration of unmanned aerial systems into the National Airspace System, or NAS, and a clear regulatory framework for interested Realtors to responsibly make drones a part of their business.  This includes making safety a top priority, and earlier this year NAR joined an industry “Know Before you Fly” campaign and partnered with the National Telecommunications and Information Administration’s “Multistakeholder Process: Unmanned Aircraft Systems” to further highlight the importance of safety, security, and privacy in commercial drone use.

The FAA is currently moving through a rulemaking process to address the integration of drones into the NAS, which Griffith noted FAA hopes to complete by June 2016.  In September, NAR President Chris Polychron, executive broker of 1st Choice Realty in Hot Springs, Arkansas, testified before a US House Judiciary Subcommittee on the value of drones in real estate.  “Commercial drones represent an opportunity to create jobs and businesses, as well as to support the business of real estate,” said Polychron. “NAR is pleased to see this important issue get the attention it deserves and will continue working with the FAA to advance clear regulations that are affordable for users, safe for their communities, and mindful of the safety and privacy of individuals.”

Global oil prices mixed

As of 9:30 a.m. ET, US crude oil prices slid 0.59% to $40.52 a barrel, while Brent, the international benchmark, declined 1.01% to $44.02 a barrel.  Oil prices edged up on Monday on geopolitical concerns after Friday’s deadly attacks in Paris claimed by Islamic militants, but gains were muted due to a global crude glut.  France carried out large-scale air strikes against Islamic State sites in Syria overnight, giving oil market investors reason to step up buying activity after a week in which crude benchmark prices fell as much as 8%.  “Some risk premium is factored into the market after the terror attacks in Paris. We had an oversold market, so it is a technical recovery as well,” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.  Front-month Brent crude prices were up 34 cents at $44.81 a barrel at 0415 ET. US futures traded 36 cents higher at $41.10 a barrel.  An OPEC delegate from a Gulf producing country said he believed that in the mid-term oil prices could get some support due to rising tensions especially if the international community takes more steps to reduce smuggling of oil and hits oil facilities under Islamic State’s control in Syria and Iraq.  But oil and other commodities could also come under renewed pressure on fears the attacks will further slow the global economy.  Many analysts also continue to believe prices will remain under pressure due to abundant stocks of oil and slowing economic growth.  “Our outlook is skewed negative into (the first half of next year). Macro headwinds remain, crude oil inventories are building,” Morgan Stanley said.


RealtyTrac – US foreclosure starts increase 12% in October

RealtyTrac released its US Foreclosure Market Report for October 2015, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 115,134 US properties in October, an increase of 6% from the previous month but still down 6% from a year ago. The report also shows one in every 1,147 US housing units with a foreclosure filing during the month.  The 6% monthly increase in overall foreclosure activity was caused primarily by a 12% monthly jump in foreclosure starts, with 48,605 properties starting the foreclosure process for the first time in October. The October monthly increase was the largest month-over-month increase since August 2011, when there was a 24% month-over-month increase. Despite the month-over-month increase, foreclosure starts in October were still down 14% from a year ago.  “We’ve seen a seasonal increase in foreclosure starts in October for the past five consecutive years, so it’s not too surprising to see the monthly increase this October,” said Daren Blomquist, vice president at RealtyTrac. “However, the 12% increase this October is more than double the average 5% monthly increase in the past five Octobers, and the even more dramatic monthly increases in some states is certainly a concern. The upward trend in foreclosure starts in those states in some cases could be an indication of fissures in economic fundamentals driving more distress and in other cases is more likely an indication of long-term delinquencies finally entering the foreclosure pipeline.”  October foreclosure starts increased from the previous month in 34 states, including California (up 21%), Florida (up 13%), New Jersey (up 15%), Illinois (up 20%), Maryland (up 300%), Washington (up 34%), and Michigan (up 37%).

There were a total of 36,582 properties repossessed by lenders (REOs) in October, down 9% from the previous month but up 31% from a year ago — the eighth consecutive month with a year-over-year increase in REOs. Despite the annual increase, REOs in October are about one-third of their peak of 102,134 in September 2010. Through the first 10 months of 2015 there have been 369,920 completed foreclosures, up 33% from 277,815 REOs during the same time period in 2014.  REOs increased from a year ago in 36 states in October, including New York (up 320%), New Jersey (up 275%), Texas (up 119%), North Carolina (up 89%), Nevada (up 83%), and Illinois (up 62%). “Foreclosed properties are still up against the same circumstances that any other seller in this market faces which is fair market value and beyond,” said Al Detmer, broker associate at RE/MAX Alliance, covering the Greeley market in Colorado. “Bank owned property asset managers are still requesting top dollar and today’s market demand is responding in their favor. Diamond in the rough distressed properties are the find for the cash heavy buyer that can fulfill a fix and flip fantasy and be the chicken dinner buyer to secure the deal for the near future.”  Those states that saw the most completed foreclosures for the month included Florida (5,760 REOs), California (2,697 REOs), Illinois (2,624 REOs), New Jersey (1,960 REOs) and Texas (1,776 REOs).

A total of 46,698 US properties were scheduled for foreclosure auction during the month, up 12% from the previous month but down 22% from a year ago.  Scheduled foreclosure auctions — which can be foreclosure starts in some states — increased from a year ago in 17 states, including New York (up 47%), Massachusetts (up 45%), North Carolina (up 24%), New Jersey (up 17%), and Maryland (up 3%).  “I’m not surprised to see that foreclosure activity in Seattle has dropped again. Home prices continue to rise and the economy is growing at a rate well above the national average. So, what’s a buyer to do if they’re looking for a good deal in Seattle’s hyper competitive market?” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market.  “One of the best tips is to have your agent search for homes that have been on the market for more than 14 days. When a home doesn’t sell quickly buyers wonder what’s wrong with it and sellers become discouraged. And this can lead to finding that hidden gem that everyone else has overlooked.”

A total of 5,126 Maryland properties had a foreclosure filing in October, up 100% from the previous month, but still down 14% from a year ago. After dropping out of the top five state foreclosure rates in September for the first time in 2015, Maryland’s foreclosure rate jumped to No. 1 in October thanks to the surge in foreclosure starts. One in every 466 Maryland housing units had a foreclosure filing in October, more than 2.5 times the national foreclosure rate.  The state of New Jersey accounted for 7,559 properties receiving a foreclosure filing in October, a foreclosure rate of one in every 471 housing units — second highest among the states after New Jersey’s foreclosure rate ranked No. 1 in September. New Jersey foreclosure activity in October decreased 4% from the previous month, but was still up 87% from a year ago — the eighth consecutive month with a year-over-year increase in New Jersey foreclosure activity.  One in every 579 Florida housing units received a foreclosure filing in October, the nation’s third highest state foreclosure rate. Florida’s foreclosure rate has ranked in the Top 5 each month in 2015.  Florida foreclosure activity increased 8% from the previous month but was still down 23% from a year ago.  Nevada foreclosure activity decreased 6% from the previous month, but increased 1% from a year ago, giving the state the nation’s fourth highest state foreclosure rate: one in every 593 housing units with a foreclosure filing.  Illinois foreclosure activity increased 21% from the previous month, and the state posted the nation’s fifth highest foreclosure rate: one in every 680 housing units with a foreclosure filing.  “Coupled with increases in home equity, and an increasing job market, the level of foreclosures continue to decline across much of Ohio for the month of October,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “New job sectors involving banking, education, and healthcare are creating added employment opportunities that are increasing the demand and need for housing across the state.”  Other states with foreclosure rates among the nation’s 10 highest in October were South Carolina at No. 6 (one in every 751 housing units with a foreclosure filing); North Carolina at No. 7 (one in every 901 housing units); Ohio at No. 8 (one in every 968 housing units); New Mexico at No. 9 (one in every 1,020 housing units); and Washington at No. 10 (one in every 1,102 housing units).

October marked the 4th consecutive month where the Atlantic City, New Jersey metro remained in the No. 1 spot for having the highest foreclosure rate among metropolitan statistical areas with a population of 200,000 or more. One in every 257 Atlantic City housing units had a foreclosure filing in October, more than four times the national average. Atlantic City foreclosure activity in October increased 14% from previous month — driven by a 26% monthly spike in foreclosure starts — and increased 134% increase from a year ago.  Foreclosure activity in October increased 177% from a year ago in Columbia, South Carolina, and the metro area posted the nation’s second highest foreclosure rate: one in every 333 housing units with a foreclosure filing.  Foreclosure activity increased 118% from a year ago in Trenton, New Jersey, and the metro area posted the nation’s third highest metro foreclosure rate: one in every 390 housing units with a foreclosure filing).  “We continue to see the year-over-year decline of our South Florida distressed real estate market,” said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida market. “Any new bank owned inventory is quickly digested, as our under $300,000 priced inventory is at the lowest level in years.”  Other metro areas with foreclosure rates in the top 10 highest were Baltimore, Maryland at No. 4 (one in every 429 housing units with a foreclosure filing); Fayetteville, North Carolina at No. 5 (one in every 460 housing units); Jacksonville, Florida at No. 6 (one in every 465 housing units); Miami, Florida at No. 7 (one in every 480 housing units); Rockford, Illinois at No. 8 (one in every 486 housing units); Palm Bay-Melbourne-Titusville, Florida at No. 9 (one in every 514 housing units); and Tampa, Florida coming in at No. 10 (one in every 543 housing units).

WSJ – Volkswagen sales fall in October amid emissions scandal

Volkswagen AG’s sales of VW brand vehicles fell 5.3% in October, the first full month of trading since revelations that the German automotive giant had cheated on emissions tests in the US  Volkswagen said on Friday that deliveries of new vehicles fell to 490,000 units in October for its namesake brand, down from 517,400 in the same month last year.  Deliveries of VW brand vehicles fell 4.7% to 4.84 million in the 10 months to end-October from the same period last year, underscoring the pressure on the brand’s performance even before the emissions scandal struck.  “The Volkswagen passenger cars brand is experiencing challenging times,” said Jürgen Stackmann, a VW sales executive.  “We not only face the diesel and [carbon-dioxide emissions] issues but also tense situations on world markets,” Mr. Stackmann said.  Volkswagen plunged into crisis in September after US regulators said it installed software in nearly 500,000 diesel vehicles in the US that helped them evade pollution standards. Volkswagen has since acknowledged installing the software in millions of vehicles world-wide, with the US authorities also claiming the car maker has understated CO2 emissions. Volkswagen is under investigation in much of Europe and parts of Asia.  “The entire company is working to restore the trust of our customers,“ Mr. Stackmann said. Volkswagen would ”take care of each individual customer who is affected,” he said.

