Delinquency rates for commercial and multifamily mortgage loans were flat or decreased in the first quarter of 2017, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. “Delinquency rates for commercial and multifamily mortgages remained at or near record lows for most capital sources during the first quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Growth in property incomes and property values, coupled with low interest rates, have facilitated financing. As we near the end of the second quarter, the industry has largely worked through the so-called ‘wave of maturities’.” 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 first quarter were as follows:
– Banks and thrifts (90 or more days delinquent or in non-accrual): 0.56%, a decrease of 0.04 percentage points from the fourth quarter of 2016;
– Life company portfolios (60 or more days delinquent): 0.02%, a decrease of 0.02 percentage points from the fourth quarter of 2016;
– Fannie Mae (60 or more days delinquent): 0.05%, unchanged from the fourth quarter of 2016.
– Freddie Mac (60 or more days delinquent): 0.03%, unchanged from third quarter of 2016;
– CMBS (30 or more days delinquent or in REO): 4.45%, a decrease of 0.08 percentage points from the fourth quarter of 2016;
– The analysis incorporates the measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.
US adds 138K jobs in May as jobless rate falls
US job growth slowed in May as a slide in the labor force participation rate helped pressure the nation’s unemployment rate, suggesting the labor market is edging closer to full employment as doubts linger about the economy’s growth trajectory in the second quarter. US employers added 138,000 net new jobs to the rolls last month, below forecasts for 185,000 jobs, data from the Bureau of Labor Statistics showed Friday. The labor force participation rate ticked down to 62.7% from 62.9% the month prior, helping pressure the jobless rate, which also declined to 4.3% from 4.4%, hitting the lowest level since 2001. Despite the headline miss in May, job creation last month was above the three-month average of 121,000 jobs. Roughly 180,000 new jobs each month are needed to keep up with demand in the labor force. Therefore, the data add fuel to the idea America’s labor market is near full employment – an important factor for the Federal Reserve as it continues on its path to normalizing monetary policy.“Today’s jobs report reflects that the labor market is tightening, and there’s not as much room for slack as the economy reaches full employment….it’s tough to continue to add 200,000 jobs each month with our unemployment rate below 5%,” said Steve Rick, chief economist at CUNA Mutual Group.
Job creation was boosted by the health care sector (which added 24,000 positions last month), professional and business services (which added 38,000), food and drinking places (added 30,000), and mining (which gained 7,000 jobs). Retail trade, which has been pressured by changing consumer habits, shed more than 6,000 jobs during the month – its fourth-straight month of declines, while job gains in other sectors including construction, financial services and government were little changed. Average hourly earnings, a closely-watched metric, rose 0.2% during the month, as expected, putting year-over-year wage gains at 2.5%. The figures help reinforce the idea consumer spending, and therefore overall economic growth, will see a bounce back in the current quarter after growth slowed substantially in the first three months of the year from the fourth quarter of 2016, said RSM Chief Economist Joe Brusuelas. Job gains in March were revised down to 50,000 from 79,000 while April’s figures were also lowered to 174,000 from 211,000. Taken as a whole, the jobs report could give the Fed more confidence to raise rates by a quarter percentage point at its meeting later this month. Chair Janet Yellen has repeatedly stated she and the policy-setting Federal Open Market Committee will carefully monitor incoming economic data before moving rates higher in the coming months, noting members continue to be cautious around the slow rate of inflation. The core personal consumption expenditures index, which the central bank uses as its key inflation gauge, registered 1.7% in April, remaining below the Fed’s 2% target. “Some Fed watchers might see today’s jobs report as a sign for pause in today’s rate-raising environment, however, the labor market is reaching full employment and that should not be taken as a sign of weakness,” Rick said, adding that other factors including a cool spring season will likely been taken into account. The CME Group’s federal funds futures, a tool used to predict market expectations for changes in monetary policy, showed odds of 93.5% in favor of a rate rise in June, up from 87.7% a week ago.
