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CoreLogic – US Housing Credit Index shows a decrease in mortgage credit risk

CoreLogic released its Q4 2016 CoreLogic Housing Credit Index (HCI™) that measures variations in home mortgage credit risk attributes over time, including borrower credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV). A rising HCI indicates that new single-family loans have more credit risk than during the prior period, while a declining HCI means that new originations have less credit risk.  The current HCI shows mortgage loans originated in Q4 2016 continued to exhibit low credit risk consistent with the previous quarter and tighter than in Q4 2015. In terms of credit risk, Q4 2016 loans are among the highest-quality home loans originated since 2001. “Mortgage loans closed during the final three months of 2016 had characteristics that contribute to relatively low levels of default risk,” said Dr. Frank Nothaft, chief economist for CoreLogic. “While our index indicates somewhat less risk than both a quarter and a year earlier, this partly reflects the large refinance share of fourth-quarter originations. Refinance borrowers typically have a lower LTV and DTI than purchase borrowers.”  Nothaft observed that mortgage rates have moved higher since November and are anticipated to rise even further during 2017. “Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to harder-to-qualify borrowers. As this occurs, we should observe our index signaling a gradual increase in default risk. The evolution to a more purchase-dominated lending mix is also likely to increase fraud risk.”

HCI Highlights as of Q4 2016

–  Credit Score: The average credit score for homebuyers increased 4 points year over year between Q4 2015 and Q4 2016, rising from 733 to 737. In Q4 2016, the share of homebuyers with credit scores under 640 was about one-tenth of those in 2001.

–  Debt-to-Income: The average DTI for homebuyers in Q4 2016 was similar to Q4 2015, remaining at 36%. In Q4 2016, the share of homebuyers with DTIs greater than or equal to 43% had increased slightly compared with 2001.

–  Loan-to-Value: The LTV for homebuyers increased by less than 1 percentage point year over year between Q4 2015 and Q4 2016, rising from 86.7% to 87.1%. In Q4 2016, the share of homebuyers with an LTV greater than or equal to 95% had increased by more than one-fourth compared with 2001.

Oil prices hit lowest since nov on expanding US inventories

Oil prices fell to almost four-month lows on Wednesday after data showed US crude inventories rising faster than expected, piling pressure on OPEC to extend output cuts beyond June.  The American Petroleum Institute said late Tuesday that US inventories climbed by 4.5 million barrels to 533.6 million last week, outpacing analyst forecasts of 2.8 million.  Investors now want to see whether Wednesday’s figures from the US Energy Information Administration confirm the rise. EIA will release its report at 10:30 a.m. EDT (1430 GMT).  “With US crude stocks continuing to mount into record territory both in total and at Cushing following almost two months of OPEC production restraint, we feel that the odds of a gradual unraveling in the OPEC agreement have been increased significantly,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.  Global benchmark Brent futures for May delivery were down 59 cents, or 1.1%, at $50.37 a barrel by 9:48 a.m. EDT (1348 GMT). Earlier the contract fell as low as $50.05, its lowest since Nov. 30 when OPEC countries agreed to cut output.  On its first day as the front-month, US West Texas Intermediate (WTI) crude futures for May were down 53 cents, or 1.1%, at $47.71 per barrel. “A look below $50 (for Brent) is quite possible today if (EIA) data show a similar pattern, but it’s impossible to say how far below $50,” Commerzbank analyst Carsten Fritsch said.  A deal between the Organization of the Petroleum Exporting Countries and some non-OPEC producers to reduce output by 1.8 million barrels per day (bpd) in the first half of 2017 has had little impact on bulging global stockpiles of oil.

NAR – existing-home sales stumble in February

After starting the year at the fastest pace in almost a decade, existing-home sales slid in February but remained above year ago levels both nationally and in all major regions, according to the National Association of Realtors (NAR).  Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, retreated 3.7% to a seasonally adjusted annual rate of 5.48 million in February from 5.69 million in January. Despite last month’s decline, February’s sales pace is still 5.4% above a year ago.  The median existing-home price for all housing types in February was $228,400, up 7.7% from February 2016 ($212,100). February’s price increase was the fastest since last January (8.1%) and marks the 60th consecutive month of year-over-year gains.  Total housing inventory at the end of February increased 4.2% to 1.75 million existing homes available for sale, but is still 6.4% lower than a year ago (1.87 million) and has fallen year-over-year for 21 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (3.5 months in January).  All-cash sales were 27% of transactions in February (matching the highest since November 2015), up from 23% in January and 25% a year ago. Individual investors, who account for many cash sales, purchased 17% of homes in February, up from 15% in January but down from 18% a year ago. Seventy-one% of investors paid in cash in February (matching highest since April 2015).  First-time buyers were 32% of sales in February, which is down from 33% in January but up from 30% a year ago. NAR’s 2016 Profile of Home Buyers and Sellers — released in late 2016 — revealed that the annual share of first-time buyers was 35%.

According to Freddie Mac, the average commitment rate (link is external) for a 30-year, conventional, fixed-rate mortgage inched up in February to 4.17% from 4.15% in January. The average commitment rate for all of 2016 was 3.65%.  Properties typically stayed on the market for 45 days in February, down from 50 days in January and considerably more than a year ago (59 days). Short sales were on the market the longest at a median of 214 days in February, while foreclosures sold in 49 days and non-distressed homes took 45 days. Forty-two% of homes sold in February were on the market for less than a month.  Inventory data from realtor.com reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in February were San Jose-Sunnyvale-Santa Clara, Calif., 23 days; San Francisco-Oakland-Hayward, Calif., 27 days; Vallejo-Fairfield, Calif., 33 days; Seattle-Tacoma-Bellevue, Wash., 36 days; and Boulder, Colo., at 37 days.  NAR President William E. Brownsays being fully prepared is the right strategy for prospective buyers this spring. “Seek a preapproval from a lender, know what your budget is and begin discussions with a Realtor early on about your housing wants and needs,” he said. “Homes in many areas are selling faster than they were last spring. A buyer’s idea of a dream home in a popular neighborhood is probably the same as many others. That’s why they’ll likely have to decide quickly if they see something they like and can afford.”

Distressed sales — foreclosures and short sales — were 7% of sales for the third straight month in February, and are down from 10% a year ago. Six% of February sales were foreclosures and 1% were short sales. Foreclosures sold for an average discount of 18% below market value in February (14% in January), while short sales were discounted 17% (10% in January).  Single-family home sales declined 3.0% to a seasonally adjusted annual rate of 4.89 million in February from 5.04 million in January, and are now 5.8% above the 4.62 million pace a year ago. The median existing single-family home price was $229,900 in February, up 7.6% from February 2016.  Existing condominium and co-op sales descended 9.2% to a seasonally adjusted annual rate of 590,000 units in February, but are still 1.7% higher than a year ago. The median existing condo price was $216,100 in February, which is 8.2% above a year ago.  February existing-home sales in the Northeast slumped 13.8% to an annual rate of 690,000, but are still 1.5% above a year ago. The median price in the Northeast was $250,200, which is 4.1% above February 2016.  In the Midwest, existing-home sales fell 7.0% to an annual rate of 1.20 million in February, but are still 2.6% above a year ago. The median price in the Midwest was $171,700, up 6.1% from a year ago.  Existing-home sales in the South in January rose 1.3% to an annual rate of 2.34 million, and are now 5.9% above February 2016. The median price in the South was $205,300, up 9.6% from a year ago.  Existing-home sales in the West decreased 3.1% to an annual rate of 1.25 million in February, but are 9.6% above a year ago. The median price in the West was $339,900, up 9.6% from February 2016.

US investment banks strengthen global lead over Europe

JP Morgan retained its place atop the global investment banking league table last year, with the top five places now firmly in the hands of US banks, reflecting their domination over struggling European peers, data on Wednesday showed.  JP Morgan’s revenues from trading, mergers and acquisitions and other investment banking activity rose 11% to $25.2 billion last year from $22.7 billion in 2015, according to industry analytics firm Coalition.  That strong increase was mirrored by US peer Citi, which rose in the overall ranking to joint second from joint third, a performance that far exceeded the average 3% decline across the 12 banks surveyed.  JP Morgan retained its crown in fixed income, currencies and commodities (FICC) trading, its position solidified by dominance in G10 rates and foreign exchange trading. JP Morgan held the top two spots in all but one – municipal finance – of the seven FICC categories, Coalition said.  Morgan Stanley secured fifth place in the ranking by consolidating its leadership position in equities, meaning all top five spots are held by US banks. In 2015 Morgan Stanley shared fifth spot with Germany’s Deutsche Bank.  US banks now take in around a two-thirds share of the investment banking revenue pie, the gap widening consistently since 2011 when the US-European split was roughly 50-50. But that may be about to reverse.  “European banks had some significant trading underperformance last year, which we don’t see repeating,” said Amrit Shahani, research director at Coalition. “They should improve, albeit from a low base. We expect them to maintain and build on their market share this year.”  Shahani said banks at the top and bottom ends of the ranking are taking market share from those in the middle.

MBA – mortgage applications decrease in latest MBA weekly survey

Mortgage applications decreased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 17, 2017.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2% compared with the previous week. The Refinance Index decreased 3% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 5% higher than the same week one year ago. The Government Refinance Index decreased 12% to the lowest level since December 2014.  The refinance share of mortgage activity decreased to 45.1% of total applications from 45.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.0% of total applications, the highest level since October 2014.  The FHA share of total applications decreased to 10.9% from 11.1% the week prior. The VA share of total applications decreased to 10.1% from 11.1% the week prior. The USDA share of total applications remained unchanged at 0.9% from the week prior.

CoreLogic – cash and distressed sales update: December 2016

–  The full-year cash sales share for 2016 was 32.1%

–  The cash sales share in December 2016 was 33.1%

–  The full-year distressed sales share for 2016 was 8.9%

Cash sales accounted for 33.1% of total home sales in December 2016, down 1.3 percentage points year over year from December 2015. For the full-year 2016, the cash sales share was 32.1%, 2.2 percentage points below the full-year 2015 share, and the lowest annual cash sales share since 2007 when it was 27%. 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 December 2016, the share should hit 25% by mid-2019.  Real-estate owned (REO) sales had the largest cash sales share in December 2016 at 61.1%. Short sales had the next highest cash sales share at 34.2%, followed by resales at 33% and newly constructed homes at 16.7%. While the percentage of REO sales within the all-cash category remained high, REO transactions have declined since peaking in January 2011.  REO sales made up 5.8% of total home sales and short sales made up 2% in December 2016. The distressed sales share of 7.8% in December 2016 was the lowest distressed sales share for any month since October 2007.

