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Believe it or not, things are good out there

While not obvious if you consume a steady diet of news (from whatever source), Americans continue to be optimistic about the economy, according to a new survey published by The Hill on Sunday. The Harvard-Harris poll, conducted Feb. 11-13, found that overall, 61% of Americans rated the economy as strong, while 39% said it was weak. When asked if the country was on the right track, only 39% of respondents agreed, but that rose to 42% if the question was only about the economy.  From the Hill article:  “It’s really a surprising turnaround given how negative voters have been about the economy since 2009,” said Mark Penn, co-director of the Harvard-Harris poll. “But jobs remains the number one issue and a lot of the change in sentiment anticipates tax cuts and infrastructure programs.”  For businesses in the mortgage space, the optimism might also reflect the Trump administration’s emphasis on deregulation. And that’s understandable.

Former McDonald’s USA CEO on anti-Trump rallies: you don’t go to work, you get fired

Former McDonald’s USA CEO Ed Rensi is siding with businesses owners after dozens of workers lost their jobs for participating in the ‘Day Without Immigrants’ demonstrations.  “I would have terminated them in two seconds,” Rensi told the FOX Business Network’s Dagen McDowell.  The onus is on business owners and company managers to deliver products and services to shareholders and customers, he said.  “If you can’t make products, develop products and deliver products, what good are you?” he said. “If these folks want to make a protest, they want to make a statement—great, I’m all for that, we have freedom of speech in this country, but if you don’t go to work you, get fired. That’s the end of discussion.”  Rensi also voiced his concerns over town hall protests and explained how business owners can prevent disruptions. “Frankly I get a little bit concerned because everybody is talking about how Trump’s unhinged. The Left in this country is so unhinged, it’s unbelievable.  What they are doing in these town hall meetings is stifling discussion, stifling discovery [and] stopping debate,” he said. “I think it’s abhorrent, but business owners must have communication with their employees and make sure that they understand what their values and beliefs are.”

TRID not a success

Servicers are struggling to understand and implement the 900-page servicing rule that goes into effect later this year, mirroring the major confusion and significant investment lenders had to make last year in implementing the seemingly simple TILA-RESPA Integrated Disclosure rule (TRID). Now, there’s new evidence that consumers were only minimally helped by TRID.  A survey by ClosingCorp shows that 58% of recent home buyers still experienced a change in their loan estimate before closing. A National Association of Realtors article cited closing costs, insurance costs, and taxes as the most common fees that needed to be adjusted.  Indeed, 35% of recent home buyers say their closing costs and fees were higher than they originally expected, according to the ClosingCorp survey. The top five closing costs that most surprised home buyers were mortgage insurance (24%), bank fee/points (23%), taxes (22%), title insurance (21%), appraisal fees (20%), and fees paid by the buyer versus seller (20%).  Nevertheless, the TRID rule, which took effect in October 2015, has helped buyers understand more of their costs prior to closing. Thirty-one% of buyers say they were not surprised about their closing costs because their loan estimates and closing fees matched, according to the survey.  The question is not whether there was some good that came out of the TRID regulation. According to this survey, 31% of respondents knew what to expect at closing. But when you weigh that paltry benefit against what it cost to achieve, it becomes ludicrous — all that time, money and effort for such a small result? The cost-benefit analysis on that one seems seriously flawed. Here’s hoping for a saner approach going forward.

For these private space companies, the future is now, and the final frontier is in reach

On Saturday, the Kennedy Space Center is playing host to a launch by technology entrepreneur Elon Musk’s SpaceX.  The Falcon 9 rocket’s highly anticipated voyage is the latest symbol of how commercial space flight is firing up the public’s imagination, and taking extraterrestrial exploration to the next level.  Not to be outdone by SpaceX, however, are two companies that lack Musk’s star power but have become active players in a new space race that many observers speculate will become the next major source of wealth creation.  Moon Express and Planetary Resources are two start-ups in the white-hot global space sector that the FAA estimates is a combined $324 billion, and what some argue could become the first trillion-dollar industry. Industry players believe space exploration is due for a quantum leap, with commercial test launches abounding this year.  “This is the first post-global enterprise,” said Chris Lewicki, president and CEO of Planetary Resources, an asteroid mining company.  While asteroid mining tends to conjure images of video games from the 1980s, Planetary Resources has its sights zeroed in on a future likely to be pioneered, if not dominated, by private companies.  “The first space colonies, tourist destinations, commercial laboratories all will be enabled by the business that we’re growing,” Lewicki said recently.

Begun six years ago, Planetary Resources calls Redmond, Washington, its home. With around 60 scientists, engineers, businessmen and economists, Planetary Resources works outside of NASA’s shadow but has access to a nearby Boeing aerospace base and has broken ground on a European headquarters in Luxembourg.  The company’s first satellite was “lost in spectacular fashion” in a launch explosion in 2014, according to Lewicki. Yet a successful July 2015 launch put the Planetary Resources back on track.  Two of its next experimental satellites, called Arkyd 6, will launch this year, with the first planned in coming months. The Arkyd 200 mission will explore an asteroid, specifically to locate water and measure its abundance.  “The fall of 2020 is our aim date for the first commercial mission, by the name Arkyd 200,” Lewicki said. “We’re in the detailed mission planning stages right now.”  “If we have a successful result in 2020, the next mission will follow anywhere between two and four years later to extract a lot more water,” Lewicki said.  Meanwhile, billionaire entrepreneur Naveen Jain is trying to engineer a soft lunar landing for his company, Moon Express, sometime this year.

Moon Express has won more than $500,000 under NASA’s Innovative Lunar Demonstration Data Program, and $1.25 million as a part of Google’s Lunar XPRIZE competition. The latter will award $30 million to the first company that lands a commercial spacecraft on the moon, travels 500 meters across its surface and sends high-definition images and video back to Earth.  The Florida based company recently licensed Cape Canaveral launch complexes from the Air Force. Jain believes that the plethora of options for rocket providers means that Moon Express can launch easily — from its existing five rocket contract with Rocket Lab to any other corporation in the mix, be it Virgin Galactic, Amazon’s Blue Origin, SpaceX or Boeing.  Within 12 to 24 months of the first mission, Moon Express aims to send a second module to begin extracting resources.  “Once we land on the moon, what we’re really doing is building an underlying infrastructure,” Jain said. “Bringing back moon materials sounds much more complicated than it really is, for gravity is your friend.”  Both companies have courted tens of millions of dollars in private investment to fund R&D and initial missions. Until the Arkyd 200 reaches an asteroid or the MX-1E lands on the moon, the cornerstone of both business models remains in doubt.

However, both Lewicki and Jain insist their companies do not need to return materials to Earth to turn a profit.  “People think about asteroid mining as going deep into space, mining and bringing the materials back to Earth,” Lewicki said. “But our business model is to be the lead in building space infrastructure.”  Among the moon’s mineral riches are gold and helium-3, a gas that can be used in future fusion reactors to provide nuclear power without radioactive waste. Jain said Moon Express’ work will be more akin to collecting than traditional mining, as the minerals are from asteroids impacted on the surface.  However, the most important resource is water, which both executives emphasize as integral to building the sector and containing costs.  “Water is the perfect rocket fuel and the perfect fuel for humans. If you reduce the amount of weight from fuel at launch, you vastly reduce the cost,” Jain said. With only a few test launches remaining and both companies fully funded — Planetary Resources even claims to be already profitable — optimism among the industry’s pioneer class is palpable.  “You have to realize this as the biggest industry in human history,” Lewicki said. “We’re now not limited by the land mass and population limits of planet Earth.”  Jain argued that the moon will soon become as accessible as Australia, an outer space Outback. It “really can become an eighth continent,” he said. He hopes Moon Express succeeds in a way that is visible to other aspiring entrepreneurs in the commercial space industry.  “Our landing on the moon will be the event which inspires people to take their own moon shot,” Jain said.

NAR, Realtor.com – growing rift between housing availability and affordability

Existing-home sales are forecast to expand 1.7% in 2017, but a new housing affordability model created jointly by the National Association of Realtors (NAR) and realtor.com, a leading online real estate destination, operated by operated by News Corp subsidiary Move, Inc., suggests homebuyers at many income levels could see an inadequate amount of listings on the market within their price range in coming months.  Using data on mortgages, state-level income and listings on realtor.com, the Realtors Affordability Distribution Curve and Score is NAR and realtor.com’s new ongoing monthly research designed to examine affordability conditions at different income%iles for all active inventory on the market.  The Affordability Distribution Curve (link is external) examines how many listings are affordable to those in a particular income%ile. The Affordability Score — varying between zero and two — is a calculation that is equal to twice the area below the Affordability Distribution Curve on a graph. A score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income distribution.  Reflecting a growing shortage of accessible inventory for most income groups, the entire Affordability Distribution Curve in January was below the equality line and the gap was generally wider at lower incomes, which indicates even tighter supply conditions. A household in the 35th%ile could afford 28% of all listings, a median income household (50th%ile) could afford 46% of listings and a household in the 75th%ile was able to afford 74% of active listings.

Calculating last month’s Affordability Score — two times the area under the Affordability Distribution Curve — further highlights the disjointed rate of accessible supply on the market across the US Swift price growth and higher mortgage rates caused January’s Affordability Score (0.92) to shrink nationally from a year ago (0.97) and also in many states. Only 19 states had a score above one (conditions that are more favorable) and a meager three — North Dakota, Alaska and Wyoming — saw year-over-year gains in their score.  The states last month with the highest Affordability Score were Indiana (1.23), Ohio (1.22), Iowa (1.18), Kansas (1.17), and Michigan and Missouri (both at 1.14). The states with the lowest Affordability Score were Hawaii (0.52), California (0.60), District of Columbia (0.65), and Montana and Oregon (both at 0.67).

Believing in Bank ETFs as Trump looks to scale back Dodd-Frank legislation

The Financial Select Sector SPDR, the largest financial services exchange traded fund, and rival ETFs tracking the S&P 500’s second-largest sector allocation are surging and drawing plenty of fresh assets from investors.  Some analysts believe investors’ new found faith in the financial services sector will ultimately be rewarded. XLF and rival financial services ETFs have been bolstered this year after President Donald Trump revealed plans to scale back 2010 Dodd-Frank legislation, which increased regulations on banks and financial services companies following the global financial crisis.  Bank ETFs are benefiting from speculation that the Federal Reserve will boost interest rates multiple times this year. With a steepening yield curve or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long.  “Deregulation in the financial industry, already in the works under President Donald Trump, could propel the banks even higher, Richard Bove of Rafferty Capital Markets said in a recent interview,” reports CNBC.

XLF is coming off one of its best annual performances since the global financial crisis. While the financial services sector, the second-largest sector allocation in the S&P 500, has some doubters after last year’s impressive rally, some market observers believe the sector can keep tracking higher this year.  According to Thomson Reuters, the combined profit of S&P 500 companies is projected to have returned 6.2% in the fourth quarter, largely due to improving results out of the financial sector.  “Bove’s remarks come on the heels of the resignation of top Federal Reserve official Daniel Tarullo, an advocate for regulation within the banking industry. Trump recently began the steps necessary to take down parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a piece of legislation that has more stringently regulated the goings on of the financial industry,” according to CNBC.  Bank ETFs are benefiting from speculation that the Federal Reserve will boost interest rates multiple times this year. With a steepening yield curve or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long.  The Fed is believed to be targeting three rate hikes in 2017 while Fed funds futures data currently imply the US central bank will boost borrowing costs twice this year.  For the week ended Feb. 15, XLF added $1.18 billion in new assets, a total surpassed by just one other ETF.

CoreLogic – SoCal caps 2016 with steady home price growth and modest sales gain

Southern California’s housing market closed 2016 with the highest median sale price in nine years, continued steady price growth, slightly higher full-year sales than in 2015, record luxury sales, and lower levels of investor purchases and distressed sales. But inventory remained tight, exacerbating the affordability crunch, and there were stronger signs of a disconnect between home prices and incomes in some parts of the region.  The median price paid for a home in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties combined in December 2016 was $470,000, up 6.8% year over year and the highest since the median was $500,000 in August 2007. For the past two years, the annual gains in both the region’s median sale price and CoreLogic’s Home Price Index, calculated by county, have been fairly steady in the 5% to 7% range. CoreLogic calculates a long-term sustainable home price level based on the historical relationship between its Home Price Index (HPI) and a region’s per-capita disposable income (both HPI and income are inflation-adjusted). A market is loosely considered “overvalued” if current prices exceed the long-term sustainable level by 10% or more. Three Southern California metro areas – encompassing Riverside, San Bernardino, Los Angeles and Orange counties – have met the “overvalued” threshold, although just barely. The other three counties are considered “normal” because prices are either below the long-term sustainable level or less than 10% above. Overvalued markets could eventually experience price stagnation or declines as incomes catch up. Two large threats are rising rates and tight inventory. Rising rates could diminish demand at the margin and tight inventory will likely keep prices elevated.

All six counties were far more overvalued – from 40 to 83% – during the last housing boom. Among the other major differences between today’s market and the run-up to the last housing bust: Flipping, a measure of speculation that shows the share of homes sold twice within nine months, has trended lower. Last December, 5.1% of homes sold in the region had been flipped, down from 5.6% a year earlier and down from a decade-high 9.3% in February 2013. Current underwriting remains far more conservative, subprime and other high-risk loans are now rare, and use of low-down-payment purchase loans remains far below peak levels. In December 2016, home purchases with a down payment of 3.5% or less accounted for 26.5% of purchase loans, compared with a high of 51.6% in November 2006. Mortgage performance remains relatively good, with 1.3% of outstanding mortgages 90 or more days past due in December 2016 – the lowest level since July 2007.  Looking ahead, the housing market’s performance will depend on a variety of factors including mortgage rates, job and income growth and decisions made in Washington D.C. relative to taxes, trade, regulations and infrastructure spending. Southern California continued to experience year-over-year job growth in December 2016, although the gain was lower than a year earlier. Riverside County’s 2.9% year-over-year increase in non-farm employment in December 2016 ranked 9th among the nation’s top 100 metro areas by population, according to the Bureau of Labor Statistics.