RealtyTrac – finding real estate deals when distress dries up
Interest in foreclosures is heating up in 2017 even as the foreclosure market dries up. “The REOs that come on, they are not that far off from the traditional stuff. Back in 2007 you were getting 20% off the actual value. … Now you have them selling for 5% off, if that,” said Leland DiMeco, owner and principal broker at Boston Green Realty. Meanwhile DiMeco said he has noticed an uptick in interest in foreclosures from investor clients. “Last year we just had low inventory. It became very competitive. Whatever it was listed for, it sold 1 or 2% over that,” he said. “Investors might have gotten fed up with that and were looking at the REO market, which is why they were reaching out to me.” DiMeco said investors and other buyers are also becoming more interested in “off-market” properties that aren’t listed for sale on the local Multiple Listing Service but may be available to purchase at the right price.
Across the country in Los Angeles, where the distressed market has also dried up and there is not much space to build large new developments, investors are turning to small-lot subdivision to add value and create inventory. “In my opinion small-lot subdivisions is the No. 1 for- sale trend,” said Jonathon Dilworth, founding principal of c&d partners, which is converting two single-story single family homes into four single family homes at the corner of North Mansfield Avenue and Fountain Avenue in Los Angeles. Dilworth said a 2005 ordinance by the city of Los Angeles opened up the possibility of building single family homes with zero lot lines. “Without that you’d be classified as townhome or condo, which is not valued as high.” A total of 3,020 construction loans were originated in the Los Angeles metro area in 2016, up 5% from the previous year to the highest level since 2007 — a nine-year high — according to ATTOM Data Solutions. Those 3,020 loans represented nearly $9.0 billion in dollar volume, up 73% from 2015. Dollar volume of construction loans secured by existing single family homes increased 20% while dollar volume of construction loans secured by residential vacant land increased 29%. Small-lot subdivision is a hot trend in several urban markets across the country, according to Chris Richter, co-founder of Audantic, a real estate analytics company that provides market research and leads for real estate investors. “They’re scraping full blocks in very expensive areas and putting in apartment buildings. And they’re getting what they ask for,” he said.
The drying up of the distress market is even showing up in hard-hit states like Ohio, where the he fight against blight is gaining traction thanks to a combination of state legislation, federal regulation along with home flippers taking advantage of a recovering housing market, according to Matthew Watercutter, broker of record and senior regional vice president at HER Realtors, covering the Columbus, Cincinnati and Dayton markets in Ohio. Ohio homes flipped in 2016 represented 5.6% of all single family home and condo sales during the year, up 11% from the previous year, according to the ATTOM Data Solutions 2016 US Home Flipping Report, which also shows Ohio home flips yielded the second highest average gross flipping profits in the year. According to Watercutter, home flippers are simply taking advantage of creating like-new inventory of homes that are move-in and rent-ready in a market without many new homes being built. “New home construction almost completely stopped several years ago and it just recently started. There is a lack of new move-up inventory to buy,” he said. ATTOM Data Solutions shows 3,749 construction loans were originated in Ohio in 2016, up 10% from 2015 to the highest level since 2008. Total dollar volume of those construction loans was more than $1.2 billion, up 15% from less than $1.1 billion in 2015. The number of construction loans secured by vacant land in Ohio increased 80%, while the dollar volume of those loans increased 121% from 2015 to 2016. Builders and developers acquired more vacant land in Ohio for residential development in 2016. Sales of residential vacant land in the state increased 9% in 2016 compared to 2015, compared to an increase of 2% in single family home sales over the same time period, according to ATTOM data.
