– the rate of delinquent mortgages decreased by 1.1 percentage points
– the foreclosure rate fell to 0.8%
– early-stage delinquencies trending lower
CoreLogic released a new monthly Loan Performance Insights Report which shows that 5.3% of mortgages were delinquent by at least 30 days or more (including those in foreclosure) in January 2017. This represents a 1.1 percentage point decline in the overall delinquency rate compared with January 2016 when it was 6.4%. As of January 2017, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.8% compared with 1.1% in January 2016. The serious delinquency rate, defined as 90 days or more past due including loans in foreclosure, was 2.5%, down from 3.2% in January 2016. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To more comprehensively monitor mortgage performance, CoreLogic examines all stages of delinquency as well as transition rates that indicate the% of mortgages moving from one stage of delinquency to the next. Early-stage delinquencies, defined as 30-59 days past due, were trending lower in January 2017 at 2.1% compared with a year ago at 2.4% in January 2016. The share of mortgages that were 60-89 days past due in January 2017 was 0.7%, down from 0.8% in January 2016.
Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.9% in January 2017 compared with 1.2% in January 2016. By comparison, in January 2007, just before the start of the financial crisis, the current to 30-day transition rate was 1.2% and peaked in November 2008 at 2%. “Steady job and income growth, combined with full-doc underwriting, has led to low early-stage delinquencies,” said Dr. Frank Nothaft, chief economist for CoreLogic. “January’s 0.9% transition rate for current to 30 days late is lower than a year ago and much lower than the 1.5% average from 2000 and 2001, during which the foreclosure rate was, conversely, lower than it is today.” “The 30-plus delinquency rate, the most comprehensive measure of mortgage performance, is at a 10-year low and rapidly declining,” said Frank Martell, president and CEO of CoreLogic. “While late-stage delinquencies remain in the pipeline in selected markets, early-stage delinquency performance is stellar and the lowest it’s been in two decades. The continued improvement in mortgage performance bodes well for the health of the market in 2017.”
Oil rises on potential Saudi output cut extension
Oil prices rose on Wednesday, putting crude futures on track for their longest streak of gains since August 2016, as Saudi Arabia was reported to be lobbying OPEC and other producers to extend a production cut beyond the first half of 2017. Brent crude futures were up 20 cents, or 0.36%, at their highest since early March at $56.43 per barrel at 0656 GMT (02:56 a.m. EDT). If Wednesday’s rise holds, it would mark the seventh straight daily increase. That would beat a six-day bull-run from August 2016, although the price jump then was 17.5% versus a 6-percent rise in the current rally. US West Texas Intermediate (WTI) crude futures were up 18 cents, or 0.34%, at $53.58 a barrel, also their highest since early March. Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), has told other producers that it wants to extend a coordinated production cut beyond the first half of the year, the Wall Street Journal reported. OPEC and other producers, including Russia, have pledged to cut output by around 1.8 million barrels per day (bpd) during the first half of 2017 in an effort to rein in oversupply and prop up prices. While compliance from some participants has been patchy, Saudi Arabia has made significant cuts, with production down 4.5% since late 2016, despite a slight increase in March to 9.98 million bpd. “(The) Saudi Arabian production reduction appears to be ahead of forecast and gave oil a boost,” said Jeffrey Halley of futures brokerage OANDA in Singapore. Despite this, there are still concerns that oil markets remain bloated and oversupplied.
NAR – affordability, tight supply cause vacation home sales to plummet in 2016; investment sales climb 4.5%
Last year’s strongest pace of home sales in a decade included a sizeable drop in activity from vacation buyers and a jump from individual investors, according to an annual second-home survey released today by the National Association of Realtors (NAR). The survey additionally found that vacation and investment buyers in 2016 were more likely to take out a mortgage and use their property as a short-term rental. NAR’s 2017 Investment and Vacation Home Buyers Survey 1, covering existing- and new-home transactions in 2016, revealed that vacation home purchases last year descended to an estimated 721,000, down 21.6% from 2015 (920,000) and the lowest since 2013 (717,000). Investment-home sales in 2016 rose 4.5% to 1.14 million from 1.09 million in 2015. Owner-occupied purchases jumped 12.5% to 4.21 million last year from 3.74 million in 2015 – the highest level since 2006 (4.82 million). Lawrence Yun, NAR chief economist, says vacation sales in 2016 tumbled for the second consecutive year and have fallen 36% from their recent peak high in 2014 (1.13 million). “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale,” he said. “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.” Added Yun, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the election.”
