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Black Knight – June 2018 Mortgage Monitor

–  Home Price Growth Slows Across Much of US; Cooling Prices, Slight Interest Rate Reductions Help Affordability Hold Steady

–  Home price appreciation slowed each month from March through May, the first three-month slide in nearly four years

–  Though every state saw prices increase in May – typically one of the strongest months for home price appreciation – the average home gained just 0.93% in value, the lowest growth rate for any May in the last four years

–  Two-thirds of both states and large metropolitan areas have seen slowdowns in rates of home price appreciation

–  32 states have seen price gains slow, while 18 have picked up speed, with California seeing three times the national average deceleration

–  Cooling home prices, combined with a slight reprieve in interest rates, have been enough to hold affordability steady

–  The cost to purchase the average-priced home has increased by only $4 per month over the past two months as compared to a $138 per month increase through the first five months of 2018

The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of June 2018. This month, Black Knight examined the slowdown in the rate of home price appreciation seen from March through May 2018, while also gauging the impact this slowdown and slightly lower interest rates have had on home affordability. As Ben Graboske, executive vice president of Black Knight’s Data & Analytics division explained, what is being seen is not a matter of home prices falling, but rather a slowing in their continuing increase. “In May – typically one of the strongest months of the year for home price growth – every state in the nation saw home prices increase,” said Graboske. “However, the average monthly gain in value of less than one% was the lowest for any May in the last four years. In addition, the annual rate of appreciation declined each month from March through May, the first three-month slowdown in almost four years. Thirty-two states, as well as 33 of the 50 largest metropolitan areas, have experienced slowdowns in appreciation over the same period.

All that said, the annual rate of home price growth is still historically high at 6.3%, some 2.5 percentage points above long-term norms. For more than six years, we’ve been riding a wave of home price appreciation above the 25-year average. The question now is whether tightening affordability will end that streak and if more deceleration is on the horizon. “On that front, the recent cooling of home price gains and slight reprieve in rising interest rates have combined to stabilize affordability in recent months. As rates have ticked down from 4.66% in late May to 4.52% in mid-July, the monthly principal and interest payment to purchase the average home has only increased by $4 per month – significantly less compared to the $138 per month increase we saw over the first five months of 2018. Still, the $1,213 in principal and interest per month needed to buy the average home remains near a post-recession high. While that represents a nearly $500 per month increase from the bottom of the market in 2012, it’s important to keep in mind that it’s still roughly 13% less than was required back in 2006.”

This report also looked at how rising short-term interest rates have impacted holders of outstanding adjustable-rate mortgages (ARMs), finding that 1.7 million such borrowers have seen their monthly mortgage payments increase by an average of $70 over the past 12 months. This subset of borrowers had been the beneficiary of downward reductions in their rates and payments following the financial crisis, but that’s no longer the case. Increases to both the LIBOR and constant maturity Treasury rates have resulted in the average rate on a post-reset ARM rising by more than .5% over the past 12 months and nearly .75% over the past two years, pushing the average post-reset ARM interest rate to more than 4.5%. While this has not led to any measurable increase in post-reset ARM delinquencies, ARM loans are now prepaying at a 70% higher rate than their fixed-rate counterparts over the past 12 months. This is a trend that may continue as an estimated 1 million borrowers would face an additional payment increase upon their next reset if index values were to hold steady at today’s rates.

As has reported in Black Knight’s most recent First Look news release, other key results include:

–  Total US loan delinquency rate: 3.74%

–  Month-over-month change in delinquency rate: 2.71%

–  Total US foreclosure pre-sale inventory rate: 0.56%

–  Month-over-month change in foreclosure pre-sale inventory rate: -4.51%

–  States with highest percentage of non-current* loans: MS, LA, AL, WV, ME

–  States with lowest percentage of non-current loans: ND, ID, WA, OR, CO

–  States with highest percentage of seriously delinquent loans: MS, FL, LA, AL, AR

Oil prices climb following unexpected production dip

Former Shell Oil President John Hofmeister on the outlook for oil prices.

Oil prices climbed Monday amid reports that Saudi Arabia’s crude production fell unexpectedly in July, while the reimposition of sanctions on Iran sparked concerns of a tighter oil market supply/demand balance in the future. Last Friday, two OPEC sources said that Saudi Arabia produced about 10.3 million barrels per day of crude oil in July, down about 200,000 barrels per day from June, according to Reuters. OPEC and Russia agreed in June to start increasing crude oil production after prices rallied to a 3 1/2 year high on a tighter market fundamentals which followed more than a year of output curbs. The US will reimpose the first set of sanctions on Iran on Monday as part of its decision to pull out of the Iran nuclear deal. The remainder of the sanctions, including oil, will take effect in November, a White House official told FOX Business’ Edward Lawrence. The sanctions on oil could ultimately block more than 1 million barrels a day of Iran’s approximate 2.5 million barrels a day of crude oil exports.

Also, the latest drilling update indicated that production in the US decreased in the prior week. Baker Hughes on Friday reported that the number of active oil rigs decreased by 2 versus the prior week.

Wells Fargo: Error contributed to hundreds of foreclosures

Wells Fargo says a company miscalculation could be the reason for hundreds of foreclosures, the bank revealed in a regulatory filing Friday. The report, filed to the Securities and Exchange Commission, said 625 customers were “incorrectly” denied a loan modification or were not offered a modification, all of which should have qualified. Out of those cases, 400 homes were foreclosed, something Wells Fargo defends might have happened anyway. To make up for the mistake, Wells Fargo has accrued $8 million to remedy affected customers, the report said. That amount averages $12,800 per borrower but the company did not say how much each individual would get or how the compensation would be distributed. Wells Fargo spokesman Tom Goyda told the Los Angeles Times all are receiving what the company deems is appropriate given the circumstances. “We’re very sorry that this error occurred,” Goyda said, adding there is not a 100% “clear cause and effect relationship between the modification denial and the ultimate foreclosure.” Goyda said he could not say what prompted the review of the loan modifications.

The latest finding adds to the bank’s growing list of problems, including a scandal in 2016 after regulators found the bank had opened millions of accounts without customers’ permission to meet quotas and generate sales bonuses. On Wednesday, the bank agreed to pay a $2.09 billion penalty for issuing mortgage loans it was aware contained incorrect income information. The bank agreed to pay the civil penalty under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for the actions, which the government said contributed to last decade’s financial crisis. In June, Wells Fargo agreed to pay $5.1 million to settle charges of financial misconduct, after the SEC learned the bank generated large fees by improperly encouraging retail customers to actively trade market-linked investments, which were intended to be held to maturity. In addition, the SEC found that Wells Fargo did not properly investigate employees who were engaged in the practice and supervisors systematically approved the transactions, despite internal policies prohibiting similar practices. In February, the Federal Reserve capped Wells Fargo assets until the bank reforms itself to the regulator’s satisfaction.

Millions drop off food stamps

The number of people collecting foods stamps has dropped tremendously since President Trump took office, according to the latest numbers from the US Department of Agriculture (USDA). More than 2.8 million have stopped participating in the Supplemental Nutritional Assistance Program (SNAP) – commonly known as food stamps – since Trump’s first full month in office, the data showed. Food stamp enrollment in May 2018 was 39,329,356 versus 42,134,301 in February 2017. SNAP, which provides resources for individuals and families in need of food assistance, numbers are consistent with the downward trend seen over the past few years. It also comes as the Trump administration attempts to reform the program on state and federal levels of government. Since Trump took office, the administration has zeroed in on promoting pro-growth policies. The economy is growing at a rate above predictions and job growth has been strong across the board, according to the White House.

DSNews – Goldman Sachs Moves Forward on Consumer Relief Obligation

Goldman Sachs has reached 62% of its $1.8-billion consumer relief obligation, which was enacted under its two April 11, 2016, mortgage-related settlement agreements with the US Department of Justice and three states. Eric D. Green, the independent Monitor of the consumer-relief portions of the agreements, has announced that the forgiveness of balances due on 1,127 mortgages has moved the bank $127.1 million closer to its agreement sum. Professor Green is a professional mediator and retired Boston University law professor, who was named by the settling parties as independent Monitor with responsibility for determining the fulfillment of Goldman Sachs’ consumer-relief obligations. Green has assembled a team of finance, accounting, and legal professionals to assist in the task. Since the last report, produced on May 15 of this year, Professor Green reports that “Goldman Sachs forgave the balances due on 1,024 first-lien mortgages, for a total principal forgiveness of $113,504,343, an average of $110,844 per borrower.” The bank also forgave amounts due and previously deferred on 103 first-lien mortgages, for total forgiveness of $5,139,100, an average of $49,894 per borrower.

These two reports resulted in the total reportable consumer-relief credit of $127,109,482 after the application of crediting calculations and multipliers specified in the settlement agreements. “Approximately 28 months after the settlement agreements were signed, the total amount of credit claimed and conditionally validated in my reports under both settlement agreements comes to $1,120,530,304, or 62% of the $1.8 billion target,” Professor Green said. The two agreements settled “potential and filed legal claims” regarding the marketing, structuring, arrangement, underwriting, issuance, and sale of mortgage-based securities. Goldman Sachs reached settlements with the Department of Justice, California, Illinois and New York, as well as the National Credit Union Administration Board and the Federal Home Loan Banks of Chicago and Des Moines. The bank agreed to provide a total of $5.06 billion under the settlements, including consumer relief valued at $1.8 billion to be distributed by the end of January 2021. According to the statement, the modified mortgages were spread across 45 states and the District of Columbia, “with 36% of the credit located in the settling states of New York, Illinois, and California, and 46% of the credit located in Hardest Hit Areas, or census tracts identified by the US Department of Housing and Urban Development as containing large concentrations of distressed properties and foreclosure activities.” – America’s most profitable housing markets

Owning a home has long been considered the fastest and most predictable way to build wealth in the United States. And while home sale prices are at an all-time record (at a median of $262,000 as of June) not everyone is walking away with double-digit annual returns. Picking a place where home prices will continue to surge in the long term is one part science, one part dogged research, and one part blind, dumb luck. Nothing is guaranteed. But if past is prologue, we’re here to help increase your odds of picking a winner: The® data team found the markets where home sellers are walking away with the biggest returns. Our analysis finds that the median annual return for home sales was 8% nationally over the last 12 months. Not too shabby, homeowners! But digging into the numbers reveals a disparity. Of the 100 largest metros, the annual return was high as 14%—and as low as 2%. That’s the difference between living retirement on the beach and not retiring at all. “Owning can be a great way to build up overall net worth,” says Danielle Hale, chief economist for “If you’re looking to transition in a local market [to a bigger home], you have the home equity. If you’re looking to retire and move somewhere else, you have the money to do that.” Many of the places with the highest returns are the nation’s fastest-growing cities, where highly paid techies are spurring bidding wars. But that isn’t always the case. A few of the places where home sellers walked away with the fattest profits are those that hit rock-bottom in the Great Recession. Savvy buyers who got in on the ground floor have seen their home appreciation soar. “They walked into the room when everyone was running out,” Jonathan Miller, a national real estate appraiser at Miller Samuel in New York, says of these buyers. “They are now being compensated for their risk.” To find the country’s most profitable housing markets, we looked at homes that sold over the past 12 months in the 100 largest metropolitan areas. (Metros include the main city and the suburbs surrounding it.)  Then we compared the most recent sale prices to their previous ones, going back as far as 2008. The profit was defined as the difference between the two sales. Finally, we used those figures to create an average annualized return for each market, and limited our ranking to one metro per state.

  1. Bridgeport, CT (Fairfield County, CT)

Average annualized return: 14%

Median home list price: $789,100

Bridgeport, CT

Fairfield County has spent decades esconced as the crown jewel of New York City’s suburbs, a hot spot for wealthy home buyers looking to snag a mansion in luxe, high-status communities like Greenwich, CT, where median home prices are $1.9 million. But this county is more than just leafy, picture-perfect commuter towns; it also stretches into the perennially downtrodden city of Bridgeport. And ever since the financial recovery, properties at both ends of the economic spectrum have been doing very well. First, the high end: Unlike in nearby Westchester County, NY, home buyers in Fairfield County don’t have to pay a mansion tax. And ever since last year’s tax law changes, which made deductions less generous, the county has been attracting even more interest among big-ticket purchasers. That increased demand has more and more homeowners cashing in, to get their hands on those profits. It’s common for sellers here to use that windfall to upgrade to an even nicer home, says Leslie McElwreath, a real estate agent at Sotheby’s International Realty’s office in Greenwich. But it isn’t just mansions driving the price increases. Even higher price appreciation can be found in way less affluent Bridgeport proper, says Miller, the real estate appraiser. The median price there is just $199,000. That’s lured in buyers, and that is now driving prices up. “If you look at the high end of the county, housing prices haven’t risen as much since the financial crisis,” Miller says. “But areas hit hard by foreclosures in the region are now seeing large gains in property values.”

  1. Detroit, MI

Average annualized return: 12%

Median home list price: $260,000

The Great Recession dealt Detroit a near-knockout punch. The Motor City had struggled for decades with the loss of blue-collar, manufacturing jobs. Then the auto industry went into a tailspin, leading to widespread unemployment and a rash of foreclosures. Locally based General Motors and Ford received a federal bailout to stay afloat. But in 2013, the city still filed for Chapter 9 bankruptcy. With so many folks looking to leave, the median home values in Detroit fell from $137,200 in March 2008 to $108,800 by March 2012, leaving many owners underwater on their mortgages. But in recent years, the city has been on the upswing, as more folks move into its revitalized downtown. Younger buyers are finally flocking into the area to purchase condos in converted industrial buildings, like this one-bedroom condo/loft for $299,900. Homeowners who rode out the bad times are starting to see the rewards. That’s especially true for those who bought at the bottom of the market. “Detroit fell harder than most markets,” real estate appraiser Miller says. “[But its] rebound has been encouraging.”

