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Updated: 55 min 34 sec ago

Homeownership Rate in the Second Quarter of 2014

Wed, 07/30/2014 - 07:20
  • The homeownership rate fell to 64.8 percent in the second quarter.  It marks the lowest ownership rate in nearly 20 years.  After peaking at 69 percent in 2004, the ownership rate has been steadily falling, at first from the aftermath effects of housing market bubble-crash to the ongoing tight mortgage availability conditions now.
  • The falling homeownership in recent years is partly due to the struggles of first-time buyers.  Lower wages and larger student debts among recent college graduates have limited the millennial generation from taking advantage of the historically low interest rates.
  • Though the homeownership rate fell, it is worth noting that there were more homeowners in the latest data then before.  It’s just that the renting population grew faster.  Specifically, over the past 3 months, the number of renting households increased by 312,000, while the number of homeowners increased by 54,000.
  • The strange pattern of more homeowners but a falling homeownership rate (because of an even faster rise in the number of renters) will continue for the next 2 years at least.  That’s because household formation of young adults who had been living with their parents will seek out their own housing with an improving economy, first as renters before making the shift to homeowners.  This trend also means that housing demand for both home purchases and rentals will be on the increase.
  • Too much homeownership through easy credit can bite back painfully as witnessed in the past decade in the U.S.  At the same time, very tight underwriting standards limits many young adults from becoming successful homeowners.  It is worth recalling that sustainable homeownership without the bubble and foreclosure can drastically change a country.  Think Australia.  Former convicts (mostly of minor crimes) when given a land to own were able to transform themselves into responsible citizens.  These transcendent experiences of former convicts are the key reasons that the country Down Under came to be one of the wealthiest countries in the world.

 

Latest Existing Home Sales Data Release

Tue, 07/29/2014 - 15:37
  • NAR recently released a summary of existing home sales data showing that existing home sales continued to improve in June, reaching an annual pace of 5 million for the first time this year. June marks the third consecutive month of increased sales, and June’s figures represent a 2.6% improvement from last month, though sales are still 2.3% below a year ago.
  • The national median existing-home price for all housing types was $223,300 in June, up 4.3% percent from June 2013. June’s data also continues a trend of year-over-year price gains for the past two years.
  • All regions showed growth in prices, except the Northeast, which experienced a minor decline of 0.1%. The West continues to maintain the biggest price gain at 7.2% from a year ago.
  • June’s inventory figures increased by 6.5% from a year ago – it will take 5.5 months to move the current level of inventory. It takes approximately 44 days for a home to go from listing to a contract in the current housing market.
  • Distressed sales are showing signs of thinning out. All cash buyers are still strong, representing 1/3 of the home purchasing population. Home buyers are moving into condos at a higher rate than single family homes while single family prices are rising faster than condo prices.

Case-Shiller Home Price Index

Tue, 07/29/2014 - 11:20
  • Last week NAR released median home price information that showed gains of 4.5 percent in June 2014 home prices compared to June 2013. This gain was slightly higher than the 4.1 percent seen in May and notably slower than double-digit price growth in summer/fall 2013.
  • Today, S&P/Case-Shiller released their housing price index for May which showed that home prices grew 9.3 percent year-over-year for the 20-city index and 9.4 percent for the 10-city index. This was the first month in the last 15 months that Case-Shiller showed year-over-year gains of less than 10 percent. NAR data showed that the 11 months of double-digit price gains ended in late 2013.
  • NAR reports the median price of all homes that have sold while Case-Shiller reports the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
  • The reason Case-Shiller’s reported price growth is now higher is likely a result of the data lag. Case-Shiller uses public records data which has a reporting lag. To deal with the lag, Case-Shiller data is based on a 3 month moving average, so reported May prices include information from repeat transactions closed in March, April, and May. For this reason, the changes in the NAR median price tend to lead Case-Shiller changes.
  • For housing market performance, given recent trends in NAR data, expect Case-Shiller-measured price growth to continue to moderate in the next few months. For those seeking to determine what this means for home prices in their market, contact a local expert who can give you the most current MLS information and put these national headlines in context.

Lenders Note Impact of Higher FHA Fees

Fri, 07/25/2014 - 08:41

The mortgage market was buffeted by a number of changes in 2013 and 2014 among them higher fees at the FHA. NAR Research’ s second Survey of Mortgage Originators includes questions about the impact of changes to the FHA program on consumers.

Since 2010, the FHA has increased the rates it charges for mortgage insurance. On average, responding lenders indicated that 5.7% of originations were lost because of the increase in FHA fees. The distribution clustered between a response of 1.1% to 2.0% and 6.1% to 7.0%. A loss of 5.7% in sales would correlate to roughly 200,000 to 250,000 home sales lost, near the mid-point of estimates NAR Research produced in April [1].

When asked how consumers impacted by the increase in mortgage insurance rates responded to the higher costs, 68.4% of originators indicated that they had a client(s) who chose not to buy or to put off buying indefinitely. Nearly as many originators found that their client(s) were able to find funding through VA and RHS, but only 42.1% cited having success shifting their client(s) to conventional financing with private mortgage insurance. Only 15.8% of originators cited that a client(s) could absorb the losses while 10.5% indicated that they had a client(s) who waited to save for a larger down payment.