US trade deficit rises to highest level since January
The US trade deficit rose in April to the highest level since January. The politically sensitive trade gap with China registered a sharp increase. The Commerce Department said Friday that the US trade gap in goods and services climbed 5.2% to $47.6 billion in April from March. Exports dropped 0.3% to $191 billion, pulled down by a drop in automotive exports. Imports rose 0.8% to $238.6 billion as Americans bought more foreign-made cellphones and other consumer goods. A widening trade deficit is a drag on economic growth. Donald Trump made the trade gap — the difference between exports and imports — a centerpiece of his presidential campaign. His administration has vowed to reduce the deficit, blaming it on abusive practices by America’s trading partners. The deficit in goods with China rose by 12.4% to $27.6 billion in April. So far this year, the trade deficit is up 13.4% from a year earlier to $186.6 billion. Exports are up 6.1% to $765.6 billion this year, but imports are up more — 7.5% to $952.2 billion. So far in 2017, the United States is running a $268.7 billion deficit in goods and an $82.1 billion surplus in services such as banking and tourism. Trump recently has singled out Germany for criticism, saying it is unfairly benefiting from a weak euro. When a country’s currency is weak, its products enjoy a price advantage in foreign markets. The trade deficit with Germany rose 4.3% in April to $5.5 billion.
CoreLogic – CoreLogic Storm Surge Analysis identifies nearly 6.9 million US homes at risk of hurricane storm surge damage in 2017
CoreLogic released its 2017 Storm Surge Report which shows that nearly 6.9 million homes along the Atlantic and Gulf coasts are at potential risk of damage from hurricane storm surge inundation with a total reconstruction cost value (RCV) of more than $1.5 trillion. The reconstruction cost value is the cost to completely rebuild a property in case of damage, including labor and materials by geographic location, assuming a worst-case scenario at 100-percent destruction. Storm predictions indicate the 2017 hurricane season will see fewer storms than both 2016 and the 30-year average. The National Oceanic and Atmospheric Administration (NOAA) predicts 12 total storms, six of which will develop into hurricanes, and three of those are predicted to be Category 3 or higher. The CoreLogic analysis examines risk from hurricane-driven storm surge for homes along the Atlantic and Gulf coastlines across 19 states and the District of Columbia, as well as for 86 metro areas. Homes are categorized among five risk levels: Low (homes affected only by a Category 5 storm), Moderate (homes affected by Category 4 and 5 storms), High (homes affected by Category 3, 4 and 5 storms), Very High (homes affected by Category 2, 3, 4 and 5 storms) and Extreme (homes affected by Category 1-5 storms). “Despite the fact that this year’s hurricane season is predicted to have fewer storms than last year, it doesn’t mitigate the risk of storm surge damage,” said Dr. Tom Jeffery, senior hazard scientist at CoreLogic. “As we’ve seen with past storms, even one single hurricane at a lower-level category can cause significant damage if it makes landfall in a highly populated area.”
At the regional level, the Atlantic Coast has 3.9 million homes at risk of storm surge with an RCV of $970 billion, and the Gulf Coast has just under 3 million homes at risk with $593 billion in potential exposure to total destruction damage. At the state level, Texas and Florida – which have the longest coastal areas – consistently have more homes at risk than other states. Again this year, as in previous years, Florida ranks first with just under 2.8 million at-risk homes across the five risk categories, and Texas ranks third with 536,000 at-risk homes. Since the number of homes at risk strongly correlates with the accompanying RCV, these two states rank first and fifth, respectively, for having the largest RCV. States with less coastal exposure but lower-lying elevations that extend farther inland, such as Louisiana (ranked second at 808,000 at-risk homes) and New Jersey (ranked fourth at almost 470,000 at-risk homes), tend to have more total homes at risk because of the potential for surge water to travel farther inland. Louisiana and New Jersey are also near the top of the list for RCV, with Louisiana totaling almost $181 billion (ranked second) and New Jersey totaling $140 billion (ranked fourth). At the local level, 15 Core Based Statistical Areas (CBSAs) account for 67.3% of the 6.9 million total at-risk homes and 68.6% of the total $1.56 trillion RCV. This disproportionate distribution of homes suggests that the location of hurricanes that make landfall is often a more important factor than the number of storms that may occur during the year. The Miami CBSA, which includes Fort Lauderdale and West Palm Beach, has the most homes at risk totaling almost 785,000 with an RCV of $143 billion. By comparison, the New York City CBSA has slightly fewer homes at risk at 723,000, but a significantly higher total RCV totaling $264 billion due to the greater home values and high construction costs in this area.