While the US median sale price has risen by close to 6% over the past year the principal-and-interest mortgage payment on that median-priced home has increased around 13%. Moreover, while the CoreLogic Home Price Index Forecast suggests US home prices will be up 4.3% year over year in July 2019, some mortgage rate forecasts indicate the mortgage payments homebuyers will face then will have risen by more than twice as much. One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s US median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20% down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced US home. The US median sale price in July 2018 – $230,411 – was up 5.8 year over year, while the typical mortgage payment rose 13.1% because of a nearly 0.6-percentage-point rise in mortgage rates over that one-year period.
A consensus forecast suggests mortgage rates will rise by about 0.43 percentage points between July 2018 and July 2019. The CoreLogic HPI Forecast suggests the median sale price will rise 1.8% in real terms over that same period (or 4.3% in nominal terms). Based on these projections, the inflation-adjusted typical monthly mortgage payment would rise from $937 in July 2018 to $1,003 by July 2019, a 7.0% year-over-year gain. In nominal terms the typical mortgage payment’s year-over-year gain would be 9.7%. An IHS Markit forecast calls for real disposable income to rise by around 2.5% over the next year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments. When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context. While the inflation-adjusted typical mortgage payment has trended higher in recent years, in July 2018 it remained 26.8% below the all-time peak of $1,280 in July 2006. That’s because the average mortgage rate back in June 2006 was about 6.7%, compared with an average rate of about 4.5% in July 2018, and the inflation-adjusted US median sale price in June 2006 was $248,426 (or $199,500 in 2006 dollars), compared with a July 2018 median of $230,411.
Retail apocalypse: these big retailers closing stores, filing for bankruptcy
Some of the United States’ most prominent retailers are shuttering stores or declaring bankruptcy in recent months amid sagging sales in the troubled sector. The rise of ecommerce outlets like Amazon has made it harder for traditional retailers to attract customers to their stores and forced companies to change their sales strategies. Many companies have turned to sales promotions and increased digital efforts to lure shoppers while shutting down brick-and-mortar locations. Roughly 25 retailers could file for bankruptcy in 2018, according to data from real estate firm Cushman & Wakefield. Store closures are expected to increase 33% this year to more than 12,000 locations.
– Abercrombie & Fitch
Facing declining sales, the once-prominent fashion brand announced last March that it would close 60 of its US stores with expiring leases during its 2017 fiscal year. The chain has closed hundreds of store locations over the last few years while placing an increased emphasis on online sales.
The New Jersey-based women’s footwear company filed for bankruptcy last year and announced plans to move forward with a “significant reduction” of its retail locations. While it’s unclear how many of Aerosoles’ 88 locations will be affected, the chain said it plans to keep four flagship stores in New York and New Jersey operational, NJ.com Opens a New Window. reported.
– American Apparel
A fashion brand known for its edgy offerings, American Apparel shuttered all of its 110 US locations last year after filing for bankruptcy. The brand has since been acquired by Canada-based Gildan Activewear, which acquired its intellectual property in an $88 million deal.
The Los Angeles-based brand listed liabilities of more than $500 million when it filed for bankruptcy last February. The chain closed 118 store locations nationwide last year, though more than 300 remained in operation under a company-wide reorganization.
The women’s apparel chain closed all of its remaining 168 stores by last May, days after it said it was exploring “strategic alternatives for the company” amid plunging sales.
– Bon-Ton Stores Inc.
The struggling department store filed for Chapter 11 bankruptcy, according to court papers filed in February. The chain, which operates 256 stores in 23 states, also announced it plans to close 42 stores in 2018 as part of a restructuring plan.
– The Children’s Place
A fixture at shopping malls, the children’s clothing retail said it will close hundreds of store locations by 2020 as part of a shift toward digital commerce.
The pharmacy retailer said it would close 70 store locations in 2017 as part of a bid to cut costs and streamline its business. CVS still operates thousands of stores nationwide.
Guess announced plans to close 60 of its struggling US store locations in 2017 as part of a plan to refocus on international markets.
The kids clothing retailer confirmed last July that it would close 350 of its more than 1,200 store locations to streamline its business and achieve “greater financial flexibility,” according to CEO Daniel Griesemer.
The electronics retailer said it would close all of its 220 stores and lay off thousands of employees when it failed to find a buyer after bankruptcy proceedings.
– J. Crew
The preppy icon, which once thrived under the direction of retail guru Mickey Drexler, is thriving no more. During a November conference call, COO and CFO Mike Nicholson said the number of planned store closings will move to 50 up from the 20-30 originally announced. “We are committed to driving outsize growth with strong e-commerce capabilities complemented with a more appropriately sized real estate footprint” said Nicholson as reported by Fashionista.com. Opens a New Window.
– J.C. Penney
The department store chain closed 138 stores last year while restructuring its business to meet shifting consumer tastes. The retailer also announced plans to open toy shops in all of its remaining brick-and-mortar locations.