Tight inventory conditions pushed the median sales price of both vacation and investment homes last year to levels not seen in roughly a decade. The median vacation home price was $200,000, up 4.2% from 2015 ($192,000) and the highest since 2006 (also $200,000). The median investment-home sales price was $155,000, up 8.0% from 2015 ($143,500) and the highest since 2005 ($183,500). With home prices steadily rising, an increasing share of second-home buyers financed their purchase last year. The share of vacation buyers who paid fully in cash diminished to 28% (38% in 2015), while cash purchases by investors decreased to 35% from 39% in 2015 and 41% in 2014. “Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners,” said Yun. “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.” Vacation sales accounted for 12% of all transactions in 2016, which was the lowest share since 2012 (11%) and down from 16% in 2015. The portion of investment sales remained unchanged for the third consecutive year at 19%, and owner-occupied purchases increased to 70% (65% in 2015).
Given the rising popularity of short-term rentals in locales throughout the country, it’s no surprise there were slightly more investment and vacation buyers renting their property for less than 30 days. Forty-four% of investors (42% in 2015) and 29% of vacation buyers (24% in 2015) did or tried to rent their property last year and plan to do so in 2017. Twenty-one% of investment buyers and 15% of vacation buyers did not rent their home for short-term purposes last year but plan to try it in 2017. Vacation buyers’ typically earned $89,900 ($103,700 in 2015), while investment buyers had a household income of $82,000 ($95,800 in 2015). Both were most likely to purchase a single-family home in the South, with vacation buyers preferring a beach location and investors choosing a suburban area. The top two reasons for buying a vacation home were to use for vacations or as a family retreat (42%) and for future retirement (18%), while investors mostly bought to generate income through renting (42%) and for potential price appreciation (16%).
US import prices fell 0.2% in March, matching expectations
US import prices recorded their biggest drop in seven months in March as the cost of petroleum declined, but the underlying trend pointed to a moderate rise in imported inflation as the dollar’s rally fades. The Labor Department said on Wednesday import prices fell 0.2% last month, the largest drop since August, after a 0.4% increase in February. That lowered the year-on-year increase in import prices to 4.2% from 4.8% in February. Economists polled by Reuters had forecast import prices slipping 0.2% last month. US financial markets were little moved by the report. The drop in import prices is unlikely to be sustained with oil prices pushing higher in recent days amid rising geopolitical tensions following last week’s US missile strike on Syria and reports that Saudi Arabia wants to extend production cuts enacted in January for another six months. Despite weak imported price pressures, domestic inflation is rising. Most consumer inflation measures have pushed above the Federal Reserve’s 2% target. A report on Thursday is expected to show producer prices unchanged in March, but rising 2.4% on a year-on-year basis, according to a Reuters survey of economists.
MBA – mortgage applications increase in latest MBA weekly survey
Mortgage applications increased 1.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 7, 2017. The Market Composite Index, a measure of mortgage loan application volume, increased 1.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index remained unchanged from the previous week. The seasonally adjusted Purchase Index increased 3% from one week earlier. The unadjusted Purchase Index increased 5% compared with the previous week and was 3% higher than the same week one year ago. The refinance share of mortgage activity decreased to 41.6% of total applications, the lowest level since September 2008, from 42.6% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8.5% of total applications. The average loan size for purchase applications reached a survey high at $318,700. The FHA share of total applications decreased to 10.7% from 11.1% the week prior. The VA share of total applications increased to 11.3% from 11.1% the week prior. The USDA share of total applications remained unchanged at 1.0% from the week prior.
CoreLogic – US economic outlook: April 2017
Interest rates on fixed-rate mortgages are up nearly three-quarters of a percentage point from last summer, and most economists are expecting mortgage rates to gradually move higher. Higher interest rates lessen home-buyer affordability and will lead to a substantial drop in refinance originations. And higher rates can also affect other aspects of the housing market, such as homeowner mobility. Using CoreLogic’s public records data, one can measure homeowner mobility by the number of years between the home purchase and its subsequent sale to another buyer, and then calculate the% of owners that sell after 1 year, 2 years, and so on. We found that the peak re-sale period comes about 3 to 6 years after purchase, and then the mobility rate declines gradually after that. When we compare the re-sale frequency when mortgage rates had risen by 1½ percentage points compared with their level as of the original purchase, we found that the mobility rate was lower. Conversely, when mortgage rates had fallen by 1½ percentage points, the homeowner was more likely to resell sooner. (Figure 2) When rates had moved lower, one-quarter of owners had re-sold their home within 5 years, but when rates had moved higher, it took about one year longer before one-fourth of the owners had re-sold. This suggests that the for-sale inventory may continue to remain lean for the foreseeable future, adding upward pressure to home-price growth. During 2015 and 2016 30-year mortgage rates averaged about 3¾%, and there were close to 12 million home sales. Thus, if mortgage rates had remained about where they had been and resale rates were the same as in our historical analysis, then we would expect to have about 3 million of these homes re-sell during the next five years. But if mortgage rates average about 1½ percentage points higher, or about 5¼%, over the next five years, then about 0.5 million less homes will have re-sold, based on our historical analysis, or an average of 100,000 fewer sales per year. This simple comparison ignores other factors that will add to home sales in coming years, such as income growth and new construction, but it illustrates the effect higher rates may have on homeowner mobility.
