Homebuilder confidence drops for first time since April

(iStock)

(iStock)

Homebuilders are reining in their expectations for the housing market, according to a new report.

The National Association of Home Builders/Wells Fargo Housing Market Index for this month dropped to 86, seasonally adjusted, after reporting its highest reading in history in November. It marks the first time since April that the index’s reading has seen a month-over-month decline.

December’s reading is still a record, however. It marks the second-highest reading in the index’s 35-year history.

The index tracks homebuilder confidence in current and future single-family home sales and traffic of potential homebuyers on a monthly basis. A reading of more than 50 indicates a positive outlook; a reading under 50 indicates a negative outlook.

Mirroring the overall index’s step back, homebuilder sentiment was also lower when it came to single-family sales, with a reading of 92. The outlook for home sales in six months time dropped to 85, the same reading reported in September, while the outlook for buyer traffic fell to 73, just below September and October’s reading of 74.

Regional sentiment once again followed in national’s footsteps, with regional index readings all below those recorded in November.

But despite December’s lower figures, all components and regions tracked by the indices were up significantly year-over-year.

The housing market has had a record run this year, but with a rise in Covid-19 infection rates and homebuyer demand wavering as access to credit tightens, some economists question how much longer the gains can be sustained.

Here’s what 2021 has in store for the RMBS market: Kroll

Total RMBS issuance for 2020 is expected to reach $55B, while next year’s volume could grow to $69B, according to a report from Kroll Bond Rating Agency. (iStock)

Total RMBS issuance for 2020 is expected to reach $55B, while next year’s volume could grow to $69B, according to a report from Kroll Bond Rating Agency. (iStock)

With nearly $20 billion in loans issued, the first quarter of 2020 was the residential mortgage-backed securities market’s strongest quarter since the 2008 financial crisis. But then came Covid-19, which brought several years of rapid expansion to a halt.

Total RMBS issuance for 2020 is now expected to reach $55 billion, according to a recent report from Kroll Bond Rating Agency. That’s down 10 percent year-over-year, and down more than 20 percent from the $70 billion that Kroll analysts had forecast in late 2019.

While the nation continues to grapple with the economic fallout of the coronavirus pandemic, low mortgage rates and booming home prices mean the RMBS market may be set for a rebound in 2021.

“Mortgage rates are generally expected to remain low for some time, incentivizing refinance and purchase activity, while housing supply is expected to remain low,” Kroll analysts write in the report. “Delinquencies relating to COVID may continue their decline, especially as payment deferrals increase, while the performance of borrowers on such plans will be a key factor in the overall recovery of mortgage performance for this segment.”

The prime RMBS sector is expected to come back strongest with issuance rising by 60 percent, while the non-prime sector may recover at a slower rate, with issuance rising around 23 percent. Meanwhile, credit risk transfer (CRT) securities, which are issued but not guaranteed by Fannie Mae and Freddie Mac, could see issuance decline by 35 percent as the agencies’ regulatory future remains unclear.

In sum, Kroll’s predictions have RMBS issuance increasing by 27 percent to nearly $69 billion in 2021, with prime securities accounting for more than half of the total.

Here’s what 2021 has in store for the RMBS market

Existing RMBS loans have also faced greater stress amid the pandemic, with delinquency rates spiking in the summer and gradually recovering since then. At the peak, more than 5 percent of prime RMBS loans and more than 20 percent of non-prime RMBS loans were at least 30 days delinquent, according to the report.

The fallout of the pandemic also led Kroll to take its first downgrade actions against RMBS transactions in its 10-year history. Delinquency rates remain well above historical levels after coming down from their peak, and loan modification rates have continued to rise in recent months.

“Performance among borrowers who have received payment deferral will be an important post-pandemic indicator for COVID-affected loans,” the report notes.

US home prices surged 6.6% in September

Prices increased 6.6 percent year-over-year in September (iStock)

Prices increased 6.6 percent year-over-year in September (iStock)

Housing prices continue to soar into the fall.

Prices increased 6.6 percent year-over-year in September, according to the S&P CoreLogic Case-Shiller home price index, which tracks the housing market in 20 cities including New York City, Los Angeles, Miami and Chicago. In August, the price index jumped 5.2 percent.

Phoenix, Seattle and San Diego saw the biggest gains in home prices, repeating their performance from August. Phoenix reported a 11.4 percent increase, Seattle a 10 percent gain and San Diego had a 9.5 percent bump.

The S&P CoreLogic Case-Shiller national home price index, which tracks prices across the entire country, increased by 7 percent, up from 5.8 percent in August. Its monthly indices have been tracking the U.S. housing market for 27 years.

The rise in prices nationwide comes as demand for homes is high — in October, 6.85 million existing homes sold — and supply is at historic lows, with just 1.42 million properties for sale.