Higher fees at the FHA have had an impact on affordability. While some buyers were able to shift to other more affordable programs, many consumers were shut out of the market for ownership.

[1] http://economistsoutlook.blogs.realtor.org/2014/04/10/when-the-sting-of-fhas-fees-becomes-a-bite/

New Home Sales in June

Fri, 07/25/2014 - 07:14
  • New home sales slid in June. The decline is not a reflection of slower housing demand, but more related to homebuilders putting up fewer homes. Whatever builders build, they are able to find buyers reasonably quick. But the homebuilding industry has been hampered by a labor shortage and the difficulty of obtaining construction loans.
  • Numerically, in June, new home sales fell 8 percent. The decline is inconsistent with existing home sales, which had risen 3 percent. Since the existing home sales market comprises over 90 percent of all home sales, the overall housing market recovery is still intact.
  • The decline in new home sales do not reflect a lack of buyers since it takes only 3 months to find a buyer on average now versus 10 to 14 months a few years ago. The decline instead reflects too little new home construction. If homebuilders build 10 homes, then there will be 10 new home sales; if building only 3 homes then there will be 3 new home sales. Housing starts of single-family homes have mysteriously tumbled in the past two months.
  • Newly constructed home price is notably higher than that of existing homes. Higher construction costs have opened the gap between the two property types. That means there is more room for existing home price to rise to catch up.
  • Big homebuilders are publicly listed and can tap finances through Wall Street. But small homebuilders need construction loans from local banks; the difficulty of obtaining these loans have forced the small builders to be on the sidelines. Knowing this, big homebuilders are quickly buying up empty lots and lands to stake out their claim for the future.
  • After the U.S. Civil War, many former union soldiers of Irish heritage roamed across the continent to stake out their claim to land – mostly in empty western Canada. The British Queen Victoria panicked. So she immediately sent token Brits to occupy lands in western Canada. To make absolutely clear that the land belonged to the crown and not to Americans, the very outer western island was given the name Victoria Islands and the province was named as British Columbia. The lesson shows someone will claim that empty desk, empty office, expiring listing, or what not, so make a clever case that it is yours first.

Distressed Sales Still on the Downtrend: 11 Percent of Sales in June 2014

Thu, 07/24/2014 - 12:13

With rising home values and fewer foreclosures, the share of distressed sales to total residential sales continues to be on the downtrend, according to the June 2014 REALTORS® Confidence Index. Distressed sales accounted for 11 percent of sales in June: 8 percent of reported sales were foreclosed properties, and about 3 percent was short sales.

In December 31, 2013, the tax break from mortgage debt forgiven as a result of a short sale expired. About 12 percent of REALTORS® reported that they have experienced a case where a seller decided not to sell due to the tax implications.

Unemployment Insurance Claims Fall to Lowest Levels since 2006

Thu, 07/24/2014 - 09:00
  • Initial claims for unemployment insurance filed under the regular state programs during the week ending July 19 fell 284,000—the lowest level since 2006[1]. The 4-week moving average also dipped to its lowest level since 2007[2] to 302,000 claims. Initial claims for unemployment insurance are filed by workers starting a period of unemployment. Fewer initial claims mean fewer layoffs and greater job stability. Most analysts consider a level of 300,000 as an indicator of normal economic activity.

 

  • Initial claims data by state lag a week compared to the national level data. For the week ending July 12, initial claims tallied at 303,000.  The largest increases in jobless claims were in NY, CA, GA, TX, IN, and PA.  Meanwhile, the largest decreases in jobless claims were in MI, NJ, KY, and OH.

 

  • Although the unemployment rate has been falling towards 6 percent, the pace of job creation needs to gain more steam. The drop in unemployment is in part due to a declining labor force participation, while the employment rate has barely improved. NAR expects 2 to 2.5 million net new jobs this year and the next based partly on the trends in the unemployment claims.

[1] Since Feb 18, 2006.

[2] Since May 19, 2007.

RELEASE: NAR Identifies Best Purchase Markets for Aspiring Millennial Homebuyers

Thu, 07/24/2014 - 07:29

WASHINGTON (July 24, 2014) – First-time homebuyers have been largely absent from the housing market in the current economic recovery, but some metropolitan areas – particularly in the Midwest and West – are well positioned to see increases in home-buying from the Millennial generation in upcoming years, according to new research by the National Association of Realtors®.

NAR analyzed current housing conditions, job creation and population trends in metropolitan statistical areas across the U.S. to determine the best markets for aspiring, leading edge Millennial homebuyers. Austin, Texas and Salt Lake City were identified as top standouts for Millennials for having a young adult population with solid job growth rates and still relatively affordable home prices. Seven of the 10 metro areas recognized are in the Midwest and West.