The distressed sales share for the full-year 2016 was 8.9%, down 2.1 percentage points from the full-year 2015 and the lowest annual distressed sales share since 2007 when it was 6%. At its peak in January 2009, distressed sales totaled 32.4% of all sales with REO sales representing 27.9% of that share. 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 by mid-2018. All but nine states recorded lower distressed sales shares in December 2016 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 17.9% in December 2016, followed by Connecticut (17.6%), Michigan (15.8%), New Jersey (15.5%) and Illinois (13.6%). North Dakota had the smallest distressed sales share at 1.3%. While some states stand out as having high distressed sales shares, only North Dakota, Utah and the District of Columbia are close to their pre-crisis levels (each within one percentage point).  New York had the largest cash sales share of any state at 47.9%, followed by New Jersey (47.6%), Alabama (46.1%), Michigan (44.3%) and Florida (42.1%).

NAHB – single-family housing starts reach highest level since late 2007

Nationwide housing starts rose 3% in February from an upwardly revised January reading to a seasonally adjusted annual rate of 1.288 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. Single-family production increased 6.5% to 872,000 units — its highest reading in nearly a decade — while multifamily starts fell 3.7% to 416,000 units. “This month’s gain in single-family starts is consistent with rising builder confidence in the housing market,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. “We should see single-family production continue to grow throughout the year, tempered somewhat by supply-side constraints such as access to lots and labor.” “The growth in the single-family arena is very encouraging, but may be partly attributable to unusually warm weather conditions throughout most of the country,” said NAHB Chief Economist Robert Dietz. “The modest drop in multifamily starts is in line with our forecast, which calls for this sector to continue to stabilize in 2017.” Regionally in February, combined single- and multifamily housing production rose 35.7% in the West. Starts fell by 3.8% in the South, 4.6 in the Midwest and 9.8% in the Northeast. A drop in multifamily permits pulled overall permit issuance down 6.2% in February. Multifamily permits fell 21.6% to 381,000 units, while single-family permits rose 3.1% to 832,000 units — its highest level since September 2007. Regionally, overall permits rose 25.4% in the Midwest. Permits fell 10% in the West, 10.4% in the South and 22.3% in the Northeast.

Oil prices firm, heading for modest weekly rise

Oil prices firmed on Friday and looked set to finish the week with a modest gain after losing almost 10% last week on concerns that an OPEC production cut was failing to reduce a global supply overhang. Crude traded in a narrow band this week, with Brent and West Texas Intermediate bouncing in a $2.5 range as investors weighed the impact of the first oil cut from OPEC in eight years against rising US shale oil output and high inventories. Brent crude was up 27 cents at $52.01 a barrel by 1353 GMT. US light crude was up 24 cents at $48.99. “The market remains relatively calm today, with concerns about having to extend the production-cut deal being offset by a weaker dollar,” said Saxo Bank head of commodity strategy Ole Hansen. Oil found some support from dollar weakness after the US Federal Reserve indicated it would not accelerate plans for rises in interest rates. Saudi Energy Minister Khalid al-Falih said on Thursday the cuts by the Organization of the Petroleum Exporting Countries and non-OPEC producers could be extended beyond June if oil stockpiles stayed above a long-term average. Six of 10 analysts polled by Reuters said they believed OPEC would prolong its output reductions past the deal’s six-month duration.

CoreLogic – the state of house flipping in 2016 – Part I

In Part I of this series we will focus on the national-level analysis, and in Part II we will zoom in on metro areas. At the national level, the ratio of flips to sales stands at 4.9% in 2016, which is well below the peak value of 7.5% reached in 2005, as shown in Figure 1. As a matter of fact, this is the second lowest rate of flipping activity since 2012, as the lowest since 2012 occurred in 2015 with a flipping percentage of 4.8. It appears that flipping activity has slowed in the past two years since the start of the housing recovery, thanks to a five-year high in the rate of home-price appreciation and still-tight for-sale inventory. In 2016, the real median gross gain (in 2016 dollars) rose to $54,700 per property flipped, which is approaching the historical high of $56,411 (in 2016 dollars) seen in 2005 prior to the housing crash. On the other hand, the median percentage gross gain has declined since it peaked in 2013. We continue to believe the decline of the percentage gain might have something to do with the decline of the share of distressed sales, which leads to high acquisition cost. We see that the share of distressed sales has declined significantly and was just 7.7% in October 2016. The median percentage gross profit was about 20% between 1996 and 2008 and then increased to above 30-40% after 2008, which is largely due to the high acquisition cost on the investors’ part from 2000 to 2008.

Mnuchin says US is seeking to avoid trade wars

Treasury Secretary Steven said Thursday the administration doesn’t want to start any trade wars. Rather, Mr. Mnuchin said Washington is trying to rebalance unfair trade relationships that are harming growth in the world’s largest economic engine. Fixing those inequalities, such as when countries like China manipulate their exchange rates to gain a competitive trade advantage, actually will spur global growth, he said. But the Treasury secretary, who will be making his first appearance on the global stage Friday at a gathering of the world’s finance chiefs from the Group of 20 industrialized and emerging economies, is facing a tough sell. Besides fears of unilateral sanctions sparking retaliation, Mr. Trump’s policies are set to strengthen the dollar, a key sore point for the administration. Failure to solve this currency conundrum could ratchet up global trade tensions. “Our focus is creating economic growth that is good for the United States and for the rest of the world,” Mr. Mnuchin said after a meeting with German Finance Minister Wolfgang Schäuble. “It is not our desire to get into trade wars, it is our desire to deal with where there is imbalance in certain trade relations,” he said. Trump administration threats to level unilateral currency sanctions, vows to rewrite international trade deals and jabs at the World Trade Organization have spooked G-20 nations. Ahead of the G-20 meeting in the resort town of Baden-Baden, Germany, the International Monetary Fund warned that the US, China and other large economies risk derailing the global economy if leaders fail to fight a growing protectionist tide. But the Treasury secretary dismissed those concerns, saying the US is one of the most open markets in the world. “The president is interested in making sure that our agreements are reciprocal,” he said. “He wants free and fair trade.”

NAR – economic, financial optimism surges; renters lukewarm about buying

Multiple years of uninterrupted job gains and hope that the best is yet to come in 2017 are igniting consumer confidence across the country, and especially in rural and middle America, according to new consumer survey findings from the National Association of Realtors (NAR). The survey additionally found a growing disparity among renters who think it’s a good time to buy and homeowners who think it’s a good time to sell. In NAR’s ongoing quarterly Housing Opportunities and Market Experience (HOME) survey, respondents were asked about their confidence in the US economy and various questions about their housing expectations. In the first three months of 2017, the share of households believing the economy is improving soared to its highest share in the survey’s five-quarter history (62%), and is up from 54% last quarter and 48% in March 2016. In an extraordinary reversal from previous quarters, NAR Chief Economist Lawrence Yun says the surge in positive sentiment about the economy is primarily from respondents living in the Midwest (67%; 51% last quarter) and rural areas (63%; 43% last quarter). Last March, only 49% of Midwesterners and 35% of those living in rural areas thought the economy was improving. “Confidence levels generally rise after a presidential election as the nation hopes for the best. Even though it is a highly polarized country, consumers for the most part have upbeat feelings about the economy right now,” he said. “Stronger business and consumer morale typically lead to even more hiring and spending, which in turn encourages more households to make big decisions like buying a home. These positive developments would be especially good news for prospective homebuyers in the more affordable Midwest region.”

Higher confidence in the economy is also translating to better feelings about households’ financial situation. The HOME survey’s monthly Personal Financial Outlook Index showing respondents’ confidence that their financial situation will be better in six months, jumped to its highest reading in the survey, climbing to 62.6 in March from 59.8 in December 2016. A year ago, the index was 58.1. On the cusp of the busy spring season, most households believe now is a good time to buy a home. However, confidence continues to trickle backwards among renters. Fifty-six% of renters said now is a good time to buy, which is down both from last quarter (57%) and a year ago (62%). Eighty% of homeowners (78% in December 2016; 82% in March 2016) think now is a good time to make a home purchase. Younger households, renters and those living in the costlier West region – where prices continue to spike – are the least optimistic. “Inventory conditions are even worse than a year ago and home prices and mortgage rates are on an uphill climb,” added Yun. “These factors are giving many renter households a pause about it being a good time to buy, even as their job prospects improve and wages grow. Unless there’s a significant boost in supply levels this spring, these constraints will unfortunately slow or delay some prospective buyers’ pursuit of purchasing a home.”

One promising trend that could alleviate supply shortages is the notable bump in the share of respondents this quarter who believe now is a good time to sell a home. Sixty-nine% of homeowners think now is a good time to sell, which is up from last quarter (62%) and a year ago (56%). Continuing the trend over the past year, those in the West continue to be the most likely to think now is a good time to sell (77%), while also being the least likely to think it’s a good time to buy (61%). NAR President William E. Brown says homeowners looking to trade up or move down this spring could find themselves in a tricky spot without careful planning and a reliable expert on their side. “Demand far outpaces supply in many parts of the country right now, which means homeowners will likely sell their home much quicker than the time it takes to buy another,” he said. “Before listing, it’s best to have a carefully crafted plan in place. In addition to assisting in the hunt for a new home, a Realtor® is an invaluable negotiating partner in the common situation where a buyer’s new home purchase is contingent upon selling their property currently up for sale.”

Democrats slow appointments and sow confusion

Cabinet nominations are taking significantly longer than in the past. To put this in perspective, Michael Thompson, managing director of government with Goldman Sachs, recently stated that even with the nominations not yet closed, there are already more “no” votes on cabinet members compared to the eight years both former President George W. Bush and former President Barack Obama were in office.  The lack of authority in key positions and uncertainty is not only generating some confusion around regulation for the industry, but it’s also creating regulatory confusion in government.  Rep. Maxine Waters, D-Calif., ranking member of the Committee on Financial Services, along with 21 Democrats on the Committee, sent a letter to Federal Reserve Chair Janet Yellen, requesting that the Fed continue fulfilling all of its mandates under the law despite there not yet being a Vice Chair for Supervision yet.  This includes the ongoing review of existing rules that could help responsible community banks, and updating other regulations as may be appropriate. The Democrats wrote the letter after House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, and other committee Republicans sent a letter to the Federal Reserve that urged them to stop all regulatory activity until a Vice Chair for Supervision has been nominated and confirmed.