Housing starts rose 5 percent the same month, though Lawrence Yun, the National Association of Realtors’ chief economist, noted that new home construction was yet to alleviate the housing market’s low supply.

As prices soar and tighter lending criteria blocks some would-be homebuyers from being able to finance their purchases, the housing market recovery has been classified as K-shaped, with high earners recovering more quickly than those with lower incomes. Economists warn that the housing market’s uneven recovery could have dire consequences for the broader economy and growing inequality in society.

Refinancings drove up home mortgage apps last week

(Getty, iStock)

(Getty, iStock)

An increase in homeowners’ bids to refinance drove up the volume of mortgage applications last week.

An index tracking home refinance applications increased 3 percent, seasonally adjusted, in the third week of October, compared to the prior week, according to the Mortgage Bankers Association’s weekly survey.

The metric, known as the refinance index, was up 80 percent year-over-year.

MBA’s purchase index, which tracks the number of mortgage applications to buy homes, was essentially flat with an increase of 0.2 percent compared to the week before, breaking a four-week stretch of declines.

Joel Kan, MBA’s head of industry forecasting, maintained that homebuyer demand remains strong, noting that the purchase index last week was still up 24 percent year-over-year and the average purchase loan size hit $372,600, a new record in the history of MBA’s 30-year survey.

“These results highlight just how strong the upper end of the market is right now, with outsized growth rates in the higher loan size categories,” he said in a statement.

The median sales price for the 6.5 million existing homes sold last month was $311,000, while the median price for newly built homes was $326,800.

The high prices are also being driven by severe housing shortages, he noted.

The average 30-year, fixed-rate mortgage dropped to 3 percent, the lowest rate in the history of MBA’s weekly survey. That’s a drop of 2 basis points from the previous week’s 3.02 percent. The rate for jumbo loans dropped to 3.28 percent from 3.33 percent the week prior.

Refinancing applications made up 66.7 percent of the total mortgage applications last week. The activity drove MBA’s overall index, which tracks 75 percent of all residential loans, up 1.7 percent, seasonally adjusted.

3M homeowners remain in forbearance

The number of mortgage borrowers in Covid-19 forbearance plans ticked down again this week. (iStock)

The number of mortgage borrowers in Covid-19 forbearance plans ticked down again this week. (iStock)

Nearly 3 million U.S. homeowners were in forbearance programs as of this week, a massive amount but still a sharp drop from 4.76 million at the height of the pandemic.

That’s according to a new report from mortgage-data firm Black Knight, which also found significant drops in weekly totals. There were 11,000 fewer homeowners in Covid-19 mortgage forbearance programs with their lenders than the week prior.

Loans backed by Fannie Mae and Freddie Mac, as well as portfolio-held and privately securitized loans, all saw decreases in forbearance volume. But there was an increase among mortgages held by the Federal Housing Administration and the Department of Veterans Affairs.

The figures build on an overall 17 percent decrease in forbearance since September, representing a decrease of 623,000 applications month-over-month.

Forbearance programs for both residential and multifamily property owners were introduced earlier this year by lenders — or mandated by state governments, as in the case of New York, in response to the pandemic. Most borrowers who have forbearance agreements have chosen to renew them, as 80 percent of forbearance plans have had their terms extended, according to the report.

Still, Black Knight found that as of September, at least 1 million borrowers were 30 days past due on their mortgages and not in a forbearance program. Of those, 680,000 have federally guaranteed mortgages and therefore qualify for a forbearance plan. While the rest do not, some lenders offered forbearance regardless.

While many struggling homeowners did not request forbearance plans, some lenders put mortgages into forbearance without consulting the borrowers. Researchers at the Committee for Better Banks found that banks sometimes offered forbearance as the only option to homeowners — at times requiring balloon payments at the end of the grace period.

In August, Wells Fargo was sued for placing borrowers’ mortgages into forbearance without their knowledge, which affected their credit scores.

How many Americans actually moved during the pandemic?

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year. (iStock)

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year. (iStock)

How many people actually moved because of the pandemic? Though it’s hard to know movers’ exact motivations, new data reveals migration patterns during the height of Covid-19 lockdowns in most states.

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year, according to MyMove, a platform that provides information for people who are relocating. MyMove analyzed data from both USPS and a Pew Research Center survey of 10,000 U.S. adults that was conducted in July.

Whether the newly relocated will stay in their new homes is less clear: The number of people who permanently moved was up by just 4 percent from the same period in 2019, while temporary moves rose by a more substantial 27 percent. Those temporary moves spiked in March and April, suggesting that people decided to be with family or relocated to a second home during the lockdowns.

“About a quarter (28%) told us [they chose to move] because they feared getting Covid-19 if they stayed where they were living,” said D’Vera Cohn, who authored the Pew survey. “About a fifth (20%) said they wanted to be with their family, or their college campus closed (23%). A total of 18% gave financial reasons, including job loss.”