Other 2016 Southern California housing market highlights:

–  Full-year 2016 home sales totaled 244,313, up 2.1% from 2015. Resales in 2016 increased 1.2%, while new-home sales rose nearly 14% to the highest level since 2008.

–  The December 2016 inventory of homes for sale was 10.6% lower than a year earlier.

–  A record 25,645 homes sold for $1 million or more in 2016, up 10.0% from 2015, while a record 6,517 sold for $2 million or more, up 8.4%.

–  Reflecting a sharp rise in mortgage rates late in 2016, the typical mortgage payment (explained in Figure 4) buyers committed to in December 2016 was $1,839, up 9.9% year over year. Adjusted for inflation, the December payment was 36.7% below the peak in July 2007.

–  Distressed sales – REO and short sales – accounted for 5.8% of 2016 sales, down from 7.7% in 2015 and the lowest since 2006. The peak was 54.6% in 2009.

–  Absentee buyers – investors and vacation-home buyers – purchased 20.9% of all homes sold in 2016 – the lowest since 2009 and down from a 30-year high of 28.4% in 2013.

Leading indicators up 0.6% in January, vs. expectations for 0.5% gain

A key economic measure increased in January, according to new data released by The Conference Board Friday.  Leading indicators rose 0.6% in January. Economists expected leading indicators to rise 0.5%, according to a Thomson Reuters poll.  The LEI has 10 components including manufacturer’ new orders, stock prices, and average weekly initial claims for unemployment insurance.

Olick – Toll Brothers big sale is a warning — Manhattan condo market is cracking

Real estate developers always offer big sales to kick off the busy spring season — but one new deal is less a sale and more a market signal.  It seems buyers are becoming reluctant to pay sky-high asking prices in Manhattan, which has an oversupply of swanky new condominiums.  Toll Brothers, a national luxury homebuilder with a pricey “City Living” condominium brand, is offering to pay buyers’ taxes on two new developments in two of Manhattan’s hottest neighborhoods, Chelsea and the West Village.  The banner is right on the website: “Sponsor pays mansion and transfer taxes at select communities.” Those taxes amount to 2.5% of the purchase price, and the condos at these two developments are listed for $2 million to $13 million. That means the discount can amount to more than $250,000.  “They’re trying to pull out all the stops before they have to lower the price,” said Jonathan Miller of Miller Samuel, a New York-based real estate appraisal and consulting firm. “Much like with rentals, they’re doing everything they can to protect the asking price, so it doesn’t damage the units that haven’t sold.”

Manhattan saw rampant new construction since the recession, and thousands of new luxury units flooded the market, with stark consequences. The median sale price for new construction ended 2016 down 44%, compared with the end of 2015, according to a quarterly report from Miller Samuel for Douglas Elliman. Closed sales dropped 13%. Most worrisome, the supply of condos for sale rose a striking 34%.  Developers see the writing on the wall, but, like homesellers, they are reluctant to lower prices.  “The reality is, they’re going to have to do that,” said Miller, who also notes there is always a delay in lowering prices when a market turns. “The measure of that delay is a slowdown in sales.”  A Toll rep would not characterize the discount or the state of the Manhattan market, but gave the following statement: “The Sales Event offers a limited-time opportunity to take advantage of exclusive, money-saving incentives, which vary among communities and regions.”

CoreLogic – purchase mortgages, high LTVS may up fraud risk in 2017

Mortgage fraud has been relatively low since strong lending controls were spurred in the aftermath of the financial crisis. But there are trends we expect to emerge in 2017 that may change that outlook, and the level of risk, significantly.  At the end of the fourth quarter, the CoreLogic Fraud Index rose to 122, matching its highest level from three years ago (the baseline of 100 is taken from Q3 2010). The fraud index increased at the same time that we saw a 20 plus% drop-off in Q4 application volumes after the unexpected volume surge in Q3.  The long-term increase in the risk levels is related to increasing risk in purchase transactions and a greater share of purchase transactions in the industry. The loosening of credit policies at GSEs has helped boost higher LTVs. The share of high-LTV purchase loans has increased from 58% to 62% of all purchases between Q4 2013 and Q4 2016.  We see a 32% increase in the high-LTV purchase segment over time. The Fraud Index value was 153 in Q2 2013 and 202 in Q4 2016.  It makes sense that refis are generally less susceptible to many types of fraud, because there are fewer players involved and it’s harder to manipulate the outcome. Purchase transactions on the other hand are more complex and distribute proceeds outside of the closed loop of financial systems – to property sellers, builders, real estate agents, etc. – instead of the funds going from one financial institution to pay off another. This creates more opportunities and motives for fraud. Examples of opportunities for fraud in purchases include falsified down payments and straw-buyer schemes, while motives for purchases include real estate and loan commissions, contingent transactions, seller profits, and seller distress. Historically, a rise in purchase activity is often mirrored by a rise in mortgage fraud.

CoreLogic Chief Economist Dr. Frank Nothaft expects purchase dollar-volume to rise by 6% in 2017 and to account for 68% of the total market. Nothaft, and others like the Mortgage Bankers Association, expect a similar purchase to refi mix in 2018 as well. At least one forecast, the MBA’s, puts purchases above 70% of the market in 2018.  Higher interest rates, which seem to be a given for 2017, and continued home price appreciation will create affordability challenges and may reignite “fraud for housing” schemes.  A smaller overall origination market, perhaps $1.5 trillion, in 2017 will most likely be accompanied by credit expansion as lenders try to capture a bigger share of a smaller pie and qualify more fringe borrowers. During the past several years, lenders have pulled back overlays that made lending policies more restrictive (and less risky) than agencies allow. One example of an overlay change is the reduction in the use of IRS income verifications. This may have driven our income fraud risk alert to increase 12.5% year over year in 2Q 2016.  One final trend that we’re watching: the return of small, non-bank players into the market. These lenders had a larger presence prior to the mortgage crisis. The crash, the end of subprime securitization and hefty buy-back demands winnowed down the number of small players, and for the past decade most of the lending was done by larger, more-regulated banks. But now smaller lenders are coming back into the market.  It will be interesting to see what the Fraud Index looks like in the months to come. Stay tuned.

Urban Institute – where have all the borrowers gone?

A new report from the Urban Institute suggests that it’s actually more difficult to get a mortgage now than it was before the crisis.  In the report, Laurie Goodman, Bing Bai, and Bhargavi Ganesh write that mortgage denial rates are not declining – quite the opposite, in fact. From the report:  “Our “real” denial rate also exposes an important truth behind these numbers: mortgage denial rates have decreased slightly in recent years only because lower-credit applicants are choosing not to apply for mortgages.  Researchers and policymakers have used the mortgage denial rate to measure mortgage credit availability for more than three decades. Our new way of measuring the denial rate offers a more accurate barometer of credit accessibility by eliminating borrowers with perfect credit from the denial calculation, because these borrowers will never be denied credit.  Instead, we look at the denial rate for those with less-than-perfect credit.”  To find that data, the Urban Institute analysts researched 2015 Home Mortgage Disclosure Act data to find information about 2014 and 2015 mortgages.  And what did their research show?  This research affirmed three findings from our original analysis (which used data through 2013):

–  The traditional way of measuring mortgage denial rates significantly underestimates denial rates

–  Gaps in denial rates between whites and minorities with less-than-perfect credit have narrowed since 2007 and remain narrow

–  It remains easier to qualify for a Federal Housing Administration loan than a conventional, government-sponsored enterprise loan

So, while is the Urban Institute’s denial rate higher? Their denial rate calculation “controls for applicants’ credit quality and can therefore distinguish between a reduction in mortgage lending due to lenders reduced willingness to lend versus a reduction due to an increase in the number of lower-quality applicants.”

So what does their data show?  “Our real denial rate analysis shows it was harder for a lower-credit borrower to get a mortgage in 2014 and 2015 than it was before 2006, while a look at denial rates as ordinarily measured tells the opposite story. Why? Because fewer lower-credit borrowers have been applying for mortgages since 2007.”  The Urban Institute report shows that tight credit conditions “have discouraged consumers with less-than-perfect credit from applying for a loan, and many of these consumers are likely being filtered out in the preapproval process prevalent in today’s market.”  While many would argue that having fewer lower-credit borrowers in the mortgage markets means that the market is safer, has the pendulum swung too far in the other direction?  Again from the Urban Institute report:  “Lending only to borrowers with perfect credit prevents too many borrowers who can pay their mortgages from sharing in the advantages of homeownership. On the other hand, lending to anyone regardless of credit risk creates an unacceptably high level of defaults. What’s the right balance? The mortgage market operated under reasonable standards in 2001. Using the standards from that year for comparison, we know that the increased reluctance to lend to borrowers with less-than-perfect credit killed about 6.3 million mortgages between 2009 and 2015. That’s too many families missing out on homeownership.”

Loans are getting harder to come by for some consumers

Banks are getting more picky about which consumers they’re approving for loans as borrowers with spottier credit histories struggle to keep up with payments.  The data is surprising in light of an economy and labor market that have been rolling along. Consumers are benefiting from solid job growth, faster pay increases and low debt levels. And the stock market is at record highs.  Yet 11.7% of banks tightened standards for auto loans in the first quarter, up from 3.3% late last year and the highest level on records dating back to 2011, according to the senior loan officer survey released by the Federal Reserve last week and Deutsche Bank.  Credit card standards were toughened by 8.3% of banks, compared to none in the fourth quarter. And criteria for consumer loans excluding credit cards were tightened by 7.3% of banks, up from 2.4%.  The results don’t reflect a suddenly shaky economy or an imminent pullback on lending by banks and other lenders for prime loans, says Matthew Mish, head of global credit strategy for UBS. Instead, he says, with the economic recovery in its eighth year, lenders are extending their reach to borrowers at low- and middle-income levels to increase revenue.  “You are lending increasingly to the type of person that has cash flow pressures,” Mish says.  Joe LaVorgna, Deutsche Bank’s chief economist, says banks are being more cautious with credit cards in part because of low interest rates that have crimped profit margins. He expects standards to ease as rates rise.

The number of subprime auto loans (those requiring a FICO score of 600 or lower) that were at least 90 days late hit the highest level since 2010 in the third quarter at 6 million, according to the New York Fed. The bulk of the bad loans were by auto finance companies rather than banks.  The share of delinquent personal loans and credit card debts also edged up in the third quarter to 3.53% and 1.33% respectively, according to TransUnion and UBS. Mish says non-bank lenders are taking bigger risks by making offers to less stable borrowers.  Also worrisome: 18% of consumers surveyed by UBS in December expected to default on a loan payment in the next 12 months, up from 12% in September. Much of the pain is being felt by lower-income Americans. Two-thirds of households who earn less than $40,000 say income is falling short of, or just barely covering, expenses, and 36% of that group say their financial conditions worsened over the past six months.  Although wages have been rising and annual inflation is measured at about 2%, the incomes of many low- to- moderate-income workers are not keeping up with costs such as higher health insurance deductibles that are not fully captured in monthly inflation data, Mish says.  He says the latest reports show the expanding economy and market optimism about President Trump’s fiscal stimulus are not extending to less wealthy Americans who have not benefited from rising home and stock prices.  So far, housing has been insulated from the troubles. The portion of nonperforming mortgages is low and has been falling. But Mish says non-bank lenders have been approving mortgages for risky borrowers that are backed by the Federal Housing Administration.  A new study by Trinity University economist David Macpherson for Emergency Warning System, a research firm. shows that in 29 states home prices have risen more rapidly than rents since 2012, up from 14 states two years ago. Such data typically augurs a housing bubble and a significant increase in delinquencies in three to four years, Macpherson says.

Realtor.com – top 10 suburban housing hotspots

  1. Friendship/Apex, North Carolina

Metro: Raleigh, North Carolina

This number of households in the suburb grew 25.2% from 2010 and 2017. A typical property in the suburb spent 34 days on the market, 25 days less than average in the study. Listing prices grew by 14% annually over the past three years.

  1. Williamsburg/Waterhill/White Haven/Blackman, Tennessee

Metro: Nashville-Davidson-Murfreesboro-Franklin, Tennessee

This number of households in the suburb grew 16.3% from 2010 and 2017. A typical property in the suburb spent 34 days on the market, 25 days less than average in the study. Listing prices grew by 14% annually over the past three years.

  1. Milpitas, California

Metro: San Jose-Sunnyvale-Santa Clara, California

This number of households in the suburb grew 15.5% from 2010 and 2017. A typical property in the suburb spent 23 days on the market, 36 days less than average in the study. Listing prices grew by 12.8% annually over the past three years.

  1. Cutler Bay/Lakes by the Bay, Florida

Metro: Miami-Fort Lauderdale-West Palm Beach, Florida

This number of households in the suburb grew 12.3% from 2010 and 2017. A typical property in the suburb spent 50 days on the market, nine days less than average in the study. Listing prices grew by 16.3% annually over the past three years.

  1. Vista East/Vista Park, Florida

Metro: Orlando-Kissimmee-Sanford, Florida

The suburb attracts those with an active lifestyle with its hiking trails, lakes and short commute to the ocean. It is also just 30 minutes from Disney World and Universal. Listing prices grew by 13.8% annually over the past three years.

  1. Orient Park/Progress Village/Palm River-Clair Mel, Florida

Metro: Tampa-St. Petersburg-Clearwater, Florida

The suburb attracts many first-time buyers due to its affordable housing options. A typical property in the suburb spent 47 days on the market, 12 days less than average in the study. Listing prices grew by 19.8% annually over the past three years.

  1. Daffan/Hornsby Bend, Texas

Metro: Austin-Round Rock, Texas

A typical property in the suburb spent 45 days on the market, 14 days less than average in the study. Listing prices grew by 27.1% annually over the past three years, making it the second highest suburb for home price growth.