Oil touches three-month lows, as US supply swells

Oil hovered around three-month lows on Monday, as rising US inventories and drilling activity offset optimism over OPEC’s efforts to restrict crude output.  Brent crude was up 4 cents on the day, at $51.41 a barrel by 0953 GMT, having hit a session trough of $50.85, its lowest since Nov. 30.  US West Texas Intermediate crude fell 5 cents to $48.44 a barrel.  The price has fallen by more than 8% since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run.  “The market is bearish because sentiment has turned. The risk is still towards the downside, but we are nowhere near the precipice,” PVM Oil Associates Tamas Varga said.  Goldman Sachs said in a note it remained “very confident” about commodity prices and maintained its price forecast of $57.50 a barrel for WTI in the second quarter.  US drillers added oil rigs for an eighth consecutive week, Baker Hughes said on Friday, lifting spending to benefit from an earlier recovery in crude prices since the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output.  OPEC and other major oil producers including Russia reached an agreement late last year to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.  Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in US inventories to a new high.

US regulators reject bitcoin ETF, digital currency plunges

The US Securities and Exchange Commission on Friday denied a request to list what would have been the first US exchange-traded fund built to track bitcoin, the digital currency.  Investors Cameron and Tyler Winklevoss have been trying for more than three years to convince the SEC to let it bring the Bitcoin ETF to market. CBOE Holdings Inc’s Bats exchange had applied to list the ETF.  The digital currency’s price plunged, losing some 18% in trading immediately after the decision.  Bitcoin had scaled to a record of nearly $1,300 this month, higher than the price of an ounce of gold, as investors speculated that an ETF holding the digital currency could woo more people into buying the asset.  Bitcoin is a virtual currency that can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government.  Yet bitcoin presents a new set of risks to investors given its limited adoption, a number of massive cybersecurity breaches affecting bitcoin owners and the lack of consistent treatment of the assets by governments.  “Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated,” the SEC said in a statement posted online. “The Commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop.”

The regulators have questions and concerns about how the funds would work and whether they could be priced and trade effectively, according to a financial industry source familiar with the SEC’s thinking.  “We remain optimistic and committed to bringing COIN to market, and look forward to continuing to work with the SEC staff,” said Tyler Winklevoss, CFO of Digital Asset Services LLC.  “We began this journey almost four years ago, and are determined to see it through. We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”  The Winklevoss twins are best known for their feud with Facebook Inc founder Mark Zuckerberg over whether he stole the idea for what became the world’s most popular social networking website from them. The former Olympic rowers ultimately settled their legal dispute, which was dramatized in the 2010 film “The Social Network.”  Since then they have become major investors in the digital currency, which relies on “mining” computers that validate blocks of transactions by competing to solve mathematical puzzles. The first to solve the puzzle and clear the transaction is rewarded with new bitcoins. Solutions to the puzzle come roughly every 10 minutes.  There are two other bitcoin ETF applications awaiting a verdict from the SEC. Grayscale Investments LLC’s Bitcoin Investment Trust, backed by early bitcoin advocate Barry Silbert and his Digital Currency Group, filed an application last year.  SolidX Partners Inc, a US technology company that provides blockchain services, also filed its ETF application last year.

Layoffs leave US attorneys scrambling

Two days before Attorney General Jeff Sessions ordered dozens of the country’s top federal prosecutors to clean out their desks, he gave those political appointees a pep talk during a conference call.  The seemingly abrupt about-face Friday left the affected US attorneys scrambling to brief the people left behind and say goodbye to colleagues. It also could have an impact on morale for the career prosecutors who now must pick up the slack, according to some close to the process. The quick exits aren’t expected to have a major impact on ongoing prosecutions, but they gave US attorneys little time to prepare deputies who will take over until successors are named.  The request for resignations from the 46 prosecutors who were holdovers from the Obama administration wasn’t shocking. It’s fairly customary for the 93 US attorneys to leave their posts once a new president is in office, and many had already left or were making plans for their departures. Sessions himself was asked to resign as a US attorney in a similar purge by Attorney General Janet Reno in 1993.  But the abrupt nature of the dismissals — done with little explanation and not always with a customary thanks for years of service — stunned and angered some of those left behind in offices around the country.  Former prosecutors, friends and colleagues immediately started reaching out to each other on a growing email chain to express condolences and support, commiserating about how unfair they felt the situation was. One US attorney was out of state on Friday and was forced to say goodbye to his office by a blast email, said Tim Purdon, a former US attorney from North Dakota who was included on the email chain.

Some of those ousted were longtime prosecutors who had spent their careers coming up through the ranks of the Justice Department. John W. Vaudreuil, US attorney for the Western District of Wisconsin, became an assistant US attorney in that office in 1980. Another, Richard S. Hartunian of the Northern District of New York, joined the Justice Department in the 1990s.  “All of these US attorneys know they serve at the pleasure of the president. No one complains about that,” said John Walsh, an Obama-era appointee as US attorney in Colorado who resigned in July. “But it was handled in a way that was disrespectful to the US attorneys because they were almost treated as though they had done something wrong, when in fact they had not.”  Peter Neronha, who had served since 2009 as US attorney for Rhode Island, said even before Friday he had been preparing for his eventual departure and had written a resignation statement to be released upon his exit. He said he knew his time was limited but had been eager to stay on to see through a major public corruption prosecution and to speak with students about the perils of opioid addiction.  “When that was done, I was going to go anyway — whether I got 24 hours’ notice, or two weeks’ notice, or two months’ notice. It doesn’t really matter,” Neronha said.  Whenever there’s a change in presidential administration, he said, “I think it would be unwise not to be ready.”

 

CoreLogic – borrower equity update: fourth quarter 2016

–  The national negative equity share fell to 6.2% in Q4 2016.

–  All states saw a decrease in negative equity share over the past year.

–  Florida saw the largest improvement in negative equity share over the past year, falling 4.9 percentage points.

The amount of equity in mortgaged real estate increased by $63 billion in Q4 2016 compared with Q3 2016, and increased by $783 billion between Q4 2015 and Q4 2016, according to the latest CoreLogic Equity Report. The nationwide negative equity share for Q4 2016 was 6.2% of all homes with a mortgage, nearly 20 percentage points lower than the peak negative equity share – 26% – recorded in Q4 2009.  The improvement in negative equity has been seen across the US, with all states registering a year-over-year decrease in negative equity share. Florida’s 4.9-percentage-point decrease between Q4 2015 and Q4 2016 represented the nation’s largest decline. Florida’s negative equity share was 50.9% at its peak in Q4 2009 and was 11.6% in Q4 2016. Of all states, Nevada has seen the largest improvement in negative equity share over the last six years. From a high of 72.7% in Q1 2010 the state’s negative equity share had fallen to 13.7% in Q4 2016. The average amount of negative equity is inversely related to the negative equity share. For example, in this group of CBSAs, Denver has the largest average amount of negative equity, but the negative equity share is only 1.5%, and Phoenix has the smallest average amount of negative equity, but has a negative equity share that is well above the national average.

Strong February job growth greenlights FED’s march rate hike

The labor market strengthened more than expected in February – the first full month of President Donald Trump’s term — as wages continued to tick higher, allowing the US economy to clear the final hurdle ahead of next week’s Federal Reserve policy meeting, which is expected to bring the first rate rise of 2017. The US economy added 235,000 net new jobs last month, far more than 190,000 Wall Street expected. More Americans dipped their toes in the job-seeking waters, which sent the labor force participation rate slightly higher to 63% from January’s 62.9%, as the unemployment rate declined to 4.7% from 4.8%. Further, the underemployment number, which represents workers in part-time jobs who prefer full-time and others marginally-attached to the labor force, fell to 9.2% last month from 9.4% the month prior.  “A March [rate] hike is a done deal,” said Luke Bartholomew, investment manager at Aberdeen Asset Management. “The report was the last piece of the puzzle and there is nothing here that will make the Fed want to step back from their recent signaling.”  With unseasonably warm winter weather that supported construction activity, jobs in the sector jumped by 58,000 as gains were made for specialty trade contractors, and heavy and civil engineering construction. Manufacturing also accounted for a chunk of the job gains, as employment rose in food manufacturing and machinery, but fell within the transportation equipment segment.

The pickup in employment continues to support the manufacturing sector’s rebound over the last year and extends its gains to three-straight months. Data from the Institute for Supply Management last week showed six-consecutive months of expansion for the industry as its closely-watched gauge of factory activity spiked to its highest level since August 2014 Opens a New Window.  Though manufacturing as a percentage of overall US gross domestic product has fallen since World War II, it still plays an important role in the economy due to its higher paying jobs when compared to the broader services sector, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.  “To me, these numbers corroborate what we’re seeing in the ISM surveys that not only show improvement on the employment component, but improvement in new orders, which has continued to come in at elevated levels. New orders should breed more factory activity which should continue to support improvement in job creation,” he explained.  For the Fed, which has stressed it wants to see a tighter labor market alongside a 2% inflation rate, policy makers will likely focus on February’s 0.2% pick up in average hourly earnings. Though slightly below expectations calling for a 0.3% rise, the advance built on a meek 0.1% climb in January, and put year-over-year wage gains at 2.8%.

The jobs report is the latest in a series of strong economic data reports so far this year that have shown positive momentum in retail sales, consumer confidence, manufacturing activity and the housing market. Because of that, Fed officials, including chair Janet Yellen, have rushed to reset Wall Street expectations about its path toward monetary policy normalization. In a speech last week, Yellen said a “further adjustment of the federal funds rate would likely be appropriate” at the March 14-15 meeting so long as the labor market and inflation remain within the Fed’s targets.  CME Group federal funds futures, which depict market expectations for changes in monetary policy, show a 93% chance a 0.25 percentage point rate rise will come at the conclusion of the Fed’s two-day meeting on Wednesday.  “The labor market is where the FOMC wants it to be with solid job growth, declining labor market slack, accelerating wage growth, and inflation heading toward the FOMC’s 2% target,” said PNC Deputy Chief Economist Gus Faucher.

