Black Knight – “First Look” at March 2016
The Data and Analytics division of Black Knight Financial Services (NYSE: BKFS) reports the following “first look” at March 2016 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.
– National delinquency rate fell 8% in March; at 4.08%, it is at its lowest point since March 2007
– At just under 2%, the rate of 30-day delinquencies is at lowest level in over 15 years
– Spurred by declining interest rates, prepayment speeds (historically a good indicator of refinance activity) were up 46% from one month ago
– Foreclosure starts were down 14% from February; still driven primarily by repeat foreclosure activity
US jobless claims fall to 4-decade low
A proxy for layoffs across the US pointed to one of the healthiest labor markets in decades, as the number of US workers who applied for new unemployment benefits declined to the lowest level since the early 1970s. Initial jobless claims fell by 6,000 to a seasonally adjusted 247,000 in the week ended April 16, the Labor Department said Thursday. That was the lowest level for jobless claims since the week of Nov. 24, 1973. That also marked the 59th straight week that initial jobless claims remained below 300,000, the longest such streak in more than four decades. Recent claims data are “astonishingly low,” said Timothy Hopper, chief economist at TIAA Global Asset Management. “The fact that the numbers continue to ratchet down suggests that labor demand is strong and a sign the labor market should continue to improve.” Yet while the numbers point to a stable labor market, they don’t foretell an economic acceleration. In fact, last time jobless claims were this low, an oil-shock recession had just begun. The direction of the layoff proxy is a key difference between the latest readings and those in 1973. Jobless claims entered 2016 near these historic lows but have fallen slightly. In contrast, by November 1973, when the National Bureau of Economic Research pegs the start of a recession that stretched into the early part of 1975, jobless claims had been modestly climbing for nine months.
Federal Reserve officials will likely consider the relative health of the labor market at next week’s policy meeting. But recently, central bankers have indicated they are concerned about weakness in the global economy and are watching inflation readings and wage gains closely. A large majority of economists surveyed by The Wall Street Journal expect the Fed to hold its benchmark interest rate steady at the meeting. A low level of layoffs typically coincides with solid hiring. Employers added 215,000 jobs in March, a healthy increase. The unemployment rate ticked up to 5%, but the increase in part reflected more workers entering the labor force. Jobless claims have trended near the four-decade low much of this spring. But that comes with a caveat. The Easter holiday, which moves on the calendar each year, can distort seasonal adjustments to the data during March and April. The four-week moving average, which smooths out volatility, fell by 4,500 last week to 260,500. That level has stayed fairly consistent since early March. Still, there was one other historical point of strength in the latest reading. A measure of the number of people on unemployment rolls, which are reported with a one-week lag, fell by 39,000 in the week ended April 9 to the lowest level recorded since 2000.
NAHB – remodeling market index dips in first quarter of 2016
The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 54 in the first quarter of 2016, dipping four points below the previous quarter but remaining in positive territory above 50. An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity. “Remodelers were solidly booked for jobs in the first quarter of 2016 but calls and appointments for work slowed down in comparison to the end of 2015,” said 2016 NAHB Remodelers Chair Tim Shigley, CAPS, CGP, GMB, GMR, a remodeler from Wichita, Kan. “Volatility in the financial markets during the first quarter may have impacted consumers’ readiness to commit to projects.” The RMI’s current market conditions index stands at 55, decreasing by a single point from the previous quarter. Among its components, major additions and alterations continued gains from the previous quarter, rising to 55 from 54. The smaller remodeling projects component decreased two points to 54, and the home maintenance and repair component of the RMI decreased two points to 56. At 53, the RMI’s future market conditions index decreased six points from the previous quarter. Among its four components, calls for bids decreased to 51 from 58, the amount of work committed fell to 52 from 57 and appointments for proposals dropped to 52 from 60. Meanwhile, the backlog of remodeling jobs decreased only three points to 58 from the previous quarter’s reading and high-water mark of 61.
