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Black Knight Home Price Index Report: January 2017 Transactions

The Data and Analytics division of Black Knight​ Financial Services, Inc. released its latest Home Price Index (HPI) report, based on January 2017 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 5.4% Year-Over-Year

–  US home prices at the start of 2017 continued the trend of incremental monthly gains, rising 0.1% from December

–  New York continues to lead the states on a monthly basis, with prices rising 1.3% there in January, more than double the rate of appreciation of the next best-performing state​

–  The New York City metro area was the month’s best-performing metro, with prices rising 1.3%, followed by Seattle and San Jose, each up 0.8% from December​

–  After home prices fell 3.2% last month, Tuscaloosa, Ala., was once again the worst-performing metro area in January; with prices falling another 4% in January, Alabama became the worst-performing state for the month​

Home prices in three of the nation’s 20 largest states and nine of the 40 largest metros hit new peaks​

Oil falls towards $50 on doubts over duration of output cut

Oil fell further towards $50 a barrel on Monday, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.  A committee of ministers from OPEC and outside producers agreed on Sunday to look at prolonging the deal, stopping short of an earlier draft statement that said the committee recommended keeping the measure in place.  International benchmark Brent crude was down 70 cents at $50.10 by 1333 GMT, after falling as low as $50.06. US crude was down 84 cents at $47.13.  “These are troubling times for oil bulls,” said Stephen Brennock of oil broker PVM. “Against a backdrop of rising US crude output and underwhelming OPEC-led efforts to normalize bulging global oil inventories, positives are in short supply.”  A number of ministers from the Organization of the Petroleum Exporting Countries and other producers met in Kuwait to review the progress of their supply cut, which initially runs until the end of June.  OPEC and 11 other producers including Russia agreed in December to reduce their combined output by almost 1.8 million barrels per day in the first half of this year.  While many in OPEC have called for prolonging the curbs, Russia has been less definitive. Energy Minister Alexander Novak said on Sunday it was too early to say whether there would be an extension.  “We would see the relative lack of reaction in the price perhaps as a reflection of some disappointment that nothing more concrete was forthcoming,” analysts at JBC Energy said in a report, referring to the conclusion of Sunday’s talks.  There is “increasing skepticism” in the market as to whether a rollover of the cuts can be agreed, JBC added.  Oil also came under pressure from further evidence that higher prices as a result of the OPEC-led supply cut are helping boost supplies in the United States.

WSJ – sluggish housing recovery took $300 billion toll on US economy, data show

The decline in homeownership rates to near 50-year lows is partly to blame for the US economy’s sluggish recovery from the last recession, new data suggest.  If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8% boost to gross domestic product, according to a study expected to be released Monday by the Rosen Consulting Group, a real-estate consultant.  In 2016, total spending on housing declined to 15.6% of GDP, a broad measure of goods and services produced across the US, compared with a 60-year average of nearly 19%. The share of spending specifically linked to new-home construction and remodeling likewise declined to 3.6% of GDP, just over half its prerecession peak in 2005.  If lenders were to ease credit standards back to their early 2000s levels, that could jump-start home purchases and construction activity, said Ken Rosen, chairman of Rosen Consulting and chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.  “If you want to get the economy going, housing is typically the flywheel,” he said.  Of course, lax lending standards was a primary culprit of the 2008 financial crisis, and Mr. Rosen isn’t suggesting a return to that easy-money era. Still, housing-industry executives say the pendulum has swung too far in the other direction, to the detriment of middle-class families and economic growth.  Housing serves as an economic engine through home construction as well as ancillary activities such as appliance purchases, spending on home renovations and jobs for real-estate agents. Each new single-family housing unit built typically creates three jobs, according to the National Association of Home Builders.  The homeownership rate stood at 63.7% in the fourth quarter of 2016, according to the US Census Bureau. That was down from a high of 69.2% during the housing boom and below the 65% economists say is a normal level.  Strict mortgage lending standards, younger households putting off marriage and children and a lack of inventory of homes for sale are combining to depress homeownership.