MBA – commercial/multifamily delinquencies remain low in fourth quarter, CMBS continues to increase

Delinquency rates for commercial and multifamily mortgage loans remained low in the fourth quarter of 2016, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.  “For most investor groups, commercial and multifamily mortgage delinquencies are at or near their all-time lows,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.  “Sixty-plus day delinquency rates at Freddie Mac, life companies and Fannie Mae are, respectively, 0.03%, 0.04% and 0.05% – all extraordinarily low.  The 30+ day delinquency rates for banks and thrifts are at their lowest on record, going back to 1993.  Only loans in commercial mortgage-backed securities continue to show elevated levels of delinquencies and loans in foreclosure, as the market continues to work through the large volume of mortgages made during the 2005 to 2007 time period.”  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 fourth quarter were as follows:

–  Banks and thrifts (90 or more days delinquent or in non-accrual): 0.59%, a decrease of 0.03 percentage points from the third quarter of 2016;

–  Life company portfolios (60 or more days delinquent): 0.04%, a decrease of 0.04 percentage points from the third quarter of 2016;

–  Fannie Mae (60 or more days delinquent): 0.05%, a decrease of 0.02 percentage points from the third quarter of 2016;

–  Freddie Mac (60 or more days delinquent): 0.03%, an increase of 0.02 percentage points from third quarter of 2016;

–  CMBS (30 or more days delinquent or in REO): 4.53%, an increase of 0.30 percentage points from the third quarter of 2016.

Oil down

Oil prices fell for a third day on Friday, extending a selloff on heightened worries that OPEC-led production cuts have not yet reduced a global glut of crude.  Market confidence faltered earlier this week, after news of another big rise in US crude inventories to record highs as domestic oil production has grown.  On Thursday, US crude tumbled below $50 a barrel for the first time since December, raising alarm among major oil producers like Saudi Arabia and United Arab Emirates.  Senior Saudi officials told US oil firms in a closed-door meeting they should not assume OPEC would extend output curbs to offset rising production from US shale fields, industry sources told Reuters on Thursday.  Separately, Suhail bin Mohammed al-Mazrouei, energy minister for the United Arab Emirates, told Reuters this week the rise in US inventories was a “worry,” and that “investors need to be cautious not to bring so much production on line,” because OPEC “cannot do it in isolation of others.”  US oil and gas drilling has picked up, with producers planning to expand crude production in North Dakota, Oklahoma and other shale regions, while output has jumped in the Permian, America’s largest oilfield. Baker Hughes will release its weekly US rig count data just after 1 p.m.  That has cast doubt on how long OPEC will be willing to cut output if prices keep falling.  US crude fell 23 cents, or 0.4%, to $49.05 a barrel, as of 11:25 a.m. ET (1625 GMT).Brent crude oil was down 27 cents at $51.92 a barrel.  US crude is on track for a drop of more than 7% this week, its biggest weekly fall for five months.

RealtyTrac – US home flipping increases 3% in 2016 to a 10-year high

ATTOM Data Solutions, curator of the nation’s largest fused property database, today released its 2016 Year-End US Home Flipping Report, which shows that 193,009 single family homes and condos were flipped — sold in an arms-length transfer for the second time within a 12-month period — in 2016, up 3.1% from 2015 to the highest level since 2006, when 276,067 single family homes and condos were flipped.  Home flips in 2016 accounted for 5.7% of all single family home and condos sales during the year, up from 5.5% in 2015 to a three-year high but still well below the peak in 2005, when 338,207 single family homes and condos were flipped representing 8.2% of all sales.  For this report, a home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by ATTOM Data Solutions in more than 950 counties accounting for more than 80% of the US population (see full methodology below).  The report also shows that 126,256 entities — including both individuals and institutions — flipped homes in 2016, up less than 1% from 2015 to the highest number since 2007, when 143,266 entities flipped properties.

Meanwhile, the share of flipped homes that were purchased by the flipper with financing increased to an eight-year high of 31.5% in 2016 while the median age of homes flipped increased to 37 years — a new high going back to 2000, as far back as data is available — and the median square footage of homes flipped decreased to 1422 — a new record low going back to 2000.  “Home flipping was hot in 2016, fueled by low inventory of homes in sellable or rentable condition along with a flood of capital — both foreign and domestic — searching for the returns and stability available with US real estate,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “The combination of more home flips and a greater share of financing for flip purchases resulted in a 19% jump in the estimated dollar volume of financing for home flip purchases, up to $12.2 billion for the flips completed in 2016 — a nine-year high.”  “Investors in search of flipping returns are increasingly willing to move to secondary and tertiary housing markets and neighborhoods with older, smaller properties that are available at a deeper discount,” Blomquist continued. “Given that many of these markets are more affordable, we are also seeing a higher share of the flipped homes sold to FHA buyers, with that share reaching a four-year high of 19.6% in 2016.”

Homes flipped in 2016 sold for a median price of $189,900, a gross flipping profit of $62,624 above the median purchase price of $127,276 and representing a gross flipping return on investment (ROI) of 49.2%. Both the gross flipping dollar amount and ROI were the highest going back to 2000, the earliest home flipping data is available for this report.  Among 117 metropolitan statistical areas with at least 250 home flips in 2016, there were 11 with an average gross flipping profit of $100,000 or more in 2016: San Jose, California ($145,750); Boston, Massachusetts ($140,000); San Francisco, California ($140,000); New York, New York ($127,250); Los Angeles, California ($127,000); San Diego, California ($111,000); Oxnard-Thousand Oaks-Ventura, California ($105,000); Seattle, Washington ($102,000); Vallejo-Fairfield, California ($101,000); Baltimore, Maryland ($100,500); and Washington, D.C. ($100,000).  “Our strong wage growth is still supporting rising home prices, which when combined with the historically low number of homes for sale in Seattle, gives home flippers substantial returns on their investments,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “I believe flipping serves as a negative for any housing market because it further erodes housing affordability, but if there’s a demand for it in the market, it’s a trend we will continue to see.”

Among the 117 metro areas analyzed in the report, those with the highest gross flipping ROI were East Stroudsburg, Pennsylvania (241.5%); Pittsburgh, Pennsylvania (130.0%); Cleveland, Ohio (116.2%); Philadelphia, Pennsylvania (107.1%); Toledo, Ohio (102.0%); and New Orleans, Louisiana (101.2%).  Along with Pittsburgh, Cleveland, Philadelphia and New Orleans, other metro areas with a population of at least 1 million and a gross flipping ROI in 2016 of 75% or higher were Baltimore (96.6%); Cincinnati (87.2%); Buffalo (85.8%); Rochester (76.2%); Oklahoma City (76.1%); Chicago (75.9%); Jacksonville, Florida (75.8%); Memphis, Tennessee (75.6%); and Grand Rapids, Michigan (75.0%).  Among 117 metropolitan statistical areas with at least 250 home flips in 2016, those with the highest home flipping rate as a percentage of all home sales were Memphis, Tennessee (11.7%); Clarksville, Tennessee (10.1%); Visalia-Porterville, California (10.1%); Tampa-St. Petersburg, Florida (9.9%); and Deltona-Daytona Beach-Ormond Beach, Florida (9.9%).  Along with Memphis and Tampa-St. Petersburg, other metro areas with a population of at least 1 million and a 2016 home flipping rate of at least 7% were Las Vegas (9.2%); Miami (8.8%); Orlando (8.3%); Phoenix (8.0%); New Orleans (7.9%); Jacksonville, Florida (7.7%); Virginia Beach (7.6%); Baltimore (7.4%); Birmingham (7.4%); St. Louis (7.1%); and Nashville (7.1%).

Among 117 metropolitan statistical areas with at least 250 home flips in 2016, those with the biggest year-over-year increase in the home flipping rate were Reading, Pennsylvania (38.8%); Lincoln, Nebraska (38.6%); East Stroudsburg, Pennsylvania (36.6%); Rochester, New York (31.8%); and Allentown, Pennsylvania (29.3%).  Along with Rochester, other metro areas with a population of at least 1 million and an annual increasing in home flipping rate of at least 10% were New Orleans (up 26.5%); San Antonio (up 25.2%); Dallas (up 20.9%); Boston (up 16.4%); New York (up 16.0%); Columbus, Ohio (up 14.6%); Oklahoma City (up 13.8%); Philadelphia (up 11.6%); Cincinnati (up 11.5%); Grand Rapids, Michigan (up 11.3%); Charlotte (up 10.5%); Kansas City (up 10.4%); and Cleveland (up 10.2%).  Among 5,625 US zip codes with at least 10 homes flipped in 2016, there were 39 zip codes where at least 20% of all home sales during the year were home flips, including zip codes in Texas, Tennessee, Florida, California, Ohio, Virginia, Pennsylvania, Missouri, Washington, the District of Columbia, Maryland, New York and New Jersey.

In the Los Angeles metro area, which accounted for six of the 39 zip codes with a home flipping rate of at least 20% in 2016, the best opportunity for flipping is in lower-priced neighborhoods with properties that need significant repairs, according to Brett Chotkevys, co-founder of Helpful Home Solution, which flips properties in Los Angeles and other parts of Southern California.  “We do pretty much a full gut on the houses we buy. Most of those we buy are pretty nasty … they’re falling down, there are druggies living there,” said Chotkevys, noting that a typical rehab for his LosAngeles flips will run $40,000 to $50,000, and it’s not “inconceivable” for him to spend six figures on a Los Angeles fix-and-flip. “We like south central (Los Angeles) a little bit more. The barrier to entry is lower. We can pick up properties in the 200s. … There are normal people not making gobs of money that can afford to buy these houses.  “With us being where we are in the cycle, and us being very near the top, we’re not buying any big properties, anything close to a million, and trying to flip those,” Chotkevys added.

