Inventory Myth Busting: Why is Home Inventory So Low?

When it Comes to Explaining Low Inventory Some Theories Are Better Than Others

By Ralph McLaughlin | Jul 26, 2017 12:01AM

Everyone agrees the U.S. housing market is being squeezed by low inventory. What they don’t agree on is why.

As home inventory sits near post-recession lows, there are many hypotheses on why there are so few homes for sale today. Here are the five leading theories: (1) investors bought up too many foreclosures during the bust and are hording them as rentals, (2) rising prices have made buying a home unaffordable, (3) owners don’t want to sell if they don’t think they can buy another home, (4) too many home-owning boomers can’t or don’t want to move, and (5) owners who want to trade up can’t find an affordable home at the next level.

To date, these educated guesses have primarily been tested in isolation through simple correlations with inventory, with little or no regard to analyzing what their impact is relative to other factors. When you wear statistical blinders, you run the risk of ignoring potentially more impactful factors when you’re trying to identify the cause of a problem. To be fair, we’re just as guilty as anyone of looking at possible reasons for low inventory in in isolation when we looked at rising home values and a widening price gap.

To remedy this, we tested each of the five major hypotheses while controlling for the impact of each other hypotheses. The good news is that we found a statistically significant effect for each, which means there is some direct correlation with inventory.

The surprising news? Homebuilding’s impact – or a lack of it in some places – is by far and away the biggest influence when it comes to inventory woes, outweighing other explanations by a large margin. Across the 100 largest metros, our findings show that:

  • New home construction is strongly related to inventory. Every one percentage point increase in a market’s housing stock between 2010 and 2016 is, on average, correlated with inventory that is approximately 13% higher.
  • Investor ownership is tied to lower inventory. Every one percentage point increase in the housing stock owned by investors in a market is, on average, correlated with inventory that is 2.8% lower.
  • Older households – by hanging on to their homes – aren’t necessarily driving down inventory, at least not yet. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is actually 3.6% higher.

The Hypotheses

To test the impact of five popular explanations of why inventory is low across the 100 largest housing markets, we ran a regression model (see below for details) on the number of homes for sale in a market in 2017 Q2. We standardized inventory by dividing inventory by the number of occupied homes in that market. Here’s what we tested:

  • Markets with a higher share of investors will have low inventory because investors sit on homes and rent them out;
  • Markets with a bigger recent price increases will have lower inventory because higher home values make affordability worse;
  • Markets with a larger increase in price spread – or the gap between prices for premium, trade-up and starter homes — will have lower inventory because as prices of expensive homes outpace less expensive ones it’s harder for existing homeowners to trade up;
  • Markets with a larger share of older homeowners will have lower inventory because older households don’t tend to move often;
  • Markets with more homebuilding will have more inventory because more new homes helps provide new supply that existing homeowners can trade up to.

The Results

We found that proponents of each of the five popular explanations aren’t wrong – at least not entirely: when controlling for the role that other explanations play, each individual explanation has a statistically significant relationship with inventory. The surprising news is that when it comes to relative impact, homebuilding and investor activity are about the only ones that matter – as they had the highest positive and negative impact of the five explanations.

Inventory Model Results
For every 1 percentage point increase in … …there is a __ change, on average, in inventory across the 100 largest metros.
Homebuilding +13.3%
Share of homeowners aged 55+ 3.4%
Price Spread 0.2%
Home Value Recovery -1.8%
Investor Ownership -2.5%
See methodology section for more details on our model.

First, the factor with the largest impact is homebuilding. Across the largest 100 metros, every one percentage point increase in a market’s housing stock between 2010-2016 is, on average, correlated with inventory that is approximately 13% higher. For example, if the Los Angeles metro had increased their housing stock by 2.6% instead of 1.6% between 2010 – 2016, we could have expected their existing home inventory to increase from 10,181 homes on the market to 11,504 in 2017 Q3: an increase of over 1,300 homes.

Second, the factor with the second largest economic significance is investor ownership. Across the largest 100 metros, every one percentage point increase in the housing stock owned by investors in a market is, on average, correlated with inventory that is 2.8% lower. For example, if investors in the Boston metro reduced their ownership of the housing stock from 43.7% to 42.7%, we could have expected their existing home inventory to increase from 3,290 homes on the market to 3,382 in 2017 Q3: an increase of nearly 100 homes.

