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MBA – rates drop, refi applications surge in latest MBA weekly survey

Mortgage applications increased 9.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 5, 2016.  The Market Composite Index, a measure of mortgage loan application volume, increased 9.3% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 12% compared with the previous week.  The Refinance Index increased 16% from the previous week.  The seasonally adjusted Purchase Index increased 0.2% from one week earlier. The unadjusted Purchase Index increased 7% compared with the previous week and was 25% higher than the same week one year ago.  The refinance share of mortgage activity increased to 61.2% of total applications from 59.2% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4% of total applications.  The FHA share of total applications decreased to 12.3% from 12.9% the week prior. The VA share of total applications remained unchanged from 11.1% the week prior. The USDA share of total applications decreased to 0.6% from 0.7% the week prior.

WSJ  – ‘doom loop’ fears cast pall over bank shares

Bank stocks led an intensifying rout in financial markets, amid concerns that global central banks struggling to boost growth will worsen an already tough environment for lenders.  The Dow Jones Industrial Average closed down 254 points on Thursday, and US oil prices fell near $26 a barrel, in a broad flight from risk that sent haven assets climbing. Gold gained 4.5% to its highest level in a year. Bond prices rose, sending the yield on the 10-year US Treasury note, which tends to decline when investors get nervous, to its lowest level since May 2013.  Selling continued in Asia Friday, with Japan’s benchmark stock index down more than 5% at midday to its lowest level in more than a year. Stocks in Hong Kong and Australia also fell.  The recent pressure reflects concerns that investors have wrestled with for months, including falling commodity prices, a slowdown in China and heavy debt loads in emerging markets. What is new is that investors are now worrying that banks are being caught in the middle as central banks in Europe and Japan turn to negative interest rates to spur growth.  Those policies, which charge lenders for reserves they keep on deposit with central banks, are crimping lenders’ profits and amplifying fears of a wide economic slowdown. At the heart of the concerns is an alarming conundrum: While hobbled banks may not be able to tolerate rates this low, limping economies may not be able to tolerate them any higher.

The “doom loop” that sent eurozone banks and countries into a spiral of mutual deterioration four years ago could now be encircling central banks and lenders.  “The markets see this club of central bankers barreling down this path, which is really experimental for a number of reasons and doesn’t seem well thought out in terms of the impact it could have,” said Scott Mather, chief investment officer US core strategies at Pacific Investment Management Co., or Pimco.  Bank shares plunged on both sides of the Atlantic, with Bank of America Corp. down 6.8% and Credit Suisse Group AG falling 8.4%. The KBW Nasdaq Bank Index of large US lenders fell 4.2%.  For battered banks in Europe and beyond, negative rates come at the worst possible time. Regulations implemented after the financial crisis are making banks simpler and more resilient, but revenue streams have been cut off, and stock, bond and commodity trading is less profitable. Large fines at many banks for past misdeeds have held back capital building.  Now, subzero rates are threatening their most traditional source of income: the difference between what a bank earns from lending and the amount it pays for deposits. Instituting a negative deposit rate drags down other interest rates in the wider economy, making borrowing cheaper.  Investors said the recent rate moves into negative territory by central banks in Europe and Japan are an important ingredient in the cocktail of fears hammering bank stocks around the world. At the heart of concerns that European banks could stop paying interest, or coupons, on their riskiest debt, or will need to raise new equity, is a sectorwide decline in profitability that shows no signs of easing.

Economists at J.P. Morgan Chase & Co. warned this week that banks might respond to negative rates by hoarding cash and cutting lending, although that hasn’t been the case yet in countries with negative rates, including Switzerland, Denmark and those in the eurozone.  The European Central Bank cut rates further into negative territory in December, while the Bank of Japan introduced a negative rate last month. Some smaller nations have gone further, with Sweden’s central bank lowering its main interest rate to minus-0.5% on Thursday.  Meanwhile, on Thursday, Federal Reserve Chairwoman Janet Yellen said the US central bank is studying the feasibility of pushing short-term interest rates into negative territory should it need to give the economy a stronger boost.  In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.  It appears that wager isn’t working.

The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.  Moreover, central banks have few other levers to escape that doom loop. The ECB has instituted a bond-buying program, but President Mario Draghi last month indicated he was ready to launch additional monetary stimulus in March. Japan’s decision to implement negative rates follows three years of aggressive monetary easing, aimed at ending two decades of low inflation and stagnant growth.  The pushes into negative territory also amount to a sort of competitive currency war that no one seems willing to call off.  Major economies around the world are desperate to spur inflation; one way to do that is to cut interest rates, which typically would make their currencies less attractive. Lower currencies raise the prices of imported goods and boost the fortunes of exporters.  Switzerland, Sweden and Denmark have all used negative rates to help ward off inflows of foreign funds that push up their currencies. Economists said an aim of the Bank of Japan’s move to negative rates last month was to weaken the yen. It hasn’t worked: The yen shot up Thursday and is stronger than it was before the rate cut.

The move below zero compounds the miseries for lenders in those countries. Banks traditionally make a profit by lending at higher interest rates than the rates they pay on deposits, a difference called the net interest margin. Low rates have already squeezed that margin, and banks’ funding costs from other sources, such as bond markets, have surged this year.  German banks earn roughly 75% of their income from the margin between rates on savings accounts and the loans they make, according to statistics from the Bundesbank, the country’s central bank. Plunging rates dragged German banks’ interest revenue down to €204 billion ($230 billion) in 2014 from €419 billion in 2007, according to the Bundesbank.  Negative rates cost Danish banks more than 1 billion kroner ($151 million) last year, according to a lobbying group for Denmark’s banking sector.  The impact is showing up in lackluster bank earnings. Shares in Italy’s UBI Banca SpA tumbled 12% Thursday after it reported net interest income below expectations. Bank analysts said further surprises to investors’ expectations on bank margins are possible. U.K. banks HSBC Holdings PLC and Standard Chartered PLC are poised to benefit from higher US rates, but further rises by the Federal Reserve are looking less likely.

For now, one factor working in banks’ favor is that negative rates touch only a small piece of their balance sheets. Even for the cash they do have at central banks, a host of rules exempts portions of those reserves from the negative-rate penalty. So far, just 2.2% of banks’ assets in the eurozone are subject to negative rates imposed by the ECB, according to Alex Dryden, a global market strategist at J.P. Morgan Asset Management. In Japan, the figure is just 0.9%.  “Negative interest rates on a benchmark basis are not the final frontier. Only when negative rates begin to impact consumers and the real economy will we be entering a topsy-turvy world,” Mr. Dryden said.  More deeply negative rates would force banks to make a choice: Either suffer an even greater hit to their margins or risk scaring off customers by passing on negative rates to them. Either outcome would mean more pain for the banking sector.  Philippe Bodereau, global head of financial research at Pimco, said he doesn’t expect that to happen in the eurozone, because the ECB will be wary of sparking a crisis in the banking sector that spreads to the real economy.  “We would be very surprised if the ECB went into a deeply negative interest rate as this would raise concerns over financial stability,” he said.

CoreLogic – deciphering the code of the millennials – part I

In a recent CoreLogic Insights Blog, Chief Economist Frank Nothaft discussed the impact of millennials on the housing market. As a follow-up, this edition will share perspectives on where millennials purchase homes based on CoreLogic research data.  Millennials are a key demographic for real estate marketing.  The millennial population size exceeds the baby boomer population and is now at the prime home-buying age.  However, current trends show that many in this demographic are choosing to rent rather than purchase a home so it’s important to understand their buying behaviors in order to tap into this large pool of prospective homebuyers. To review these behaviors, CoreLogic analyzed over 70 metrics associated with mortgage purchases by millennials across the nation over the past year. The research shows that millennials are buying in markets they can afford, and specifically, where there are good paying jobs and home prices are low.  CoreLogic ranked all counties with a population greater than 200,000 to determine the percentage of millennial mortgage applications.  Millennials are more likely to purchase homes in the middle of the US where home prices are more affordable rather than along the coasts where homes prices are higher.  The amount that millennials make is not as much of a factor as the affordability of the housing market.  This is most likely due to the higher percentage of millennial first-time buyers with limited equity for the down payment.  The top ten counties have a higher mean millennial income level compared to counties with comparable housing markets.  Additionally, the top ten counties contain mortgages in which the borrower has a higher front-end ratio, which highlights affordability as the driving factor for millennials.

One might anticipate that the top millennial home buyer markets would have a higher rent-to-mortgage monthly cost ratio such that it would be cheaper to pay rent than monthly mortgage. On the contrary, the rent-to-mortgage cost ratio is similar in the top ten and the bottom ten counties.  This suggests the monthly mortgage payment is not a factor keeping millennials from purchasing homes but rather the initial cost.  Many millennials face the challenge of having low to no credit or not having the down payment to qualify for the loan. It is also probable that many millennials do not even apply for loans because of a false perception that they will not qualify.  Another factor is that millennials are more likely to purchase a home when they move away from their hometown.  More specifically, when moving to an area with a higher concentration of millennials.  Two main factors that contribute to people moving are job opportunities and college with job opportunities being the main driver. Although there are a few counties in the top ten list known for colleges, a majority of the areas are not college destinations.  For example, Denver is not a college town but does have more job opportunities than other regions in the area.  However, there are many nearby areas with colleges (Boulder, Fort Collins, and Colorado Springs), which contributes to millennials leaving their hometown.  Denver is the closest region known for high paying jobs and is a great opportunity for millennials to stay in Colorado after graduation.  Millennials are also purchasing homes in counties that neighbor larger cities such as Utah and Weber UT, Weld, CO, and Clay, MO.  As millennials move to larger urban areas, many are finding more affordable housing in bordering counties and choose to purchase there while still taking advantage of job opportunities and amenities in the larger metropolitan area.

Understanding the specifics of where this important demographic group is buying homes sheds light on the patterns and trends that will determine the millennials’ impact on the housing market. One thing is for certain, they aren’t  their parents when it comes to buying a home.

Consumer sentiment falls

Consumers are feeling less optimistic than expected so far this month as they weigh inflation rates and the pace of wage gains, a survey said Friday. The Index of Consumer sentiment hit 90.7 in February’s preliminary reading, according to estimates by the University of Michigan. Analysts expected a reading of 92, down from January’s preliminary 93.3 and even with January’s final reading of 92, according to Thomson Reuters consensus estimates.  “While slowing economic growth was anticipated to slightly lessen the pace of job and wage gains, consumers viewed their personal financial situations somewhat more favorably due to the expectation that the inflation rate would remain low for a considerable period of time,” the survey’s chief economist, Richard Curtin, said in a statement.  A closely-followed barometer of economic health, the survey measures consumers’ attitudes toward current economic conditions and future expectations. Both edged downward for the month, though Curtin said a less favorable outlook for the economy during the year ahead was balanced by steady longer term prospects.  Consumers’ assessment of current economic conditions ticked down slightly to 105.8, from 106.4 at the end of January. The index of future expectations dropped to 81 from 82.7.  February’s falling consumer sentiment came despite retail sales gaining momentum in January, spurred by a stronger labor market, Reuters reported from separate data.  “No one would have guessed forty years ago, when high inflation was the chief cause of pessimism, that consumers would someday base their optimism on ultra-low inflation transforming meager wages into real income gains,” Curtin said.

Stockton report – even reverse mortgages can end in foreclosures

On a slew of TV commercials, the reverse mortgage may sound like the ticket to a modest but relatively stress-free retirement.  But in real life, these mortgages have been a route to foreclosure for more than 1,200 New Jersey residents over the last decade, a new report from Stockton University’s William J. Hughes Center for Public Policy has found.  David Carr, a political science professor, is the author of “Reverse Mortgages in New Jersey: A Bridge Over Troubled Waters.” He found that since 2005, more than 29,000 people in the state have gotten reverse mortgages, or loans that the homeowner doesn’t pay — the lender instead gives them a monthly check as a portion of the equity they’ve built up in their homes over the years.  Those payments are tax free, but homeowners have to keep up their property taxes, insurance and other maintenance expenses, or else face foreclosure. Also, once a reverse mortgage has started, Carr emphasizes, the owner has to maintain that home as a principal residence.

If the owner leaves for a year or more, “even for medical reasons,” including to go to an assisted-living facility, “the reverse mortgage loan may become due and payable,” Carr’s report warns.  Ocean County leads New Jersey by far with the number of reverse mortgages, according to the research.

WSJ – farmland values fall in much of central US

Farmland values dropped across much of the US Midwest in the fourth quarter, according to reports from the Federal Reserve on Thursday, a symptom of continued weakness in the agricultural sector fueled by several years of depressed crop prices.  Average farmland prices in the Federal Reserve Bank of Chicago’s district, which includes Illinois and Iowa, fell 3% from a year earlier and slipped 1% from the third quarter of 2015, officials said.  In the St. Louis Fed’s district, which is composed of parts of Illinois, Indiana and Missouri, prices for farmland fell 2.5% compared with a year ago, as farm incomes slid, the bank said.  In the Kansas City Fed’s district, which includes Kansas and Nebraska, nonirrigated cropland values sank 4% from a year before, while the average price of irrigated land declined 2%, the bank said. Irrigated farmland, which is common in the region, depends on man-made water systems for moisture rather than rainfall.

The three Fed reports reflect a continuing downturn in the US farm economy, which has been marked by listless crop prices and softer demand for agricultural land after prices for both shot higher for much of the past decade. The yearslong farmland boom was fueled by drought and growing demand for grain from ethanol producers and foreign importers.  But last year, US farmers collected bumper corn and soybean crops for the third-straight season, adding to already-plentiful world supplies at a time when a strong dollar and stiff global export competition are damping demand for US supplies. Revenue for farmers has declined as a result, prompting the US Department of Agriculture this week to project that net US farm income will fall this year to the lowest level since 2002.  Midwestern bankers surveyed by the Fed banks in St. Louis and Kansas City said farm income dropped in the fourth quarter, and many lenders in all three districts expect land values to soften further in the current quarter as crop prices and farm profits remain subdued.  “Sustained weakness in corn, soybean and wheat prices has had a particularly negative effect on farm income because these three crops account for about 70% of harvested crop acreage in the Tenth District States,” the Kansas City Fed said in its report on Thursday.

