Category Archives: Real Estate

House prices just below record highs

Home prices are continuing to rise; now mere basis points below the all-time highs for prices, set in 2006.

According to the latest data released Tuesday by S&P Dow Jones Indices and CoreLogic, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, reported a 5.3% annual gain in August, up from 5% in July.

Per the report, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is currently at 184.42, which is within 0.1% of its record high of 184.62, set in July 2006.

The increase in August represents the 52nd consecutive month of positive gains.

According to the Case-Shiller report, the 10-City Composite posted a 4.3% annual increase, up from 4.1% in July, while the 20-City Composite posted a 5.1% annual increase, up from 5.0% in July.

The report states that Portland, Seattle and Denver turned in the highest year-over-year gains among the 20 cities for the seventh consecutive month, with year-over-year increases of 11.7%, 11.4% and 8.8%, respectively.

“Supported by continued moderate economic growth, home prices extended recent gains,” said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

“All 20 cities saw prices higher than a year earlier with 10 enjoying larger annual gains than last month,” Blitzer continued. “The seasonally adjusted month-over-month data showed that home prices in 14 cities were higher in August than in July.”

Blitzer also noted that other housing data including sales of existing single-family homes, measures of housing affordability, and permits for new construction also point to a “reasonably healthy housing market.”

Additionally, the Case-Shiller report showed that before seasonal adjustment, the National Index posted a month-over-month gain of 0.5% in August.

The report also showed that both the 10-City Composite and the 20-City Composite posted a 0.4% increase in August.

After seasonal adjustment, the National Index recorded a 0.6% month-over-month increase, and both the 10-City Composite and the 20-City Composite reported 0.2% month-over-month increases.

After seasonal adjustment, 14 cities saw prices rise, two cities were unchanged, and four cities experienced negative monthly prices changes, the report showed.

Ralph McLaughlin, the chief economist at online real estate listing service Trulia, cautions that the increase to a near-record high isn’t quite as drastic as it may seem.

“The numbers suggest housing price trajectory is picking up again, as it was the second month where price growth was larger than the previous month,” McLaughlin notes.

“Earlier this year, price growth slid for five consecutive months and raised questions about where home prices were heading,” McLaughlin continues. “We’re now seeing a reversing of that trend. While the S&P/Case-Shiller National Home Price Index is an important metric to watch, it’s worth noting that the measure is more reflective of price movements in premium homes rather than middle or lower-tier homes.”

Reflecting on the latest Case-Shiller results, the chief economist for online real estate listing service, Zillow, said that the while the market seems relatively healthy right now, it can’t stay on the same track into perpetuity.

 “Throughout 2016, the U.S. housing market has been pretty resilient in the face of a continued shortage of homes for sale, with home prices growing quickly, but fairly predictably,” Zillow economist Svenja Gudell, said.

“Demand is high and enthusiasm for homeownership remains strong, especially among all-important young, minority and would-be first-time buyers. Incomes have been rising strongly in the last couple of years, helping to keep home buying reasonably affordable in most places,” Gudell continued.

“Overall sales volumes are up from a year ago, and up big in the case of newly constructed homes. Still, the market can’t stay on this course forever, and continued inventory shortages are leading to intense competition, escalating prices and mounting buyer frustration, with the average home search over the past year taking more than four months,” Gudell concluded. “Sooner or later we’ll need to begin seeing a big comeback in inventory to help re-balance this market between sellers and buyers.”

Housing is still really affordable

The last full day of the Mortgage Bankers Association annual conference is underway, and the latest revelation is increasing home prices may not be as threatening as many think.

Many studies, including today’s S&P CoreLogic Case-Shiller Home Price Index, show that home prices gains are up more than 5% nationally. While that’s true, the story changes when economists bring in other factors.

In fact, when adjusting for inflation and the amount of purchase power provided by low interest rates, home prices actually dropped in the past 16 years, First American Chief Economist Mark Fleming said in an interview with HousingWire.

“Contrary to popular opinion, housing isn’t getting more expensive,” Fleming said. “In fact, on a purchasing-power adjusted basis, housing is becoming more affordable.”

“Interest rate declines, combined with meaningful gains in incomes, have provided the consumer with greater buying power, which increases housing affordability,” he said. “The growth in consumer house-buying power is actually outpacing the increases in nominal prices driven by remarkably tight inventories.”