  1. Seattle, WA

Average annualized return: 12%

Median home list price: $582,400

Why did so many cities go nuts submitting bids for Amazon’s second global headquarters? Maybe it has something to do with the remarkable transformation the company has wrought in its home city of Seattle. All those lucrative tech jobs have attracted home buyers of means, who’ve sent real estate prices soaring. It’s turning average Joe and Jane homeowners into millionaires. Competition is fierce. In the last year alone, nearly two-thirds of homes sold in Seattle have received multiple offers, according to a analysis. That’s the highest incidence of bidding wars outside California. Buyers are snapping up condos in downtown Seattle with good views of the skyline or Elliott Bay. But demand is equally as strong for family-friendly, single-family homes in suburbs like Bellevue, WA. “More than 75% of my buyers are from Microsoft or Amazon,” says Jim Price, an adviser at Engel & Völkers in Seattle. “Lots of millennials here are making six figures and are ready to be first-time home buyers.”

  1. San Jose, CA

Average annualized return: 12%

Median home list price: $1,240,300

The number of deep-pocketed techies and venture capitalists in the heart of Silicon Valley seems to be limitless. Combine that with the meager supply of available homes, and even wee vacant lots can go for over $1 million. Silicon Valley home buyers from companies like Apple, which is likely to become the world’s first company worth more than $1 trillion, are turning former middle-class neighborhoods into mansion-lined boulevards. Buyers are consistently tearing down the more reasonably sized homes on their lots to put up larger ones. This happened in Los Altos, CA, where the median home price is now above $6 million.The most expensive home for sale in Los Altos is a 21,000-square-foot mansion priced at $55 million. Those who don’t have quite so much spare cash can consider this two-bedroom 1,500 square-foot condo, currently the cheapest abode on the market, at $1.6 million. And home sellers looking to unload their property in a hurry don’t have to worry. Not only do 80% of home sales in San Jose result in a bidding war, many of these buyers are willing to pay in all cash.

  1. Palm Bay, FL

Average annualized return: 12%

Median home list price: $270,000

In the 2015 film “The Big Short,” two characters flew to Florida before the housing bubble burst to figure out why so many homeowners weren’t making their mortgage payments. They discovered that folks were purchasing properties they couldn’t afford. True enough, when the housing market collapsed, the state was among the hardest hit. “Florida was just devastated by the foreclosure crisis, and had to reinvent itself,” real estate appraiser Miller says. “It has been a long recovery period, but people that went against the grain [buying at the market’s bottom] in recent years have done well.” Like much of coastal Florida, Palm Bay has a big demand from baby boomer retirees who are looking to buy homes in the area. Around a 45-minute drive to Orlando, where the median-priced home is $318,500, Palm Bay attracts home buyers looking for a lower price tag. Even a beachfront condo can be found at around $300,000.

  1. Denver, CO

Average annualized return: 11%

Median home list price: $467,600

Colorado has been on a steady growth track for years, helped along by its snazzy craft beer scene and unbeatable scenery. When the state legalized marijuana in 2012, it was just the pungent icing on the cake. “After that, there’s been just a huge influx of people and money into Denver,” says Ryan Penn, an associate broker at 360dwellings Real Estate in the city. Many of his clients come from the more expensive coastal cities. “I’m representing a couple of buyers who are relocating from Los Angeles, and they’re in contract to sign for a $1.3 million home. In California, they would pay three times more for something the same size.” Young professionals are enticed by the condos and single-family homes priced between $300,000 to $500,000. But they should expect to write 20 to 25 offers before they win a bidding war, Penn says. Bad news for them—and great news for sellers. “Even if you bought a home two years ago, you can be sitting on $100,000 of equity,” Penn says. “The biggest demand in homes is for those priced around $500,000.”

  1. Providence, RI

Average annualized return: 11%

Median home list price: $350,000

The biggest selling point for the capital of Rhode Island is its reasonably priced homes and its proximity to Boston. The bigger city is just an hour away, but its median home price is 51% higher, at $529,100. “We have a lot of buyers from Boston and elsewhere looking for more affordable housing,” says Robert Rutley, a local real estate agent at Taylor & Associates. “A lot of them are transplants moving in from around the country for the universities.” Providence is home to Brown University, Johnson & Wales University, and the Rhode Island School of Design, among others. Just this month, Rutley sold a three-family home in Providence that closed with 17 offers and sold for $30,000 more than the asking price. The hot market is spurred by a growing downtown, which has new hotels and apartment complexes going up. This is great news for home sellers, many of whom found themselves underwater on their mortgages after the housing crash. During the first quarter of 2018, 6.8% of homes in Rhode Island were under water, compared to more than 10% just two years earlier, according to CoreLogic, a real estate data firm. Over the last year alone, the average Rhode Island homeowner added $18,600 in home equity.

  1. Boston, MA

Average annualized return: 10%

Median home list price: $529,100

Boston has several historic districts where the stately brownstones are star attractions. But because the city limits construction there and doesn’t allow high-rises to go up in many parts of town, there is a limited supply of homes for sale. And that’s pushing home prices up, up, and away. “The people buying [in these areas] want the historic Boston experience,” says Collin Bray, a real estate agent at Century 21 Cityside in Boston. “They pay big money for high ceilings and deep fireplaces.” A rebounding financial sector, which employs many residents, has pushed wages higher. But money isn’t always enough to snag the most desirable homes for sale in this skintight market. “I’ve heard of buyers showing up at sellers’ doorsteps, ringing the doorbell, and introducing themselves, so hopefully the seller will remember them,” Bray says.

  1. Nashville, TN

Average annualized return: 10%

Median home list price: $368,000

Folks are used to paying sky-high home prices in places like New York and San Francisco. But it’s new territory for for native Nashvillians, where prices have steadily been climbing for the last few years. A surplus of good jobs has brought home buyers here. And the coolness factor of living in Music City has made it catnip for younger buyers. Older homeowners who purchased their homes for around $30,000 decades ago are now selling their abodes for a mint and then moving into multifamily homes with their children or into retirement communities, says local real estate agent Brian Copeland of Doorbell Real Estate. “They can’t pass up on how much profit they’d make if they sold,” Copeland says.

  1. Portland, OR

Average annualized return: 10%

Median home list price: $477,500

Portland has been sizzling for some time now—and it’s more than just the parody-worthy hipster scene that’s responsible. As it turns out, the housing market here is uniquely well situated; many new residents are refugees fleeing expensive West Coast markets like Seattle and San Francisco. “It’s really the last affordable major city on the West Coast,” says local real estate broker Darcie Alexander of PDX Green Team. “We have the great coffee, a variety of restaurants, and tons of art and music, but at a fraction of the price.” Between 2010 to 2017, the population of the metro area grew 11%, to about 647,805 in the city. That increase, and the climb out of the recession, have led to a jump of 56% in home prices during the same time period. That’s been a boon for sellers, who haven’t had a hard time unloading their homes. (Single-family houses like this three-bedroom, two-bath ranch priced at $334,900 are particularly popular.) So what are sellers doing with those big profits? “[They’re] wanting to buy something bigger in a higher price range, but they’re staying in Portland,” Alexander says. “Most people are either reinvesting it into the real estate market or they’re paying off debt.”

Halliburton revenue beats on higher North America rig count

Oilfield services provider Halliburton Co’s quarterly revenue rose 24% to beat analysts’ estimates on Monday as higher oil prices encouraged US oil and gas producers to put more rigs to work. US rig count, an early indicator of future output, stood at 858 in the week to July 20, according to a Baker Hughes report, up from 764 a year earlier, as energy companies ramp up production in anticipation of higher prices in 2018. Margins in US onshore operations are closing in on what the company achieved during the previous peak in 2014, Halliburton Chief Executive Jeff Miller said in a statement. Halliburton’s North America revenue rose 38.4% to $3.83 billion, while revenue from its international business increased 6% to $2.31 billion. The company’s total revenue rose to $6.15 billion from $4.96 billion. Net profit attributable to Halliburton rose to $511 million, or 58 cents per share, in the second quarter ended June 30, from $28 million, or 3 cents per share, a year earlier. The company took a charge of $262 million in the year-ago quarter. Excluding one-time items, the company earned 58 cents per share, in line with Wall Street estimate, according to Thomson Reuters.

Are cities finally fed up with Airbnb wiping out local housing?

Are cities finally fed up with Airbnb’s decimation of local housing? It’s starting to appear that way, as two major cities have voted to limit or restrict short-term rentals, becoming the latest metros to do so. Last Wednesday, the New York City Council voted unanimously to significantly restrict Airbnb and other online home rental services. The council passed a bill that seeks to prevent landlords and tenants from illegally renting out apartments for a few days at a time to tourists, a trend that the city says has aggravated the housing crisis by making short-term rentals more profitable than long-term leases. According to a New York Times article, Airbnb and other home rental services, like HomeAway, would be required to provide the addresses and names of hosts to the city’s Office of Special Enforcement each month, and to specify whether rentals are for a whole apartment or just a room. From the article:  “New York City is Airbnb’s largest domestic market, but under state law, it is illegal in most buildings for an apartment to be rented out for less than 30 days unless the permanent tenant is residing in the apartment at the same time. The new disclosure requirements would make it much easier for the city to enforce the state law and could lead to many of the 50,000 units rented through Airbnb in the city coming off the market. After similar rules went into effect in San Francisco, listings fell by half.” “The vacancy rate in New York City is very low,” the Council speaker, Corey Johnson, said before the vote. “We’re in an affordable housing crisis. We’re in a homelessness crisis. And Airbnb will not give us this data.”

According to the NYT’s reporting, home rental companies will face fines of up to $1,500 for each listing they fail to disclose, down from the $25,000 originally proposed. A New York City Hall spokeswoman told the paper that the new restrictions have the support of Mayor Bill de Blasio, who has prioritized affordable housing in the city, and he is expected to sign the bill into law. On the other side of the country, in San Diego, the city council recently voted to outlaw vacation rentals in secondary homes, restricting Airbnb and other short-term rentals to primary residences only. An article from the San Diego Union-Tribune explains that the action will curtail investor activity in the short-term rental market while also barring residents and out-of-towners from hosting short-term stays in multiple properties other than their residences. From the article: “One exception was made for San Diegans who have additional units on the same property as their residence, as in a duplex. In those instances only, a resident would be able to get a license for a second vacation rental. While not part of Monday’s action, council members said they would like to revisit the issue of granny flats, which under current rules, could not be used for vacation rentals.” The crackdown on Airbnb-style rentals has the potential to affect as many as 80% of the city’s more than 11,000 vacation rentals, estimated Elyse Lowe, the mayor’s director of land use and economic development policy. Airbnb responded to the vote, releasing a statement to the paper: “Today’s vote by the San Diego City Council is an affront to thousands of responsible, hard-working San Diegans and will result in millions of dollars in lost tax revenue for the City. San Diego has been a vacation rental destination for nearly 100 years and today’s vote all but ensures activity will be forced underground and guests will choose alternative destinations.”

Bitcoin rallies 5% to $7,700, building steam after a tough few months for cryptocurrency

–   Bitcoin is nearing $8,000 and building on last week’s 20% rally.

–  The digital currency rose 5% to around $7,700 Monday after breaking above the $7,000 level for the first time in a month last Tuesday.

–  Bitcoin pundits say news that BlackRock will look into cryptocurrencies and blockchain has helped prices, and investors are awaiting approval of a bitcoin ETF which could come as soon as August.

Bitcoin continued its rally Monday, shrugging off regulatory and security worries that have dragged down cryptocurrency prices this year. The world’s largest and most popular digital currency rose 5% to a high of $7,770.58, according to data from CoinDesk, and is up roughly 20% in the past week. It broke above the $7,000 level for the first time in a month last Tuesday following news that asset-management giant BlackRock will set up a working group to explore cryptocurrencies and blockchain technology. Grayscale, which manages $2 billion in assets, said in a report last week that it’s seeing more institutions interested in cryptocurrency products, which eToro’s Matthew Newton said adds to the long-term upside for bitcoin. He also pointed to anticipation surrounding approval of a bitcoin ETF, which the Securities and Exchange Comission is reportedly due to decide in August. “In the long-run all of these points are very bullish,” said Newton, an analyst at eToro. “Technically, on the charts, what happened last week was very positive, but getting through these levels will be critical in the short term action.” From a technical perspective, Newton Advisor founder and analyst Mark Newton is also watching the “formidable area of resistance” near $8,000. Until that level is broken, he said it’s tough to “make too much of this as being a move that would start to lead us meaningfully higher.” “This will truly be the ‘line in the sand’ so to speak as to whether BTC can begin a larger rally, or whether this will still take some time,” Newton said. Bitcoin is still down more than 60% from its all-time high near $20,000 in December. It and other cryptocurrencies have come under global scrutiny this year amid thefts, frauds around initial coin offerings, market manipulation and its potential for money laundering. The entire market capitalization for cryptocurrencies has dropped by more than 50% this year, according to

NAR – realtors survey shows rising membership, younger agents joining industry

The income and sales volume of National Association of Realtors® members dropped slightly over the last year, but membership increased as younger members continue to enter the industry, according to the 2018 National Association of Realtors® Member Profile. This past year, there was a rise in new members from 1.22 million in March 2017 to 1.30 million in April 2018. The profile found that 29% of members have less than two years of experience, an increase from 28%. “While inventory shortages continue and home prices remain high, NAR has seen a whopping 6% increase in membership over the last year. Younger Americans are seeking business opportunities that working in real estate provides, but the overall trend is a slightly older age profile,” Lawrence Yun, NAR chief economist stated. The survey’s results are representative of the nation’s 1.3 million Realtors®; members of NAR account for about half of all active real estate licensees in the US Realtors® go beyond state licensing requirements by subscribing to NAR’s Code of Ethics and standards of practice and committing to continuing education. Realtors®’ median age was 54 this year, slightly up from the last two years, at 53. Sixty-three% of Realtors® are female, and the typical Realtor® is a 54-year-old white female who attended college and is a homeowner. The most common first careers reported are in management, business or finance, or in sales and retail, both at 16%. Only five% of Realtors® reported real estate was their first career; 72% said that real estate was their only occupation, and that number jumps to 82% among members with 16 or more years of experience. Sixty-five% of Realtors® are licensed sales agents (same as last year), 21% hold broker licenses (down from 22%), and 15% hold broker associate licenses (same as last year). New members tended to be more diverse than more experienced members; 25% of members with two years of experience or less were minorities, up from 22% last year.