The USPS data also showed that many people who moved left densely populated urban areas in favor of less-densely populated areas.

Manhattan saw the biggest increase in moves, with 110,978 people departing — a 500 percent increase compared to the same period in 2019. Brooklyn followed, losing 43,006 people during the same time period. Residents of Chicago, San Francisco, Los Angeles, Naples, Florida, Washington, D.C. and Houston also saw large drops in population during that period.

While it remains to be seen if the urban-to-suburban exodus will be a long-term thing, USPS data shows that many city dwellers did relocate to smaller, less urban areas. Two suburbs of Houston — Katy and Richmond — gained 4,400 and 3,000 new residents, respectively.

East Hampton, New York, also saw an influx of nearly 2,500 residents. In March, as government-mandated lockdowns set in, real estate brokers in the Hamptons said that a run on pricey rentals led to bidding wars for some properties.

The exodus from Manhattan led to a historic vacancy rate of 5 percent in September after setting a new record for each of the four preceding months.

If the vacancy rate stays that high, it could potentially lead to the repeal of the city’s rent regulations, which depends on a vacancy rate below 5 percent. That threshold, however, is set by legislators, and a new Housing & Vacancy Survey is not scheduled to be conducted until 2022.

What low interest rates through 2023 means for real estate

Jerome Powell (Getty)

Fed Reserve Chairman Jerome Powell (Getty)

The Federal Reserve is preaching stability in a chaotic world.

Fed officials signaled on Wednesday that the short-term interest rate will remain at 0 to 0.25 percent, and projections are that rates will remain near zero until 2023.

While the move wasn’t a surprise, it did provide clarity to coronavirus-battered investors on what to expect in the years ahead — and came as a relief to the real estate industry.

Private equity firms have hundreds of billions of dollars of dry powder waiting to be poured into distressed commercial real estate assets. At the same time, housing and mortgage companies have seen record high loan volumes due to low mortgage rates.

A sustained pause on raising interest rates could lead to better deals for commercial property owners, who may be able to refinance with lower rates or get cheaper loans for new properties.

The bigger impact, however, may be felt in the housing and mortgage sector. The Fed also said it will continue buying mortgage-backed securities to help ensure that banks keep lending during the downturn.

Fed officials said they have steered this path because uncertainty caused by the pandemic “will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Shortly after the onset of the coronavirus, the Fed acted to provide liquidity to financial markets, announcing it would buy hundreds of billions of dollars in treasury and mortgage-backed securities.

Ever since rates were first slashed to near zero in March, mortgage companies have made a killing. Refinancings jumped more than 200 percent in the second quarter compared to a year ago, according to the mortgage data firm Black Knight. Overall, lenders provided more than $1 trillion in home loans — including both originations and refinancings — between April and June.

Low interest rates also reinvigorated the housing market. New single-family home sales in July jumped 36 percent from the same period in 2019, according to the U.S. Census.

“The housing market is likely to do well in the next couple of years,” said Ralph McLaughlin, chief economist with Haus, a financial technology company.

The Fed said it plans to keep interest rates near zero until “labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

It’s unclear when those conditions would be met, but the Fed did revise its unemployment forecast for the year; it’s now projected to reach 7.6 percent by the end of December, down from the 9.3 percent projection it made in June.

But despite some positive news from Wednesday’s announcement, McLaughlin said the wild card for the housing market is going to be the possibility that mortgage forbearances could end by next spring.

“If unemployment does not recover by March or April, we will see an increase in foreclosures,” he said.

Historic Missouri home comes with a nine-cell jail

203 E. Morrison Street, Fayette, MO (Realtor)

203 E. Morrison Street, Fayette, MO (Realtor)

A historic home in Fayette, Missouri has an amenity you don’t see very often: an attached jailhouse.

The 1875-built brick home was the former home of the Howard County Sheriff. In those days, a jail was sometimes attached to a sheriff’s own home. The historic home is asking $350,000, according to the New York Post.

Apart from the jail, the home has many of the features one might expect from a house of the era — vaulted ceilings, fireplaces, elaborate molding, and stained glass.

The residential portion of the property spans 2,500 square feet with two bedrooms and 1.5 bathrooms. A renovation in 2005 included an overhaul of the wiring, plumbing, and HVAC systems.

Speaking of the kitchen, that’s where the home connects to the jail. An inconspicuous wood door opens to a conspicuous metal door that opens to the two-story, 2,500-square-foot jailhouse.

The jailhouse portion of the home looks like, well, a jailhouse. The floors are concrete and the stairs are metal and just about everything is painted in a drab grey color.

The jail has nine cells, a booking room, and a half-bath, according to a listing by agent Jeff Radel with House of Brokers Realty, Inc.