NAR – home prices sustain steady growth in most metro areas in third quarter

The encouraging lift–off in existing–home sales amidst ongoing inventory shortages kept home prices rising in most of the country during the third quarter, but overall price appreciation slowed to a healthier pace, according to the latest quarterly report by the National Association of Realtors (NAR).  The median existing single–family home price increased in 87% of measured markets, with 154 out of 178 metropolitan statistical areas (MSAs) showing gains based on closings in the third quarter compared with the third quarter of 2014. Twenty–four areas (13%) recorded lower median prices from a year earlier.  There were slightly fewer rising markets in the third quarter compared to the second quarter, when price gains were recorded in 93% of metro areas. Twenty–one metro areas in the third quarter (12%) experienced double–digit increases, a decline from the 34 metro areas in the second quarter. Sixteen metro areas (9%) experienced double–digit increases in the third quarter of 2014.  The national median existing single–family home price in the third quarter was $229,000, up 5.5% from the third quarter of 2014 ($217,100). The median price during the second quarter of this year increased 8.2% from a year earlier.

Total existing–home sales, including single family and condo, increased 3.4% to a seasonally adjusted annual rate of 5.48 million in the third quarter from 5.30 million in the second quarter, and are 8.3% higher than the 5.06 million pace during the third quarter of 2014.  The five most expensive housing markets in the third quarter were the San Jose, Calif., metro area, where the median existing single–family price was $965,000; San Francisco, $809,400; Anaheim–Santa Ana, Calif., $715,300; Honolulu, $714,000; and San Diego, $554,400.  The five lowest–cost metro areas in the third quarter were Cumberland, Md., where the median single–family home price was $82,400; Youngstown–Warren–Boardman, Ohio, $90,700; Decatur, Ill., $101,400; Rockford, Ill., $102,800; and Elmira, N.Y., $108,800. Metro area condominium and cooperative prices — covering changes in 62 metro areas — showed the national median existing–condo price was $215,200 in the third quarter, up 2.0% from the third quarter of 2014 ($211,000). Forty–four metro areas (71%) showed gains in their median condo price from a year ago; 18 areas had declines.  At the end of the third quarter, there were 2.21 million existing homes available for sale3, which is below the 2.28 million homes for sale at the end of the third quarter in 2014. The average supply during the third quarter was 4.9 months — down from 5.5 months a year ago.

NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark., says the overall pool of potential buyers still outweighs what’s available for sale in several markets this fall. “Realtors® are still reporting that many homes are going under contract more quickly than what’s typical this time of year,” he said. “While this is certainly beneficial to homeowners looking to sell, some are still reluctant to list out of concerns they’ll have limited time and choices during their own home search.”  Rising home prices, despite an increase in the national family median income ($67,723)4, slightly decreased affordability in the third quarter compared to the third quarter of last year. To purchase a single–family home at the national median price, a buyer making a 5% down payment would need an income of $50,324, a 10% down payment would require an income of $47,675, and $42,378 would be needed for a 20% down payment.

Regional Breakdown

Total existing–home sales in the Northeast jumped 6.4% in the third quarter and are 9.1% above the third quarter of 2014. The median existing single–family home price in the Northeast was $269,400 in the third quarter, up 3.5% from a year ago.  In the Midwest, existing–home sales rose 2.1% in the third quarter and are 9.0% higher than a year ago. The median existing single–family home price in the Midwest increased 4.8% to $181,100 in the third quarter from the same quarter a year ago.  Existing–home sales in the South climbed 3.0% in the third quarter and are 6.9% above the third quarter of 2014. The median existing single–family home price in the South was $200,700 in the third quarter, 6.0% above a year earlier.  In the West, existing–home sales increased 3.9% in the third quarter and are 9.7% above a year ago. The median existing single–family home price in the West increased 7.3% to $324,300 in the third quarter from the third quarter of 2014.

MBA – applications for new home purchases decreased in October

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for October 2015 shows mortgage applications for new home purchases decreased by 8% relative to the previous month. This change does not include any adjustment for typical seasonal patterns.  “On top of normal seasonal slowdown, the October decline in mortgage applications to builder affiliates was likely amplified by some applications being pulled forward into September ahead of the implementation of the Know Before You Owe Rule on October 3,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “Despite the decrease, our estimate of new single-family housing sales for October was up more than 7% from a year ago.”  By product type, conventional loans composed 67.2% of loan applications, FHA loans composed 19.2%, RHS/USDA loans composed 1.0% and VA loans composed 12.7%. The average loan size of new homes decreased from $324,884 in September to $320,881 in October.  The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 495,000 units in October 2015, 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 October is a decrease of 9.7% from the September pace of 548,000 units.  On an unadjusted basis, the MBA estimates that there were 39,000 new home sales in October 2015, a decrease of 7.1% from 42,000 new home sales in September.

CoreLogic – CoreLogic reports 55,000 completed foreclosures in September CoreLogic released its September 2015 National Foreclosure Report which shows the foreclosure inventory declined by 24.3% and completed foreclosures declined by 17.6% compared with September 2014. The number of foreclosures nationwide decreased year over year from 67,000 in September 2014 to 55,000 in September 2015. The number of completed foreclosures in September 2015 is a decrease of 52.8% from the peak of 117,438 in September 2010.  Completed foreclosures reflect the total number of homes lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 6 million completed foreclosures across the country, and since homeownership rates peaked in the second quarter of 2004, there have been about 8 million homes lost to foreclosure.  As of September 2015, the national foreclosure inventory included approximately 470,000, or 1.2%, of all homes with a mortgage compared with 621,000 homes, or 1.6%, in September 2014.

CoreLogic also reports that the number of mortgages in serious delinquency (defined as 90 days or more past due, including those loans in foreclosure or REO) declined by 21.2% from September 2014 to September 2015 with 1.3 million mortgages, or 3.4%, in this category. This is the lowest serious delinquency rate since December 2007. The foreclosure rate (defined as the share of all loans in the foreclosure process) was at 1.2% as of September 2015, which is back to the December 2007 level.  “The largest improvements in the foreclosure inventory continue to be in judicial states on the East Coast such as Florida and New Jersey,” said Sam Khater, deputy chief economist for CoreLogic. “While the overwhelming majority of states are experiencing declines in their foreclosure rates, four states experienced small increases compared with a year ago.”  “The rate of delinquencies continues to drop back closer to historic norms powered by improved economic conditions and tighter post-recession underwriting standards,” said Anand Nallathambi, president and CEO of CoreLogic. “As we head into 2016, based on almost every major metric, the fundamentals underpinning the housing market are healthier than any time since 2007.”

Additional highlights as of September 2015:

–  On a month-over-month basis, completed foreclosures increased by 49.5% to 55,000 from the 37,000 reported in August 2015.* The one-month surge in foreclosures was partially the result of an annual public auctioning of thousands of tax-foreclosed properties in Wayne County, Mich., of which Detroit is the county seat. 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.

–  The five states with the highest number of completed foreclosures for the 12 months ending in September 2015 were: Florida (91,000), Michigan (45,000), Texas (32,000), Georgia (26,000) and California (26,000).These five states accounted for almost half of all completed foreclosures nationally.

–  The four states and the District of Columbia had the lowest number of completed foreclosures for the 12 months ending in September 2015 were: District of Columbia (69), North Dakota (310), Wyoming (498), West Virginia (593) and Hawaii (690).

–  Four states and the District of Columbia had the highest foreclosure inventory rate in September 2015: New Jersey (4.6%), New York (3.7%), Florida (2.6%), Hawaii (2.5%) and the District of Columbia (2.4%).

–  The five states with the lowest foreclosure inventory rate in September 2015 were: Alaska (0.3%), Minnesota (0.4%), Nebraska (0.4%), Arizona (0.4%) and North Dakota (0.4%).

CoreLogic – demographic bulge to drive long-term home sale and rental markets

Demographic forces will power housing demand in coming years as the millennial cohorts come into prime ages for forming households and buying first or second homes. The housing market has begun to feel the effects of this trend and the aging of the second largest cohort—the baby boomers.  Census Bureau data shows that during 2014, the largest single-age group of younger Americans was 23, with ages 22 and 24 right behind them, all clustered in the 4.5 million range. The average age for a first-time homebuyer is 31. So in six to eight years, this bulge will become prime candidates for home sales and mortgages.  But that’s not the only demographic driver at work. The average age of a “move-up” or “repeat” homebuyer is 39. Right now there are about 3.9 million people in this age group. Eight years from now, there will be 4.2 million potential repeat candidates in the sweet spot. There may even be a third wave, as the largest cohorts of baby boomers (those born in 1956 through 1958) hit retirement age and start looking for retirement homes, second homes, or empty-nest condos.  Millennials’ high student debt ratios and antipathy to buying homes is the stuff of legend. But that is likely to change as they advance in their working careers and plan families. Surveys of millennials indicate that they have a similar desire for homeownership as their parents’ cohort, but recognize that they plan to transition into ownership at a later age. Six to eight years from now, it’s a good bet they will look more like the home-buying cohorts of the past.  Household formations have doubled in 2015 (1.6 million) over 2014 (700,000), as an improving economy has allowed young people to get into the labor force and out of their family’s basement. For now, those household formations likely will be rentals. But in a few years, they likely will be looking to buy homes.

An important difference between millennials and older cohorts is their greater racial and ethnic diversity. Forty-five% of millennials are minorities, compared with 28% of baby boomers. Minority-headed households are projected to make up approximately three-fourths of the net households formed over the next decade.1 Historically, minority-headed households have had a lower homeownership rate than non-Hispanic whites. During the first three quarters of 2015, the homeownership rate for non-Hispanic whites was 72%, compared with 47% for minority-headed households.2 Whether the homeownership gap by race/ethnicity narrows or not over time depends on many factors outside of the housing industry, such as quality of workforce skills, labor-force opportunities, and access to credit. Nonetheless, the demographic bulge represented by the millennials will boost home sales in the future and is likely to boost rental demand as well.

Olick – why did foreclosures spike in October?

It is possibly the nastiest consequence of the holiday season. Foreclosures rise now, as banks try to get ahead of the traditional December moratoriums, when they suspend all foreclosures due to the holidays.  No lender wants to take a house back during the holidays, but it appears to be particularly bad now for a number of reasons.  Newly started foreclosures rose 12% in October from September, according to a new report from RealtyTrac, a foreclosure listing company. That is the largest monthly increase since August 2011, and more than twice the gain from September to October in the last five years. Just over 48,000 properties started the process in October, still 14% less than a year ago.

Foreclosures have been declining steadily for the past several years, with more than 6 million homes lost since 2008. Part of the annual increase this year could be due to already troubled loans that were modified but are now re-defaulting. More than half (57%) of new foreclosures in August were re-defaults, according to Black Knight Financial Services, the largest share of repeat foreclosures on record. That is likely continuing into October’s numbers.  “The 12% increase this October is more than double the average 5% monthly increase in the past five Octobers, and the even more dramatic monthly increases in some states is certainly a concern,” wrote RealtyTrac’s Daren Blomquist in the report. “The upward trend in foreclosure starts in those states in some cases could be an indication of fissures in economic fundamentals driving more distress and in other cases is more likely an indication of long-term delinquencies finally entering the foreclosure pipeline.”