Third, and surprisingly, we find the share of owner occupied homes owned by boomers is actually positively correlated with inventory. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is actually 3.6% higher. Why is this? It’s tough to say exactly why, but we think the effect is driven by the fact that markets with the largest share of boomers just happen to be in retirement destinations such as Florida and Arizona – states that haven’t much been impacted by low inventory because they tend to build a lot of homes. This also isn’t to say that boomers owning a larger share of the housing stock won’t become problematic in the future. Their decision to either age in place of move to a retirement home could have a substantial impact on home inventory as well as the broader economy.

Last, we find that relative to these other explanations, home value recovery and price spread have relative small economic significance. A one percentage point increase in home value recovery is correlated with a 1.6% decrease in inventory across the 100 largest metros. A one percentage point increase in the price spread is correlated with just a 0.2% increase in inventory, which renders the correlation close to being economically insignificant. Both effects, however, are small relative homebuilding and investor activity.

Where Myths Do, or Don’t, Play out in the Biggest U.S. Housing Markets

The Conclusion

The takeaway here is that not all explanations for low inventory fully explain why the national home inventory is at or near historic lows. While our modeling of all five of these theories are not definitive, they do provide a step forward in explaining which explanations matter most. It turns out the leading explanation for low inventory is that investor activity and a lack of homebuilding are both significant predictors of low inventory. On the contrary, home value recovery and price spread play a much smaller role while an aging population plays a countervailing one. The silver lining from these results are that homebuilding and investor activity are factors that could be made more attractive through a combination of strategically targeted land use, tax, and financial policies.

Methodology

We tested for the impact of five popular explanations on inventory using a multiple linear regression, which is a statistical method used to test for correlation between several variables (factors) on an outcome of interest. Multiple linear regression methods allows us to estimate the impact of each of the major explanations for inventory while taking into account the effect of the other explanations. We used an Ordinary Least Squares (OLS) regression to predict how each factor would affect inventory across the 100 largest metros when controlling for the potential effects of the others. Our measure inventory is the number of homes for sale in a market as of 2017 Q2 divided by the number of occupied homes in that market. In doing this, we standardize inventory levels by the size of a market’s housing stock.

We quantitatively measure each explanation is as follows:

  • Homebuilding: percentage change in a metro’s housing stock between 2010 and 2016, sourced from the U.S. Census;
  • Boomer control: share of owner-occupied housing stock owned by a head of household who is aged 55 and over, sourced from the 2015 American Community Survey (ACS);
  • Price spread: percent difference between the median priced premium home and the median price starter home, per our 2017 Q2 inventory report;
  • Home value recovery: the total value of a metro’s housing stock relative the its pre-recession peak value, sourced from Trulia’s home value estimates;
  • Investor ownership: share of a metro’s occupied housing stock that is rented, sourced from the 2015 (ACS).

Below is a table of the regression results.

Regression Model Results.
Variable Coefficient (T-Value)
Homebuilding 0.133 (6.44)*
Share of homeowners aged 55+ 0.034 (4.49)*
Price Spread 0.002 (4.73)*
Home Value Recovery -0.018 (-7.24)*
Investor Ownership -0.025 (-4.10)*
     Diagnostics
           R2 .6
           Observations 100
NOTE: *Denotes statistical significance at the < 1% level. The dependent (outcome) variable is Inventory per occupied household in Q3 2017. The full data used in the regression model is available for download here.

As seen at: https://www.trulia.com/blog/trends/inventory-myth-busting/


Chicago Foreclosure Activity: Defaults Approach New Low

By Gary Lucido, July 20, 2017 at 9:05 am         on Chicagonow.com

ATTOM Data Solutions/ RealtyTrac released their Midyear 2017 U.S. Foreclosure Market Report™ today and it continues to show that our foreclosure nightmare is slowly fading into a distant, bad memory. Chicago foreclosure activity came close to breaching the low set 17 months ago and defaults came within a hair’s breadth of puncturing the low of exactly one year ago. That latter point is exceptionally good news since that’s the front end of the pipeline.

It’s all in the graph below. Given the month to month volatility it’s helpful to look back one year ago and realize that total foreclosure activity has fallen by 26% since then. Nevertheless, Chicago remains among the top ten metro areas in foreclosure rates.

Chicago Foreclosure ActivityThe country as a whole is also making steady progress as shown in the graph below, though you can clearly see that foreclosure activity remains above pre-bubble levels. RealtyTrac makes the comparison to the pre-recession period of Q1 2006 to Q3 2007 (a bit later in the game) and notes that foreclosure activity is now 21% below the average of that period. In just the last year it has dropped by 22% and it is at the lowest quarterly level since Q2 2006.

RealtyTrac confirms that Chicago foreclosure activity is also now below the pre-recession period, though it sounds like that is not the case for about half of the larger metro areas.

