CoreLogic – US economic outlook: September 2016
A comparison of the rental apartment industry with the single-family home sector is like a tale of two cities. The rental market continues to show historic strength while single-family housing activity remains subpar. Rental vacancy rates are at 30-year lows, rents are up, and apartment property values are at new highs.
These robust fundamentals, coupled with low financing costs, have helped to propel mortgage lending on apartment buildings. The drop in financing costs has been an especially important ingredient to the surge in new lending. Multifamily fixed-rate lending, similar to other commercial mortgage loans, tends to be priced relative to movements in 10-year US Treasury yields.
In July, 10-year Treasury yields recorded the lowest monthly average since the Federal Reserve began to track these in 1953. The very low yields currently in the capital market have also enabled commercial mortgage rates to ease. In the second quarter of this year, interest rates on multifamily mortgage commitments made be Life Insurance companies had already fallen to the lowest recorded in more than 50 years, an average of 3.6% for 10-year, fixed-rate loans.
Using the CoreLogic public records data, we tabulated the volume of new lending and found that 2016 is on track to surpass last year’s record volume of new originations. Last year multifamily originations totaled more than $200 billion. During the first six months of 2016, originations were up 5% relative to the same period last year, and with the even lower interest rates in recent months, we could see multifamily lending post an increase of closer to 10% relative to 2015.
The increase in lending has occurred both for building acquisition and for refinance of existing properties. Purchase-money lending was up more than 10% year over year in the first half of 2016. And with loans made a decade ago reaching the end of their yield maintenance periods and valuation gains increasing equity, refinance of first liens or placement of mezzanine debt continue to supplement originations.
Looking at lending by location, multifamily dollar originations are generally concentrated in the largest metropolitan areas. The New York city metropolitan area tops the list on a perennial basis, followed by the Los Angeles metropolitan area; these two locales accounted for roughly 20% of dollar lending in 2015.
The Chicago, Dallas, Anaheim and Washington, DC metropolitan areas were the next four in volume, with the top six accounting for about one-third of dollar originations last year. With rental market fundamentals remaining strong and commercial mortgage rates at or near record lows, 2016 is on track to set a new record for multifamily originations.
US trade deficit narrowed sharply in July
The US trade deficit narrowed in July as American exports picked up, a sign of strengthening global demand. The trade gap narrowed 11.6% from a month earlier to a seasonally adjusted $39.47 billion, the Commerce Department said Friday. Imports fell 0.8% while exports rose 1.9%. Economists surveyed by The Wall Street Journal expected the deficit to narrow to $40.3 billion in July. The June deficit was revised to $44.66 billion from $44.51 billion.
July’s 1.9% rise in exports was the largest increase in more than two years. It came despite a surge in the dollar’s value against other currencies in late June following the Brexit vote, a rise that lasted through most of July. A strong dollar makes US goods and services more expensive for overseas buyers and makes imports cheaper for US consumers.
Both exports and imports have fallen since the end of 2014 amid economic turmoil and lackluster growth in many overseas economies. A rise in exports supports economic growth in the US because it means overseas customers are spending more money on American goods and services. In July, exports of foods, feeds and beverages—especially soybeans —rose to the highest level on record.
Friday’s report showed 2016 has still been a slow year for international trade. Through the first seven months of this year, exports fell 4.8% compared with the same period a year earlier, and imports decreased 4.0%. The deficit was roughly the same, down just 0.2% over the period. Imports of crude oil fell in July as the per-barrel price rose for the fifth straight month to its highest level since September 2015.
MBA – commercial/multifamily delinquencies remain low in second quarter
Delinquency rates for commercial and multifamily mortgage loans remained low in the second quarter of 2016, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. “For most capital sources, commercial and multifamily mortgage delinquency rates are near the lowest levels seen during the past 20 years,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Strong property fundamentals, rising property values and solid mortgage availability are all supporting these rates.”
The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae, and Freddie Mac. Together these groups hold more than 80% of commercial/multifamily mortgage debt outstanding. Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of the second quarter were as follows:
– Banks and thrifts (90 or more days delinquent or in non-accrual): 0.66%, a decrease of 0.07 from the first quarter of 2016;
– Life company portfolios (60 or more days delinquent): 0.11%, an increase of 0.05 from the first quarter of 2016;
– Fannie Mae (60 or more days delinquent): 0.07%, an increase of 0.01 percentage points from the first quarter of 2016;
– Freddie Mac (60 or more days delinquent): 0.02%, a decrease of 0.02 percentage points from first quarter of 2016;
– CMBS (30 or more days delinquent or in REO): 4.04%, an increase of 0.17 percentage points from the first quarter of 2016.