The amount of purchasing power is determined by many economic factors including interest rates, inflation and household income.

Since July 2006, real home prices decreased 41% as of August. They did, however, increase 0.8% from July, but decreased 2.6% from August 2015. Real home prices decreased 20.7% from January 2000.

This chart shows that while home prices are near housing boom peaks, affordability is actually much better off:

“At the moment, affordability is actually increasing in more markets than it is decreasing, including San Francisco, San Jose, New York, Washington and Boston,” Fleming said. “The conventional wisdom that these markets are over-valued does not account for the meaningful growth in consumer house-buying power across the majority of major metropolitan markets.”

However, an increase in interest rates could decrease the demand for housing and put the brakes on rising home prices, Fleming told HousingWire. It would decrease the buying power of consumers.

And yet, MBA Chief Economist Mike Fratantoni still predicts double-digit increases in purchase mortgage originations in 2017, despite the possibility of a rate hike.

While a decrease in interest rates could also mean a decrease in purchasing power, according to Fleming it’s “not necessarily a bad thing.”

The economy can’t sustain a prolonged period of low interest rates, he said.

Several members of the Federal Open Market Committee agree with this view, and continue to argue for a rate hike. Many experts expect the Fed to raise interest rates in December.

Mortgage technology is headed

Many lenders have already started the process of going digital. Why? As Roostify CEO Rajesh Bhat put it in a message to HousingWire, “It’s what customers want.”

On Monday, at the Mortgage Bankers Association annual conference in Boston, several panelists spoke on the topic at a session titled Overcoming the Final Hurdles to Digital Mortgage.

“More and more transactions are moving online, and today’s consumers – especially the 35-and-under set – take it as a given that they’ll be able to transact online,” Bhat told HousingWire.

But borrowers aren’t the only ones who benefit from going digital. It can also be helpful for lenders. Digital verification helps lenders make decisions quicker and based on more accurate information.

“Digital saves significant time and effort versus manual, paper-based processing,” Bhat said. Lenders get the documents they need faster, can process them faster, and are less at risk for errors that can delay or derail a loan decision.

As of right now, while many are entering the digital realm, the housing market could still be several years off from going 100% digital.

“We do have a very limited version of it due to the number of investors that accept it, the providers who can participate and the number of counties and notaries involved,” Joseph Tyrell, Ellie Mae executive vice president of corporate strategy, said in an interview with HousingWire.

“So as an industry we’re definitely progressing collectively to truly realize an e-mortgage,” Tyrell said. “But it’s more than tech, it’s about collaboration.”

John Harrell, USAA Bank vice president of mortgage pointed out other benefits to going digital in an interview with HousingWire:

  • Better customer experience through design and automation
  • Convenience
  • Efficiency which leads to lower costs, the savings can be passed on to buyers
  • Better from compliance and quality perspective, it takes out the human error

While Harrell points out some reasons why lenders should look to going digital, there are some factors that prevent that change from happening. Some of the hindrances he pointed out include being stuck in legacy, retail business models and not understanding digital or how to get started. Harrell also said that many banks don’t get prioritized funding in their mortgage lending departments.

More simply put: change is hard, according to Bhat.

Not only is it hard, but the mortgage industry may not receive the same pressure to change as other industries.

“Other tech companies outside the mortgage space are forced to drive for innovation because of their customers’ demand, but think about borrowers — they are only doing a transaction once every four or five years, so lenders haven’t felt the pressure from consumers like other parts of the industry,” Tyrell said at the session.

“But it’s something we need to do to be ready — Millennial borrowers have different expectations of what this experience will be like,” he said.

Despite these obstacles, however, there is hope for the future of digital mortgage. In fact, Harrell expects to see mortgages go 100% digital in at least five years. Within two to three years the majority of the process will be digital, he said in the interview.

The key? The GSEs need to adopt electronic documents and be able to securitize them, Harrell said. After that, all counties across the U.S. will be able to handle digital documents.

But is that the key? Or is it rather, as Bhat predicts, a natural reaction as Millennials take over the market? Or will it require a little of both? Either way, experts agree that the market is moving towards being 100% digital.