US Historical Foreclosure Activity

Daren Blomquist, senior vice president with ATTOM Data Solutions, commented on one counter-trend:

Although foreclosures are fading overall, there has been a notable an [sic] uptick in foreclosures completed by some nonbank entities — counter to the sharp downward foreclosure trend among big banks and government-backed loans. These divergent foreclosure trends are likely the result of the big banks and government agencies selling off distressed loans over the past few years to nonbank entities that are now foreclosing on an increasing volume of that deferred distress.

Chicago Shadow Inventory

However, it’s a little disappointing that the number of Chicago homes in some stage of the foreclosure process remains stubbornly above 10,000 although it has been coming down lately as you can see in the graph below. It’s just that we actually went in the wrong direction in June, with an increase of 91 units.

At least we’ve dealt with more than 72% of the problem that we had when I first started to track this data.

Chicago homes in foreclosure

But it looks like government continues to stand in the way of the country making further progress on this problem. The amount of time it takes  to complete a foreclosure hit a new record high of 883 days, which is up from 631 days a year ago. WTF?! That’s going in the wrong direction.

And Illinois is one of the worst states with an average time of 1,059 days (that’s almost 3 years!) compared to Virginia, which is the best state at only 176 days. So when you wonder why there are still so many boarded up buildings in certain parts of the city now you know why.

#Foreclosures #ChicagoForeclosures

Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

Original article: Chicago Foreclosure Activity: Defaults Approach New Low http://www.chicagonow.com/getting-real/2017/07/chicago-foreclosure-activity-defaults-approach-new-low/

 

 


Study Finds Gen X Homeowners Lacking in Equity

Written by Phil Hall, as seen on National Mortgage Professional News, July 18, 2017

While many people are ready to tuck the housing crash into the history books, its residue is still being felt by Gen X homeowners with minimal equity gains, according the latest Zillow Home Equity Report. Indeed, the Gen X demographic has almost as much equity as Millennials homeowners, even though the latter had far less time to gain equity.
Zillow found that the typical Millennial homeowner—someone less than 35 years old—owed their lender about 76 percent of their home’s current value, while the median Gen X homeowner—someone between 35 to 50 years old—owed 70 percent of their home’s value. In comparison, Baby Boomers owed about 56 percent of their home’s value, while seniors with a mortgage owed 45 percent.
“Roughly half of American wealth is held in home equity,” said Zillow Chief Economist Svenja Gudell. “Paying off the home mortgage is a key step toward retirement for most Americans, and it’s clear from these results that Generation X is further from that goal than older generations because of the Great Recession. The good news is that home values are still growing relatively fast in most places, building up home equity for homeowners who rely on the investment they’ve made in their home.”
Zillow also found the median homeowner with a mortgage has $78,683 in home equity, while homeowners who own their homes outright typically have $177,158 in home equity. The median homeowner has a loan-to-value ratio of 62.2, or owes 62.2 percent of their home’s current value, while 75.7 percent of homeowners have at least 20 percent equity in their homes. Five percent of mortgaged homeowners are close to owning their homes free and clear, but 10.4 percent of mortgaged homeowners have negative equity.

HUD’s Carson Warns of Senior Housing Crisis

Written by Phil Hall, as seen on National Mortgage Professional News, July 18, 2017

According to an Orlando Sentinel report, Dr. Carson raised the issue yesterday during his keynote speech at the LeadingAge Florida annual convention. Citing a proverb that “you can gauge a society by the way they treat their elderly,” he noted that market forces are not working in favor of older Americans on fixed incomes.
“I’m very concerned about seniors who become destitute, who are forced into low-income housing,” Dr. Carson said. “Many look to HUD for affordable housing or assisted housing, but they confront a brutal reality: The market is becoming more expensive. Inner cities have become high-end markets, pricing low- and middle-class Americans out.”
Dr. Carson pointed to HUD’s policies on reverse mortgages, including proposals that limit the initial amount of equity seniors can draw on while requiring a financial assessment to ensure seniors can to continue to pay property taxes and health care costs. He also stated his commitment to require lenders fully disclose all conditions of the reverse mortgage.
Ultimately, the HUD secretary cautioned that the issue should be the basis of a conversation and not a Washington-rooted monologue. “The government works for the people, the people don’t work for the government,” he said. “We need to listen carefully to what people are saying, and react in a way that increases everyone’s freedom. Through good health practices, good financial health [and] creative leveraging of finances, we’ll meet the needs of seniors and maintain their independence.”

