Black Knight, Inc. reports the following “first look” at December 2018 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market.
– Despite rising seasonally in recent months, only 3.9% of mortgages were delinquent as of December month-end, the lowest year-end total since Black Knight began reporting the figure in 2000
– The national foreclosure rate, while also edging seasonally upward in December, posted the lowest year-end figure since 2005, with just 0.52% of mortgages in active foreclosure
– Foreclosure starts edged slightly upward with 46,300 starts reported for the month, a 2.4% uptick over November
– Foreclosure starts were also up 4% year-over-year in December, though this increase was primarily driven by suppressed foreclosure start volumes in late 2017 due to hurricane-related moratoriums
– Prepayments remained nearly unchanged in December, holding near the 10-year low set in November
Ford’s turnaround pinned on new fleet
Ford Motor Co. is trying to drive past a difficult 2018 with a slate of new vehicles and an aggressive overhaul of its operations, but with the problems that plagued the iconic carmaker last year poised to remain in 2019, analysts are skeptical of the company’s promise to improve earnings. Ford is in the midst of an $11 billion global restructuring effort that includes thousands of job cuts across Europe. Layoffs in the US could be next, analysts say, though the number is likely to be far less than competitors. As concerns grow, Ford CEO Jim Hackett downplayed the threat of US job cuts. “I’m confirming that there’s no blue collar cuts in the offing,” Hackett told FOX Business’ at the North American International Auto Show in Detroit earlier this month. Meanwhile, the Dearborn, Mich.-based company is facing millions of dollars in added costs in 2019 due to President Trump’s tariffs on steel and aluminum imports, higher taxes and a potential global economic slowdown that could further dent sales in lucrative markets like China. The company has provided few details on its financial outlook for the year, apart from suggestions that earnings could improve after a string of quarters of comparative, double-digit profit declines. And as rival General Motors’ stock is on the rise, Ford’s is spiraling to a nine-year low, spurring questions about the future of top executive Jim Hackett. “CEO longevity and stock price performance go hand-in-hand,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners, during an interview with FOX Business. “GM over the past five years has significantly outperformed Ford.”
Ford, which declined to comment, has a plan to try to navigate the tumultuous environment. This year, the company is adding updates to its lineup including the Ford Escape, Explorer and Lincoln Corsair, along with the new Ford Ranger and Lincoln Aviator, offerings that could help bolster earnings in 2019, according to Morningstar’s David Whiston. “The company now makes cars people actually want to own instead of vehicles that are purchased only because of heavy incentives,” he wrote in a recent note. “Management by its own words needs to get the company more physically fit so it can better offset headwinds it cannot control, such as currency and commodities.” The company also recently announced the launch of a global alliance with Volkswagen AG to build commerical mid-sized trucks and self-driving cars, though the news largely fell flat on Wall Street. Ford’s struggles come amid a strong US auto market. As overall sales in 2018 brushed against record highs, Ford’s slipped 3.5% while GM sales fell 1.7% for the year. Investors “are growing concerned about pressure to the North America truck business and a lack of improvement abroad,” Goldman Sachs analysts wrote in a recent note. Ford, which is poised to report fourth quarter earnings on Wednesday, has “an opportunity to help quantify tailwinds, headwinds, regional expectations, and generally provide incremental detail of its improvement plans,” the analysts wrote. GM is plotting many of the same moves as Ford. The company – which earlier this month said it expects 2019 earnings above analyst expectations – recently announced it would lay-off thousands of employees and shutter several plants in North America as part of a refocus towards trucks, crossovers and SUVs, along with autonomous vehicles. While the decision spurred intense congressional backlash, Barra has defended her decision, most recently telling FOX Business “having a strong General Motors that can invest in the future that’s going to be here not just for a few years, but for several decades is our focus.” Among investors confidence in Barra appears high. Barra “is the greatest CEO of General Motors,” Feinseth, whose firm has a “strong buy” on GM, said. “She has a mission, she has a strategy and she has a process and has executed it well.”
NAR – existing-home sales see 6.4% drop in December
After two consecutive months of increases, existing-home sales declined in the month of December, according to the National Association of Realtors®. None of the four major US regions saw a gain in sales activity last month. Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 6.4% from November to a seasonally adjusted rate of 4.99 million in December. Sales are now down 10.3% from a year ago (5.56 million in December 2017). The median existing-home price for all housing types in December was $253,600, up 2.9% from December 2017 ($246,500). December’s price increase marks the 82nd straight month of year-over-year gains. Total housing inventory at the end of December decreased to 1.55 million, down from 1.74 million existing homes available for sale in November, but represents an increase from 1.46 million a year ago. Unsold inventory is at a 3.7-month supply at the current sales pace, down from 3.9 last month and up from 3.2 months a year ago. Properties typically stayed on the market for 46 days in December, up from 42 days in November and 40 days a year ago. Thirty-nine% of homes sold in December were on the market for less than a month.