Lawrence Yun, NAR chief economist, says the homeownership rate for young adults under the age of 35 peaked in 2005 (43 percent) and fell to 36 percent in the first quarter of 2014.

“Limited job prospects, student debt and flat wage growth have combined with tight credit conditions and low inventory to price Millennials out of some of the top cities such as New York and San Francisco,” he said. “However, NAR research finds that there are other metro areas Millennials are moving to where job growth is strong and homeownership is more attainable. These markets are well-positioned to soon experience a rise in first-time buyers as the economy improves.”

NAR analyzed 100 metro areas that have a large Millennial presence, solid local job market conditions and strong migration patterns of young adults moving to that particular area to determine the best purchase prospects for young buyers. Housing affordability and inventory availability were also considered.

The best purchase markets for aspiring Millennial homebuyers are (listed alphabetically):

  • Austin, Texas
  • Dallas
  • Denver
  • Des Moines, Iowa
  • Grand Rapids, Michigan
  • Minneapolis
  • New Orleans
  • Ogden, Utah
  • Salt Lake City
  • Seattle

Best Purchase Prospects for Millennials

Other markets with strong potential for attracting Millennial homebuyers include:

  • Madison, Wisconsin
  • Nashville, Tennessee
  • Omaha, Nebraska
  • Raleigh, North Carolina
  • Washington, D.C.

Millennials – 100 Metro Areas

NAR President Steve Brown, co-owner of Irongate, Inc., Realtors® in Dayton, Ohio, said favorable affordability in these markets will ultimately be met with inevitable life milestones to increase homebuying activity.

“Millennials will eventually settle down, trade their roommates for spouses and want to raise a family,” he said. “As long as median income continues to support purchasing power in most areas, the demand and opportunity will be there for Millennials to purchase their first home with guidance and insights from a Realtor®.”

VIEW FULL RELEASE HERE

Sunny Today, but Storms Tomorrow?

Wed, 07/23/2014 - 12:21

In January of 2014, the CFPB instituted the ability to repay and qualified mortgage (ATR/QM) rule. This rule incorporates changes intended to protect consumers and to maintain stability in mortgage lending. This portion of the Dodd-Frank act requires that originators make a good faith effort to verify a borrower’s ability to repay their mortgage and imposes stiff penalties if they do not. The QM rule allows for varying degrees of assumed compliance with the ability to repay rule, which is advantageous to lenders as it allows them to minimize and to budget for potential penalties and litigation expenses. To gauge the impact of the rule, NAR Research conducted a survey of originators three months after implementation.

When asked how they treat non-QM, 68.4% indicated that they do not offer non-QM loans based on investor’s requirements, but 52% did not offer them based on firm policy. Only 5.3% treated non-QMs the same as safe harbor QMs, the same share that hold them in portfolio. Originators were much more willing to produce rebuttable presumption loans with just 22.2% having a firm policy against them, but half of respondents indicated no demand from investors for this product. Rebuttable presumption loans are those that command a higher risk premium or higher rate and are generally considered subprime including borrowers with low FICO scores, low down payment, and/or high debt-to-income ratios.

This difference in treatment of rebuttable presumption loans between originators and investors might speak to the difference in credit risk and buy-back risk these loans pose to originators versus the salability of these loans in the secondary market for pooling. Finally, only 22.2% indicated that they treated rebuttable presumption and safe harbor QM loans the same. The reluctance toward rebuttable presumption loans as compared to safe harbor QM and relative to lending last year may reflect tight current overlays around credit scores or it might hint at a feature of the QM rule that would inhibit an expansion of credit in the future if investors are reluctant to purchase rebuttable presumption loans.

Latest Consumer Price Inflation

Wed, 07/23/2014 - 09:16
  • Inflation is slowly and steadily picking up. Rents in particular are rising at a 4 percent annualized rate. The sluggishness in new home construction assures that rent and the broader consumer price inflation will likely be on an upward trend.
  • In June, CPI inflation was up 2.1 percent. Such a rate is a tad higher than what the Federal Reserve likes to see. If sustained or even pick up to a higher pace, then the Fed will have no choice but to raise interest rates sooner than planned.
  • One consistent driver of inflation has come from the housing component. Rents are up 3.2 percent from one year ago, the highest in 5 years. Rents on an annualized basis have been trending at 4 percent growth rate for the 4 consecutive months. Such an increase will push up the overall CPI inflation given that the housing component is the biggest weight on the index.
  • Home prices according to the Case-Shiller index have been rising at a double-digit rate of appreciation even though NAR’s median home prices are rising now by 4 percent. But home price is not considered part of CPI inflation just as the stock market prices are not included. What is included is something fuzzy called the homeowner equivalence rent – which measures what a homeowner would hypothetically charge to rent out their owner-occupied home. No sane homeowner computes this. However, there are government employees who do this for you. And this homeowner equivalency rent has been rising at 2.6 percent. Given that renters are facing stronger inflation, it seems inevitable that this figure will accelerate higher in the upcoming months.
  • One other noteworthy price is the price of energy. Consumer energy prices, including gasoline, are up 3.1 percent. But crude oil prices are up more strongly at 10 percent (West Texas Oil). So there could be stronger consumer energy prices in the near future.
  • Some countries’ economies are heavily dependent on oil. If oil prices were to fall meaningfully then it can ruin the country’s economy. Russia is one. The last oil price collapse was in the mid-1980s, which precipitated the eventual collapse of communism. If oil prices were to go down to $75 per barrel, Putin is likely to be history.

