– The CoreLogic HPI Forecast indicates annual price growth will increase 5.8% by August 2020
– About three-fourths of millennial renters indicate they are likely to purchase a home in the future
– Connecticut was the only state to post an annual decline in home prices this August
CoreLogic released the CoreLogic Home Price Index (HPI™) and HPI Forecast™ for August 2019, which shows home prices rose both year over year and month over month. Home prices increased nationally by 3.6% from August 2018. On a month-over-month basis, prices increased by 0.4% in August 2019. (July 2019 data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results each month.) Home prices continue to increase on an annual basis with the CoreLogic HPI Forecast indicating annual price growth will increase 5.8% by August 2020. On a month-over-month basis, the forecast calls for home prices to increase by 0.3% from August 2019 to September 2019. The CoreLogic HPI Forecast is a projection of home prices calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state. “The 3.6% increase in annual home price growth this August marked a big slowdown from a year earlier when the U.S. index was up 5.5%,” said Dr. Frank Nothaft, chief economist at CoreLogic. “While the slowdown in appreciation occurred across the country at all price points, it was most pronounced at the lower end of the market. Prices for the lowest-priced homes increased by 5.5%, compared with August 2018, when prices increased by 8.4%. This moderation in home-price growth should be welcome news to entry-level buyers.”
According to the CoreLogic Market Condition Indicators (MCI), an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, 37% of metropolitan areas have an overvalued housing market as of August 2019. The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income. As of August 2019, 23% of the top 100 metropolitan areas were undervalued, and 40% were at value. When looking at only the top 50 markets based on housing stock, 40% were overvalued, 16% were undervalued and 44% were at value. The MCI analysis defines an overvalued housing market as one in which home prices are at least 10% above the long-term, sustainable level. An undervalued housing market is one in which home prices are at least 10% below the sustainable level. During the second quarter of 2019, CoreLogic, together with RTi Research of Norwalk, Connecticut, conducted an extensive survey measuring consumer-housing sentiment among millennials. The survey found that approximately 75% of millennial renters indicate they will likely purchase a home in the future. However, despite a desire from the entire millennial cohort to purchase a home, there is a clear difference between older and younger millennials’ living situation preferences. Generally, older millennials (30-38) aspire to own a single, stand-alone home in the suburbs that is somewhat secluded. Meanwhile, younger millennials (21-29) lean towards modern apartment rentals in urban settings, with 55% of younger millennials saying they prefer to also live in lively neighborhoods. Still, 79% of younger millennials are confident that they will be homeowners in the future. “The millennial cohort has now entered the housing market in force and is already driving major changes in buying and selling patterns. Almost half of the millennials over 30 years old have bought a house in the last three years. These folks are increasingly looking to move out of urban centers in favor of the suburbs, which offers more privacy and a greener environment,” said Frank Martell, president and CEO, CoreLogic. “Perhaps most significantly, almost 80% of all millennials are confident they will become homeowners in the future.”
Dow tumbles over 500 points on global economic slowdown fears
Stocks tumbled on Wednesday on concerns the U.S. economy is slowing mirroring the pattern in Europe and other global nations. The Dow Jones Industrial Average fell over 500 points or more than 2 percent. The S&P 500 and the Nasdaq also dropped over 1 percent mid-morning. Selling accelerated after the Energy Department reported an inventory build of 3.1 million barrels, almost double the estimate, stoking fears of a slowdown and driving energy stocks lower. The latest read on America’s job market also signaled a pullback. Private-sector employers added 135,000 jobs in August, according to the latest ADP National Employment Report, missing the 140,000 that economists surveyed by Refinitiv were expecting. On Tuesday, the ISM September Manufacturing Index fell to 47.8, its weakest reading since June 2009. Construction spending also was little changed in August. Financials also took a beating for a second day. Brokerage firms remained under pressure after TD Ameritrade on Tuesday evening said it would match Charles Schwab’s commission-free trading. Schwab earlier on Tuesday said it would eliminate its $4.95 per trade fee on stock, exchange-traded funds and options trades. Sanofi shares were lower after Walmart suspended sales of its drug Zantac and all forms of heartburn medication containing ranitidine after the Food and Drug Administration warned of potential cancer risks. On the earnings front, Lennar gained after reporting better than expected third-quarter profits and sales while United Foods was sharply lower after reporting its first annual loss in more than a decade. European markets were sharply lower. London’s FTSE fell 2 percent, Germany’s DAX is down 1.3 percent and France’s CAC is down 1.6 percent. In Asia, Japan’s Nikkei closed down 0.5 percent and Hong Kong’s Hang Seng slid 0.3 percent. Markets in mainland China were closed for National Day holidays. They reopen on Oct. 8.