In addition, bank repossessions, the final stage of foreclosure, jumped 31% in October compared with a year ago. Part of this may be due to fewer investors at the courthouse steps and/or fewer foreclosed homes that are desirable to investors. If a home is not sold to an investor, it goes back to whoever owned the loan, either the bank or the investor who purchased the distressed mortgage. It is then called “REO” or real estate owned.  “We’re going to sell more REOs this year than last year, so we know more are going back to the bank,” said Rick Sharga, vice president at, a company that auctions properties for banks and investors. “We are seeing a lot of FHA inventory that is becoming REO and being sold that way.”  Slow foreclosure processing in states that require a judge, like Illinois, New Jersey and Florida have had the effect of leaving homes abandoned and in decay. Some of these houses have sat empty for years.  “A representative of one of the major banks told me that many of the properties they are taking back are highly distressed in terms of condition and in neighborhoods with virtually no buyers, so they are having trouble even giving some of those properties away to land banks etc.,” said Blomquist.  The cost of rehabilitating these properties to sellable condition is, in some cases, more than the resulting value, due to the rough neighborhoods. Homes with good value and in reasonable condition would have sold at auction to investors and never gone back to the bank as REO.  The share of institutional investor purchases has been dropping steadily, as they turn to regular listings to find homes now.  There just aren’t enough distressed properties worth buying. That tale is being told in these numbers. The foreclosure crisis is most definitely winding down. What we are seeing now is really the worst of the worst. Homes that are worthless and borrowers who couldn’t afford their homes even with loan modifications.

CoreLogic – 55,000 completed foreclosures in September 2015

CoreLogic released its September 2015 National Foreclosure Report which shows the foreclosure inventory declined by 24.3% and completed foreclosures declined by 17.6% compared with September 2014. The number of foreclosures nationwide decreased year over year from 67,000 in September 2014 to 55,000 in September 2015. The number of completed foreclosures in September 2015 is a decrease of 52.8% from the peak of 117,438 in September 2010.  Completed foreclosures reflect the total number of homes lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 6 million completed foreclosures across the country, and since homeownership rates peaked in the second quarter of 2004, there have been about 8 million homes lost to foreclosure.  As of September 2015, the national foreclosure inventory included approximately 470,000, or 1.2%, of all homes with a mortgage compared with 621,000 homes, or 1.6%, in September 2014.

CoreLogic also reports that the number of mortgages in serious delinquency (defined as 90 days or more past due, including those loans in foreclosure or REO) declined by 21.2% from September 2014 to September 2015 with 1.3 million mortgages, or 3.4%, in this category. This is the lowest serious delinquency rate since December 2007. The foreclosure rate (defined as the share of all loans in the foreclosure process) was at 1.2% as of September 2015, which is back to the December 2007 level.  “The largest improvements in the foreclosure inventory continue to be in judicial states on the East Coast such as Florida and New Jersey,” said Sam Khater, deputy chief economist for CoreLogic. “While the overwhelming majority of states are experiencing declines in their foreclosure rates, four states experienced small increases compared with a year ago.”  “The rate of delinquencies continues to drop back closer to historic norms powered by improved economic conditions and tighter post-recession underwriting standards,” said Anand Nallathambi, president and CEO of CoreLogic. “As we head into 2016, based on almost every major metric, the fundamentals underpinning the housing market are healthier than any time since 2007.”

Additional highlights as of September 2015:

–  On a month-over-month basis, completed foreclosures increased by 49.5% to 55,000 from the 37,000 reported in August 2015. The one-month surge in foreclosures was partially the result of an annual public auctioning of thousands of tax-foreclosed properties in Wayne County, Mich., of which Detroit is the county seat. 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.

–  The five states with the highest number of completed foreclosures for the 12 months ending in September 2015 were: Florida (91,000), Michigan (45,000), Texas (32,000), Georgia (26,000) and California (26,000).These five states accounted for almost half of all completed foreclosures nationally.

–  The four states and the District of Columbia had the lowest number of completed foreclosures for the 12 months ending in September 2015 were: District of Columbia (69), North Dakota (310), Wyoming (498), West Virginia (593) and Hawaii (690).

–  Four states and the District of Columbia had the highest foreclosure inventory rate in September 2015: New Jersey (4.6%), New York (3.7%), Florida (2.6%), Hawaii (2.5%) and the District of Columbia (2.4%).

–  The five states with the lowest foreclosure inventory rate in September 2015 were: Alaska (0.3%), Minnesota (0.4%), Nebraska (0.4%), Arizona (0.4%) and North Dakota (0.4%).

Investors are ‘really pessimistic’: Schwab strategist

More than 6½ years into the bull market, many investors still haven’t regained their confidence.  That, at least, is the impression two high-level strategists at Charles Schwab find when they speak to clients. Despite a rally that has seen he S&P 500 surge 212% since the March 2009 lows, the collective psyche remains fragile.  Jeff Kleintop, Schwab’s chief global strategist, spoke Tuesday to the thousands of registered investment advisors at this week’s IMPACT 2015 conference, cautioning them about how “really pessimistic” their clients’ sentiment has become.  “It seems like you’ve got some hope about the future. That’s great. I don’t think your clients do right now,” he said. “The last six months, investors seem to have lost some hope.”  No doubt it’s been a difficult year. A variety of factors has convened to make this one of the most turbulent years since the bull market began as the Great Recession ended. For the year, the S&P 500 is up just over 1% after a huge rebound in October.  However, the flow of money tells a different story. Investors have pulled more than $125 billion out of equity-based funds this year while putting more than $95 billion into bond funds, according to Bank of America Merrill Lynch.  “I’m not getting anything on the optimistic side anymore,” Kleintop said. “Nothing about optimism — it’s all about the risks. It’s China or (Russian President Vladimir) Putin or the immigration crisis in Europe. Nothing on the optimistic side. I’m sure you’ve heard it, too.”

MBA – refinance 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 November 6, 2015.  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 decreased 2% compared with the previous week.  The Refinance Index decreased 2% from the previous week.  The seasonally adjusted Purchase Index increased 0.1% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week and was 18% higher than the same week one year ago.  The refinance share of mortgage activity increased to 59.8% of total applications from 59.7% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.6% of total applications.  The FHA share of total applications increased to 14.1% from 13.2% the week prior. The VA share of total applications decreased to 10.9% from 11.9% the week prior. The USDA share of total applications remained unchanged from 0.7% the week prior.

This market is ‘running out of fuel’

The S&P 500 snapped its longest losing streak since late September on Tuesday, barely etching out gains as volatility continues to plague the market. Still, the index is just 2% from its all-time highs, but that’s small comfort to one highly regarded technician who sees troubling signs in the chart.  “I think this market rally is running out of fuel,” Stephen Suttmeier said Tuesday on CNBC’s “Futures Now.” The S&P 500 has soared more than 8% in the fourth quarter.  According to Suttmeier, the S&P 500 is currently the most overbought it’s been in more than 15 years, which could signal a near-term top. “After hitting its lowest level since 2011 and 2009 in late August and early September, the S&P 500’s daily MACD has quickly moved to the most overbought reading since the 1998-2000 period.” Technicians often look to the MACD, which stands for moving average convergence/divergence, as a momentum indicator that detects how much buying and selling is in the market. “The market has gone from one extreme to the other,” he added.  In addition to overbought conditions, Suttmeier said that the number of stocks participating in the rally has decreased by more than 40% in just the last month. “Fewer S&P 500 stocks are trading above their 10-day moving averages,” he said. An abundance of stocks trading below this moving average is generally viewed as a sell signal. “Right now it’s just 56% of stocks trading above its 10-day moving average,” added Bank of America Merrill Lynch’s technical research analyst. It was at 94% a month ago. “What this is telling me is that the old highs are going to be very tough to crack.”  For Suttmeier, if the S&P 500 were to break support at 2,080, it could open the floodgates to a plethora of selling. “A move below 2055 would question the rally and suggest weakness back to 2,020 to 1,990,” he said. That’s as much as a 4% move lower than the current price of 2,082. “This market can move very quickly,” he warned.

Zillow – the evolving first-time homebuyer

–  First-time homebuyers today are typically older, spend more time renting prior to buying and are less likely to be married than in prior years.

–  First-time buyers are purchasing a larger share of condominiums, and a smaller share of single-family homes, than they were in the early 2000s.

–  The credit scores of first-time borrowers are falling, and lenders are both relaxing debt-to-income limits, even marginally, and accepting smaller down payments.

The role of first-time homebuyers in the real estate market has remained remarkably constant – and hugely important – over the years. But while the role of first-time buyers hasn’t changed, the defining characteristics of first-time buyers, and what they’re looking for in a first home, is constantly evolving.  First-time buyers are critical in the real estate food chain, purchasing the homes occupied by slightly older families, and allowing those more mature families to sell their home and move up. And when first-time buyers leave rental housing for homeownership, they help ease rental demand, making it easier for their younger brethren to get started.  First-time homebuyers today are typically older, spend more time renting prior to buying and are less likely to be married than in prior years. Interestingly, they earn roughly the same amount they always have.  But while their income hasn’t risen much, first-time homebuyers’ tastes have. Both the price and%ile (the share of homes more or less expensive than those typically sought by first-timers) of homes purchased by first-time buyers have risen – homes now bought by first-time buyers cost about $140,000, up from $113,000 in the years immediately prior to the millennium. As a result, the value of a typical home bought by first-time buyers is closer to a middle-of-the-road home than a more stereotypical entry-level home: today, first-time buyers buy a home in the 46th%ile (54% of homes are more valuable). In 1997, they typically bought a 39th%ile home.

And at the same time as the home value equation is changing, the type of home sought by first-time buyers is also changing: First-time buyers are increasingly purchasing condominiums, at the expense of sales of more traditional single-family homes. The share of condos purchased by first-time buyers has risen to 42%, from 28% in 2001. Over the same period, the share of single-family homes purchased by first-time buyers has fallen from 71% to 58%.  Finally, higher home values and relatively flat wages means the price-income ratio for first-time buyers – how many times more expensive their typically purchased home is than their actual income – is going up: from slightly more than 1.5 in the early 1970s, to more than 2.5 today. Conventional wisdom may say that more expensive homes and flat wages may make lenders more reluctant to lend, but the opposite has been true in recent years. The credit scores of first-time borrowers are falling, and lenders are both relaxing debt-to-income limits, even marginally, and accepting smaller down payments. There is some cost to first-time borrowers, though: The share of loans requiring mortgage insurance protection, which protects banks in the event a borrower can no longer pay their mortgage, has risen.  Understanding what first-time buyers want and what kinds of resources they’re bringing to the market is essential in understanding the future of the housing market itself, and we’ll check in periodically on the ever-evolving first-time buyer. In the meantime, scroll through the charts below to see how the typical first-time buyer has changed in recent years.