Average values for ranchland, used for grazing livestock, were flat to lower in parts of the Midwest, according to the St. Louis and Kansas City Fed districts.  The St. Louis Fed said ranch or pasture land prices fell 5.3% in the last three months of 2015 versus prior-year levels. That figure represents the largest drop since the second quarter of 2014, the bank said. The Kansas City Fed said ranchland values in the fourth quarter showed zero growth amid a sharp drop in cattle prices and reduced profit margins in the livestock sector.   “The downturn in crop and livestock prices helped stretch the slide in agricultural land values for at least another year,” wrote David Oppedahl, senior business economist at the Chicago Fed.  The Chicago and Kansas City Fed districts said credit conditions for farmers declined in the fourth quarter, with repayment rates for loans excluding real estate softening, while demand for farm loans stayed strong or notched higher in many areas.  In the Chicago region, Mr. Oppedahl said, an index of loan repayment rates fell to the lowest level since the first quarter of 1999, while the volume of the farm loan portfolio said to have “major” or “severe” repayment difficulties rose to 5%, or 2.1 percentage points higher than year-ago levels.  “No improvements in the short-term prospects of the farm sector were anticipated by the survey respondents,” wrote Mr. Oppedahl, adding that Midwestern lenders said “controlling costs and utilizing risk-management tools would be critical to the health of farms in the coming year.”

CoreLogic – December foreclosure inventory falls 24% year over year

–  The foreclosure inventory fell 23.8% year over year in December 2015.

–  The seriously delinquent inventory fell 23.3% year over year in December 2015.

–  The foreclosure rate in judicial states is two and a half times the pre-crisis rate.

The national foreclosure inventory – the number of loans in the foreclosure process – fell 23.8% year over year in December 2015, according to the latest CoreLogic Foreclosure Report. The foreclosure inventory has fallen on a year-over-year basis every month since November 2011 and in December 2015 was 72.3% below the January 2011 peak.  The December 2015 foreclosure rate – the share of all loans in the foreclosure process – fell to 1.1%, down from 1.5% in December 2014 and the lowest in a little more than eight years. But that was still above the pre-housing-crisis foreclosure rate of 0.6% between 2000 and 2006.Judicial foreclosure states continued to have a much higher average foreclosure rate (1.9%) in December 2015 than non-judicial states (0.6%). The collective foreclosure rate in non-judicial states is close to the pre-crisis rate of 0.4%, while the foreclosure rate in judicial states is almost two and a half times the pre-crisis rate of 0.8%.  As of December 2015, judicial states had 42% of the nation’s outstanding mortgages but 70% of all loans in foreclosure.  Forty-eight states posted year-over-year declines in their foreclosure inventory in December 2015, and 21 of those had decreases of more than 20%. The five states with the largest year-over-year drop in the foreclosure inventory were Florida (-41%), Minnesota (-35.6%), Tennessee (-32.3%), Colorado (-32.1%) and Nevada (-30.8%). Only Massachusetts (+1.8%), Rhode Island (+1.7%) and Delaware (+0.5%) experienced year-over-year increases in the foreclosure inventory.  The seriously delinquent rate – the share of loans 90 or more days overdue – was 3.2% in December 2015, down from 4.1% in December 2014. The December 2015 inventory of seriously delinquent mortgages fell 23.3% year over year. The seriously delinquent rate fell year over year in all states in December 2015.

WSJ – Supreme Court puts EPA carbon rule on hold during litigation

A divided Supreme Court on Tuesday temporarily blocked the Obama administration’s initiative to limit carbon emissions from power plants, dealing an early and potentially significant blow to a rule that is the cornerstone of President Barack Obama’s efforts to slow climate change.  The court, in a brief written order, granted emergency requests by officials of mostly Republican-led states and business groups to delay the regulation while they challenge its legality.  Although the Supreme Court’s order is temporary and isn’t a ruling on the merits, it indicates the court’s conservative majority harbors misgivings about the Obama administration plan. It signals the rules could run into trouble in the courts, which could hamper the administration’s ability to follow through on US commitments in the Paris climate deal.  The court’s action, which divided the justices along ideological lines, came as a surprise to many observers because the court has strict criteria for granting stays. And the Environmental Protection Agency rules, issued last summer, have yet to be evaluated by lower court judges.  The EPA rule is aimed at compelling utilities to shift away from coal-fired power plants, which have been the bedrock of US electricity generation for decades, toward such renewable sources as wind and solar, and to a lesser extent toward natural gas and nuclear power.  “We are thrilled that the Supreme Court realized the rule’s immediate impact and froze its implementation, protecting workers and saving countless dollars as our fight against its legality continues,” said Patrick Morrisey, the Republican attorney general of coal-dependent West Virginia.  More than two dozen states challenging the rule argued the regulation should be halted in the interim or else they would need to immediately begin enacting laws, revising regulations and devoting large sums of money and manpower to comply with the mandate.  Industry groups said that, without a stay, scores of power plants would be forced to shut down in the short term, harming power producers and their customers. The regulation would require a 32% cut in power-plant carbon emissions by 2030, based on emissions levels of 2005.

NAR – metro home prices accelerate in the fourth quarter of 2015

A moderating pace of sales had little impact on the trajectory of home prices during the final three months of the year, which picked up speed and showed continued growth in most of the US, according to the latest quarterly report by the National Association of Realtors (NAR).  The median existing single-family home price increased in 81% of measured markets, with 145 out of 179 metropolitan statistical areas (MSAs) showing gains based on closings in the fourth quarter compared with the fourth quarter of 2014. Thirty-four areas (19%) recorded lower median prices from a year earlier.  There were slightly fewer rising markets in the fourth quarter compared to the third quarter, when price gains were recorded in 87% of metro areas. Thirty metro areas in the fourth quarter (17%) experienced double-digit increases, a jump from the 20 metro areas in the third quarter. Twenty-two metro areas (12%) experienced double-digit increases in the fourth quarter of 2014.  For all of 2015, an average of 89% of measured metro areas saw increasing home prices, up from the averages in 2014 (83%) and 2013 (88%).

The national median existing single-family home price in the fourth quarter was $222,700, up 6.9% from the fourth quarter of 2014 ($208,400). The median price during the third quarter of 2015 increased 5.4% from the third quarter of 2014.  Total existing-home sales, including single family and condo, declined 5.4% to a seasonally adjusted annual rate of 5.18 million in the fourth quarter from 5.48 million in the third quarter, but are 2.4% higher than the 5.06 million pace during the fourth quarter of 2014.  Rising home prices, despite lower mortgage rates and an increase in the national family median income ($68,034), caused affordability to fall in the fourth quarter compared to the fourth quarter of last year. To purchase a single-family home at the national median price, a buyer making a 5% down payment would need an income of $49,535, a 10% down payment would require an income of $46,928, and $41,714 would be needed for a 20% down payment.

The five most expensive housing markets in the fourth quarter were the San Jose, Calif., metro area, where the median existing single-family price was $940,000; San Francisco, $781,600; Honolulu, $716,600; Anaheim-Santa Ana, Calif., $708,700; and San Diego, $546,800.  The five lowest-cost metro areas in the fourth quarter were Youngstown-Warren-Boardman, Ohio, $81,200; Cumberland, Md., $86,100; Rockford, Ill., $87,600; Decatur, Ill., $90,000; and Wichita Falls, Texas, $101,900.  Metro area condominium and cooperative prices – covering changes in 61 metro areas – showed the national median existing-condo price was $209,200 in the fourth quarter, up 3.6% from the fourth quarter of 2014 ($202,000). Forty-four metro areas (72%) showed gains in their median condo price from a year ago; 17 areas had declines.  At the end of the fourth quarter, there were 1.79 million existing homes available for sale, which was below the 1.86 million homes for sale at the end of the fourth quarter in 2014. The average supply during the fourth quarter was 4.6 months – down from 4.9 months a year ago.  NAR President Tom Salomone says the main challenge for buyers so far in 2016 continues to be insufficient supply. “With the exception of some metro areas with jobs heavily reliant in the energy sector, Realtors say demand has held steady during the winter months,” he said. “Serious buyers should be prepared to act fast, and remain in close communication with a Realtor to deploy a negotiation strategy that fits their budget. Even in these typically slower winter months, listings in affordable price ranges are going under contract quickly.”

Total existing-home sales in the Northeast increased 1.9% in the fourth quarter and are 7.3% above the fourth quarter of 2014. The median existing single-family home price in the Northeast was $254,500 in the fourth quarter, up 3.7% from a year ago.  In the Midwest, existing-home sales decreased 6.9% in the fourth quarter but are 5.2% higher than a year ago. The median existing single-family home price in the Midwest increased 6.0% to $171,600 in the fourth quarter from the same quarter a year ago.  Existing-home sales in the South declined 4.1% in the fourth quarter and are 0.6% below the fourth quarter of 2014. The median existing single-family home price in the South was $195,400 in the fourth quarter, 6.6% above a year earlier.  In the West, existing-home sales fell 10.4% in the fourth quarter but are 2.1% above a year ago. The median existing single-family home price in the West increased 8.4% to $323,600 in the fourth quarter from the fourth quarter of 2014.

Low oil prices starting to hurt global economy, opec says

The lowest crude-oil prices in a decade are starting to hurt the global economy and aren’t increasing consumer demand for gasoline and other petroleum products as much as expected, OPEC said Wednesday.  The Organization of the Petroleum Exporting Countries cut its forecasts for global oil-demand growth and the world economy, saying lower oil prices were offset by lower consumer appetite while hurting large countries, such as Russia and Brazil.  The announcement, in OPEC’s closely watched monthly oil report, comes after oil prices resumed their decline after members of the oil-producer group failed to agree on a production cut over the week.  Lower oil prices are generally considered a boon to oil consumers and more broadly for the global economy. But this time around, “the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short term,” OPEC said.  The organization, which supplies more than one in three barrels of oil consumed globally, lowered its 2016 global growth forecast to 3.2% from 3.4%.  Despite oil prices reaching levels not seen in more than 10 years last month, OPEC also cut its oil-demand growth forecast by 10,000 barrels a day for this year.  Oil demand is now forecast to rise 1.25 million barrels a day to 94.21 million barrels a day this year, OPEC said, citing consumers cutting back on car transport and the lingering impact of the recent financial crisis.

Olick – wealthy borrowers behind 9.3% jump in new mortgages

A sharp drop in interest rates prompted more homeowners to refinance their mortgages last week, especially those with large loans, the Mortgage Bankers Association said Wednesday.  Total mortgage application volume increased 9.3% on a seasonally adjusted basis from the previous week. Interest rate-dependent refinances were almost entirely behind the gains.  Applications to refinance a home loan rose 16% from the previous week, seasonally adjusted, while those to purchase a home rose just 0.2% for the week. Purchase applications are still 25% higher than one year ago, indicating strengthening in future home sales; while lower rates certainly help homebuyers, they are not an immediate driver of sales. Interest rates were slightly lower one year ago.  “Treasury yields plummeted again last week amid a worsening global financial maelstrom, and mortgage rates dropped as a result,” said Michael Fratantoni, chief economist for the MBA.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since April, 3.91%, from 3.97%, with points unchanged at 0.41 (including the origination fee) for 80% loan-to-value ratio loans, according to the MBA.  Lower rates have the most profound effect on borrowers with larger loans, and that was clear last week. The average loan size on applications was the second highest in the history of the survey at $303,000, with the refinance loan size of $302,000 at its second highest level ever.  “Jumbo borrowers are also benefiting from fierce competition for these loans. The 30-year fixed rate for jumbo loans dropped to its lowest level since April 2013 and is now 15 basis points below the rate for conforming loans,” said Fratantoni. “Historically, the rate for conforming loans was about 25 basis points lower than for jumbo loans.”  A jumbo loan, by definition, is more than three times the median value of a home nationally, so the home would be worth, at the least, close to a million dollars. This represents barely 4% of homes nationally.

This unexpected slide in rates may not be over yet. The average rate on the 30-year fixed mortgage moved lower again Tuesday, even though stocks ended the day in positive territory. Investors usually buy bonds as a safety play when stocks fall; more bond buying pushes bond yields down, and mortgage rates loosely follow those yields. While investors weren’t as heavy into the bond market Tuesday, lenders were still working off Monday’s bond gains.  “When it comes to adjusting rate sheets to match trading levels in financial markets (which is the core of mortgage rate pricing), lenders have a hard time keeping up with major volatility,” said Matthew Graham, chief operating officer of Mortgage News Daily. “As such, rates were able to improve today even though stocks and bonds were mostly sideways.”

Will Florida supreme court rule against statute-of-limitations on foreclosures?