Morning Briefing: HELOC owners face sharp payment increases in 2017

by Steve Randall

Challenging times are ahead for thousands of homeowners with HELOCs as their lines of credit reset with higher monthly payments while some may struggle to refinance.

Analysis by Black Knight Financial shows that 1.5 million HELOCs will see interest-only draw periods end this year with just under $100 billion in outstanding unpaid principal balances; an average of $62,500 per HELOC.

The data reveals that average borrowers whose lines of credit reset will face an additional cost of $250 per month, more than double the current average payment.

“In 2017, 19 percent of active HELOCs are facing reset,” said Ben Graboske, Black Knight Data & Analytics EVP. “This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016.”

Graboske explained that the lines resetting this year and early in 2018 are the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014.

A third of those with HELOCs resetting this year will find refinancing challenging as they have less than 20 per cent equity in their homes. A fifth have less than 10 per cent and 1 in 10 are underwater.

While that is a concern, it reveals a large improvement from 2016 when 45 per cent of HELOC owners were below 20 per cent and a fifth were underwater.

For most borrowers though, recent conditions have enabled them to avoid the addition monthly cost of a reset.

“One thing that’s working in the 2007 vintage HELOCs’ favor has been the equity and interest rate environment of the last year. Rising home prices and low interest rates throughout 2016 have allowed borrowers to be much more proactive than in years past in terms of paying off or refinancing their lines to avoid increased monthly payments,” Graboske explained.

*originally published on Mortgage Professional America’s website.


What Could Drive Another Mortgage Crisis?

Continued Policy That Damages Credit of Responsible Homeowners and the Apathetic Reason Nothing is Done

By Pam Marron
For National Mortgage Professional Magazine | Sept. 2016 Issue
There is no refinance available for as many as 6.4 million negative equity homeowners who have a conventional first mortgage not backed by government sponsored enterprises (GSE) Fannie Mae or Freddie Mac, or a second mortgage or home equity line of credit (HELOC) that is “underwater”, where more is owed on the mortgage than the home is worth. Many of these mortgages are interest only loans that are now resetting to fully amortized payments with increases seen as high as 400%+. Simply, because these loans have negative equity, there is no refinance available to reduce initial higher interest rates from years ago. The only option for affected homeowners is a modification or a short sale and both require the homeowner to be delinquent on their mortgage first.
These homeowners struggle to “stay put” in negative equity homes awaiting home values to return. If this problem is not taken seriously, the result will be a new wave of short sales that will have a negative impact on the housing industry. It is already happening.
And this time it is affecting the elderly.
Caps placed on the maximum loan-to-value of non-GSE 1st mortgages and the combined loan to value when 2nd mortgages and HELOCs exist are what holds back a refinance for these specific negative equity loans. Compound this with the interest only reset of many of these loans, and the problem is disastrous.
For too long, there has been a lack of attention to a refinance where none exists for negative equity homeowners. Many believe these homeowners “did it to themselves” and massive press about short sellers labeling them as “strategic defaulters” (or those able to make payments but refuse to) was overshadowed by the fact that negative equity homeowners who worked with banks to short sell homes were told by their own lenders that they could not get approved for the short sale until they were delinquent on their mortgage first. This policy continues to this day for most lenders.
But since 2013, reports have proven that 1”ruthless” or “strategic” default during the 2007-09 recession were relatively rare. In a 22015 follow up of this study, job loss and adverse financial shocks in addition to divorce, large medical expenses and other severe income loss attributed greatly to mortgage default. Most importantly in this report… While household-level employment and financial shocks are important drivers of mortgage default, analysis shows that financially distressed households do not default. More than 80% of unemployed households with less than 1 month of mortgage payments in savings are current on their mortgage payments.
Disdain of reasons for why negative equity occurred is often the primary focus of apathetic attention to a refinance solution. Instead, focus should be on a sustainable refinance for those on time with their mortgage payment to assist them to “stay put” longer.
There is no argument of “moral hazard” or “strategic default” for a refinance option that allows responsible homeowners breathing room to stay put. When homeowners are not struggling to make their payments, they keep up homes which increases the value of our communities.
We can continue to think that the negative equity problem has gone away in the United States but it has not.  More calls are coming in from elderly with no chance of increase in their income. Many of them did a refinance or a second mortgage to help other family members but are now stuck themselves. The reason for a refinance should not matter. And we shouldn’t require affected homeowners to be delinquent on their mortgage first causing a destruction of good credit that results in negative unintended consequences for future credit.
Instead, we should be questioning how we can stabilize areas where negative equity still exists.
There are solutions available with existing mortgage programs now. A white paper entitled “Urgent Attention Needed: Two Problems and Solutions That Exist for Responsible Homeowners Who Have Negative Equity in Their Homes” that provides U.S. and Florida data showing how many negative equity homeowners can be helped is at http://housingcrisisstories.com/wp-content/uploads/2016/07/Urgent.pdf.

