Category Archives: Real Estate

Economic growth to slow down

Fannie Mae expects economic growth to average 2.4% in the second half of 2016. While this is up from the 1.1% for the first half of the year, it is a slower pace than what Fannie Mae previously forecasted, according to the company’s October 2016 Economic and Housing Outlook.

“Recent economic data have been a mixed bag, the good, the bad, and the steady,” said Fannie Mae Chief Economist Doug Duncan. “On the upside, the third print of second quarter GDP showed that the economy grew three-tenths higher than in the second estimate, with an encouraging upward revision in nonresidential fixed investment.”

“The steady news comes from the labor market, with relatively decent conditions overall,” Duncan said. “The biggest doses of bad news come from consumer spending, the linchpin of economic growth, and residential investment, which appears to have posted a second consecutive sizable drop in the third quarter.”

The economy is project to grow in the third quarter due to improvements in inventory investment and trade. However, it will be dampened by a decrease in domestic demand, the report stated.

Consumer spending decreased in August for the first time since January and the personal saving rate ticked up, suggesting consumers are feeling increasingly cautious, according to the report.

Furthermore, consumer spending is expected to only continue decreasing in the fourth quarter this year.

“Emerging signs of improving homeownership demand among young adults have been encouraging,” Duncan said. “However, housing activity has lost momentum in recent months.”

“Existing home sales, new home sales, single-family housing starts, and single-family construction spending declined in August,” he said. “In addition, pending home sales and purchase mortgage applications weakened during the month, suggesting continued weakness in existing home sales in the near term amid very lean supply.”

But while Fannie Mae is predicting a slower growth rate than what it previously said,Freddie Mac points out that housing is in fact a bright spot in the economy.

It’s an unlikely statement given rising home prices and dwindling inventory, but it’s exactly what Freddie Mac stated in its monthly Outlook for October.

Home cheaper than renting

Home prices are rising across the nation to levels not seen since before the download-36housing crisis and yet, it’s still cheaper to buy than rent, according to a new study by online real estate listing service Trulia.

Buying a home is 37.7% cheaper than renting on a national basis for those who move every seven years and place 20% down. This is even more affordable than last year’s 37.2%.

Buying is becoming more affordable than renting even while the median home prices continues to rise. The median existing home price increased 5.6% annually for all housing types in September to $234,200, according to the National Association of Realtors.

Buying is actually cheaper than renting in all 100 of the largest metropolitan areas in the U.S.

How much cheaper ranges from 20% in Honolulu and San Francisco to 50% in Miami and Ft. Lauderdale, Florida.

While the Fed may raise interest rates this year, rising home prices actually pose a larger threat to affordability. In order to wipe out the financial advantage of buying, mortgage rates would need to more than double, according to the report. On the other hand, prices would need to increase 67%.

In areas like San Jose, California, prices would only need to increase 24%, and rates would have to increase by 45% for buying to cost the same as renting.

Mortgage rates increased this week to pre-Brexit levels, however they still remain historically low.

Some members of the Federal Open Market Committee expressed concern over the prolonged low interest rates, and pointed towards a possible rate hike in December.

This chart shows how much interest rates would need to increase for renting to become more affordable:

Time really is money

To some degree, the Millennial homebuyer market (especially the first-time homebuyer) must seem like the Holy Grail or a unicorn herd to mortgage lenders. It’s a large segment — about one quarter of the American population at about 80 million people. Some estimate that at about $200 billion in purchase power. Plus, it’s only now growing into its purchase potential. It’s reaching an average age when Americans traditionally begin purchasing homes. And yet, by all accounts, they’re not. Not yet.

The peripheral numbers add up for potential. The Deloitte Millennial Survey, 2016, asserts that Millennials want to, at some point, be homeowners.

Survey respondents indicate little desire to be famous, have a high profile on social media, or accumulate great wealth. Instead, in broad terms, Millennials’ personal goals are more traditional. They seek a good work/life balance, they want to own their own homes, they desire a partner for life, and they strive for financial security that allows them to save enough money for a comfortable retirement.

However, a recent Forbes survey of influential Millennial-aged professionals suggests that Millennials are in no rush to purchase a home, even if it is a long-term goal. Only 19% told Forbes that their highest financial priority involved purchasing a home. Conversely, 44% stated that “funding an entrepreneurial venture” was, instead, their highest financial aspiration.

Similarly, the same survey suggested that, while 80% of respondents still “believe in the American Dream,” only 5% reported that they felt that dream was “owning your own home.” In contrast, 33% felt that “owning your own company” is, in fact, the American dream.

There are numbers to be found for and against the argument that Millennials will be settling into the role of traditional homebuyers any time now. However, what we do know for sure about this generation is that it isn’t like any previous consumer generation we’ve seen. As a result, it’s time to ask what — if anything — will provide the “typical” Millennial incentive to accelerate her home purchase plans.

So what do we know about the Millennial (or, at least, what seems reasonably established if we are to paint 80 million people with broad strokes)?  A 2015 survey by Elite Daily set forth findings that seem to confirm some of the assumptions we’ve seen made about Millennials. Dan Schwebel, a contributor to Forbes, summarized some of these findings:

  1. Millennials would rather buy a car and lease a house.
  2. Millennials were hit hard by student debt, compounded by the consequences of the “Great Recession.” As a result, they tend to be debt-averse.
  3. They are virtually oblivious to traditional advertising, preferring authenticity and referral to sales pitches and puffery.
  4. They do not base purchases upon their potential, but rather need and value.
  5. They expect brands to give back to society, but are loyal to brands that do.
  6. They are early adopters when it comes to technology.