MBA – mortgage credit availability increases in February

Mortgage credit availability increased in February according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool.  The MCAI increased 0.4% to 177.8 in February.  A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The index was benchmarked to 100 in March 2012. Of the four component indices, the Government MCAI saw the greatest increase in availability over the month (up 2.3%), followed by the Conforming MCAI (up 0.1%). The Conventional MCAI decreased 2.2% while the Jumbo MCAI decreased 4.4%.  “Credit availability loosened slightly in February, due to the net result of two countervailing movements.  The supply of credit increased as more investors offered affordable low down payment mortgages and streamlined documentation loans guaranteed by the Federal Housing Administration and the Veterans Administration,” said Lynn Fisher MBA’s Vice President of Research and Economics. “However, the impact of that increase on the overall index was partially offset by the first downturn in the availability of jumbo credit in a year due to the consolidation of some jumbo programs.”  Of the four component indices, the Government MCAI saw the greatest increase in availability over the month (up 2.3%), followed by the Conforming MCAI (up 0.1%). The Conventional MCAI decreased 2.2% while the Jumbo MCAI decreased 4.4%.

CoreLogic – US Home Price Report shows prices up 6.9% in January 2017

CoreLogic released its CoreLogic Home Price Index (HPI) and HPI Forecast for January 2017 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 6.9% in January 2017 compared with January 2016 and increased month over month by 0.7% in January 2017 compared with December 2016,* according to the CoreLogic HPI.  The CoreLogic HPI Forecast indicates that home prices will increase by 4.8% on a year-over-year basis from January 2017 to January 2018, and on a month-over-month basis home prices are expected to increase by 0.1% from January 2017 to February 2017. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.  “With lean for-sale inventories and low rental vacancy rates, many markets have seen housing prices outpace inflation,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Over the 12 months through January of this year, the CoreLogic Home Price Index recorded a 6.9% rise in home prices nationally and the CoreLogic Single-Family Rental Index was up 2.7%—both rising faster than inflation.”  “Home prices continue to climb across the nation, and the spring home buying season is shaping up to be one of the strongest in recent memory,” said Frank Martell, president and CEO of CoreLogic. “A potent mix of progressive economic recovery, demographics, tight housing stocks and continued low mortgage rates are expected to support this robust market outlook for the foreseeable future. We expect the CoreLogic Home Price Index to rise 4.8% nationally over the next 12 months, buoyed by lack of supply and continued high demand.”

Ivanka Trump brand is ringing up some of its biggest sales in history, label’s president says

Amid a tug-of-war between consumers who either love or loathe the Ivanka Trump brand, the company’s president said it has rung up near record sales since Nordstrom dropped the collection from its stores in February.  In an interview with Refinery29, Abigail Klem — who took the reins when Donald Trump was elected president — said the label has recorded “some of the best performing weeks in the history of the brand” since the beginning of February.  That was the month when Nordstrom said that it had ended its relationship with the brand, citing weak sales. The department store’s decision fueled a firestorm of controversy among consumers, some of whom applauded the brand, and others who said they would stop shopping at the chain. The conflict intensified a few days later when Trump tweeted that his daughter had been treated “so unfairly” by Nordstrom.

MBA – mortgage applications up

Mortgage applications increased 3.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 3, 2017. The previous week’s results included an adjustment for the President’s Day holiday.  The Market Composite Index, a measure of mortgage loan application volume, increased 3.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 16% compared with the previous week. The Refinance Index increased 5% from the previous week to the highest level since December 2016. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 15% compared with the previous week and was 4% higher than the same week one year ago.  The refinance share of mortgage activity increased to 45.4% of total applications from 45.1% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.7% of total applications to the highest level since October 2014. The average loan size for purchase applications reached a survey high at $313,300.  The FHA share of total applications decreased to 11.8% from 12.3% the week prior. The VA share of total applications decreased to 11.6% from 11.7% the week prior. The USDA share of total applications remained unchanged at 0.9% from the week prior.

US productivity up

The Labor Department says productivity grew at a 1.3% annual pace from October through December, down from 3.3% in the third quarter. For 2016, productivity eked out a 0.2% increase, smallest since a 0.1% gain in 2011.  Gains in productivity have slowed in recent years for reasons economists are struggling to understand.  Productivity measures output per hour worked. Increases are crucial for economic prosperity. When their workers are more productive, employers can afford to pay them more. And productivity gains, along with growth in the number of people working, determine how fast the economy grows.

NAR – NAR survey finds Gen X on the mend; more children living with millennials and boomers

An improving economy, multiple years of strong job growth and the notable increase in home values in most markets fueled a greater share of purchases from Generation X households over the past year.  This is according to the National Association of Realtors (NAR) 2017 Home Buyer and Seller Generational Trends study, which evaluates the generational differences 1 of recent home buyers and sellers. The survey additionally found that a growing number of millennials and younger boomer buyers have children living at home; student debt is common among Gen X and boomer households; more millennials are buying outside the city; and younger generations are more likely to use a real estate agent.  Much of the spotlight in recent years has focused on the several challenges millennials are enduring on their journey to homeownership. According to Lawrence Yun, NAR chief economist, lost in this discussion are the numerous Generation X households who bought their first home, started a family and entered the middle part of their careers only to be rattled by job losses, falling home values and overall economic uncertainty during and after the Great Recession.  This year’s survey reveals that debt and little or no equity in their home slowed many Gen X households from buying sooner. Recent Gen X buyers delayed buying longer than millennials because of debt, were the most likely generation to have previously sold a distressed property and were the generation most likely to want to sell earlier but couldn’t because their home was worth less than their mortgage. Furthermore, Gen X buyers indicated they had the most student loan debt ($30,000).  “Gen X sellers’ median tenure in their previous home was 10 years, which puts many of them selling a property they bought right around the time home values were on the precipice of declining,” said Yun. “Fortunately, the much stronger job market and 41% cumulative rise in home prices since 2011 have helped a growing number build enough equity to finally sell and trade up to a larger home. More Gen X sellers are expected this year and are definitely needed to ease the inventory shortages in much of the country.”  The uptick in purchases from Gen X buyers this year (28%) was the highest since 2014 and up from 26% in 2016. Millennials were the largest group of recent buyers for the fourth consecutive year (34%), but their overall share was down slightly from a year ago (35%). Baby boomers were 30% of buyers, and the Silent Generation made up 8%.

This year’s survey also brought to light how the soaring cost of rent in many areas is likely influencing the decision of middle-aged parents to buy a home with their young adult children in mind. Younger boomers were the most likely to purchase a multi-generational home (20%; 16% in 2016), and the top reason for doing so was that children over 18 years old either moved back home or never left (30%; 27% in 2016).  “The job market is very healthy for young adults with a college education, but repaying student debt and dealing with ever-increasing rents on an entry-level salary are forcing many to either shack-up with several roommates or move back home,” said Yun. “This growing trend of delayed household formation is one of the main contributors to the nation’s low homeownership rate.”  Debt, particularly from student loans, appears to be a portion of the household budget of buyers in every generation. While millennials were the most likely to have student debt (46%), their typical balance ($25,000) was lower than Gen X buyers ($30,000). A combined 16% of younger and older boomer buyers also had student debt, with a median balance of over $10,000 for each group.  Among the share of buyers who said saving for a down payment was the most difficult task, millennials were most likely to cite student loans as the debt that delayed saving (55%), followed by Gen X (29%) and younger boomers (9%).  “Repaying student debt also appears to be slowing some current homeowners who went to graduate school and now can no longer afford to sell and trade up because of their loans,” added Yun. “Nearly a third of homeowners in a NAR survey released last year said student debt is preventing them from selling a home to buy a new one.”

Similar to previous years, roughly two-thirds of millennial buyers are married. One aspect of their household that has changed is the number of children in them. In this year’s survey, 49% of millennial buyers had at least one child, which is up from 45% last year and 43% two years ago.  With more kids in tow, the need for more space at an affordable price is increasingly pushing millennial buyers outside the city. Only 15% of millennial buyers bought in an urban area, which is down from 17% last year and 21% two years ago.  “Millennial buyers, at 85%, were the most likely generation to view their home purchase as a good financial investment,” added Yun. “These strong feelings bode well for even greater demand in the future as more millennials settle down and begin raising families. A significant boost in new and existing inventory will go a long way to ensuring the opportunity is there for more of them to reach the market.”  Regardless of age, buyers and sellers continue to see real estate agents as an integral part of a real estate transaction. In this year’s survey, nearly 90% of respondents said they worked with a real estate agent to buy or sell a home. This kept for-sale-by-owner transactions down at their lowest share ever (8%).  Not surprisingly, online and digital technology usage during the home search has increased in recent years. Although millennials and Gen X buyers were the most likely to go online during their search, they were also the most likely to buy their home using a real estate agent (92% and 88%, respectively). On the seller side, millennials were the most likely to use an agent (90%), followed closely by Gen X and younger boomer sellers (each at 89%).  “Online and mobile technology is increasingly giving consumers a glut of real estate data at their disposal,” said NAR President William E. Brown, a Realtor® from Alamo, California. “However, at the end of the day, buyers and sellers of all ages — but especially younger and often DIY-minded consumers — seek and value a Realtors®’ ability to dissect this information and use their expertise and market insights to coach buyers and sellers through the complexities of a real estate transaction.”

WSJ – Renovate America, one of America’s fastest-growing lenders, didn’t disclose it made payments to some borrowers

Renovate America Inc. is the biggest player in America’s fastest-growing type of loan. The San Diego-based company enjoys the backing of municipalities and big-name Wall Street investors, thanks in part to its record of ultralow customer defaults.  But Renovate America, which finances purchases of solar panels and energy-efficient appliances, has masked problems with some borrowers by paying off their debts if they struggle to keep up with payments, according to former Renovate America employees.  Renovate America hasn’t disclosed that fact to investors who buy bonds backed by the company’s loans, say three former employees in the company’s compliance department.  The company’s investors include mutual funds run by J.P. Morgan Chase & Co. and DoubleLine Capital LP, which have been told customer default rates are less than 1%, according to fund documents and credit-rating firms. A J.P. Morgan spokeswoman declined to comment, and a DoubleLine spokesman didn’t respond to a request for comment.  JP McNeill, Renovate America’s chief executive, said the company made a small number of payments between 2014 and 2016 on behalf of 83 borrowers. He said the payments weren’t disclosed to investors because the number of recipients was a fraction of a% of the 90,000 homeowners who got loans from Renovate America and wasn’t considered “material.”  Executives at two asset managers that bought Renovate America’s bonds said their firms would have liked to know about the payments before investing. The payments make it harder for investors to gauge the true default rates of the loans.