REALTORS® Confidence Index Survey: June 2014 Survey Highlights

Wed, 07/23/2014 - 07:35

The June 2014 REALTORS® Confidence Index (RCI) Report indicates that REALTORS® had a slight dip in confidence about current and future market conditions in June across all markets. Low supply of homes relative to demand, the challenging credit environment, and the continued slow pace of income and job growth were cited as the major factors constraining sales. Given the demand-supply imbalance, home prices generally continued to increase, and properties were on the market for fewer days for the sixth straight month. As always, local conditions vary from market to market.

The Latest on Consumer Confidence

Mon, 07/21/2014 - 11:05

• People’s view of the economy is turning for the better. A record high stock market and continuing job additions are no doubt contributing to the better feelings. That in turn could move the economy into a virtuous cycle of further improvements since confident people spend more money into the economy.
• Numerically, the consumer confidence index rose to 85.2 in June to its highest reading in over 6 years. However, we should note that the long-term average is closer to 100. That is, consumers are seeing improvement, but we are not yet back to normal average conditions.
• Rising confidence is leading to more purchases of vehicles. Since automobiles and trucks are typically the second-most expensive item that consumers buy, it is hoped that confidence also begins to rub off on those buying the top-most expensive item, which is a home.
• The movements of consumer confidence are one of the cheapest economic stimulus measures. It does not cost taxpayers a dime. At times, a national leader through actions and speeches can lift the national mood, which can subsequently raise economic growth prospects.
• Some claim we all can individually have power over our mood. The great English philosopher John Milton, for example, believed in the power of the mind: “One can make heaven of hell and hell of heaven.” It’s all about the mind. And many research studies have shown that people with optimistic outlook on life generally do measurably better financially and in health than others who are less optimistic.

New Rule Protects Consumers, but Instills Caution

Wed, 07/16/2014 - 07:51

New lending rules (ATR/QM rule) that went into effect on Friday, January 10th, 2014 requires that originators make a good faith effort to verify a borrower’s ability to repay their mortgage and imposes stiff penalties if they do not. These rules make sense to protect the consumer, but can also give lenders pause.

In April of 2014, NAR Research conducted its second survey of mortgage originators. The study found that some lenders have opted for buffers ahead of the QM parameters. The use of buffers was most common on the 3% cap with 28.6% of respondents employing one. 20% of respondents had a buffer ahead of the 43% maximum back-end DTI ratio and 18% for the boundary between safe harbor and rebuttable presumption QM.

When asked their rationale(s) for using a buffer, 44.4% indicated concern over buy-back risk followed by “concern over ability to discover all aspects of the borrower’s ability to repay” at 38.9%. “No portfolio” was not an issue for this sample and only 16.7% of the sample indicated litigation costs as a driver.

Finally, nearly a third of respondents had not adapted to the QM rule by April of 2014. Once adapted, 22.2% intend to maintain their buffers, while only 5.6% will eliminate them. This pattern suggests that lender concerns could hamper a full expansion of the credit box even as lenders become more comfortable with the QM rule and its risks.

Latest Housing Affordability Index Release

Tue, 07/15/2014 - 09:10

At the national level, housing affordability is down for the month of May and lower than a year ago due to a rise in home prices and slower rising mortgage rates.

  • Housing affordability is down for the month of May as the median price for a single family home in the US increased. The median single-family home price is $213,600, up 4.9 % from a year ago. Price gains are continuing to slow down.
  • Mortgage rates are up 77 basis points (one percentage point equals 100 basis points) from last year. Nationally, affordability is down from 179.3 in May 2013 to 159.3 in May 2014.
  • While jobs and income levels are up slightly from last year, they are not growing fast enough to offset price increases. Having money for a down payment can still be a big hurdle for potential home buyers who already pay comparable rent payments.
  • Affordability is down slightly from one month ago in all regions. The South had the biggest drop in affordability. From one year ago, affordability is down in all regions. The West saw the biggest decline in affordability as a result of having the largest price gain at 8.4 %.
  • With rents at a five year high and housing completions low, potential home buyers have good incentives to try to become a home owner.
  • What does housing affordability look like in your market? View the full data release here.
  • The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

NAR’s 2nd Survey of Mortgage Originators

Mon, 07/14/2014 - 10:16

The mortgage market was buffeted by a number of changes in 2013 and 2014, among them higher fees at the FHA and changes to underwriting as required by the Ability- to-Repay and Qualified Mortgage Rules. In April of this year, NAR Research conducted its 2nd Survey of Mortgage Originators. This second installment queried a sample of mortgage lenders about the impact of the ATR/QM rule three months after implementation in addition to questions about the impact of changes to the FHA program.