WSJ – US payroll growth slowed in august; jobless rate held steady
Hiring cooled in August but remained consistent with steady US job growth capable of holding down unemployment and producing decent wage gains. Nonfarm payrolls rose by a seasonally adjusted 151,000 last month, the Labor Department said Friday. Revisions showed US employers added 1,000 fewer jobs in June and July than previously estimated.
The unemployment rate, calculated from a separate survey of American households, was 4.9% in August, unchanged from July. Economists surveyed by The Wall Street Journal had expected employers would add 180,000 jobs in August and forecast an unemployment rate of 4.8%. Average hourly earnings for private-sector workers rose by 3 cents, or 0.1%, in August from July to $25.73. From a year earlier, average hourly earnings were up 2.4%.
That is a slight slowdown from the prior month’s annual gain, but still well outpaces mild inflation. The latest data is the last broad measure of the labor market Federal Reserve officials will see before meeting on Sept. 20-21. The figures could spark a vigorous discussion between policy makers who see the economy as healthy enough to absorb a rate increase and those concerned about low inflation, middling economic growth and uncertainty from the presidential election and global turmoil.
US employers have added jobs at a 182,000 monthly pace so far this year. That is down from average gains in 2015 and 2014—the best two years for employment growth since 1999—but is more than adequate in the view of many economists to absorb new entrants to the job market and keep the unemployment rate in check.
Some policy makers and economists expect hiring to moderate as the labor market tightens. Economists surveyed by the Journal earlier this year on average estimated the US only needed to add 145,000 jobs each month to keep up with growth in the workforce. “As the labor market is close to full employment, a slowdown may very well be needed to avoid overheating and cause the Fed to tighten policy faster than expected,”
Wells Fargo economist John Silvia wrote in a research note earlier this week. The August jobless rate is just above a post recession low touched in May and in the range most Fed policy makers view as the longer-term average.
Job gains in August were led by the service sector and government. The health-care and social-services sector added 36,100 jobs. Leisure and hospitality added 29,000 jobs. All levels of government added 25,000 employees. The manufacturing sector shed 14,000 jobs. Employment in both the mining sector, which includes the oil and gas industry, and in the construction sector, shrank last month. The labor-force participation rate held steady at 62.8% in August.
The figure has been hovering near the lowest levels in almost 40 years, partly because the Baby-Boom generation is retiring, but also because some younger workers have given up on finding a job. Another measure of unemployment and underemployment, including Americans who are working part time because they can’t find full-time jobs, also held steady at 9.7% in August.
The average workweek last month decreased by 0.1 hour to 34.3 hours. The health of the labor market is sure to be at issue in the US presidential election. Democratic nominee Hillary Clinton’s campaign in part is based on President Barack Obama’s record, which includes consistent job creation since late 2010, after the economy emerged from a deep recession.
Mrs. Clinton said last month she would boost jobs though investment in infrastructure and green technology. Republican Donald Trump points out the current expansion features the weakest average annual growth of any since World War II. He says his trade and tax policies will lead to more high-paying jobs for Americans.
RealtyTrac – US home loan originations decrease 4% in Q2 2016
ATTOM Data Solutions, the nation’s leading source for comprehensive housing data and the new parent company of RealtyTrac, today released its Q2 2016 US Residential Property Loan Origination Report, which shows nearly 1.9 million (1,868,187) loans were originated on US residential properties (1 to 4 units) in the second quarter of 2016, up 26% from the a two-year low in the previous quarter quarter but down 4% from a year ago.
The loan origination report is derived from publicly recorded mortgages and deeds of trust collected by ATTOM Data Solutions in more than 950 counties accounting for more than 80% of the US population. The 4% year-over-year decrease in total originations was driven by a 12% year-over-year decrease in refinance originations — the second consecutive quarter with an annual decrease. Conversely, purchase originations increased 1% from a year ago — the eighth consecutive quarter with an annual increase — and Home Equity Line of Credit (HELOC) originations increased 5% from a year ago — the 17th consecutive quarter with an annual increase.
“Homeowners are increasingly tapping the home equity that many have built up during the last four years of rapidly rising home prices,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Meanwhile those rapidly rising prices are also locking some non-cash buyers out of red-hot but high-priced markets, resulting in weaker purchase loan originations in places like Denver, San Francisco, Portland and Dallas. On the other hand, more affordable markets such as Cleveland, Kansas City and Boise are posting double-digit increases in purchase loan originations.”