In Florida, a five-year statute of limitations could prevent banks from being able to foreclose, even after the lengthy court process.  As a result, some mortgage servicers, who make payments on behalf of the borrowers, help keep the accounts active.  According to a report by Moody’s Investors Service, “Servicers are trying to best preserve their foreclosure rights pending the Florida Supreme Court Decision. The issue arises because many loans went to foreclosure, stalled and then became dismissed several years ago when large bank servicers instituted foreclosure moratoriums and large Florida foreclosure firms went out of business amidst claims of improper practices.”  The Florida Supreme Court is currently deciding on a case, US Bank v. Bartram, that will decide if servicers can restart foreclosures after five years, or if they will be barred by the Florida statute of limitations, according to the article.  While they wait on the court’s decision, servicers continue to make payments, allowing mortgagers to sue for up to five years worth of payments. From Moody’s perspective, as a credit ratings agency, analysts do not expect bond performance to be greatly impacted either way.  At any rate, the report by Moody’s Investors Service states, “Without crediting these payments, servicers would either do nothing and wait for the Supreme Court ruling or fun the risk that courts will rule that missed payments more than five years ago are barred by the statute of limitations and may dismiss the foreclosure.”  If the court rules that servicers cannot restart the clock, some foreclosures could be permanently barred, forcing banks to accept less, give deals or greatly lower the monthly payment, according to the article. The bank may elect for a short sale in order to get any recoveries.  “The court ruling will have only a minor impact on overall RMBS performance because the number of previously dismissed foreclosure actions that are seriously delinquent or in foreclosure is minimal,” the report said. “Only approximately 3% of private label loans backed by properties in Florida had a prior foreclosure dismissed and are greater than 60 days delinquent or in foreclosure.”

 

$470 million state-federal settlement reached with HSBC over unlawful foreclosures, loan servicing

A $470 million joint state-federal settlement has been reached with national mortgage lender and servicer HSBC to address mortgage origination, servicing, and foreclosure abuses, Attorney General Maura Healey today announced. AG Healey joins 49 other states, the District of Columbia, US Department of Justice (DOJ), US Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB) in the consent judgment, filed today in the US District Court for the District of Columbia.   The settlement will provide direct payments to hundreds of borrowers in Massachusetts, along with rigorous mortgage servicing standards and compliance oversight from an independent monitor.  The AG’s Office has also reached a separate assurance of discontinuance, filed today in Suffolk Superior Court, which addresses allegations that HBSC offered teaser interest rate reductions to Massachusetts borrowers that ultimately increased the likelihood that they would lose their homes, violating HSBC’s obligation to make a good faith effort to avoid foreclosure. Under the terms of the agreement, HSBC will pay an additional $750,000 and provide relief to Massachusetts homeowners for violation of the state’s foreclosure law.

The mortgage servicing terms under today’s multistate settlement largely mirror the 2012 historic national settlement involving the nation’s five largest mortgage servicers, which addressed unlawful foreclosures and unfair loan servicing practices.  Of the $470 million, HSBC will pay $40.5 million to the federal agencies, and close to $60 million will be paid to the states to be distributed to HSBC borrowers who lost their homes to foreclosure from Jan. 1, 2008 through Dec. 31, 2012. The settlement also includes $370 million in consumer relief by HSBC nationwide, including items such as principal reduction and refinancing for underwater mortgages.  It is estimated that nearly 1,000 Massachusetts borrowers who lost their homes to foreclosure will be eligible for monetary payments. Borrowers will be contacted about how to apply for payments.

The settlement also includes new consumer protections that require HSBC to substantially change how it services mortgage loans and handles foreclosures. The terms will prevent past abuses, such as robo-signing, improper documentation and lost paperwork. An independent monitor will ensure mortgage servicer compliance.

Average US gas price falls 8.2 cents in two weeks

The average price of a gallon of gasoline in the United States fell 8.2 cents in the past two weeks to its lowest level in seven years, according to a Lundberg survey released on Sunday.  Regular grade gas fell to around $1.82 per gallon in the Feb. 5 survey from $1.91 on Jan. 22, when the previous survey was taken. The price was the lowest since Jan. 9, 2009, when it was roughly $1.78, survey publisher Trilby Lundberg said.  The latest price was 37 cents lower than a year ago as competitive pressures prompted refineries to drop wholesale gasoline prices amid weak oil prices, Lundberg said.  After tumbling to their lowest levels since 2003 amid a global glut prior to the last survey, oil prices stabilized in the last two weeks.  West Texas Intermediate, the US benchmark, traded between $29 and $35 per barrel over the period, while Brent crude rallied to as high as $36.25 per barrel.  “If crude oil prices are finding their bottom, then this will mean the end of the gasoline price crash,” Lundberg said.

Is San Francisco in a housing bubble?

According to a new report from Fitch Ratings, San Francisco is reaching that point, with the dreaded “b” word being thrown around now in regards to San Francisco housing.  Fitch’s report suggests that Bay Area home prices are “overheating” and have reached a “level unsupportable by area income,” and asks if there is a “Bay Area bubble.”  According to Fitch’s report, San Francisco home prices hit an all-time high in third quarter of 2015 and are now 62% above their post-recession low in early 2012.  In the report, Fitch Managing Director Grant Bailey said that San Francisco home prices are up more than 10% in the past year alone, making the San Francisco housing market now approximately 14% overvalued when compared to the area’s underlying supporting economic fundamentals.  “The last time the Bay Area experienced this kind of home price growth was during the dot-com era from 1997-2000,” Bailey said in the report.  According to Fitch’s report, the surge in San Francisco home prices over the last three years has exceeded the growth rate observed during the 2003–2006 housing boom.  “In both the dot-com era and recent years, home price momentum was initiated by undervalued prices and strong income growth,” Fitch’s report stated. “Area home prices fell roughly 5% nominally and 10% in real terms when the dot-com bubble burst.”

According to Fitch’s report, strong income growth in the San Francisco area has driven the home price increases as the area’s total income is up 44% since the prior peak and 18% since the post-recession low.  But Fitch’s report suggests that home price growth “appears to have exceeded” income growth.  While the gap between the “sustainable” home price level and the real home price level was much wider in 2006 than it is now, the current gap is widening.  Overall, Fitch’s report shows that the national home price average rose 1% in the third quarter of 2015, or 5% year-to-date.  “Fitch Ratings views current price levels in most regions as sustainable and supported by improving unemployment and income growth,” the report states. “New home construction spending has picked up as the inventory of for-sale and under construction homes has fallen, reflecting further curing of the post-recession housing overhang.”  But that’s not the case in San Francisco, where prices are rising too quickly and lenders are resorting to extreme measures just to keep up.  Sound familiar?

Gold futures mark highest settlement since June

Gold futures jumped 3.5% on Monday to settle at their highest level since June as sharp losses in the US stock market helped to lift the metal’s investment appeal. April gold rose $40.20 to settle at $1,197.90 an ounce on Comex, after tapping an intraday high of $1,201.40. The settlement was the highest since June 19, 2015, when prices settled above $1,201.90.

Zillow – tough at the top: how luxury lagged late

in 2015-  Home value growth in luxury ZIP codes nationwide slowed during the second half of 2015.

–  In entry-level and mid-market ZIP codes, home values continued growing a steady pace.

After growing in line with more modest areas throughout much of the first half of 2015, home value appreciation in America’s toniest ZIP codes stalled over the past 6 months – even as growth in entry-level and mid-market communities continued. The median home value in mid-market ZIP codes nationwide grew 5% in 2015, similar to annual growth in entry-level ZIP codes of 4.7%. Home values in high-end communities ended 2015 up just 3.3% from where they started the year – slightly lower than overall 2015 US home value growth of 4%.  Zillow ranked ZIP codes based on their median home value in January 2015, and grouped them into deciles for every metro area nationwide for which we have sufficient data (the average metro area in our database spans 23 ZIP codes). The top 10% of ZIP codes in each metro area is classified as the “luxury market,” and the bottom 10% of ZIP codes in each metro area is classified as the entry-level market. We grouped the middle two deciles – the 5th and 6th deciles – to capture home value trends in middle-market ZIP codes. We then compared how home values evolved over 2015 for each of these groups.

Of course, the value of an entry-level and/or luxury home in one market is not the same as in another. In Los Angeles, for example, entry-level ZIP codes have median home values ranging from $155,200 to $333,100, while luxury ZIP codes have median home values ranging from $1,055,900 to $4,224,600. In Orlando, on the other hand, entry-level ZIP codes have median home values ranging from $71,600 to $110,000, while luxury ZIPs have medina home values ranging from $277,200 to $388,000. So median home values in L.A.’s entry-level markets are similar to median home values in Orlando’s luxury markets. By classifying ZIP codes within each metro area, we are able to gauge how different market segments are doing compared to their own market, rather than compared to different parts of the country.  Slowing luxury markets are likely the result of several converging forces, including:

–  More hesitant foreign buyers in the long-term in the face of strong US dollar appreciation and financial turmoil overseas;

–  A slowing and normalization in home value growth overall after the rapid pace observed in recent years;

–  Continued upward pressure on entry-level home values because of strong demand and limited supply of homes for sale in these markets.

–  Local economic conditions and a given community’s supply/demand situation.

CoreLogic – October 2015 cash sales share falls 3 percentage points from a year ago

Cash sales accounted for 33.9% of total home sales in October 2015, down 2.6 percentage points from 36.4% in October 2014. On a month-over-month basis, the cash sales share increased by 1.4 percentage points in October 2015 compared with September 2015. The cash sales share typically increases month over month in October, and due to seasonality in the housing market, cash sales share comparisons should be made primarily on a year-over-year basis.  The cash sales share peaked in January 2011 when cash transactions accounted for 46.6% of total home sales nationally. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%. If the cash sales share continues to fall at the same rate it did in October 2015, the share should hit 25% by mid-2018. Real estate-owned (REO) sales had the largest cash sales share in October 2015 at 59.7%. Resales had the next highest cash sales share at 33.2%, followed by short sales at 31.3% and newly constructed homes at 16.7%. While the percentage of REO sales that were all-cash transactions remained high, REO transactions accounted for only 7.3% of all sales in October 2015. In January 2011 when the cash sales share was at its peak, REO sales represented 23.9% of total home sales. Resales typically make up the majority of home sales (about 81% in October 2015), and therefore have the biggest impact on the total cash sales share.  Alabama had the largest cash sales share of any state at 51.7%, followed by Florida (46.7%), New York (46.3%), West Virginia (44.4%) and Indiana (40.8%). Of the nation’s largest 100 Core Based Statistical Areas (CBSAs)[2] measured by population, Miami-Miami Beach-Kendall, Fla. had the highest cash sales share at 51.6%, followed by West Palm Beach-Boca Raton-Delray Beach, Fla. (50.9%), Detroit, Mich. (50%), Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (49%) and Philadelphia, Pa. (48.9%). Syracuse, N.Y. had the lowest cash sales share at 13.9%.

Obama to propose $10-per-barrel fee on oil

President Barack Obama will propose a $10-per-barrel charge on oil to fund clean transportation projects as part of his final budget request next week, the White House said Thursday.  The proposal — which follows the passage of a bipartisan transportation bill last year — would have difficulty clearing the Republican-controlled Congress. In a statement, Rep. Steve Scalise of Louisiana, House majority whip, said the House would quash the “absurd” plan.  Oil companies would pay the fee, which would be gradually introduced over five years. The government would use the revenue to help fund high-speed railways, autonomous cars and other travel systems, aiming to reduce emissions from the nation’s transportation system.  “By placing a fee on oil, the president’s plan creates a clear incentive for private sector innovation to reduce our reliance on oil and at the same time invests in clean energy technologies that will power our future,” the White House said in a statement.  Obama has prioritized reducing carbon emissions and the use of fossil fuels. But some of his administration’s proposals, including the Clean Power Plan, have faced significant opposition at the federal and state level. The proposal comes amid a brutal stretch for the US oil industry. Crude prices have fallen nearly 50% in the last year to just below $32 per barrel, pressuring profits in the sector. Global outplacement firm Challenger, Gray & Christmas attributed more than 104,000 layoffs to falling oil prices in 2015. In January, job cuts in the energy sector hit 20,246, the highest monthly total since the start of the oil price rout in the second half of 2014, according to Challenger. In a statement Thursday, American Petroleum Institute CEO Jack Gerard said the fee would hurt consumers by raising gasoline prices and reducing jobs.  “On his way out of office, President Obama has now proposed making the United States less competitive,” he said.

NAR – commercial real estate experts: moderate expansion, easing prices expected in 2016

Despite various global and domestic hurdles hindering economic growth, steady job gains and stable leasing demand should help keep commercial real estate activity expanding in 2016, according to the authors of an annual report published jointly by Situs Real Estate Research Corporation (RERC), Deloitte and the National Association of Realtors (NAR).  According to the report, Expectations & Market Realities in Real Estate 2016—Navigating through the Crosscurrents, commercial real estate activity is forecast to gradually grow this year with demand for space holding steady across all commercial sectors. While commercial property values and price gains are expected to flatten after surpassing 2007 peaks in some major markets, investors will still benefit from the strong income flows generated from new and existing leases.  The fifth annual release of the joint report draws on the three organizations’ respective research and expert analysis and offers an objective outlook on commercial real estate through forecasts and commentary on the current economy, capital markets and commercial real estate property markets. A research-based assessment of the office, industrial, apartment, retail and hotel property sectors is also provided.  “Historically low interest rates, especially in treasuries, combined with commercial real estate’s stable prices and value make this asset an attractive investment,” says Ken Riggs, president of Situs RERC. “Looking into 2016, the commercial real estate market should moderate, which could stabilize prices.”

Vacancies are expected to continue to decline slightly in 2016 for all property types, except in the apartment sector, where they are forecast to increase modestly by the end of the year as more new project completions come onto the market. Continued job growth, demand exceeding supply and limited new construction (outside of multifamily) should lead to rising rents and steady investor returns, which overall will shift away from capital appreciation as price growth levels off in many markets.  Continuing on the same slow trajectory seen for many years, the US economy – facing headwinds from a rising dollar, financial market volatility and geopolitical concerns – is forecast to grow at a rate of 2% to 3% in 2016, which is stronger than most global economies and enough to generate around two million net new jobs over the next year. Deflationary pressures related to low gasoline and energy prices are expected to diminish by mid-2016, in part because of robust growth in apartment rents. “Supported by solid hiring in most parts of the country, the demand for ownership and rental housing will continue to increase in 2016 despite another year of meager economic expansion,” says Lawrence Yun, NAR chief economist. “While supply shortages will weigh on housing affordability and push home prices and rents higher, the housing sector will keep the US economy afloat and lead the residential investment component of GDP growth by up to 10% this year.”