1 Unemployment, Negative Equity, and Strategic Default | August 2013 |Federal Reserve Bank of Atlanta | http://www.urban.org/sites/default/files/gerardi-kerkenhoff-ohanian-willen-strategic-default.pdf 2  Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default | Sept. 21, 2015 | https://www.bostonfed.org/publications/research-department-working-paper/2015/cant-pay-or-wont-payunemployment-negative-equity-and-strategic-default.aspx


Feds Plan to Sue Moody’s Over Pre-2008 Securities Ratings

, as published on National Mortgage Professional.com

Friday, October 21, 2016 – 15:07

Moody’s Corp. has announced that the U.S. Department of Justice (DOJ) is planning to bring a civil complaint that charges the company with violating the Financial Institutions Reform, Recovery and Enforcement Act for its rating of residential mortgage-backed securities and collateralized debt obligations in the period before the 2008 financial crash.

According to a Bloomberg report, Moody’s revealed that it was informed of the DOJ’s plans in a September 29 letter from the department. Moody’s added that an unspecified number of state attorneys general may pursue similar claims, adding that the governmental probes into the case “remains ongoing and may expand to include additional theories.”
The DOJ offered no public comment on the report. Last year, another credit ratings agency, S&P, paid $1.5 billion to settle federal charges accusing it of improper ratings prior to the 2008 crash. S&P added that it accepted the settlement rather than deal with the “delay, uncertainty, inconvenience, and expense” of litigation.

Yellen Raises the Possibility of a “High-Pressure” Economy

from National Mortgage Professional Magazine, Friday, October 14, 2016

Federal Reserve Chairwoman Janet Yellen took a dramatic departure from her usual talking points to wonder aloud if a “high-pressure” economy would be able to erase the lingering economic wreckage created by the 2008 crash.

According to a Reuters report, Yellen used a speech today before an economics conference to outline potential solutions to the continued problems that have prevented a complete recovery from the last recession. Yellen stated whether a fix could be achieved “by temporarily running a ‘high-pressure economy,’ with robust aggregate demand and a tight labor market. One can certainly identify plausible ways in which this might occur. Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects. In addition, a tight labor market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more efficient—and, hence, more productive—job matches. Finally, albeit more speculatively, strong demand could potentially yield significant productivity.”

Yellen did not speculate on what this scenario would mean for the housing market, which has seen home prices rising far ahead of wages. Nor did she address what has become the new guessing game in economic political circles: when will the Fed start to raise interest rates with greater regularity? Instead, her comments pointed to a new toolbox that central bankers would be able to use in the event that the 2008 situation were to happen again.

“If strong economic conditions can partially reverse supply-side damage after it has occurred, then policymakers may want to aim at being more accommodative during recoveries than would be called for under the traditional view that supply is largely independent of demand,” Yellen said, adding that it would “make it even more important for policymakers to act quickly and aggressively in response to a recession, because doing so would help to reduce the depth and persistence of the downturn.”


Even if Refinancing Looks Like a No-Brainer…

from MortgageNewsDaily.com, Sep 28 2016, 12:27PM

Why are so many people holding on to mortgages with high interest rates?  Sentiment? Inertia?

Apparently not.  In the current issue of CoreLogic’s MarketPulse, Principal Economist Molly Boesel drills down into the universe of borrowers who are standing fast with their old loans, even though it looks on paper like a refinance would be a smart move.  She finds that many of these borrowers haven’t refinanced either because they can’t or it really isn’t worth it.

Looking at the mortgages that were outstanding at the end of May, Boesel found that 41 percent of them representing 31 percent of unpaid principal balance (UPB) had mortgage rates greater than 4.38 percent, roughly 100 basis points higher than the current rates at that juncture and a point at which refinancing makes financial sense.  Eighteen percent of all mortgages (representing 17 percent of UPB) have rates between 4.38 and 5.0 percent, and 23 percent have rates over 5 percent.  Why wouldn’t these borrowers refinance?

First she found that a lot of them are currently seriously delinquent on their existing loans. While only about 2 percent of low interest rate mortgages (under 5 percent) are seriously delinquent, 12 percent of those with rates above 7 percent are 90 or more days past due and would be unlikely to qualify for a new mortgage.