“At some point – and not THAT far off – there will be homebuyers who have never made a significant purchase offline,” Bhat said.

At this point, lenders simply need to take a step in the right direction, the panelists agreed. While the system may not be perfect, an step towards going digital will benefit the consumers and lenders alike.

Financial crisis ready to reenter housing

The time frame for borrowers who were significantly hit after the financial crisis to improve their credit score is about to happen, opening the door for a lot of consumers to reenter the housing market.

According to Experian’s latest analysis, foreclosures, short sales and bankruptcies remain on a credit report for seven years, which means these items are due to fall off the credit files of 2.5 million consumers between June 2016 and June 2017.

And even better for the housing market, the analysis shows that 68% of these consumers are scoring in the near-prime or higher credit segments, meaning the opportunity for this group to qualify for mortgage loans is growing.

The new Experian study looks at these potential borrowers and analyzes the consumers who foreclosed or short-sold between 2007 and 2010 and have since opened a new mortgage.

The study refers to these consumers as “boomerang borrowers” and shows that they have responsible credit behaviors and improving credit scores.

“With millions of borrowers potentially coming back into the housing market, the trends that we’re seeing are promising for both the mortgage seeker and the lender,” said Michele Raneri, vice president of analytics and new business development at Experian.

“In the coming years, boomerang borrowers will be a critical segment of the real-estate market,” said Raneri. “While many of these borrowers have gone through a very difficult time, it is encouraging to see them taking control of their finances with better credit scores and all-around better credit management.”

The study also found that the people in the short-sale category are rebounding at a higher rate than those who foreclosed, and are making their payments on time.

Using the program, agents can feature a specific listing or automatically highlight new listings or recently sold homes. Plus the program allows agents to target potential homebuyers in a specific area.

“Premier Agent Direct helps agents more efficiently work their farm area and either extend or eliminate the need for a direct mail campaign by using precision targeting to connect with local home shoppers and sellers on a medium they are using every day,” Zillow said.

According to Zillow, the Premier Agent Direct program is now available on mobile and desktop.

 “We have worked incredibly hard this year to create new opportunities for agents to connect with buyers and sellers so they can scale their businesses with greater ease – the new products are the results of those efforts,” Greg Schwartz, Zillow Group’s chief business officer, said.

“Through this new publishing platform, we have created a way to significantly increase the agent’s reach to consumers who are in a transaction mindset,” Schwartz added. “With precision targeting, we know these people are using Zillow and Trulia, and now there’s a new opportunity to connect with them on Facebook.”

 

Reveal details of HAMP replacement

The Home Affordable Modification Program will expire at the end of this year, and experts from the industry talked about its replacement: One Mod: Principles for Post-HAMP Loan Modification at the Mortgage Bankers Association annual conference this week.

The MBA revealed its new program proposal at the end of September. While the Federal Housing Finance Agency already created a new program to replace the Home Affordable Refinance Program, nothing is in place to take over for HAMP.

“One Mod is a universal framework designed to provide the customer meaningful payment relief early in delinquency,” JPMorgan Chase Product Executive Erik Schmitt told HousingWire. “This is achieved through the creation of a simplified customer experience and a product designed to provide meaningful payment relief, which is the key driver of re-performance.”

“Additionally, the product is durable, in that it is designed to provide customers with assistance across a broad range of economic environments,” Schmitt said.

One Mod will be an improvement from HAMP as experts analyze what worked and what didn’t.

“We’re taking the lessons that we learned from HAMP and finding ways to only require the specific documentation used to drive payment reduction,” Alex McGillis of Quicken Loanstold HousingWire. “The data from HAMP shows that payment reduction is the biggest driver in reducing re-defaults.”

There will be several changes to the new program as the industry shifts towards what Yvette Gilmore, Freddie Mac vice president of servicing performance management, calls a non-crisis program.

One of the major shifts includes an increase in the program’s availability.

“The focus of One Mod is to maximize the number of homes saved, which is achieved through increasing program accessibility and providing more sustainable solutions to prevent default,” Schmitt said.

Also, the proposed program will differ when it comes to the regulation that controls it. At the session, the MBA asked Laurie Maggiano, the Consumer Financial Protection Bureauprogram manager, what the industry can expect when it comes to new regulation for loan modification.