US economy adds 151,000 jobs in January

The US added 151,000 jobs in January, weaker than expected and additional fuel for concerns the US economy is slowing down.  There were silver linings to be found in the clouds, however, as wages and worker participation rose.  The headline unemployment rate was 4.9%, the lowest in eight year. Analysts had predicted the economy would generate 190,000 new jobs and that the unemployment rate would hold steady at 5%.  Wages showed signs of growth, rising 2.5% from a year ago, and the labor force participation rate, a key measure of the percentage of Americans working, rose slightly from a month ago to 62.7%.  “Hiring continued at a moderate pace last month in the face of a world of trouble. It is good to see the unemployment rate slip, but hiring was a bit shy of expectations,” said Mark Hamrick, Bankrate.com’s senior economic analyst.  “We knew that the job gains in the fourth quarter of last year would be tough to match, but even with the modest reassurance we’ve received thanks to this January hiring snapshot, questions remain about the sustainability of the recovery.”  The latest numbers fall short of the December report, which was surprisingly strong in terms of new jobs. Although that report was revised downward by 30,000 in the current report. The December report was undermined by weak wage growth data, a longstanding problem that has not gone away despite the relatively large numbers of jobs created each month and a headline unemployment rate currently positioned at an eight year low.  “Employment rose in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Private educational services and transportation and warehousing lost jobs,” the Labor Department reported in a statement. “Mining employment continued to decline. Wages have emerged as perhaps the most important element of the monthly jobs report. Analysts had forecast that wages would climb a tepid 0.3% in January over December.”

Employment in other major industries, including construction, wholesale trade, and government, changed little over the month, the Labor Department said.  Federal Reserve policy makers have predicted for months that average hourly wages are bound to start rising as a result of the tightening jobs market, and that when they do increased consumer spending will push prices higher and lift inflation toward the Fed’s 2% target.  When the Fed raised rates in December for the first time in nearly a decade they did it essentially under that scenario. In fact, Fed policy makers suggested that labor markets were gaining so much momentum that the central bank would probably be able to raise rates a total of four times in 2016, moving US monetary policy that much closer to ‘normal.’  Perhaps that scenario is starting to slowly materialize, a very positive sign in light of all the recent global turbulence. Shortly after the Fed raised rates on Dec. 16 new concerns emerged out of China that the world’s second largest economy was weakening after years of strong growth. That combined with uncertainty caused by the freefalling price of oil sent US markets into a tailspin in the first weeks of 2016.  Mixed-at-best data out of the US hasn’t helped, namely a fourth quarter GDP reading of 0.7%, confirming economists fears that the US economy was dragging toward the end of 2015.  All of that turmoil has caused some influential Fed members to backtrack a bit on their December optimism. New York Fed President William Dudley, an influential member of the policy-setting Federal Open Markets Committee, acknowledged earlier this week that global financial markets have grown increasingly turbulent in the seven weeks since the Fed raised rates.  The Fed’s rosy forecasts for 2016 now seem premature, and the mixed January jobs report suggests it will be a rocky ride going forward.

NAHB – builder confidence in the 55+ housing market ends year on a positive note

Builder confidence in the single-family 55+ housing market remains strong in the fourth quarter of 2015 with a reading of 61, up one point from the previous quarter, according to the National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today. This is the seventh consecutive quarter with a reading above 50.  “Builders and developers for the 55+ housing sector continue to report increased optimism in the market,” said Jim Chapman, chairman of NAHB’s 55+ Housing Industry Council and president of Jim Chapman Homes LLC in Atlanta. “We are seeing steady consumer demand for homes and communities that are designed to address the specific needs of the mature homebuyer.”  There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums. Each 55+ HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic). An index number above 50 indicates that more builders view conditions as good than poor.  One of the three index components of the 55+ single-family HMI posted an increase from the previous quarter: traffic of prospective buyers increased six points to 52. Present sales held steady at 65 while expected sales for the next six months decreased four points to 63.

The 55+ multifamily condo HMI dropped eight points to 42, falling back to a range typical of the past year and a half. All three components decreased as well: present sales fell 10 points to 44, expected sales for the next six months fell 10 points to 46 and traffic of prospective buyers edged down three points to 37.  Three of the four indices tracking production and demand of 55+ multifamily rentals posted gains in the fourth quarter. Present production and expected future production both rose one point to 56 and 61, respectively, and future demand increased three points to 71, while current demand for existing units fell four points to 66.  “This quarter’s 55+ HMI is in line with our forecast for the overall housing market, which shows a gradual, steady recovery,” said NAHB Chief Economist David Crowe. “In addition, the 55+ housing market is benefitting from growing home equity on the balance sheets of  55+ households, an improving economic outlook, historically low mortgage rates and a growing population as baby boomers age.”

Zillow – Q4 2015 breakeven horizon: buying a home pays off for most – but not all – after just two years

– The US breakeven horizon was 1.9 years as of the end of 2015, unchanged from q4 2014.

–  Home buyers break even on a home purchase in less than two years in 70% of housing markets, compared to renting the same home.

–  Among the largest 35 markets, the longest Breakeven Horizon is in Washington, D.C.: 4.5 years. The shortest is in Dallas: 1.3 years.

A persistent combination of healthy home value growth and low mortgage interest rates, combined with robust growth in rents, is helping to keep the buy vs. rent equation tilted heavily towards buying in most areas for those planning on staying in their homes for longer than just a few years. But local markets vary, and that equation is shifting – if even slightly – in some notable areas.  Zillow’s Breakeven Horizon estimates the number of years you would have to live in a home before buying it would become more financially advantageous than renting it. Nationwide, the Breakeven Horizon as of the end of 2015 was a scant 1.9 years – unchanged from a year ago.  To calculate the Breakeven Horizon, we make some basic assumptions and bake in common costs associated with renting and buying, including down payments, security deposits, taxes and fees. The result is a comprehensive look at how long you’ll need to stay in a home in a given area before the total costs of renting, offset by investments in stocks or bonds, surpass the costs of owning as equity builds.  Among the nation’s largest 35 metro markets, those with the longest Breakeven Horizon as of Q4 2015 were Washington, D.C. (4.5 years), Los Angeles (4.1 years) and San Diego (3.4 years). Large markets with the shortest Breakeven Horizon included Dallas-Fort Worth (1.3 years), Indianapolis (1.3 years) and Detroit (1.4 years).  Broadly speaking, markets in the densely populated Northeast Corridor and along the West Coast tend to have longer Breakeven Horizons, while markets in the Southeast and Midwest have shorter Breakeven Horizons.

US home foreclosures continuing to fall, latest data shows

Image Foreclosures in the United States are continuing to decline with the latest data showing they fell 30% in December year on year, the sixth consecutive month with an annual decrease in foreclosure starts.  However, the figures from real estate data firm RealtyTrac also shows that bank repossessions (REOs) in December increased 65% from a year ago, the 10thconsecutive month with an annual increase in REOs.  ‘In 2015 we saw a return to normal, healthy foreclosure activity in many markets even as banks continued to clean up some of the last vestiges of distress left over from the last housing crisis,’ said Daren Blomquist, vice president of RealtyTrac.  ‘The increase in bank repossessions that we saw for the year was evidence of this clean up phase, which largely involves completing foreclosure on highly distressed, low value properties,’ he explained.  ‘Meanwhile, local economic problems became a larger driver of foreclosure activity in 2015 Examples of this are Atlantic City, New Jersey, which posted the nation’s highest metro foreclosure rate for the year, along with several heavy oil-producing markets in Texas and Oklahoma where foreclosure activity increased in 2015, counter to the national trend,’ he added.

Counter to the national trend, 24 states and the District of Columbia posted an increase in foreclosure activity in 2015 compared to 2014, including Massachusetts up 55%, Missouri up 50%, Oklahoma up 36%, New York up 24% and Texas up 16%.  Among the nation’s 20 largest metro areas, six posted year on year increases in foreclosure activity in 2015. In Boson they were up 44%, up 38% in St. Louis, up 25% in Dallas, up 22% in Detroit, up 9% in New York and up less than 1% in Houston.  A total of 569,835 properties started the foreclosure process in 2015, down 11% from 2014 and down 73% from the peak of more than 2.1 million foreclosure starts in 2009 to a 10 year low.  Bucking the national trend, foreclosure starts increased in 2015 in 16 states, including Oklahoma up 92%, Massachusetts up 67%, Missouri up 28%, Virginia up 23%, Nevada up 14% and Arkansas up 14%.  A total of 449,900 properties were repossessed by lenders in 2015, up 38% from 2014 but still 57% below the peak of nearly 1.1 million bank repossessions (REOs) in 2010.  The median price of a bank owned home in 2015 was 41% below the median price of all homes, the biggest bank owned discount nationwide since 2006. ‘That may be surprising to some, but demonstrates that in a healthy real estate market foreclosures are no longer mainstream, but instead are back to being a market niche of properties with problems that many buyers do not want to tackle,’ said Blomquist.

Bank repossessions (REOs) increased from a year ago in 41 states and the District of Columbia. Some of the biggest increases were in New Jersey which was up 226%, New York up 194%, Texas up 115%, North Carolina up 108%, and Oregon up 96%.  Foreclosures in the Seattle area are trending downward at a much faster pace than the rest of our state and the nation as a whole, according to Matthew Gardner, chief economist at Windermere Real Estate.  ‘This is not all that surprising given Seattle’s robust economy and thriving housing market. Also not surprising is that home repossessions by lenders rose precipitously in 2015. I expect this number to remain somewhat volatile throughout 2016, and likely into 2017, as banks continue to work through their backlog of foreclosures. This is an indication that at long last we are working through the tail end of the 2008 housing market crisis,’ he said.  States with the highest foreclosure rates in 2015 were New Jersey with 1.91% of housing units with a foreclosure filing, Florida with 1.77%, Maryland with 1.6%, Nevada with 1.4% and Illinois with 1.26%.  Properties foreclosed in the fourth quarter had been in the foreclosure process an average of 629 days, down slightly from 630 days in the third quarter but still up 4% from the average 604 days in the fourth quarter of 2014.

MBA – mortgage applications decrease

Mortgage applications decreased 2.6% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 29, 2016.  The previous week’s results included an adjustment for the Martin Luther King holiday.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 11% compared with the previous week.  The Refinance Index increased 0.3% from the previous week to its highest level since October 2015.  The seasonally adjusted Purchase Index decreased 7% from one week earlier. The unadjusted Purchase Index increased 11% compared with the previous week and was 17% higher than the same week one year ago.  The refinance share of mortgage activity increased to 59.2% of total applications from 59.0% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.9% of total applications.  The FHA share of total applications increased to 12.9% from 12.7% the week prior. The VA share of total applications remained unchanged from 11.1% the week prior. The USDA share of total applications remained unchanged from 0.7% the week prior.

Wells Fargo to pay $1.2 billion over faulty mortgages

Wells Fargo & Co. said Wednesday that it has agreed to pay $1.2 billion to settle a long-running suit that accused the company of “reckless” lending and leaving a federal insurance program to pick up the tab.  The agreement settles civil charges with the US Justice Department, two US attorneys and the Department of Housing and Urban Development.  According to the original complaint, Wells Fargo said that more than 100,000 FHA loans met federal guidelines when more than half of them didn’t.  Wells Fargo had previously indicated it would fight the case and denied the allegations when the government brought its case in 2012.  The government said the loans in question were made under the Federal Housing Administration lending program from 2001 to 2010.  As a result of the settlement, Wells Fargo said it has added to its legal accrual for 2015, which it reported results for on Jan. 15. That has reduced its profit for last year by $134 million, or 3 cents a share.  The company’s 2015 profit is now $22.9 billion, or $4.12 a share.  Wells Fargo noted that the settlement isn’t yet finalized.

CoreLogic – US home price report shows home prices up 6.3% year

CoreLogic released its CoreLogic Home Price Index (HPI) and HPI Forecast data for December 2015 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 6.3% in December 2015 compared with December 2014 and increased month over month by 0.8% in December 2015 compared with November 2015, according to the CoreLogic HPI.  The CoreLogic HPI Forecast indicates that home prices will increase by 5.4% on a year-over-year basis from December 2015 to December 2016, and on a month-over-month basis home prices are expected to increase 0.2% from December 2015 to January 2016. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.  “Nationally, home prices have been rising at a 5 to 6% annual rate for more than a year,” said Dr. Frank Nothaft, chief economist for CoreLogic. “However, local-market growth can vary substantially from that. Some metropolitan areas have had double-digit appreciation, such as Denver and Naples, Florida, while others have had price declines, like New Orleans and Rochester, New York.”  “Higher property valuations appear to be driving up single-family construction as we head into the spring.  Additional housing stock, especially in urban centers on the coasts such as San Francisco, could help to temper home price growth in the longer term,” said Anand Nallathambi, president and CEO of CoreLogic. “In the short and medium term, local markets with strong employment growth are likely to experience a continued rise in home sales and price growth well above the US average.”

ADP private payrolls rise more than expected

Private payrolls rose by 205,000 in January, according to ADP Research Institute.  Economists had estimated that private payrolls grew by 193,000 last month, down from the prior reading of 267,000 (revised from 257,000), which was the highest for 2015.  In the release, ADP’s Ahu Yildirmaz said, “One of the main reasons for lower overall employment gains in January was the drop off in jobs added at the largest companies compared to December. These businesses are more sensitive to current economic conditions than small and mid-sized companies.”  Employment in the larger service-producing sector rose by 192,000, while the goods-producing sector added 13,000 jobs.  The release comes ahead of Friday’s official jobs report, which is also projected to show a month-on-month slowdown in the pace of jobs growth. Economists have noted that ADP often overstates or underestimates the print from the Bureau of Labor Statistics.