– The Limited
After a brutal holiday season in 2016, the clothing chain closed all 250 of its physical stores last January as part of a bid to focus on ecommerce. The closures reportedly resulted in the loss of about 4,000 jobs.
The major retailer said this month it would shutter an additional seven stores that were previously undisclosed and lay off some 5,000 workers as part of an ongoing effort to streamline its business and adjust to a difficult sales environment. Macy’s says it has now revealed 81 of the 100 store closures it first revealed in an August 2016 announcement.
– Michael Kors
With same-store sales plunging, the upscale fashion retailer said it would close as many as 125 stores to adapt to a difficult, promotional sales environment.
The discount shoe retailer filed for bankruptcy last April and has moved to close about 800 stores this year.
The once-prominent electronics outlet shut down more than 1,000 store locations earlier this year. The brand now operates just 70 stores nationwide, down from a peak of several thousand.
The specialty teen clothing retailer confirmed last April that it would close up to 400 of its more than 1,100 locations and later filed for bankruptcy last May.
Sears Holdings is one of the most prominent traditional retailers to suffer in a challenged sales environment. The brand filed for Chapter 11 bankruptcy protection on Oct. 15, 2018, and said it would close more than 140 of its 700 remaining stores as part of its bid to restructure its debt. The embattled company listed assets of $6.9 billion against $11.3 billion in liabilities.
– Toys R Us
The venerable toy outlet filed for bankruptcy in September 2017 amid mounting debt and pressure from wary suppliers and was forced to liquidate its remaining stores and inventories this year. The company is currently out of business, though rumors of a comeback persist.
– Wet Seal
The teen fashion brand shuttered its 171 stores last year after previously filing for bankruptcy in 2015. Declining foot traffic at malls and pressure from competitors like Zara and H&M contributed to Wet Seal’s demise.
MBA – purchase originations to increase to $1.2 trillion in 2019
The Mortgage Bankers Association (MBA) announced today at its 2018 Annual Convention and Expo in Washington, D.C., that it expects to see $1.24 trillion in purchase mortgage originations in 2019 – a 4.2% increase from 2018. MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4% to $395 billion. Overall in 2019, total mortgage originations are forecasted to decrease to $1.63 trillion from $1.64 trillion this year. In 2020, MBA is forecasting purchase originations of $1.27 trillion, and refinance originations of $410 billion, for a total of $1.68 trillion. “The unemployment rate is at its lowest level in almost 50 years, resulting in faster wage growth and more confident homebuyers. While the Federal Reserve is expected to increase short-term rates further, 30-year mortgage rates should rise only modestly from here,” said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology. “We are seeing some deceleration in the rate of home price growth, but believe this is a healthy pause for the market, as it will allow income growth to catch up to the recent run-up in home values.”
Fratantoni believes that housing demand should continue to grow over the forecast horizon, with the pace of home sales held back primarily by the constrained pace of new building. He expects that home purchase originations will increase each year from 2019-2021, and that pace should continue to increase beyond the forecast horizon, given the wave of millennial buyers beginning to hit the market. “While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression,” said Fratantoni. “Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues.” Added Fratantoni, “We expect the Fed will raise rates in December, and then three times in 2019, bringing the fed funds target to about 3%. We forecast for the 10-year Treasury rate to increase to about 3.4% and then level out, bringing 30-year mortgage rates to roughly 5.1%.” With the economy is running at full employment, Fratantoni expects that monthly job growth will average 120,000 in 2019, down from the monthly gains of 200,000 seen this year. “The unemployment rate will decrease to 3.5% by the end of 2019, which should continue to keep housing demand at a healthy level, ultimately leading to an increase in purchase originations,” said Fratantoni.
Student loan debt just hit $1.53T. Will the government forgive any of it?
In the second quarter of 2018, student loan debt reached a staggering $1.53 trillion — a burden that’s largely being borne by millennials — but the Trump administration has no plans to forgive any of those loans. “We would like people to repay their debts,” Director of the Office of Management and Budget Mick Mulvaney said. “We think that’s a fair thing to do.” Because the federal government is now the largest originator of student loans, Mulvaney said it’s “not surprising” that loan debts have skyrocketed. And as the acting director of the Consumer Financial Protection Bureau, he said the agency has been tasked with educating young people about taking out a loan, since it’s largely the first major debt they’ve taken out. “It’s like, look, if you’re going to borrow this money make sure you’re using it to get an education that can get you a job that helps you pay it back,” he said. But even Federal Reserve Chair Jerome Powell has warned that burgeoning student loan debt could derail an otherwise-flourishing economy by hindering people’s “economic life” and hurting their credit ratings. In fact, according to a new survey from the NeighborWorks America at Home, 59% of millennials knew someone who delayed buying a home because of student loan debt. Although he said it was Congress’ problem to tackle, he wondered why student debt couldn’t be discharged as bankruptcy. And in March, when asked whether student debt could hurt economic growth in the long-run, Powell said, “It will over time. It’s not something you can pick up in the data right now. As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.” Mulvaney, however, warned that if people defaulted on their loans — or if the government offered them some type of financial break — that would ultimately fall on the taxpayers. “Face it: If you’re borrowing money right now to go to school, you’re borrowing from the taxpayers,” he said. “And if you ask for loan forgiveness, what that really means is you want other taxpayers to give you money to go to school and that’s not part of our program.”