MBA – third quarter commercial & multifamily mortgage originations up 12% year-over-year

According to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, third quarter 2015 commercial and multifamily mortgage loan originations were 12% higher than during the same period last year and three% higher than the second quarter of 2015.  “Commercial mortgage borrowing and lending continued to grow during the third quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.  “Every major investor group and property type except one has seen increases in year-to-date lending volumes, and we expect year-end numbers to continue that trend.”  Increases in originations for retail and office properties led the overall increase in commercial/multifamily lending volumes when compared to the third quarter of 2015.  The increase included a 39% increase in the dollar volume of loans for retail properties, a 17% increase for office properties, an 11% increase for multifamily properties, a 10% increase for industrial properties, a nine% decrease in hotel property loans, and health care property loans decreased 30% year-over-year.

Among investor types, the dollar volume of loans originated for commercial bank portfolio loans increased by 93% from last year’s third quarter.  There was an 18% increase for life insurance company loans, a three% decrease for Government Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) loans, and an eight% decrease in dollar volume for Commercial Mortgage Backed Securities (CMBS)  loans.  Third quarter 2015 originations for office properties increased 37% compared to the second quarter 2015.  There was a 27% increase in originations for retail properties, a five% increase for health care properties, a one% decrease for industrial properties, an eight% decrease for multifamily properties, and a 29% decrease for hotel properties from the second quarter 2015.  Among investor types, between the second and third quarter of 2015, the dollar volume of loans for CMBS increased 22%, loans for life insurance companies increased 13%, originations for commercial bank portfolios increased nine%, and loans for GSEs decreased by 28%.

Zillow – rising rents impact rental affordability & pose challenges to homeownership, too

–  In the third quarter, home buyers could expect to spend 15% of their monthly income on a mortgage payment for a typical home, while renters could expect to spend 30% of their income renting a median-valued home.

–  Rental affordability is worse currently compared to historic norms in all but one of the 35 largest metros, making it difficult for renters to save money for a down payment.

Comparatively low monthly mortgage payments, coupled with increasingly expensive rents, continue to make homeownership a relative bargain to millennials and other potential home buyers. But there’s a catch.  Getting the best interest rate on a mortgage, and the low monthly payments that come with it, typically requires a down payment of tens of thousands of dollars in most areas, and hundreds of thousands of dollars in some. And coming up with that kind of cash is increasingly difficult as rents and home values alike continue to rise.  Nationwide, a home buyer making the national median income ($54,990) and purchasing the median-valued US home ($182,500) during the third quarter could expect to pay around 15% of their income towards payments. On the flip side, if the same household chose to rent a typical home, they could expect to pay slightly more than 30% of its income towards median rent.  down-payment-increases.  Of course, the 15% calculation assumes the buyer had the $36,500 on hand necessary to pay for a 20% down payment on the median US home – a figure that varies dramatically from market-to-market depending on local home values. In many areas, a 20% down payment is a significant chunk of cash.  In San Francisco and San Jose, among the priciest markets in the country, a 20% down payment on the median-valued local home represents more than $150,000, almost three times more than the typical US household earns in a year and only about $30,000 less than the median US home value. According to the New York Times, an annual income equal to the median 20% down payment required in the Bay Area would put a household into the top 8% of all household incomes nationwide.

Of course, smaller down payments are an option for many, but also often come with higher interest rates and private mortgage insurance (for down payments less than 15%), which both conspire to raise monthly payments and consume a larger share of monthly income.  What’s more, rising rents and fairly flat income growth are making it hard to save for a down payment in the first place. The share of income needed to afford median rents rose in 28 of the 35 largest US metros over the past year. In other words, renters’ money that could be going into the piggy bank for a future down payment is instead going into landlords’ pockets.  As a result, first-time homebuyers and millennials, in particular, are left trying to find other ways to come up with a down payment in order to break into the housing market, often turning to friends and family for financial help. In 2014, 13% of home purchases were bought with help from a loan or gift from friends or family as part of the down payment.  And on top of it all, down payment amounts themselves are a rapidly moving target – the amount needed for a healthy down payment keeps rising.

As recently as 2012, just after the national housing market bottomed out after the recession, a 20% down payment represented a lot less cash. For example, a 20% down payment for a median Bay Area home currently costs roughly $50,000 more than it did in Q3 2012 ($153,600 for a median home valued at $768,000 currently, vs $103,360 for a median home valued at $515,100 in 2012). Homeowners in San Diego and Los Angeles would need more than $20,000 in additional upfront cash in 2015 than they would have in 2012 to purchase the median-valued home in their area.  In Denver, one of the hottest markets in the country, buyers in 2015 needed an additional $18,620 compared to Q3 2012 in order to put 20% down on a median-valued Denver-area home. Put another way, that’s a more than 40% increase in the funds necessary to afford a 20% down payment in and around Denver. But over the same time period, Denver-area incomes grew just 13%.  All in all, rising rents are making it harder for hopeful buyers to save for a new home, and as home values themselves rise, the amount of cash in the bank needed to buy a home is rising too. And a possible third wrench in the works is the potential for rising mortgage interest rates.  The Federal Reserve has been hinting at raising key interest rates for months, though luckily for buyers, rates have remained at historically low levels for most of the year. How much longer rates will stay low, however, remains to be seen. And when they rise, mortgage affordability will suffer – regardless of down payment.


CoreLogic – US economic outlook- November 2015

Prices have continued to rise at a solid pace for most homes in the US as evidenced by the CoreLogic national Home Price Index (HPITM) which shows that home prices rose more than 6% this year through September 2015. But national home price indexes mask important differences in various submarkets, obscuring trends by neighborhood or by value tier.  Home prices in local markets are not all identical, but are distributed around a central value. For example, the median home price is that value for which one-half of the homes are priced below and one-half are priced above. And we can further subdivide each half to compare the lowest-priced homes with those closer to, but still below, the median, with those just above the median, and with those that are much higher priced.  When we do so, several trends appear. First, all four price tiers have appreciated, on average, in the US over the past year. Second, the amount of home price appreciation is greatest for the lowest priced homes and least for the highest priced homes. Third, this pattern occurs not just during the past year but also when we compare the price appreciation relative to the trough in home prices after the Great Recession.

The highest-priced tier – those homes valued at more than 25% above their local-area median price – appreciated 3.9% in the year ending August 2015 and 30% from their post-Recession trough. In contrast, the lowest-priced tier – those homes valued at more than 25% below their local-area median – appreciated 9.3% during the past year and were up 51% from their post-recession trough.  Why has there been a different pace of price recovery by home-price tier? One reason is the difference in the supply of homes coming on the market for sale within each segment. Part of that supply comes from new construction. And while single-family construction remains at a relatively low pace of activity, the homes that are being built tend to be larger, have more amenities, and add new supply in the higher-priced segments of a local market.  Single-family homes completed during the first half of 2015 had an average floor area close to 2,700 square feet, the largest homes built since the Census Bureau began tracking new-home size more than 40 years ago. Homes completed this year were 11% bigger than those built ten years ago, and 28% bigger than those completed in 1995. The additional supply has helped to moderate price appreciation for the higher-priced tier in the market.

A second reason for the faster price growth within the lowest-price tier has been strong demand for these homes by investors supplementing the owner-occupant bid. Investors have generally acquired moderately priced homes rather than million-dollar homes, thereby adding to demand for the lower-priced segment. The combination of investors supplementing demand for lower-priced homes and new construction adding to supply for higher-priced homes has helped create the differential in appreciation by price tier.  The coming year will likely see a moderation in price appreciation in the national index as well as across price tiers. And we will likely also see slower appreciation among the more expensive segment and faster appreciation within the lowest-priced tier, as new construction will generally augment the supply of higher-priced homes. Overall, we expect the CoreLogic national Home Price Index to appreciate 5% during 2016.

Stocks fall on renewed global-growth concerns

US equity markets were lower after a blockbuster October jobs report on Friday and weak trade data from China overnight.  As of 9:30 a.m. ET, the Dow Jones Industrial Average was down 72 points, or 0.40% to 17833. The S&P 500 shed 8 points, or 0.38% to 2091, while the Nasdaq 100 declined 23 points, or 0.45% to 5123.  All 10 S&P 500 sectors were in the red as telecom and health-care names led the way lower.  Traders in the US focused on economic data from China on Monday, which fueled renewed concerns about slowing global growth. The world’s second-largest economy said its exports declined 6.9%, compared to 3.8% expected drop. It was the fourth-straight month of decline. Meanwhile, imports also went south, falling 18.8% during October, more than the 15% expected slide. Exports to the US fell 0.9%, while those to Europe were down 2.9%, and to Japan, down 7.7%.  “China data pointed to a further slowdown, but with the full effect of rate cuts yet to be felt, there is some reason to hope that this performance may be reversed in the coming months,” Chris Beauchamp, senior market analyst at IG said in a note.  The weak data, though, didn’t weigh much on the nation’s benchmark average, as the Shanghai Composite index jumped 1.58%. Meanwhile, Hong Kong’s Hang Seng slipped 0.86%, and Japan’s Nikkei climbed 1.96%.  “The Nikkei was up almost 2% and the reasoning given was that the weaker yen is going to help exporters,” Michael Block, chief strategist at Rhino Trading Partners said. “Of course, the yen was weaker because the Fed is going to raise rates in December.”

Still, before the US central bank can move forward with tighter monetary policy, it must parse a full month of economic data, and the non-farm payrolls report out on Friday helped bolster expectations of an interest rate hike before the end of the year. The Labor Department reported a drop in the headline unemployment rate and a much bigger-than-expected gain in the number of jobs created during October.  As Fed Chairwoman Janet Yellen reiterated last week in testimony on Capitol Hill, she and the Federal Open Market Committee will continue to monitor any and all economic data from the US before making a final decision on when rates will rise.  Sam Stovall, US equity strategist at S&P Capital IQ said in a note that while history cannot guarantee a rate hike this year, it supports the fact the Fed has raised rates not only in the final months of the year, but ahead of presidential elections.  “[Standard & Poor’s Economics] is not expecting the Fed to set precedent when they forecast December to be the long-awaited start to the rate-tightening cycle, and project the possibility of a rate hike to occur during the months leading up to the 2016 presidential election,” Stovall explained.  With that in mind, the economic calendar for the week was set to be relatively light with no major data points on the US economy expected on Monday or Wednesday. On Tuesday, investors can expect the latest read on import, export prices, followed by retail sales, producer prices, and consumer sentiment on Friday.