According to the survey, the main factors that limit potential clients in completing transactions are difficulty finding the right property (35%), housing affordability (17%), and difficulty in obtaining mortgage financing (12%). Impacted by low inventory, the typical number of transactions decreased slightly from 12 transactions in 2016 to 11 transactions in 2017. Despite rising home prices again in 2017, the median brokerage sales volume decreased to $1.8 million in 2017 from $1.9 million in 2016. “A familiar story lingers from last year, as limited inventory continues to plague many housing markets across the country. For the fifth year in a row, the difficulty finding the right property has surpassed the difficulty in obtaining a mortgage as the most cited reason limiting potential homebuyers,” said Yun. The typical Realtor® earned 12% of their business from repeat clients and customers (compared to 13% in 2017) and 17% through referral from past clients and customers (compared to 18% in 2017). Realtors®’ web presence and use of social media has increased in recent years as a valuable marketing tool to reach clients and build online communities. Sixty-eight% of members reported having their own website, the same number as last year. Members continue to be more comfortable with using the latest technology on a daily basis as 71% of members were on Facebook for professional use and 59% were on LinkedIn (same as last year). Finally, 80% reported that they are certain they would remain in the real estate business, while those who were newest to the profession were least certain they would remain; 5% of all members were uncertain whether they would remain in the business.

Trump workforce re-training order could create 500K new job opportunities

President Trump signed an executive order at the White House on Thursday aimed at increasing training opportunities for American workers to help close the so-called skills gap. “We’re asking businesses and organizations across the country to sign our new pledge to America’s workers,” Trump said. “Today, 23 companies and associations are pledging to expand apprenticeships … for on-the-job training and vocational education.” The president added that the opportunities will be for Americans of all ages, from college students looking to land their first job to older workers looking to learn skills for a new career. More than 15 companies signed on to the effort, including IBM, Home Depot, Lockheed Martin, FedEx Corp, General Motors and Walmart. FedEx CEO Fred Smith said his company would re-train 500,000 workers, while IBM’s Jen Crozier committed to creating 100,000 new opportunities. As part of the order, top administration officials will form a National Council for the American Worker, which will focus on industries considered to have high potential for workers. Executives and experts from the private sector, educational institutions, and other outside organizations will also be enlisted to form a separate advisory board. Trump said the members of that board will be announced in the coming weeks. The White House said the initiative could lead to 500,000 new job opportunities in the US labor force. Trump said on Thursday that the US economy has created 3.7 million jobs since the election. The skills gap has been a prevalent problem for companies, which have a number of job openings. Lockheed Martin CEO Marilyn Hewson said in an article on Fox News Thursday that a lack of qualified workers in her industry has “a clear, real-world impact.” Hewson pledged to create at least 8,000 new opportunities for workers over the next five years.

NAHB – remodeling confidence increases despite rising costs

The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 58 in the second quarter of 2018, up one point from the previous quarter. The RMI has been consistently above 50—indicating that more remodelers report market activity is higher compared to the prior quarter than report it is lower—since the second quarter of 2013. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity. “Remodelers across the country continue to see demand,” said NAHB Remodelers Chair Joanne Theunissen, CGP, CGR, a remodeler from Mt. Pleasant, Mich. “However, the rising cost of materials is impeding the market’s ability to be even stronger.” Current market conditions decreased one point from the first quarter of 2018 to 57. Among its three major components, major additions and alterations waned one point to 55, minor additions and alterations decreased two points to 58, and the home maintenance and repair component rose two points to 59. The future market indicators gained four points from the previous quarter to 59. Calls for bids fell two points to 55, amount of work committed for the next three months increased two points to 56, the backlog of remodeling jobs jumped nine points to 66 and appointments for proposals rose seven points to 61. “Improving economic growth is supporting demand for home remodeling,” said NAHB Chief Economist Robert Dietz. “However, remodelers have to deal with rising material prices, especially lumber, and the continued shortage of labor to keep prices competitive. The labor shortage is also a factor contributing to the increasing backlog of remodeling jobs.”

Lockheed Martin CEO pledges over $100M in workforce training

Lockheed Martin CEO Marillyn Hewson joined President Trump’s pledge to American workers by investing hundreds of millions of dollars in training students and workers to prepare them for the jobs of the future. “We are very excited about the opportunity to participate in this initiative. We think it is the right strategy,” Hewson said during an interview on FOX Business’ “After the Bell” on Thursday. Lockheed Martin is investing $100 million in employee training and educational opportunities over the next five years. In addition, the company has rolled out $50 million to support the STEM Scholarship Fund and $5 million toward apprenticeship and vocational opportunities. “We want to make sure that we’ve got the workers for today as well as for the future,” Hewson said.

ATTOM – Housing Precogs: Predictions Beyond Hunches

Peter G. Miller July 19th, 2018

The following is an excerpt from a white paper published by ATTOM Data Solutions. Real estate used to be a game of hunches. People bought and sold property because they had a sense of pricing, timing, and marketplace trends. Mortgages were made in large measure on the basis of past performance. Today hunches are out, big data is in, and the artificial intelligence revolution is taking the real estate world by storm as the use of predictive analytics comes with the promise of better leads and early access to future inventory — translating into lower costs, less risk and bigger profits for the industry. The drive away from housing market hunches to sophisticated predictive analytics based on big data principles is led by a growing group of housing precogs that are relative newcomers to the industry with strong ties to Silicon Valley and funded largely by venture capital. “We use predictive analytics and machine learning to analyze how likely a homeowner is to sell in the near future,” said Avi Gupta, President and CEO at SmartZip Analytics. “These techniques look at historical data — who has sold in the past — to identify, from several thousand data attributes, which ones may have been a factor in triggering those sales. And then, they look for owners that exhibit similar triggers to predict who is more likely to sell in the future.” Gupta added that “real estate is truly hyper-local, in that, the triggers that matter in a given neighborhood block can be different from the one next door, or even across the street. And these triggers can change from time to time even for the same neighborhood block. Hence, we have had to build hundreds of predictive models that look for various combinations of triggers to find the one that is the most accurate for each neighborhood across the country.”

Back in 1971 — when many MLS brokers carried printed 3×5 cards to show inventory — the playwright Arthur Miller wrote that “too many information handlers seem to measure a man by the number of bits of storage capacity his dossier will occupy.” Now such dossiers are far larger, vast electronic collections which detail our preferences in excruciating detail. Not just a tidbit here and there, but encyclopedic volumes of data ceaselessly gathered with clicks, links, cookies, tracking pixels, surveys, cell phone locators, loyalty programs, credit card purchases, and other collection techniques. Companies, governments, and data brokers are accumulating unheard of volumes of data. Forget about gigabytes, petabytes, and exabytes. We’ve hit zettabytes — a measure equal to one trillion gigabytes. “By 2025 the global datasphere will grow to 163 zettabytes,” says IDC. “That’s ten times the 16.1ZB of data generated in 2016. All this data will unlock unique user experiences and a new world of business opportunities.” While data by itself has some innate value, it becomes exponentially more valuable for predictive analytics when sorted and analyzed with artificial intelligence. “Generally speaking,” explains Alex Villacorta, EVP and chief economist at HouseCanary. “the growth of data across every part of the economy and our personal lives has provided us predictive modelers the ability to better understand how various pieces of a person’s life affect their decision-making. Everything is now on the table, from our social activity to current headline news to the types of products we buy online.” “For a growing number of industries,” says McKinsey & Company, “AI is tilting the playing field – you’ll need to understand how before your competitors do.”

Data is just part of the equation — and a relatively small part at that — when it comes to applying AI principles to predicting future real estate transactions, according to Brad McDaniel Co-Founder and CEO of Likely.AI, Brad McDaniel, Co-Founder and CEO of Likely.AI, a real estate predictive analytics firma company that provides AI-driven leads to the real estate and mortgage industries. “With the most advanced version of AI, called deep learning, which is what we use, only 10% of the final prediction decision is determined by the data itself,” he said. “That is because 90% of the predictive power comes from the extremely complicated interactions between the layers of neurons within the deep neural networks that we have created. We now live in a time where data availability is everywhere, but what you do with it is where the magic happens.”

NAHB supports trump’s workforce development plan; pledges to train 50,000 new workers

Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La., today issued the following statement in support of the White House executive order on workforce development: “NAHB applauds President Trump’s leadership for signing an executive order that will develop a national strategy to expand job-training and apprenticeship opportunities for students and workers and give them the proper tools to succeed in the American workforce. “Given the chronic labor shortages in the home building industry, I am especially pleased to attend this important White House event. NAHB will help do it part to invest in the future workforce by pledging to train 50,000 new workers over the next five years for a career in the construction trades. The Home Builders Institute, our workforce development arm, is a national leader for career training in the home building industry. To honor the administration’s important commitment to America’s workers, we will expand our training, certification and job placement programs for underserved and at-risk youth, transitioning military, veterans, ex-offenders and displaced workers.”

CoreLogic – US single-family rents up 2.9% year over year in April

–  While low-end rents are still increasing faster than high-end rents, high-end segment rent growth accelerated and low-end segment decelerated in April 2018 compared with April 2017.

–  Metros in the southwest region showed the highest rent increases over the past year.

Single-family rents climbed steadily between 2010 and 2018, as measured by the CoreLogic Single-Family Rental Index (SFRI). However, year-over-year rent price increases have slowed since February 2016, when they peaked at 4.2%, and have stabilized over the last year with a monthly average of 2.7%.  In April 2018, single-family rents increased 2.9% year over year, a 1.3-percentage-point decline in the growth rate since it hit a high of 4.2% in February 2016. The SFRI index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time. Using the index to analyze specific price tiers reveals important differences. The index’s overall growth in April 2018 was propped up by the low-end rentals, defined as properties with rents 75% or less of a region’s median rent.

Rents on lower-priced rental homes increased 4.2% year over year and rents in the higher-priced homes, defined as properties with rents more than 125% of the regional median rent, increased 2.7% year over year. However, rent growth is accelerating for the high end and decelerating for the low end. High-end rent growth was 1.1 percentage points higher than in April 2017, and low-end rent growth was 0.2 percentage points lower than April 2017. Rent growth varies significantly across metro areas. The year-over-year change in the rental index for 20 large metro areas in April 2018. Las Vegas had the highest year-over-year rent growth in April with an increase of 5.9%, followed by Phoenix (+5.5%) and Orlando (+5.3%). Both Phoenix and Orlando had strong year-over-year job growth in April, with job gains of 2.8% and 3.2% respectively. This is compared with national employment growth of 1.6%. Honolulu was the only metro among the 20 analyzed to show a decrease in the rent index, declining 0.3% year over year in April. Rents continue to increase in metro areas such as Houston and Miami that were hit by hurricanes last year and left with tighter rental supplies. Houston rents rose 4.1% year over year in April 2018 and Miami rents increased 2.1%. Prior to the 2017 late-summer hurricanes, rents had been decreasing in those two metro areas.

MBA – mortgage applications decrease

Mortgage applications decreased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 13, 2018. Last week’s results included an adjustment for the Fourth of July holiday. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 22% compared with the previous week. The Refinance Index increased 2% from the previous week. The seasonally adjusted Purchase Index decreased 5% from one week earlier. The unadjusted Purchase Index increased 19% compared with the previous week and was 1% higher than the same week one year ago. The refinance share of mortgage activity increased to 36.5% of total applications from 34.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.1% of total applications. The FHA share of total applications increased to 10.6% from 10.0% the week prior. The VA share of total applications decreased to 10.2% from 11.3% the week prior. The USDA share of total applications decreased to 0.7% from 0.8% the week prior.

NAHB – builder confidence stays at healthy level in July

Builder confidence in the market for newly-built single-family homes remained unchanged at a solid 68 reading in July on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). “Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “Builders are encouraged by growing housing demand, but they continue to be burdened by rising construction material costs,” said NAHB Chief Economist Robert Dietz. “Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market.” Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The HMI index measuring current sales conditions remained unchanged at 74. Meanwhile, the component gauging expectations in the next six months dropped two points to 73 and the metric charting buyer traffic rose two points to 52. Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 57 while the Midwest remained unchanged at 65. The West and South each fell one point to 75 and 70, respectively.

Oil prices fall on rise in US stocks, demand worries

Oil prices fell on Wednesday after news of a rise in US crude inventories last week, defying analysts’ expectations for a big fall, while concerns about weak demand also resurfaced. Brent crude oil was down 60 cents at $71.56 a barrel by 0750 GMT. The benchmark hit a three-month low on Tuesday. US light crude was down 50 cents at $67.58, not far off Tuesday’s one-month low of $67.03 per barrel. Oil markets have fallen over the last week as Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries and Russia have increased production and as some supply disruptions have eased. Investors have also begun to worry about the impact on global economic growth and energy demand of the escalating trade dispute between the United States and its trading partners, including China. The US oil market has been tight in recent months but data on Tuesday from the American Petroleum Institute (API) showed an unexpected a rise of more than 600,000 barrels in national crude inventories. Analysts had forecast a decline of 3.6 million barrels in US crude stocks for the week through July 13. Official numbers from the US Department of Energy’s Energy Information Administration are due at 10:30 a.m. EDT (1430 GMT) on Wednesday.