 

Even current mortgages with high rates present a difficult credit profile.  Between 30 and 50 percent of loans with rates over 5 percent have at some point had a 30-day delinquency.  The incidence rises with the rate.  Only about 11 percent of those with rates below 5 percent have at some point been 30 days overdue.  Those “ever late” borrowers may not be able to qualify for a low enough rate to make refinancing attractive.

 

 

Boesel also removed mortgages in private-label securities from the list of refinancable borrowers because they would not be eligible for HARP loans that are reserved for refinancing Fannie Mae and Freddie Mac loans.

After taking the currently delinquent, ever delinquent, and private label loans out of the mix she found that the share of loans with interest rates greater than 5 percent had fallen to 13 percent of those outstanding and to 7 percent of UPB.  And that latter number is the final piece of the puzzle.

 

 

Small outstanding balances may not be worth refinancing as the resulting savings would be low. The figure above shows the average UPB of outstanding mortgages that have never been delinquent and are not in private pools by their interest rate.  Those borrowers with rates above 5% have very low UPB; those above 7 percent have average balances of $53,000.

While mortgages rates are near historic loans, Boesel concludes, there may not be many borrowers left who have the incentive or are eligible to refinance.



Wages Lag Home Prices; Affordability Suffers

from Mortgage News Daily, Sep 29 2016, 12:57PM

The lack of housing affordability is rising among the 414 U.S. counties tracked by ATTOM Data Solutions.  ATTOM, the new parent company of RealtyTrac, said on Thursday that 24 percent of those counties were less affordable than their historic averages in the third quarter of 2016, up from 22 percent in the second quarter and 19 percent a year earlier.  It was the highest share for this metric since the third quarter of 2009 when 47 percent of markets had fallen below their historic affordability averages.

ATTOM reports that 101 of the 414 counties had an affordability index below 100 in the third quarter of 2016, meaning that buying a median-priced home in that county was less affordable than the historic average for that county going back to the first quarter of 2005.

ATTOM’s affordability index is based on the percentage of average wages (taken from the U.S. Bureau of Labor Statistics) that is needed to make monthly house payments on a median priced home (as determined from publicly recorded sales deeds.) That payment is composed of principle, interest on a 30-year fixed rate mortgage with a 3 percent downpayment and including property taxes, and insurance.

“The improving affordability trend we noted in our second quarter report reversed course in the third quarter as home price appreciation accelerated in the majority of markets and wage growth slowed in the majority of local markets as well as nationwide, where average weekly wages declined in the first quarter of this year following 13 consecutive quarters with year-over-year increases,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “This unhealthy combination resulted in worsening affordability in 63 percent of markets despite mortgage rates that are down 45 basis points from a year ago.

 

 

Counties that were less affordable than their historic averages in Q3 included Harris County (Houston), Kings County (Brooklyn); Dallas County; Bexar County (San Antonio); and Alameda County in the San Francisco metro area.

Counties still affordable by historic standards included Los Angeles County, Cook County (Chicago); Maricopa County (Phoenix); Miami-Dade County; and Queens County, New York.

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FHFA Announces New Streamlined Refinance Offering for High LTV Borrowers: HARP Extended through September 2017

8/25/2016

Washington, D.C. – The Federal Housing Finance Agency (FHFA) today announced that Fannie Mae and Freddie Mac (the Enterprises), at FHFA’s direction, will implement a new refinance offering aimed at borrowers with high loan-to-value (LTV) ratios.  The new refinance offering will provide much-needed liquidity for borrowers who are current on their mortgage but are unable to refinance through traditional programs because their LTV ratio exceeds the Enterprises’ maximum limits.

“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for the Enterprises,” said FHFA Director Melvin L. Watt.  “This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac.”

Eligibility

In order to qualify for the new offering, borrowers: (1) must not have missed any mortgage payments in the previous six months; (2) must not have missed more than one payment in the previous 12 months; (3) must have a source of income; and (4) must receive a benefit from the refinance such as a reduction in their monthly mortgage payment.  Full details will be available in the coming months through the Enterprises, but the offering will make use of the lessons learned from the Home Affordable Refinance Program (HARP) and its streamlined approach to refinancing.

Read more


HARP to Form ‘Bridge’ to New Refi Option in ’17, FHFA Says

By
from National Mortgage News

The Federal Housing Finance Agency said Thursday the Home Affordable Refinancing Program will be extended an additional year, and also announced a new refinancing opportunity specifically for borrowers with high loan-to-value ratios.