WSJ – big banks could be forced to raise up to $1.19 trillion in new securities

Global financial regulators published new rules to stop banks from becoming “too big to fail,” which could force the world’s largest lenders to raise as much as $1.19 trillion by 2022 in debt or other securities that can be written off when winding down failing banks.  The rules, published Monday, aim at preventing a repeat of the 2008 financial crisis, when taxpayers had to bail out banks whose collapse would have threatened large-scale financial panic.  The plan, drawn up by the Financial Stability Board in Basel, Switzerland, aims to ensure that the world’s biggest lenders maintain sizable financial cushions that can absorb losses as a bank is failing, without threatening a crisis in the broader banking system. The new standards aim to make banks change the way they fund themselves to better weather a crisis, and sees the cost of a giant bank’s failure being borne by its investors, not taxpayers.  The rules will apply to the world’s top 30 banks, such as HSBC Holdings PLC, J.P. Morgan Chase & Co. and Deutsche Bank AG, which the FSB classifies as “systemically important.” Banks are considered to be systemically important if their failure would pose a broad threat to the economy.  “The FSB has agreed [to] a robust global standard so that [systemic banks] can fail without placing the rest of the financial system or public funds at risk of loss,” said Mark Carney, governor of the Bank of England and chairman of the FSB.  The rules “will support the removal of the implicit public subsidy enjoyed by systemically important banks,” he said Monday. The aim was to ensure that creditors and shareholders—and not taxpayers—would bear the costs when banks failed.  The standard, which comes seven years after the 2008 financial crisis, “is an essential element for ending too-big-to-fail for banks,” he added.

Under the plan, large lenders will have by January 2019 to hold a financial cushion of at least 16% of their risk-weighted assets in equity and debt that can be written off. The minimum total loss absorption capacity, or TLAC, requirement will gradually increase, reaching 18% of assets weighted by risk by January 2022.  Banks supervisors estimated that the 18% standard would require banks to raise €1.11 trillion ($1.19 trillion) of loss-absorbing securities by 2022.  The rules also see a requirement for the leverage ratio—the ratio of capital held by a bank against its total assets. The minimum standard requires large banks to hold at least 6% of their total assets as capital by 2019, rising to 6.75% by 2022.  To meet the standards, banks will have to issue debt that could be easily absorbed to pay losses in times of a crisis so they can cover any costs that would arise from being wound down or recapitalized. Rules will also aim to prevent such loss-absorbing securities from being held by other systemically important banks.  Still, the new rules are more favorable to banks than what was seen in the regulators’ original proposal launched last November, which suggested the minimum TLAC requirement could be as high as 20%.  Instruments that will count toward TLAC include common-equity Tier 1 capital—the highest-quality capital buffer banks keep to absorb losses on their assets.  Eligible instruments should have at least one year of remaining maturity, while derivatives products, tax liabilities or insured deposits can’t count toward the minimum standard.

The minimum, however, doesn’t include equity used to make up other “regulatory applicable capital buffers”—the additional buffers certain systemically important banks need to hold. This means they could end up having to hold an even higher proportion of their risk-weighted assets in instruments that can be “bailed in” if a bank is failing. Such surcharges might typically amount to a further 1% or 2.5% for the biggest banks.  Banks could also be asked to hold so-called countercyclical buffers—extra capital charges aimed at discouraging lending that reinforces the swings of the business cycle.  “The overall thrust of this will be to make the banking community much safer” than before the financial crisis, said Craig Shute, a senior portfolio manager at London & Capital, which manages $3.6 billion in assets.  However, Mr. Shute said the rules would dim the appeal of senior bank debt, which can now be forced to absorb losses in times of crisis.  “Initially investors thought they completely understood what they were buying when they bought senior [bonds]—they were top of the range. TLAC changes that… it dilutes the quality of senior” bonds, Mr. Shute added.  “There’s going to be increased discrimination in terms of which bond you’re buying,” he said.  Large banks based in emerging markets will face the same requirements but with more favorable deadlines, having to comply with the two phases of minimum standards six years later in each case. This could be accelerated, however, if corporate-debt markets in these countries reach 55% of the emerging economy they are based in.  The plans were published ahead of a meeting of leaders of the Group of 20 major economies in Antalya, Turkey, later this month. Leaders of the G-20 must endorse the FSB’s new rules before they come into force.  The FSB is a group of regulators bringing together representatives from the world’s largest economies in Europe, Asia and North and South America.  The US Federal Reserve Board proposed its new rules for systemically important banks on Oct. 30.

Repealing Dodd-Frank easier said than done

Repealing the sprawling Dodd-Frank banking reform legislation will be easier said than done.  The Republican candidates who will appear Tuesday at the GOP debates in Milwaukee sponsored by the FOX Business Network and the Wall Street Journal will undoubtedly find that out should they win the nomination and eventually defeat a Democratic opponent in 2016.  “It could be done but the hassles for financial institutions that have already made adjustments would be enormous,” said Jay Ritter, a finance professor at the University of Florida.  All of the GOP candidates have regularly taken aim at what they describe as the hyper-regulatory environment of the Obama administration, arguing that too much government oversight of business has stunted economic growth as the US has struggled to recover from the 2008 financial crisis.  The massive Dodd-Frank bill, a signature policy achievement of the Obama presidency, has been singled out for, in the views of these candidates, being too complicated and burdensome, and in some glaring cases — scaling down too-big-too-fail banks for instance — having the exact opposite effect it was intended for.  Many of the candidates – notably Marco Rubio, Donald Trump, Ted Cruz, Rand Paul, Carly Fiorina and Mike Huckabee – have said in no uncertain terms one of their first priorities as president would be to repeal the extensive array of new regulations imposed on the US banking industry under Dodd-Frank.

Other candidates – Jeb Bush, John Kasich and Chris Christie for instance – have offered similarly pointed criticisms while not necessarily calling for its outright repeal. This camp has said significant reforms or rolling back aspects might suffice.  Rubio has been one of the more outspoken candidates in his criticism of the legislation. On at least four occasions since the law was enacted with bi-partisan support in 2010 the Florida senator has cast votes that would either directly or indirectly scale back regulatory powers enabled under the law. And in case anyone was unclear on his position, Rubio wasted no time during the first GOP debate in August, declaring, “We need to repeal Dodd-Frank.”  In an interview with Washington, D.C., news outlet The Hill, Trump called Dodd-Frank “terrible” and said he would “absolutely” repeal it. Cruz, Paul, Fiorina and Huckabee have expressed similar sentiments in various public forums (debates, interviews, op-ed pieces).  Expect the rhetoric in opposition to Dodd-Frank to heat up again Tuesday as the debate will be focused primarily on economic issues.  Ritter said those candidates who in the past have called for a repeal of the bill will likely continue to do so despite how unlikely it might be to actually pull off the feat. He said articulating a nuanced approach toward restructuring the wildly complex bill probably wouldn’t play well during a televised debate. So candidates opt for the cleaner, more easily digested claim of repeal instead.  “There are certainly some aspects of the bill that could be deleted or scaled back,” Ritter said, “but that’s not good television.”


NAR – first-time buyers fall again in NAR annual buyer and seller survey

The share of first–time buyers declined for the third consecutive year and remained at its lowest point in nearly three decades as the overall strengthening pace of home sales over the past year was driven more by repeat buyers with dual incomes, according to an annual survey released today by the National Association of Realtors (NAR). The survey additionally found that nearly 90% of all respondents worked with a real estate agent to buy or sell a home; which pushed for–sale–by–owner transactions to their lowest share ever.  The 2015 National Association of Realtors Profile of Home Buyers and Sellers continues a long–running series of large national NAR surveys evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers; the series dates back to 1981. Results are representative of owner–occupants and do not include investors or vacation homes.  In this year’s survey, the share of first–time buyers* declined to 32% (33% a year ago), which is the second–lowest share since the survey’s inception (1981) and the lowest since 1987 (30%). Historically, the long–term average shows that nearly 40% of primary purchases are from first–time home buyers.

With strong price growth in many markets and fewer first–time buyers, the results in this year’s survey reveal a market with a higher share of married couples 67% (up from 65% last year) who have higher household income than previous years. Married repeat buyers have the highest income among all buyers ($108,600), while the share of single female buyers decreased from 16% to 15% and male buyers remained flat at 9%.  Unchanged from a year ago, 13% of survey respondents were multi–generational households, including adult children, parents and/or grandparents. Eighteen% of buyers identified as military veterans, 8% as an unmarried couple and 3% as active–duty service members. The median age of first–time buyers was 31, unchanged for the last three years, and the median income was $69,400 ($68,300 in 2014). The typical first–time buyer purchased a 1,620–square–foot home (1,570 in 2014) costing $170,000, while the typical repeat buyer was 53 years old and earned $98,700 ($95,000 in 2014). Repeat buyers purchased a median 2,020–square–foot home costing $246,400.  When asked about the primary reason for purchasing, more first–time buyers in this year’s survey (64%) cited a desire to own their own home as the primary reason compared to a year ago (53%). For repeat buyers, desire to own a home of their own and wanting to own a larger home were both the top reason given (each at 13%). Nearly half of all buyers (46%) said the timing was just right and they were ready to purchase a home.  According to the survey, buyers continue to view buying a home as a good financial investment. Up from last year (79%), 80% of recent buyers said it was a good investment, and 43% believe it’s better than stocks. Looking ahead, first–time buyers plan to stay in their home for 10 years and repeat buyers plan to hold their property for 15 years.

An overwhelming majority of recent buyers (86% versus 88% in 2014) still financed their purchase, despite above–normal activity from all–cash buyers likely pushing the% share down. Younger buyers were more likely to finance, and the median down payment ranged from 6% for first–time buyers to 14% for repeat buyers. Almost half (45%) of first–time buyers in this year’s survey said the mortgage application and approval process was much more or somewhat more difficult than expected.  Ninety–one% of all buyers chose a fixed–rate mortgage, with 23% financing their purchase with a low–down payment Federal Housing Administration–backed mortgage, down from 43% five years ago. Eleven% financed using the Veterans Affairs loan program with no down payment requirements.  In addition to using their own savings for their down payment (81%), first–time buyers used a variety of outside resources, including a gift from a friend or relative (27%), and selling stocks or bonds and tapping into a 401(k) fund (both at 8%).  For repeat buyers, the proceeds from the sale of their primary residence (53%) was the top source for their down payment, up from 47% last year and 40% in 2012.

While more home buyers used the Internet as the first step of their search than any other option (42%), real estate agents remain an integral part of the home search process. Eighty–eight% of buyers who searched for homes online ended up purchasing through an agent.  NAR President Chris Polychron says the two most popular resources used during the home search process continue to primarily be online websites (89%) and real estate agents (87%). “Although buyers between the ages of 18–24 were the most likely to use an agent (90%), over 85% of buyers in each of the other age categories also used an agent during their home search,” he said. “With tight inventory conditions leading to stiff competition in several parts of the country and what’s found online sometimes not entirely accurate, buyers are turning to Realtors for expert advice and assistance in navigating today’s fast–moving housing market.”  In recent years, the home search resource that’s gaining the most popularity is mobile or tablet applications, steadily increasing from 45% in 2013 to 61% in this year’s survey. Other noteworthy results included yard signs (51%) and open houses (48%).  With tight inventory conditions prevalent in many markets, buyers moved faster than in previous years to find the house they purchased, typically taking 10 weeks (for the second consecutive year). From 2009 to 2013, the typical home search process took 12 weeks.