MBA – mortgage applications increase
Mortgage applications increased 8.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 27, 2019. The Market Composite Index, a measure of mortgage loan application volume, increased 8.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8 percent compared with the previous week. The Refinance Index increased 14 percent from the previous week and was 133 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 10 percent higher than the same week one year ago. “Mortgage rates mostly decreased last week, with the 30-year fixed rate dropping below 4 percent for the sixth time in the past nine weeks. Borrowers responded to these lower rates, leading to a 14 percent increase in refinance applications,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Although refinance activity slowed in September compared to August, the months together were the strongest since October 2016. The slight changes in rates are still causing large swings in refinance volume, and we expect this sensitivity to persist.” Added Kan, “Purchase applications also increased and remained more than 9 percent higher than a year ago. Low rates and healthy housing market fundamentals continue to support solid levels of purchase activity.”
The refinance share of mortgage activity increased to 58.0 percent of total applications from 54.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.5 percent of total applications. The FHA share of total applications decreased to 10.4 percent from 11.4 percent the week prior. The VA share of total applications decreased to 12.4 percent from 13.1 percent the week prior. The USDA share of total applications decreased to 0.5 percent from 0.6 percent the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.99 percent from 4.02 percent, with points remaining unchanged at 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350) decreased to 3.98 percent from 4.00 percent, with points increasing to 0.28 from 0.26 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.79 percent from 3.90 percent, with points remaining unchanged at 0.23 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.43 percent from 3.46 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 5/1 ARMs increased to 3.42 percent from 3.39 percent, with points increasing to 0.37 from 0.29 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
NYC housing prices in near ‘free fall,’ conditions mirror recession era following tax hikes
The Manhattan real estate market stumbled in the third quarter of 2019, new reports show, as prices plunged and fewer buyers were willing to purchase higher-priced properties in the wake of two recent tax increases. The median sales price for properties fell 17 percent from the same quarter last year, to $999,950, according to new data from CORE. The average sales price dropped 12 percent, to $1.64 million. Condo sales fell 8 percent, logging 946 transactions. Co-op sales, on the other hand, were up a modest 2 percent year over year. “The third quarter of 2019 was undoubtedly the most challenging quarter in recent memory, especially for condo sales,” Garrett Derderian, managing director of market analysis at CORE, said in a statement. “Market prices have gone from what was once described as the kindest, gentlest correction to a near free fall. The last time conditions were described in such a way was in the height of the recession.” Only 9.7 percent of sales were above $3 million, down 14.8 percent from last year. The last time sales above $3 million were that low was in 2012. Consequently, nearly 30 percent of inventory on the market was priced above $3 million. It’s worth noting that many buyers rushed to purchase properties before an increase in the city’s mansion tax and transfer tax took effect in July. “Third quarter data reflects a more accurate snapshot of the current market – continued price correction,” Diane M. Ramirez, Chairman & CEO of Halstead, said in a statement.
