As cited in ATTOM Data Solutions’ just released Q3 2019 U.S. Home Affordability Report, the largest populated counties where a median-priced home in Q3 2019 was not affordable for average wage earners included Los Angeles County, CA; Cook County (Chicago), IL; Maricopa County (Phoenix), AZ; San Diego County, CA and Orange County, CA. Those same counties were in the top five in Q2 2019 as well. Rounding out the Top 10 largest populated counties where a median-priced home in Q3 2019 was not affordable, were King County, WA; Tarrant County, TX; Santa Clara County, CA; New York County, NY; and Alameda County, CA. The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments — including mortgage, property taxes and insurance — on a median-priced home, assuming a 3 percent down payment and a 28 percent maximum “front-end” debt-to-income ratio. That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics. According to ATTOM’s report, 26 percent of the counties analyzed, or 127 of 498, where a median-priced home in Q3 2019 was still affordable for average wage earners, included Harris County (Houston), TX; Wayne County (Detroit), MI; Philadelphia County, PA; Cuyahoga County (Cleveland), OH; and Allegany County (Columbus), OH. In addition to Harris County, Wayne County, Philadelphia County and Cuyahoga County, the other counties included in the Top 10 where buying a median-priced home was still affordable, were Mecklenburg County, NC; Fulton County, GA; Saint Louis County, MO; Milwaukee County, WI; and Marion County, IN.
The report also showed that 67 percent of the counties analyzed in the report, or 335 of 498, require at least 30 percent of their annualized weekly wages to buy a home in Q3 2019. Those counties that required the greatest percent included Kings County (Brooklyn), NY (110.4 percent of annualized weekly wages needed to buy a home); Santa Cruz County, CA (105 percent); Marin County (San Francisco), CA (102.4 percent); Maui County, HI (87.9 percent); and Monterey County, CA (87.5 percent). Also, 33 percent of the counties analyzed, or 163 of 498, required less than 30 percent of their annualized weekly wages to buy a home in Q3 2019. Those counties that required the smallest percent included Calhoun County (Battle Creek), MI (14.4 percent of annualized weekly wages needed to buy a home); Wayne County (Detroit), MI (14.9 percent); Clayton County (Atlanta), GA (15.2 percent); Rock Island County (Davenport), IL (15.5 percent); and Montgomery County, AL (16.2 percent).
US trade war hamstrings China’s economic juggernaut
China will likely see slowing economic growth over the next few years as trade issues between the U.S. and the world’s next-largest economy keep bubbling to the surface Depending on how Beijing handles the challenge, its credit rating may be lowered, S&P Global Ratings predicted, which might increase borrowing costs for the President Xi Jinping’s government. “A downgrade could ensue if we see a higher likelihood that China will ease its efforts to stem rising financial risk and allow higher credit growth to support economic expansion in an unsustainable manner,” the financial services company said. “We expect such a trend would weaken the Chinese economy’s resilience to shocks, limit the government’s policy options, and increase the likelihood of a sharper decline in the trend GDP growth rate.” The report comes ahead of high-level U.S.-China trade talks scheduled for October. The Treasury Department clarified on Saturday that it will not block Chinese companies from listing shares on U.S. exchanges, something that could have given the Trump administration leverage in a standoff with Beijing over tariffs imposed by the White House on billions of dollars in Chinese goods. China Foreign Ministry spokesman Geng Shuang described the decision as “win-win.” “Engaging in extreme pressure and even attempting to ‘decoupling’ [sic] the Sino-US economy will inevitably harm the interests of Chinese and American companies and the public, trigger financial market turmoil, and endanger international trade and the growth of the world economy,” Geng said. China will likely be able to keep its real gross domestic growth per capita above 5% annually, which is still slower than in years past, S&P said.
Appraisals will no longer be required on certain home sales of $400,000 and under
For the first time since 1994, certain home sales of $400,000 and under will soon not need an appraisal after federal regulators approved a proposal to increase the threshold at which residential home sales require an appraisal. Last November, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve released a proposal that would increase the appraisal requirement from $250,000 to $400,000, meaning that certain home sales of $400,000 and below would no longer require an appraisal. The agencies deliberated the rule for nearly a year, taking into consideration the more than 560 comments the agencies received about the rule change. Last month, the FDIC and OCC signed off on the rule, but were still waiting on the Fed to approve the rule change as well. Now, the Fed has also given the rule change its stamp of approval, and with all three agencies signing off, the appraisal rule change will soon go into effect. “The appraisal threshold was last changed in 1994,” the federal agencies said in a joint statement. “Given price appreciation in residential real estate transactions since that time, the change will provide burden relief without posing a threat to the safety and soundness of financial institutions.” According to the final rule, which can be read here, the change will go into effect as soon as the final rule is recorded and published in the Federal Register.
A spokesperson for the FDIC said that the rule has been submitted to the Federal Register, adding that the publication of the rule should take place within a matter of days. Consequently, it’s likely just a few days (if not less) until certain home sales of $400,000 and below no longer require an appraisal. Now, it’s important to note that the new rules do not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency. That means that loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac would still require an appraisal, per each agency’s rules. It’s also important to note that the rule does not entirely exempt the relevant home sales from any type of appraisal-type action. According to the agencies, the final rule “requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral.” The agencies state that the evaluation must be “consistent with safe and sound banking practices.” To that point, the rule establishes that an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.” According to the agencies, many of the comments they received suggested that evaluations are “appropriate substitutes for appraisals and institutions as having appropriate risk management controls in place to manage the proposed threshold change responsibly.” Beyond that, the final rule lays out a series of stipulations for the replacement of an appraisal with an evaluation.