Among the 73 metropolitan statistical areas with a population of at least 500,000 and at least 5,000 total loan originations in Q2 2016, those with the biggest year-over-year increases in HELOC originations were Dallas (up 36%); Birmingham, Alabama (up 30%); Phoenix (up 28%); Sacramento (up 27%); and Seattle (up 25%). “The combination of rapidly rising home prices and historically low interest rates has resulted in a substantial increase in the number of homeowners taking out a home equity line of credit (HELOC) in the greater Seattle area,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market.
“I believe the popularity of HELOCs compared to cash-out refinances is likely due to the fact that interest rates are traditionally lower for HELOCs. Additionally, if equity is withdrawn during a refinance, homeowners must begin paying back the funds immediately, whereas a HELOC allows you to use the funds as needed.”
Other markets among the top 10 for biggest year-over-year increase in HELOC originations were and Columbus, Ohio (up 25%); Provo-Orem, Utah (up 24%); Denver (up 24%); Orlando (up 24%); and Cleveland, Ohio (up 23%). “With an aging housing inventory across Ohio, we are seeing a resurgence of consumers electing to invest in their current homes, and utilize the increased availability of HELOCS for funding such needed repairs as new roofs, remodeling, and home addition projects,” said Michael Mahon, president at HER Realtors, covering the Ohio housing markets of Dayton, Columbus and Cincinnati.
HELOC originations increased 21% in Dayton and 17% in Cincinnati compared to a year ago. “With our strong appreciation in South Florida over the past few years, many property owners are hedging their bets and locking in a low-rate HELOC that gives them flexibility and options in the coming years,” said Mike Pappas, CEO and president at the Keyes Company, covering South Florida, where HELOC originations increased 19% in Q2 2016 compared to a year ago.
Among the 73 metro areas analyzed in the report, those with the biggest year-over-year increases in purchase loan originations in Q2 2016 were Cleveland, Ohio (up 31%); Kansas City (up 21%); Boise, Idaho (up 20%); Dayton, Ohio (up 17%); and Rochester, New York (up 15%).
Other markets among the top 10 for biggest year-over-year increases in purchase loan originations were Columbia, South Carolina (up 13%); Atlanta (up 13%); Milwaukee (up 12%); Deltona-Daytona Beach-Ormond Beach, Florida (up 11%); and Colorado Springs (up 11%). Among the 73 metro areas analyzed in the report, those with the biggest year-over-year decreases in purchase loan originations in Q2 2016 were Honolulu, Hawaii (down 16%); Denver (down 8%); Louisville, Kentucky (down 7%); Houston (down 7%); and San Francisco (down 6%). Other markets among the top 10 for biggest year-over-year declines in purchase loan originations were Bakersfield, California (down 6%); Portland (down 5%); Oxnard-Thousand Oaks-Ventura, California (down 5%); Dallas (down 5%); and Detroit (down 4%).
Among the 73 metro areas analyzed in the report, those with the biggest year-over-year decreases in refinance loan originations were Philadelphia (down 26%); Cincinnati (down 25%); Madison, Wisconsin (down 24%); Baltimore (down 23%); and New York (down 23%). Other markets among the top 10 for biggest year-over-year declines in refi originations were Louisville, Kentucky (down 20%); Washington, D.C. (down 20%); Allentown, Pennsylvania (down 19%); Chicago (down 18%); and Fresno, California (down 17%).
A total of 136,248 loans backed by the US Department of Veterans Affairs (VA) were originated in Q2 2016, up 35% from the previous quarter and up 14% from a year ago to the highest level for any quarter included in the scope of the report — going back to Q1 2006. VA loans accounted for 8.7% of all purchase and refi originations in the second quarter, the highest share also going back to Q1 2006.
A total of 273,356 loans backed by the Federal Housing Administration (FHA) were originated in Q2 2016, up 29% from the previous quarter but down 17% from a year ago. FHA loans accounted for 17.5% of all purchase and refi loan originations in the second quarter, unchanged from the previous quarter but down from 19.9% in the second quarter of 2015. A total of 11,377 residential construction loans were originated in Q2 2016, up 16% from the previous quarter and up 1% from a year ago. Construction loans — which are loans that finance improvements to real estate — accounted for less than 1% of all purchase and refi loan originations in the second quarter.