“We just published a 900-page rule, what else do you want?” Maggiano joked. Then, on a more serious note, she added, “Because the rule doesn’t say what a modification should look like, and I don’t expect to go there, I don’t expect any more regulation.”

McGillis summed up the goals for the new program:

“Everyone should have the ability or chance to save their home no matter what they’re going through,” he said at the session.

Millennials are about to take over

Millennials haven’t taken over the housing market yet, but it’s only a matter of time before they do.

Many Millennials have not moved into homeownership due to a number of factors, including a preference for urban living and a high student debt burden.

However, now first First American created a chart that shows Millennials have a higher percentage of people with a college degree than any other generation.

This educational advantage bodes well for future homeownership rates among this generation. A study from Fannie Mae showed that the long-term benefit of a college degree outweighs the short-term burden of student loan debt when it comes to the likelihood of eventual homeownership.

The study showed that those who earned a degree without taking on student debt are the most likely to become homeowners, followed by those who graduated with debt, those who never went to college and lastly, those who took on student debt but never graduated.

So Millennials’ status as not only the largest demographic but also the most educatedgeneration ever could soon lead to abnormally high homeownership rates. That could come with a downside, however.

“The risk will be that prices will adjust to all of the demand and reduce affordability, making it more difficult,” First American Financial Corp. Chief Economist Mark Fleming told HousingWire.

“That’s why the issue of lack of inventory, whether in the form of less existing home sales than expected or a lack of right-priced new homes, is so important to the future success of the market to serve the possible tsunami of demand,” Fleming said.

Freddie Mac also thinks an influx in Millennial buyers is likely, and there is evidence this could already be starting. Existing home sales increased in September, driven mainly by a dramatic increase in first-time homebuyers, which reached the highest share of homebuyers in four years, according to a report from the National Association of Realtors.

EVP to oversee project management

Melia Homes, a home builder in Southern California, named Tim McSunas as its new executive vice president.

McSunas brings nearly 30 years of experience to the company. He held senior management roles in companies such as John Laing Homes, Pardee Homes, Taylor Woodrow Homes, The Shopoff Group and William Lyon Homes.

In these positions, McSunas developed skills in sourcing and controlling new land opportunities, negotiating purchases and sales agreements, conducting land feasibility, leading underwriting and developing new joint venture partnerships.

In his new role, McSunas will oversee operations, project management, product development, sales and marketing. He will also be involved in land acquisition opportunities.

“I’m excited to join Melia Homes’ executive team and look forward to getting involved in the progressive strategies that have shaped its visionary approach,” McSunas said.

The measure of Current Economic Conditions decreased 1% from last month from 104.2 to 103.2, and increased 0.9% from last year’s 102.3.

“Objectively, the probability of a downturn during the next five years is far from zero-this would be the longest expansion in 150 years if it lasted just over half of the five-year horizon,” Curtin said. “Nonetheless, the October rise may simply reflect a temporary bout of uncertainty caused by the election.”

The Index of Consumer Expectations decreased substantially at 7.1% from last month’s 82.7 and 6.5% from last year’s 82.1 to 76.8 in October.

Other sources are also reporting a drop in confidence. Consumers are less confident about the economy in October than last month, citing that, among other things, business conditions are bad, according to the Consumer Confidence Survey conducted by The Conference Board by Nielsen, a provider of information and analytics around what consumers buy and watch.

“Prospects for renewed spending gains will depend on continued growth in jobs and wages as well as low inflation and interest rates,” Curtain said. “The small rise in interest rates now expected in December will have a minimal impact on spending.”

“Along with small increases in interest rates, consumers also anticipate a mild slowdown in job creation that is likely to prevent any further declines in the national unemployment rate,” he said. “To be sure, these changes are all anticipated to be small during the year ahead.”

Sentiment falls to lowest

The confidence that consumers have in the economy dropped in the beginning of October, but by the end of the month it seems to have plummeted.

The Index of Consumer Sentiment dropped to 87.2 in October, the same low recorded last September and the lowest level since October 2014, according to the Survey of Consumers conducted by the University of Michigan.

“The October decline was due to less favorable prospects for the national economy, with half of all consumers anticipating an economic downturn sometime in the next five years for the first time since October 2014,” Survey of Consumers Chief Economist Richard Curtin said.