House unanimously votes to reform federal housing programs

The House unanimously voted Tuesday to pass the Housing Opportunity Through Modernization Act, a bill designed to overhaul certain federal assisted housing programs provided by the Department of Housing and Urban Development and the Rural Housing Service.  Modifications under the bill – spearheaded by Missouri Republican Rep. Blaine Luetkemeyer include the simplification of the inspection protocol for rental assistance units. It would also change the requirements of mortgage insurance for condominiums and rural housing loans.  “This comprehensive, bipartisan legislation represents the first real reforms to the programs and processes at the Department of Housing and Urban Development (HUD) and the United States Department of Agriculture’s Rural Housing Service (RHS) in decades,” the Missouri Republican said in a statement. “The success of housing programs should not be judged by the number of federal dollars spent. Instead, we are looking outside the box to streamline HUD and RHS policies and eliminate duplicative programs and waste. The future of housing can and should look different and today, my colleagues and I stood together and passed what is the first step to changing our nation’s housing policies.”  In addition to the overhauls to federal housing programs, the lower chamber also approved an amendment introduced by Florida Republican Rep. Vern Buchanan designed to prevent fraud in the programs following an inspector general audit that found a man worth nearly $2 million living in public housing.

CoreLogic – a third of homes sold for the list price or more in October 2015

The housing market continues to recover from the foreclosure crisis. Home price indexes and home sales are returning to pre-crisis levels, and in some areas prices and sales have reached new highs. With demand strong and inventory thin, the share of homes selling for the list price or more has also returned to pre-bust levels.  With inventory tight, homes are more likely to sell above the asking price. The number of homes selling at or above list price has recovered to early 2006 levels. That number was 3.5 times the trough in January 2008 and represented more than one-quarter of total sales in October 2015. Compared with homes selling for their list price or more, the number of homes selling for less than list price has been   relatively stable over the past 15 years. Regardless of market conditions, there are always highly motivated sellers willing to drop their price. In October 2015, the inventory of existing homes for sale was back to its January 2006 level, and was 33.1% below its July 2007 peak. However, because of a shortage of skilled labor and lots, the new-home inventory remained historically low at 3.6% of total inventory in October 2015, only about one-quarter of its peak in October 2006. Housing markets are different across the nation. San Francisco had the largest share of homes – 82% – that sold for at least the list price. Seattle and Los Angeles followed with 52 and 42% selling for the list price or more, respectively. Cincinnati and Chicago had the lowest share – 20% – of homes selling at or above the list price in October 2015.

Black Knight – December Mortgage Monitor

–  ​​21% of median income needed to purchase national median-priced home; 2000 – 2002 average was 26%

–  At current rate of home price appreciation and 50-basis-point-per-year rise in rates, eight states would surpass pre-bubble affordability levels within 12 months; 22 states would within 24 months

–  42% of Q3 2015 first lien refinances were cash-out, highest share since 2008; average cash-out amount over $60,000

–  Average post-cash-out refinance loan-to-value (LTV) in Q3 2015 was lowest on record at 67%

The Data and Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of December 2015. This month, in light of 43 consecutive months of year-over-year home price appreciation (HPA), Black Knight revisited the question of home affordability. Using the national median home price and household income levels, Black Knight found the mortgage payment-to-income ratio is still favorable by historical standards. However, as Black Knight Data & Analytics Senior Vice President Ben Graboske explained, the long-term impact of rising interest rates and home prices on affordability varies with geography and warrants close observation moving forward.  “Black Knight’s most recent analysis of the data shows that it currently takes 21% of the median monthly household income to purchase the national median-priced home using a 30-year fixed rate mortgage,” said Graboske. “That’s down significantly from 33% back at the top of the market in 2006, and is still below the average of 26% we saw in the more stable years before the housing bubble. However, when we look at an example scenario using today’s rate of home price appreciation and a 50-basis-point-per-year increase in interest rates, we see that in two years home affordability will be pushing the upper bounds of that pre-bubble average. At the state level under that same scenario, eight states would be less affordable than 2000-2002 levels within 12 months and 22 states would be within 24 months. Right now, both Hawaii and Washington D.C. are already less affordable than they were during the pre-bubble era. On the other hand, even after 24 months under this scenario, Michigan – among other states – would still be much more affordable at the end of 2017 than it was in the early 2000s.

“We also returned to the subject of cash-out refinances. Nearly 300,000 were originated in Q3 2015 and roughly 1 million over the past 12 months, marking six consecutive quarters of rising cash-out refi volumes. In Q3 2015, 42% of all first lien refinances involved a cash-out component, the highest share since 2008. Likewise, the average cash-out amount – over $60,000 – is the highest since 2007. All totaled, there was $64 billion in equity tapped via cash-out refinances over the past 12 months, the highest dollar amount for any equivalent 12-month period since 2008 – 2009. Even so, this amounted to less than 2% of available equity being tapped. This is slightly below the post-crisis norm, and 80% less than the total amount of equity extracted from the market in 2005 – 2006. The resulting LTV and credit score risk of recent cash-out refinances remains low as well – average credit scores on cash-out refinances are 748, and the resulting post-cash-out average LTV of 67% is the lowest level on record.”  Finally, Black Knight looked at the full year of foreclosure activity in review and found that overall foreclosure starts were down 12% from 2014. First-time foreclosure starts – driven lower by the more pristine performance of recent vintages and reduced inflow of severely delinquent loans from crisis era vintages – were down 19% from last year, marking their lowest volume in over a decade. In fact, there were 30% fewer first-time foreclosure starts in 2015 than in 2005 during the run up to the housing crisis. The 377,000 foreclosure sales (completions) over the course of the year represented a 17% decline from 2014, and a 70% drop from the peak of sale activity in 2010. All totaled, there have now been 7.1 million residential homes lost to foreclosure sale since the beginning of 2007. Active foreclosure inventory ended the year below 700,000 for the first time since 2006, less than a third of what it was at the height of the crisis.

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

​-  Total US loan delinquency rate:  4.78%

​-  Month-over-month change in delinquency rate:  -2.99%

​-  Total US foreclosure pre-sale inventory rate:  1.37%

​-  Month-over-month change in foreclosure pre-sale inventory rate:  -1.00%

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

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

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

US consumer spending flat, savings rate at 3-year high

US consumers kept their spending flat in December and instead boosted their savings rate to the highest level in three years.  Consumer spending was unchanged in December after rising 0.5% in November, the Commerce Department reported Monday. Incomes increased 0.3%, matching November’s gain.  Higher incomes and flat spending pushed the savings rate to 5.5% of after-tax income in December. That was the highest level since December 2012.  The latest numbers underscore how cautious consumers were in the final three months of the year. Weak spending gains dragged overall US economic growth, which slowed to a meager 0.7% rate in the fourth quarter.  “Spending momentum slowed as 2015 drew to a close and enters the year on a weaker note,” said Jennifer Lee, senior economist at BMO Capital Markets.  But she noted that the big rise in personal savings could be setting the stage for stronger spending growth in 2016.  Economists also expect that an improving jobs market will fuel spending momentum and help push economic growth back above 2% in the current January-March quarter.

An inflation gauge preferred by the Federal Reserve fell by 0.1% in December, reflecting further declines in energy prices. Over the 12 months ending in December, this price index is up 0.6%. That was the largest 12-month gain since December 2014 but remains well below the Fed’s 2% target for inflation.  The flat reading on spending in December reflected a warmer-than-normal December that reduced demand for winter clothing. In addition, analysts blamed a wetter-than-normal month for holding back spending on autos. Demand for autos and other durable goods fell by 0.9% in December, while demand for nondurable goods such as clothing also dropped 0.9%. Demand for services including utilities rose 0.4%.  At its meeting last week, the Fed left a key interest rate unchanged six weeks after boosting it by a quarter-point, the first rate hike in nearly a decade.  Many economists believe that the recent turbulence in financial markets, weakness in the US and global economies and absence of inflation pressures may prompt the Fed to move slowly. They say the Fed is likely to reduce the number of rate hikes it makes this year from four to perhaps no more than two.

Future of Freddie and Fannie?

There has been much debate about the future or lack thereof of Fannie Mae and Freddie Mac, with opinions and declarations on Fannie and Freddie coming from the White House, Congress, trade groups, and other interested parties, just to name a few. The future of Fannie and Freddie even spawned an entire Twitter movement.  But all of those parties now have one fewer independent resource when it comes to knowledge and insight into Fannie and Freddie’s operations and the government-sponsored enterprises’ future prospects.  On Friday, FBR & Co. announced that it is dropping its analyst coverage of Fannie Mae and Freddie Mac because forecasting the results of the GSEs is, and will remain, “highly prohibitive” in the future.  According to the FBR note from analyst Paul Miller, FBR is dropping its coverage of the GSEs due a “reallocation of resources.”  In the note, Miller writes that it has been “difficult” to model the GSEs since they were put into conservatorship in September 2008, therefore it has been an extended period of time since FBR has had an operating model for the companies.  “Fannie Mae and Freddie Mac continue to be ingrained in the US housing system, generating income through single-family businesses, multifamily businesses, and capital markets operations,” Miller writes. “While both have noted that they expect to be profitable on an annual basis for the foreseeable future, regulatory or legislative changes could have drastic, material impacts on each company’s financial results in the future.”  And all that makes it very difficult to predict the future of the GSEs, Miller writes.  Additionally, Miller writes that while FBR is dropping its coverage of the GSEs, FBR is reiterating its “underperform” ratings for both Fannie and Freddie, and establishing a price target of $0.50 for each GSE.  “It remains difficult to ascertain value for common equity holders under the current structure, and as such, we reiterate our underperform ratings and price targets at the time of coverage elimination,” Miller writes.

Construction spending up 0.1% in December

US construction spending barely rose in December as spending on nonresidential structures recorded its biggest drop since 2013, suggesting a mild downward revision to the advance fourth-quarter GDP growth estimate.  Construction spending ticked up 0.1% after a downwardly revised 0.6% drop in November, the Commerce Department said on Monday.  Economists polled by Reuters had forecast construction spending rising 0.6% in December after a previously reported 0.4% drop in November.  December’s small increase and November’s slightly steeper decline could affect the government’s fourth-quarter gross domestic product estimate.  The government reported on Friday that the economy expanded at a 0.7% annual rate in the final three months of the year.  Construction outlays increased 10.5% in 2015, the biggest rise since 2005, after advancing 9.6% in 2014.  In December, construction spending was constrained by a 2.1% decline in nonresidential structures, which includes factories and offices. That was the largest drop since January 2013. Outlays on private residential construction rose 0.9%, likely boosted by warm weather.  Overall, private construction spending fell 0.6% in December.  Public construction outlays shot up 1.9%. Spending on state and local government construction projects, the largest portion of the public sector segment, increased 2.3%. Federal government construction outlays dropped 3.3%.  In a separate report, the ISM manufacturing index hit 48.2 in January. January’s ISM Manufacturing Index was expected to hit 48 in January, down from 48.2 in December, according to Thomson Reuters consensus estimates.

CoreLogic – distressed sales accounted for 12% of homes sold nationally in November 2015

CoreLogic – distressed sales accounted for 12% of homes sold nationally in November 2015

–  Of total sales in November 2015, distressed sales made up 11.9% and real estate-owned (REO) sales made up 8.7%

–  Maryland remains the state with the largest share of distressed sales among all states at 20.3%

–  Denver-Aurora-Lakewood, Colo. had the lowest distressed sales share among the largest Core Based Statistical Areas (CBSAs) at 3.1%

Distressed sales, which include REOs and short sales, accounted for 11.9% of total home sales nationally in November 2015, down 1.9 percentage points from November 2014 and up 1.4 percentage points from October 2015. This month-over-month increase was expected due to seasonality, and the magnitude of the change was in line with previous Novembers.  Within the distressed category, REO sales accounted for 8.7% and short sales accounted for 3.2% of total home sales in November 2015. The REO sales share was 1.5 percentage points below the November 2014 share and is the lowest for the month of November since 2007. The short sales share fell below 4% in mid-2014 and has remained in the 3-4% range since then. At its peak in January 2009, distressed sales totaled 32.4% of all sales, with REO sales representing 27.9% of that share. While distressed sales play an important role in clearing the housing market of foreclosed properties, they sell at a discount to non-distressed sales, and when the share of distressed sales is high, it can pull down the prices of non-distressed sales. There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%. If the current year-over-year decrease in the distressed sales share continues, it will reach that “normal” 2-percent mark in mid-2019.

All but nine states recorded lower distressed sales shares in November 2015 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 20.2%[1] in November 2015, followed by Connecticut (19.1%), Florida (19%), Michigan (18.9%) and Illinois (17.8%). North Dakota had the smallest distressed sales share at 2.7%. Nevada had a 5.4 percentage point drop in its distressed sales share from a year earlier, the largest decline of any state. California had the largest improvement of any state from its peak distressed sales share, falling 59.2 percentage points from its January 2009 peak of 67.4%. While some states stand out as having high distressed sales shares, only North Dakota and the District of Columbia are close to their pre-crisis levels (within one percentage point).  Of the 25 largest CBSAs based on mortgage loan count, Orlando-Kissimmee-Sanford, Fla. had the largest share of distressed sales at 21.2%, followed by Tampa-St. Petersburg-Clearwater, Fla. (20.7%), Baltimore-Columbia-Towson, Md. (20.4%), Chicago-Naperville-Arlington Heights, Ill. (20.4%) and Miami-Miami Beach-Kendall, Fla. (20.3%). Denver-Aurora-Lakewood, Colo. had the smallest distressed sales share among the largest CBSAs at 3.1%. Las Vegas-Henderson-Paradise, Nev. had the largest year-over-year drop in its distressed sales share, falling by 5.5 percentage points from 20.3% in November 2014 to 14.8% in November 2015. Riverside-San Bernardino-Ontario, Calif. had the largest overall improvement in its distressed sales share from its peak value, dropping from 76.3% in February 2009 to 10.9% in November 2015.