Highlights of the Survey include:

  • Non-QM lending accounted for 1.6% of production by respondents in this sample and 8.3% were rebuttable presumption.
  • An encouraging 73.7% of respondents indicated that they had fully adapted to the new rules, well ahead of expectations reported by respondents in the January survey.
  • Investor preferences are important. 68.4% of respondents indicated that they did not produce non-QM loans based on investors’ preferences and a surprisingly highly 50% indicated a reluctance by investors to purchase rebuttable presumption QM loans.
  • Non-QM lending was restricted to high balance and/or high quality lending.
  • Since January 10th, nearly half of respondents indicated they had some issue closing a loan due to the ATR/QM rule.
  • For loans that did not meet the 3% cap on points and fees, the most cited method for handling them was to reduce the fees, but second was not to originate the loan. Financing fees was the least frequent response.
  • Roughly half of respondents did no use buffers ahead of the 3% cap, 43% DTI, or rebuttable presumption boundary, and 5.3% eliminated them in the three months since inception. Buy-back risk and inability to discover all information about the consumer’s ability to repay the loan were the most often cited reasons for the use of buffers.
  • The vast majority, 73.7% of originators have adapted to the rules, but 22.2% of respondents indicated that they would not phase out buffers on QM safe harbor and rebuttable presumption parameters even once they are fully adapted.
  • FHA’s premium increases for its mortgage insurance since 2010 and permanent MI policy have undermined an average of 5.7% potential purchases where the consumer could not afford FHA’s fees or conventional financing.
  • In most cases, a consumer faced with the higher fees chose to put off the home purchase or were able to qualify for VA or a RHS loan. Conventional financing was cited nearly half as often as an option and originators indicated that it is decidedly more difficult to get financing in the conventional space for a borrower with a higher LTV or lower FICO.
  • Finally, roughly 10.5% of originators indicated that the FHA’s 100% mortgage insurance guarantee was not important for lending to high LTV or low FICO borrowers, while 26.3% indicated that they would not lend without it. An additional 57.9% indicated that it was important to different degrees and 5.3% were uncertain.

The survey results suggest that originators have made strides adapting to the ATR/QM rules in the current environment, but buffers and liquidity as well as buy-back concerns may limit expansion of credit to the full credit box. In addition, FHA’s insurance is important for lenders and moves to limit it have and will impact access for some borrowers.

Agricultural Land Price Trend

Fri, 07/11/2014 - 15:16
  • Agricultural land prices, after several years of double-digit rates of appreciation, look to fall in the upcoming months because corn prices have been on the decline. Less ‘dividend’ from the land means lower price of that underlying asset.
  • The cash price of corn from Central Illinois has essentially been cut in half, from $8 per bushel to now $4. With the forecast of even more supply of bumper crops later in the year, the price of corn could fall even farther.
  • Agricultural land prices suffered greatly in the early 1980s when two bad things occurred simultaneously: the price of corn measurably fell and interest rates rose sharply. Many farmers heavily suffered as they could not generate enough revenue to pay off interest on borrowed money.
  • This time around, the lower corn prices will have a negative impact. But the borrowing level among farmers has been much more moderate. Moreover, interest rates still remain near historic lows. Therefore, any decline in land prices will be modest and not like the 1980s. Most farmers will be able to absorb some decline in land prices without facing financial problems.
  • Because corn is not only used for human consumption but also for live stock feed, some of the strong increases in meat prices that we have witnessed in the past year are likely coming to an end. Beef prices may not fall back down to levels of one year ago, but they will no longer further increase.
  • Unlike the days of open-range cooking by the cowboys, beef consumption growth in the U.S. has markedly slowed because of changing tastes and due to increased health-consciousness. But beef consumption is booming in Asia, particularly in China and Korea, in line with their income growth. Even in Japan, where beef and other blood-soaked products of work animals had once been considered as the food for poor people, taste buds have gravitated towards massaged cow from the Kobe region. It is the Asians that will keep the beef prices from falling. (Conversely, it is the Americans that will keep the sushi prices from falling.)

2nd Survey of Mortgage Originators: QM and FHA Trends

Fri, 07/11/2014 - 14:57

Executive Summary
The mortgage market was buffeted by a number of changes in 2013 and 2014 among them higher fees at the FHA and changes to underwriting as required by the Ability- to-Repay and Qualified Mortgage Rules. This survey queries a sample of mortgage lenders about the impact of the QM rule three months after implementation in addition to questions about the impact of changes to the FHA program.