The Index dropped 4.4% from last month’s 91.2 and 3.1% from last year’s 90. It is also down from the beginning of October, when it came in at 87.9.

An article by Jill Mislinski for Advisor Perspectives explains what this means historically:

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.

The measure of Current Economic Conditions decreased 1% from last month from 104.2 to 103.2, and increased 0.9% from last year’s 102.3.

“Objectively, the probability of a downturn during the next five years is far from zero-this would be the longest expansion in 150 years if it lasted just over half of the five-year horizon,” Curtin said. “Nonetheless, the October rise may simply reflect a temporary bout of uncertainty caused by the election.”

The Index of Consumer Expectations decreased substantially at 7.1% from last month’s 82.7 and 6.5% from last year’s 82.1 to 76.8 in October.

Other sources are also reporting a drop in confidence. Consumers are less confident about the economy in October than last month, citing that, among other things, business conditions are bad, according to the Consumer Confidence Survey conducted by The Conference Board by Nielsen, a provider of information and analytics around what consumers buy and watch.

“Prospects for renewed spending gains will depend on continued growth in jobs and wages as well as low inflation and interest rates,” Curtain said. “The small rise in interest rates now expected in December will have a minimal impact on spending.”

“Along with small increases in interest rates, consumers also anticipate a mild slowdown in job creation that is likely to prevent any further declines in the national unemployment rate,” he said. “To be sure, these changes are all anticipated to be small during the year ahead.”

Continues to hover near 50 year low

Homeownership rates changed very little in the third quarter, and remain near lows not seen since 1965.

The homeownership rate decreased slightly from last year’s 63.7% to 63.5% in the third quarter, according to the latest report from the U.S. Census Bureau. This is up just 0.4 percentage points from last quarter.

“Given other evidence from the release, my views swing more with the optimists than the pessimists,” Trulia Chief Economist Ralph McLaughlin said. “Household formation surpassed 1.1 million, climbing from 944,000 last quarter. About 560,000 – or nearly half – of these households were owners, up from a loss of 22,000 last quarter.”

“I think this is good news in light of the fact that millennials now make up the largest pool of potential new households,” McLaughlin said. “Though many are still living with their parents, they eventually will move out.”

“First, they will rent, and as they settle down, and then they will buy,” he said. “While we can’t know for sure they will own at rates of older generations, our survey work at Trulia shows 80% of Millennials want to own a home – the highest share of any cohort and the highest in the seven years we’ve run the survey.”

A chart from First American shows Millennials have a higher percentage of people with a college degree than any other generation. Historically speaking, homeownership rates are much higher among those with college degrees.

Increase real estate agent

In a move that shows how much better companies are getting at reaching their desired audiences no matter where they are, Zillow announced a partnership this week with Facebook that will allow Realtors and real estate agents to target potential homebuyers directly on their Facebook feed.

According to Zillow, the partnership is part of its Premier Agent program and is called Premier Agent Direct.

“Premier Agent Direct combines the power of the most visited real estate network with one of the most widely used social media platforms, allowing real estate agents or teams to expand the targeted audience they advertise to through a simple, easy platform using Zillow Group’s precision targeting,” Zillow said in a release.

According to Zillow, the technology identifies home shoppers who are using Zillow or Trulia and allows real estate agents to connect with them on Facebook.

Using the program, agents can feature a specific listing or automatically highlight new listings or recently sold homes. Plus the program allows agents to target potential homebuyers in a specific area.

“Premier Agent Direct helps agents more efficiently work their farm area and either extend or eliminate the need for a direct mail campaign by using precision targeting to connect with local home shoppers and sellers on a medium they are using every day,” Zillow said.

According to Zillow, the Premier Agent Direct program is now available on mobile and desktop.

 “We have worked incredibly hard this year to create new opportunities for agents to connect with buyers and sellers so they can scale their businesses with greater ease – the new products are the results of those efforts,” Greg Schwartz, Zillow Group’s chief business officer, said.

“Through this new publishing platform, we have created a way to significantly increase the agent’s reach to consumers who are in a transaction mindset,” Schwartz added. “With precision targeting, we know these people are using Zillow and Trulia, and now there’s a new opportunity to connect with them on Facebook.”