A detached single–family home continues to be the most common type of home bought (83%), while purchases of townhouses or row houses remained unchanged from a year ago at 7%. Eighty–nine% of buyers with children under the age of 18 purchased a detached single–family home compared to 80% of buyers with no children in their home. Overall, the typical home purchased during the survey period was built in 1991 and had three bedrooms and two bathrooms.  Slightly more buyers in this year’s survey purchased a home in a suburb or subdivision (52%) compared to a year ago (50%). The remaining bought in a small town (20%), urban area (14%), rural area (13%) or resort/recreation area (2%). Recent buyers also moved further from their previous residence this past year at a median distance of 14 miles (12 miles in 2014).  Similar to previous years, the biggest factors influencing neighborhood choice were quality of the neighborhood (59%), convenience to jobs (44%) and overall affordability of homes (38%). Unmarried couples were the most likely to cite convenience to entertainment and leisure activities (26%), and single women were the most likely to cite convenience to friends and family as an influencing factor (43%).

Eighty–nine% of sellers sold their home with an agent. Only 8% were by for–sale–by–owner sales, which is down from 9% the last three years and the lowest share ever recorded since the survey’s 1981 inception.  “Although the Internet and digital technology have created several channels for sellers to market their listings to a wider cast of potential buyers, the preference to use a Realtor® to sell a home has never been stronger,” says Polychron.  Overall, the typical seller over the past year was 54 years old (unchanged from 2014; up from 49 in 2010), was married (77%), had a household income of $104,100 ($96,700 in 2014), and was in the home for 9 years before selling — a year earlier than 2014’s all–time high for tenure in home (10 years). Fewer sellers this past year (14%) wanted to sell earlier but were stalled because their home had been worth less than their mortgage (17% a year ago).  Sellers realized a median equity gain of $40,000 ($30,100 in 2014) — a 23% increase (17% last year) over the original purchase price. Sellers who owned their home for one to seven years all reported roughly selling their homes for $30,000 to $35,000 more than they purchased it. Underlining the price swings during the downturn, equity gains fell to $3,000 for owners who bought between eight and 10 years ago. Homes sold after 21 years reported a price gain of $138,000.  The median time on the market for recently sold homes remained at four weeks for the second year in a row, again highlighting the persistently low inventory in several markets. Sellers moved a median distance of 20 miles (70% stayed in the same state) and the top reason given for selling their home was it being too small (16%).  A combined 66% of responding sellers found a real estate agent through a referral by a friend, neighbor or relative, or used their agent from a previous transaction. Furthermore, the responses reveal client referrals and repeat business remain the predominant source of business for real estate agents, with most sellers (84%) indicating they would definitely (67%) or probably (17%) recommend their agent for future services.

US adds 271,000 jobs in October

The US added 271,000 jobs in October, well above expectations, as the Federal Reserve looks for evidence that the economy is ready for higher interest rates.  The headline unemployment rate was 5%, the lowest since April 2008.  Analysts had forecast 180,000 new jobs last month and that the unemployment rate would hold steady at 5.1%.  The October results represent a strong rebound from the disappointing September report which revealed that just 142,000 new jobs were created that month, well below expectations.  Wages also grew more than expected, rising 2.5% from a year ago, according to numbers released Friday by the US Labor Department.  “Last month’s disappointment gave way to excitement. Across the board, the outcome was very positive,” said Carl Tannenbaum, chief economist for Northern Trust in Chicago.  The October data will undoubtedly fuel expectations of a December rate hike. Prior to the lousy September report, jobs data had been relatively strong for months, with the US adding around 200,000 new jobs each month and the unemployment rate falling to its lowest level in seven years.  The Fed has pointed to the relative strength of the labor market as it highlights reasons rates might start moving higher later this year. The one sticking point has been wages, which have remained essentially stagnant despite the healthy job growth and rapidly falling unemployment rate.

That may have started to change in October. The year over year jump in wages was the strongest since 2009.  “Improvements in the labor market have been slow to translate into better wages for US workers,” Tannenbaum explained. “But today’s report shows a brighter picture on that front and I think paves the way for Fed officials to feel more comfortable about raising rates.”  Still, lack of wage growth has remained a vexing situation that has helped keep inflation well-below the Fed’s 2% target range.  The Fed has been reluctant to raise rates until policy makers are comfortable the US economy is strong enough to absorb the higher borrowing costs that will follow a rate increase.  Employment in professional and business services increased by 78,000 in October, compared with an average gain of 52,000 per month over the prior 12 months. In October, job gains occurred in administrative and support services, computer systems design and related services, and architectural and engineering services.  Health care added 45,000 jobs in October, while employment in retail trade rose by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. Food services and drinking places added 42,000 jobs in October. Over the year, the industry has added 368,000 jobs.  Construction employment increased by 31,000 in October, while employment in mining continued to trend down in October. The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014.  In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, the Labor Department reported.  Central bankers have said repeatedly the decision to raise rates is “data dependent.” In particular, the Fed will be looking at wage growth. In theory, wages should be moving higher based on simple supply and demand. If more people are working it should be harder for employers to fill positions, forcing them to raise wages to fill empty jobs.

WSJ – home-loan borrowers bypass the banks

Home buyers are increasingly turning to independent mortgage companies for their loans.  In 2014, nondepository independent mortgage companies originated 47% of completed home-purchase loans and 42% of refinance loans, according to data from the Federal Reserve. That’s up from 43% and 31%, respectively, in 2013 and the largest share of the mortgage market held by non-banks since 1995.  Examples of nonbank lenders include Quicken Loans, now the nation’s second-largest retail-mortgage lender, behind Wells Fargo. Another lender, Irvine, Calif.-based Loan Depot, filed an initial public offering in October. And Finance of America Holdings, a Blackstone Group company, is poised to become one of the nation’s largest nonbank lenders after recently completing the acquisition of Gateway Funding Diversified Mortgage Services, Pinnacle Capital Mortgage and certain assets and operations of PMAC Lending Services Inc.  ‘With deeper reserves, some banks may still have an edge in the jumbo market compared with nonbanks.  The vast majority of nonbank mortgage volume is still from conforming mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration, but nonbank lenders are eager to increase their market share of jumbo loans, says Guy Cecala, CEO and publisher of Inside Mortgage Finance, a trade publication that tracks originations. Jumbo mortgages have dollar amounts above conforming loan limits of $417,000 in most areas and $625,500 in some pricey home markets, such as New York and San Francisco.

Still, banks may have an edge in the jumbo market. Because these loans exceed government limits, lenders either must sell the loans to a tiny secondary market of mortgage-backed securities (less than 3% of all jumbo mortgages), or hold them in portfolio, a capacity which only the largest lending-only institutions may have, Mr. Cecala says.  Some nonbank lenders are now selling their jumbo loans to big banks and large institutions, such as Wells Fargo, insurance companies and real estate investment trusts (REITs), Mr. Cecala says. “Banks are realists,” he adds. “They need to buy loans from nonbanks to keep their portfolios growing.”  Feeding loans to bigger institutions lessens the lending risk for nonbanks, allowing them to meet and sometimes surpass banks with competitive rates and terms, Mr. Cecala says.  Some also are targeting those jumbo borrowers who want particular niches of service.  For example, Quicken Loans allows jumbo borrowers who have straightforward income documentation to complete their transaction fully online. “In many cases, you don’t have to talk to a loan officer,” says Bob Walters, chief economist for Quicken Loans.

Online nonbank lenders will have an increasing advantage as more millennials—those born between 1981 and 2000—enter the mortgage market, says Jason van den Brand, CEO of Lenda, a San Francisco-based lender that currently offers only refinances but plans to expand to purchase loans by the end of 2015.  Speed is a selling point for Charlotte, N.C.-based Movement Mortgage, which operates in 42 states and originated $4.24 billion in mortgages in 2014, says CEO Casey Crawford.  Movement’s sales pitch to conforming loan borrowers is being able to close mortgages in seven business days and jumbo borrowers in only a few days more, even with new federally mandated waiting periods on closing documents that went into effect last month.  Beyond lending power, banks hold one other advantage over nonbank lenders—being able to offer lower rates or closing costs to customers based on length of account history and amount of holdings.  “Bank lenders also focus on the overall client relationship, and can offer discounts based on the depth of that relationship,” said D. Steve Boland, Bank of America consumer-lending executive.

Geold lower on expectations of fed rate rise

Gold prices tumbled on Friday after the US labor market posted its strongest pace of jobs creation this year in October, magnifying investor expectations for higher interest rates from the Federal Reserve.  The most actively traded gold contract, for December delivery, was recently down $16.40, or 1.5%, at $1,087.80 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices traded as low as $1,186.70, the lowest level since Aug. 7.  The US economy 271,000 new jobs in October, the Labor Department said. This was more than the 183,000 new jobs economists predicted. The unemployment rate, collected through a separate survey, ticked down to 5.0%, from 5.1% in September, in line with economists’ expectations.  “Where did all these jobs come from in one month? It’s very hard to look at this report and think that the Fed doesn’t move forward on it, and for the metal markets it’s not bullish,” said Ira Epstein, a broker with Linn & Associates in Chicago.  The stronger US labor market clears the path for the Fed to raise interest rates for the first time in nearly a decade. Gold is expected to struggle once rates climb as the precious metal doesn’t pay interest and costs money to hold.  “This looks bearish for gold between now and the next Fed meeting…a quarter-point rate increase looks in the cards for their December meeting,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.

NAHB – 55+ housing market remains strong in third quarter

Builder confidence in the single-family 55+ housing market remains strong in the third quarter of 2015 with a reading of 60, up three points from the previous quarter, according to the National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today. This is the sixth consecutive quarter with a reading above 50.  “Builders have a positive outlook on the 55+ housing market,” said Timothy McCarthy, chairman of NAHB’s 55+ Housing Industry Council and managing partner of Traditions of America in Radnor, Pa. “In fact, the markets for single-family, apartments and condos are all doing quite well, and we expect that trend to continue.”  There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums. Each 55+ HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic). An index number above 50 indicates that more builders view conditions as good than poor.  All three components of the 55+ single-family HMI posted increases from the previous quarter: present sales increased three points to 65, expected sales for the next six months rose one point to 67 and traffic of prospective buyers increased three points to 46.