CoreLogic – For homebuyers in most of 10 largest US metro areas, the “typical mortgage payment” remains below pre-crisis peak

Of the nation’s 10 largest metro areas all but two have posted median home sale prices this year that are within about 10% of an all-time high – a sign of waning affordability. But in most of those markets the inflation-adjusted, principal-and-interest mortgage payments that homebuyers have committed to this year remain much lower than their pre-crisis peaks. 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 median home sale price (see recent blog on the US typical mtg payment). 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 in order to get a mortgage to buy the median-priced home. Adjusting the historical typical mortgage payments for inflation – meaning they are in 2018 dollars – shows that while the payments have trended higher in all of the top 10 metros in recent years they remained below peak levels this March in all but the Denver and San Francisco areas.

The main reason the typical mortgage payment remains well below record levels in most of the country is that the average mortgage rate back in June 2006, when the US typical mortgage payment peaked, was about 6.7%, compared with an average mortgage rate of about 4.4% in March 2018. Also, the inflation-adjusted US median sale price in June 2006 was $247,110 (or $199,899 in 2006 dollars), compared with $213,400 in March 2018. The March 2018 typical mortgage payments in the Denver and San Francisco regions have risen to record levels because those regions’ prices hit new highs this spring, reflecting strong technology sector job growth that has helped fuel robust housing demand at a time supply has not kept pace. The US typical mortgage payment’s high point in 2006 reflects an abundance of subprime and other risky home financing products back then – products no longer widely available – that allowed homebuyers to stretch to their financial max, creating what some people consider an artificial price peak. An alternative reference point for comparing today’s typical mortgage payments is 2002, before the worst of the risky loans inflated an historic home price bubble. Half of the top 10 metro areas had inflation-adjusted typical mortgage payments in March 2018 that were higher than in March 2002, meaning affordability is worse now.

Google fined record $5B by EU over illegal app practices

The European Commission fined Google $5 billion (4.34 billion euros) for its “illegal practices” of pushing its Android apps on smartphone customers, the governing body said Wednesday. The fine will exceed last year’s then-record 2.4 billion euro penalty following an investigation into Google’s shopping-search service. Despite the eye-popping dollar amount, the fine is less than 1% of the company’s market capitalization which is about $830 billion. Shares rose on Thursday, a sign investors are not concerned at this point. For the year, the stock has gained 15% exceeding the 5% gain of the S&P 500. The commission said the tech giant must end its current conduct within the next 90 days or it will face penalty payments of up to 5% of the average daily worldwide turnover of Alphabet, the parent company of Google. It added that market dominance is not illegal under EU antitrust rules, but dominant companies have a “special responsibility” to not abuse their powerful position in the marketplace by restricting competition in markets “where they are dominant or in separate markets.” “Google has used Android as a vehicle to cement the dominance of its search engine,” Commissioner Margrethe Vestager, said in a statement. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”

Banking analyst predicts next bubble about to burst

The commercial real estate market may be booming, but trouble could be on the horizon for the biggest lenders in the market, according to banking analyst Dick Bove. “Commercial real estate is in a bubble,” Bove said on FOX Business Opens a New Window. ’ “Mornings with Maria Opens a New Window. ” on Tuesday. “I think that you are going to see loan losses coming up in that sector.” The commercial real estate market celebrated its strongest year on record in 2017, according to the Mortgage Bankers Association Opens a New Window. . Mortgage bankers closed a record-high $530 billion in commercial and multifamily property loans. And while 2018 carries much of the momentum forward, economic headwinds could derail loan growth for banks in that market, Bove said. “The fact is that the biggest lenders of the commercial real estate market tend to be the mid-cap banks,” Bove said. “So the net effect is if they are doing extraordinarily well because that sector is doing well, but if that sector pops they are going to get hurt.”

ATTOM – how California housing stacks up split into three states

–  Proposed Northern California State Would Take Highest Share of Property Tax Revenue;

–  Proposed California State Would Absorb Lowest Share of Flood and Wildfire Risk

ATTOM Data Solutions, curator of the nation’s premier property database, today released an analysis showing what the three California housing markets would look like if the state is split into three new states per a proposal that has qualified for the state’s November ballot. For this analysis, ATTOM looked at home values, price appreciation, sales volume and property taxes along with flood risk and wildfire risk for nearly 7.5 million single family homes statewide, broken down by county into the three new proposed states — Northern California (40 counties); Southern California (12 counties); and California (6 counties). Counties comprising the proposed Northern California state took in 41% of the current California’s property tax revenue on single family homes in 2017 while accounting for 38% of homes. Counties comprising the proposed California state took in 27% of the current California’s property tax revenue on single family homes in 2017 while accounting for 25% of the homes. Conversely, counties comprising the proposed Southern California state account for 37% of the current California’s single family homes but took in 32% of the total property tax revenue on those homes in 2017.

Median home prices in the proposed Northern California state are up 120% since the bottom of the market in Q1 2009, while median home prices in the new Southern California are up 106% and median home prices in the new California are up 98% over the same period. The proposed Northern California state is also outperforming when it comes to home price appreciation over the past year — up 9% compared to 8% in the proposed California and 7% in the proposed Southern California — and the last five years — up 64% compared to 59% in the proposed California and 57% in the proposed Southern California. First quarter 2018 home sales in the proposed Southern California state are up 59% compared to 10 years ago, in Q1 2008. That compares to a 52% increase in the proposed California state and a 35% increase in the proposed Northern California over the same period. Single family home sales in the proposed Southern California state also accounted for a disproportionately high share of home sales in Q1 2018 (42%) relative to its share of single family home inventory (37%).

Less than 1% (0.94%) of all single family homes in the proposed California state are in high-risk flood zones compared to 2.26% in the new Southern California and 3.72% in the new Northern California. Additionally, just over 2% (2.02%) of all single family homes in the proposed California state are in high-risk wildfire zones compared to 7.26% in the new Northern California and 9.38% in the new Southern California. “The proposed state of Northern California definitely bears a disproportionate share of real estate related flood risk, which makes sense given the terrain and the waterways present there,” said Clifford A. Lipscomb, vice chairman and co-managing director at Greenfield Advisors, a real estate research firm. “In contrast, the data show that the proposed state of Southern California bears the bulk of the risk when it comes to wildfires. The data suggest that Southern California has almost $30 billion more real estate exposure to wildfire risk than the proposed Northern California. California is in a distant third place for both types of risk in terms of real estate.”

CoreLogic – loan performance insights finds declining mortgage delinquency rates for April as states impacted by 2017 hurricanes continue to recover

–  Early-Stage Delinquencies Drop 0.4 percentage Points Year Over Year in April

–  The Share of Home Loans Transitioning from Current to 30 Days Past Due is the Lowest for the Month of April Since 2000

–  Only Hurricane-Impacted States Are Experiencing Significant Serious Delinquency Rate Increases

CoreLogic released its monthly Loan Performance Insights Report. The report shows that, nationally, 4.2% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in April 2018, representing a 0.6 percentage point decline in the overall delinquency rate compared with April 2017, when it was 4.8%. As of April 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6%, down 0.1 percentage points from 0.7% in April 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6%, the lowest level since June 2007, when it was also 0.6%. The April 2018 foreclosure inventory rate was the lowest for that month in 11 years; it was also 0.6% in April 2007. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency, as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next.

The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.8% in April 2018, down from 2.2 in April 2017. The share of mortgages that were 60 to 89 days past due in April 2018 was 0.6%, unchanged from April 2017. The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.9% in April 2018, down from 2.0% in April 2017. The April 2018 serious delinquency rate was the lowest for that month since 2007 when it was 1.6%. “Job growth, home-price appreciation, and full-doc underwriting have pushed delinquency and foreclosure rates to the lowest point in more than a decade,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The latest CoreLogic Home Price Index report revealed the annual national home price growth was 7.1% in May, the fastest annual growth in four years. US employers have also continued to employ more individuals, as employment rose by 2.4 million throughout the last 12 months with 213,000 jobs added last month alone. Together, this heightened financial stability is pushing delinquency and foreclosure rates to record lows.” Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.8% in April 2018, down from 1.2% in April 2017. By comparison, in January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2%, while it peaked in November 2008 at 2%.

As a result of the 2017 hurricane season, Florida and Texas are the only states showing significant gains in 90-day delinquency rates. According to the CoreLogic Storm Surge Report, Florida has the most densely populated and longest coastal area and thus the most exposure to storm surge flooding (compared to the 19 states analyzed in the report) with more than 2.7 million at-risk homes across five risk categories (Category 1 – Category 5 storms). Louisiana ranks second with more than 817,000 at-risk homes, while Texas ranks third with more than 543,000 at-risk homes. A major storm did not strike Louisiana in 2017, but Florida and Texas are still recovering from Hurricanes Irma and Harvey, respectively. “Delinquency rates are nearing historic lows, except in areas impacted by extreme weather over the past 18 months, reflecting a long period of strict underwriting practices and improved economic conditions,” said Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. The% of loans 90 days or more delinquent or in foreclosure are more than double what they were before last autumn’s hurricanes in Houston, Texas and Naples, Florida. The 90-day-plus delinquent or in-foreclosure rate has also quadrupled in Puerto Rico.”

Stocks slide as US prepares $200B in tariffs on Chinese goods

US stocks fell Wednesday in reaction to the news that the country is pursuing a new set of tariffs that would hit $200 billion in Chinese goods. The Dow Jones Industrial Average fell 219.21 points, or 0.88%, to 24,700.45. The S&P 500 lost 19.82 points, dropping to 2,774.02. The Nasdaq Composite was down 42.59 points at 7,716.61. In a list published late Tuesday, after the markets had closed for the day, the US trade representative said the 10% tariffs would target a variety of products imported from China, including clothing, baseball gloves, bicycles, refrigerators and seafood. “New tariffs have been coming for a while, having been initially hinted at after China first announced retaliatory measures itself,” said Craig Erlam, senior market analyst at Oanda. “The recent announcement was confirmation of this and is a reminder that Trump is not bluffing and a trade war is a very real possibility, which naturally isn’t good for markets.” The additional US tariffs, which will go through a two-month approval process including a public hearing, come after China retaliated in a tit-for-tat trade skirmish last week. Asian markets responded by falling, with China’s Shanghai Composite Index dropping by 1.8%, Hong Kong’s Hang Seng finished the session down 1.3% and Japan’s Nikkei ended the day down 1.2%, snapping a three-day winning streak.

MBA – mortgage applications up

Mortgage applications increased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 6, 2018. This week’s results included an adjustment for the Fourth of July holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 18% compared with the previous week. The Refinance Index decreased 4% from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index increased 7% from one week earlier. The unadjusted Purchase Index decreased 15% compared with the previous week and was 8% higher than the same week one year ago. The refinance share of mortgage activity decreased to its lowest level since August 2008, 34.8% of total applications, from 37.2% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications. The FHA share of total applications decreased to 10.0% from 10.2% the week prior. The VA share of total applications increased to 11.3% from 10.7% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

Consumer inflation getting hotter but not too hot yet

Consumer price inflation data could temporarily take market focus away from trade worries, particularly if it surprises to the upside like Wednesday’s producer prices. Economists expect Thursday’s CPI data to reveal a 0.2% increase in both headline CPI and core CPI, excluding energy and food, according to Thomson Reuters. “I wouldn’t expect a big reaction to a surprise on the downside,” said Ed Keon, chief investment strategist at QMA. “There’s still enough information showing that inflationary pressures are rising. It’s much more likely to have a negative reaction if there’s an upward surprise. … If it came out up 0.4%, given everything else that’s going on, I think you’d see a negative reaction.” Traders have been watching inflation data closely for any signs of a pickup, especially since wages are not showing much sign of improvement. A much higher pace of inflation could speed up Fed rate hikes. So far, inflation has edged above the Fed’s 2% target but not gone much further. CPI core is expected to show an annual pace of 2.3% in June. Stephen Stanley, chief economist at Amherst Pierpont points out that the Fed’s preferred inflation metric, the core PCE deflator, finally reached the Fed’s 2% target in May, for the first time in six years. He added that the Fed is no longer worried about inflation being too low, just whether it can sustain current levels. “With growth well above trend and the unemployment rate well beyond estimates of full employment, we should not be surprised that there are increasing reports of price pressures including in the trucking industry, where freight costs are said to be exploding. I have long anticipated that inflation would likely continue to accelerate after finally reaching 2%, a scenario that neither the FOMC nor the bond markets seem prepared for,” he wrote. “A 0.2% monthly gain for the CPI in June would likely push the year-over-year advance up to 2.9% for the first time in over six years, and I would not rule out a move to 3.0%,” Stanley wrote in a note. But he adds that he would expect the pace to peak in June or July for 2018. He said June food prices likely increased but gasoline prices were probably steady. Producer price inflation rose 3.4% in June, year over year, its biggest increase in 6½ years.

California ordered to restore $331 million to fund for homeowners

A state appeals court has ordered California Gov. Jerry Brown to restore money to a fund meant to help homeowners who suffered foreclosures. When California received $410 million in 2012 as part of a nationwide settlement with major banks accused of abusive foreclosures, Gov. Jerry Brown used $331 million to pay state agencies in housing and other programs to cover their deficits. Now a state appeals court has ordered the money be used for its original intent: to help homeowners who suffered foreclosures. The money was “unlawfully diverted” from a settlement fund that was designated for programs directly assisting homeowners, the Third District Court of Appeal in Sacramento said Tuesday. A Sacramento County judge had reached the same conclusion but found he lacked authority to order the state to redirect the money, a finding the appeals court rejected. Neil Barofsky, a lawyer for the National Asian American Coalition and other groups that filed the suit, said the court had properly ordered the state to “immediately put the money back into a fund where it can be used to help struggling homeowners,” particularly in poor and minority communities.