The property was designated a “notable historical property” by the Fayette Historic Preservation Commission in 2010. [NYP] ­— Dennis Lynch 

Mortgage refis will get a lot more expensive. The industry isn’t happy

(iStock)

(iStock)

Homeowners looking to refinance their mortgage are going to be in for a pricier ride. And mortgage and housing professionals, who’ve benefited from record low rates to do brisk business, are miffed.

Freddie Mac and Fannie Mae said Wednesday that they will charge an additional 0.50 percent, or 50 basis points, fee to lenders on refinance loans. That means the average consumer looking to refinance a home will soon be paying $1,400 more than they would previously, according to the Mortgage Bankers Association.

Fannie and Freddie cited Covid-related losses from the coronavirus and economic uncertainty to justify the fee hike, which kicks in in September. The government-sponsored entities, which are under the oversight of the Federal Finance Housing Agency (FHFA), do not originate mortgages, but instead buy loans and repackage them through securities.

The move was a shock to the mortgage and housing industry who were seeing a huge uptick in refinancings due to historically low mortgage rates. The 30-year fixed-rate mortgage averaged 2.96 percent for the week ending Aug. 13, according to Freddie Mac.

“Tonight’s announcement by the GSEs flies in the face of the Administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” Bob Broeksmit, CEO of the Mortgage Bankers Association, said in a statement on Wednesday.

Industry insiders say the FHFA may have another motivation to raise these fees.

“It’s a money grab here,” said Greg McBride, chief financial analyst at Bankrate. “The government sponsored enterprises are trying to get their hands in the consumers’ pockets.”

Some say the FHFA could be looking to the success of mortgage companies like Rocket Companies, the parent of Quicken Loans, and looking to benefit from the flurry of refinancings. Rocket Companies recently had an Initial Public Offering where it priced its shares at $18 a piece for 100 million shares, allowing the company to raise up to $1.8 billion.

The fee increase will impact both homeowners who are seeking to get a refinance and those that have already requested to refinance, but have yet to lock in their rate. The FHFA did not immediately return a request to comment.

Some lenders, however, don’t seem too concerned about the move, considering that mortgage rates are still at record lows. Banks have relied on refinancing during a time when other lines of business such as commercial real estate lending are being hurt by Covid.

“There will still be demand, just not at a spike like in the last 60 days,” said David Druey, who heads the Florida region for Centennial Bank. “We don’t anticipate any steep drops in the number of requests until mortgage rates climb by at least half a point.”

The timing of the fee hike has puzzled some industry insiders, given that the Federal Reserve is buying $40 billion of mortgage backed securities every month. The Fed’s asset purchases are designed to boost liquidity into the marketplace and encourage lenders to keep making loans.

“Housing has been a big part of the Fed’s toolkit. They are desperately hoping that they can then help the broader economy,” said Chris Whalen, an investment banker who runs Whalen Global Advisors. “This is totally contrary to what they need to be doing.”

The fee increases also come at a time when the FHFA is seeking to return Fannie and Freddie back to privatization after scoring a $190 billion bailout during the housing crisis. The agency could be seeking to increase Fannie and Freddie’s capital levels to bolster its financial position.

In its most recent quarter, Fannie and Freddie combined booked $4.3 billion in profits, earnings statements show.

Whalen adds that by making this move, FHFA head Mark Calabria, who was formerly a director at the Cato Institute, is going to face some heat.

“He has picked a fight with the entire housing industry,” Whalen said. “And everyone is going to come after him.”

There are fears of a great housing bubble in China

China’s housing market is into bubble territory

China’s housing market is into bubble territory

China’s efforts to beat back coronavirus led to widespread travel restrictions and shutdowns. But it appears to have been just a hiccup for the property boom in its biggest cities.

Home prices continue to rise higher and units are flying off the shelves again. More money was invested last month in Chinese real estate than any other month recorded, according to the Wall Street Journal.

One estimate found Shanghai apartment resales approached a record high in April. A month earlier, 288 apartments at a new development in Shenzhen sold online in less than eight minutes. More than 400 units sold a day later at another new development in the city.

The fervor with which buyers are scooping up units is raising concerns that China’s property bubble is growing bigger by the day. The $1.4 trillion invested into the housing market in the 12 months ending in June is far higher than the annual $900 billion invested into housing in the U.S. housing market at the peak of the bubble before the last financial crisis.

Chinese buyers are also more heavily leveraged than they’ve ever been — in the first quarter, the household leverage ratio hit a record high of 57.7 percent.

Buyers appear confident that the Chinese government won’t let the bottom fall out under the housing market, so they’re confident to keep buying, according to the Journal.

“Property has hijacked China’s economy, so the government wouldn’t dare to push for a plunge in housing prices, even if that’s the most effective way to deflate the bubble,” said Chen Zhiyu, who is hunting for property in Shenzhen. [WSJ]Dennis Lynch