FHFA, which regulates Fannie Mae and Freddie Mac, said the two government-sponsored enterprises will roll out the new refinancing program in October 2017. It will be more targeted than HARP, the agency said, and will focus on borrowers whose LTV ratios are higher than the GSEs’ allowable limits. Standard Fannie and Freddie refinancing programs don’t allow refinancing for LTVs above 97%.

“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for the enterprises,” said FHFA director Mel Watt in a press release.

But the agency added that extending HARP through Sept. 30, 2017 will provide a “bridge” for high LTV borrowers to seek a refinancing option before the new program is fully implemented.

The HARP program has allowed 3.4 million borrowers to refinance their loans, taking advantage of lower mortgage rates and reducing their monthly payments. HARP was first introduced in April 2009 by former acting FHFA Director Edward DeMarco.

Once the HARP program expires, the new high LTV program will continue to provide underwater homeowners who are current on their payments a refinancing option. To qualify for the new program, the FHFA said, borrowers cannot have missed a mortgage payment in the previous six months or more than one payment in the previous year. They must have a source of income and the refinancing must result in a benefit such as a reduced monthly payment. FHFA will provide more details about the new refinancing option in the coming months, according to the press release.

“This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac,” Watt said.

Only 38,300 borrowers refinanced through HARP in the first half of 2016. In 2015, HARP refis totaled 110,111, down from 212,489 in 2014.

 


Prevent the next Housing Crisis

How to Prevent the Next Housing Crisis

By Staff KnowledgeWharton – from The Fiscal Times

Loan Delinquency Rate Up, Potential Home Sales Improve

by Phil Hall, August 22, 2016 as published on National Mortgage Professional Magazine

The week is getting off to a bit of a decent start, at least in terms of the latest housing market data.

Black Knight Financial Services’ “first look” at July’s mortgage environment has determined that the U.S. home loan delinquency rate rose 4.78 percent from June, although it is down 3.38 percent from July 2015. There were more solid numbers regarding foreclosure starts—61,300 in July, down 11.54 percent from June and down 14.27 percent from a year ago—and on the total pre-sale foreclosure inventory—1.09 percent, down 1.68 percent from the previous month and down a significant 28.36 percent from one year earlier.

However, the number of properties that are 30 or more days past due but not in foreclosure reached nearly 2.3 million, up 108,000 from June but down 70,000 from July 2015.

Separately, First American Financial Corp.’s proprietary Potential Home Sales model determined that the market for existing-home sales underperformed its potential in July by 1.3 percent or an estimated 92,000 seasonally adjusted, annualized rate (SAAR) of sales. This an improvement over June’s revised under-performance gap of 1.8 percent, or 104,000 (SAAR) sales. First American also reported that the market potential for existing-home sales grew last month by 0.15 percent compared to June, an increase of 8,000 (SAAR) sales, and increased by 5.4 percent compared to a year ago.

However, Mark Fleming, chief economist at First American, noted that a thorny problem that has bedeviled the housing recovery is showing no signs of abating.

“Low inventories still remain an issue, dropping to a 4.6-month supply, down from the 4.7-month supply seen in April and May, and from the 4.9-month supply of June 2015,” he said. “The constrained supply in this sellers’ market continues to frustrate potential homebuyers and adds further upward pressure to nominal home prices, which rose an estimated five percent year-over-year in May, according to the Case-Shiller House Price Index.”


More than 10% of Homeowners Still Underwater: Zillow

By

The share of homeowners who owe more than their house is worth remains above 10% nationwide, according to data from Zillow’s second quarter Negative Equity Report.

Zillow said Thursday that 12.1% of homeowners with a mortgage are underwater, which is down from 12.7% in the previous quarter and from 14.4% a year ago.

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Democrat vs republican

Clinton vs. Trump: Different visions for housing finance

By Victor Whitman, Reprinted from the Scotsman Guide

Republicans and Democrats have approved party platforms with fundamentally different views on the role of government in housing and housing finance. As the presidential election shifts into high gear, we’ve looked at what both parties and the presidential candidates have to say about the future role of government in housing finance.

Republicans

The Republican platform makes the case for cutting regulations and the government’s role in housing. The document sharply criticizes the sweeping financial reforms under Dodd-Frank, calling the 2010 law the Democrats “legislative Godzilla” that is “crushing small and community banks and other lenders.” It also singles out the consumer watchdog agency created by Dodd-Frank, the Consumer Financial Protection Bureau (CFPB). According to the Republican platform, the CFPB is “a rogue agency” that if “not abolished, it should be subjected to congressional appropriation.”

Republicans also directly blame the government-sponsored enterprises Fannie Mae and Freddie Mac for sparking the 2008 housing crisis.