Realtor.com’s Market Hotness Index, measuring time-on-the-market data and listings views per property, revealed that the hottest metro areas in December were Chico, California; Midland, Texas; Odessa, Texas; Columbus, Ohio; and Fort Wayne, Ind. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage decreased to 4.64% in December from 4.87% in November. The average commitment rate for all of 2017 was 3.99%. “The partial shutdown of the federal government has not had a significant effect on December closings, but the uncertainty of a shutdown has the potential to harm the market,” said NAR President John Smaby. “Once the government is fully reopened, I am hopeful that housing transactions will increase.” First-time buyers were responsible for 32% of sales in December, down from last month (33%), but the same as a year ago. NAR’s 2018 Profile of Home Buyers and Sellers – released in late 20184 – revealed that the annual share of first-time buyers was 33%. All-cash sales accounted for 22% of transactions in December, up from November and a year ago (21 and 20%, respectively). Individual investors, who account for many cash sales, purchased 13% of homes in December, the same as November but down from a year ago (16%). Distressed sales – foreclosures and short sales – represented 2% of sales in December, unchanged from 2% last month and down from 5% a year ago.
Single-family home sales sit at a seasonally adjusted annual rate of 4.45 million in December, down from 4.71 million in November, and 10.1% below the 4.95 million sales pace from a year ago. The median existing single-family home price was $255,200 in December, up 2.9% from December 2017. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 540,000 units in December, down 12.9% from last month and down 11.5% from a year ago. The median existing condo price was $240,600 in December, which is up 2.3% from a year ago. December existing-home sales in the Northeast decreased 6.8% to an annual rate of 690,000, 6.8% below a year ago. The median price in the Northeast was $283,400, which is up 8.2% from December 2017. In the Midwest, existing-home sales fell 11.2% from last month to an annual rate of 1.19 million in December, down 10.5% overall from a year ago. The median price in the Midwest was $191,300, unchanged from last year. Existing-home sales in the South dropped 5.4% to an annual rate of 2.09 million in December, down 8.7% from last year. The median price in the South was $224,300, up 2.5% from a year ago. Existing-home sales in the West dipped 1.9% to an annual rate of 1.02 million in December, 15% below a year ago. The median price in the West was $374,400, up 0.2% from December 2017.
Federal Reserve to cut rates in 2020: Mohamed El-Erian
Fed will do nothing in 2019, but may cut rates in 2020: Mohamed El-Erian
Allianz chief economic adviser Mohamed El-Erian on why he believes that the Federal Reserve will cut rates in 2020 and the strength of the US economy.
The Federal Reserve will keep its hand away from the rate cut flames this year, but may consider trimming the federal funds rate in 2020, according to Allianz chief economic adviser Mohamed El-Erian. “In a sense that, they’ll do nothing this year and if they do anything next year, which is 2020, they’ll probably cut,” he said on Tuesday has indicated it will take on a “patient” approach towards monetary policy in 2019 while closely watching the economy and markets for signs of a global growth downturn. Wall Street’s most followed economist predicts the economy will not fall into a recession if the Fed decides push for a rate cut next year. “I think the US economy is in a really good place,” El-Erian said. “Just look at the last labor report, the US economy produced twice as many jobs as expected, wages are going up by 3.2%, and people are coming back into the labor force.” El-Erian warns that the US economy is at risk of becoming contaminated by the state of the European economy. “I’m not negative on the US economy,” he said. “I can understand the concerns about Europe and China, but I think people go too far in extending that to the US”
CoreLogic – homebuyers’ mortgage payments up three times faster than prices
While the median price paid for a home nationally had risen by just over 5% year over year as of last October, the principal-and-interest mortgage payment on that median-priced home had increased by 17%, mainly because of the 2018 rate hikes. However, some forecasts for home prices and mortgage rates indicate mortgage payments will rise at a much slower pace – closer to 7% – this year. That’s based on a 4.8% annual gain in home prices by October 2019, according to the CoreLogic Home Price Index Forecast, and a 0.2-percentage-point gain in mortgage rates over that period, based on an average of six rate forecasts. One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s US median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20% down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced US home.
The US median sale price in October 2018 – $218,733 – was up 5.2% year over year, while the typical mortgage payment was up 17.0% because of a 0.9-percentage-point rise in mortgage rates over that one-year period. The CoreLogic HPI Forecast suggests the median sale price will rise 2.5% in real, or inflation-adjusted, terms over the year ending October 2019 (or 4.8% in nominal, or not-inflation-adjusted, terms). Based on that projection, coupled with the aforementioned consensus mortgage rate forecast, the real typical monthly mortgage payment would rise from $918 in October 2018 to $963 by October 2019, a 4.9% year-over-year gain. In nominal terms the typical mortgage payment’s year-over-year increase in October 2019 would be 7.2%. An IHS Markit forecast indicates that real disposable income will rise by just under 3% over the next year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments. When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context. While the real typical mortgage payment has trended higher in recent years, in October 2018 it remained 28.0% below the all-time peak of $1,275 in June 2006. That’s because the average mortgage rate back in June 2006 was about 6.7%, compared with an average rate of about 4.8% in October 2018, and the real US median sale price in June 2006 was $247,067 (or $197,200 in 2006 dollars), compared with an October 2018 median of $218,733.