  1. Dublin/Dougherty, California

Metro: San Francisco-Oakland-Hayward, California

This number of households in the suburb grew 25.6% from 2010 and 2017. A typical property in the suburb spent 24 days on the market, 35 days less than average in the study, and listings received 2.1 times more views than the average home in the study.

  1. Wylie/St. Paul, Texas

Metro: Dallas-Fort Worth-Arlington

This number of households in the suburb grew 12.3% from 2010 and 2017. A typical property in the suburb spent 41 days on the market, 18 days less than average in the study. Listing prices grew by 18.7% annually over the past three years, and listings recieved 2.4 times more views than the average home in the study.

  1. Northeast/Montebello, Colorado

Metro: Denver-Aurora-Lakewood, Colorado

A typical property in the suburb spent 19 days on the market, 40 days less than average in the study. Listing prices grew by 20.6% annually over the past three years, and listings received 1.7 times more views on realtor.com than other homes in the study.

US gas price drops 5 cents over 3 weeks, to $2.31 a gallon

The average price of a gallon of regular-grade gasoline dropped a nickel nationally during the past three weeks, to $2.31.  Industry analyst Trilby Lundberg said Sunday that the decline comes despite a slight rise in crude oil prices.  Gas in Los Angeles was the highest in the continental United States at an average of $2.87 a gallon Friday. The lowest average was in Cleveland, Ohio, at $1.97 a gallon.  The US average diesel price is $2.56, down a penny from three weeks ago.

NAR – when buying, selling and renovating, it’s an animal house

When making decisions about buying, selling or renovating their homes, Americans, by and large, take their pets’ needs into account, according to a new report from the National Association of Realtors (NAR). The 2017 Animal House: Remodeling Impact report found that 81% of respondents said that animal-related considerations play a role when deciding on their next living situation.  “In 2016, 61% of US households either have a pet or plan to get one in the future, so it is important to understand the unique needs and wants of animal owners when it comes to homeownership ” said NAR President William E. Brown, a Realtor from Alamo, California and founder of Investment Properties. “Realtors understand that when someone buys a home, they are buying it with the needs of their whole family in mind; ask pet owners, and they will enthusiastically agree that their animals are part of their family.”  In fact, according to the survey, 99% of pet owners said they consider their animal part of the family, and this becomes apparent in the sacrifices pet owners are willing to make when it comes to buying and selling homes. Eighty-nine% of those surveyed said they would not give up their animal because of housing restrictions or limitations. Twelve% of pet owners have moved to accommodate their animal, and 19% said that they would consider moving to accommodate their animal in the future.

Realtors® who were surveyed indicated that one-third of their pet-owning clients often or very often will refuse to make an offer on a home because it is not ideal for their animal. Realtors® also noted that 61% of buyers find it difficult or very difficult to locate a rental property or a homeowners association that accommodates animals.  When it comes to selling, 67% of Realtors® say animals have a moderate to major effect on selling a home. Approximately two-thirds of Realtors say that they advise animal owning sellers to always replace thing in the home damaged by an animal, have the home cleaned to remove any animal scents and to take animals out of the home during an open house or showing.  Nearly half of all survey respondents, 52%, indicated that they had completed a home renovation project specifically to accommodate their animal. Of those who undertook projects, 23% built a fence around their yard, 12% added a dog door and 10% installed laminate flooring. Ninety-four% of consumers indicated that they were satisfied with their renovation; 58% indicated they have a greater desire to be at home and 62% enjoy spending more time at home since completing their renovation.

When it comes to the enjoyment homeowners gain from these projects, fencing in a yard and installing laminated floors rated highest, both receiving Joy Scores of 9.4; Joy Scores range between 1 and 10, and higher figures indicate greater joy from the project. Adding a dog door came in a close second with a Joy Score of 9.2.  A majority of surveyed animal owners, 83%, indicated that they own a dog, which helps explain the overwhelming popularity of dog-related renovation projects. Forty-three% of those surveyed said they own a cat, 9% own a bird, reptile, amphibian, arthropod, small mammal, or miniature horse, 8% a fish and 5% own a farm animal.  NAR members were also surveyed about their relationships with animals, with 80% of Realtors considering themselves animal lovers and 68% indicating that they have pets of their own. Twelve% of Realtors surveyed volunteer for an organization that helps animals, and 21% plan to volunteer in the future.

NAR – swift gains in fourth quarter push home prices to peak levels in majority of metro areas

The best quarterly sales pace of the year pushed available housing supply to record lows and caused price appreciation to slightly speed up in the final three months of 2016, according to the latest quarterly report by the National Association of Realtors (NAR). The report also revealed that sales prices in over half of measured markets since 2005 are now at or above their previous peak level.  The median existing single-family home price increased in 89% of measured markets, with 158 out of 178 metropolitan statistical areas (MSAs) showing sales price gains in the fourth quarter of 2016 compared with the fourth quarter of 2015. Twenty areas (11%) recorded lower median prices from a year earlier.  There were more rising markets in the fourth quarter compared to the third quarter of 2016, when price gains were recorded in 87% of metro areas. Thirty-one metro areas in the fourth quarter (17%) experienced double-digit increases — an increase from 14% in the third quarter.  For all of 2016, an average of 87% of measured markets saw increasing home prices, up from the averages in 2015 (86%) and 2014 (75%). Of the 150 markets NAR has tracked since 2005, 78 (52%) now have a median sales price at or above their previous all-time high.  The national median existing single-family home price in the fourth quarter of 2016 was $235,000, which is up 5.7% from the fourth quarter of 2015 ($222,300). The median price during the third quarter of 2016 increased 5.4% from the third quarter of 2015.

At the end of the fourth quarter, there were 1.65 million existing homes available for sale, which was 6.3% below the 1.76 million homes for sale at the end of the fourth quarter in 2015 and the lowest level since NAR began tracking the supply of all housing types in 1999. The average supply during the fourth quarter was 3.9 months — down from 4.6 months a year ago.  NAR President William E. Brown says prospective buyers will likely see competition in their market increase even more this spring. “The prospect of higher mortgage rates and more home shoppers in coming months should be enough of an incentive for those serious about buying to start their search now,” he said. “There are fewer listings on the market, but also a little less competition than what’s expected this spring. Buyers may find just the home they’re looking for at a good price and without the possibility of having to outbid others.”  Total existing-home sales, including single family and condos, rose 3.3% to a seasonally adjusted annual rate of 5.57 million in the fourth quarter from 5.39 million in the third quarter of 2016, and are 7.1% higher than the 5.20 million pace during the fourth quarter of 2015.  Despite a meaningful increase in the national family median income ($70,831), rising prices and the boost in mortgage rates at the end of the year slightly weakened affordability compared to a year ago. To purchase a single-family home at the national median price, a buyer making a 5% down payment would need an income of $51,017, a 10% down payment would require an income of $48,332, and $42,962 would be needed for a 20% down payment.

Metro area condominium and cooperative prices — covering changes in 61 metro areas — showed the national median existing-condo price was $222,000 in the fourth quarter, up 6.1% from the fourth quarter of 2015 ($209,300). Nearly all metro areas (93%) showed gains in their median condo price from a year ago.  The five most expensive housing markets in the fourth quarter were the San Jose, California, metro area, where the median existing single-family price was $1,005,000; San Francisco, $837,500; Anaheim-Santa Ana, California, $745,200; urban Honolulu, $740,200; and San Diego, $593,000.  The five lowest-cost metro areas in the fourth quarter were Youngstown-Warren-Boardman, Ohio, $87,600; Decatur, Illinois, $92,400; Cumberland, Maryland, $94,000; Rockford, Illinois, $109,500, and Binghamton, New York, $109,700.  Total existing-home sales in the Northeast jumped 10.5% in the fourth quarter and are now 6.4% above the fourth quarter of 2015. The median existing single-family home price in the Northeast was $254,100 in the fourth quarter, slightly lower (0.2%) from a year ago.  In the Midwest, existing-home sales climbed 2.3% in the fourth quarter and are 8.8% above a year ago. The median existing single-family home price in the Midwest increased 5.7% to $181,100 in the fourth quarter from the same quarter a year ago.  Existing-home sales in the South increased 2.6% in the fourth quarter and are 5.4% higher than the fourth quarter of 2015. The median existing single-family home price in the South was $210,500 in the fourth quarter, 7.9% above a year earlier.  In the West, existing-home sales rose 1.6% in the fourth quarter and are 9.1% above a year ago. The median existing single-family home price in the West increased 7.8% to $348,800 in the fourth quarter from the fourth quarter of 2015.

Sears shares snap 45% higher after $1 billion cost-cutting plan

Struggling retailer Sears Holdings reported a 10.3% drop in comparable-store sales for the holiday quarter, and said it would cut debt and pension obligations by at least $1.5 billion this year.  Shares of the company, which has been struggling with years of losses and falling sales, were up 39% at $7.70 in premarket trading on Friday.  The company — controlled by its billionaire chief executive, Edward Lampert — announced a new plan to cut costs by at least $1 billion in 2017 by reducing overhead, improving merchandise at its stores and through better inventory management.  Once the largest US retailer, Sears has lost its standing as customers move to online shopping or rivals such as Wal-Mart Stores Inc.  To cope with the slump, Sears has cut costs, spun off some of its stores into a real estate investment trust, raised debt from Lampert’s hedge fund and put some brands on sale.  The company has, however, failed to turn a profit in more than a year and said in December there was no guarantee when it would return to profitability.  Sears said on Friday it sold five Sears full-line stores and two Sears Auto Centers for $72.5 million in January and engaged Eastdil Secured to raise at least $1 billion from the sale of its real estate.  Sears said it sold five Sears Full-line stores and two Sears Auto Centers for $72.5 million in January and engaged Eastdil Secured to raise at least $1 billion from the sale of its real estate.

RealtyTrac – number of seriously underwater properties down 1 million from year ago, down 7.1 million from market bottom in Q1 2012

–  Number of Equity Rich US Properties Increases by 1.3 Million Compared to a Year Ago

–  Equity Lost During Downturn Helping to Keep Average Homeownership Tenure Elevated at Nearly Twice Pre-Recession Levels;

ATTOM Data Solutions, curator of the nation’s largest fused property database, released its Year-End 2016 US Home Equity & Underwater Report, which shows that as of the end of 2016 there were 5.4 million (5,408,323) US properties seriously underwater — where the combined loan amount secured by the property was at least 25% higher than the property’s estimated market value — a decrease of more than 1 million properties (1,028,058) from a year ago.  The 5.4 million seriously underwater properties at the end of 2016 represented 9.6% of all US properties with a mortgage, down from 10.8% at the end of Q3 2016 and down from 11.5% at the end of 2015 to the lowest level since ATTOM Data Solutions began tracking in Q1 2012.

The report is based on publicly recorded mortgage and deed of trust data collected and licensed by ATTOM Data Solutions nationwide along with an industry standard automated valuation model (AVM) updated monthly in the ATTOM Data Warehouse of more than 150 million US properties.  “Since home prices bottomed out nationwide in the first quarter of 2012, the number of seriously underwater US homeowners has decreased by about 7.1 million, an average decrease of about 1.4 million each year,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “Meanwhile, the number of equity rich homeowners has increased by nearly 4.8 million over the past three years, a rate of about 1.6 million each year.  “Despite this upward trend over the past five years, the massive loss of home equity during the housing crisis forced many homeowners to stay in their homes longer before selling, effectively disrupting the historical domino effect of move-up buyers that feeds both demand for new homes and supply of inventory for first-time homebuyers,” Blomquist noted. “Between 2000 and 2008, our data shows the average homeownership tenure nationwide was 4.26 years, but that average tenure has been trending steadily higher since 2009, reaching a new record high of 7.88 years for homeowners who sold in 2016.”

The report also found that as of the end of 2016 there were 13.9 million (13,877,315) US properties that were equity rich — where the combined loan amount secured by the property was 50% or less of the property’s estimated market value — an increase of nearly 1.3 million (1,256,041) from a year ago.  The 13.9 million equity rich properties at the end of 2016 represented 24.6% of all US properties with a mortgage, up from 23.4% at the end of Q3 2016 and up from 22.5% at the end of 2015.  States with highest share of seriously underwater properties were Nevada (19.5%); Illinois (16.6%); Ohio (16.3%); Missouri (14.6%); and Louisiana (14.5%).  Among 88 metropolitan statistical areas with a population of at least 500,000 and sufficient home value and loan data, those with the highest share of seriously underwater properties were Las Vegas (22.7%); Cleveland (21.5%); Akron, Ohio (20.1%); Dayton, Ohio (20.0%); and Toledo, Ohio (19.9%).  “In the markets HER Realtors serves, there was a substantial reduction in properties underwater as well as an increase in owners who are at less than 50% LTV — consistent with rising home prices across Ohio, driven by a strong buyer’s market and lack of inventory,” said Matthew L. Watercutter, senior regional vice president and broker of record for HER Realtors, covering the Dayton, Columbus and Cincinnati markets in Ohio. “One of the primary reasons we have a shortage of inventory is due to the high number of homeowners who are still underwater, making it difficult to sell and move as they would need to conduct a short sale or bring money to the closing. A high percentage of those homeowners are waiting it out until they are no longer underwater or in a better position to sell, contributing to the shortage of inventory. I expect this dynamic to continue through 2017.”  Along with Las Vegas and Cleveland, other metro areas with at least 1 million people and at least 14.5% of properties seriously underwater at the end of 2016 were Detroit (17.5%); Chicago (16.9%); Orlando (15.7%); Memphis (14.6%); and Jacksonville, Florida (14.5%).