Highlights of the Survey

  • Non-QM lending accounted for 1.6% of production by respondents in this sample and 8.3% were rebuttable presumption.
  • An encouraging 73.7% of respondents indicated that they had fully adapted to the new rules, well ahead of expectations reported by respondents in the January survey.
  • Investor preferences are important. 68.4% of respondents indicated that they did not produce non-QM loans based on investors’ preferences and a surprisingly highly 50% indicated a reluctance by investors to purchase rebuttable presumption QM loans.
  • Non-QM lending was restricted to high balance and/or high quality lending.
  • Since January 10th, nearly half of respondents indicated they had some issue closing a loan due to the ATR/QM rule.
  • For loans that did not meet the 3% cap on points and fees, the most cited method for handling them was to reduce the fees, but second was not to originate the loan. Financing fees was the least frequent response.
  • Roughly half of respondents did no use buffers ahead of the 3% cap, 43% DTI, or rebuttable presumption boundary, and 5.3% eliminated them in the three months since inception. Buy-back risk and inability to discover all information about the consumer’s ability to repay the loan were the most often cited reasons for the use of buffers.
  • The vast majority, 73.7% of originators have adapted to the rules, but 22.2% of respondents indicated that they would not phase out buffers on QM safe harbor and rebuttable presumption parameters even once they are fully adapted.
  • FHA’s premium increases for its mortgage insurance since 2010 and permanent MI policy have undermined an average of 5.7% potential purchases where the consumer could not afford FHA’s fees or conventional financing.
  • In most cases, a consumer faced with the higher fees chose to put off the home purchase or were able to qualify for VA or a RHS loan. Conventional financing was cited nearly half as often as an option and originators indicated that it is decidedly more difficult to get financing in the conventional space for a borrower with a higher LTV or lower FICO.
  • Finally, roughly 10.5% of originators indicated that the FHA’s 100% mortgage insurance guarantee was not important for lending to high LTV or low FICO borrowers, while 26.3% indicated that they would not lend without it. An additional 57.9% indicated that it was important to different degrees and 5.3% were uncertain.

The Qualified Mortgage Rule and Its Impact
On Friday, January 10th, 2014, the requirements of the ability to repay and qualified mortgage (QM) rule went into effect. The Dodd-Frank act requires that originators make a good faith effort to verify a borrower’s ability to repay their mortgage and imposes stiff penalties if they do not. The QM rule allows for varying degrees of assumed compliance with the ability to repay rule, which is advantageous to lenders as it allows them to minimize and to budget for potential penalties and litigation expenses. All mortgage applications received on or after January 10th are required to comply with the ATR/ QM rule which includes full documentation of income, assets and employment, a maximum of 3% for points and fees, a cap of 43% on the back-end debt-to-income ratio, and limitations on the type of mortgage products that qualify and prepayment penalties among other requirements. [1]

NAR’s first Survey of Mortgage Originators queried originators about their expectations in the QM/ATR environment and their business plans. This second survey is a follow-up that sheds light on the actual behavior of originators in the QM/ATR environment and the impact to the purchase market.

Respondents indicated an average origination share of 1.6% for non-QM loans and 8.3% for rebuttable presumption mortgages. The vast majority of mortgages were safe harbor QM. The low share of non-QM loans is in part due to the preponderance of mortgage banks and credit unions in this sample who have limited portfolio options to hold non-QM loans.

Respondents indicated having adapted to the regulations faster than anticipated in the January survey. In the April survey, 73.7% of respondents indicated being adapted to the new regulations as opposed to just 16.7% in the January survey with an additional 44.4% having anticipated being compliant by April.

When asked how they treat non-QM, 68.4% indicated that they do not offer non-QM loans based on investor’s requirements, but 52% did not offer them based on firm policy. Only 5.3% treated non-QMs the same as safe harbor QMs, the same share that hold them in portfolio. Originators were much more willing to produce rebuttable presumption loans with just 22.2% having a firm policy against them, but half of respondents indicated no demand from investors for this product. This difference in treatment of rebuttable presumption loans between originators and investors might speak to the difference in credit risk and buy-back risk these loans pose versus salability in the secondary market for pooling. Finally, only 22.2% indicated that they treated rebuttable presumption and safe harbor QM loans the same.

Respondents were asked to rate their willingness to originate mortgages with different characteristics that fit into either the rebuttable presumption or non-QM definitions in 2014 as compared to 2013. The initial three characteristics defined non-QM loans based on product features to which respondents indicated a high degree of reluctance to originate. The next group of four characteristics dealt with mortgages that were slightly over a QM boundary. Respondents indicated an increased willingness to originate mortgages with back-end DTIs between 43.1% and 45%, but no higher and the 3% cap on points and fees is a much firmer boundary. The next group of characteristics dealt with willingness to originate non-QM mortgages with different credit profiles. Not surprisingly, reluctance to lend in this space diminished as the borrower’s credit profile improved with 10.5% of respondents even indicating that they were “more likely” to originate a non-QM mortgage to a borrower with a FICO greater than or equal to 720. Respondents expressed much less reluctance to originated rebuttable presumption loans than non-QM, but only 5.3% indicated they were “more likely” to originate these products. The reluctance toward rebuttable presumption loans, which often reflects the divide between strong and lesser credit quality, may reflect tight current overlays around credit or it might hint at a feature of the QM rule that would inhibit an expansion of credit in the future if investors are reluctant to purchase rebuttable presumption loans.

Nearly half of respondents, 47.4%, indicated that they had had some issue closing a loan since January 10th due to a requirement of the QM rule.

