The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. This month, Black Knight’s analysts examined the impact of recent interest rate declines on home affordability, finding yet another situation where rate shifts in either direction have profound impact. As Black Knight Data & Analytics President Ben Graboske explained, the current lower interest rate environment has provided a boost to potential homebuyers. “Back in November 2018, we were reporting on home affordability hitting a nine-year low,” said Graboske. “Interest rates were nearing 5%, pushing the share of national median income required to make the principal and interest (P&I) payments on the purchase of the average-priced home to 23.7%. While still below long-term averages, that made housing the least affordable it had been since 2009, spurring a noticeable and extended slowdown in home price growth. In the time since, rates have tumbled and the affordability outlook has improved significantly. That payment-to-income ratio is now 20.7%, which is the second lowest it has been in 20 months, behind only August of this year, and about 4.5% below the long-term, pre-crisis norm. To help quantify the boost this has given to homebuyers, consider that today’s prevailing 30-year rate has cut the monthly P&I payment to purchase the average-priced home by 10% – about $124 per month – from November. Put another way, the decline in rates since November has been enough to boost buying power by $46,000 while keeping monthly P&I payments the same.
“Despite falling interest rates and steadily improving affordability over the preceding eight months, annual home price growth held flat in August at 3.8% after rising for the first time in 17 months in July. It remains to be seen if this is merely a lull in what could be a reheating housing market, or a sign that low interest rates and stronger affordability may not be enough to muster another meaningful rise in home price growth across the U.S. That the strongest gains in – and strongest levels of – affordability were in August and early September could bode well for September/October housing numbers. As such, we’ll be keeping a close eye on the numbers coming out of the Black Knight Home Price Index over the coming months.” The month’s analysis also shows that while falling interest rates have improved affordability across the country, pockets of tight affordability remain, especially along the western coast of the U.S. In fact, California accounts for seven of the 10 least affordable markets. In Los Angeles for example, even with rates at 3.64%, purchasing the average-priced home requires nearly 43% of the median household income — more than twice the national average. While down from more than 48% near the end of 2018, that payment-to-income ratio still makes Los Angeles the country’s least affordable market. Tight affordability on the West Coast was likely a key driver in the strong deceleration in home price growth that began as interest rates rose in late 2018. Interest rate movements have become a key determining factor of housing affordability and significant shifts in either direction can change the landscape quickly.
– As of the end of September 2019 – with the average 30-year interest rate at 3.64% – it now requires 20.7% of the national median income to make monthly principal and interest (P&I) payments on the average-priced home
– That marks the second lowest national payment-to-income ratio in 20 months, behind only August 2019
– Home affordability briefly hit a 32-month high in early September, when interest rates dipped below 3.5% for a single week
– The $1,122 in monthly P&I required to purchase the average-priced home is down 10% from November – when interest rates peaked near 5% – despite home prices rising more than 4% from that point
– Home affordability had hit a nine-year low back in November when the national payment-to-income ratio rose to 23.7%, spurring a noticeable and extended slowdown in home price growth
– Despite strengthening home affordability as a result of recent interest rate declines, home price growth held flat in August after rising for the first time in 17 months in July
– While prospective homebuyers continue to benefit from strong rate-driven buying power, interest rate movements are a key determining factor of housing affordability; significant shifts in either direction can change the landscape quickly
US to tackle these trade issues with China in Washington Thursday
Trade talks between the U.S. and China are set to resume this week, as the two sides continue to work toward an agreement on a multitude of issues, the White House announced Monday. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will host a delegation led by China’s top trade negotiator Liu He in Washington on Thursday. The two parties will discuss outstanding issues that have kept the two sides from agreeing on a deal. These include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture and enforcement, according to the White House. The Chinese delegation reportedly won’t be looking to include commitments on reforming Chinese industrial policy or the government subsidies, according to Bloomberg. That offer would take one of the Trump administration’s core demands off the table. People close to the Trump administration say the impeachment inquiry isn’t affecting trade talks with China. China’s markets will return to trading on Tuesday following a weeklong holiday.
FTC claims house flipping seminars featuring HGTV stars are total scams
Did you ever think those celebrity-endorsed “get rich quick by using other people’s money to flip houses” real estate seminars seemed too good to be true? Well, it turns out you may have been right. The Federal Trade Commission and the Utah Division of Consumer Protection announced this week that they are charging a Utah-based company with allegedly lying to consumers to convince them to attend the company’s supposedly free real estate seminars. The company promised to give away the secrets to making money flipping houses at the event, but actually charged thousands or tens of thousands of dollars for said “secrets.” According to the FTC, Zurixx entices people to attend its “free” real estate seminars by using HGTV stars and other TV personalities as celebrity endorsers and claims that attendees can learn how to flip houses to make money. But the agency claims that the entire operation is a scam, with the company allegedly using “deceptive promises of big profits to lure consumers into real estate seminars costing thousands of dollars.” The FTC claims that Zurixx uses celebrities in its advertisements to lend credibility to the seminars, including endorsements from Tarek and Christina El Moussa from HGTV’s “Flip or Flop,” Hilary Farr from HGTV’s “Love It or List It,” and Peter Souhleris and Dave Seymour from A&E’s “Flipping Boston.” According to the FTC, the ads convinced consumers to attend free events that would teach consumers how to make large profits by flipping “using other people’s money.” But the agency claims that the free events are actually a sales presentation for Zurixx’s three-day workshops that cost $1,997.