WSJ – Chicago entices companies to return downtown
– Nearly 90% of the more than 330,000 jobs created in Illinois from 2011 through 2016 were added in the metro area
The tide of companies moving back to big cities in search of talent and better transportation links is rising, reviving many downtowns at the expense of suburbs and smaller communities. Chicago’s resurgence has been especially sharp. Nearly 90% of the more than 330,000 jobs created in Illinois from 2011 through 2016 were added in the Chicago metro area, the Bureau of Labor Statistics said. Over 80 companies have moved their headquarters to or expanded in the Chicago area since 2008, including Archer Daniels Midland Co. , Kraft Heinz Co. , ConAgra Foods Inc. and Motorola Solutions Inc., most of them from elsewhere in Illinois. Caterpillar Inc. recently announced plans to relocate its headquarters to the Chicago area from its longtime home three hours away in Peoria, Ill., while McDonald’s says it will move from suburban Oak Brook, Ill., to the city’s downtown area. These companies have leased 5.7 million square feet of office space, the biggest corporate relocation rental binge in any city in the US, according to real-estate firm Jones Lang LaSalle . Chicago’s prime office rents rose 20% last year, the highest rate in the nation, according to commercial real-estate brokerage CBRE Group Inc. “We had to be in a city where we could attract talent,” said Diane Pearse, chief executive of food company Hickory Farms LLC, which moved to Chicago last month after 65 years in Toledo, Ohio. “Staying in Toledo was just not an option.”
As with other major cities, many companies left Chicago decades ago as suburbia expanded and crime rose in urban centers. Big companies built sprawling campuses far from downtown. Now the need to attract new employees as baby boomers age out of the workforce is pulling some back, said Darin Buelow, head of Deloitte Consulting’s real estate and location strategy practice. “The pain that companies have been experiencing in talent recruitment has outweighed the inconvenience and expense of picking up and moving to the city,” he said. Companies, he added, are seeing their employees leave the suburbs for city jobs and are unable to backfill those, as they find it harder to persuade talent to move to suburban campuses. More young people are living in the biggest US cities than anytime since the 1970s. And 35 of the country’s largest metropolitan areas had lower unemployment than the nationwide rate of 4.9% in February, according to the Bureau of Labor Statistics. That is bad news for the communities companies leave behind, like Caterpillar’s longtime home of Peoria. With a population of about 115,000, Peoria lacks the cultural and sporting events available in Chicago, as well as the quick travel links via the city’s two major airports. Caterpillar plans to move its global headquarters from its complex in downtown Peoria, Ill., above, to Chicago. The maker of construction and mining equipment last year opened an office for data analysts in downtown Chicago. Months later, Caterpillar shocked residents of Peoria with plans to move its headquarters and about 300 employees to the Chicago area. The company hasn’t said whether it will move to the city or its suburbs. Recruiting in Peoria was too difficult, said Amy Campbell, Caterpillar’s director of investor relations. “Our customers, our employees, our shareholders, our potential investors are all global and outside Illinois,” she said. “It’s so much easier to get into Chicago than…to drive or connect down to Peoria.”
US Rep. Darin LaHood, the Republican whose district includes Peoria, called the move a betrayal. Some residents fear that Caterpillar will move more of the remaining 12,000 workers from the Peoria area. Others worry that the chunk of downtown where Caterpillar was planning a new headquarters will remain vacant. Peoria Mayor Jim Ardis said developers already have expressed interest in the site. He said health care, medical research and higher education are growing in the city. “It’s not the end of the world for us,” Mr. Ardis said. In Chicago, the relocations are giving Mayor Rahm Emanuel a boost while he battles a surge in violent crime. Homicides were up 58% in 2016, a bigger single-year increase than any major US city has seen in a quarter-century. President Donald Trump has said Chicago’s crime wave is the result of failed Democratic policies. Mr. Emanuel has taken a personal role in recruiting companies. Ms. Pearse of Hickory Farms said the mayor called her early last summer. Motorola Solutions decided to move to Chicago after Mr. Emanuel made a pitch to Chief Executive Greg Brown during a 2011 Bulls game. “I said, ‘Rahm, you know it might be possible to move a couple of hundred jobs downtown,’” Mr. Brown said. “Every time I threw out one number, he would raise it.” Chicago gives tax breaks to businesses on the West and South Sides where crime has surged, but not to companies moving downtown. Mr. Emanuel makes unsolicited calls to executives at companies he believes might consider a move to Chicago. He recently emailed 100 chief executives in the San Francisco Bay Area a report citing Chicago’s lowest cost of living among the 10 biggest US cities. But the mayor says the attention he gives employers is as valuable as the city’s low residential rents. “If you move here, you know that this isn’t the last time we’re talking,” he said.