Halstead’s own report released on Wednesday showed Manhattan apartment sales fell 16 percent in the third quarter – with sales above $5 million dropping nearly 50 percent. Properties, meanwhile, spent an average of 192 days on the market – the highest quarterly total since the final quarter of 2012. In July, New York City increased its mansion tax – a progressive tax that applies to home sales of more than $1 million – to a maximum of 3.9 percent, up from a flat-rate of 1 percent. The tax rates vary from 1.25 percent for $2 million sales, to 3.9 percent for sales of $25 million and higher. The city also increased a one-time charge on properties worth more than $2 million – known as the transfer tax. That fee, typically paid by a seller, varies from 0.4 percent for transactions under $3 million, to 0.65 percent for anything above $3 million. As previously reported by FOX Business, more than 25 percent of new condos that have been built in New York City since 2013 remain unsold. In terms of units – of the 16,242 condos built since 2013, about 12,133 have sold. That means more than 4,100 have not. Experts have said the trend could be indicative of a potential future recession. Falling real estate prices come as concerns mount over the new tax law’s impact on high-tax states – particularly a $10,000 cap on state and local tax (SALT) deductions. Some people have begun fleeing states like New York and New Jersey, headed for lower-tax areas like Florida and Texas. New York was one of a handful of states dealt a blow in its bid to challenge the SALT cap this week, after a judge dismissed its lawsuit.
NAR – NAR commends Administration for pushing GSE reform conversations forward
National Association of Realtors® President John Smaby commended the administration for taking steps to further Fannie Mae and Freddie Mac reform this week. The U.S. Department of the Treasury and the Federal Housing Finance Agency on Monday announced that they will permit the Government Sponsored Enterprises to retain additional earnings in excess of the $3 billion capital reserves currently permitted, a proposal outlined in the Treasury Housing Reform Plan released in early September. “NAR appreciates the Treasury Department and FHFA’s work to advance housing finance reform and protect taxpayers by increasing available capital within the system,” said Smaby, a second-generation Realtor® from Edina, Minnesota. “While Realtors® eye GSE reforms that ensure responsible, creditworthy Americans can secure a mortgage in all types of markets, we urge Congress and the administration to work together toward a consensus that will create a housing finance system that protects taxpayers, supports homeownership and maximizes competition. The private utility model Realtors® proposed earlier this year(link is external) outlines the best possible path forward for the GSEs, and we will continue to work closely with policymakers to shape positive, pragmatic system reforms.”
CoreLogic – most EPIQ attendees expect little change in rates and slower price growth
EPIQ 2019 attendees represented a broad cross-section of industry professionals, think tank researchers, and government policy makers who have a view on the interest rate, home-price and loan performance outlook. These are three of the economic variables that affect housing activity and portfolio risk management. During my outlook session, I polled the attendees to learn their expectations for one year from now.
– What will fixed-rate mortgage rates be at EPIQ 2020?
Mortgage rates had moved more than a percentage point lower from November 2018 to late July when EPIQ 2019, CoreLogic’s annual client conference, was held. Attendees were asked what they expect the level of mortgage rates would be in one year, at the time of EPIQ 2020.
– Most EPIQ Attendees Expect Little Change in Mortgage Rates
The majority, 51%, expect mortgage rates to be very close to where they were during our conference. (Figure 1) The remaining respondents were nearly equally split between mortgage rates dropping or rising by 0.5 percentage points.
– How much will the CoreLogic HPI change by EPIQ 2020?
Nationally, home-price appreciation has decelerated over the last year. Comparing the 12-month change in the national index, growth measured by the CoreLogic Home Price Index (HPI) had slowed by nearly 3 percentage points between May 2018 and May 2019. The attendees were polled on what they expected the one-year price change would be with the release of the May 2020 HPI, the latest that would be available as of EPIQ 2020.
– Most EPIQ Attendees Expect Slower Home-Price Growth
A majority, 55%, expect home-price growth to continue to slow in the coming year. (Figure 2) Even so, 11% of attendees expect an acceleration in single-family price growth next year to more than 5% appreciation.