According to the FTC, during the free events, Zurixx repeatedly tells consumers who sign up for its three-day workshop that they are likely to earn thousands of dollars in profit, often with little risk, time or effort. “Zurixx also represents that consumers who purchase the workshop will receive 100% funding for their real estate investments regardless of their credit history,” the FTC said in its complaint. “It backs up these representations with a money-back guarantee – consumers who do not make ‘a minimum of three times’ the price of the three-day workshop within six months will receive their money back.” According to the FTC, Zurixx presenters have told attendees at these free events that the three-day workshop would “teach them everything they need to know to make substantial income from real estate.” If that pitch is successful in getting someone to fork over the nearly $2,000 for the three-day workshop, the selling allegedly doesn’t stop there. According to the FTC, presenters at the three-day workshop often claim that the workshop is “merely a beginner course,” then upselling consumers additional products and services that can cost as much as $41,297. But according to the FTC, many of Zurrix’s claims about its system are “false or unsubstantiated.” From the complaint: “Consumers are unlikely to earn thousands of dollars in profit from real estate investments by using Zurixx’s products. Consumers are unlikely to receive 100% funding for real estate deals through Zurixx or its partners and affiliates. Moreover, Zurixx’s six-month money-back guarantee contains substantial limitations that Zurixx fails to disclose adequately until after consumers have paid for the three-day workshop.”
The agency also states that Zurixx presenters “generously” include supposed success stories into their sales pitches. According to the FTC, presenters also allegedly “routinely” directed workshop attendees to obtain new credit cards or increase the credit limits on their existing cards, supposedly to help finance their house flips. Beyond that, the presenters allegedly told attendees to provide the credit card companies with income information that was “significantly higher” than their current income, basing that inflation on the supposed increase in the attendees’ income from investing in real estate. But, instead of using that increased credit flexibility obtained under questionable circumstances to invest in real estate, Zurixx presenters allegedly often suggested that attendees actually use the new credit to pay for “advanced training” from Zurixx itself. Zurixx’s business model has come under fire in recent years, with many customers accusing the company of using false advertising to entice them to attend the company’s events. According to a 2016 article from the Orange Country Register, Zurixx seemingly claimed in an ad that Tarek and Christina El Moussa would attend one of the company’s real estate seminars, and would teach their flipping strategy to the attendees. But when the seminar occured, the “Flip or Flop” stars were nowhere to be found. Others had similar experiences, leading to hundreds of complaints being filed with the FTC. Eventually, Christina El Moussa ended up going on ABC to defend the Zurixx seminars, claiming that she does attend the seminars, if they are held close to her house. From ABC: “Christina El Moussa said that she does attend seminars, when the events are close to her home. ‘If it’s going to be within 45 minutes from my house I’m definitely going to come,’ she said. ‘It gets harder to travel all around, especially [because] we have two kids.”
Christina recently attended seminars in St. Louis and Miami, but Zurixx said even those appearances are uncommon, adding that “nowhere on any other marketing does it state the El Moussas will be live and in-person at any event.” According to the FTC, some of Zurixx’s unsatisfied customers have tried to obtain a refund from the company, but the company allegedly required some consumers who received a refund to sign an agreement barring them from speaking with the FTC, state attorneys general and other regulators; submitting complaints to the Better Business Bureau; or posting negative reviews about Zurixx. The complaint alleges that Zurixx has violated the FTC Act’s prohibitions on misleading and deceptive conduct and the Consumer Review Fairness Act, as well as the Utah Consumer Sales Practices Act and the Utah Business Opportunity Disclosure Act. “From start to finish, these defendants used the promise of easy money and in-depth information to lure consumers down a path that could cost them thousands of dollars and put them in serious debt,” said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. “When a company tells consumers they have the secret to get rich with little work, we encourage consumers to take a hard look at what’s really being offered.”
GE freezes pension plan for 20,000 employees
General Electric is making sweeping changes to its pension plan for approximately 20,000 employees, sending shares higher ahead of Monday’s opening bell. Seven hundred employees who became executives before 2011 will have their supplementary benefits frozen, and no changes will be made for retired employees. The changes will reduce GE’s pension deficit by about $5 billion – $8 billion and net debt by approximately $4 billion – $6 billion. “Returning GE to a position of strength has required us to make several difficult decisions, and today’s decision to freeze the pension is no exception,” Kevin Cox, chief human resources officer at GE, said in a press release. “We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.” The company said it will use some of the money it has received from the sale of its BioPharma, BHGE and Wabtec transactions to pre-fund up to $5 billion of its Employee Retirement Income Security Act payments for 2021 and 20212. Retired employees who have not started receiving monthly payments will have the option to receive a one-time lump-sum payout. General Electric, once an industrial icon, is in the midst of trying to engineer a turnaround after shares lost more than half their value amid a slew of problems last year. The battered company has undertaken a massive restructuring plan aimed at reducing debt by selling off non-core assets. In August, the company was accused by whistleblower Harry Markopolos, who alerted authorities about Bernie Madoff’s Ponzi scheme, of hiding its problems through fraudulent accounting.