Securities laws require companies to disclose all information that investors would consider to be material, said Erik Gerding, a professor at the University of Colorado law school. In Renovate America’s case, “the conservative approach would have been to disclose,” he said.  Renovate America makes its loans through state-run programs known as Property Assessed Clean Energy, or PACE. The high-interest-rate loans are brokered by plumbers and contractors, financed by private lending companies, backed by county governments and purchased by investors.  Loans, averaging about $25,000, are placed on a homeowner’s tax bill as an assessment that needs to be paid along with property taxes. In a default, the loans are given priority over a homeowner’s mortgage.  PACE lenders have made about $3.4 billion in loans since 2008. Industry participants expect more than $2 billion in loans to be made this year as more states sign on.  The Wall Street Journal reported in January that some borrowers in the PACE program said they were misled about their loan terms and can’t afford their debt. Renovate America and other PACE lenders told the Journal they are putting more rules in place to protect homeowners.  PACE lenders rely on partnerships with state and local governments. The municipalities, eager to offer clean-energy savings to their constituents, are responsible for collecting homeowners’ tax payments.

Last year, Renovate America originated about $1 billion in loans, up 35% from 2015, the company said. It uses about 8,000 contractors to source loans across the country.  In late 2014, as some borrowers started missing payments, Renovate America launched a program dubbed “first payment assistance,” according to the former compliance employees. The program paid a homeowner’s first tax assessment or even a full year of debt, the former employees said.  The ad hoc program lacked formal guidelines. Borrowers were more likely to receive aid if they threatened to go to the media with their complaints, one former employee said.  A Renovate America spokeswoman said that payments weren’t made in a “programmatic or formal way” and that homeowners who received payments had misunderstood their loan terms or hadn’t saved enough to pay off their tax assessments.  Mr. McNeill, the CEO, said the payments made on behalf of the 83 homeowners totaled $175,000 between 2014 and 2016.  The former compliance employees said they believe the sum is higher. One who worked with people responsible for the payments estimates the company paid out about $1 million to homeowners in a seven-month period beginning in fall 2015. The Renovate America spokeswoman disputed that number.  Renovate America stopped the payments late last year at the suggestion of its capital-markets division, which manages the company’s bond deals, the spokeswoman said.

CoreLogic – FHA-to-conventional refinancing is a bright spot in the mortgage market

Most of the attention surrounding the higher mortgage rate environment has been on the negative impact on the mortgage refinance market. However, that overlooks the fact that there are reasons a borrower may want to refinance in a modestly higher rate environment. For example, borrowers who have built sufficient home equity may want to cash-out some equity or refinance out of FHA to eliminate mortgage insurance premiums even when rates rise. When the residential real estate market began to crash in 2008, the FHA share of the purchase market skyrocketed and reached a peak of 39% in November 2009, up from a low of 4% in February 2007. Since peaking in 2009, the FHA purchase-market share declined to 20% in September 2016, but it is still 5 percentage points above its late 1990s average. The rise in the FHA share and an improving economy helped stabilize the housing market by late 2012. Since January 2013, the CoreLogic Home Price Index for the US has risen 30% as of December 2016. The large rise in home prices during the last 3 years means that homeowners who used FHA loans to finance their purchase over the past few years have seen their equity grow, in many cases, past the 20% level where mortgage insurance is no longer required in the conventional market.

However, in January 2013 FHA announced a change in its policy on mortgage insurance cancellation, and it no longer allowed borrowers to drop mortgage insurance coverage when they reach 20% equity. So the only way to stop paying the standard 85-basis point premium on the average FHA loan is to refinance into a conventional loan with LTV of 80% or less. And that’s exactly what in-the-money FHA borrowers are doing. They are refinancing into conventional loans, spurred on in part by the incentive of dropping their mortgage insurance premium. Last year, FHA to conventional refinances accounted for roughly 8% of all refinances or about 20,000 loans per month. Contrast this to 2010, when the rate was less than 1% or less than 4,000 loans per month. CoreLogic is currently forecasting home prices to rise by 5% in 2017. Given that 2.9 million borrowers took out an FHA purchase mortgage since January 2013, that means a steady flow of borrowers will continue to refinance from FHA into conventional on the order of a 250,000 borrowers in 2017.

US service-sector activity expanded in February

Activity in US services industries increased steadily in February, another sign the economy is gathering steam. The Institute for Supply Management said Friday its index of nonmanufacturing activity rose to 57.6 in February from 56.5 a month earlier. A reading above 50 indicates rising activity, as measured by factors such as sales and hiring. Economists surveyed by The Wall Street Journal had forecast a February reading of 56.5. The report showed a measure of sales, or new orders, rose quickly last month, hitting a reading of 61.2 compared with 58.6 a month earlier. A measure of hiring of also climbed higher.

Realtytrac – US home refinance originations post 20% annual increase in q4 2016 even as purchase originations decline
ATTOM Data Solutions released its Q4 2016 US Residential Property Loan Origination Report, which shows more than 1.7 million (1,748,177) loans were originated on US residential properties (1 to 4 units) in the fourth quarter of 2016, down 15% from the previous quarter but still up 2% from a year ago. More than 7.3 million loans were originated in 2016, up 2% from 2015 to the highest total since 2013. Total dollar volume of loan originations in the fourth quarter increased 8% from a year ago to more than $461 billion ($461,291,961,501). 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. “Refinance originations continued to post strong numbers compared to a year ago in the fourth quarter even as purchase originations decreased on a year-over-year basis for the second consecutive quarter,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “The increase in refinance originations is surprising given the rising interest rates in the fourth quarter, but many homeowners may have been trying to lock in still relatively low interest rates before those interest rates rose further. “On the other hand, rising interest rates did seem to have a chilling effect on homebuyers using financing, as evidenced not only by the drop in purchase loan originations but also a corresponding rise in the share of cash buyers, drop in FHA buyer share and a rise in the average down payment percentage in the fourth quarter compared to the previous quarter,” Blomquist added. “For the year, the median down payment for loans secured by single family homes and condos was 6.0% of the median sales price nationwide, the lowest down payment percentage since 2012, but still close to twice the 3.3% in 2006 during the last housing boom.”

A total of 595,500 purchase loans secured by US residential property were originated in Q4 2016, down 26% from the previous quarter and down 12% from a year ago — the second consecutive quarter with a year-over-year decrease following eight consecutive quarters of year-over-year increases. The total dollar volume of purchase originations in the fourth quarter was more than $161 billion, down 25% from the previous quarter and down 8% from a year ago. A total of 2,777,222 purchase loans were originated in 2016, down 1% from 2015. Among 99 metropolitan statistical areas with at least 2,500 loan originations in the fourth quarter, those with the biggest year-over-year decrease in purchase originations were Naples, Florida (down 23%); Austin, Texas (down 20%); Fort Collins, Colorado (down 19%); San Antonio, Texas (down 18%); and Reno, Nevada (down 15%). Counter to the national trend, 56 of the 99 metropolitan statistical areas analyzed for the report (57%) posted year-over-year increase in purchase originations in the fourth quarter, led by Olympia, Washington (up 27%); Memphis, Tennessee (up 18%); Bremerton, Washington (up 18%); Spokane, Washington (up 18%); and Kansas City (up 17%). The top two purchase loan originators in Q4 2016 were so-called non-banks Quicken Loans (14,678) and Caliber Home Loans (12,075) followed by Wells Fargo (10,826) and Fairway (9,149) and JP Morgan Chase (7,994). Among the top five purchase loan originators, the three non-banks all saw year-over-year increases in purchase loan originations: Quicken up 4%; Caliber Home Loans up 21%; and Fairway up 19%. Meanwhile the two traditional big banks in the top five both posted year-over-year decreases in purchase loan activity in Q4 2016: Wells Fargo down 5%; and JP Morgan Chase down 15%.

A total of 883,836 refinance loans secured by US residential properties were originated in Q4 2016, down 6% from the previous quarter but still up 20% from a year ago — the second consecutive quarter with a year-over-year increase. The total dollar volume of refinance originations in the fourth quarter was more than $246 billion, down 5% from the previous quarter but still up 27% from a year ago. A total of 3,357,405 refinance loans were originated in 2016, up 4% from a year ago. Among 99 metropolitan statistical areas with at least 2,500 loan originations in the fourth quarter, those with the biggest year-over-year increase in refinance originations were Olympia, Washington (up 108%); Spokane, Washington (up 77%); Boulder, Colorado (up 74%); San Diego (up 73%); and Eugene, Oregon (up 72%). A total of 268,841 Home Equity Lines of Credit (HELOCs) were originated during the fourth quarter, down 16% from the previous quarter and down 12% from a year ago. The total dollar volume of HELOCs originated in Q4 2016 was more than $53 billion, down 12% from the previous quarter and down 8% from a year ago. For the year, a total of 1,189,867 HELOCs were originated, up 2% from 2015. Among 99 metropolitan statistical areas with at least 2,500 loan originations in the fourth quarter, those with the biggest year-over-year increase in HELOC originations were Flint, Michigan (up 26%); Salt Lake City, Utah (up 26%); Birmingham, Alabama (up 24%); Anchorage, Alaska (up 22%); and Dallas-Fort Worth, Texas (up 20%).

A total of 128,577 loans backed by the US Department of Veterans Affairs (VA) were originated in Q4 2016, down 16% from a record high in the previous quarter but still up 23% from a year ago. VA loans originated in Q4 2016 accounted for 8.7% of all loans originated during the quarter, down from a record high of 8.8% in the previous quarter but still up from 7.4% a year ago. A total of 226,142 loans backed by the Federal Housing Administration (FHA) were originated in Q4 2016, down 21% from the previous quarter and down 9% from a year ago. FHA loans originated in Q4 2016 accounted for 15.3% of all loans originated during the quarter, down from 16.4% in the previous quarter, and down from 17.6% a year ago to the lowest level in two years — since Q4 2014.