States with the highest share of equity rich properties at the end of 2016 were Hawaii (37.8%), Vermont (36.9%); California (36.0%); New York (34.9%); and Oregon (32.0%).  Among 88 metropolitan statistical areas with a population of at least 500,000 and sufficient home value and loan data, those with the highest share of equity rich properties were San Jose, California (51.6%); San Francisco (47.7%); Honolulu (39.8%); Los Angeles (39.2%);  and Pittsburgh, Pennsylvania (35.8%).  “Clearly the big news here is the rapid drop in the number of seriously underwater homeowners between 2013 and 2016 from 197,000 (23.7%) to just 44,000 (4.5%),” said Matthew Gardner, chief economist with Windermere Real Estate, covering the Seattle market, where 32.5% of properties with a mortgage were equity rich as of the end of 2016 — ninth highest among all metro areas analyzed for the report. “Simultaneously we’ve seen the number of equity rich homeowners climb from 168,000 to over 322,000. All of this is largely a result of Seattle’s employment and income growth, which are well above the national average.  “While I’m happy to see the number of ‘distressed’ households drop significantly, the increase in equity rich homeowners further compounds the issue of housing affordability that we’re seeing in Seattle, which will likely get worse with further increases in both home prices and mortgage rates,” Gardner added.

Some characteristics of the 5.4 million seriously underwater US properties as of the end of 2016:

–  4% of non-owner occupied (investment) properties with a mortgage were underwater as of the end of 2016 compared to only 6.8% of owner-occupied properties.

–  6% of properties in high-risk flood zones were seriously underwater (above national average of 9.6%).

–  Based on years owned range, the highest share of underwater properties is those that have been owned between 10 and 15 years (12.0%), followed by those that have been owned five to 10 years (10.6%). The lowest share of seriously underwater properties were those owned more than 20 years (7.2%) followed by those owned between one and five years (8.6%).

–  9% of all properties secured by loans originated in 2006 were seriously underwater at the end of 2016, the highest share of seriously underwater of any loan vintage in the last 20 years, followed by 2007 vintage (23.5% seriously underwater) and 2005 vintage (21.5% seriously underwater).

Profile of equity rich properties

Some characteristics of the 13.0 million equity rich US properties as of the end of 2016:

–  5% of properties located in high-risk flood zones were equity rich as of the end of 2016, below the national average of 24.6%.

–  Based on years owned range, the highest share of equity rich were for properties owned more than 20 years (45.4%), followed by those owned 15 to 20 years (32.4%).

–  4% of all properties secured by 1998 vintage loans were equity rich at the end of 2016, the highest share of equity rich of any loan vintage in the last 20 years, followed by 1999 vintage (44.7% equity rich) and 2000 vintage (40.8% equity rich).

Among 316 metropolitan statistical areas analyzed for homeownership tenure, there were 54 (17%) where the average homeownership tenure for sellers in 2016 decreased compared to a year ago, including Denver; Orlando; Louisville, Kentucky; Tucson, Arizona; and Fresno, California.  The remaining 262 markets (83%) where the average homeownership tenure increased in 2016 compared to 2015 included New York; Los Angeles; Chicago; Dallas; and Houston.  Among 52 metro areas with a population of at least 1 million, those with the longest average homeownership tenure for homes sold in 2016 were Hartford, Connecticut (11.57 years); Providence, Rhode Island (10.36 years); Boston (10.04 years); San Francisco (9.92 years); and San Jose, California (9.79 years).  Among those same 52 metro areas with a population of at least 1 million, those with the shortest average homeownership tenure in 2016 were Rochester, New York (4.67 years); New Orleans (4.85 years); Louisville, Kentucky (4.93 years); Virginia Beach (5.37 years); and Atlanta (5.66 years).

Trump tax talk lifts Wall Street to record highs

US stocks hit record highs on Friday as investors cheered President Donald Trump’s vow to unveil a major tax reform plan in the coming weeks. Trump’s promise of a “phenomenal” tax plan helped reignite a post-election rally, which had stalled in recent weeks on concerns over his administrative priorities and the lack of clarity on policy reforms.  “The market is saying, ‘Thank you for coming back to the very core of the reasons we have accepted your agenda’,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.  The dollar index was up 0.3% to a three-week high of 101.01. Gold was down 0.3%.  Oil prices rose 2% after reports that OPEC members delivered more than 90% of the output cuts they pledged in a landmark deal that took effect in January.  The S&P 500 energy index was up 0.85% and gave the broader index its biggest boost.  Industrial stocks, which have been among the top gainers in the post-election rally, also rose 0.6%.

 

CoreLogic US Home Price report shows prices up 7.2% in December 2016

CoreLogic released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ for December 2016 which shows home prices are up both year over year and month over month.  Home prices nationwide, including distressed sales, increased year over year by 7.2% in December 2016 compared with December 2015 and increased month over month by 0.8% in December 2016 compared with November 2016, according to the CoreLogic HPI.  The CoreLogic HPI Forecast indicates that home prices will increase by 4.7% on a year-over-year basis from December 2016 to December 2017, and on a month-over-month basis home prices are expected to increase by 0.1% from December 2016 to January 2017. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.  “As of the end of 2016, the CoreLogic national index was 3.9% below the peak reached in April 2006,” said Dr. Frank Nothaft, chief economist for CoreLogic. “We expect our national index to rise 4.7% during 2017, which would put homes prices at a new nominal peak before the end of this year.”  “Last year ended with a bang with home prices up over 7% nationally, led largely by major metro areas,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect prices to continue to rise just under 5% in 2017 buoyed by lack of supply and continued high demand.”

Oil prices fall on bloated US fuel inventories, stalling China demand

Oil prices slid on Wednesday to extend falls from the previous session, as a big increase in US crude inventories and a slump in Chinese demand implied that global oil markets remain oversupplied despite OPEC-led efforts to cut output.  International Brent crude futures were trading at $54.81 per barrel at 1257 GMT, down 24 cents from their previous close.  US West Texas Intermediate (WTI) crude was at $51.77 a barrel, down 40 cents.  The declines came on the back of unexpectedly big increases in US fuel inventories, as reported by the American Petroleum Institute (API) on Tuesday.  Crude inventories rose by 14.2 million barrels in the week to February 3 to 503.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.5 million barrel increase.  “If the official data from the US Department of Energy were to show a similar inventory build … US crude oil stocks would be catapulted to almost a record level,” Commerzbank said in a note.  The US Energy Information Administration publishes its official data later on Wednesday.  Gasoline stocks rose by 2.9 million barrels, compared with expectations for a 1.1-million-barrel gain.  Goldman Sachs analysts said that the data pointed to “US gasoline demand falling sharply by 460,000 barrels per day (bpd) year on year in January, with such declines only previously (seen) during recessions.”  The EIA said on Tuesday it expects US crude production to grow by 100,000 bpd to 8.98 million barrels this year, 0.3% less than previously forecast, but expects production to jump by 550,000 bpd in 2018.

MBA – mortgage applications up

Mortgage applications increased 2.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 2017.  The Market Composite Index, a measure of mortgage loan application volume, increased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6% compared with the previous week. The Refinance Index increased 2% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 9% compared with the previous week and was 4% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 47.9% of total applications, its lowest level since June 2009, from 49.4% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.9% of total applications.  The FHA share of total applications decreased to 11.9% from 12.1% the week prior. The VA share of total applications increased to 12.7% from 12.4% the week prior. The USDA share of total applications remained unchanged at 0.9%.

How Trump could already be affecting monetary policy in China

Chinese officials might be trying to drain liquidity from their economy but the central bank remains fearful of raising interest rates too quickly, according to one strategist who suggests President Donald Trump might be indirectly influencing policy in the country.  “What is China trying to do about (large outflows)? Yes, they put up interest rates, they’re draining liquidity, but still they don’t seem to be really trying to stem the loan growth,” Jane Foley, senior forex strategist at Rabobank, told CNBC Wednesday.  “We know that they’ve got several issues, we know that they are trying to perhaps drain the liquidity, but they don’t want to take action. They don’t want to put up interest rates too much because I think they appear to be fearful that that could slow growth. With respect to Donald Trump, I think part of the reason they are still trying to have this two-way trade in the exchange rate is to give this impression that they are not a currency manipulator, they are of course trying to stop the rate of movement,” she added.  Data released Tuesday showed China’s foreign exchange reserves dropped more than expected in January, to below the $3 trillion threshold for the first time in almost six years. Such figures have raised concerns among analysts that continued outflows will prompt the Chinese authorities to devalue their currency. Foley noted the data also showed a continued rise in loan growth in the world’s second-largest economy, which she said could mean this cash was making its way out of the country.

Meanwhile, the global debate on currency manipulation has seen a resurgence with the presence of the new US president in politics. His trade adviser has recently blamed Germany for benefiting from a weak euro and Trump himself has previously criticized Japan and China for having a weak exchange rate.  “It’s been a while, certainly not since he has been the president, certainly not since the election has (Trump) called China a currency manipulator and I think Donald Trump is perhaps aware of the fact that they are taking action to keep the exchange rate higher not lower,” Foley told CNBC.  Foley predicted that China, its loan growth and its monetary policy, could be the next unexpected “black swan” event in finance this year. “We’ve known Greece is at risk, coming back to the headlines right now, but China is so much of a larger economy. That is the one that can certainly do a lot more damage to global confidence,” she added.

WSJ – for Chinese home buyers, Seattle is the new Vancouver

Chinese real-estate buyers are suddenly descending on the Seattle region. Some are lured by perceptions the coastal city is a bargain, others by warm memories of the 2013 Chinese film “Finding Mr. Right,” which put Seattle on the pop-culture radar there.  The biggest draw, though, might be the fact that it isn’t Vancouver. In August, the Canadian province of British Columbia imposed a 15% tax on foreign investment in the city, which until recently was a popular destination for Chinese. The tax applies to anyone who isn’t a citizen or permanent resident of Canada and buys a home in metro Vancouver.  The provincial government says the tax policy is aimed at making homes in the city more affordable for local residents, who have seen prices soar by nearly 50% over the past three years. The city of Vancouver also introduced a separate vacancy tax of 1% on the assessed value of an empty property.  The moves have had a chilling effect. Web searches in China for Vancouver properties dropped 37% in December compared with a year ago, according to Juwai.com, an online real-estate portal that targets Chinese home seekers.  Seattle, by contrast, is red hot. Searches for Seattle properties in China jumped 125% year-over-year in November, after increasing 71% in October, according to Juwai. They rose 1.8% in December.

It is too early to quantify the effect of Chinese interest on Seattle’s home sales, and no one tracks the ethnicities of buyers in particular markets. But the sudden surge in interest in Seattle comes at a time when it already ranks among the nation’s hottest real-estate markets. It led the US in home-price growth in November, according to a report released Tuesday by S&P CoreLogic Case-Shiller Indices, which found prices there increased by more than 10% over the same month in 2015.  Some places that have been favorites for Chinese in recent years—including London, Australia and, most recently, New York—are rolling out policies that discourage foreign purchasers.  In the U.K. in late 2014, the cost of buying homes valued at more than £937,000, or $1.17 million at current exchange rates, went up on a sliding scale, rising to a 12% tax on the portion of a sale over £1.5 million. In April, an additional 3% was tacked on to the sale price of homes for foreign buyers or for those renting out their properties.  Australia bars foreigners from purchasing resale properties, and some states also have imposed taxes on foreign purchasers. In New York, the mayor last week proposed a 2.5% tax on properties of $2 million or more, a favorite category of foreigners.  Mike O’Brien, a Seattle City Council member, said he is exploring measures, including a vacancy tax, to combat another trend that has irked Vancouver residents: foreign investors who leave homes vacant and untended. “It baffles me that people would buy real estate here and not fill it up,” he said.

MBA – mortgage credit availability increases in January

Mortgage credit availability increased in January 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 1.1% to 177.1 in January.  A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The index was benchmarked to 100 in March 2012. Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 4.7%), followed by the Conventional MCAI (up 2.3%), and the Government MCAI (up 0.2%). The Conforming MCAI decreased over the month (down 0.1%).   “Mortgage credit availability increased for the fifth consecutive month in January, driven by increased availability of jumbo loan programs,” said Lynn Fisher, MBA’s Vice President of Research and Economics.  “We saw a particular increase in agency jumbo programs that focus on loans in high cost areas that exceed the baseline conforming loan limit of $424,000 but which are still eligible for purchase by the GSEs.  While the change in GSE loan limits may have had an indirect impact on the jumbo MCAI, there were other factors at play as several investors rolled out new jumbo loan programs in January.” Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 4.7%), followed by the Conventional MCAI (up 2.3%), and the Government MCAI (up 0.2%). The Conforming MCAI decreased over the month (down 0.1%).

Olick – here are the 10 hottest rental markets to make investors’ landlord dreams come true

Home prices continue to climb in already-expensive Seattle, but investors with enough cash to get into the city’s landlord business could see big returns.  Seattle ranked in the Top 3 of the nation’s best markets for rental real estate investors, according to an “opportunity” list from HomeUnion, a single-family-rental acquisition and management company.  Despite its high home prices, Seattle is seeing increasing demand for rental dwellings because of robust job growth in the area. Amazon alone recently announced it was hiring 100,000 new employees, and while they won’t all work in Seattle, the corporate headquarters will need to grow for support. New jobs mean stronger demand for rental housing.  The story is much the same in Atlanta, which topped HomeUnion’s list as the best opportunity for single-family-rental investors. Both the Falcons and the Braves are building new stadiums in Atlanta, which will create an estimated 75,000 jobs for the city. Plus, home prices in Atlanta have not yet recovered as well as those in other markets, so investors can get in more easily and reap higher rents because of the increased demand.  “Atlanta has moved up the list. They were late to the [recovery] party and are now seeing 3.5% rent growth” said Steve Hovland, director of research at HomeUnion. “They’re also having a big decrease in single-family-rental vacancies.”  Like Atlanta, Orlando, Florida, which came in at No. 2 on the list, is seeing an influx of retirees looking for warm climates. Orlando has both supply and demand, making entry prices for investors attractive. As the home of Walt Disney World and scores of other attractions, Orlando has set new tourism records, also boding well for its rental market.  “That will create thousands of leisure and hospitality jobs, which are lower paying, so they preclude home ownership,” Hovland said.