H.D. Palmer, spokesman for Brown’s Finance Department, said state officials had not decided whether to ask the California Supreme Court to review the case. He said the debt payments, most of them for housing bonds, had been approved by state lawmakers, and the case raised questions about whether “the Legislature’s appropriations power can be overridden with a court judgment.” The nation’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and GMAC — reached the settlement in 2012 in a suit by the federal government and every state except Oklahoma. It included more than $20 billion in direct aid to foreclosed homeowners and $2.5 billion to the states, including $410 million to California. Of the $410 million, at least $331 million was designated by then-state Attorney General Kamala Harris for a fund devoted to programs assisting homeowners who were harmed by the wave of foreclosures. The programs included housing counselors, foreclosure assistance hotlines, legal aid, consumer education and efforts to investigate and combat financial fraud. After the fund was established, however, the state’s Finance Department appropriated the money, with legislative approval, to pay off deficits to the state agencies in charge of state housing bonds and other consumer-related measures. State lawyers argued that the payments were consistent with the mortgage settlement and were not subject to judicial review, but the court disagreed. The money “was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established,” Justice Andrea Hoch said in the 3-0 ruling.

MBA – mortgage credit availability increased in June

Mortgage credit availability increased in June according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 0.2% to 181.0 in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%. “Mortgage credit loosened slightly, led mainly by an increase in the jumbo MCAI which represented fierce competition among lenders for prime jumbo borrowers. However, this loosening was almost completely offset by a decline in credit for government loan programs. The Government MCAI has tightened in recent months, driven largely by policy actions to reduce churning in the Veterans Administration’s Interest Rate Reduction Refinance Loan program,” said Mike Fratantoni, MBA’s Chief Economist and Senior Vice President of Research and Industry Technology.

The MCAI increased 0.2% to 181.0 in June. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. The Jumbo and Conforming MCAIs are a subset of the conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits. The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.

BLACK Knight – May 2018 Mortgage Monitor

–  Despite record-setting tappable equity growth, share of total equity withdrawn hits four-year low In Q1 2018

July 9, 2018 Data & Analytics

–  Tappable equity grew by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005

–  The $5.8 trillion in total tappable equity held by US homeowners with mortgages is the most ever recorded, and 16% above the mid-2006 peak

–  The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total

–  Despite the increase in available equity, the amount withdrawn in Q1 2018 fell nearly 7.0% from Q4 2017

–  Just 1.17% of available equity was tapped in Q1 2018, the lowest share since Q1 2014, and the second lowest quarterly share since the beginning of the housing recovery

–  $35 billion withdrawn via home equity lines of credit (HELOCs) in Q1 2018 marked a two-year low, likely driven by the increasing interest rate spread between first-lien mortgages and HELOCs

The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of May 2018. This month, the company looks again at tappable equity, or the share of equity available for homeowners with mortgages to borrow against before reaching a maximum total combined loan-to-value (LTV) ratio of 80%. Despite the record-setting growth in such equity seen in the first quarter of 2018, homeowners are withdrawing equity at a lower rate than in the past. As Ben Graboske, executive vice president of Black Knight’s Data & Analytics division explained, although total equity withdrawn by dollar amount has increased slightly since the same time last year, the rate of growth pales in comparison to that of tappable equity. “In Q1 2018, homeowners with mortgages withdrew $63 billion in equity via cash-out refinances or HELOCs,” said Graboske. “That represents a slight one% increase from the same time last year, despite the fact that the amount of equity available for homeowners to borrow against increased by 16% over the same time period. Collectively, American homeowners now have $5.8 trillion in tappable equity available, yet only 1.17% of that total was withdrawn in the first quarter of the year. That’s the lowest quarterly share in four years, and the second lowest since the housing recovery began six years ago. Somewhat surprisingly, even though rising first-lien interest rates normally produce an increase in HELOC lending, the volume of equity withdrawn via lines of credit dropped to a two-year low as well.

“One driving factor in the decline of HELOC equity utilization is likely the increasing spread between first-lien mortgage interest rates – which are tied most closely to 10-year Treasury yields – and those of HELOCs – which are more closely tied to the federal funds rate. As of late last year, the difference between a HELOC rate and a first-lien rate had widened to 1.5%, the widest spread we’ve seen since we began comparing the two rates 10 years ago. The distance between the two has closed somewhat in Q2 as 30-year mortgage rates have been on the rise, which does suggest the market remains ripe for relatively low-risk HELOC lending expansion. Still, increasing costs in the form of higher interest rates do appear to have impacted homeowners’ borrowing decisions in Q1 2018. We should also remember that the Federal Reserve raised its target interest rate again at its June meeting, which will likely further increase the standard interest rate on HELOCs in Q3 2018. Black Knight will continue to monitor the situation moving forward.” The data also showed that tappable equity increased by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005. On an annual basis, total tappable equity increased $820 billion, a 16.5% increase over the prior 12 months. The $5.8 trillion in total available tappable equity is 16% higher than the peak seen during the pre-recession peak in 2006. Nearly 80% of the nation’s tappable equity is held by homeowners with first-lien interest rates at or below 4.5%, with 60% of the total being held by those with current rates below 4.0%. The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total available equity to borrow against.

As was reported in Black Knight’s most recent First Look news release, other key results include:

–  Total US loan delinquency rate: 3.64%

–  Month-over-month change in delinquency rate: -0.84%

–  Total US foreclosure pre-sale inventory rate: 0.59%

–  Month-over-month change in foreclosure pre-sale inventory rate: -3.30%

–  States with highest percentage of non-current loans: MS, LA, AL, WV, FL

–  States with lowest percentage of non-current loans: MN, WA, ND, OR, CO

–  States with highest percentage of seriously delinquent loans: MS, FL, LA, AL, TX

Oil prices climb on global demand

Oil prices rose on Monday as increased global demand and US efforts to shut out Iranian output using sanctions outweighed drilling data suggesting US shale production would climb. Benchmark Brent was up 70 cents at $77.81 a barrel by 1150 GMT. US crude was unchanged at $73.80. “Oil prices are starting the week on the front foot in anticipation of reduced supplies from Iran after US sanctions,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates. The United States says it wants to reduce oil exports from Iran, the world’s fifth biggest oil producer, to zero by November, in a move that will oblige other big producers such as Saudi Arabia to pump more. But Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have little spare capacity and oil demand has risen faster than supply over the last year.

Chicago Targets ‘Zombie Housing’ for Renewal, Block by Block

In 2011, Chicago officials created the Micro Market Recovery Program (MMRP) to jump start individual blocks that had a high rate of vacant buildings due to foreclosures. MMRP sought to transform those abandoned, dilapidated buildings into affordable homes for renters or first-time homebuyers. It would help to re-settle diverse communities and attract businesses. Chicago had already spent about $169.2 million from the Housing and Urban Development’s Neighborhood Stabilization Program (NSP) for areas hit hardest by foreclosures. MMRP would take the next step and include several community groups, such as Local Initiatives Support Corporation Chicago – known as LISC Chicago – to attract investors and families, according to the Chicago Department of Planning and Development. MMRP has reoccupied nearly 1,000 buildings, including about 2,900 units, in Englewood, Auburn Gresham, West Pullman, Woodlawn and other neighborhoods. Also, more than 400 families received help with loans or obtained financial assistance to keep their existing homes. “As long as the demand and the need are there, we will continue,” says David Reifman, commissioner of the Chicago Department of Planning and Development. “Right now, our recovery is steady but not complete.”

From 2011 through December 2018, about $12.8 million will be invested in MMRP, mostly from the city’s budget and grants from various nonprofits. The amount also includes about $3 million from the Illinois attorney general’s office settlement with major banks accused of questionable lending practices related to the foreclosure crisis. “We wanted to focus our limited resources on key areas to bring back whole blocks at a time,” Reifman says. Since then, foreclosure filings decreased by double digits in the MMRP zones from 2011 through 2016. The targeted areas in the north region had a 67.6% reduction. The middle region had a 66.1% decrease, while the south region had a 25.8% decrease. In comparison, foreclosure filings citywide decreased by 69.4% during the same period. Housing prices also increased in the MMRP communities, some as much as 33.1%, according to the Institute for Housing Studies at DePaul University. The improvements are due to MMRP, community involvement, families returning to the area and an improving economy, says Geoff Smith, the institute’s executive director. “Overall, (the city’s) strategy is one that’s important,” Smith says. “It targets small areas and helps the neighborhoods recover. When there are limited resources, you need to concentrate it and then target the areas to have some level of success.” Also, providing an affordable mortgage, financial assistance, grants, and some forgivable loans are part of the equation, community experts say. MMRP aims to transform tough, poor neighborhoods, such as Englewood, where high-end grocer Whole Foods opened about two years ago. And more commercial development is planned, says Jack Swenson, program officer for LISC Chicago, which partners with the city on housing and other projects. LISC Chicago develops a relationship with residents on a targeted block, finds out their needs and concerns, and works on filling vacant lots and acquiring vacant buildings. It’s a process that ultimately leads to a stronger foundation, Swenson says. “Crime is a reality in every neighborhood and we think we sometimes forget how important a community is,” Swenson says. “In many neighborhoods across the city, it’s the people’s commitment to their community that outweigh the obstacles and they still choose to reinvest.” Besides Chicago, NSP has distributed roughly $6.8 billion nationwide over the last 10 years to cities hit hardest by foreclosures, says Brian Sullivan, HUD spokesman in Washington, D.C. “It’s hard to say if the foreclosure crisis is over,” Sullivan says. “They say all housing is local and the foreclosure crisis ended sooner in some areas rather than others. But who says it’s really over?”

Dallas received about $8 million in NSP funds to help the southern area most affected during the foreclosure crisis. Then Dallas officials in 2015 created the Neighborhood Plus Plan, a citywide revitalization program to help troubled neighborhoods. Dallas also has invested about $75.3 million in housing projects since 2009, says Dallas spokesman Corbin Rubinson. The nation’s capital received about $17.4 million in NSP funds for its struggling neighborhoods. Then in December 2017, Washington’s Property Acquisition and Disposition Division created the Vacant to Vibrant DC program to quickly dispose of or sell vacant properties. Washington budgeted about $3 million this year for both programs, says Polly Donaldson, director of the city’s Department of Housing and Community Development. Los Angeles received about $143 million in NSP funds to rebuild neighborhoods. In 2010, the city also adopted a Foreclosure Registry ordinance to further protect neighborhoods from inadequately maintained and abandoned foreclosed properties or face penalties, says Douglas Swoger, director of the asset management division of the Los Angeles Housing + Community Investment Department. What cities spend on such programs also is difficult to compare, because of the wide range of services, the geography involved, the number of vacancies and other factors, says Alan Mallach, senior fellow and researcher for the Center for Community Progress in Washington, D.C. Thousands of cities have neighborhood revitalization programs, which may range from a modest effort to give elderly homeowners grants to fix their homes to a multifaceted strategy. Some notable programs are in Minneapolis and Baltimore, Mallach says. Some neighborhood revitalization work also is done by nonprofit organizations and not by city governments. Some include Youngstown Neighborhood Development Corporation and Cleveland Neighborhood Progress in Ohio, Mallach says. Chicago’s MMRP has made tremendous progress and offers a cross-sector effort between the city, nonprofit community groups, financial institutions and others, says Maurice Jones, president and CEO of LISC, based in New York with 32 offices nationwide. LISC is a MMRP partner with Chicago. “It’s a recipe that produces results and is sustainable,” Jones says.

US Treasury yields edge higher as trade drama lingers

US government debt prices fell into the red at the start of the trading week. The yield on the benchmark 10-year Treasury note was higher at around 2.850% at 5:40 a.m. ET, while the yield on the 30-year Treasury bond was in the black at 2.953%. Bond yields move inversely to prices. Markets have been given a boost following the publication Friday of the latest jobs report, which revealed that the US economy added 213,000 jobs in June, beating expectations. This positive sentiment seen across markets is in spite of concerns surrounding trade and Brexit. The US placed $34 billion of tariffs on Chinese goods on Friday, a move that triggered China to hit back with its own set of duties. And the U.K.’s Brexit Secretary David Davis announced late Sunday that he was resigning from his post, as he wasn’t prepared to be “a reluctant conscript” to Prime Minister Theresa May’s plans to leave the European Union (EU). On Friday, May had reached a Brexit compromise with her cabinet, persuading ministers to back her intention to press for “a free trade area for goods” with the EU. On Monday, Dominic Raab was appointed as the new Brexit Secretary. On Monday, consumer credit data is due out at 3 p.m. ET, while the Treasury will auction $48 billion in 13-week bills and $42 billion in 26-week bills. The size of a four-week bill, set to be auctioned Tuesday, will also be announced.

Has the housing market in Detroit finally recovered?