Oil prices attempt to trim losses

Oil futures pared losses on Wednesday, echoing a modest stock market recovery, but analysts said a surprise ballooning in US inventories and little chance of the world’s major producers agreeing to cut output would likely temper any rallies.  Fresh evidence of slowing growth in top commodities consumer China, along with caution before the outcome of the US Federal Reserve’s first policy meeting of the year, earlier knocked around $1 off the price of oil.  Senior OPEC and Russian officials on Tuesday stepped up vague talk of possible joint action to eliminate one of the largest oil surpluses in modern times, although few market watchers believed this would result in any cuts to output.  Brent crude was last down 26 cents at $31.54 a barrel by 1347 GMT (8:47 a.m. ET), having hit a session low of $30.83, in lockstep with European equities edging off the day’s lows. US futures fell 65 cents to $30.80 a barrel.  Oil has risen from last week’s 2003 lows after speculators unwound some of the record-high bearish positions they had racked up over the last six months.  “There is dove-tailing of moves in oil with moves in equities that is happening and of course the equity markets, we’ve seen, are so prone to risk aversion,” BNP Paribas global head of commodity strategy Harry Tchilinguirian said.  “Right now oil is buffeted between short-covering, cross-asset correlations and its own weak fundamentals.”  Oil prices have fallen nearly 16% in January, bringing total losses since the start of the decline in mid-2014 to 77%. US crude stocks rose by 11.4 million barrels last week to 496.6 million, the American Petroleum Institute said, topping analyst expectations for an increase of 3.3 million barrels.

Mortgage applications down

Mortgage applications increased 8.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 22, 2016.  This week’s results include an adjustment to account for the Martin Luther King holiday.  The Market Composite Index, a measure of mortgage loan application volume, increased 8.8% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.3% compared with the previous week.  The Refinance Index increased 11% from the previous week.  The seasonally adjusted Purchase Index increased 5% from one week earlier. The unadjusted Purchase Index increased 0.4% compared with the previous week and was 22% higher than the same week one year ago.  The refinance share of mortgage activity decreased to 59.0% of total applications from 59.1% 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 12.7% from 13.7% the week prior. The VA share of total applications increased to 11.1% from 10.8% the week prior. The USDA share of total applications remained unchanged from 0.7% the week prior.

Franchisees fight back against $15 wages

The International Franchise Association, the industry’s largest trade group, wants the Supreme Court to take up its challenge to portions of Seattle’s $15 minimum wage law.  Seattle’s City Council in June 2014 voted to raise the minimum wage in increments, hitting $15 an hour by 2017 for businesses with at least 500 staffers. The $15 level is more than double the federal hourly minimum of $7.25.

The International Franchise Association and five Seattle franchisees quickly sued Seattle, which like New York City has moved to treat smaller franchised businesses like larger companies.  They argued that the mandated $15 pay unfairly lumps franchised businesses with large employers. The association and franchisees want to be recognized as smaller businesses to get more time to raise pay incrementally to $15 by 2021.  “Our appeal has never sought to prevent the City of Seattle’s wage law from going into effect,” franchise association President Robert Cresanti said in a statement this week. “Our appeal to the Supreme Court will be focused solely on the discriminatory treatment of franchisees under Seattle’s wage law and the motivation to discriminate against interstate commerce.”  The association said a response is due from the city of Seattle within 30 days, and the Supreme Court is expected to announce this spring whether it will hear the case.

In March 2015, a federal judge threw out the franchise groups’ lawsuit, and the decision was upheld in September by the 9th US Circuit Court of Appeals.  For now, Seattle wages are tiered. The wages range from $10.50 to $13 an hour, depending on the size of the employer and whether the company pays toward medical benefits.  A representative from Seattle Mayor Ed Murray’s office could not be immediately reached for comment.  The impact of higher mandated pay on franchisees is contentious.  A recent survey from the conservative Employment Policies Institute, a conservative nonprofit research organization, found franchisees are more harmed than nonfranchised businesses when implementing wage hikes.  The survey of more than 600 businesses found franchisees are more likely to take “offsetting steps including reducing staff, reducing hours and using automation to manage the increased labor costs caused by minimum wage increases” than are nonfranchised businesses.  This trend was more pronounced in the fast food and hotel sectors — more than 80% of franchised fast food owners said they would be more likely to reduce hiring, versus 58% of non-fast-food restaurant owners. And nearly 90% of franchised hotels said they would raise room rates, compared with 70% of nonfranchised hotels.  Policymakers will compound the damage of a $15 minimum wage by arbitrarily targeting businesses with a recognizable brand for uniquely-harsh wage mandates,” Michael Saltsman, the Washington, D.C.-based institute’s research director, said in a statement.

Zillow – rapid reaction: December new home sales

–  Sales of newly built homes rose more than 10% in December from November, to 544,000 units sold (SAAR), the best month for new home sales since February 2015 and second best since 2008.

–  Similar to existing home sales, some sales that may have otherwise closed in November may have been pushed into December because of new settlement and disclosure rules.

–  The seasonally adjusted median price of a new home fell 4.3% from December 2014, to $285,200, the biggest annual decline since early 2012.

New home sales had a strong December, recording their best month since February 2015 and second-best since 2008, according to the US Census Bureau. Additionally, for the first time since July 2015, both new and existing home sales for the month moved in the same direction, reversing a months-long trend in which one would rise, and the other would fall. But even with the strong finish, sales of newly built homes are still running slightly below their February level and were roughly flat over the course of 2015. Additionally, like existing home sales, new home sales in December were likely boosted by recently adopted changes in settlement and disclosure rules that pushed closings that may have occurred in November into December. The price of new homes, which have been fetching a large premium over existing homes as builders focus on a higher-end clientele, fell 4.3% year-over-year in December (seasonally adjusted) to $285,200, the biggest annual decline since early 2012. This is some — modest — good news for buyers struggling to find a home to buy and get a hold in the market.

WSJ – what’s ahead for jumbo-loan borrowers in 2016

The jumbo-mortgage market reached new highs in 2015 and recent turmoil in global stocks is unlikely to slow it down much in 2016, industry experts say.  Lenders provided an estimated $320 billion in jumbo mortgage financing in 2015, which translates to 19% of all mortgage lending, says Guy Cecala, CEO and publisher of Inside Mortgage Finance. That’s up slightly from 18% of the market in 2014 and the highest market share since 2002, he says.  While a down stock market might mean less available cash for some home buyers to purchase an expensive home, historically people also have shifted assets to real estate as a safer investment, Mr. Cecala says. “Whether that plays out depends on how long the stock market stays down,” he adds. The market dip is likely to keep interest rates below 4% for a while longer, which also could make borrowing large sums more attractive, says Keith Gumbinger, vice president of mortgage-rate website HSH.com. The Federal Reserve also is less likely to raise short-term rates this spring, he adds.  Mr. Gumbinger expects the Fed to raise short-term rates no more than two to three times in 2016, with the average 30-year, fixed-rate jumbo not topping 4 5/8%. Five-year, adjustable-rate mortgages could go up to 4%, he adds.

Fear of rising rates and home prices could spur a homebuying frenzy in the spring, says Ray Rodriguez, regional mortgage sales manager for Cherry Hill, N.J.-based TD Bank. Existing borrowers with adjustable-rate mortgages nearing the end of their fixed-rate may also rush to refinance, he adds.  Still, overall refinance rates are expected to be lower than in 2015 since so many borrowers have already refinanced, says David Adamo, CEO of Stamford, Conn.-based Luxury Mortgage. An unexpected rate dip in winter-spring 2015 triggered a refinance frenzy.  Loosened credit-qualifications rules will continue in 2016, but nothing like what occurred in the 2000s that led to the mortgage crisis, Mr. Adamo says. Last year, minimum FICO scores for jumbos dropped to 660 for some lenders, for example, and down payments could be as low as 15% or even 10%. Still, borrowers with a credit score of 740 or above who put 20% down can expect to get the best interest rates.  Jumbo borrowers have loans that exceed conforming limits of government-back loans, $417,000 in most places and $625,500 in some high-cost areas. The Federal Housing Finance Agency didn’t raise baseline limits last year because home prices haven’t returned to prerecession levels nationwide. But 39 counties in the US—covering Denver, Nashville and Napa, Calif., among others—were bumped into the high-cost category, so borrowers there now qualify for more financing.

Also last year, the Consumer Finance Protection Bureau introduced new documents that aim to make it easier to compare different mortgage offerings. Many lenders were concerned that a new rule requiring a three-day waiting period for borrowers to receive and review the documents would delay closings or kill deals, but lenders, real-estate agents and borrowers largely adapted to the change, says John Schleck, Bank of America’s online and centralized sales executive. “We spent a lot of time getting ready and it paid off,” he adds.  Finally, more borrowers will be able to conduct business virtually this year, a trend expected to rise rapidly in future years, says Victor Ciardelli, CEO of Chicago, Ill.-based Guaranteed Rate. That trend isn’t limited to online lenders either. For example, Wells Fargo Home Mortgage rolled out a new feature for its YourLoanTracker service in which borrowers can receive and upload documentation via a mobile or other digital device, as well as track loan progress, says Brad Blackwell, executive vice president and portfolio business manager for the company.  Unless the bottom falls out of the economy, jumbo lenders predict continued demand, Mr. Cecala says. Regional banks and nonbank lenders were able to expand their jumbo mortgage volume largely because of continued enthusiasm on the part of big banks to buy and hold them in portfolio.  Wells Fargo remains the nation’s largest jumbo lender, both for originations and purchasing loans from other lenders to hold in portfolio. “We have a strong appetite for jumbo lending,” Mr. Blackwell says.

Black Knight – home price index report

Today, the Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Home Price Index (HPI) report, based on November 2015 residential real estate transactions. The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states. Non-disclosure states do not include property sales price information as part of their publicly available county recorder data. Black Knight is able to obtain the sales price information for these states by combining and matching records across its unique data assets.

–  At $253K, US HPI is 5.3 % off June 2006 peak of $268K, and up 27 % from the market’s bottom

–  California home prices declined for the second straight month, though seasonally adjusted numbers suggest continued but slowing growth for the state

–  For the fifth consecutive month, New York led gains among the states, with 1.2 % month-over-month appreciation pushing its HPI to a new high of $357K

–  Tennessee and Texas also hit new peaks again in October, as did seven of the nation’s 40 largest metro areas

Average US gas price drops 14 cents in two weeks

The average price of a gallon of gasoline in the United States fell 14 cents in the past two weeks to its lowest level in seven years, according to a Lundberg survey released on Sunday.  Regular grade gas fell to $1.91 per gallon in the Jan. 22 survey from $2.05 on Jan. 8, when the previous survey was taken. The price was the lowest since Jan. 23, 2009, when it was roughly $1.86, survey publisher Trilby Lundberg said.  The latest price was 16 cents lower than a year ago as the continued plunge in crude oil prices drove gas prices lower, Lundberg said.  She said, however, that the latest average gas price could mark a bottom if a rebound in crude prices that occurred on Friday continued.  “If crude oil prices do not slip back down, then this will end the gasoline price decline, and if oil prices recover more substantially from here, then it will also spell some rises in the average pump price,” she said.  Oil prices sank to their lowest levels since 2003 during the survey’s reporting period before surging 10 % last Friday, as bearish traders who took record short positions scrambled to close them, betting the market’s long rout may finally be over.  In the Lundberg panel of large cities in 48 states, the lowest average retail price for gas was in Tulsa, Oklahoma, at $1.48 per gallon, and the highest was in Los Angeles, at $2.80 per gallon.

​​​​​​​​​​​​​​Zillow – key takeaways from the December existing home sales report

–  Existing home sales jumped 14.7 % month-over-month in December, to 5.46 million units (SAAR), more than reversing the 10.5 % decline reported in November.

–  The end-of-year volatility is likely the result of regulatory changes surrounding the implementation of new mortgage disclosure rules, which pushed some closing from November into December.

–  The median seasonally adjusted price of existing homes sold reached a new all-time high of $229,000, surpassing its pre-crisis peak for the first time.

Existing home sales increased 14.7 % from November to December to 5.46 million units, at a seasonally adjusted annual rate (SAAR), according to the National Association of Realtors. Buoyed by regulatory changes that likely pushed some closings into December from November, existing home sales more than reversed the 10.5 % decline reported from October to November. Over the year, existing home sales are up 7.7 %. b Sales certainly did rise last year: 2015 was the best year for existing home sales since 2006, and even ended up recording slightly more than the number of sales in the relatively stable housing market years of 1999 and 2000. But in 2015, the labors of spring did not necessarily yield a fall harvest: After a strong start to the year, upward momentum puttered out in late summer, and the trend for the second half of the year was decidedly downward. Home sales increased 15.8 % from January to July, but then fell 2.2 % from July to December.  Existing home sales have been particularly volatile over the past year. In eight of the past 12 months, home sales have reversed direction from the previous month – an increase in existing home sales is followed by a decrease, or vice versa. This level of volatility ranks in the top quintile of months ranked by this measure of volatility going back through the history of the series.

Another way to look at the volatility in existing home sales is to consider the standard deviation of the month-over-month % change in sales –essentially, how far away from the average monthly % change each month’s data has gotten. The trailing 12-month moving average of the standard deviation of the month-over-month change in existing home sales is now higher than it has ever been (excluding December 2009 and July 2010, when home sales surged due to expiring homebuyer tax credits). The big swings of the past two months played a large role in this trend.  The median seasonally-adjusted price of existing homes sold continued its upward march, rising 2.1 % to $229,000 in October from $224,100 in November, up 7.7 % from a year earlier. The seasonally adjusted median price of existing homes sold is now at all-time highs, after surpassing its pre-crisis peak of $227,200 reported in November 2005.