NAHB – multifamily decline pushes overall housing starts down in September
Led by a drop in multifamily production, total housing starts fell 5.3% in September to a seasonally adjusted annual rate of 1.2 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. The September reading of 1.2 million is the number of housing units builders would start if they maintained this pace for the next 12 months. Within this overall number, single-family starts edged down 0.9% to 871,000 units. Meanwhile, multifamily starts—which includes apartment buildings and condos—fell 15.2% to 330,000. Overall permits—which are an indicator of future housing production—registered a 0.6% drop in September, also due to multifamily softening. Multifamily permits decreased 7.6% to a 390,000 unit pace while single-family permits rose 2.9% to an annualized rate of 851,000. “Housing starts are in line with builder sentiment, which shows that builders are overall confident in the housing market but continue to face supply-side challenges,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “Though lumber prices have declined recently, builders remain concerned about labor shortages, especially as the number of unfilled construction jobs has reached a post-recession high.” “This report is consistent with our forecast for gradual strengthening in the single-family sector of the housing market following the summer soft patch,” said NAHB Chief Economist Robert Dietz. “A growing economy coupled with positive demographics for housing should keep the market moving forward at a modest pace in the months ahead.” Regionally in September, combined single-family and multifamily housing starts rose 29% in the Northeast and 6.6% in the West. Starts fell 13.7% in the South and 14% in the Midwest. Permit issuance rose 11.1% in the West and 0.6% in the South. Permits were down 9.8% in the Northeast and 18.9% in the Midwest.
CoreLogic – rising single-family rent prices in US vacation destinations
– US single-family rent prices increased 3.1% year over year in August 2018
– Orlando had the highest year-over-year rent price increase at 6.1% in August 2018
– Low-end rental prices were up 3.9% compared to high-end price gains of 2.7%
– Employment growth in popular US vacation destinations drives increasing rent prices
CoreLogic released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and among 20 metropolitan areas. Data collected for August 2018 shows a national rent increase of 3.1%, compared to 2.7% in August 2017. Low rental home inventory, relative to demand, fuels the growth of single-family rent prices. The SFRI shows that single-family rent prices have climbed between 2010 and 2018. However, year-over-year rent price increases have slowed since February 2016, when they peaked at 4.1%, and have stabilized over the last year with a monthly average of 2.8%. National rent growth continued to be propped up by low-end rentals in August 2018, despite declining growth rates among this tier over the last quarter. Rent prices of low-end rentals, defined as properties with rent prices less than 75% of the regional median, increased 3.9% year over year in August 2018, down from a gain of 4.2% in August 2017. Meanwhile, high-end rentals, defined as properties with rent prices greater than 125% of a region’s median rent, increased 2.7% in August 2018, up from a gain of 1.9% in August 2017.
Among the 20 metro areas shown in Table 1, Orlando had the highest year-over-year increase in single-family rents in August 2018 at 6.1% (compared with August 2017), outpacing Las Vegas for the second consecutive month. Las Vegas experienced the second highest rent prices in August 2018 at 5.8% year over year. Tucson once again rounded out the top three metros with the highest rent growth, settling at 5.3% compared to August 2017. Honolulu experienced the lowest rent price increase in August 2018 at 1.2%. However, rent prices have continued to rise in Honolulu since May 2018 when the metro experienced its first rent price increase following seven months of decline. Metro areas with limited new construction, low rental vacancies and strong local economies that attract new employees tend to have stronger rent growth. Both Orlando and Las Vegas experienced high year-over-year rent growth, driven by employment growth of 4.1% and 3.7% year over year respectively. This is compared with the national employment growth average of 1.8%, according to data from the United States Bureau of Labor Statistics. Of the 20 metros analyzed, Chicago experienced the lowest employment growth in August 2018, which could be a factor in its low rent growth of 1.7%. Rent prices continue to increase in areas affected by last year’s hurricanes like the Houston metro area, which experienced growth of 3.7% year over year in August 2018. Rent growth in Houston has remained strong since October 2017, which was the first rent increase for Houston since April 2016. “Favorable economic conditions have increased disposable income for consumers, allowing them to spend more on travel,” said Molly Boesel, principal economist at CoreLogic. “This in turn has created more demand for business and more employment opportunities for residents in popular vacation destinations. Both single-family rent and home prices in these areas have responded with some of the highest price and rent growth in the country.”