For loans with points and fees greater than 3%, the method cited most frequently by respondents to achieve compliance was to reduce the fee charged at 41.6%, but on average 21.3% of applications with points and fees greater than 3% were not originated and outsourcing of fees was used for an average of 18.9% of origination. Surprisingly, increasing the rate on the loan to finance charges was the least often cited option at 7.6% of the time.

When asked about the impact of outsourcing affiliated services like title insurance, only 12.5% of respondents indicated that these fees were the same as in-house rates. Nearly half of respondents, 43.8%, indicated that the outsourced fees were higher.

Some lenders have opted for buffers ahead of the QM parameters. The use of buffers was most common on the 3% cap with 28.6% of respondents employing one. 20% of respondents had a buffer ahead of the 43% maximum back-end DTI ratio and 18% for the boundary between safe harbor and rebuttable presumption QM.

When asked their rational(s) for using a buffer, 44.4% indicated concern over buy-back risk followed by “concern over ability to discover all aspects of the borrower’s ability to repay” at 38.9%. “No portfolio” was not an issue for this sample and only 16.7% of the sample indicated litigation costs as a driver.

As discussed earlier, nearly a third of respondents had not adapted to the QM rule by April of 2014. Once adapted, 22.2% intend to maintain their buffers, while only 5.6% will eliminate them.

The FHA Lending Environment

The FHA’s role increased dramatically in recent years and the agency now supports a large portion of the purchase market. In this second survey of originators, respondents were asked a series of questions about recent changes to FHA policy and facets of the program that impact the originators’ business decisions.

Since 2010, the FHA has increased the rates it charges for mortgage insurance. On average, respondents indicated 5.7% of originations were lost because of the increase in FHA fees. The distribution clustered between a response of 1.1% to 2.0% and 6.1% to 7.0%.

When asked how consumers impacted by the increase in mortgage insurance rates responded to the higher costs, 68.4% of originators indicated that they had a client(s) who chose not to buy or to put off buying to a later date. Nearly as many originators found that their client(s) were able to find funding through VA and RHS, but only 42.1% cited having success shifting their client(s) to conventional financing with private mortgage insurance. Only 15.8% of originators cited that a client(s) could absorb the costs while 10.5% indicated that they had a client(s) who waited to save for a larger down payment.

Local FHA loan limits were lowered in many markets in in 2014. Further reductions were discussed in policy circles, but have not been acted upon. Survey participants were asked about access to credit for borrowers with profiles similar to FHA borrowers if limits are reduced. All groups would face a reduction in access to credit, but borrowers with down payments less than 5% or FICO scores below 680 would be most impacted. 88.2% of respondents indicated that a borrower with a FICO score from 620 to 679 was either “less likely” or “much less likely” to receive mortgage credit if the FHA loan limits were reduced.

Finally, when asked how important the FHA’s 100% mortgage insurance coverage is for originators to make loans with the low down payment, high DTI, or low FICO traits common to the FHA’s borrower base, only 10.5% indicated that it does not impact their choice. The majority of 36.8% indicated that it “depends on the loan, but some would not be made without” the full coverage, 21.1% indicated that “most would not be made without it” and 26.3% indicated that they “would not originate these loans without it”.

Appendix A: About the Survey
In April of 2014, NAR Research sent out a survey to a panel of 65 different mortgage originating entities. The survey instrument was sent by email on Monday the 8th of April and closed on Thursday, May 1st. Questions in the survey instrument covered the characteristics of the originators, a subset of questions focused on the qualified mortgage rule, and a set of questions focused on the FHA. There were 19 unique responses to the survey for a response rate of 29.2% and a margin of error of 11.1% at a 95% level of confidence.

Much like the first survey, mortgage bankers dominated the sample, but this sample included a modestly higher share of credit unions. Originator profiles were also similar to the first survey in terms of geographic distribution, purchase share, average annual production volume, and the distribution of destinations/purchasers of the originator’s production.

Questions can be directed to:
Ken Fears
Senior Economist,
Director, Housing Finance and Regional Economics
The National Association of REALTORS®
kfears@realtors.org
(202)383-1066

Kenneth R. Trepeta Esq.
Director – Real Estate Services
National Association of REALTORS®
500 New Jersey Ave, NW
Washington, DC 20001
(202) 383-1294

[1] For a more in-depth discussion of the new rules see http://www.realtor.org/articles/summary-of-new-qualified-mortgage-qm-rule

Visualizing Geographic Mobility by Region: 2006 to 2013

Wed, 07/09/2014 - 10:35

Within the wider context of regional economics, geographic mobility allows households to move from one area of the country to another for such things as more attractive job opportunities or better housing options. Over a period of time, movement of households limits the regional disparities of income and unemployment that would occur if moving was less frequent.