The 55+ multifamily condo HMI rose seven points to 50, which is the highest reading since the inception of the index in 2008. Two of the three components showed increases as well: present sales jumped 10 points to 54 and expected sales for the next six months rose seven points to 56 while traffic of prospective buyers edged down one point to 40.  All four indices tracking production and demand of 55+ multifamily rentals posted gains in the third quarter. Present production rose nine points to 55, expected future production and current demand for existing units jumped 11 points to 60 and 70, respectively, and future demand increased five points to 68.  “Like the overall housing market, we continue to see steady, positive growth in the 55+ market,” said NAHB Chief Economist David Crowe. “With the economy and job growth continuing to improve gradually, many consumers are now able to sell their current homes at a suitable price, enabling them to buy or rent in a 55+ community.”

MBA – mortgage credit availability increased in October

Mortgage credit availability increased in October according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs Market Clarity business information tool.  The MCAI increased 1.5% to 128.4 in October.  A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The index was benchmarked to 100 in March 2012. Of the four component indices, the Conforming MCAI saw the greatest loosening (up 2.7%) over the month followed by the Government MCAI (up 1.9%), the Conventional MCAI (up 0.8%), and Jumbo MCAI (up 0.5%).  “Credit availability increased in October mainly as a result of new conforming loan programs, many of which were affordable housing programs which have lower down payment requirements,” said Mike Fratantoni, MBA’s Chief Economist.



MBA – mortgage applications down

Mortgage applications decreased 0.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 30, 2015.  The Market Composite Index, a measure of mortgage loan application volume, decreased 0.8% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 1% compared with the previous week.  The Refinance Index decreased 1% from the previous week.  The seasonally adjusted Purchase Index decreased 1% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 20% higher than the same week one year ago.  The refinance share of mortgage activity increased to 59.7% of total applications from 59.5% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.7% of total applications.  The FHA share of total applications decreased to 13.2% from 13.7% the week prior. The VA share of total applications decreased to 11.9% from 12.3% the week prior. The USDA share of total applications remained unchanged from 0.7% the week prior.

US trade deficit at $40.8B in Sept. vs $41.1B expected

The US trade deficit narrowed sharply in September to its lowest level in seven months as exports rebounded, a tentative sign that the worst of the drag from a stronger dollar may be over.  The Commerce Department said on Wednesday the trade gap fell 15% to $40.8 billion, the smallest deficit since February. Lower crude oil prices also helped to curb the import bill.  The drop in the trade deficit reversed the widening seen in August, though the prior month’s figure was revised slightly down to $48 billion from the previously reported $48.3 billion.  Economists had forecast the trade gap shrinking to $41.1 billion. When adjusted for inflation, the deficit fell to $57.2 billion in September from $63.0 billion in the prior month.  Trade had a neutral impact on gross domestic product for the third quarter, which expanded at a 1.5% annual rate. The sharp step-down in growth from the second quarter’s brisk 3.9% rate mainly reflected a slow pace of inventory accumulation and ongoing spending cuts by energy firms.  The dollar has gained 16.8% against the currencies of the United States’ main trading partners since June 2014, undercutting export growth. Lackluster global demand also has put a damper on exports.

Exports in September rose 1.6% to $187.9 billion, with exports of services hitting a record high. There were increases in exports of capital goods and automobiles. Exports of industrial supplies and materials, however, were the lowest since October 2010.  Exports to Canada, the European Union and China rose in September. Exports to Japan, however, fell 13.8% to their lowest level since April 2010.  Imports fell 1.8% to $228.7 billion, the lowest level since February. They had received a boost in August from Apple’s new iPhone model.  Imports of industrial supplies and materials fell to the lowest level since August 2009. Petroleum imports were the lowest since May 2004, reflecting increased domestic energy production and lower oil prices.  The price of petroleum averaged $42.72 per barrel in September, down from $49.33 in August and $92.52 in September 2014.  Imports from China hit a record high in September, leaving the politically sensitive US-China trade deficit at an all-time high of $36.3 billion. That was up 3.8% from August.

WSJ – Freddie Mac Swings to Loss

Freddie Mac on Tuesday posted its first quarterly loss in four years despite a healthy housing market, underscoring the challenges faced by the mortgage-finance giant in its eighth year of government control.  The McLean, Va., company reported a loss of $475 million for the third quarter, driven mainly by a quirk in accounting rules. Its $1.3 billion net worth means it doesn’t require a taxpayer bailout.  Still, the performance raises questions about Freddie’s long-term health. Over the past few years, rising home prices and lower mortgage defaults have bolstered the profits of Freddie and rival Fannie Mae.  ow, those benefits are receding, making the companies more susceptible to the need for taxpayer help should the housing market turn south and as the government requires them to wind down their capital reserves.  The loss comes as Freddie and competitor Fannie Mae remain caught between shareholders and civil-rights groups who want to see them freed from government control, a White House that believes the current system is broken, and a Congress that can’t come to agreement on what the future system should be.  “We’ve got to get off the current boom-bust-bailout cycle, and I fear that with the status quo, it’s déjà vu all over again when it comes to Fannie and Freddie,” said Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services committee, in a statement. “It’s past time to put them on a wind-down path to prevent future taxpayer-funded bailouts.”

The government took over Fannie and Freddie in 2008 and eventually infused them with $187.5 billion in bailout money. Since then, the companies have become highly profitable, paying out $239 billion in dividends.  Under the terms of the bailout agreement, Freddie and Fannie are required by 2018 to whittle their capital reserves to zero, meaning that even a minor hiccup in their businesses could force the need for a cash infusion from the US Treasury. The companies combined still have $258 billion in available credit from the Treasury.  Under the current agreement with the Treasury Department, Fannie and Freddie are required to send nearly all of their profits to the government but aren’t required to pay a dividend when they post a loss.  Freddie’s third-quarter loss was driven mainly by an accounting discrepancy involving derivatives the company uses to protect against interest-rate changes. The derivatives are recorded at market value even though some of the hedged assets aren’t, resulting in a discrepancy that Freddie said caused a $1.5 billion hit to earnings.  Freddie Mac CEO Donald Layton said Freddie could change its methods for hedging interest-rate risk in the future to avoid an accounting-driven bailout. “The decline of the capital reserve to zero creates real risk of our needing a draw. At the very least this risk is significant if we enter a recession and home prices commensurately decline,” Mr. Layton said on a call with reporters.

Mr. Layton said Freddie’s core business—of buying, securitizing and guaranteeing mortgages—remained strong. Freddie said its quarterly net interest income, which includes the fees it collects from backing mortgages, was $3.7 billion, down from nearly $4 billion in the second quarter and about the same as in the third quarter of 2014.  The housing market is on track for its strongest year since 2007. With rising home prices, fewer borrowers default on their mortgages, helping Freddie’s profitability.  But the loss is likely to renew calls for housing-finance reform from its proponents and for a change to the companies’ bailout terms from the companies’ shareholders.  “The prospect of any material losses by the [Fannie and Freddie] is another reminder that comprehensive housing finance reform is necessary,” said a Treasury Department spokesman in a statement. “Taxpayers remain on the hook for losses incurred by the GSEs, whether through the capital buffer or the ongoing, $258 billion backstop.”  The loss “indicates that it is just a matter of when, not if, a draw from Treasury is needed,” said David Stevens, president of the Mortgage Bankers Association, an industry group. “This is why thoughtful [Fannie and Freddie] reform is needed in order to minimize disruption to consumers and avoid adverse impacts to the housing finance system.”  Legislative efforts to replace Fannie and Freddie have mostly stalled since last year, and few observers believe significant housing legislation will pass in this Congress.  In the absence of legislation, a growing number of shareholders and civil-rights advocates have called for the administration to allow Fannie and Freddie to retain capital. Treasury Sec. Jacob Lew and other White House officials dismissed those calls last month, but as time goes on, some lawmakers who want to see the companies eliminated have said they fear they’re instead becoming more cemented in the housing-finance system.

Private sector added 182,000 jobs in October

US private employers added 182,000 jobs in October, a tick above economists’ expectations, a report by a payrolls processor showed on Wednesday.  Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 180,000 jobs.  Private payroll gains in September were revised down to 190,000 from an originally reported 200,000 increase.  The report is jointly developed with Moody’s Analytics.  The ADP figures come ahead of the US Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.  Economists polled by Reuters are looking for total US employment to have grown by 180,000 jobs in October, compared to the 142,000 created in September.  The unemployment rate is forecast to remain at 5.1%.

CoreLogic – distressed sales share lowest since September 2007

–  Distressed sales were 9.3% of total sales in August 2015, with REO Sales making up 6% of total sales

–  Maryland had the largest share of distressed sales among all states at 20.8%

–  Of the largest Core Based Statistical Areas (CBSAs), Orlando-Kissimmee-Sanford, Fla. had the largest share of distressed sales at 23.4%

Distressed sales, which comprise real estate-owned properties (REOs) and short sales, accounted for 9.3% of total home sales nationally in August 2015, down 2.3 percentage points from August 2014 and down 0.4 percentage points from July 2015.  Within the distressed category, REO sales accounted for 6% and short sales made up 3.3% of total home sales in August 2015. The REO sales share was the lowest since September 2007 when it was 5.2%. 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 totalled 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, they 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 would reach that “normal” 2-percent mark in mid-2018.

Maryland had the largest share of distressed sales of any state at 20.8% in August 2015, followed by Florida (20.3%), Michigan (19.9%), Connecticut (19.1%) and Illinois (18.7%). North Dakota had the smallest distressed sales share at 2.7%. Nevada had a 6 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 58.7 percentage points from its January 2009 peak of 67.4%. 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 numbers (within one percentage point).  Of the 25 largest CBSAs based on loan count, Orlando-Kissimmee-Sanford, Fla. had the largest share of distressed sales at 23.4%, followed by Tampa-St. Petersburg-Clearwater, Fla. (21.9%), Miami-Miami Beach-Kendall, Fla. (21.9%), Baltimore-Columbia-Towson, Md. (21.2%) and Chicago-Naperville-Arlington Heights, Ill. (21.1%). Las Vegas-Henderson-Paradise, Nev. had the largest year-over-year drop in its distressed sales share, falling by 5.9 percentage points from 21.8% in August 2014 to 15.9% in August 2015. 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 11.4% in August 2015.

CoreLogic – September 2015 national home prices increased 6.4% year over year

–  Home prices including distressed sales increased 6.4% year over year in September 2015 and remain 7.0% below the April 2006 peak.

–  Colorado had the largest year over year HPI growth.

–  The low-price tier increased 12% in in 2015, the most of any price tier.