It is unlikely that easing credit alone would be enough to bring the share of households who own back up to historic norms. Even in hot markets where demand is strong despite tight credit standards, builders can’t construct enough homes to meet demand because of labor shortages and regulatory barriers, said Robert Dietz, chief economist at the National Association of Home Builders.  “It’s certainly the case that you would get more economic activity. You would get more activity, but there are limits on how fast you can grow in any given year,” Mr. Dietz said.  Ed Brady, president of Bloomington, Ill.-based Brady Homes, said his company built 150 homes in 2006. Last year, it built 15.  Mr. Brady said part of the reason activity has fallen off is that he doesn’t build in as many markets as he used to. Tight credit—both for builders and buyers—is another factor.  “I’m not suggesting that we go back to the maverick days, but I do think that there are a lot of people that could afford to repay their loans but are not buying because they’re afraid to go in for the inquisition of trying to get a loan,” he said. Tighter mortgage lending has led to sharp declines in default rates and helped produce a market in which price growth is linked to economic prosperity.  But some experts argue default rates are too low. Under typical conditions, similar to those in the early 2000s, about 12% of mortgages are at risk of default, but in the third quarter of 2016, just 5.1% of mortgages were at risk of default—a level that indicates that lenders aren’t making loans to thousands of people who pose little risk, according to the Urban Institute, a nonprofit think tank.  Mr. Rosen said many middle-class families have missed out on the appreciation that has occurred over the past five years because they haven’t been eligible for mortgages.  “We’re being paternalistic in our regulatory environment and it’s forcing lower middle-class people…to rent,” he said.

Plateau in US auto sales heightens risk for lenders

As US auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody’s Investors Service said in a report released on Monday.  “The combination of plateauing auto sales, growing negative equity from consumers and lenders’ willingness to offer flexible loan terms is a significant credit risk for lenders,” Jason Grohotolski, a senior credit officer at Moody’s and one of the report’s authors, told Reuters.  Motor vehicle sales have boomed in the years since the Great Recession. US sales of new cars and trucks hit a record annual high of 17.55 million units in 2016.  Industry consultants J.D. Power and LMC Automotive on Friday reiterated their forecast for a 0.2% increase in sales in 2017 to 17.6 million vehicles.  But Moody’s says it expects US new vehicle sales to decline slightly to 17.4 million units in 2017.  In its view, that would mean lenders will be chasing fewer loans, “which could cause them to further loosen loan terms and loan to value criteria.”

Mortgage job loss coming?

An analysis by PwC, reported on by the Los Angeles Times, says 38% of US jobs could be taken by robots in the next 15 years, which is significantly higher than countries like Britain, Germany and Japan. And the PwC analysis identified jobs in the financial and insurance sector as especially vulnerable in the US compared to other countries. The reason cited by the article? A lack of education by US bankers.  “While London finance employees work in international markets, their US counterparts focus more on the domestic retail market, and workers ‘do not need to have the same educational levels,’ the report said. Jobs that require less education are at higher potential risk of automation, according to the report.”  But it’s hard to see how more education would stop the juggernaut of automation. Would a master’s degree really benefit loan officers, identified by as No. 2 on the list of jobs mostly likely to be taken over by robots? Seems pretty unlikely.  Treasury Secretary Steven Mnuchin, for one, doesn’t seem too worried about the coming robot apocalypse. In reaction to the report, Mnuchin said, “I think we’re so far away from that that it’s not even on my radar screen. I think it’s 50 or 100 more years.”  That did not sit well with the good folks at, including Emily Dreyfuss, who published an article entitled “Hate to break it to Steve Mnuchin but AI is already taking jobs.”  Despite being slightly jealous of the familiarity Dreyfuss apparently has with Steve Mnuchin (we are still on a Steven basis), I thought she had some pretty valid points. “Artificial intelligence is not only coming for jobs, the jobs it’s coming for are the precious few left over after old-school automation already came for so many others,” Dreyfuss writes.

Dreyfuss attended a recent conference on the topic at MIT and observed lots of worry among experts on AI and employment, in stark contrast to those in Washington. The article quoted Gene Sperling, former chief economic advisor in both the Obama and Clinton administrations.

“When you are outside of Washington, this is often the most significant issue, but it’s not back in D.C.,” Sperling said.

Posted by: pharbuck on March 27, 2017
Posted in: Uncategorized