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Payment Reductions Should Continue After HAMP Expires: Regulators

By Brian Collins, from National Mortgage News
July 25, 2016

Federal regulators warned mortgage servicers Monday that they will still expect them to offer loan modifications to distressed homeowners even after the Home Affordable Modification Program expires at year-end.

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Democratic Platform Shifts from Post-Crisis Recovery to Housing Access

By Bonnie Sinnock, from National Mortgage News
July 25, 2016

Democrats will adopt a party platform this week that omits most references to a need for continued post-housing crisis reforms, and instead focuses on expanding access to mortgage credit and support for industry regulation.

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Post-Foreclosure Consumers Are Ready to Rejoin Economy

From Bloomberg News, July 7, 2016

Millions of Americans lost their homes to foreclosures or short sales during the housing crisis. Fortunately for the economy, time heals most wounds — and credit reports.

The number of people joining the rolls of those knocked from homeownership peaked seven years ago, so those blotches to their histories are starting to roll off the books right about now. The resulting improvement in credit scores means more Americans will find themselves with the ability and means to once again apply for loans, and not just for home purchases.

“Improving credit scores might entice households to start borrowing more in general,” said Ralph McLaughlin, chief economist at real estate search engine Trulia. And what better time than now, when interest rates are so low.

That, combined with sustained gains in employment and bigger increases in pay, could give consumer spending, which accounts for almost 70% of the U.S. economy, an added lift over the next couple of years. The impact, though, is hard to quantify because it’s difficult to estimate how many people will once again be emboldened to borrow after experiencing such a shock, said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.

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Over 20% Say Housing Will Affect Their Choice for President

by Jacob Passer, National Mortgage News – June 22, 2016

More than one in five Americans say the presidential candidates’ policies on housing and finance will shape their vote in November, according to the results of a survey conducted for loanDepot.

Altogether, 21% of survey respondents said that these policies will influence their choice of candidate, loanDepot reported Wednesday. But 36% of survey-takers said that the presidential candidates are not articulating their policies in these areas well.

Nevertheless, folks across the country are hungry for more: 35% of respondents said they want to hear more from the candidates on housing and finance, and that figure rose to 56% for Democrats and 39% for Republicans.

“People across the nation told us they want to hear more from the presidential candidates about their housing and financial policies on issues like income, access to credit, interest rates and affordable housing,” loanDepot Chairman and Chief Executive Anthony Hsieh said in the release.

“The candidate who does a good job in communicating their policies moving forward has an opportunity to influence millions of potential voters.”

Regarding the next president’s first 100 days in office, 37% of respondents said increasing the affordability of homeownership for lower- and middle-income families ranked as the top economic or housing priority to be addressed. Next was keeping interest rates low, 34%, and increasing the availability of credit to small businesses, 11%.

Nearly half of both Democrats and Republicans also responded that they wanted interest rates to remain low during the first 100 days of the next president’s term.

As for voters’ expectations of how the next president would affect their financial situation, 66% said they expected their situation to remain the same while 24% believe they will be worse off. Just 6% of voters expect the next president to improve their financial situation.

But loanDepot noted in the survey that voters’ perceptions don’t always align with reality. Case in point: 38% of respondents said they think it is harder to get a home loan today than it was immediately after the financial crisis. But as loanDepot notes, citing data from the Federal Reserve, denial rates for purchase loan applications reached 18% in 2008 versus 13% in 2014, the most recent year for which data is available.

The survey was conducted by Omniweb and included 1,000 adults, split evenly between men and women.


Rising Prices Should Take 1M More Owners Out of Negative Equity

by Jacob Passy (National Mortgage News)

There were more than a million homeowners whose properties exited negative equity status over the past year, with the potential for another million to do so if home prices continue to rise, according to CoreLogic.

CoreLogic reported Thursday that the number of underwater properties at the end of the first quarter totaled 4 million, which equates to 8% of all homes with a mortgage. That figure was down 6.2% from the fourth quarter and 21.5% from a year ago.

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Negative Equity Falls Nationally, Finds Foothold in Midwest

(by Jacob Passy – National Mortgage News)

While negative equity rates continue to drop nationally from their 2012 peak, the share of homeowners underwater in the Rust Belt remains elevated, according to data from Zillow.

The negative equity rate, which measures the share of all homeowners with a mortgage who owe more than their home is worth, was 12.7% during the first quarter, down from 13.1% in the fourth quarter and 15.4% in the first quarter of 2015. The negative equity rate hit its peak in the first quarter of 2012 at 31.4% and has either fallen or held steady every quarter since then, Zillow said Wednesday.

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