While Atlanta topped the list because of its low entry price and high job growth, other markets made the Top 10 despite their cooler employment prospects. Detroit, Memphis, Tennessee, and Chicagohave relatively low home prices when compared with asking rents, making them lucrative for investors. While there has been considerable apartment construction in Chicago and other markets on the list, most of that has been on the luxury end and doesn’t compete directly with single-family rentals.  Previously hot rental markets, like San Francisco and San Jose, California, have cooled for investors because new apartments compete more directly with those high-priced homes. With more apartment supply, rents are coming down, along with potential investor returns.  HomeUnion “opportunity” ranking, by metro area

  1. Atlanta
  2. Orlando
  3. Seattle
  4. Las Vegas
  5. Chicago
  6. San Diego
  7. Oakland, Calif.
  8. Detroit
  9. Dallas-Fort Worth
  10. Memphis

WSJ – big investors cut back on commercial property as bull market loses steam

Some prominent real-estate investors are reducing their holdings and getting more selective about new deals, in a sign that the eight-year bull market for US commercial property is coming to a close.  Asset managers at pension funds and endowments, as well as private-equity firms and other big investors, are throttling back on new acquisitions, selling more assets and shifting to less risky strategies as a way to protect against potential losses in a downturn.  Additional selling could put stress on the market because demand for property has started to flag, especially at current price levels. Deal volume decreased by $58.3 billion, or 11%, in 2016, the first annual decrease since 2009, according to data firm Real Capital Analytics, a sign that investor appetite is waning.  Investors that have picked up the pace of selling to lock in profits include private-equity firm Blackstone Group LP, real-estate giant Brookfield Asset Management, United Parcel Service Inc.’s pension trust and Harvard Management Company, which manages Harvard University’s endowment.  When these big investors do buy, they are focusing more on niche properties such as self-storage warehouses and biomedical facilities, which haven’t seen the sharp price rise of trophy office buildings and rental apartments.  “We definitely have a risk-off mentality,” said Judy McMahan, a portfolio manager for UPS’s $32 billion pension trust. “We’re being careful.” The pension trust sold more property than it bought last year, and its new acquisitions included senior housing and industrial space in the U.K., said Ms. McMahan.

Brookfield also increased the pace of its selling, unloading about $3 billion in property in 2016 compared with about half that much in 2015. The company recently put on the block a 49% stake in its sprawling Brookfield Place complex in Manhattan. The complex just finished overhauling its retail space and filling the 2.5 million square feet of office space emptied in 2013 when Bank of America Corp. moved out.  “We think now is an opportune time to reduce some of our exposure to that asset,” said Brian Kingston, Brookfield senior managing partner. “We can recycle the capital into higher returning investment opportunities.”  Caution among investors in the $11 trillion US commercial property sector is being driven by lofty prices, the length of the market cycle so far and the recent rise in interest rates, which makes bonds look more attractive compared with commercial property. Also, developers are adding new supply of some property types at the fastest rate since the recovery began.  Few investors predict a crash along the lines of the 2008 downturn because debt levels aren’t nearly as high and the economy continues to show signs of strength. Some believe office buildings, malls, apartment buildings and other commercial property will continue to enjoy rising rents and occupancy rates if President Donald Trump’s pro-growth economic plans work as intended.  Since 2009, investors have been handsomely rewarded for purchases of office buildings, warehouses, apartment buildings and other commercial property. Thanks to low interest rates and the improving US economy, a valuation index published by Green Street Advisors has increased 107% since hitting its crash-era low in May 2009. But that rocketing growth is slowing. The Green Street index, which focuses on top-quality US property owned by real-estate investment trusts, has stayed flat since mid-2016, according to Green Street.

Another closely followed metric—an index compiled by the National Council of Real Estate Investment Fiduciaries—showed total returns from commercial real estate rising 9.2% in the year ending Sept. 30, 2016, a sharp decline from 13.5% for the 12 months ending in the third quarter of 2015 and growth ranging from 11% to 14% in each of the previous five years.  Fund investors are pulling back as well. Quarterly distributions and redemptions from open-ended funds that buy low-risk properties, a popular investment vehicle among institutional investors, doubled during the first nine months of 2016, after ticking up just 11% in 2015, according to the council.  Much of the bull market has been fueled by low interest rates, which encouraged investors to forsake bonds and stretch for more yield. But rates have jumped since Election Day. Real-estate investment trusts took the first hit, with equity REITs declining 2.9% in the fourth quarter of last year compared with a gain of 5.3% for the S&P 500, according to Green Street.  This year through Monday, equity REITs have had a total return of 0.38%, compared with 1.9% for the S&P 500, Green Street said.  Also, until recently, the rise in property values was fueled by developers keeping new supply in check. But that, too, is beginning to change with certain property types. For example, more than 378,000 new apartments are expected to be completed across the country this year, almost 35% more than the 20-year average, according to real-estate tracker Axiometrics Inc.

Private investors say the real estate they are chasing these days often is either real estate that’s less risky or properties that can be improved and sold quickly, rather than those—like developments—that might not be finished until the economy is well into the next down cycle.  For example, private-equity giant KKR & Co. moved quickly to find a buyer last year after it purchased the landmark Sullivan Center in the Chicago Loop for $267 million. A few months after the deal closed, KKR sold the retail portion of the 946,000-square-foot building to Acadia Realty Trust.  “Given we are in the later stage of the real-estate cycle, we have been focused on business plans that require less time to create value,” said Chris Lee, co-head of real-estate credit and chair of KKR’s real-estate valuation committee.  Blackstone sold more property than it bought last year, according to Kenneth Caplan, the firm’s chief investment officer for real estate. Sales have included more traditional property types such as apartment buildings and hotels. One of its biggest buys last year was BioMed Realty Trust Inc., which leases offices to the life science industry. “It’s later in the cycle where you have to be more targeted,” Mr. Caplan said.  Harvard’s endowment is among the big institutions that sold more property last year than it purchased, according to people familiar with the matter. A spokeswoman for the endowment declined to comment.  Institutions that sell property acknowledge values could keep rising, but said they want to play it safe.  “Some of the investments we disposed of, if we held on to them another year or so, it’s possible we’d make more money,” said Ms. McMahan of UPS. “However, we felt it was the appropriate time to monetize our gains.”

Black Knight – December Mortgage Monitor

​​​​​-  Internal Revenue Service data shows that most tax refunds are distributed in February and March, well before the tax deadline

–  In recent years, nearly 300,000 additional borrowers paid their mortgages current in February and March alone, on top of normal monthly cure activity

–  At 40%, FHA/VA loans see the most pronounced spike in tax season cures, with early and moderate stage delinquencies seeing the greatest impact

–  Interest rate increases have made housing the least affordable it has been since 2010; it now takes 22.2% of median income to purchase the median-priced home

–  Q4 2016 saw a 10% rise in the principal and interest payment required to purchase the median-priced home

The Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Mortgage Monitor Report, based on data as of the end of December 2016. This month, Black Knight examined Internal Revenue Service (IRS) tax filing statistics in conjunction with mortgage performance data to quantify potential impacts of the upcoming tax season on the mortgage market. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, there has historically been a distinct correlation between income tax refund disbursements and delinquent mortgages curing to current status.  “Looking at IRS filing statistics, we see that nearly one in five Americans file their returns within the first two weeks of tax season, and over 40% had completed their taxes by the first week in March,” said Graboske. “Unsurprisingly, incentive played a big role in this timing; not only were Americans who filed early more likely to receive a refund than those filing later, but they also received larger refunds on average. Likewise, mortgage cures – delinquent borrowers who bring themselves back to current status – correspondingly spike in February and March as well, suggesting that some portion of Americans are using their tax refunds to make past-due payments on their mortgages. In recent years, this has meant nearly 300,000 borrowers on average paying their loans current in February and March alone, on top of normal cure volumes for the typical month. All things being equal, there’s no reason to expect this tax season to be any different.  “We see this increase in cures across the delinquency and foreclosure spectrum, but it is most pronounced in the early and moderate stages of delinquency. This makes sense, in that a tax refund may be sufficient to pay a few months of past-due mortgage payments, but is likely not enough to bring a homeowner out of severe delinquency. Likewise, the most pronounced impact was seen among FHA/VA borrowers, who might be expected to have less cash reserves on hand and therefore be more dependent upon the infusion of funds during tax refund season to pay down late payments.

“FHA/VA borrowers see loan cures increase by an average of 40% in February and March – as compared to just 26% for GSE loans. In fact, FHA/VA loans see the most seasonal fluctuation in delinquency rates overall throughout the year compared to other categories. While the inflow in early spring from tax refunds gives these borrowers a needed infusion of funds, the data also shows they tend to struggle more when the funds burn off late in the year and money becomes tight around the holiday spending season.”  In light of the current interest rate environment and continued home price appreciation (HPA), Black Knight also returned to the subject of home affordability. Historically low interest rates had been helping to accelerate HPA, but that was prior to interest rates on 30-year mortgages rising by 75 basis points in November alone. With today’s prevailing 30-year conforming mortgage rate (4.19% as of Jan. 26, 2017) housing is now the least affordable it’s been since 2010, requiring 22.2% of the median income to make the monthly principal and interest (P&I) payment on the median- priced home. In total, the monthly P&I payment required to purchase the median-priced home increased 10% in Q4 2016 alone. Nationally, homes remain more affordable than pre-bubble “norms,” but it’s clear that the market is now experiencing the most pressure – from an affordability perspective –​ since the housing recovery began.​

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

​-  Total US loan delinquency rate:  4.42%

​-  Month-over-month change in delinquency rate:  -0.91%

​-  Total US foreclosure pre-sale inventory rate:  0.95%

​-  Month-over-month change in foreclosure pre​-sale inventory rate:  -3.29%

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

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

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

Oil slips further below $57 as dollar strength counters OPEC

Oil slipped further below $57 barrel on Monday as a stronger dollar and ample US supplies outweighed OPEC output curbs and rising tensions between the United States and Iran.  The dollar fell 0.3% versus a basket of currencies. US energy companies added oil rigs for a 13th week in 14, data showed on Friday, and US crude inventories rose by more than expected last week. Brent crude was trading at $56.56 a barrel by 1402 GMT, down 25 cents, having touched an intra-day high of $57.13. US crude was down 13 cents at $53.70.  “It’s most likely the stronger US dollar,” said Commerzbank analyst Carsten Fritsch of the reason for the dip in oil. A stronger dollar makes crude more expensive for other currency holders and usually weighs on the oil market.  Oil prices, while supported by supply cuts agreed by the Organization of the Petroleum Exporting Countries and a new spike in tension between Iran and the United States, are struggling for new direction.  “The tug-of-war between oil bulls and bears continued last week and there are no clear signs who could turn out to be the winner,” said Tamas Varga of oil broker PVM.  “The result is a rangebound market where buyers shy away on a pop over $57 basis Brent, but they feel a dip to the $54 level is an attractive purchase.”

The Trump administration’s new sanctions against Iran, though not affecting oil output, raised concern about the potential for further developments that could hinder export growth in OPEC’s third-largest producer.  Tension between Tehran and Washington has risen since an Iranian missile test that prompted the United States to impose sanctions on individuals and entities linked to the Revolutionary Guards.  Iran has been raising crude output since most international sanctions over its nuclear program were lifted in 2016. Tehran is exempt from the OPEC supply cuts.  The OPEC members covered by the deal with Russia and other independent producers have implemented at least 80% so far, according to a Reuters survey and analysts. Russia has cut about 100,000 bpd and plans to increase that to 300,000 bpd.  Against this backdrop, more investors are betting on rising prices despite indicators such as the Baker Hughes rig count pointing to increased US supply.  Investors raised their net long US crude futures and options positions in the week to Jan. 31, the Commodity Futures Trading Commission said on Friday.

NAHB – regulatory and supply-side challenges inhibit more robust housing growth

Although employment and home price levels have returned to or exceeded normal levels of activity, new-home construction during the fourth quarter of 2016 remained tepid in many markets due to regulatory and supply-side constraints, according to the National Association of Home Builders/First American Leading Markets Index (LMI) released today.  The index’s nationwide score inched up to .99, meaning that based on current permit, price and employment data, the nationwide average is running at 99% of normal economic and housing activity. However, when breaking down the three major components of the index, single-family permits are running at just 52% of normal activity, while employment is at 98% and home prices are well above normal at 147%.  Part of the reason why home prices have jumped in many metro areas is directly related to the paucity of permits, creating an imbalance between supply and demand.  “Though rising, single-family permits continue to lag behind the other components of the LMI,” said NAHB Chief Economist Robert Dietz. “This is due to a number of factors, including regulatory hurdles and supply-side headwinds such as persistent shortages of lots and labor in many markets. As we address these challenges, we should see an additional increase in housing production.”  “While housing continues to gradually mend, regulatory constraints are preventing builders from meeting demand in many markets,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “We expect further improvement in the year ahead as we work with the new Trump administration and Congress to implement regulatory relief that help small businesses and the housing sector.”

A recent survey of NAHB members found that their top two concerns this year are the cost and availability of labor and developed lots.  Richard Van Osten, executive vice president of the Builders League of South Jersey, summed up the problem succinctly: “It’s been more difficult to find lots to build on.” Despite these challenges, the housing market continues to make gradual gains. The LMI shows that markets in 174 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the fourth quarter of 2016. This represents a year-over-year net gain of 60 markets. Moreover, 86% of markets have shown an improvement year over year.  “More than 250 markets, or 75% of all metro areas nationwide, now stand at or above 90% on this quarter’s Leading Market Index,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report. “This shows that the overall housing market continues to improve at a moderate pace.”  Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.73 — or 73% better than its last normal market level. Other major metros leading the group include Austin, Texas; Honolulu; Provo, Utah; and San Jose, Calif. Rounding out the top 10 are Spokane, Wash.; Nashville, Tenn.; Charleston, S.C.; Los Angeles; and Salt Lake City.  Among smaller metros, Odessa, Texas, has an LMI score of 2.10, meaning that it is now at more than double its market strength prior to the recession. Also at the top of that list are Midland, Texas; Ithaca, N.Y.; Walla, Walla, Wash.; and Florence, Ala.