SunEdison files for bankruptcy protection
SunEdison, once the fastest-growing US renewable energy company, filed for Chapter 11 bankruptcy protection on Thursday as years of debt-fueled acquisitions proved unsustainable. In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30. The company said its two publicly traded subsidiaries, TerraForm Power and TerraForm Global, were not part of the bankruptcy. The company said it secured up to $300 million in new financing from its first-lien and second-lien lenders, which is subject to court approval. The money will be used to support SunEdison’s operations during its bankruptcy, such as paying wages and vendors, and proceeding with ongoing projects. “Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues,” said Ahmad Chatila, SunEdison chief executive officer. He said the company planned to use Chapter 11 to reduce debt, shed non-core operations and take steps to get the most value out of its technology and intellectual property.
Zillow – Q1 2016 market report: tight inventory, rapid price growth represent real headwinds for the market’s core
– There are 5.9% fewer homes for sale in the US than there were a year ago.
– There are 10.4% fewer entry-level homes for sale in the US than there were a year ago.
– Low supply is driving up home prices among entry-level homes, which are often sought after by first-time buyers.
Faced with rapidly appreciating home values and a dwindling inventory of homes for sale in the critical entry-level and mid-market home segments, first-time and move-up home buyers – typically the housing market’s bread-and-butter – are likely in store for a tough spring home shopping season. Nationwide, median home values rose 4.8% year-over-year in March and 1.1% over the course of the first quarter, to a Zillow Home Value Index of $186,200, according to the first quarter Zillow Real Estate Market Report. And while overall US home values continue to grow at a modest (though slowly accelerating) clip, home values are rising the fastest among entry-level and mid-market homes in a large majority of the nation’s biggest housing markets. A number of factors are driving this growth, and many are positive, including strengthening household formation, continued growth in jobs and wages, and general confidence and optimism in the overall value of homeownership, especially among younger generations. But the likeliest contributor to this rapid growth in the bottom and middle is worrisome: There is a real lack of homes to buy in these segments.
Overall, there were 5.9% fewer homes available for sale nationwide at the end of the first quarter than there were a year ago. But the number of homes for sale in the bottom and middle thirds of the US market each fell by 10.4%, compared to a relatively scant decline of just 1.9% in the top third of the market. This is leading to a situation in which the majority of homes for sale in many markets are more expensive homes not typically sought by budget-conscious entry-level and younger buyers. In all 35 of the nation’s largest markets and the US as a whole, more homes are available for sale in the top-third of the market than in either of the other segments. In nine of those large metros, top-tier homes make up more than half of all homes available for sale. And strong demand for more-affordable homes, driven in part by those healthy fundamentals noted earlier, can’t help but push prices up more quickly for those budget-friendly homes that are available. Home values in the bottom tier are growing faster than the other two tiers in 18 of the nation’s 35 largest metro housing markets, and middle-tier growth is outpacing bottom and top-tier growth in another eleven. That leaves just six of the country’s 35 largest markets in which home value growth in the top tier is outpacing the bottom and middle. And in some cases, the growth rates between top and bottom tiers aren’t particularly close. In the fast-growing Denver metro, for example, bottom-tier home values grew at a 20.3% annual pace in March, fastest among markets in which bottom-tier values are growing the most, and almost double local top-tier annual growth of “just” 10.6%. Similar trends can be found in Phoenix, where bottom-tier home values are growing at almost triple the annual pace of top-tier values (11.2% at the bottom vs. 4.2% at the top) and Riverside (10% vs. 2.7%).
This rapid home value appreciation and limited inventory in the bottom two-thirds of the market undoubtedly puts a majority of would-be home buyers in a tough spot. But the flip side is that those better-heeled buyers in search of a top-tier home are swimming in much smoother waters. Annual home value growth among top-tier homes in 20 of the nation’s top 35 markets is slower than the overall national pace of 4.8%. Additionally, the most expensive homes on the market are also more likely to have a price cut. The share of top-tier listings nationwide with a price cut has increased 1.6 percentage points over the past year, compared to just 0.4 percentage points in the middle tier and 0.5 percentage points at the bottom. In other words, buyers looking for the most expensive homes will find somewhat softening prices, a relatively larger selection of homes to choose from and more limited competition this spring. At the same time, entry-level and mid-market buyers are likely to face much stiffer competition, rapidly rising prices and very limited inventory. Yet another reminder that it pays to be wealthy.