At this point, most observers are aware of the plight of Detroit in the wake of the crisis. The city’s economy and housing market both went in the tank as the crisis wore on. Eventually, the city itself declared bankruptcy, marking the largest municipal bankruptcy in the history of the country. In the years since the crisis, the city has been on the rebound, with government funds and private capital helping to lead the way. And now, it appears that the city’s housing market is on the precipice of a full recovery. Last week, Amherst Capital released its latest market commentary, the Amherst Home Price Index, which showed that Detroit is now within mere decimal points of a total comeback. “Based on the Amherst Home Price index, we find that Detroit is finally within 1% of its pre-crisis peak,” Amherst noted in its report. “This was on the back of a strong 7.2% year-over-year growth in April 2018 and we fully expect it to reach new record in the next couple of months. When that happens, 13 of the top 20 big cities will have surpassed their pre-crisis peaks.” That’s right. Not only is Detroit right on the doorstep of a full recovery, Motown could soon surpass its pre-crisis peak in the next few months. Detroit’s recovery tracks with what’s going on nationwide, with home prices continuing to rise across the board, although that increase has tracked below other asset classes. From Amherst’s report: “US housing market grew at a solid 5.3% Y-o-Y in April 2018 according to Amherst Home Price Index. Overall, US single-family price growth has significantly lagged the post-crisis recoveries witnessed in equities and commercial real estate. The pace of new single-family housing construction remains anemic by historical norms even as we expect greater demand from more millennials entering family formation ages in the coming years. Amherst remains optimistic on the US home price growth for the foreseeable future. We expect National home prices to continue their solid growth, with an HPA forecast of 4.3% next year.”

Stearns Lending to buy piece of Certainty Home Loans

Stearns Lending announced recently it will acquire a stake of Certainty Home Loans. The independent mortgage bank has entered into an agreement to acquire an equity interest in Certainty, an independent mortgage lender based in Plano, Texas. Certainty President Jim Clapp and Executive Vice President, National Production Manager Doug Casbon will continue to lead Certainty, which will retain its name. Certainty’s executive team will maintain their position as the largest stakeholders. Last year, Certainty originated $1.4 billion in residential loans, including purchase, refinance, reverse mortgage and renovation loans. Formerly Starkey Mortgage, the company rebranded in October 2017. Stearns Lending offers lending services in wholesale, retail through strategic partnerships in 49 states. “Certainty has a long track record of success and has a retail profile that is a strong complement to the existing Stearns retail platform,” said Stearns CEO David Schneider. “We believe that combining the retail platform of Certainty with Stearns’ industry-leading technology, direct access to capital markets expertise and operational excellence will produce tremendous synergies that benefit both companies. This structure leverages the experience Stearns has with its current joint venture business model, which currently operates under 10 different brands across the country.” The specific terms of the deal, which is expected to close at the end of August, were not released.

Trump says second phase of tax cuts will target middle class ‘even more’

President Trump says his next round of tax cuts will help the middle class.

The Trump administration is working on a second phase of tax cuts, President Trump claims, and it could involve a further reduction in the US corporate tax rate and more stimulus for the middle class. “This will be even more aimed at the middle class,” Trump said. “One of the things I’m thinking about is bringing the 21% [corporate tax rate] down to 20% and for the most part, the rest of it will go right to the middle class. It’s a great stimulus.” The president said the administration would “be doing” the new tax package in the fall, in October or possibly sooner. During a roundtable earlier this year, the president said the second phase of tax cuts would be aimed at both the middle class and helping US companies. National Economic Director Larry Kudlow said in March that part of the second round of reforms could involve making individual tax cuts, and other provisions, permanent. The new package could also include measures aimed at helping Americans save for retirement. House Ways and Means Committee Chair Rep. Kevin Brady, R-Texas, told FOX Business last month that the administration wants to get families “in that savings mode earlier.” Opens a New Window. Brady also said the second round of cuts could be completed before the November midterm elections. The Tax Cuts and Jobs Act was signed into law in December.

Economy slowing?

the economy is already beginning to slow down, according to the economics team at Goldman Sachs, the good news in the explanation to clients below, is that housing investment is actually improving. GDP growth was revised down in the third estimate of Q1 to +2.0% (qoq ar) from +2.2% in the second estimate, and the year-over-year rate was unchanged on a rounded basis at +2.8%. The downward revision reflected a diminished contribution from consumer spending (+0.9% qoq ar vs. +1.0% in the second estimate), net trade, and inventories, each of which contributed -0.1pp to the headline revision. This was partially offset by a faster pace of business fixed investment (+10.4% vs. 9.2%) and housing investment (-1.1% vs, -2.0%). Real Gross Domestic Income (GDI)—an alternative measure of aggregate output derived from different source data—expanded at a solid +3.6% annualized pace in Q1, consistent with a firmer underlying pace of growth in the first quarter. Inflation and jobless numbers remain relatively stable, for now, the Goldman economists added. And where is all this housing investment coming from? Well, a small part of it may start coming from the building of tiny houses (Best. Transition. Ever.), if two legislators out of New Jersey get their way. A new bill proposing a pilot program to house homeless veterans is making its way through the New Jersey Senate and is sponsored by Senators Brian Stack, D-Hudson, and Troy Singleton, D-Burlington, according to this article on by Bill Duhart. “They hope the new effort can be a prototype for helping homeless veterans and the indigent to find shelter and help municipalities meet legal obligations to provide affordable housing,” Duhart explains. From the article: “The three-year program would be administered by the New Jersey Housing and Mortgage Finance Agency (HMFA) and cost $5 million. Stack and Singleton expect federal funds to pay for the pilot program. The HMFA would pick which towns participate in three regions of the state. Towns that participate would receive grants for the housing and two-for-one credits towards their affordable housing obligations.”

Tesla’s worker push helps hit Model 3 production goals, stock jumps

Electric automaker Tesla produced three times more Model 3 sedans in the second quarter compared to the first, meeting a key production target as the company recorded its most productive quarter ever. This comes after CEO Elon Musk pulled out all the stops to ramp up productivity in recent days. Shares jumped on the news after Tesla said in a press release on Monday that, for the first time, Model 3 production surpassed combined Model S and X production. More than 18,400 Model 3 vehicles were manufactured, thanks in part to “a significant increase in production towards the end of the quarter.” The electric automaker said a new general assembly line, referred to as GA4, was responsible for about one-fifth of the Model 3 sedans produced last week. The company increased its production targets for the Model 3 to 6,000 per week by late next month, reaffirming expectations for positive net income and cash flow in the coming two quarters. At the start of the second quarter, Tesla was producing just 2,000 Model 3 sedans per week. Last week, Japanese electronics giant Panasonic – which is the exclusive battery partner for the electric automaker’s vehicles – said a “sharp improvement in production” at the automaker was causing occasional battery cell shortages. The carmaker produced a total of 53,339 vehicles in the second quarter. In June, Tesla announced it would cut 9% of its workforce as part of an organizational restructuring aimed at reducing costs and boosting profits. Throughout its nearly 15 years of existence, the company has never made a profit, which Musk cited as a “fair criticism” of the company. He added that while Tesla has never been driven by profit-making incentives, the company will never achieve its goals unless it can demonstrate “sustainable profitability.” Tesla shares have gained 10% this year, exceeding gains in both the Nasdaq Composite and the S&P 500.

MBA – mortgage down

Mortgage applications decreased 4.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2018. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.9% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6% compared with the previous week. The Refinance Index decreased 4% from the previous week. The seasonally adjusted Purchase Index decreased 6% from one week earlier. The unadjusted Purchase Index decreased 7% compared with the previous week and was 1% higher than the same week one year ago. The refinance share of mortgage activity increased to 37.6% of total applications from 36.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.5% of total applications. The FHA share of total applications increased to 10.2% from 10.1% the week prior. The VA share of total applications increased to 10.7% from 10.2% the week prior. The USDA share of total applications increased to 0.8% from 0.7% the week prior.

Supreme Court case may cripple public sector labor unions

The US Supreme Court on Wednesday ruled in favor of non-union workers in a case that some believe could have a significant impact on the influence of public-sector labor unions. Known as Janus vs. American Federation of State, County and Municipal Employees, the court determined it is unconstitutional to require government workers to pay a “fair share” fee to unions for the coverage and protection afforded to them under collective bargaining if they choose not to be members. As a result, public unions stand to lose out on fees from some individuals who may choose not to join but still want the benefits, also known as “free riders,” which could cost the groups a lot of money. The plaintiff in the case, Mark Janus, a child-support specialist at the Illinois Department of Healthcare and Family Services, argued that non-members are forced to pay a fee to support union’s increasingly politically-focused causes that they do not support. The high court agreed the procedure was a violation of free speech. Janus said on Wednesday before the press that 5 million non-union members would now be free “to make their own choice.” “I don’t want to be forced to pay something to somebody just to hold a government job,” Janus told FOX Business’ Stuart Varney. “I want to make my own decision and I shouldn’t have to pay a fee just to do something that I like to do.”

Only 22 states allowed unions to collect fair-share fees. The unions in these states that benefited from collecting the money argue it is just because the employees who are not direct members, but are covered by collective-bargaining agreements, still benefit from their efforts. Union membership is on the decline, specifically in the private sector, where fair-share fees are already prohibited in most states. The overall rate of union membership was 10.7% last year, compared with 20.1% in 1983, according to the Bureau of Labor Statistics. In 2017, 6.5% of private-sector workers belonged to a union, while 34.4% of public-sector workers were members. The decline in membership is not a death knell for unions, just a call for them to restructure, according to Ilya Shapiro, a senior fellow in constitutional studies at the Cato Institute. “It’s not like public sector unions have disappeared in the other [28] states … they operate differently … their operations are more efficient,” he told FOX Business. “The shape of the unions, the way they operate, will change.” The loss for public-sector unions may serve to curtail their involvement in non-labor-related efforts because they will have significantly less money to spend on politics, according to Shapiro. “It will erode unions’ electioneering and politicking, and involvement in issues that are unrelated to workers’ interests, like abortion or gun control, or things that are political issues that have nothing to do with the unions themselves or the workers they are representing,” he said. An earlier Supreme Court case on union fees, Friedrichs vs. California Teachers Association, ended in a   4-4 stalemate after Justice Antonin Scalia died.

NAR – pending home sales inch back 0.5% in May

Pending home sales decreased modestly in May and have now fallen on an annualized basis for the fifth straight month, according to the National Association of Realtors®. A larger decline in contract activity in the South offset gains in the Northeast, Midwest and West. The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.5% to 105.9 in May from 106.4 in April. The lackluster spring has primarily been a supply issue, and not one of weakening demand. If the recent slowdown in activity were because buyer interest is waning, price growth would start slowing, inventory would begin rising and homes would stay on the market longer. Instead, the underlying closing data in May showed that home price gains are still outpacing income growth, inventory declined on an annual basis for the 36th consecutive month, and listings typically went under contract in just over three weeks. Lawrence Yun, NAR chief economist, now forecasts for existing-home sales in 2018 to decrease 0.4% to 5.49 million – down from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.0%. In 2017, existing sales increased 1.1% and prices rose 5.7%. The PHSI in the Northeast increased 2.0% to 92.4 in May, but is still 4.8% below a year ago. In the Midwest the index rose 2.9% to 101.4 in May, but is still 2.5% lower than May 2017. Pending home sales in the South declined 3.5% to an index of 122.9 in May (unchanged from a year ago). The index in the West inched forward 0.6% in May to 94.7, but is 4.1% below a year ago.

Westinghouse emerging from bankruptcy, will pursue foreign sales

The US nuclear company Westinghouse will target Saudi Arabia and India for nuclear reactor sales once it emerges from bankruptcy, with sufficient equity in the coming weeks. Brookfield Asset Management in January agreed to buy struggling Westinghouse from Toshiba for $4.6 billion. Cost overruns at US reactors pushed the once iconic industrial giant into bankruptcy. Westinghouse CEO Jose Gutierrez told Reuters that the Brookfield deal would close as soon as it had been approved by US and British nuclear regulators and the Committee on Foreign Investment in the United States (CFIUS). “We are confident we will get those approvals in the next few weeks, we don’t see any roadblocks,” he said. When the deal is closed the company will emerge from bankruptcy and Brookfield will recapitalize the firm. Gutierrez said that Westinghouse didn’t lose a single contract during its bankruptcy to sell services, fuel and spare parts to almost 80% of the world’s 450 reactors and that the company will immediately pursue additional business. It is also resuming talks with India on the sale of six reactors, Gutierrez told Reuters. China also holds major opportunities for the company. It plans to start-up the first of four long-delayed AP1000 reactors this year. Projects for six more are pending and Westinghouse expects China will build a fleet of at least 20 additional in the coming decade. A US-India agreement 10 years ago set a project in the country in motion, and now with the company emerging from Chapter 11, Gutierrez said that they will resume conversations with India. Westinghouse is also waiting for Saudi Arabia to decide on a shortlist of bidders to build two nuclear plants.

MBA – commercial/multifamily mortgage debt outstanding posts largest q1 increase since before great recession

The level of commercial/multifamily mortgage debt outstanding increased by $44.3 billion in the first quarter of 2018 as all four major investor groups increased their holdings.  That is a 1.4% increase over the fourth quarter of 2017. Total commercial/multifamily debt outstanding rose to $3.21 trillion at the end of the first quarter.  Multifamily mortgage debt outstanding rose to $1.3 trillion, an increase of $19.3 billion, or 1.5%, from the fourth of quarter of 2017. “During the first three months of 2018, commercial and multifamily mortgage debt outstanding increased more than during any other Q1 since before the Great Recession,” said Jamie Woodwell, MBA Vice President of Commercial Real Estate Research. “Interestingly, Q1 holdings grew more slowly this year than last among the three largest investor groups: banks, life insurance companies, and the GSEs. This year’s increase was driven by the CMBS market, which added $6 billion of mortgages to its balances. This is a sharp contrast to the $21 billion decline over the same period in 2017. “For the first time since 2007, CMBS has seen three straight quarters of increase,” Woodwell continued.

The four major investor groups are: bank and thrift; 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. The analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security.  For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under Life Insurance Companies) and in CMBS, CDOs and other ABS for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issues). Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.3 trillion, or 40% of the total. Agency and GSE portfolios and MBS are the second largest holders of commercial/multifamily mortgages, holding $617 billion, or 19% of the total.  Life insurance companies hold $471 billion, or 15% of the total, and CMBS, CDO and other ABS issues hold $446 billion, or 14% of the total.  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.

Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share, with $617 billion, or 48% of the total multifamily debt outstanding.  They are followed by banks and thrifts with $411 billion, or 32% of the total.  State and local government hold $96 billion, or 8% of the total; life insurance companies hold $74 billion, or 6% of the total; CMBS, CDO and other ABS issues hold $41 billion, or 3% of the total, and nonfarm noncorporate business holds $14 billion, or one% of the total.

In the first quarter of 2018, banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $14.7 billion, or 1.2%.  Agency and GSE portfolios and MBS increased their holdings by $10.8 billion, or 1.8%, life insurance companies increased their holdings by $9.2 billion, or 2.0%, and CMBS, CDO and other ABS issues increased their holdings by $5.6 billion, or 1.3%. In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 4.9%.  State and local government retirement funds saw their holdings decrease 1.7%. The $19.3 billion increase in multifamily mortgage debt outstanding between the fourth quarter of 2017 and first quarter of 2018 represents a 1.5% increase.  In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $10.8 billion, or 1.8%.  Commercial banks increased their holdings of multifamily mortgage debt by $7.1 billion, or 1.8%.  Life insurance companies increased by $1.4 billion, or 2.0%.  CMBS saw the largest decline in their holdings of multifamily mortgage debt, by $1.7 billion, or down 4.0%. In percentage terms, finance companies recorded the largest increase in holdings of multifamily mortgages, at 5.0%.  Private pension funds saw the biggest decrease at 4.8%.

The end of conservatorship

Last Thursday, news broke that the Trump administration has unveiled plans for a massive overhaul of the federal government, including the end of conservatorship for Freddie Mac and Fannie Mae. Mortgage industry professionals will be watching with bated breath until the end of the government-sponsored enterprises comes to pass (or doesn’t). This proposal is the latest in the Trump administration’s efforts to roll back government involvement in business. Since then, the nation has been mulling over the potential changes, which also include privatizing the US Post Office and combining the Labor and Education Departments. Some view it as the administration finally taking the training wheels off a stronger, wiser housing economy, while others view the potential changes as throwing Americans back to the wolves of Wall Street. The Mortgage Bankers Association takes the former position: “MBA applauds the administration for releasing a proposal to reform Fannie Mae and Freddie Mac which closely tracks much of the work that has been done to date by policymakers on Capitol Hill. It includes many core principles that MBA has long advocated for, such as an explicit government guarantee on MBS only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access. MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship,” MBA President and CEO David Stevens said in a statement. “As with any proposal of this size, the devil is in the details and MBA looks forward to working with the Administration, and Congress to finally tackle this long overdue issue,” he added.

GE nears deal to sell Industrial-Engines Unit to private-equity firm

General Electric is moving closer to a deal to sell a unit that makes large industrial engines for $3 billion or more to private-equity firm Advent International. It would be a move that would bring in needed cash for the struggling conglomerate, according to Dow Jones. The deal could be announced as early as Monday. Cummins was also in the auction for the businesses, according to people familiar. Chief Executive John Flannery is trying to sell $20 billion worth of assets by the end of next year. Last month, GE agreed to sell its railroad division in a complex deal worth $11 billion. Last week, GE learned that it will be removed from the Dow Jones Industrial Average after more than a century in the blue-chip index. The company’s shares closed Friday at $13.05, down by more than half in the past year. Advent manages about $41 billion in assets across a range of sectors from industrial to financial services and telecommunications and media.

Financial Regulation: A Post-Crisis Perspective

By Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

I joined the Federal Deposit Insurance Corporation (FDIC) Board as Vice Chairman in August 2005 and was confirmed as Chairman in November 2012. I have served the FDIC both when banks were enjoying record profits, and when the US financial system was on the verge of collapse. Since the crisis, important reforms have put the US banking industry on a stronger footing, and banks again are highly profitable. I believe we are now at a point in the cycle when financial regulators need to be especially careful.

Trump plans new curbs on Chinese investment, tech exports to China

President Trump is preparing a plan that will further ramp up trade concerns with China. The plan would bar many Chinese companies from investing in US technology firms, and by blocking additional technology exports to Beijing, according to Dow Jones. The curbs are reportedly set to be announced by the end of the week. They are aimed at preventing Beijing from moving ahead with plans outlined in its “Made in China 2025” report to become a global leader in 10 broad areas of technology. The Treasury Department would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls “industrially significant technology.” In addition, the National Security Council and the Commerce Department are putting together plans for “enhanced” export controls, designed to keep such technologies from being shipped to China, said the people familiar with the proposals. Last week, Trump threatened to impose tariffs on as much as $450 billion of Chinese goods. Tariffs of 25% go into effect on $34 billion of Chinese imports on July 6. Beijing has threatened to match the US tariffs on the same day on a dollar-for-dollar basis.

The boom years and the crisis

When I joined the FDIC Board, the United States was experiencing a boom in housing prices. Banks were in the midst of a six-year string of annual earnings records that spanned 2001 through 2006. Between mid-2004 and early 2007, not one FDIC-insured bank failed, a record unmatched in the FDIC’s history. The percentage of banks on the FDIC’s problem bank list during 2006 was at record lows. This prosperity may have encouraged banks and regulators to view the industry through rose-colored glasses. Whatever the reason, a buildup of significant risk in banks and other financial institutions went unaddressed. A number of large institutions operated with excessive financial leverage and inadequate liquidity. The securitization of large volumes of poorly underwritten mortgages, and the growth of an opaque network of credit derivatives backing those securitizations, made risks more interconnected. The result of all this, when the housing bubble burst, was taxpayer bailouts of the financial sector on an unprecedented scale and the failure of some 500 banks. The bank regulatory framework in the pre-crisis years did not provide adequate safeguards for financial stability, and the US paid a high price. As a result of the crisis and ensuing recession, nearly 9 million people lost their jobs, more than 12 million foreclosures were started, and millions of households owed more on their mortgages than their homes were worth for many years. Most estimates put the loss of US gross domestic product (GDP) from the crisis at between $10 trillion and $15 trillion. All of this occurred despite unprecedented assistance to financial institutions from the Federal Reserve System, Treasury Department and FDIC. Without such assistance, many more large financial institutions would have failed, and the US economy would have faced a catastrophe.

The core post-crisis reforms

The US federal banking agencies implemented a number of reforms to address weaknesses in the pre-crisis regulatory framework. Many of these reforms were directed primarily at large institutions. The core reforms address risk-based and leverage capital, liquidity, proprietary trading, margin for non-cleared swaps, and tools to enable the orderly resolution of systemically important financial institutions (SIFIs) to prevent taxpayer bailouts. I will direct my comments to capital and liquidity. Capital absorbs losses and reassures counterparties about a bank’s viability. It supports a bank’s ability to lend and grow prudently, and helps address moral hazard problems by ensuring banks have meaningful equity stakes at risk. The banking agencies strengthened the quality of regulatory capital and the level of risk-based capital requirements. The agencies also required large or internationally active banks to meet an enhanced supplementary leverage capital requirement that accounts for certain off-balance-sheet assets. Strengthening leverage capital requirements for the largest, most systemically important banks in the United States was among the most important post-crisis reforms. In April 2014, the FDIC, Office of the Comptroller of the Currency (OCC) and Federal Reserve jointly finalized a rule that required the eight US global systemically important banking organizations (GSIBs) to satisfy a supplementary leverage ratio capital requirement of 5% at the holding company and 6% at their insured depository institutions. This simple approach has served well in addressing the excessive leverage that helped deepen the financial crisis. The strengthened risk-based and enhanced leverage requirements complement each other. Risk-based capital is risk sensitive but also complex, and is premised on the idea that the risks facing banks can be reliably measured; leverage capital is not risk sensitive, but is simple and provides assured loss-absorbing capability. The crisis was also a reminder of the dangers to banks of operating with insufficient holdings of liquid assets, and of excessive reliance on short-term and potentially volatile funds to finance lending and investment activities. There were no regulatory liquidity requirements in effect for large banking organizations before the crisis. The agencies addressed this by finalizing the Liquidity Coverage Ratio rule to require sufficient liquid-asset holdings to meet short-term periods of liquidity stress. The agencies also have proposed the Net Stable Funding Ratio (NSFR) rule to constrain the extent of longer-term funding imbalances between assets and liabilities.

The post-crisis performance

The core reforms have been strongly in the public interest. Large banking organizations operate with roughly twice the capital and liquidity relative to their size than they did entering the crisis. They are less likely to fail, less likely to trigger destabilizing counterparty runs, and are better able to be a source of credit during a future downturn. Along with stronger capital and liquidity, US banks are enjoying strong performance. Excluding one-time tax effects in the fourth quarter of 2017, net income at insured banks grew at an annualized rate of 6.2% during the three years 2015–2017. Underlying profitability continued to improve, as pre-tax return on assets in 2017 was 1.54%, up from 1.51% in 2016, 1.49% in 2015 and 1.46% in 2014. An increase in net-interest margins to 3.25%, up from a 2015 low of 3.07%, was an important earnings driver. Lower corporate tax rates—and, if it persists, the trend toward higher interest rates—should contribute to stronger bank earnings going forward. At the same time, the US banking industry is supporting the credit needs of the US economy. Annualized loan growth at US banks during the four-year period 2014–2017 averaged 5.5%—significantly outpacing nominal GDP growth in each year. This comparison suggests that US banks are supporting economic growth rather than constraining it. Large US banking organizations are supporting economic activity through their investment-banking subsidiaries as well. The top investment banks in the world by fee income all have been, for some time, subsidiaries of US globally systemic banking organizations. Supported by the bond-underwriting activities of these and other US investment banks, corporate-bond issuance for both investment- and speculative-grade debt has been at a record-setting pace during much of the post-crisis period, providing further support to economic growth. In short, US banking organizations are recording strong earnings growth and are supporting US economic activity. The improved cushions of capital and liquidity at large US banking organizations are not a source of competitive weakness relative to banks in other jurisdictions. They are a competitive strength for our banking industry and our economy, and one that is directly attributable to the strong US response to the crisis as reflected in the core reforms.

Risks in the current outlook

The US is currently in the ninth year of an economic expansion, the third-longest US expansion on record. One barometer of economic optimism, the Dow Jones Industrial Average, gained more than 50% in value in a little more than two years as of this writing. An abundant supply of investible funds and low interest rates has supported the value of assets—not only stocks, but also bonds and real estate. No one knows when or how the current expansion will end. Past experience, however, tells us that expansions do end, and that despite the good conditions we currently see, there are always challenges that could quickly change the outlook. Even though the current expansion appears more sustainable than the boom that occurred in the years leading up to the 2008 crisis, there are vulnerabilities in the system that merit our attention. One vulnerability relates to the uncertainties associated with the transition of monetary policies—both here and abroad—from a highly expansionary to a more normal posture. The effects of a transition to higher interest rates are hard to predict but could be of significant consequence. The prices of stocks, bonds and real estate have been supported by a decade of low interest rates. Stock price-to-earnings ratios are at high levels, traditionally a cautionary sign to investors of a potential market correction. Bond maturities have lengthened, making their values more sensitive to a change in interest rates. As measured by capitalization rates, prices for commercial real estate are at high levels relative to the revenues the properties generate, again suggesting greater vulnerability to a correction. Higher interest rates also could pose problems for industry sectors that have become more indebted during this expansion. Taken together, these circumstances may represent a significant risk for financial-market participants. While banks are now stronger and more resilient as a result of the post-crisis reforms, they are not invulnerable, and it would be a mistake to assume a severe downturn or crisis cannot happen again.

The road ahead for prudential regulation

Simplifying or streamlining aspects of prudential regulation without sacrificing important safety-and-soundness objectives is a worthy goal. Substantially weakening the core post-crisis reforms, however, would be a mistake. Those core reforms were put in place to address weaknesses in regulation that helped precipitate a financial crisis that no one wishes to repeat. The rules at issue are both substantive and important—the largest banking organizations are not voluntarily holding the enhanced capital and liquid-asset cushions they now hold. Some have made clear that they would operate with less capital and less liquidity if the rules permitted. If and when some banks go down such a path, others will be pressured by their shareholders to do so as well, to boost return on equity by operating with less capital, or by holding fewer highly liquid but low-yielding assets. Recent proposed changes to capital regulation for large, systemically important banking organizations include removing central bank exposures, Treasury securities and initial margins from the calculations of the Enhanced Supplementary Leverage Ratio (eSLR), and lowering the ratio itself, as proposed by the Federal Reserve and the OCC. Such proposals would substantially reduce the capital requirements for the largest banking organizations, in particular for their bank subsidiaries for which deposits are federally insured and the failure of which would implicate FDIC resolution mechanisms. They would significantly weaken the resilience of large, systemically important banking organizations and the financial system.


I have been reminded of a speech I gave in May 2006 at a meeting of the Conference of State Bank Supervisors. The subject matter was Basel II, a capital framework that would have substantially reduced capital requirements. The speech included the following statement: “While we all hope that the current high level of economic activity will continue, it would be a mistake, it seems to me, to take for granted that the next 10 years will be equally benign. We should therefore be particularly cautious and prudent in making changes to our system of bank capital.” It seems to me the statement in that speech remains relevant today. The US banking industry has transitioned from a position of extreme vulnerability to a position of strength. Operating with the stronger cushions of capital and liquidity required by the post-crisis reforms, large US banking organizations are experiencing strong earnings growth and are providing support to the US economy through their lending, investment banking and other activities. Moreover, they are better positioned to support economic activity in the next downturn and avoid a financial crisis, such as occurred in 2008. All of us have a stake in preserving these hard-won improvements in the strength and stability of our banking system.