McDonald’s 4Q results blow past expectations

McDonald’s reported better-than-expected quarterly same-restaurant sales, helped by the launch of all-day breakfasts in the United States and strong demand in China.  Global same-restaurant sales rose 5 %, above the 3.2 % expected by analysts polled by research firm Consensus Metrix.  The world’s biggest restaurant chain’s shares rose 3 % in premarket trading on Monday.  Sales at US restaurants open at least 13 months rose 5.7 %, handily beating the average estimate of 2.7 %.  McDonald’s introduced all-day breakfasts in its US restaurants in October, in a bid to attract more diners in the face of growing competition from rivals such as Chipotle Mexican Grill and Shake Shack.  “As we enter 2016, we expect continued positive top-line momentum across all segments,” said Chief Executive Officer Steve Easterbrook, who took the helm last year.  The company does not break out China sales but said sales in its “high growth” markets, which include Russia and China, rose 3 %.  The company’s net income rose to $1.21 billion, or $1.31 per share, in the fourth quarter ended Dec. 31, from $1.1 billion, or $1.13 per share, a year earlier.  Analysts on average had expected earnings of $1.23 per share, according to Thomson Reuters I/B/E/S.  Revenue fell 3.5 % to $6.34 billion, mainly due to a strong dollar, but beat the average analyst estimate of $6.22 billion.

Virginia reaches $63 million settlement with 11 banks for RMBS fraud

The Commonwealth of Virginia announced Friday that it reached a “record” settlement with 11 banks over allegations that the banks defrauded the state’s retirement system by allegedly misrepresenting the quality of residential mortgage-backed securities in the run-up to the financial crisis.  According to the office of Virginia Attorney General Mark Herring, the $63 million settlement is the largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act.  Herring’s office said that the settlement resolves all claims against the 11 banks that were accused of “harming” the Virginia Retirement System, Virginia’s taxpayers, and the pensioners of Commonwealth through “misrepresentation” of the quality of mortgage bonds sold to the VRS.  According to Herring’s office, the banks did not admit liability, and Virginia has dismissed the claims against the defendants with prejudice, in exchange for settlements of the following amounts:

Countrywide Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith, Inc. (combined): $19,500,000

RBS Securities: $10,000,000

Barclays Capital: $9,000,000

Morgan Stanley & Co.: $6,900,000

Deutsche Bank Securities: $5,621,897

Citigroup Global Markets: $4,750,000

Goldman, Sachs & Co.: $2,900,000

HSBC Securities: $2,500,000

Credit Suisse Securities: $1,200,000

UBS Securities: $850,000

According to Herring’s office, Virginia initially sought to recover $383 million in alleged damages, including $250.66 million of realized losses.  “This case breaks new ground for Virginia, recovering millions for Virginia taxpayers from banks that we alleged had misrepresented the products they sold to the Commonwealth,” Herring said. “Today’s settlement, which represents significant relief to VRS, taxpayers and pensioners of the Commonwealth, is one of the largest of its kind in the nation.”

Black Knight Financial Services’ “First Look” at December 2015

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

–  Delinquency rate down 3% for the month; ends 2015 at 4.8% of active mortgages

–  Prepayment rate (historically a good indicator of refinance activity) up 24% from lackluster November

–  90-day delinquent inventory falls 19,000 in December, reversing two consecutive months of increases

–  Foreclosure starts up more than 17% from post-crisis low in November; still 15% below last year’s levels

Leading indicators dip in December

A key economic measure declined in December, reflecting weakness in housing and manufacturing, according to The Conference Board Friday.  The Leading Economic Index fell 0.2% in December to 123.7, following a 0.5% increase in both November and October, the business trade association said.  “The US LEI fell slightly in December, led by a drop in housing permits and weak new orders in manufacturing,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “However, the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015.”  The LEI, a closely followed barometer of economic health, has 10 components including manufacturer’ new orders, stock prices, and average weekly initial claims for unemployment insurance. Despite December’s decline, Ozyildirim said in a statement it is still too early to interpret the results as a risk of recession.

NAR – existing-home sales surge back in December

Existing-home sales snapped back solidly in December as more buyers reached the market before the end of the year, and the delayed closings resulting from the rollout of the Know Before You Owe initiative pushed a portion of November’s would-be transactions into last month’s figure, according to the National Association of Realtors (NAR). Led by the South and West, all four major regions saw large increases in December.  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, ascended 14.7% to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November. After last month’s turnaround (the largest monthly increase ever recorded), sales are now 7.7% above a year ago.  The median existing-home price for all housing types in December was $224,100, up 7.6% from December 2014 ($208,200). Last month’s price increase marks the 46th consecutive month of year-over-year gains.  Total housing inventory at the end of December dropped 12.3% to 1.79 million existing homes available for sale, and is now 3.8% lower than a year ago (1.86 million). Unsold inventory is at a 3.9-month supply at the current sales pace, down from 5.1 months in November and the lowest since January 2005 (3.6 months).

The% share of first-time buyers was at 32% in December (matching the highest share since August), up from 30% in November and 29% a year ago. First-time buyers in all of 2015 represented an average of 30%, up from 29% in both 2014 and 2013. A separate NAR survey released in late 2015 revealed that the annual share of first-time buyers was at its lowest level in nearly three decades.  All-cash sales were 24% of transactions in December (27% in November) and are down from 26% a year ago. Individual investors, who account for many cash sales, purchased 15% of homes in December, down from both 16% in November and 17% a year ago. Sixty-four% of investors paid cash in December.  According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage stayed below 4% for the fifth consecutive month but increased in December to 3.96 from 3.94% in November. The average commitment rate for all of 2015 was 3.85%.  Properties typically stayed on the market for 58 days in December, an increase from 54 days in November but below the 66 days in December 2014. Short sales were on the market the longest at a median of 86 days in December, while foreclosures sold in 68 days and non-distressed homes took 57 days. Thirty-two% of homes sold in December were on the market for less than a month.  “December’s rebound in sales is reason for cautious optimism that the work to prepare for Know Before You Owe is paying off,” says NAR President Tom Salomone. “However, our data is still showing longer closing timeframes, which is a reminder that the near-term challenges we anticipated are still prevalent. NAR advised members to extend the time horizon on their purchase contracts to address this concern, and we’ll continue to work with our industry partners to ensure 2016 is a success for consumers, homeowners and Realtors alike.”

Distressed sales – foreclosures and short sales – declined to 8% in December, down from 9% in November and 11% a year ago. Six% of December sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 16% below market value in December (15% in November), while short sales were discounted 15% (unchanged from November).  Single-family home sales jumped 16.1% to a seasonally adjusted annual rate of 4.82 million in December from 4.15 million in November, and are now 7.1% higher than the 4.50 million pace a year ago. The median existing single-family home price was $226,000 in December, up 8.0% from December 2014.  Existing condominium and co-op sales increased 4.9% to a seasonally adjusted annual rate of 640,000 units in December from 610,000 in November, and are now 12.3% above December 2014 (570,000 units). The median existing condo price was $209,900 in December, which is 4.9% above a year ago.  December existing-home sales in the Northeast increased 8.7% to an annual rate of 750,000, and are now 11.9% above a year ago. The median price in the Northeast was $255,700, which is 5.3% above December 2014.  In the Midwest, existing-home sales jumped 10.9% to an annual rate of 1.22 million in December, and are now 9.9% above December 2014. The median price in the Midwest was $171,000, up 7.5% from a year ago.  Existing-home sales in the South leaped 14.6% to an annual rate of 2.27 million in December, and are now 4.6% above December 2014. The median price in the South was $196,100, up 6.8% from a year ago.  Existing-home sales in the West catapulted 23.2% to an annual rate of 1.22 million in December, and are now 8.9% higher than a year ago. The median price in the West was $321,100, which is 8.2% above December 2014.

Oil gains 8%

Oil extended its gains and soared about 8% on Friday, as a cold snap boosted demand for heating oil, bringing with it a welcome break to the extremely bearish sentiment that had gripped oil markets this year.  The recovery stopped Brent oil prices heading toward a near 17-percent drop in January, the largest slide in the first month of the year in at least a quarter of a century.  “I think panic took over common sense and now we’re starting to get a grip on reality,” said Phil Flynn, analyst at Price Futures Group in Chicago.  A large driver of the rebound in prices over the last two days has also been short covering, the practice of buying back an asset sold previously at a higher price, as investors take advantage of the lowest prices since 2003 to close out some of their more profitable bets on price declines.  That and hopes for easier monetary policy from Europe have been catalysts to lift oil prices by 12% in just two days.  Brent rose $2.47, or 8.4%, to $31.72 a barrel, by 2:03 p.m. EST (1903 GMT), set for its biggest one-day rise since August.  Some analysts pointed to a largely similar rally in oil prices in late August, which was followed by eight weeks of choppy trading and ultimately a break to new lows.  US crude rose $2.35 to $31.88 per barrel, an 8% gain.  Heating oil futures led the markets higher, with ICE gas oil futures soaring more than 11%, their biggest percentage gain since January 2009. US heating oil was up more than 9%, its biggest one-day gain since September 2005.

CoreLogic – national months’ supply of homes for sale at 5.7 in October 2015

The US home sales market remains strong, and the for-sale inventory remains lean. Nationally, the number of homes for-sale equated to a 5.7 months’ supply in October 2015, back down to the pre-housing-crisis level and only a third of its peak in January 2008.  There are four price tiers: low price (0-75% of median list price), low-to-middle price (75-100% of median list price), middle-to-moderate price (100-125% of median list price) and high price (125% or more of median list price). Usually the high price tier has the largest months’ supply and the low-to-middle price tier has the lowest months’ supply. The differences in the months’ supply among the four price tiers were greatest during 2007-2009 crisis period, when the high price tier peaked at 21.2 months while the other tiers remained under 15 months.  Here’s how each price tier’s months’ supply in October 2015 compares with its recent history:

–  The low price tier had a 4.8-month supply, which was back down to the September 2005 level, and less than half of its January 2008 peak. The October 2015 months’ supply was still 26% above the low-price tier’s May 2002 trough.

–  The low-to-middle price tier also had a 4.8-month supply in October, which was back to its September 2004 level, as well as about a third of its January 2009 peak, and 34% above its June 2000 trough.

–  The middle-to-moderate price tier had a five-month supply in October, back to its April 2005 level. The October supply was about a third of its January 2008 peak, and 31% above its August 2003 trough.

–  The high-price tier had a 7.6-month supply in October, back to its June 2006 level. The October supply was a third of its January 2009 peak, and 55% above its June 2000 trough.

With demand strong and supply tight, many homes don’t spend long on the market.  Figure 2 shows that over the past two years the share of homes selling within 30 days of the initial list date2 has been at historical highs. In October 2015, the share selling within 30 days was 16.2%, which is higher than the pre-crisis peak of 13.9% in February 2006, and about twice November 2008 trough. Figure 3 shows the share of the for-sale inventory that was on the market for more than 180 days.  In October 2015, the share was 23.5%, which was about 8 percentage points lower than the peak in July 2009 but still about 7 percentage points higher than the trough in January 2005. Nationwide, the home sales market stayed strong over the past year, with only a tiny gain in the months’ supply-5.7 months in October 2015 compared with 5.5 months in October 2014. Half of the CBSAs had decreases in their months’ supplies compared with a year earlier. The months’ supplies in the Miami and Chicago metro areas increased from 8.7 months and 6.4 months in October 2014, respectively, to 9.3 months and 8.3 months in October 2015. Denver and San Francisco had the lowest months’ supplies in October 2015: 2.2 months and 2.6 months, respectively.

Zillow – December market report: expect rental growth to cool in 2016, but affordability problems to remain

–  As of December, median US rents were growing at a 3.3% annual pace, according to the Zillow Rent Index. That pace of growth is forecasted to slow to 1.1% nationwide by December 2016.

–  Apartment developers have ramped up in a number of large US markets in the face of high demand, with more rental units coming online.

–  Even with the slowdown, rents will remain unaffordable in many of the major markets across the US, especially on the West Coast.

For the past few years, a major theme in housing has been rapid rental growth, and the largely negative impacts that is having on the housing market on everything from homeownership rates to affordability. But over the next year, there is – some – relief in sight.  As of December, median US rents grew at a 3.3% annual pace, to $1,381 per month, according to the Zillow Rent Index. That pace of growth is forecasted to slow to 1.1% nationwide by December 2016, rising to $1,396 per month, according to the newly released Zillow Rent Forecast. After years of struggling to meet rampant demand from renters young and old, apartment developers have ramped up in a number of large US markets. Enough new units have now been brought online to help blunt some of the rental appreciation we’ve been seeing.  Dozens of cranes dotting the skylines of cities from Seattle to Washington, D.C., are a testament to the efforts of builders to bring more apartments (albeit mostly at the high end) to the market. And as more units come online, the vacancy rate within principal cities is rising – if only modestly, according to the Census Bureau – reflecting this new supply and helping keep rent increases in check. Even in cities like Denver – where rents are both growing rapidly currently (up 8.7% year-over-year in December, almost triple the national average) and are expected to keep growing robustly (by 4% in 2016) – landlords are offering more concessions to their tenants in a bid to keep vacancy rates low.  And in some markets, rents may actually go down in 2016 – likely the result of relatively weak demand and sluggish local economies with limited job growth, combined with some new supply coming on line. Large markets where renters could expect their rents to fall this year include Indianapolis (median rent expected to fall 3.6% in 2016), Oklahoma City (-1.8%) and Las Vegas (-1.8%).