MBA – 2016 mid-year commercial/multifamily servicer rankings
The Mortgage Bankers Association (MBA) today released its mid-year ranking of commercial and multifamily mortgage servicers’ volume as of June 30, 2016. At the top of the list is Wells Fargo Bank N.A. with $502.2 billion in US master and primary servicing, followed by PNC Real Estate/Midland Loan Services with $499.1 billion, Berkadia Commercial Mortgage LLC with $220.6 billion, KeyBank N.A. with $195.4 billion, and CBRE Loan Services with $108.3 billion. Wells Fargo, PNC/Midland, KeyBank, and Berkadia are the largest master and primary servicers of commercial/multifamily loans in US commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO) and other asset-backed securities (ABS); PNC/Midland, CBRE Loan Services, Prudential Asset Resources, and MetLife are the largest servicers for life companies; PNC/Midland, Wells Fargo, Walker & Dunlop, LLC, and Berkeley Point Capital, LLC are the largest Fannie Mae servicers; Wells Fargo, PNC/Midland, KeyBank, and CBRE Loan Services are the largest Freddie Mac servicers.
PNC/Midland ranks as the top master and primary servicer of commercial bank and savings institution loans; of loans for the credit companies, pension funds, real estate investment trusts (REITs), and investment funds; and of loans for FHA and Ginnie Mae. Wells Fargo is the top servicer for loans held in warehouse facilities. Berkadia is the top for other investor type loans. A primary servicer is generally responsible for collecting loan payments from borrowers, performing property inspections and other property-related activities. A master servicer is typically responsible for collecting cash and data from primary servicers and then providing that cash and data, through trustees, to investors. Unless otherwise noted, MBA tabulations that combine different roles do not double-count loans for which a single servicer performs multiple roles. The tabulations can and do double-count across servicers loans for which multiple servicers each fulfill a role.
Specific breakouts in the MBA survey include:
– Total US Master and Primary Servicing Volume
– US Commercial Mortgage-backed Securities, Collateralized Debt Obligations and Other Asset-Backed Securities Master and Primary Servicing Volume
– US Commercial Banks and Savings Institution Volume
– US Credit Company, Pension Funds, REITs, and Investment Funds Volume
– Fannie Mae Servicing Volume
– Freddie Mac Servicing Volume
– Federal Housing Administration (FHA) Servicing Volume
– US Life Company Servicing Volume
– US Warehouse Volume
– US Other Investor Volume
– US CMBS Named Special Servicing Volume
– US Named Special Servicing Volumes Across All Investor Groups
– Total Non-US Master and Primary Servicing Volume
Zillow – housing confidence index: homeowners got swagger, but buyers increasingly discouraged
– Homeowners are confident about the current state of the housing market, and the majority believe now is a good time to sell a home.
– Renters are less confident than homeowners, with only 37% confident that they will be able to afford a home in the future.
– The most confident homeowners are concentrated in Western and Southwestern cities, like Seattle and Dallas, which also have the least confident renters.
– Overall US housing confidence inched up in July to 67.3, up 0.4 from January 2016.
Homeowners have a lot of swagger in today’s market, and for good reason – home values are rising, demand is high and homes are selling very quickly. But the same trends helping to buoy homeowner confidence are also proving increasingly discouraging for potential buyers, particularly among current renters, a critical imbalance that could have important impacts on the market going forward.
Additionally, while overall confidence in the housing market is up nationwide, several indicators point to fading confidence in a number of large markets – particularly the most expensive and/or fastest-growing markets, according to the July 2016 Zillow Housing Confidence Index. The semi-annual Zillow Housing Confidence Index, sponsored by Zillow and calculated by Pulsenomics LLC, is calculated for the US as a whole and 20 large metro markets nationwide.
It is based on a national survey of 10,000 American renters and homeowners. Overall US housing confidence inched up in July to 67.3, up 0.4 from January 2016 and up 0.8% from the same time a year ago. The ZHCI is composed of three sub-indexes: The Housing Market Conditions Index summarizes homeowner and renter assessments of current market conditions; the Housing Expectations Index measures their expectations regarding future home values and affordability; and the Homeownership Aspirations Index that gauges aspirations and attitudes regarding homeownership. In July, all three sub-indexes rose from a year ago, helping push headline confidence higher.
But while confidence in general was up, that optimism was not shared equally between the roughly 63% of American households that own a home, versus the remainder that rent their home. US homeowner confidence rose to an index level of 71.3 in July, up 1 point from January and 1.7 points from a year ago. At the same time, confidence among American renters fell to a level of 61.2 in July, down 0.3 points from January and 0.6 points from last summer.