In March, the median US home value rose 0.4% from February, according to the Zillow Home Value Index. US home values have grown on a year-over-year basis for 45 straight months. But while home values have been growing consistently for going on four years, lately, the pace of growth has picked up after a yearlong cooling-off period from spring 2014 through spring 2015. The post-bottom pace of annual home value growth peaked at 7.9% in April 2014, then slowed in each of the subsequent 12 months, reaching a low of 2.7% in April 2015. Annual home value growth has since been higher than the month before in 10 of the past 11 months, before falling somewhat in March to a 4.8% pace, from 4.9% in February. While annual growth in this range is largely sustainable and not much to worry about on its own, this uptick in growth bears watching as the spring home shopping season heats up – especially in light of the rapid growth and limited inventory issues noted earlier. If home values begin growing too much, too fast, many more buyers risk getting priced out of the market, which has a number of trickle-down effects. One of these impacts could be felt in the rental market, as would-be buyers are stuck renting for longer, keeping apartments occupied that may otherwise go to newly formed renter households and contributing to upward pressure on rents themselves. Another impact could be continued deterioration in home affordability overall if growth in home values outpaces income growth. Home values in 25 of the nation’s 35 largest metro markets grew faster year-over-year than the nation’s 4.8% annual pace in March. Home values grew by more than 10% per year in seven of those large metro markets: Denver (up 15.7% year-over-year), Portland (14.8%), Dallas (13%), San Jose (12.6%), Seattle (11.7%), San Francisco (11.5%) and Miami (10.5%). None of the nation’s largest metros experienced annual home value declines in March.
The US median rent in March was $1,389 per month, up 0.5% from February and 2.6% from March 2015, according to the Zillow Rent Index. US rents have grown year-over-year for 43 consecutive months. March was the fifth straight month in which median US home values grew faster year-over-year than median rents. Similar to home value growth, annual growth in rents in this range is normal and nothing to worry much about. However, between August 2015 and February, monthly rents in each of those seven months hovered between $1,380 and $1,382, before rising to the current $1,389 this month. This $7 per month bump isn’t huge by any means, but does represent a bit of a departure from recent trends, and could be an early signal that rental growth is picking up again, potentially as a result of tightness in the rental market caused by renters unable to find a home to buy in their budget. This also bears watching. Median rents in all but one of the nation’s 35 largest metro markets grew year-over-year to some extent, with only Cleveland experiencing an annual decline (-1.2% from March 2015). Rents grew fastest year-over-year in the San Francisco (up 9.9% from March 2015), Portland (up 8.6%) and San Jose (up 8%) metros.
Looking ahead, Zillow expects national home values to continue growing, rising another 2.7% through March 2017 to a Zillow Home Value Index of $191,257. US rents are also expected to keep growing over the next year, at a 2.7% pace through March 2017 to a Zillow Rent Index of $1,426. Existing home sales activity in March was fairly strong, a somewhat promising sign for the upcoming spring season after a disappointing February. But existing home sales have been very volatile lately, and have failed to string together more than a couple months in a row of increases before stumbling again. It will take several solid months this spring to break the two-steps-forward, one-step-back routine the market has been stuck in for a while – and it’s hard to meaningfully increase sales activity when the number of homes for sale keeps dropping. Which means the market could be setting up to be pretty tough for potential buyers this spring, especially for first-time buyers and those looking to move up from their first home and into a slightly more expensive place. Competition will be fierce, and buyers’ patience will be tested. In order to stand out in a competitive market, buyers should get pre-approved for a loan, find an agent who has experience with bidding wars and be prepared to come in at the asking price, so the seller knows they’re serious.