The slowdown in rental growth will undoubtedly provide some welcome relief for renters who’ve been experiencing sometimes dramatic rent increases every single year for the past few years. But make no mistake – even with the slowdown in rental appreciation, rents will keep rising and will remain unaffordable in many of the major markets across the US, especially on the West Coast.  Renters in San Francisco and Los Angeles, for example, can currently expect to spend more than 40% of their income on a rental payment, and its not as though rents are expected to go down in those markets this year. To the contrary, median rents in L.A. are expected rise 2.8% in 2016 and 5.9% in San Francisco – both well above the national forecast.  And while the expected slowdown is significant nationally, in some local markets, rental growth will just barely cool off. In Miami, for example, rents are currently growing at a 3.9% annual pace. Over the next year, that pace is expected to slow by just 0.4 percentage points, to 3.5%. In San Jose, rents are currently growing by 8.9% year-over-year, with growth slowing to a still-hot 7.8% annual pace over the course of 2016.  Those are hardly large enough slowdowns to make much of a meaningful difference to renters struggling with affordability in those areas.

In December, the median US home was worth $183,500, according to the Zillow Home Value Index, up 0.2% from November and 4% from December 2014. Annual home value growth was consistent in all three months of the fourth quarter, growing at 4% in October, November and December, an indicator of increased stability in the housing market after several years of wild up and down swings.  Home values in 25 of the nation’s 35 largest metro markets grew faster year-over-year than the nation’s 4% annual pace in December. Home values grew by more than 10% per year in six of those large metro markets: Denver (up 15.2% year-over-year), Dallas (14%), San Jose (12.9%), Portland (12.4%), San Francisco (12.3%) and Miami (10.4%). None of the nation’s largest metros experienced annual home value declines in December.  Nationwide, home values remain 6.4% below their pre-recession, May 2007 peak of $196,100. But in 11 of the 35 largest metro markets, median home values have never been higher, having surpassed their recession-era peaks. These markets include: Pittsburgh, Charlotte, Columbus (Ohio), San Antonio, Houston, Austin, San Francisco, Portland (Oregon), San Jose, Dallas-Fort Worth and Denver. Median home values in the Boston area ($382,900 as of December) are a scant 0.5% below their September 2005 peak of $384,900.  The US median rent in December was $1,381 per month, flat from November and up 3.3% from December 2014. US rents have grown year-over-year for 40 consecutive months.  Median rents in all 35 of the nation’s largest metro markets grew year-over-year to some extent, though a dozen experienced modest month-over-month declines in rent, while two more were flat from November. Rents grew fastest year-over-year in the San Francisco (up 12.5% from December 2014), Portland (up 9.7%) and San Jose (up 8.9%) metros.

Outlook

Hot rental markets are still going to be hot in 2016, but rents won’t rise as quickly as they have been. The slowdown in rental appreciation will provide some relief for renters who’ve been seeing their rents rise dramatically every single year for the past few years. But the situation remains tough on the ground: rents are still rising and renters are struggling to keep up.  Trendy tech centers like San Francisco, Seattle and Denver hogged the spotlight in 2015. And while those markets will continue to thrive this year, the markets that shine brightest will be those that manage to strike a good balance between strong income growth, low unemployment and solid home value appreciation. As the job market continues to hum and opportunity becomes more widespread, the best housing markets in 2016 will no longer limited to the coasts or one-industry tech towns. This year’s hottest markets – including markets as diverse as Omaha, Boise and Richmond – will have something for everyone, whether they’re looking for somewhere to raise a family or start their career.

 

MBA – refinance mortgage applications increase

Mortgage applications increased 9.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 15, 2016.  The Market Composite Index, a measure of mortgage loan application volume, increased 9.0% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 12% compared with the previous week.  The Refinance Index increased 19% from the previous week.  The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index increased 4% compared with the previous week and was 17% higher than the same week one year ago.  The refinance share of mortgage activity increased to 59.1% of total applications from 55.8% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.0% of total applications.  The FHA share of total applications decreased to 13.7% from 14.4% the week prior. The VA share of total applications decreased to 10.8% from 12.2% the week prior. The USDA share of total applications decreased to 0.7% from 0.8% the week prior.

WSJ – after 7 years of slow growth, US now sees more of same

Economists, business executives and American workers have waited a long time for the US to shake off its postrecession hangover. Robust growth often seemed right around the corner—maybe next quarter, maybe next year.  Not anymore.  Most Federal Reserve policy makers and private forecasters are giving up on the long-awaited breakout and instead predicting little change in 2016 and beyond: an economy growing a little faster than 2%, just like it has for years.  “To tell a story of 3% growth at this point—it’s not that it can’t happen, but it’s unlikely,” said Joseph LaVorgna, the once-optimistic chief US economist at Deutsche Bank.  The broadest measure of goods and services produced across the US economy, gross domestic product, exhibits ups and downs but on average has expanded at an inflation-adjusted annual pace of 2.2% since the recession ended in mid-2009, far below its 3.6% average during the second half of the 20th century, according to Commerce Department data.  The impact goes beyond mere numbers: An economy experiencing sustained fast growth creates more jobs, raising household incomes and living standards, while very slow growth can mean stagnation.  Economists aren’t sure why growth has slowed down. Some argue it reflects powerful long-term trends affecting the US and other advanced economies. Others point to temporary, if stubbornly persistent, headwinds generated by the financial crisis and recession. And to be sure, some optimists still predict growth soon will return to its old form—if the global economy regains its footing, if expansionary fiscal policy provides a tailwind for growth, if tax and regulatory reform unleashes business investment, if productivity gains pick up.

The debate over ways to generate stronger and broader growth is political as much as economic, reverberating on the 2016 presidential campaign trail as voter anger has helped boost antiestablishment candidates. Seven in 10 Americans in December said the country was on the wrong track and just 24% thought the economy would improve in the coming year, according to a Wall Street Journal/NBC News survey.  “Some have suggested that a 2% growth rate is and will be the new normal for the economy,” said Sen. Dan Coats (R., Ind.) on Dec. 3 when Fed Chairwoman Janet Yellen testified before the Joint Economic Committee, of which he is chairman. “All of us should view these low economic expectations as unacceptable.”  But basic building blocks of sustained stronger growth are missing, at least for now. Productivity growth has slowed to a crawl since its information-technology-fueled surge more than a decade ago and an aging population will mean slower workforce growth in the coming years. Fed officials this year stopped predicting growth would accelerate toward or beyond 3% in the near future, and most in December forecasted that growth will hover around 2% in the long run.

Private economists have similarly lowered their expectations. Deutsche Bank’s Mr. LaVorgna, who overoptimistically predicted growth above 3% headed into 2014 and 2015, has predicted 2% growth in 2016. He said he changed his mind when revisions in mid-2015 showed the trend for growth in recent years had been lower than previously thought, and after cheap gasoline failed to generate meaningful acceleration in consumer spending.  “It’s hard to see what’s going to lead us to stronger growth,” he said, and “our best guess is that we’ll continue to trudge along at 2%.”  Few want to embrace slower growth, but some economic policy makers sound increasingly comfortable with the idea. Federal Reserve Bank of Richmond President Jeffrey Lacker was asked during a Dec. 18 panel in Charlotte, N.C., if slow growth would be the new status quo. “A case could be made for that,” he said, “but I also think a case could be made that we shouldn’t be as disappointed about it as you might think.” He said the working-age population is growing more slowly, “so you have to handicap it on that basis,” and added that the economy is still generating more than enough jobs for people entering the workforce.

In any case, we might miss slow growth when it’s gone. The longest postwar US economic expansion lasted 120 months, and the current expansion will hit that benchmark in the middle of 2019—unless a recession strikes first. At 6½ years, it’s already lasted longer than the post-World War II average. Fresh worry has emerged in recent weeks about US prospects amid plunging oil prices, a swooning stock market and a slowdown in China, the world’s No. 2 economy.  In theory, a slow-growing economy is more vulnerable to shocks that can push it into recession. This expansion, however, has proven remarkably durable. Quarterly GDP growth has dipped into negative territory twice in recent years, but both times swiftly rebounded.  “The fact that this has been quite a long expansion doesn’t lead me to believe that…its days are numbered,” Ms. Yellen said Dec. 16. While she said there’s a significant probability in any given year that the economy will be pushed into recession, “I don’t see anything in the underlying strength of the economy that would lead me to be concerned about that outcome.”

US housing starts, permits fall in December

US housing starts and permits fell in December after hefty gains the prior month, adding to a raft of weak data that have raised concerns over the health of the economy.  Groundbreaking dropped 2.5% to a seasonally adjusted annual pace of 1.15 million units, the Commerce Department said on Wednesday. November’s starts were revised to a 1.8 million-unit rate from the previously reported 1.17 million-unit pace.  December was the ninth straight month that starts were above 1 million units, the longest run since 2007. Housing starts averaged 1.11 million units in 2015, the highest since 2007 and up from 1.00 million units in 2014.  Building permits fell 3.9% a 1.23 million-unit rate last month. The drop followed two months of hefty gains.  Permits for the construction of single-family homes rose 1.8% last month. Multi-family building permits tumbled 11.4%.

US consumer prices fall on lower energy prices

US consumer prices unexpectedly fell in December as the cost of energy goods dropped and services rose moderately, a trend that if sustained suggests inflation could be slow to rise toward the Federal Reserve’s target.  The Labor Department said on Wednesday its Consumer Price Index slipped 0.1% after being unchanged in November. Despite the drop last month, the CPI increased 0.7% in the 12 months through December, the biggest increase in a year.  The rise followed a 0.5% gain in November. The year-over-year inflation rate is rising as the oil price-driven weak readings in 2015 drop out of the calculation. The boost from the so-called base effects could, however, be limited by lower oil prices, which are near 12-year lows.  Economists polled by Reuters had forecast the CPI unchanged last month and rising 0.8% from a year ago.  The so-called core CPI, which strips out food and energy costs, edged up 0.1% after rising 0.2% for three straight months. In the 12 months through December, the core CPI rose 2.1%, the largest gain since July 2012, after climbing 2.0% in November.

The Fed, which has a 2% inflation target, tracks a price measure that is running well below the core CPI.  The soft monthly inflation readings, together with further declines in oil prices suggest it could be harder for inflation to rise toward the central bank’s target this year.  With Fed officials watching inflation expectations, financial market conditions tightening and economic growth appearing to have significantly slowed in recent months, the chances of another interest rate hike in March are diminishing.  Some economists, including JPMorgan have pushed back their rate hike expectations to June. The Fed raised its benchmark overnight interest rate in December by 25 basis points to between 0.25% and 0.50%, the first hike in almost a decade.  Last month, energy prices dropped 2.4%, with gasoline tumbling 3.9%. Energy prices declined 1.3% in November, while gasoline fell 2.4%. Food prices fell for a second straight month.  The increase in the core CPI was kept in check by moderate increases in rents and medical care costs. Owners’ equivalent rent of residences increased 0.2% after a similar gain in November. It was up 3.1% in the 12 months through December, reflecting rising demand for rental accommodation as more young people find employment.  Medical care costs edged up 0.1%, slowing from a 0.4% rise in November. The cost of doctor visits were unchanged after jumping 1.1%. Hospital costs were also unchanged after falling in November.  A strong dollar, as well as an inventory bloat is dampening prices for some core goods. Apparel prices fell 0.2%, declining for a fourth straight month. Prices for new motor vehicles dipped 0.1%, reversing the prior month’s increase.

NAHB – residential remodeling spending trending up

Spending on residential remodels will continue to trend upward, according to experts at a press conference hosted by the National Association of Home Builders (NAHB) Remodelers at the International Builders’ Show in Las Vegas. Professional remodelers from around the country agreed with the forecast, citing clients’ increased financial security.  NAHB projects that remodeling spending for owner-occupied single-family homes will increase 1.1% in 2016 over 2015, and another 1.9% in 2017.  “Our remodeler members have regained confidence in the market as home owners move forward with new remodeling projects, as reflected in the positive fourth quarter results of NAHB’s Remodeling Market Index,” said 2016 NAHB Remodelers Chair Tim Shigley, CAPS, CGP, GMB, GMR, a remodeler from Wichita, Kan. “NAHB Remodelers looks forward to working in a strengthened market as remodeling continues to increase in popularity.”  “After recent revisions, Census estimates now indicate that improvements to owner occupied housing increased at a real rate of 1.3% last year, which is consistent with NAHB’s expectations and our measure of remodelers’ sentiment,” said Paul Emrath, NAHB’s vice president for survey and housing policy research. “Going forward, we expect this modest growth in the market to continue, fueled in part by steady appreciation in house prices that will enable owners to tap into their home equity to fund remodeling projects.”  “While the economic recovery has brought about a surge of remodeling activity for second homes in our market, access to credit continues to hamper the remodeling market’s full potential locally,” said Jeff Grantham, CAPS, CGP, CGR, GMB, a remodeler from Petoskey, Mich. “We remodel many of these homes to make them accessible to family members of all ages.”

MBA – applications for new home purchases decreased in December

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for December 2015 shows mortgage applications for new home purchases decreased by 5% relative to the previous month. This change does not include any adjustment for typical seasonal patterns.  “The BAS showed mixed-results last month with some lenders seeing steady or slightly increasing application levels while others saw declines.  On net, we estimate that new single-family home sales were down by about 8% in December on a seasonally adjusted basis relative to November, but remain 17% above a year ago,” said Lynn Fisher, MBA’s Vice President of Research and Economics.  By product type, conventional loans composed 68.0% of loan applications, FHA loans composed 18.5%, RHS/USDA loans composed 1.0% and VA loans composed 12.6%. The average loan size of new homes increased from $320,854 in November to $333,182 in December.  The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 480,000 units in December 2015, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.  The seasonally adjusted estimate for December is a decrease of 8.4% from the November pace of 524,000 units.  On an unadjusted basis, the MBA estimates that there were 34,000 new home sales in December 2015, a decrease of 8.1% from 37,000 new home sales in November.

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