So what does this mean for those seeking to sell mortgage loans to Millennials? We’d suggest the following:

1. Income only represents part of the picture when choosing your target demographics.

No matter what study or survey we read, it’s apparent that, if there is such a thing as a “typical” Millennial, he/she is more concerned about larger social issues than personal status. This generation, it would seem, tends to be community-driven. It has been burned, collectively, by debt and economic downturn — especially a recession perceived to have been driven by greed.

As a result, “tiny housing,” “green living,” a rise in urban migration and even the introduction of the 15-year fixed mortgage are all indicators that selling a home to a Millennial homebuyer will quickly dispel the assumption that he or she will be interested in buying as much (or more) as he can afford. Many other factors will be involved.

2. The marketing process must be authentic, tell real stories and indicate, above all else, patience. The Millennial will not be rushed…

It appears this is a relationship-focused generation; a group that derives satisfaction from networks and collaboration. It seems likely that the lender or broker able to most successfully engage Millennials as homebuyers will be the one that builds an authentic relationship with him or her, rather than the one with the best Super Bowl advertisement.

3. …unless he/she has committed. Millennials do not understand, nor will they tolerate, an unnecessarily slow purchase process. That includes mortgages.

Once the sale is made, however, lenders and brokers alike will quickly realize (if they didn’t already) that the Millennial generation is comprised of fairly savvy purchasers. This is a group that was born as home computing emerged, grew into adolescence with the Internet, and which completed student loan applications (as well as virtually every other major purchase or loan) on mobile devices. It seems fair to say that pushing a stack of archaic origination or closing documents in front of a potential homebuyer of Millennial age will become a thing of the past quickly.

4. If you aren’t using technology in all phases of the transaction, and well, you’ll need a very good reason.

Generation Y is immersed in technology, spending an average of 35 hours per week with digital media, nearly twice as much as non-Millennials, according to Cultural Outreach Solutions.

Approximately 94% are active users of online banking, 72% are active users of mobile banking and 92% are active users of social media, Accenture’s report on the ‘Digital Disruption in Banking’ stated.

It’s fair to state that a Millennial’s need for an efficient, technology-driven home purchase transaction will transcend e-mortgages. He or she will likely want to know why it takes 40 to 50 days to close a loan. He or she will certainly not understand why some title abstracts take longer than others to obtain — especially during a time when almost anyone can visually zoom in on virtually any geographical point in the world using an iPhone and Google Maps.

Family rentals drop to lowest level

Single-family rental returns dropped to the lowest level in nine years for homes purchased so far in 2016 among the 473 counties analyzed in the Q3 2016 Single Family Rental Market Report from ATTOM Data Solutions, a source for housing data and the parent company of RealtyTrac.

The average annual gross rental yield, defined as the monthly rent, annualized, divided by the median home price, came in at 8.7% in the first seven months of 2016, according to the report. This is down from 8.8% in 2015, and the lowest level since 2007’s 7.3%.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” ATTOM Senior Vice President Daren Blomquist said. “After a drop-off in single family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.”

“Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single-family homes, one in every four single-family homes, these single-family rental investors will be an important and likely growing force in the real estate market for years to come,” Blomquist said.

During the first seven months of 2016, 2.7% of all single-family home sales were purchased by institutional investors. This is an increase of 29% from the 2.1% share in 2015.

“The single-family rental operations have been proven in a public market,” said Gary Beasley, CEO and co-founder at Roofstock, an online marketplace for performing, tenant-occupied single-family rental homes. “These homes can be managed like apartments.”

“When we first got started, we thought we could do that, but in the last year or so investors are really starting to believe it,” Beasley said. “You’ve seen a couple of the public companies ramp back up on buying along with other institutional investors who have been on the sidelines who now want to get involved.”

Drops four weeks straight

Appraisal volume continues to struggle to lift off this fall, with volume now declining four weeks straight, according to the latest report from a la mode.

For the week of Oct. 9, the National Appraisal Volume Index slightly dipped 0.1%. However, the drop is smaller than the last report’s 4.1% decline and is the smallest drop over the last four weeks.

As a result of this week’s decline, the four-week moving average fell into negative territory, falling to -0.9%.

The report noted that rising interest rates have put a slight damper on the market. Thelatest report from Freddie Mac stated that mortgage interest rates are at their highest level in four months, now hitting pre-Brexit levels.

Check the chart below, which is provided exclusively to HousingWire, to see appraisal volume over the past four weeks.

Click to enlarge

As a reminder for those new to the data, appraisal volume is an indicator of market strength and holds some advantages over weekly mortgage applications.

For example, fallout is less for appraisals since they are ordered later in the mortgage process, after creditworthiness is determined, and there are few multiple-orders, by the time an appraisal is conducted.

Lately, the Mortgage Bankers Association Weekly Mortgage Applications Survey has mirrored appraisal volume, posting very meager changes over the past several weeks.