Boeing gets 1,880 union workers to take voluntary layoffs

Boeing Co has accepted 1,880 voluntary layoffs from its union machinists and engineers in the Seattle area, the unions said on Thursday, part of the jet maker’s drive to cut costs through job reductions and other measures. Boeing’s machinists union, the touch labor that builds airplanes near Seattle, said about 1,575 workers had taken voluntary layoffs by the deadline in February. Boeing’s white-collar union said Boeing accepted 305 members for voluntary layoffs in January. Last year, Boeing cut about 1,200 white-collar union jobs – 850 through voluntary layoffs and 350 through involuntary reductions, said Bill Dugovich, spokesman for the Society of Professional Engineering Employees in Aerospace. “Boeing has told us to expect about the same number of total layoffs in 2017 as 2016,” he said. The job reductions had been announced last year and workers had until Feb. 1 to apply. These are all voluntary, where people planned to retire or had other plans,” said Connie Kelliher, a spokeswoman for the International Association of Machinists and Aerospace Workers District 751. Boeing said it did not have a specific target number for its job reductions at the commercial airplane unit but was sticking with the broad plan of reducing jobs it outlined in December. “We are reducing costs and aligning employment levels to business and market requirements,” spokesman Paul Bergman said. “Employment reductions will come through a combination of attrition, leaving open positions unfilled, voluntary layoff program and in some cases, involuntary layoffs.” Boeing offered the buyouts to workers last year as part of an 8% workforce reduction at its commercial airplane business. The unit had about 74,600 workers at the end of February. Boeing said in December it would cut an as-yet-undetermined number of jobs in 2017. No machinists have had involuntary layoffs for several years, Kelliher said. Boeing’s shares closed down 0.5% at $182.99 on the New York Stock Exchange.

WSJ – mall landlords’ next act: apartments and concerts

Westfield Corp. recognized more than a decade ago that the long-term outlook for shopping centers was rough. So it changed course. Since 2004 the Australia-based landlord has slashed its portfolio of shopping centers in half, to 33 from 66, including most of its malls in the Midwestern US where sales growth has disappointed. Instead, it has focused on flagship assets such as the gleaming white mall it operates at New York’s World Trade Center. The culling also freed up Westfield to make strategic shifts. It is dipping its toes into apartment buildings, organizing concerts and other events, and developing mobile apps to engage with consumers. “In the past, mall landlords could rely on their tenants to drive traffic to their centers,” said Romney Jacob, president at consulting company Threadsight. Now, landlords have to provide more than just bland boxes containing stores and restaurants, she said. Westfield declined to comment for this article because it is in a quiet period ahead of its Feb. 23 earnings report. But Co-Chief Executive Steven Lowy told investors in October that “We are evolving and are continuing to evolve from a company that was really in the business of building buildings and leasing shops to retailers, to creating a much broader strategy.” Westfield plans to build its first residential building in the US in San Diego in the near future, and has developed Westfield Labs, a platform that tests new technologies including those including those that allow customer to shop online. Last August, the firm hired Scott Sanders, a Broadway producer, to oversee its global entertainment offerings, which recently included a holiday concert by the a cappella group Pentatonix. At the Westfield UTC mall in San Diego, the firm is spending $585 million to spruce up the mall, adding dining spaces, an 18,000-square-foot event center, a public transit center, office space and 200,000 square feet of new shops. It also has plans to build a 300-unit luxury rental apartment building nearby that has its own parking and curb access separate from the shopping area.

Building apartments near shopping centers in areas with strong demand for urban living boosts density, a factor influencing traffic flows in malls. Just outside Washington, D.C., Macerich Co., together with a multifamily developer, built a 30-story apartment building called Vita Apartments where residents would get additional discounts when they shop at its mall, the giant Tysons Corner Center. The mall is also linked to a 22-story office tower and a Hyatt Regency hotel. Shopping-mall company Simon Property Group Inc. in 2014 spun off its portfolio of 98 strip centers and smaller malls into another real-estate investment trust, Washington Prime Group Inc., so it could focus on its higher-end retail properties. Simon also has ventured into hospitality and apartment buildings, including a luxury hotel and residential tower adjacent to The Galleria in Houston. The Indianapolis firm has a dedicated platform for investing in technology to draw traffic into its shopping centers, including mobile apps that inform shoppers about parking availability. The company didn’t respond to a request for comment, but Chief Executive David Simon said recently in an earnings call that it might continue to sell its noncore assets but remains focused on strengthening its business. “We’re not going to starve our malls,” said Mr. Simon, who also pointed out that retailers have neglected their physical stores in their chase for online market share. Investors in mall REITs take comfort that the building of offices, hotels and housing is typically outsourced to another developer with the expertise to do so. “We’re not concerned about mall owners building mixed-use projects. But we like companies to be specialized,” said Amanda Black, regional portfolio manager of Northwood Securities LLC. “We don’t want a company with six apartment towers that make up 1% of revenue to be distracted.”

Black Knight – Home Price Index report: December 2016

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

–  US Home Prices Up 0.1% for the Month; Up 5.7% Year-Over-Year

–  US home prices rose a total of 5.7% in 2016, having seen an average o​f 5.4% annual appreciation each month of the year, accelerating into the later months

–  New York continues to outperform, leading all states in monthly home price appreciation for the sixth consecutive month and accounting for eight of the 10 best-performing metros

–  Michigan saw prices fall 0.7% in December – the most negative movement among all the states – and accounted for eight of the month’s 10 worst-performing metros

–  Home prices in four of the nation’s 20 largest states and seven of the 40 largest metros hit new peaks

Aircraft sales boosted US durable-goods orders in January

Orders for long-lasting factory goods climbed last month due to purchases of military and civilian aircraft, overshadowing a weak start to 2017 for business investment in new machinery and other equipment.  Orders for durable goods–products, like airplanes and dishwashers, that are designed to last at least three years–increased 1.8% in January from the prior month to a seasonally adjusted $230.35 billion, the Commerce Department said Monday. Economists surveyed by The Wall Street Journal had expected a 2.0% increase in total orders last month.  The rise came after two consecutive months of declining orders and reflected jumps in two volatile categories: a 69.9% surge in orders for civilian aircraft and parts, and a 59.9% increase in orders for defense aircraft. Excluding the transportation category, orders fell 0.2% from December.  A closely watched proxy for business investment in new equipment, new orders for nondefense capital goods excluding aircraft, fell 0.4% in January from the prior month. That was the sharpest one-month drop in the category since September.  Still, the broader trend remained positive. Total durable-goods orders were up 1.4% in January from a year earlier. Orders for nondefense capital goods excluding aircraft rose 2.6% compared with January 2016.

The US manufacturing sector has gained traction in recent months following a weak stretch caused by falling oil prices, which squeezed the domestic energy industry, and a strong dollar that weighed down exports by making US products more expensive for foreign customers.  Firming global growth and stabilized energy prices have helped bolster the industrial side of the economy. A privately produced gauge of US manufacturing activity, the Institute for Supply Management’s purchasing-managers index, rose in January to its highest level since November 2014.  Some US companies, in the oil patch and beyond, are ramping up capital expenditures. Fixed nonresidential investment in equipment rebounded at a 3.1% annual rate in the fourth quarter after four consecutive quarters of decline, according to Commerce Department data. Broader business investment, including spending on structures and intellectual property like software, rose in late 2016 for the third consecutive quarter.  The overall US economy has remained on track for solid if unspectacular growth. Gross domestic product, a broad measure of the goods and services produced across the US, expanded at a 1.9% seasonally and inflation-adjusted rate in the final three months of 2016, the Commerce Department said last month. Forecasting firm Macroeconomic Advisers on Friday projected a GDP growth rate of 2.2% during the first quarter.

CoreLogic – cash and distressed sales update: November 2016

–  The cash sales share was 32.4% in November 2016

–  The cash sales share was 14.2 percentage points below the peak level reached in January 2011

–  The distressed sales share fell 4.3 percentage points year over year from November 2015

Cash sales accounted for 32.4% of total home sales in November 2016, down 4.5 percentage points year over year from November 2015. 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 November 2016, the share should hit 25% by mid-2017.  Real estate owned (REO) sales had the largest cash sales share in November 2016 at 60.2%. Resales had the next highest cash sales share at 32.3%, followed by short sales at 31.9% and newly constructed homes at 15.5%. While the percentage of REO sales within the all-cash category remained high, REO transactions have declined since peaking in January 2011.  REO sales made up 4.9% distressed sales share and short sales made up 2.6% in November 2016. The distressed sales share of 7.5% in November 2016 was the lowest distressed sales share for any month since September 2007. At its peak in January 2009, distressed sales totaled 32.4% of all sales with REO sales representing 27.9% of that share. 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 by the end of 2017.  All but eight states recorded lower distressed sales shares in November 2016 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 18.4% in November 2016, followed by Connecticut (18.2%), New Jersey (15.8%), Illinois (14.3%) and Michigan (14%). North Dakota had the smallest distressed sales share at 1.4%. 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 (each within one percentage point).  New York had the largest cash sales share of any state at 47.4%, followed by Alabama (47.3%), Michigan (44.1%), Florida (42.4%) and Indiana (41%).

Oil gains as bullish bets on rising prices hit record high

Oil prices rose on Monday as investors showed record confidence in prices rising further, though gains were capped by the prospect of faster growth in US oil production.  Brent crude oil rose 58 cents to $56.57 a barrel by 1433 GMT, while US West Texas Intermediate added 47 cents to $54.46.  Investors raised their bets on rising Brent crude oil prices to a new high last week, data from the InterContinental Exchange showed on Monday, breaking the 500,000-lot mark for the first time on record.  Money managers also raised their bullish US crude futures and options positions in the week to Feb. 21 to the highest on record, the US Commodity Futures Trading Commission (CFTC) said on Friday.  Investors now hold 951,312 lots’ worth of US and Brent crude futures and options, equivalent to nearly 1 billion barrels of oil and valued at more than $52 billion, based on current Brent and WTI benchmark prices.  “With speculators increasing their bullish bets on US crude to an all-time high, the risk of disappointment and subsequent downward spiral in prices has never been greater,” oil brokerage PVM’s Stephen Brennock said.  Among the risks is the level of compliance to the deal between the Organization of the Petroleum Exporting Countries (OPEC) and other producers to bring down oil output by about 1.8 million barrels per day (bpd).  OPEC’s record compliance with the deal has surprised the market, and the biggest laggards, the United Arab Emirates and Iraq, have pledged to catch up with their targets. The International Energy Agency put OPEC’s average compliance at a record 90% in January. Based on a Reuters average of production surveys, compliance stands at 88%.

NAR – pending home sales weaken in January

Insufficient supply levels led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors (NAR).  The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.8% to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month’s index reading is 0.4% above last January, it is the lowest since then.  Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”  According to Yun, interest in buying a home is the highest it has been since the Great Recession. Households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months. While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.  “January’s accelerated price appreciation is concerning because it’s over double the pace of income growth and mortgage rates are up considerably from six months ago,” said Yun. “Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location.”

Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.2% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 4%. In 2016, existing sales increased 3.8% and prices rose 5.1%.  “Sales got off to a fantastic start in January, but last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range,” added Yun.  The PHSI in the Northeast rose 2.3% to 98.7 in January, and is now 3.6% above a year ago. In the Midwest the index fell 5.0% to 99.5 in January, and is now 3.8% lower than January 2016.  Pending home sales in the South inched higher (0.4%) to an index of 122.5 in January and are now 2.0% above last January. The index in the West dropped 9.8% in January to 94.6, and is now 0.4% lower than a year ago.

Black Knight – First Look at January 2017

The Data and Analytics division of Black Knight Financial Services (NYSE: BKFS) reports the following “first look” at January 2017 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.
– Impact of Rising Rates Felt as Prepayments Decline by 30 % in January
– Prepayment speeds (historically a good indicator of refinance activity) declined by 30 % in January to the lowest level since February 2016
– Delinquencies improved by 3.9 % from December and were down 17 % from January 2016
– Foreclosure starts rose 18 % for the month; January’s 70,400 starts were the most since March 2016
– 2.6 million borrowers are behind on mortgage payments, the lowest number since August 2006, immediately following the pre-crisis national peak in home prices

Federal prosecutors to question NYC mayor over fundraising: media

New York City Mayor Bill de Blasio will meet with federal prosecutors on Friday as part of their lengthy investigation into whether people involved in fundraising for his election campaign broke corruption laws, according to news reports. De Blasio, a Democrat who faces reelection in November, has repeatedly said he and his campaign staff did nothing wrong and that he was cooperating with prosecutors from the US attorney’s office in Manhattan in their yearlong criminal investigation. A spokesman for the mayor did not immediately respond to questions on Friday morning. De Blasio is to meet with the prosecutors and agents from the Federal Bureau of Investigation at his lawyer’s office in Manhattan for about four hours, according to the New York Times, citing unnamed people familiar with the matter. Prosecutors from the Manhattan US attorney’s public corruption unit are looking at whether people who helped raise money for de Blasio’s 2013 election campaign and a non-profit organization that his advisers operated received favorable treatment from the mayor or his aides at City Hall, according to news reports. Representatives for the US attorney’s office, which typically declines to discuss ongoing investigations, did not immediately respond to a request for comment.

US new-home sales rise in sign of housing market health

Americans bought more new homes in January after a steep fall-off the previous month, a sign the housing market is healthy despite higher mortgage rates. The Commerce Department says new home sales rose 3.7 % to a seasonally-adjusted 555,000 units. That is 5.5 % higher than a year ago. Solid job gains and some signs of rising wages have driven up consumer confidence, which has also risen since the presidential election. More confident consumers are more likely to buy homes. Sales of existing homes jumped to their highest level in a decade, according to data released earlier this week. The rebound has occurred despite, or perhaps because of, a jump in mortgage rates since the fall. Many buyers could be accelerating purchases to get ahead of any further rate increases.

RealtyTrac – analyzing the “who” behind recent real estate boom

ATTOM Data Solutions, curator of the nation’s largest fused property database, and Clear Capital (www.clearcapital.com),the leading provider of commercial and residential real estate valuations, data and analytics, quality assurance services, and technology solutions, today released a joint white paper titled “Landlord Land” that analyzes the “who” behind the recent real estate boom that has seen home prices reach near all-time highs nationwide even while the national homeownership rate remains near its 50-year low. “Though prices in several markets are nearing pre-bust levels, the composition of both the supply and demand of today’s real estate market is starkly different than a decade ago,” said Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. “As such, it’s imperative for all market participants to understand the nuances of the New Normal Real Estate Market.” Leveraging proprietary data from ATTOM Data Solutions and Clear Capital Analytics, along with insights from national and local market experts, the white paper follows the arc of the recent housing boom starting with the rise of institutional investors as early as 2009 in some markets. It then traces the eventual pullback of institutional investor acquisitions followed by a brief uptick in first-time homebuyers and a more sustained surge in smaller rental investors that in turn is feeding a renewed home flipping frenzy.

“A housing recovery that is highly dependent on real estate investors is a bit of a double-edged sword,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Rapidly rising home values have been good for homeowner equity, but also have caused an affordability crunch for the first-time homebuyers the housing market typically relies on for sustained, long-term growth.” “There are a few hard money lenders here, and they bring people who are not fulltime investors and people who are end users … to the (foreclosure) auction and are outbidding anyone who is a traditional investor,” said Chris Richter, CEO at Audantic Real Estate Analytics, a Seattle-based company providing predictive analytics for real estate investors. “Early on it was the mid-size investors all the way up to the large institutions (that) had the most urgent need for capital,” said Ryan McBride, COO at Colony American Finance, an Irvine, California-based company providing financing for real estate investors. “We see a lot more opportunities from the smaller, midsized operators, and so that is where we are focusing our efforts: the broad base of the pyramid.” “A lot of demand is people in the Bay Area and New York City looking to buy in the Southeast,” said Gary Beasley, CEO and founder at Roofstock, an online marketplace for single family rentals. “We have one Google engineer who just bought his sixth house. He said ‘this is fantastic, real estate is so expensive here and I don’t want to be tied just to Bay Area real estate.”

US consumer sentiment falls but remains near decade long high

A gauge of consumer sentiment fell slightly in February, but remained near a decadelong high, as self-identified republicans and independents remain confident in the economy after the election of Donald Trump. The University of Michigan said Friday that its final reading of consumer sentiment was 96.3 in February, up from its preliminary reading of 95.7 earlier this month but down from January’s final reading of 98.5. It is up 5% from February 2016. Economists surveyed by The Wall Street Journal had expected a February reading of 96. The recent rise in optimism reflects a turnaround from consumers’ attitudes in October, when sentiment had matched a two-year low. The index’s three month average is at the highest it has been for nearly 13 years. The forward-looking index of consumer expectations is up 5.6% from February a year ago, and the index reflecting sentiment on current economic conditions rose 4.4% from February last year.

NAHB – apartment and condominium market keeps momentum going in fourth quarter

The Multifamily Production Index (MPI), released today by the National Association of Home Builders (NAHB), posted a gain of two points to 55 in the fourth quarter. The MPI has been at 50 or above for five straight years. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. Low-rent units remained unchanged at 54 while market-rate rental units rose one point to 58 and for-sale units increased three points to 53. The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, remained unchanged at a reading of 42, with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011. “Multifamily developers are feeling optimistic about the market as demand for renting remains robust,” said Dan Markson, senior vice president of The NRP Group in San Antonio, Texas, and chairman of NAHB’s Multifamily Council. “However, regulatory burdens remain a challenge to the industry, which affect developers’ ability to meet this demand.” “Given the recent strength of multifamily starts and permits numbers, it is not surprising that multifamily developer sentiment remains positive,” said NAHB Chief Economist Robert Dietz. “Our current forecast calls for multifamily production to stabilize at a solid rate and stay there through 2018.”

NAR – stable growth expected for commercial real estate in 2017

Steered ahead by strengthening demand in smaller markets, the commercial real estate sector should remain on stable ground in 2017 and offer decent returns for investors, according to the latest National Association of Realtors (NAR) quarterly commercial real estate forecast. National office vacancy rates are forecast by Realtors to retreat 1.1 % to 12.1 % over the coming year as job growth in business and professional services brings increased need for office space. The vacancy rate for industrial space is expected to decline 1.3 % to 7.1 %, and retail availability to decrease 0.7 % to 11.2 %. Only the multifamily sector is predicted to have little change to its vacancy rate over the next year as new apartment completions keep openings mostly flat at 6.5 %. Lawrence Yun, NAR chief economist, says the US economy is poised for slight improvement in 2017. “Last year was the 11th year in a row of subpar GDP growth, but renewed corporate optimism leading to a focus on investment and a desperately needed boost in residential construction should pave the way for modest expansion this year of around 2.4 %,” he said. “Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”

The apartment sector is expected to preserve its status as a top performer this year simply because ongoing supply and affordability challenges are keeping the nation’s low homeownership rate from seeing meaningful improvement. Even with a small uptick in the vacancy rate as new building completions catch up with demand, rents will likely maintain their solid growth in most of the country. “Especially in the costliest metro areas, higher home prices and mortgage rates are squeezing the budget for many renters looking to buy and inevitably forcing them to sign a lease for at least another year,” said Yun. According to Yun, commercial property prices — especially in Class A assets in larger markets — surpassed pre-crisis levels last year because of aggressive bidding and lower inventory levels. However, with the Federal Reserve expected to raise short-term rates three times in 2017, a minor price correction may be in store this year as cap rates move higher. “Similar to the biggest ongoing challenges in the residential market, supply and demand imbalances continue to put upward pressure on commercial property prices as investors search for yield in smaller markets,” said Yun. “Realtors® are increasingly citing inventory shortages as their top concern as the pace of new projects slows in large cities and middle-tier and smaller markets see a growing appetite for space.”

The latest Realtors® Commercial Real Estate Market Survey highlighted the strong underlying demand for commercial properties up to $2.5 million, where most transactions from NAR’s commercial members reside. Compared to a year ago, sales volume rose 12.9 %, prices increased 5.5 % and the average transaction value equaled $1.1 million. NAR’s most recent Business Creation Index (BCI) also showed a positive trend for smaller commercial businesses. Created to monitor local economic conditions from the perspective of NAR’s commercial members, December’s BCI found that Realtors® reported more business openings and fewer closings over the past year in their market. Yun says at least in the short term, the possibility of a more tax-friendly business environment combined with the positive benefits of 1031 exchanges could quicken the pace of economic growth and support stronger commercial market fundamentals. The industrial sector — already enjoying increased demand from the soaring popularity of e-commerce — could see a further decline in vacancy rates if increased manufacturing comes to fruition and accelerates the need for more warehouse space. “The positive direction for commercial real estate this year will be guided by the steadily expanding US economy, which has legs to grow and continues to be one of the top economic performers and safest bets in the world,” concluded Yun.

Believe it or not, things are good out there

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

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

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

TRID not a success

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other 2016 Southern California housing market highlights:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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