– What Will the Delinquency Rate Be by EPIQ 2020?
The total past due rate for home mortgages peaked at 12.0% in January 2010 and has steadily moved lower on a year-over-year basis. As of May 2019 the 30-day-plus delinquency rate had dipped to 3.6%, the lowest in more than 20 years. EPIQ attendees were divided on how the delinquency rate would evolve over the next year: 32% expected further declines while 43% foresaw a rise. The median response was for little change in the overall delinquency rate in the coming year.
– EPIQ Attendees Were Split on Delinquency Rate Direction
Attendees’ projections were affected by a variety of assumptions each had for how the economy and the housing market may evolve, reflected in the forecast distribution. Nonetheless, a majority of attendees expect interest rates on 30-year fixed-rate loans to remain close to where they were during EPIQ and expect further slowing in home-price growth during the next year.
MBA – commercial/multifamily mortgage debt increased $51.9 billion in the second quarter of 2019
The level of commercial/multifamily mortgage debt outstanding rose by $51.9 billion (1.5 percent) in the second quarter of 2019, according to the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report. At the end of the first half of 2019, total commercial/multifamily debt outstanding was at$3.50 trillion. Multifamily mortgage debt alone increased $24.4 billion (1.7 percent) to $1.5 trillion from the first quarter. “Strong borrowing and lending, coupled with relatively low levels of loan maturities, are helping to boost the amount of commercial and multifamily mortgage debt outstanding,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “All four major capital sources increased their holdings during the quarter. With strong demand expected to continue, debt levels are likely to climb even more and end the year at a new high.” The four major investor groups in MBA’s report are: banks and thrifts; federal agency and government sponsored enterprise (GSE) portfolios and mortgage backed securities (MBS); life insurance companies; and commercial mortgage backed securities (CMBS), collateralized debt obligation (CDO) and other asset backed securities (ABS) issues. Commercial banks continue to hold the largest share (39 percent) of commercial/multifamily mortgages at $1.4 trillion. Agency and GSE portfolios and MBS are the second largest holders of commercial/multifamily mortgages (20 percent) at $703 billion. Life insurance companies hold $539 billion (15 percent), and CMBS, CDO and other ABS issues hold $471 billion (13 percent). Many life insurance companies, banks and the GSEs purchase and hold CMBS, CDO and other ABS issues. These loans appear in the”CMBS, CDO and other ABS” category of the the report.
Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share of total multifamily debt outstanding at $703 billion (48 percent), followed by banks and thrifts with $445 billion (31 percent), life insurance companies with $143 billion (10 percent), state and local government with $82 billion (6 percent), and CMBS, CDO and other ABS issues holding $42 billion (3 percent). Nonfarm non-corporate businesses hold $16 billion (1 percent). In the second quarter, commercial banks saw the largest gains in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $22.4 billion (1.7 percent). Agency and GSE portfolios and MBS increased their holdings by $15.9 billion (2.3 percent), life insurance companies increased their holdings by $7.4 billion (1.4 percent), and CMBS, CDO and other ABS issues increased their holdings by $4.8 billion (1.0 percent). In percentage terms, state and local government retirement funds saw the largest gain – 8.8 percent – in their holdings of commercial/multifamily mortgages. Conversely, the federal government saw their holdings decrease 3.4 percent. The $24.4 billion increase in multifamily mortgage debt outstanding from the first quarter represents a 1.7 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest gain – $15.9 billion (2.3 percent) – in their holdings of multifamily mortgage debt. Commercial banks increased their holdings by $9.0 billion (2.1 percent), and life insurance companies increased by $3.3 billion (2.3 percent). Federal government saw the largest decline in their holdings of multifamily mortgage debt at $3.6 billion (28.4 percent). In percentage terms, real estate investment trusts (REITs) recorded the largest increase in holdings of multifamily mortgages, at 13 percent, and federal government saw the biggest decrease at 28.4 percent.