AARP Livability Index – Wisconsin good place to call home

Wisconsin must be a pretty good place to call home, as six of its cities receive high marks on the new 2018 AARP Livability Index. Communities are rated on multiple qualify of life measures for people of all ages, and AARP’s state director, Sam Wilson, says the Badger State has more top performing communities than other states in the country. “That is something we need to be extraordinarily proud of,” he states. “We clearly have some communities that are making the right investments in order to make them more livable. “But when you’re at the top, everybody’s gunning for you. So, this is no time for complacency, because other cities are watching and they want those top spots, as well.” Fitchburg, La Crosse, Madison, Milwaukee, Sheboygan and Sun Prairie all placed in the top 10 in their respective population categories. Wilson says the index is a valuable tool for local leaders as they examine how to improve their communities and better meet the needs of people of all ages, especially as the number of older adults continues to grow. Wilson says Wisconsin’s areas of strength include family medical leave laws, protections against foreclosures, voting engagement and smoke free policies. But he notes there are always areas that could use improvement, including traffic safety and transportation. “The last few years, the state had repealed the Complete Streets policy, which no longer forces when you are building roads to make sure you consider all users of the road,” he states. “Also, there are rollbacks in some of the mandates for human services transportation.” The index focuses on the categories of housing, neighborhood, transportation, environment, health, engagement and opportunity, and it now includes updated data to reveal changes over time. Wilson says people can view the results and see where their community stands. “Not only are you being scored on the individual metrics for each community, but you’re also being measured against all the other communities in the country,” he explains. “So, you can really know where you stack up based on your livability score.”

ATTOM – foreclosure starts increase in 43% of local markets in May, including 153 jump in Houston

Foreclosure starts decreased nationwide in May, but 43% of local markets posted year-over-year increases in foreclosure starts, counter to the national trend, according to an ATTOM Data Solutions analysis of record-level foreclosure data. Markets with increasing foreclosure starts included Houston, Texas (up 153% from a year ago); Los Angeles, California (up 14%); Miami, Florida (up 4%); Dallas-Fort Worth, Texas (up 46%); and Atlanta, Georgia (up 7%). A total of 33,623 US properties started the foreclosure process in May, down 1% from the previous month and down 6% from a year ago — the 35th consecutive month with a year-over-year decrease. Counter to the national trend, 23 states and the District of Columbia posted a year-over-year increase in foreclosure starts in May, including Texas (up 53%), California (up 3%), Georgia (up 15%); Pennsylvania (up 6%); and South Carolina (up 31%). There were a total of 71,949 US properties with foreclosure filings in May 2018, up 12% from the previous month but still down 12% from a year ago — the 32nd consecutive month with a year-over-year decrease and a foreclosure rate of one in every 1,863 US housing units with a foreclosure filing for the month. States with the highest May 2018 foreclosure rates were New Jersey (one in every 643 housing units with a foreclosure filing); Delaware (one in every 874); Maryland (one in every 999), Illinois (one in every 1,180), and Connecticut (one in every 1,236). Among 219 metropolitan statistical areas analyzed in the report, those with the highest foreclosure rates in May were Flint, Michigan (one in every 135 housing units with a foreclosure filing); Atlantic City, New Jersey (one in every 399); Trenton, New Jersey (one in every 519); Philadelphia, Pennsylvania (one in every 805); and Columbia, South Carolina (one in every 889). Lenders repossessed (REO) 21,312 US properties in May, up 50% from the previous month but still down 21% from a year ago — the 16th consecutive month with a year-over-year decrease. Counter to the national trend, 12 states and the District of Columbia posted a year-over-year increase in REOs in May, including Michigan (up 155%); Maryland (up 22%); Alabama (up 10%); Connecticut (up 11%); and Oklahoma (up 26%).

Germany’s largest automakers back abolition of EU-US car import tariffs

The US ambassador to Germany returns to Washington today with a tariff peace offering. Richard Grenell will present a proposal from Germany’s leading automakers, calling for doing away with all import tariffs for cars between the European Union and the US That would mean scrapping the EU’s 10% tax on auto imports from the US and other countries and the 2.5% duty on auto imports in the US, according to Dow Jones. In return, the Europeans want President Trump’s threat of imposing a 25% border tax on European auto imports off the table. Grenell held meetings with the CEOs of Daimler, BMW  and Volkswagen, which operate plants in the US Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the US, according to the Association of German Automotive Manufacturers. The Europeans reportedly also want a 25% US tax on imports of light trucks–pickup trucks, sport-utility vehicles, and big vans–scrapped. That could alienate US auto workers, a core constituency for Trump in the midterms this fall. Berlin has no power to hammer out trade deals–a prerogative of the European Commission. The EU’s executive body would have to persuade fellow EU member states to back a radical free-trade approach many have shown little interest in, said Dow Jones. Trump’s threats to raise tariffs on imported cars could put $54 billion in annual revenue from European passenger car exports to the US at risk, according to data from the European statistics office. Daimler and BMW each generated around 10% of their global unit sales in the first five months of the year through exports to the US, according to Wall Street Journal calculations.

CoreLogic – US single-family rents up 2.7% year over year in March

–  While low-end rents are still increasing faster than high-end rents, high-end segment rent growth accelerated and low-end segment decelerated in March 2018 compared with March 2017

–  Of 20 metros analyzed, only Honolulu experienced a year-over-year decrease in single-family rents in March

Single-family rents climbed steadily between 2010 and 2018, as measured by the CoreLogic Single-Family Rental Index (SFRI). However, the index shows year-over-year rent growth has decelerated slowly since it peaked early last year. In March 2018, single-family rents increased 2.7% year over year, a 1.5-percentage-point decline in the growth rate since it hit a high of 4.2% in February 2016. The SFRI index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time. Using the index to analyze specific price tiers reveals important differences. The index’s overall growth in March 2018 was pulled down by the high-end rental market, defined as properties with rents 125% or more of a region’s median rent. Rents on higher-priced rental homes increased 2.4% year over year and rents in the lower-priced homes, defined as properties with rents less than 75% of the regional median rent, increased 3.9% year over year. However, rent growth is accelerating for the high end and decelerating for the low end. High-end rent growth was 0.5 percentage points higher than in March 2017, and low-end rent growth was 0.5 percentage points lower than March 2017. Rent growth varies significantly across metro areas. Las Vegas had the highest year-over-year rent growth in March with an increase of 5.5%, followed by Phoenix (+5.4%) and Orlando (+5.2%). Both Phoenix and Orlando had strong year-over-year job growth in March, with job gains of 3.2% and 3.5% respectively. This is compared with national employment growth of 1.6%. Honolulu was the only metro among the 20 analyzed to show a decrease in the rent index, declining 0.4% year over year in March. Rents continue to increase in metro areas such as  Houston and Miami that were hit by hurricanes last year. Houston rents were up 3.4% year over year and Miami was up 2% year over year. Prior to the 2017 late-summer hurricanes, rents had been decreasing in those two metro areas.

Starbucks provides weak sales outlook, will close 150 stores

Starbucks shares fell as much as 3% in after-hours trading Tuesday after the coffeehouse chain provided a weak sales forecast for its upcoming quarter and said it would shutter 150 stores in fiscal 2019. The Seattle-based company said it would close underperforming stores in “densely penetrated markets” and slow its rate of store growth. Starbucks said it traditionally closes about 50 underperforming locations annually. Starbucks said it expects same-store sales to grow 1% in its third fiscal quarter of 2017. Analysts had expected same-store sales to grow 3% in that period. “While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” Starbucks CEO and President Kevin Johnson said in a statement. “We must move faster to address the more rapidly changing preferences and needs of our customers.” Starbucks said it will return an additional $25 billion more to shareholders than initially planned in the form of share buybacks and dividends. The company will hike its dividend 20% to 36 cents per share. The chain, which operates more than 8,000 US stores, said the changes were made to address the weaker-than-expected sales growth, adding that several digital initiatives were expected to add 1% to 2% in comparable sales in fiscal 2019. Starbucks said it would provide additional details on its plans at an investor presentation on Tuesday afternoon. The changes came weeks after Starbucks Executive Chairman Howard Schultz announced he would leave the role in June. Schultz is widely rumored to have political aspirations.

MBA – mortgage applications up

Mortgage applications increased 5.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 15, 2018. The Market Composite Index, a measure of mortgage loan application volume, increased 5.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index increased 6% from the previous week. The seasonally adjusted Purchase Index increased 4% from one week earlier. The unadjusted Purchase Index increased 1% compared with the previous week and was 3% higher than the same week one year ago. The refinance share of mortgage activity increased to 36.8% of total applications from 35.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.0% of total applications. The FHA share of total applications decreased to 10.1% from 10.6% the week prior. The VA share of total applications decreased to 10.2% from 10.7% the week prior. The USDA share of total applications decreased to 0.7% from 0.8% the week prior.

NAHB – housing starts reach post-recession high in May as permits soften

Total housing starts rose 5% in May to a seasonally adjusted annual rate of 1.35 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. This is the highest housing starts report since July 2007. While housing production numbers rose, overall permits — which are a sign of future housing production activity — dropped 4.6% to 1.3 million units in May. Single-family permits fell 2.2% to 844,000 while multifamily permits fell 8.7% to 457,000. “Ongoing job creation, positive demographics and tight existing home inventory should spur more single-family production in the months ahead,” said NAHB Chief Economist Robert Dietz. “However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.” The May reading of 1.35 million is the number of housing units builders would begin if they kept this pace for the next 12 months. Within this overall number, single-family starts rose 3.9% to 936,000 — the second highest reading since the Great Recession. Meanwhile, the multifamily sector — which includes apartment buildings and condos — rose 7.5% to 414,000 units. Year-to-date, single-family and multifamily production are respectively 9.8% and 13.6% higher than their levels over the same period last year. The year-to-date metric can help compare performance data over a specific time period and show growth trends. “We should see builders continue to increase production to meet growing consumer demand even as they grapple with stubborn supply-side constraints, particularly rising lumber costs,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. Regionally, the Midwest led the nation with a 62.2% increase in combined single- and multifamily housing starts. Starts fell 0.9% in the South, 4.1% in the West and 15% in the Northeast. Looking at regional permit data, permits rose 42.1% in the Northeast and 7.2% in the Midwest. They fell 4.6% in the West and 13.9% in the South.

CoreLogic – homebuyer migration to Houston affected by energy industry

The Houston metro has been challenged by natural disasters (three major floods including hurricane Harvey) and an oil price bust during the last few years. Despite these challenges, Houston experienced a home price increase of 3.7% over the year ending April 2018. However, there has been a declining inflow of potential homebuyers from out-of-state the last two years. More homebuyers were moving into the Houston metro area from other parts of the country than homebuyers moving out of Houston before 2016.  But that changed in 2016 with a net outflow of potential homebuyers as the jobs related to oil and gas started to disappear. As a case in point, this blog focuses on homebuyer mobility in the Houston metro area. During 2017 through April 2018, the Houston Core Based Statistical Area (CBSA), which is comprised of nine Texas counties, experienced a slight net loss in mortgage applications from out-of-state: for every 100 mortgage applications submitted by Houston residents who were buying out-of-state, the CBSA received 97 mortgage applications from out-of-state residents looking to buy a home in the Houston area. While migration to and from other states will affect home sales, about 92% of home-purchase mortgage applications in Houston were made by current Houston residents. The Houston metro started to experience a net loss of applications in 2016. Figure 1 shows as the gasoline price dropped drastically in 2015, by the following year there were more Houston residents submitting loan applications to buy homes outside the CBSA than there were homebuyers from outside of the CBSA submitting applications to buy within the Houston metro area (i.e., IN/OUT ratio for home-purchase mortgage loan applications was less than 1 in 2016 and 2017). With the oil price rebound the inflow-to-outflow ratio has started to rise in 2018.

Consistent with the overall Houston metro area, Harris County experienced an overall net loss of potential applicants. Among Harris County residents who applied for mortgage loans during 2017 through April 2018, about 29 out of 100 households were looking to buy outside of the county. Figure 2 summarizes the net flow of Harris County applicants during this time period. Harris County, on net, lost 15% of its residents who wanted to buy a home. More than two-thirds of the net outflow, representing about 11% of current Harris County residents who wanted to buy a home, were looking to buy in the suburban counties of Houston metro (mostly in Fort Bend and Montgomery followed by Brazoria and Galveston). Median home sales price for the properties sold during 2017 through April 2018 in both Fort Bend and Montgomery were higher than in Harris County. In general, the houses sold in both Fort Bend and Montgomery were newer and bigger than the houses in Harris County. Overall, the loan application data show that Harris County residents were buying homes in neighboring suburban counties with additional amenities, such as newer and bigger homes. The data also show that most Millennial and Generation X homebuyers from Harris County were moving to Fort Bend, Montgomery and Brazoria counties whereas most baby boomer and silent generation homebuyers were moving out of Texas, mostly to Florida and Colorado, followed by Montgomery County.

NAHB – builders discuss rising lumber prices with Commerce Secretary Ross

Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La., issued the following statement after the NAHB leadership met today with Commerce Secretary Wilbur Ross to discuss the growing problem of escalating lumber prices that are being exacerbated by tariffs on Canadian lumber imports into the U.S: “Today, we discussed with Secretary Ross our mutual concern that lumber prices have risen sharply higher than the tariff rate would indicate, and that this is hurting housing affordability in markets across the nation. Rising lumber prices have increased the price of an average single-family home by nearly $9,000 and added more than $3,000 to the price of the average multifamily unit. “We applaud Secretary Ross for acknowledging the gravity of this situation and expressing a willingness to look into the possibility that factors other than the tariff may be manipulating the market. “We also encouraged the secretary to return to the negotiating table with Canada. It is essential that the two sides resume talks and hammer out a long-term solution to this trade dispute that will ensure US home builders have access to a stable supply of lumber at reasonable prices to keep housing affordable for hard-working American families.”

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