Trump: I think tax reform will be done this year

President Donald Trump believes tax reform, a key campaign plank that has boosted the business community’s expectations for his presidency, will be done this year. Asked if Americans should expect a tax cut this year, Trump said he was optimistic.  “I think so, yes,” Trump said in a wide ranging interview that aired Sunday, ahead of the Super Bowl. “And I think before the end of the year I would like to say yes.”  Trump ran on a platform of across-the-board income and corporate tax cuts, saying that he believes the change will boost economic activity and job creation. So far, though, Congress has spent little time on the effort amid a push to repeal the Affordable Care Act.  Trump has touted tax cuts in meetings with business leaders since he took office, saying they encourage companies to keep operations and jobs in the United States. Hopes for that policy change, as well as potential infrastructure funding, helped to power a stock market rally in the weeks after Trump’s election in November.  House Speaker Paul Ryan recently said Republican lawmakers will try to start pushing through tax reform and infrastructure bills in the spring.  “It’s just the way the budget works that we won’t be able to get the ability to write our tax reform bill until our spring budget passes, and then we write that through the summer,” Ryan said Thursday.  Trump has called for slashing the corporate tax rate to 15% from 35%. Ryan’s proposal calls for a 20% corporate rate.

Black Knight Home Price Index Report: November 2016 Transactions 

The Data and Analytics division of Black Knight Financial Services, Inc. released its latest Home Price Index (HPI) report, based on November 2016 residential real estate transactions. The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states. Non-disclosure states do not include property sales price information as part of their publicly available county recorder data. Black Knight is able to obtain the sales price information for these states by combining and matching records across its unique data assets.

–  US Home Prices Up 0.2% for the Month; Up 5.7% Year-Over-Year

–  After rising 5.7% from the start of 2016, US home prices are now within just 0.3% of a new national peak

–  For the fifth straight month, New York led all states in monthly home price appreciation, seeing 1.1% growth from October 2016

​-  Though New York City was the best-performing metro area, Florida and Tennessee dominated the rest of the Top 10 list, together accounting for eight of the 10 best-performing metros

​-  Of the nation’s 40 largest metros, only St. Louis, Mo., saw negative year-to-date home price movement through November 2016

–  Home prices hit new peaks in six of the nation’s 20 largest states and eight of the 40 largest metros​

Oil steady but US drilling weakens deal to cut output

Oil prices were steady on Monday, but news of another increase in US drilling activity spread concern over rising output just as many of the world’s oil producers are trying to comply with a deal to pump less in an attempt to prop up prices.  The number of active US oil rigs rose to the highest since November 2015 last week, according to Baker Hughes data, showing drillers are taking advantage of oil prices above $50 a barrel.  Global benchmark Brent crude oil prices were down 5 cents at $55.47 a barrel at 1226 GMT, while US crude futures traded up 9 cents at $53.26.  “Brent’s performance is flat at the moment but we have three factors that have been weighing on prices: the stronger US dollar, the steady increase in US rig counts and the (latest OPEC compliance data),” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.  The Organization of the Petroleum Exporting Countries and other producers including Russia agreed to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2017 to relieve a two-year supply overhang.  First indications of compliance to that deal show that members have cut production by 900,000 barrels per day (bpd) in January, according to Petro-Logistics, a company that tracks OPEC supply.

Tamas Varga, analyst at PVM Oil Associates in London, said the news was “not very encouraging” because it implied that only 75% of the OPEC production cut target was being met.  Oil prices have remained above $50 a barrel since producers agreed the deal in December, incentivising drillers in low-cost US shale producing regions to ramp up activity.  “In our view the strong rise in US shale oil rigs is a good thing because it will be needed over the next three years as non-OPEC, non-US crude production continues to be hurt by the deep capex cuts both past and present in that segment,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.  He estimates the US rig count will continue rising at a rate of seven rigs per week over the first half of the year.  Iran’s oil minister Bijan Zanganeh said on Monday he expected oil prices to remain at around $55 a barrel this yes, according to Mehr news agency.

NAR – pending home sales bounce back in December

Pending home sales picked up in December as solid increases in the South and West offset weakening activity in the Northeast and Midwest, according to the National Association of Realtors (NAR).  The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 1.6% to 109.0 in December from 107.3 in November. With last month’s uptick in activity, the index is now 0.3% above last December (108.7).  A large portion of overall supply right now is at the upper end of the market. This is evident by looking at December data on the year-over-year change in single-family sales by price range. Last month, sales were up around 10% compared to December 2015 for homes sold at or above $250,000, while homes sold between $100,000 and $250,000 only increased 2.3%. Meanwhile, sales of homes under $100,000 were down 11.6% compared to a year ago.  Existing-home sales are forecast to be around 5.54 million this year, an increase of 1.7% from 2016, which was the best year of sales since 2006. The national median existing-home price in 2017 is expected to increase around 4%. In 2016, existing sales increased 3.8% and prices rose 5.2%.  The PHSI in the Northeast declined 1.6% to 96.4 in December, and is now 1.2% below a year ago. In the Midwest the index decreased 0.8% to 102.7 in December, and is now 3.4% lower than December 2015.  Pending home sales in the South rose 2.4% to an index of 121.3 in December and are now 0.5% above last December. The index in the West jumped 5.0% in December to 106.1, and is now 5.0% higher than a year ago.

December personal spending picks up

US consumer spending rose solidly in December as households bought motor vehicles and a range of services amid rising wages, pointing to sustained domestic demand that is likely to set the economy up for faster growth in early 2017.  The Commerce Department said on Monday that consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.5% after an unrevised 0.2% gain in November.  Economists polled by Reuters had forecast consumer spending climbing 0.5% last month. Consumer spending increased 3.8% in 2016 after rising 3.5% in 2015.  When adjusted for inflation, consumer spending increased 0.3% last month after rising 0.2% in November.  The data was included in the fourth-quarter gross domestic product report published on Friday. The economy grew at a 1.9% annual rate in the fourth quarter, restrained by a wider trade deficit.  Private domestic demand, however, increased at a solid 2.8% rate. The economy grew at a 3.5% rate in the third quarter.

With domestic demand rising, inflation showed some signs of picking up last month. The personal consumption expenditures (PCE) price index rose 0.2% after edging up 0.1% in November.  In the 12 months through December the PCE price index rose 1.6%, the biggest increase since September 2014. That followed a 1.4% increase in November.  Excluding food and energy, the so-called core PCE price index ticked up 0.1% after being unchanged in November.  The core PCE price index increased 1.7% year-on-year after a similar gain in November.  The core PCE is the Federal Reserve’s preferred inflation measure and is running below its 2% target. However, other inflation measures are above the PCE price indexes. The consumer price index (CPI) is currently at 2.1% on a year-on-year basis and the core CPI is up 2.2%.  Consumer spending last month was buoyed by a 1.4% jump in purchases of long-lasting manufactured goods such as automobiles. Spending on services increased 0.4%.  Personal income advanced 0.3% last month after nudging up 0.1% in November. Wages and salaries rebounded 0.4% after slipping 0.1% in November. Income increased 3.5% in 2016 after rising 4.4% in 2015.  Savings fell to $768.4 billion last month, the lowest level since May 2015, from $791.2 billion in November.

NAHB – new home sales post highest yearly total since 2007

Sales of newly built, single-family homes rose 12.2% in 2016 to 563,000 units, the highest annual rate since 2007, according to newly released data by the US Department of Housing and Urban Development and the US Census Bureau. New home sales fell 10.4% in December 2016 to a seasonally adjusted annual rate of 536,000 units.  “We are encouraged by the growth in the housing sector last year, and by the fact that builders increased inventory by 10% in anticipation of future business,” said Robert Dietz, chief economist of the National Association of Home Builders (NAHB). “NAHB’s forecast calls for continued upward momentum this year, with housing starts expected to rise 10% over the course of 2017.”  “To ensure sales continue to move forward in 2017, builders need to price their homes competitively, especially given that mortgage interest rates are expected to rise this year,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas.  The inventory of new home sales for sale was 259,000 in December, which is a 5.8-month supply at the current sales pace. The median sales price of new houses sold was $322,500.  Regionally, new home sales increased 48.4% in the Northeast. Sales fell 1.3% in the West, 12.6% in the South and 41% in the Midwest.

NAR – existing-home sales slide in December

Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors (NAR). Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).  In December, existing sales decreased 2.8% to a seasonally adjusted annual rate of 5.49 million in December from an upwardly revised 5.65 million in November. With last month’s slide, sales are only 0.7% higher than a year ago. The median existing-home price for all housing types in December was $232,200, up 4.0% from December 2015 ($223,200). December’s price increase marks the 58th consecutive month of year-over-year gains.  Total housing inventory at the end of December dropped 10.8% to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3% lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015). According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage surged in December to 4.20% from 3.77% in November. December’s average commitment rate was the highest rate since April 2014 (4.32%).

First-time buyers were 32% of sales in December, which is unchanged both from November and a year ago. First-time buyers also represented 32% of sales in all of 2016. NAR’s 2016 Profile of Home Buyers and Sellers — released in late 2016 4 — revealed that the annual share of first-time buyers was 35%.  On the topic of first-time- and moderate-income buyers, NAR President William E. Brown says Realtors look forward to working with the Federal Housing Administration to express why it is necessary to follow through with the previously announced decision to reduce the cost of mortgage insurance. By cutting annual premiums from 0.85% to 0.60%, an FHA-insured mortgage becomes a more viable and affordable option for these buyers.  “Without the premium reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face higher costs and between 30,000 and 40,000 would-be buyers will be prevented from entering the market,” he said.  Properties typically stayed on the market for 52 days in December, up from 43 days in November but down from a year ago (58 days). Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven% of homes sold in December were on the market for less than a month.  Inventory data from Realtor.com® reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in December were San Jose-Sunnyvale-Santa Clara, Calif., 49 days; San Francisco-Oakland-Hayward, Calif., and Nashville-Davidson-Murfreesboro-Franklin, Tenn., 50 days; and Billings, Mont., and Hanford-Corcoran, Calif., both at 51 days.

All-cash sales were 21% of transactions in December, unchanged from November and down from 24% a year ago. Individual investors, who account for many cash sales, purchased 15% of homes in December, up from 12% in November and unchanged from a year ago. Fifty-nine% of investors paid in cash in December. Distressed sales — foreclosures and short sales — rose to 7% in December, up from 6% in November but down from 8% a year ago. Five% of December sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 20% below market value in December (17% in November), while short sales were discounted 10% (16% in November).  Single-family home sales declined 1.8% to a seasonally adjusted annual rate of 4.88 million in December from 4.97 million in November, but are still 1.5% above the 4.81 million pace a year ago. The median existing single-family home price was $233,500 in December, up 3.8% from December 2015.  Existing condominium and co-op sales dropped 10.3% to a seasonally adjusted annual rate of 610,000 units in December, and are now 4.7% below a year ago. The median existing condo price was $221,600 in December, which is 5.5% above a year ago.

December existing-home sales in the Northeast slid 6.2% to an annual rate of 760,000, but are still 2.7% above a year ago. The median price in the Northeast was $245,900, which is 3.8% below December 2015.  In the Midwest, existing-home sales decreased 3.8% to an annual rate of 1.28 million in December, but are still 2.4% above a year ago. The median price in the Midwest was $178,400, up 4.6% from a year ago.  Existing-home sales in the South in December were at an annual rate of 2.25 million (unchanged from November), and are 0.4% above December 2015. The median price in the South was $207,600, up 6.5% from a year ago.

Existing-home sales in the West fell 4.8% to an annual rate of 1.20 million in December, and are now 1.6% below a year ago. The median price in the West was $341,000, up 6.0% from December 2015.

Trump tips Dow to 20K

After a brief hiatus, the Dow Jones Industrial Average resumed its march toward 20000, crossing the elusive milestone on Wednesday as President Donald Trump demonstrates his seriousness about fulfilling campaign promises of lower taxes, less regulation, and more fiscal spending.  The blue-chip index’s march to the psychologically-significant level has captivated Wall Street since Trump’s surprise election in November, and comes just 64 days after crossing the 19000 threshold for the first time ever. Opens a New Window.  The Dow flirted with the milestone for weeks, and came within a fraction of a point of 20K Opens a New Window.  on January 6, stalling as investors awaited more concrete evidence the president would follow through on the issues he championed on the campaign trail.  At 20000, the index is up 1,668 points since Election Day.  Strength in the materials and financials sectors helped push the Dow across the line after Trump on Tuesday gave the green light for the construction of the Keystone XL and Dakota Access Pipelines Opens a New Window.  – two projects that stalled under President Barack Obama’s administration. In recent days, Trump has also met with US business leaders, including the chief executives of the Big Three American automakers amid a push for more domestically-built automobiles.

Financial-sector stocks have also been a key element in the post-election rally that has led not only to Dow 20K, but fresh records on both the S&P 500 and the Nasdaq Composite indexes. While action in the sector cooled in recent weeks, improving global economic growth and consolidation in the US dollar/US Treasury yields has been a support for risk assets, said Dennis DeBusschere, senior managing director at Evercore ISI.  “A weak US dollar and an accommodative Fed are in the new administration’s best interest and as long as a significant policy ‘mistake’ is avoided, risk assets should move higher as economic growth improves,” he said.  Trump’s fiscal policies, though, are just one piece of the 2017 market puzzle. With expectations of added stimulus from Washington, policymakers down the road from the White House at the Federal Reserve are calculating the pace at which the short-term federal funds rate will need to increase to keep up with a growing economy while also not allowing it to overheat. The Fed in December said it expects three 0.25 percentage point rate increases this year, which it believes will allow inflation to move closer to the 2% target while the job-creation rate remains steady.