The 10.1-point gap between homeowners’ confidence levels and renters’ confidence levels is the largest recorded since publication of ZHCI began in January 2014. At the metro level, the gap in confidence between homeowners and renters was smallest in Miami and largest in Seattle – the market with the highest year-over-year rent appreciation of the 35 largest US metros and very rapidly rising home values, up 11% over the past year.
This confidence gap can be clearly seen in the share of homeowners who say it’s a good time to sell, and renters saying it’s a good (or, in this case, bad) time to buy. At the beginning of 2014, the share of homeowners saying it was a good time to sell (50%) was roughly on par with the share of renters saying it was a good time to buy (48%). Fast-forward to today, and 70% of homeowners say it’s a good time to sell, compared to just 38% of renters saying it’s a good time to buy.
Of the 20 metro areas analyzed as part of the ZHCI, this gap is widest in San Francisco (73% of homeowners think it’s a good time to sell, versus 13% of renters saying it’s a good time to buy), and narrowest in Chicago (52% of owners say it’s a good time to sell, 47% of renters say it’s a good time to buy).
That these two markets in particular show the largest and narrowest gaps is telling: San Francisco has been among the fastest-growing markets in the country over the past few years. Local homeowners have likely seen big gains in wealth as their homes have appreciated – to the detriment of renters that may feel as though they can’t catch up to the market and save enough to buy.
Chicago has been one of the slower-growing markets nationwide, and has a large amount of negative equity left over from the recession – and negative equity can prevent homeowners from selling, even if they want to. But the slower-moving market may be leading more renters to feel they could buy a home if they want to – while it hasn’t grown much, the share of renters saying it’s a good time to buy also hasn’t fallen much in Chicago, either, staying largely flat for the past year.
Finally, a reason that many renters may be signaling it’s a tough time to buy is because of rising prices themselves and the impact that is having on affordability – an issue only likely to get worse if and when today’s ultra-low mortgage interest rates begin rising. Home values are currently at or past peak levels in roughly a quarter of US markets.
In other words, homes have never been more expensive in those places. This is hurting renter confidence in a number of larger markets. About half of current renters in San Francisco and New York expressed a lack of confidence in their ability to afford a home in the future. Almost half of the renters surveyed in Seattle, San Jose and Boston had similar feelings.
But not every would-be buyer is currently renting – current homeowners also represent a good source of buyers. And while this group thinks it’s a great time to sell, increasingly these homeowners, too, don’t think it’s a good time to buy. Currently, 63% of homeowners surveyed said now is a good time to buy – a large portion, yes, but a number that’s been declining steadily for the past two years.
This trend is important, of course, because for any home transaction to occur there needs to be both a buyer and a seller. And if buyers don’t think it’s a particularly good time to buy, they may decide to hold off on entering the market altogether until they see buying conditions improve. Interestingly, many of these current homeowners may actually be contributing to some of the very conditions leading so many Americans to say it’s a bad time to buy. A big driver of the rapid price gains and fast-moving markets we’re seeing is incredibly low inventory of homes for sale.
Fairly anemic building activity is contributing to a lot of this inventory shortage, but there’s also a “musical chairs” aspect at play. A large majority of homeowners think it’s a great time to sell, but for whatever reason, are not actually listing their home for sale. Looking at the data, we can infer that this may be related to the shrinking share who think it’s a good time to buy.
A growing number of homeowners may be worried that once they sell, they’ll need to turn around and buy again – and buying in a low-inventory, fast-moving, rapidly appreciating market isn’t much fun. Essentially, they’re reluctant to stand up from the chair/home they’re in, lest they find themselves without a different one to sit back down on/move into once the music stops.
The overall health of the housing market looks great at first glance – over the past two years, overall housing confidence has increased in all but two of the metro areas studied. But dig a bit deeper and you’ll find inequality between renters and homeowners.
Even though the majority of homeowners are confident and believe now is a good time to sell, they’re holding off because they expect home values to continue to appreciate and want to ride the wave. They also don’t want to turn around and become buyers in a competitive market.
On the flip side, renters aren’t nearly as confident as homeowners – they’re discouraged by the shrinking number of homes for sale and rapidly rising prices. As housing gets more expensive, these trends are not sustainable in the long-run, especially once mortgage rates start to rise. We’re likely to start seeing weakening confidence and/or faltering home value appreciation if these imbalances persist.