From the rule:
“As is the case currently for transactions under the threshold exemptions, evaluations will be required for transactions exempted by the new threshold that do not receive appraisals. Although the agencies recognize, as many commenters noted, that evaluations are not subject to the same uniform standards as appraisals in terms of structure and content or the preparer’s training and credentialing requirements, evaluations must be consistent with safe and sound banking practices. The agencies have provided the Evaluation Guidance to assist institutions in complying with this requirement. The Evaluation Guidance provides information to help ensure that evaluations provide a credible estimate of the market value of the property pledged as collateral for the loan.” For instance, the Evaluation Guidance states that, generally, evaluations should be performed by persons who are competent, independent of the transaction, and have the relevant experience and knowledge of the market, location, and type of real property being valued. On evaluations, the agencies state: “Evaluations are generally less burdensome than appraisals and have been required since the 1990s.” Without a doubt, the change will have a sizable impact on the real estate market, as according to the OCC, the new rules apply to approximately 40% of home sales. According to data provided by the FDIC, the agencies estimate that increasing the appraisal threshold from $250,000 to $400,000 would have exempted an additional 214,000 residential mortgages from the agencies’ appraisal requirement in 2017, representing 3% of total HMDA originations. On a percentage basis, under the current rules, in 2017, there were 750,000 transactions that were exempted from the appraisal requirement (56%). By increasing the threshold to $400,000, there would have been an additional 214,000 sales exempted from the appraisal requirement (an additional 16%). Therefore, under the proposed rules, 72% of the eligible transactions would be exempted from the appraisal requirement, while 28% would require an appraisal.
According to the agency, the rule responds, in part, to comments that the previous exemption level for residential transactions had not kept pace with price appreciation in the residential real estate market. As one might expect, financial institutions, financial institution trade associations, and state banking regulators “generally supported” the proposal. Meanwhile, appraisers, appraiser trade organizations, individuals, and consumer advocate groups “generally opposed” the proposal. According to the FDIC, those commenting in support of the rule stated that an increase would be appropriate given the increases in real estate values since the current threshold was established in 1994. Other commenters stated that the increase would provide “burden relief for financial institutions without sacrificing safe and sound banking practices.” On the other hand, commenters opposed to the rule change stated that the proposal would “elevate risks to borrowers, financial institutions, the financial system, and taxpayers.” According to the final rule, many commenters opposed to an increase in the threshold argued on behalf of appraisers, stating that appraisers are “the only objective and unbiased party in a transaction and bring checks, balances, and oversight to the mortgage lending process.” Other commenters noted that the rule could have an outsized impact on certain consumer groups, such as low-income individuals, members of certain minority groups, or first-time homebuyers, because those borrowers are more likely buy homes in the lower price range, and would, therefore, be more likely to buy a home without an appraisal. Despite those comments, the agencies all approved the rule, which also received support from the Consumer Financial Protection Bureau.
Auto industry workers lose $266M in pay as GM strike drags on
Striking General Motors employees and the iconic automaker itself are losing hundreds of millions of dollars as a walkoff over pay and health benefits enters its third week. With no clear end in sight, the prolonged negotiations to reach a new labor agreement with 50,000 members of the United Auto Workers have paralyzed production at about 30 manufacturing sites in nine states. As of Sept. 26, GM lost profits of $113 million as plants shuttered or ran on a thin workforce, according to a report from the Anderson Economic Group. UAW workers, auto parts suppliers and small businesses that provide products and services to GM have relinquished $266 million in direct earnings, according to the report. That translates to nearly $70 million in lost federal income and payroll taxes. The fallout is likely to grow as the strike’s effects ripple through the American auto-manufacturing supply chain. “We estimate that GM is now facing $25 million per day in lost profit,” Anderson Economic Group CEO Patrick Anderson said in a statement, “and we expect that daily loss figure will continue growing as long as the strike continues.” “The cost of a strike, to both workers and the company, grows steadily in the first week, and then pyramids out into the surrounding economy,” said Brian Peterson, Anderson’s director of public policy and economic analysis. “As we move closer to two full weeks of a strike,” he continued, “the effect on the economies of Michigan, Indiana, Ohio, and Ontario has become acute, with both union and non-union workers suffering significant income losses. Even if the strike ends today, those losses will still be felt.”
The union wants a bigger share of GM’s more than $30 billion in profits during the past five years. But the company sees a global auto sales decline looming and wants to bring its labor costs in line with the lower expenses of U.S. plants owned by foreign automakers. The top production worker wage is about $30 per hour, and GM’s total labor costs including benefits are about $63 per hour compared with an average of $50 at factories run by foreign-based automakers at plants located mostly in the South. Issues that are snagging the talks include the formula for profit-sharing, which the union wants to improve. Currently, workers get $1,000 for every $1 billion the company makes before taxes in North America. This year, workers received checks for $10,750 each, less than last year’s $11,500. Wages are also an issue, with the company seeking to shift compensation toward lump sums that depend on earnings while workers want hourly increases that will be there even if the economy goes south. They’re also bargaining over the use of temporary employees and a path to make them full-time, as well as a faster track for getting newly hired workers to the top UAW wage.