MBA – mortgage applications down

Mortgage applications increased 4.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2017. This week’s results included an adjustment for the MLK Day holiday.  The Market Composite Index, a measure of mortgage loan application volume, increased 4.0% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5% compared with the previous week. The Refinance Index increased 0.2% from the previous week. The seasonally adjusted Purchase Index increased 6% from one week earlier to its highest level since June 2016. The unadjusted Purchase Index increased 2% compared with the previous week and was 0.1% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 50.0% of total applications, the lowest level since July 2015, from 53.0% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.7% of total applications. The average loan size for purchase applications increased to $309,200, its highest level since December 16th, 2016.  The FHA share of total applications increased to 13.6% from 13.1% the week prior. The VA share of total applications increased to 12.2% from 12.1% the week prior. The USDA share of total applications remained unchanged from 0.9% the week prior.

Toyota pledges US jobs as Trump meets with Detroit’s auto CEOs

President Donald Trump hosted a meeting with the leaders of Detroit’s Big Three automakers Tuesday, keeping the focus on the car industry amid a push to create American jobs.  General Motors (GM) CEO Mary Barra, Ford (F) CEO Mark Fields and Fiat Chrysler Automobiles (FCAU) CEO Sergio Marchionne joined Trump at the White House, where regulatory reform, corporate taxes and trade were topics of discussion.  Also on Tuesday, Toyota made a separate announcement that its factory in Princeton, Ind., will add 400 jobs under a $600 million investment. The money will be used to modernize the facility and meet growing demand for the Highlander SUV, according to Toyota. The project will begin in the fall of 2019. “We have a very big push going to have auto plants and many other plants…built in the United States,” Trump said, adding that reducing taxes and unnecessary regulations are priorities.  Trump, who also met with CEOs of manufacturing heavyweights on Monday, has pressured automakers to invest in US factories. General Motors, Ford and Toyota (TM) have faced Trump’s ire for expanding production in Mexico. Automakers have sought to smooth relations with the new president, headlined by Ford’s decision to cancel the construction of a Mexican factory.  Mark Fields, the CEO of Ford, said the industry is encouraged by Trump’s economic proposals.  “We just had a great conversation with the president, and he is very focused on policies that will grow investment and jobs here in America and American industry and, of course, the automotive industry,” Fields said as he left the White House. “I think as an industry, we’re excited about working together with the president and his administration on tax policies, on regulation and on trade to really create a renaissance in American manufacturing.”

Wells Fargo customers to receive $50 million for overcharged mortgage fees

Borrowers who had a mortgage serviced by Wells Fargo between May 6, 2005 and July 1, 2010 could soon receive their share of a $50 million settlement, which stemmed from charges that Wells Fargo overcharged borrowers for Broker’s Price Opinions during the time period in question.  The settlement, which was initially announced in October, stems from a class action lawsuit against Wells Fargo.  The plaintiffs argued that Wells Fargo violated the law by charging borrowers more than the amount Wells Fargo paid for Broker’s Price Opinions. The lawsuit stated that Wells Fargo charged certain borrowers between $95 and $125 for the BPOs, instead of the typical cost of $50 or less.  Wells Fargo said in October, and again in a statement to HousingWire on Tuesday, that it believes did nothing wrong, but chose to settle the suit nonetheless.  “We believe our practices related to Broker Price Opinions were proper and disagree with the claims in the lawsuit, but we agreed to settle the matter to avoid further litigation,” a Wells Fargo spokesperson said. Now, the settlement is moving forward.  According to information provided by the plaintiff’s attorneys, the settlement applies to any borrower who had a mortgage serviced by Wells Fargo during the time period referenced and paid the elevated price for the BPO.  The attorneys stated that borrowers who qualify do not need to make a claim for their share of the settlement funds. A check will be mailed to class members at their last known address in Wells Fargo’s records, the attorney’s state.  If borrowers have moved, they are encouraged to go to the settlement’s website, found here, to submit their new address. The settlement is not yet finalized, the lawyers caution.  A hearing is scheduled for April 4, 2017 to approve the terms of the settlement.  If approved, the settlement funds will be sent out to the class members at an undetermined date.

Black Knight – First Look at December 2016

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

–  Foreclosure Rate Fell by 30% in 2016, Most Improvement Of Any Year on Record

–  ​​The inventory of loans in active foreclosure nationwide declined by more than 200,000 in 2016

–  Delinquencies were down 0.91% from November 2016 and 7.5% from December 2015

–  December’s 59,700 foreclosure starts represented a 24% decline from the same time last year

–  Pre-payment activity continues to slow, down 5.5% from November

Oil falls on signs of US output rise

Oil prices fell more than 1% on Monday as signs of a strong recovery in US drilling activity outweighed news that OPEC and non-OPEC producers were on track to meet output reduction goals set in December.  Global benchmark Brent crude prices were down 49 cents at $55 a barrel by 1441 GMT. US West Texas Intermediate (WTI) crude futures traded at $52.58 a barrel, down 1.2% from Friday’s close.  Ministers representing members of the Organization of the Petroleum Exporting Countries and non-OPEC producers said at a meeting in Vienna on Sunday that of almost 1.8 million barrels per day (bpd) they had agreed to be taken out of the market, 1.5 million bpd had already gone.  “A lot of this is already priced in and the US rig count keeps rising and gathering pace,” said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt.  US drillers added the most rigs in nearly four years last week, data from energy services company Baker Hughes showed on Friday.  This extends an eight-month drilling recovery, suggesting that US production will continue to rise strongly just as other producers are cutting output. “Baker Hughes said that 35 new rigs were activated last week, fueling fears of a significant rise in US production, which would offset the reduction by OPEC – and making a mockery of the Saudis’ claim that they had managed to break the US shale drillers,” said Ashley Kelty, research analyst at Cenkos Securities.  US oil production has risen by more than 6% since mid-2016, though it remains 7% below the 2015 peak. It is back to levels of late 2014, when strong US crude output contributed to a crash in oil prices. Yet there was bullish news from Libya, where an electrical fault at the Sarir oil field has resulted in a 60,000 bpd cut in production, the head of the National Oil Corp said in London.  Oil market speculators added to bullish bets last week, showing increased optimism about higher prices.  Equatorial Guinea, a signatory of the production cut deal, said on Monday that it had made an application to become OPEC’s 14th member.

Trump shows he’s serious about deregulation

Trump’s administration wasted no time making good on some of his campaign promises, with the Department of Housing and Urban Devlopment suspending the reduction of FHA Mortgage Insurance Premiums one hour after Trump was sworn in. The Obama administration had just announced the cut to the FHA premiums on Jan. 9.  But a more telling regulatory move was the one Trump took Friday night when he signed an executive order seeking to repeal the Affordable Care Act. An exectuve order doesn’t change the existing law, but does change the enforcement of the law, a course of action that could just as easily be applied to mortgage legislation like Dodd-Frank. From a CNN article:  “It directs the secretary of health and human services, as well as other agencies, to interpret regulations as loosely as allowed to minimize the financial burden on individuals, insurers, health care providers and others.  It stressed that agencies can “waive, defer, grant exemptions from or delay implementation of any provision or requirement” of Obamacare that imposes a burden “to the maximum extent permitted by law.”

On Sunday, Politico reported that Senate Majority Leader Mitch McConell believes Republicans had the votes to confirm all of Trump’s cabinet, which includes Steven Mnuchin for Treasury Secretary and Ben Carson as HUD Secretary. The Senate has already confirmed James Mattis as defense secretary and John Kelly as homeland security secretary.  After lots of handwringing beforehand by people worried about his housing resume, Carson’s Senate confirmation hearing was mostly tame, but Mnuchin, a former executive at Goldman Sachs and chairman of OneWest Bank, formerly IndyMac, was not so lucky. Mnuchin was put through a blistering round of questions from Democrats, including a scolding speech from Sen. Elizabeth Warren, D-Mass.  Warren and other Democrats had solicited complaints from those who had been foreclosed on by OneWest and planned to have them testify during Mnuchin’s hearing, but Sen. Orrin Hatch blocked them from testifying. Mnuchin vigorously defended the actions of OneWest during the foreclosure crisis, noting that the bank tried to do loan modifications whenever possible and pointing out that he was not responsible for originating the loans.

Trump says to start renegotiations on Nafta with Canada, Mexico

US President Donald Trump said on Sunday he plans talks soon with the leaders of Canada and Mexico to begin renegotiating the North American Free Trade Agreement.  “We will be starting negotiations having to do with NAFTA,” Trump said. “We are going to start renegotiating on NAFTA, on immigration and on security at the border.” Trump pledged during his presidential campaign that if elected he would renegotiate the NAFTA trade pact to provide more favorable terms to the United States.  NAFTA, which took effect in 1994, and other trade deals became lightning rods for voter anger in the US industrial heartland states that swept Trump to power this month.  Trade experts, academics and government officials say Canada and Mexico will also seek tough concessions and that NAFTA’s zero-tariff rate would be extremely difficult to alter. Any renegotiation would likely take several years, they say.  Trump said he would be meeting with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto to begin work on overhauling the deal.  He praised Pena Nieto, who has faced low popularity in Mexico due to corruption scandals and rising inflation. “The president has been really amazing,” Trump said. “I think we are going to have a very good result for Mexico, and the United States, and everybody involved.”  Critics of Pena Nieto say he lacks a clear plan to counter Trump’s calls to limit trade and deport illegal immigrants.  Trump has said little about what improvements he wants, apart from halting the migration of US factories and jobs to Mexico. Since winning the Nov. 8 election, Trump has singled out and threatened to impose tariffs on US companies that move any production to Mexico.  He has also intends to build a wall along the US southern border to deter illegal immigration and insisted that Mexico will pay for it.

Is Trump’s suspension of FHA mortgage insurance premium cut good or bad?

The Department of Housing and Urban Development’s decision to suspend the reduction of Federal Housing Administration mortgage insurance premiums didn’t come as a shocker.  FHA mortgage insurance premiums have been under heightened scrutiny ever since the FHA’s flagship fund, the Mutual Mortgage Insurance Fund, reached its Congressionally mandated threshold of 2% ahead of schedule in November 2015.  The news came as a surprise since the MMIF reaching 2% went directly against speculation that Former President Obama’s decision in January 2015 to reduce the FHA’s annual mortgage insurance premiums by 50 basis points would negatively effect the health of the MMIF.  Then, in January of this year as the Obama administration prepared to leave office, FHA announced that it was cutting its annual mortgage insurance premiums again.  But after Ben Carson, Trump’s choice to lead the Department of Housing and Urban Affairs, appeared last week before the Senate Committee on Banking, Housing, and Urban Affairs, the likelihood that the cut would take effect on Jan. 27 quickly diminished.  And on top of that, there are rumors that the Trump administration would do more than just “examine” the FHA premium cut once Trump is sworn on.

The controversy and uncertainty surrounding FHA MIPs has left the industry divided.  “We recognize the Administration’s need to examine the overall health of the insurance program and weigh that against the benefits of lowering mortgage insurance premiums. Given that lenders have already started preparing for the MIP decrease, it is important that any new policy be implemented in a way that minimizes disruption for borrowers and lenders,” said David Stevens, president and CEO of the Mortgage Bankers Association.  Scott Olson, the Community Home Lenders Association’s executive director, is hopeful that the cut will stick around after review.  “Based on the prior administration’s lack of communication on the FHA premium reduction, we believe the decision to review such action prior to implementation is prudent. We are confident the review will support a premium cut,” said Olson.  “Our hope is the Administration will conduct a comprehensive review of housing policies and implement changes that will help millions of Americans who have been left out of homeownership for far too long,” continued Olson.  The cut will have an impact on future borrowers said National Association of Realtors President William Brown, “According to our estimates, roughly 750,000 to 850,000 homebuyers will face higher costs and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut. We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”  “We hope HUD and the Trump administration will make it a priority to quickly review the reduction in the FHA mortgage insurance premium,” said California Association Of Realtors President Geoff McIntosh. “Homebuyers in California, who would have saved an average of $860 a year, will be negatively impacted more than any other state by the decision to not reduce the FHA premium.

NAHB – nationwide housing production up 11.3% in December on multifamily surge

A surge in multifamily production resulted in overall nationwide housing starts rising 11.3% to a seasonally adjusted annual rate of 1.23 million units, according to newly released data from the US Department of Housing and Urban Development and the US Census Bureau. Single-family starts dropped 4% to a seasonally adjusted annual rate of 795,000 units.  “Despite the slight dip in single-family production, December’s rate is still the fourth highest single-family pace since the Great Recession, and single-family starts also posted solid gains for the year,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. “Builders remain confident and we expect further growth in the single-family market in the year ahead.”  “This report represents firm growth for housing in 2016, as single-family starts rose 9% and multifamily production was down slightly,” said NAHB Chief Economist Robert Dietz. “We expect that 2017 will be another year of gradual, steady improvement in the housing market. Multifamily starts have been volatile in recent months, but should level off as supply meets demand. Meanwhile, single-family production continues to gain momentum but is limited by supply-side headwinds.”  Multifamily production jumped 57% to 431,000 units in December. However, the monthly data for apartment production has exhibited strong volatility since August. Regionally in December, combined single- and multifamily housing production rose 31.2% in the Midwest, 23.5% in the West and 18.5% in the Northeast. The South posted a loss of 1.4%.  Overall permit issuance edged 0.2% lower in December to 1.21 million units. Single-family permits rose 4.7% to 817,000 units, which was the highest level in 2016. Meanwhile, multifamily permits fell 9% to 393,000 units. Regionally, permits rose 3.3% in the West, 2.7% in the Northeast and 0.5% in the Midwest. The South registered a decline of 2.9%.