National home prices increased 6.4% year over year and 0.6% month over month in September 2015, according to the latest CoreLogic Home Price Index (HPI) Report. While the HPI has increased on a year-over-year basis every month since March 2012, prices are still 7% below the April 2006 peak.  Colorado showed the largest HPI gain with a 10.4% year-over-year increase, followed closely by Washington (+10%) and Oregon (+9.1%). Only Mississippi (-0.9%) and Louisiana (-0.1%) showed year-over-year depreciation. Nevada home prices were the farthest below their all-time HPI high, still 30.4% lower than the state’s March 2006 peak.  In addition to the overall indices, CoreLogic analyzes four individual home-price tiers that are calculated relative to the median national home price1. Figure 2 shows the levels of the four price tiers indexed to January 2006, shortly before each of the tiers hit its peak index value. The low-price tier has shown the most growth in recent months, increasing 10.6% year over year and 12% in 2015 alone. This price tier also recovered 53.3% from its lowest point in March 2009 and is the only price tier to pass its pre-crisis peak. Although the low-to-middle tier has recovered 44.2% from its lowest point in March 2011, and has grown by 7.2% year over year, it is still the furthest from its peak of all the price tiers, down 8.5%. The middle-to-moderate price tier increased 5.7% year over year in September 2015, but remains 7.6% below its peak. The high price tier, which fell the least during the housing crisis, increased 4.6% year over year in September 2015 and remains 5.6% below its peak.

Black Knight – September Mortgage Monitor

–  June 2015 saw highest level of purchase lending since 2007; early Q3 figures up approximately 11% from year ago

–  Only 20% of purchase loans in last three months to borrowers with < 700 credit scores; lowest in over 10 years

–  Refinance activity dropping most sharply among high-credit borrowers due to “refi burnout”

–  Reduction in high-credit-score refinance volume giving false impression of credit loosening

The Data and Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of September 2015. This month’s data showed that the recent increase in purchase mortgage originations has been driven primarily by high-credit borrowers (those with credit scores of 700 or higher), while a corresponding decline in refinance originations among the same borrowers is signaling prepay burnout from currently low interest rates and is leading some to the false conclusion that credit is loosening. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, the two factors are related.  “Purchase mortgage originations are up significantly in 2015,” said Graboske. “Q2 2015 purchase originations were up 15% from the same quarter in 2014. In June, we saw the highest level of purchase lending since June 2007 and early Q3 figures show purchase originations are up 11% from the same period last year. What’s striking about this rise, though, is that it’s being driven almost entirely by high-credit borrowers. Year-over-year comparisons of purchase originations from sub-700 credit score borrowers show that purchase volumes from lower-credit borrowers are actually flat to slightly down from last year’s levels. Only 20% of purchase loans originated in the past three months have gone to borrowers with credit scores below 700. That’s the lowest level we’ve seen in well over 10 years. The weighted average credit score for purchase mortgages has also hit an all-time high of about 755.

“At the same time, refinance originations have been steadily declining since March, signaling a degree of ‘burnout’ as those both interested and able to take advantage of currently low interest rates likely already have refinanced. We’ve also noticed that prepayment speeds – historically a good indicator of refinance activity – as well as refinance originations have been dropping most significantly among these same high-credit borrowers. In contrast to purchase mortgages, we’ve seen average credit scores for refinance originations decline, which has some suggesting that credit is loosening for these products. As these higher-credit borrowers – in many cases, ‘serial refinancers’ who have repeatedly taken advantage of drops in interest rates and their good credit standings – hit ‘refi burnout,’ and total originations decline, lower-credit borrowers make up a larger share of total volume, and weighted average credit scores for the total population naturally decline. It’s not an indicator of loosening credit standards at all.”

Black Knight also looked at some key Q3 2015 mortgage performance indicators and found that as of the end of the quarter, all but five states had seen reductions in their foreclosure inventories. As Graboske noted, one state’s improvement stood out in particular.  “As of the end of September,” he said, “Florida has ended its 8-year reign as having the highest number of loans in active foreclosure in the US Over the past 12 months, the state has reduced its inventory of loans in active foreclosure by 43%. That’s nearly twice the national average of 22.5%. Florida, however, still has the largest number of properties 90 or more days past due but not yet in foreclosure. New York – which has seen only a 19% reduction in its foreclosure inventory over the past year – has now taken Florida’s place as the state with the most loans in active foreclosure.”

In other Q3 findings, Black Knight observed that while foreclosure starts were up slightly from Q2, driven by a rise in repeat foreclosure starts (as reported in last month’s Mortgage Monitor), first-time foreclosure starts in Q3 were actually at their lowest level in more than 10 years and 35% below 2005 pre-crisis levels. Foreclosure sale volume (i.e., completed foreclosures) in Q3 was down 10% from Q2 2015, and reached the lowest level since 2006. Finally, both 30-day and 60-day delinquencies saw quarterly increases due to market seasonality in Q3, rising 4.7 and 5.6% respectively, while 90-day delinquencies continued their long-term trend of improvement, declining 4.3% for the quarter and more than 25% from last year.​  As was reported in Black Knight’s most recent First Look release, other key results include:

​Total US loan delinquency rate: 4.87%

​Month-over-month change in delinquency rate: 1.70%

​Total US foreclosure pre-sale inventory rate: 1.46%

​Month-over-month change in foreclosure pre-sale inventory rate: -1.53%

​States with highest percentage of non-current loans: MS, NJ, LA, ME, NY

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

​States with highest percentage of seriously delinquent loans: MS, LA, AL, RI, ME

US manufacturing slows; construction spending at 7-1/2-year high

US manufacturing activity slowed in October for a fourth straight month, but a rise in new orders offered hope for a sector buffeted by a strong dollar and relentless spending cuts by energy companies.  Other data on Monday showed construction spending rose in September, indicating the economy remained on firmer ground despite some cooling in consumer spending and persistent weakness in manufacturing.  The Institute for Supply Management said its national manufacturing index slipped to 50.1 this month from a reading of 50.2 in September. A reading above 50 indicates expansion in the manufacturing sector.  New orders rose to 52.9 from 50.1 in September. However, the employment index fell to 47.6, the lowest reading since August 2009. It was the first time it had dropped below 50 since April.  US stocks moved higher after the data, while prices of US government debt fell. The dollar dipped against a basket of currencies.  Manufacturing, which accounts for 12% of the economy, has also been slammed by business efforts to reduce an inventory overhang and slowing demand overseas.

In a separate report, the Commerce Department said construction spending advanced 0.6% to $1.09trillion, the highest level since March 2008, after an unrevised 0.7% increase in August.  Construction spending has increased every month this year, and the latest gain suggested a modest upward revision to the third-quarter GDP growth estimate.  Economists polled by Reuters had forecast constructions pending rising 0.5% in September. Construction outlays were up 14.1% compared to September of last year.  September’s increase is slightly above the gain the government had estimated in its advance third-quarter gross domestic product estimate published last week.  The government reported the economy grew at a 1.5% annual pace in the third quarter, hurt by business efforts to reduce an inventory glut and continued spending cuts by energy firms. A strong dollar also hurt the economy. Spending on private residential construction jumped 1.9% in September, also reaching the highest level since January 2008, reflecting gains in home building and renovations. Investment on private non-residential construction projects, however, fell 0.7%.  Public construction outlays gained 0.7%. Spending on state and local government projects, which is the largest portion of the public sector segment, increased 0.9%. Federal government outlays declined 1.0%.

Fed proposes new bailout rules for biggest banks

Eight of the country’s largest banks would be required to raise $120 billion to comply with a new rule proposed Friday by the Federal Reserve Board, with the money designated to recapitalize the bank should it fail, lessening the likelihood of a a government bailout.  Under the proposed rule, JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), State Street (STT), and Bank of New York Mellon (BK) would be required to meet a new long-term requirement and a new “total loss-absorbing capacity.”  According to the Fed, the new requirements would “bolster financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers.”  The eight banks are identified by the Fed as “global systemically important banks,” and the new rules would reduce the “systemic impact” of the potential failure of one of those banks.  “The long-term debt requirement we are proposing today, combined with our other work to improve the resolvability of systemic banking firms, would substantially reduce the risk to taxpayers and the threat to financial stability stemming from the failure of these firms,” Fed Chair Janet Yellen said. “This is an important step toward ending the market perception that any banking firm is ‘too big to fail.'”

According to the Fed, the new rule would allow for an orderly resolution process should one of the eight bank’s fail.  Under the rule, the proposed long-term debt requirement would set a minimum level of long-term debt that could be used to recapitalize these firms’ critical operations upon failure.  The complementary total loss-absorbing capacity requirement would set a new minimum level of total loss-absorbing capacity, which can be met with both regulatory capital and long-term debt, the Fed stated.  The Fed also said that these requirements will improve the prospects for the orderly resolution of a failed domestic GSIB and will strengthen the resiliency of all GSIB.  The rule would allow the bank’s investors to suffer losses, while the critical operations of the firm continue to function. “Requiring GSIBs to hold sufficient amounts of long-term debt, which can be converted to equity during resolution, would facilitate this by providing a source of private capital to support the firms’ critical operations during resolution,” the Fed stated.  According to the Fed, domestic GSIBs would be required to hold at a minimum:

–  A long-term debt amount of the greater of 6% plus its GSIB surcharge of risk-weighted assets and 4.5% of total leverage exposure

–  A TLAC amount of the greater of 18% of risk-weighted assets and 9.5% of total leverage exposure

“By increasing required loss-absorbing capacity by 60% or more, the long-term debt requirement will bring us closer to the goal of ensuring that even one of the nation’s largest banks could fail without either endangering the financial system or prompting a government bailout,” Fed Governor Daniel Tarullo said.

Amazon doubles holiday ‘lightning deals’ to 30,000

With its sights set on growing revenue by up to 25% in the fourth quarter, Amazon is doubling down on the number of limited-time “lightning deals” it will push out to shoppers during the key holiday shopping season.

The online retail giant said Monday that it will offer 30,000 of these so-called lightning deals, twice as many as last year. The move is one piece of Amazon’s early Black Friday sales event, which starts Monday and runs through Dec. 22.  Amazon said the deals will be for products that are on shoppers’ wish lists and include electronics, toys and jewelry. The company received some backlash from shoppers after its first Prime Day in July, when prices were cut on seemingly random items such as hair dryers.  Regardless, Prime Day set a high bar for Amazon to beat, as more units were sold that day than on its biggest Black Friday ever.  “Shoppers come to Amazon to discover the best deals on the best gifts,” said Steve Shure, vice president of Amazon consumer marketing.

Among those deals are 30% off a Sony 55-inch 4K television with Blu-ray player, and up to 50% off certain home automation products. While Amazon would not yet share how often its lightning deals will occur, it did say that Prime members would receive 30-minute early access. Amazon’s Black Friday kickoff comes one day after Wal-Mart and Target began their big holiday pushes. It’s also roughly two weeks after Amazon said it would hire 100,000 temporary workers this holiday season, an increase of 25% compared to last year.  Online sales growth is once again expected to outpace overall revenue trends, with Adobe last week predicting that online sales will increase 11% in November and December to reach $83 billion. That compares to the National Retail Federation’s forecast that overall sales will rise 3.7% to $630.7 billion.

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