MBA – mortgage applications down
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 January 18, 2019. 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 0.3% compared with the previous week. The Refinance Index decreased 5% from the previous week. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index increased 4% compared with the previous week and was 13% higher than the same week one year ago. “Mortgage application activity cooled off last week after two consecutive weeks of sizeable increases. Both purchase and refinance applications saw declines but remained at healthy levels, with the purchase index remaining close to a nine-year high, and the refinance index hovering near its highest level since last spring,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Reversing the recent downward trend, rates increased for most loan types last week, due to better-than-expected unemployment claims, easing trade tensions and stabilization in the equity markets.” The refinance share of mortgage activity decreased to 44.5% of total applications from 46.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.3% of total applications. The FHA share of total applications decreased to 10.5% from 10.9% the week prior. The VA share of total applications decreased to 10.3% from 10.4% the week prior. The USDA share of total applications decreased to 0.4% from 0.5% the week prior.
NAR – Treasury, IRS give big win to real estate professionals in qualified business income rule
Late last week, the Treasury Department and the Internal Revenue Service issued final regulations regarding the new 20% deduction on qualified business income. As Americans begin preparations for the 2018 tax filing season, real estate professionals have been uncertain about the true impact of the 2017 Tax Cuts and Jobs Act on their respective businesses. Friday’s ruling from Treasury and the IRS, however, signaled a significant victory for the real estate industry and for many of the National Association of Realtors®’ 1.3 million members. “Friday’s ruling is a result of several months of advocacy and collaboration between NAR, our members, and the administration,” said NAR President John Smaby. “These final guidelines will allow real estate professionals to benefit from the Section 199A 20% pass-through deduction, a move that will empower Realtors® to expand their operations and provide improved services to consumers and potential homebuyers across the country. The National Association of Realtors® is grateful for the openness and transparency encouraged by Treasury and the IRS, and we thank them for their hard work to ensure the real estate community was heard throughout this rulemaking process.”
A central component of the new tax law is a reduction of the corporate tax rate – from 35 to 21%. However, since nine out of ten American businesses are structured as pass-through entities rather than corporations, the Section 199A provision provides critical tax deductions for small businesses and self-employed independent contractors, which is how many real estate professionals are classified. Within the 247-page rule issued last Friday, three major provisions for real estate professionals stood out as critical victories for members of the National Association of Realtors®.Most importantly, the regulation clarifies that all real estate agents and brokers who are not employees but operate as sole proprietors or owners of partnerships, S corporations or limited liability companies are eligible for the new deduction, which can be as high as 20%. This includes those whose income exceeds the threshold of $157,500 for single filers and $315,000 for those filing a joint return. Second, the rule simplifies the process that owners of rental real estate property must follow to claim the new deduction. As written in the Tax Cuts and Jobs Act, only income that is from a “trade or business” qualifies for the 20% write-off. However, because this distinction was not clearly defined by Congress when crafting the law, various court rulings and prior IRS guidance have caused confusion among tax professionals in determining which rental properties were merely investments and which could accurately be considered a business enterprise.
NAR strongly urged Treasury and the IRS to simplify the rules in order to give millions of rental real estate owners certainty surrounding their ability to qualify for this new deduction. Friday’s final regulations included a bright-line safe harbor test requiring at least 250 hours per year spent on maintaining and repairing property, collecting rent, paying expenses and conducting other typical landlord activities. Finally, within the proposed regulation released last August, those who had exchanged one parcel of real estate under Section 1031 for another parcel were unfairly denied deduction eligibility. However, NAR and multiple additional trade groups concerned with commercial real estate were vocal in highlighting this shortcoming. In a positive resolution to the situation, Treasury and the IRS recognized the initial ruling was misguided and corrected the policy in Friday’s final guidance. “NAR maintained consistent and coordinated communication with Treasury and the IRS throughout this rulemaking process. The finalized ruling, which represents a tremendous win for real estate professionals across the country, is a direct result of that engagement,” said Shannon McGahn, NAR Senior Vice President of Government Affairs. “We are thrilled to see our members emerge from this process so favorably, and we thank Treasury and the IRS for all of their hard work in ensuring consistency and clarity within these policies as America’s 1.3 million Realtors® begin filing their 2018 tax returns in the coming weeks.”