Wall Street opens higher ahead of Trump inauguration

As of 9:33 a.m. ET, the Dow Jones Industrial Average was 80 points higher, or 0.40% to 19812, the S&P 500 gained 8 points, or 0.34% to 2271, while the Nasdaq added 18 points, or 0.32% to 5557.  US stocks looked set to advance on Friday, with investors counting down to Donald Trump’s inauguration as the 45th president of the United States.  Trump, a New York businessman and former reality TV star, is scheduled to be sworn in around midday by Supreme Court Chief Justice John Roberts in Washington.  Investors will focus on Trump’s inaugural speech to get more insight into his economic policies.  “All eyes will be on the content and style of Trump’s inauguration speech,” Morgan Stanley strategists led by Hans Redeker wrote in a note. “The more ‘Presidential’ this speech comes across, the better the outcome for markets.”  Trump’s campaign promises of tax and regulatory reforms and higher infrastructure spending had driven Wall Street to multiple highs post-election.

RealtyTrac – FHA buyers could save an average of $446 annually with proposed mortgage insurance premium cut

ATTOM Data Solutions, curator of the nation’s largest fused property database, today released an analysis that found that borrowers across the country could potentially save an average of $446 a year under the new mortgage insurance premium reduction set to take effect later this month for loans backed by the Federal Housing Administration.  Based on a 2016 median sales price of $185,000 nationwide for homes sold to buyers using an FHA loan, a monthly house payment — including property insurance and property taxes — at the current annual FHA insurance premium of 85 basis points would be $1,205. With the proposed FHA insurance premium of cut of 25 basis points bringing the annual insurance premium down to 60 basis points, the monthly payment on the same median-priced home would be $1,168, a difference of more than $37 a month and $446 a year. Over five years the average savings would add up to $2,232, and over 10 years the average savings would add up to $4,463.  Among 444 counties with a population of at least 100,000 and sufficient home price data for sales using FHA loans, those with the biggest potential annual savings resulting from the premium reduction would be Santa Clara County (San Jose), California ($1,448); Honolulu County, Hawaii ($1,399); Maui County, Hawaii ($1,276); Alameda County, California in the East Bay ($1,267); and Santa Cruz County, California ($1,253). There were a total of 13 counties with average annual savings of $1,000 or more.

Among those same counties, those with the smallest potential annual savings resulting from the premium reduction would be Bay County, Michigan ($193); Saginaw County, Michigan ($205); Trumbull County (Youngstown), Ohio ($213); Rock Island County, Illinois ($238); and Peoria County, Illinois ($241).  “The last FHA premium cut two years ago helped to trigger a relatively short-term jump in home sales to FHA buyers, who are typically first time homebuyers without much saved up for a down payment,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Prices of homes backed by FHA loans also accelerated higher in the wake of that last premium cut, although that premium cut occurred concurrently with a drop in mortgage rates, a scenario that is less likely this time around.”  Home sales with FHA-backed loans rose to a more than six-year high of 168,992 in Q3 2015 following a previous cut to the FHA insurance premium in January 2015. Following that 50 basis point reduction, the share of home sales using FHA loans increased for three consecutive quarters, from 12.5% in Q4 2014 to 16.7% in Q3 2015. Since Q3 2015, the share of FHA home sales has basically flat-lined between 15 and 16%.  Prices of homes financed with FHA loans accelerated following the 2015 premium cut. Median home prices for FHA loan-backed home sales increased 5% on a year-over-year basis in Q1 2015, but that annual appreciation doubled to 10% in Q2 2015 before slowly drifting back to the 5% annual appreciation in Q3 2016.

Foreclosure rates on FHA-backed loans have historically trended higher than foreclosure rates on all other loans. ATTOM Data Solutions data shows that 1.07% of all FHA loans were actively in some stage of foreclosure as of the end of 2016, nearly twice the foreclosure rate of 0.54% on all other loans. The elevated foreclosure rate on FHA-backed loans has stayed fairly consistent historically, but the gap has narrowed and widened somewhat depending on loan vintage.  Some contend that the previous FHA premium cut did not reach its intended goals of giving buyers an average of $900 in additional purchasing power or incenting an additional 250,000 home buyers in the three years following the cut. An analysis by the American Enterprise Institute of property-level FHA and conventional loan data in 23 counties across 12 states from ATTOM Data Solutions concludes that:  “… about half of the additional purchasing power from the premium cut either was lost through price increases or used by buyers to go up-market.  A second key result is that FHA is not on track to reach its stated goal of spurring 250,000 first-time buyers to purchase homes over the three years after the premium cut.  Although FHA’s first-time buyer volume increased about 180,000 in the first year after the cut, only an estimated 35,000 of those buyers were incentivized by the lower premium to enter the market. The remainder were either poached from other government agencies or represented trend growth in the market unrelated to FHA’s premium cut.”

Uber pays $20 million to settle claims of driver deception

Uber Technologies is paying $20 million to settle allegations that it duped people into driving for its ride-hailing service with false promises about how much they would earn and how much they would have to pay to finance a car.  The agreement announced Thursday with the Federal Trade Commission covers statements Uber made from late 2013 until 2015 while trying to recruit more drivers to expand its service and remain ahead of its main rival, Lyft.  The FTC alleged that most Uber drivers were earning far less in 18 major US cities than Uber published online. Regulators also asserted that drivers wound up paying substantially more to lease cars than the company had claimed.  “Many consumers sign up to drive for Uber, but they shouldn’t be taken for a ride about their earnings potential or the cost of financing a car through Uber,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.  In a statement, Uber said it’s pleased to resolve the dispute.  “We’ve made many improvements to the driver experience over the last year and will continue to focus on ensuring that Uber is the best option for anyone looking to earn money on their own schedule,” the San Francisco company said.  Most of the proceeds from Uber’s settlement will be paid out to drivers. Documents filed in San Francisco federal court didn’t spell out how many people will get a cut of the settlement or what the average payment will be.  Uber has grown into a cultural phenomenon largely by undercutting the prices typically charged by taxis with rides that can be quickly summoned on its smartphone app.  To ensure cars are widely available, Uber has persuaded hundreds of thousands of people in the US to become drivers by dangling the lure of making money at any time that’s convenient for them. The drivers are treated as independent contractors, another contentious issue because the classification excludes them from many of the benefits and protections given to full-time employees.

NAHB – remodeling market optimism remains positive in fourth quarter

The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 53 in the fourth quarter of 2016, a decrease of four points from the previous quarter, but on par with levels seen in the first half of 2016. Remodeler confidence has held firm in positive territory for 15 straight quarters.  An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.  “Many remodelers are seeing consumers commit to larger, long-term home improvement projects,” said 2017 NAHB Remodelers Chair Dan Bawden, CAPS, GMB, CGR, CGP, a remodeler from Houston. “As Americans are seeing wages and home values rise overall, it gives them greater confidence to go ahead and invest in their homes.”  Returning to levels seen early last year, the RMI’s current market conditions index dipped to 53, down three points from the previous quarter. Among its components, major additions and alterations waned one point to 53, demand for smaller remodeling projects decreased by four points to 52, and the home maintenance and repair component declined by five points to 54.  The index measuring future market indicators reached 52, about the same level as early 2016, but six points lower than in the third quarter. Among its four components, calls for bids and appointments for proposals fell to 49 and 54, respectively, the backlog of remodeling jobs dropped three points to 55, and the amount of work committed declined five points to 50.  “At 53, the Remodeling Market Index is consistent with NAHB’s forecast that remodeling market activity will continue to grow over the next two years, but at a more moderate annual rate of 1 to 2%,” said NAHB Chief Economist Robert Dietz.

Home » Trump’s Treasury pick defends past foreclosure practices at Senate hearing

President-elect Donald Trump’s Treasury pick Steven Mnuchin took the stand yesterday at his senate hearing, which focused heavily on Mnuchin’s role as chairman of OneWest Bank.  The Senate Finance Committee met today for Mnuchin’s hearing for the Treasury secretary nominee. During the hearing, Democrats continued to ask the “foreclosure king” about his role in his bank’s foreclosures during the housing crisis.  But Mnuchin was quick to defend his actions, saying that his bank always preferred to perform loan modifications when possible, which brought in more income for the bank than a foreclosure.  In fact, even before the hearing Movement Mortgage CEO Casey Crawford defended Mnuchin, saying he was not a foreclosure king.  In fact, he said he inherited most of the loans he closed on, rather than created them himself.  Mnuchin’s foreclosures is clearly a topic of concern for many of the Senators. In fact, Banking Committee Ranking Member Sen. Elizabeth Warren, D-Massachusetts, posted her frustration of Mnuchin’s actions on her Twitter feed.  Mnuchin claimed that his bank made “every effort” to prevent foreclosures during his time there.  While his time at OneWest was a main topic for the hearing, sentors also touched on other topics, such as the future of the Consumer Financial Protection Bureau. However this topic received less than a minute of time during the hearing.  Mnuchin responded that while he believed the CFPB needed to stay, but said how it is funded should change.  When asked how he would revive community banks by Senator Bill Cassidy, R-Louisiana, Mnuchin answered that he is very concerned that the regulatory costs put community banks out of business.  “If we want to have economic growth…we need to have banks,” Mnuchin said. “Those banks understand the people in the community and can make good loans.”  Mnuchin also touched on mortgage giants Fannie Mae and Freddie Mac, stated that he is not in favor of recap and release, but would rather find a more bi-partisan solution. Read more on that here.  The committee also touched on tax reform, which Mnuchin says he wants to simplify, and Trump’s conflict of interests in his businesses.

Zillow – what could flattening rents mean for 2017?

–  Home values rose 6.8% over the past year to a Zillow Home Value Index of $193,800 in December.

–  Rents rose 1.5% over the past year to a Zillow Rent Index of $1,403 per month.

–  Portland and Seattle each ranked in the top three for the fastest-appreciating rents and home values.

A months-long streak of accelerating home value growth was met with an equally long stretch of flattening rents to end 2016, a trend with interesting implications for the housing market as a whole as attention turns to the busy 2017 home shopping season to come.  The median US home value climbed to a Zillow Home Value Index (ZHVI) of $193,800 in December, up 0.6% from November and 6.8% from the end of 2015, according to the December Zillow Real Estate Market Reports. National home values have grown year-over-year for 53 straight months, and the annual appreciation recorded in December was the fastest such pace since July 2006. After stabilizing somewhat at the end of 2015 and into the start of 2016, the annual pace of national home value appreciation has accelerated in each of the past seven months compared to the month prior.  At the same time, median US rents in December were unchanged from November and up just 1.5% from the end of 2015, to a Zillow Rent Index (ZRI) of $1,403 per month. At $1,403 per month, national median rents are exactly where they were in April. Essentially, over the final three quarters of 2016, rents flattened and home value growth accelerated.

Zillow expected rents to flatten in 2016, and it will have lasting impacts on the market going forward. The headline trend from 2016 is one of very high demand from home buyers, driven by millennials aging into their prime home-buying years, a generally stable and healthy economy and solid wage gains. The rental market, too, played a role in this demand: When rents were rising at a faster clip, it’s likely many renters pursued homeownership as a means of stabilizing their monthly housing costs. And thanks to low mortgage interest rates and home values that still remain below pre-recession peak levels in many areas, the monthly costs associated with a mortgage were not only more stable than rents, but also a lot lower for many, furthering incentivizing many renters to become homeowners.  But the supply of homes available for sale has largely been inadequate to meet this high demand, for several reasons. Builders have been slow to fully ramp back up to pre-recession levels, and what construction there has been has focused on the more-profitable higher end of the market or on multifamily projects. Negative equity, even as it falls consistently, could be keeping as many as one quarter of mortgaged homeowners from realistically listing their homes for sale. And otherwise “normal,” would-be sellers are not listing their homes for sale, perhaps fearing rising mortgage interest rates making it more expensive to purchase a new home of comparable size, or a musical chairs-type situation in which many don’t list a home for sale for fear of not finding one to buy.

Slower rental growth now and going forward may take some of the heat off those renters thinking of buying a home just to escape the volatility of steep annual rent hikes. They may still choose to transition into homeownership, but may feel like they have a bit more time to save or to be more patient to wait for the home that’s right for them to hit the market. This, in turn, could lead to a small softening in demand, enough to potentially take some of the frenzy out of the market, with homes potentially staying on the market a bit longer and some of the rampant bidding wars the market is experiencing beginning to fade away. And this softening in demand, however slight, could lead to slower home value growth – and as home value growth slows, those homeowners waiting to sell until they could extract maximum profit from their home might be more tempted to begin doing so.  Flattening rents could also lead developers to re-focus their attentions. In the immediate aftermath of the recession, when rents were still growing and home value growth was weak, large developers focused on larger rental and multifamily projects. This was done in part to capitalize on high rental demand from millions of foreclosed upon and displaced former homeowners. As those developments begin to come on line, the added supply is contributing to flattening rents, which leads to less urgency to begin new rental projects. As a result, the pendulum could again swing back toward more single-family and for-sale development, which will help ease supply constraints.

Finally, the prospect of rising mortgage interest rates and still-growing home values will likely erode some of the affordability advantages of owning a home versus renting. As of the third quarter of 2016, the typical US home buyer could expect to spend roughly 14% of their income on a monthly mortgage payment, compared to 29% of income for a typical renter. But that affordability advantage comes when we assume 30-year, fixed mortgage interest rates of roughly 4%. If/when rates rise to 5%, and assuming home value growth in line with our forecasts, home buyers will need to spend 17% of their income on a mortgage. At 6% mortgage rates, buyers would need to spend 20% of their income on a mortgage. Rising mortgage rates and continued home value appreciation won’t entirely erase the financial advantages of owning over renting, but the gap can be expected to get noticeably narrower.  Looking ahead, 2017 is nothing if not a blank slate. We simply don’t know yet the extent to which these emerging trends may impact the market, if at all, or if other unforeseen factors will begin tilting the market away from sellers and toward buyers, or toward renters and away from homeowners. Right now, the trends that helped define 2016 are continuing to impact the start to 2017. It will likely be a few months yet – just in time for the start of the busy spring and summer home shopping months – before we can begin to measure the impacts of these changing dynamics. But if anything, this should serve as a reminder that even when the data seems unrelated, the housing market is interconnected and complex and very few things happen in a vacuum.

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