The following interactive dashboard lets you visualize Migration and Geographic Mobility data at the national and regional level collected from 2006 through 2013 as part of the Current Population Survey (CPS). Specifically, the visualization compares the percentage of Movers and Non-Movers by year, region and income distribution. The visualization reveals that:

At the National level:

  • Since 2006, the number of U.S. Households increased by 7.08% (from 114.4 to 122.5 million) while the number of Movers decreased by 7.58% (from about 15.0 to 13.9 million).
  • In 2013 the dominant household income was between $50,000 and $99,000 (29.1%). However, those with income less than $25,000 were more likely to move than those with higher income. This fact may be explained by the differences in homeownership patterns, particularly the higher proportion of renters among households with low incomes.
  • Since 2006 there has been a steady increase of households with income of $100,000 or more (Movers and Non Movers). Nevertheless, the range “$100,000 or more” still includes the fewest households of any income categories.

At the Regional level:

  • The South has the largest number of Householders and Movers. Eight out of 22 Householders (37.5%) and one out of 22 Movers (4.6%) are located in the South.
  • Although the Midwest and the West have the same percentage of Householders (22%), the West experienced a higher level of mobility than the Midwest (3.0% versus 2.3%).
  • The Midwest shows the highest percentage of Movers with income “less than $25,000” (37.31% of its Movers) while the West has the highest percentage of Movers with income “$100,000 or more” (17.11% of its Movers).

CLICK HERE FOR THE INTERACTIVE MAP

Key Facts: 2014 Profile of International Home Buying Activity

Tue, 07/08/2014 - 09:26
  • $92.2 Billion of purchases sold to foreign buyers, 12 months ending March 2014
  • Sales split approximately 50/50 between resident and non-resident foreigners.
  • Foreign sales approximately 7 percent of $1.2 Trillion EHS market.
  • 28 percent of REALTORS® reported having international clients. Market is a niche market—a relatively few REALTORS® handle many of transactions: e.g., 4% of REALTORS® have 11 or more clients.
  • Market fluctuates from year to year substantially; long term market trend is up: 20 percent of REALTORS® report market increasing over past 5 years compared to 6 percent reporting declining.

  • Foreign buyers are upscale: Mean purchase price above that paid by domestic buyers.

  • Five countries (Canada, China, Mexico, India, U.K.) accounted for 54 percent of foreign sales.

  • Four states (Florida, California, Texas, Arizona) accounted for 55 percent of sales to foreigners.

  • Foreign purchasers are diverse:

- Trophy properties
- Modest vacation homes
- Rental and investment properties
- Personal residences

  • Prices paid cover a wide range: 46 percent less than $250,000; 9% greater than $1 million.
  • 60 percent of purchasers paid cash
  • Predominantly single family homes, although many condos also sold.

  • Reasons for buying: Location (i.e., U.S.), investment, and security of property/legal system.
  • Reasons for not buying: Cultural differences, lack of understanding of business and real estate practices, difficulties understanding the U.S. lifestyle, customs, and procedures. (Opportunity for REALTORS® to educate/work with clients to increase understanding).
  • To supplement the survey, data obtained from realtor.com® concerning U.S. cities most frequently searched by foreigners over 4/2013 through 3/2014 time frame. Cities ranked as follows: Los Angeles, Miami, Las Vegas, Orlando, New York, Detroit, Houston, Ft. Lauderdale, Chicago, San Diego, Washington, D.C., Atlanta, and San Francisco.

- Canadian Searches: Las Vegas, Detroit, Los Angeles, Ft. Lauderdale, Miami, Orlando, Chicago, Naples.
- Chinese Searches: Los Angeles, San Francisco, Irvine, New York, Las Vegas, Detroit, Seattle, Miami, Orlando, Boston Anderson SC, Chicago, Houston, San Diego

State and Metro Employment Conditions in May

Mon, 07/07/2014 - 14:01
  • Nearly 80 percent of the 372 metropolitan areas now have more jobs than one year ago according to the latest government statistics.  Job growth has been especially strong in Dallas-Ft. Worth region, Austin, Orlando, and San Jose – all registering a blistering 3.5 percent or better employment growth rate.  The housing and the commercial real estate markets will therefore continue to expand.
  • At the other end, there were some metro markets with job losses.  Detroit, Peoria, Scranton, and Atlantic City have modestly fewer jobs now versus one year ago.
  • At the state level, North Dakota has been on top for quite some time.  Oil and gas drillings have been a major boon for the state.   Nevada, Texas, Florida, and Utah round out the top five.  These fast job-creating states are known for low tax state and being business friendly.  At the bottom sit Alaska, New Mexico, and Vermont.  The full ranking of all the states is shown in the below table.
  • California baffles.  Though widely perceived as a high tax and anti-business state, the Golden State made it to the top ten.  Northern California in particular is booming and new job holders have been bidding up both home values and rents to sky high levels.  The reason for the good job numbers is that many innovative new firms are starting out there – possibly because of an easier regulatory burden.  Even the government is innovative at times.  There is no stopping at a toll booth to cross the Golden Gate Bridge, for example, since automatic photographing of every passing license plate is sufficient.  In other words, it is not always the local tax structure that matters but rather the ease of regulation.  Entrepreneurs do not mind paying taxes so long as the red tape does not strangle them.

 

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