ROGER W. WEBB

Student debt is impacting the housing market, according to David Rosenberg, Gluskin Sheff's Chief Economist & Strategist. In an article published by Business Insider, Rosenberg discusses how high levels of student loan debt are locking many potential buyers out of the market.

“The lack of opportunity has led to the share of 'kids' between the ages of 25 and 34 that are living at home rising to 17% from 12% a decade ago,” Rosenberg said. He also noted how the weight of student loan debt across the country has had a negative impact on marriage and fertility rates, as well as enrollment in post-secondary school, leading to slower household formation.

Outstanding student loan debts have topped $1.6 trillion, up by around 130%‎ over the past decade, and the late payment rate sits at around 10%.

“If you are in arrears on this type of debt, forget getting a FICO score and forget having the leeway to secure any sort of loan for years after missing a payment,” he adds.

“This is one reason why we never did have a normal housing market cycle beyond the 'buy for rent' investor craze that began nearly a decade ago,” Rosenberg said. “The home sales share in this economic expansion represented by the first-time buyer rarely got above 30%, whereas a typical bull market in residential real estate sees this share hovering between 40% and 50% in any given month.”

In the annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon recently echoed Rosenberg’s sentiment, noting how the increase in student loans has held the mortgage industry back.

“Irrational student lending, soaring college costs, and the burden of student loans have become a significant issue,” Dimon said. “The impact of student debt is now affecting mortgage credit and household formation—a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8%. Recent research shows that the burdens of student debt are now starting to affect the economy.”

Author:  Seth Welborn of DSNEWS 

Zillow’s 2019 predictions indicated that rising mortgage rates and an increasing demand for rentals set the stage for the 2019 housing market, as even current homeowners start to feel locked into their mortgage rates.

Despite steady rise during the past two years, mortgage rates remained lower than they were during the recession and below average, given the current level of economic growth. The report stated this trend will change in 2019 as the 30-year fixed rate mortgage reaches 5.8 percent. It also noted that affordability will take a hit, making homeownership difficult for many. Currently, rising mortgage payments outpace the home-value gains—a phenomenon that may encourage homeowners to stay put as they hold on to low mortgage rates and discourage first-time homebuyers— according to Zillow.

As higher rates hinder affordability, aspiring homeowners will continue renting, as a result of which the slight drops in rent, in the recent past, will reverse and turn positive again, the report revealed. However, the continued steady investment in apartment construction will prevent rents from drastically surging above income growth. The report also noted that in the third quarter of 2018, the U.S. median rent cost 28.2 percent of the U.S. median income – considerably higher than the 25.8 percent renters paid historically.

Zillow expects an increase in the disconnect between urban jobs and suburban residents to continue in 2019, and contribute to longer, more crowded commutes. This will affect those who have long commutes to live within their means as most jobs are confined to urban areas, and affording a home in urban markets. For example, a home in Boston is valued 303 percent more per square foot than a typical outlying home, while the premium for homes in central Washington, D.C., compared to outlying areas is 218 percent per square foot, the report noted.

Pointing out the areas that lost Amazon’s headquarters bids to suburban New York and Washington, D.C., the report said that Atlanta, a former Amazon HQ2 contender, has seen some action despite it being passed over by the prime vendor. A smaller Seattle-based company named Convoy is expected to open its East Coast office in the metro. There is also a possibility that Norfolk Southern may relocate its headquarters there.

In the wake of deadly fires that tore into California, builders and developers will focus on preventative and/or protected building materials and designs, according to Zillow. Building costs are surging, and insurers are apprehensive offering policies in danger zones leading to slower and costlier rebuilding. Zillow’s projections for homes inundated by rising sea levels and storm surges over the course of a typical 30-year mortgage begun in 2020 are not encouraging.

In October, home values were up 7.7 percent from a year earlier, to a U.S. median of $221,500. One mitigating effect to rising mortgage rates will be slower home value growth, Zillow indicated. Forecasting a growth of 6.4 percent from October 2018 to October 2019; a Zillow survey of housing experts and economists anticipates a 3.79 percent increase in home values for 2019. Both forecasts indicate cooling from red-hot growth of 8 percent in March of this year.

About Author: Donna Joseph of DSNEWS

The fixer-upper culture is gaining traction among millennial homebuyers given the affordability of these homes as an initial purchase. However, it is interesting to note that many young Americans rely heavily on online platforms for inspiration.

“Pins & Properties: Chasing Your Dream Home” a report put together by Chase Home Lending and  Pinterest, reveals that millennials are the largest group of homebuyers today. Nearly two-thirds of millennials consider homebuying a goal they are determined to reach in their lives and 70 percent consider it the best long-term investment. Nearly 95 percent of the millennials said they planned some kind of renovation in the next three years.

“For the second year in a row, millennials make up the largest group of homebuyers, seeing the value of this smart investment,” said Amy Bonitatibus, Chief Marketing and Communications Officer for Chase Home Lending.

As most first time homebuyers do not have the income to afford their dream home right away, they purchase starter homes and make substantial upgrades eventually. Eighty-seven percent millennials are planning some kind of renovation and 68 percent intend to spend at least $20,000 on renovation projects. Seventy-five percent plan to finance home renovation projects by tapping the equity in their homes, the report found.

Millennials are paying close attention to smaller and affordable renovation and ideas. Logistics and affordability are key factors for many who are preparing for a growing family.

Jon Kaplan, Global Head of Partnerships, Pinterest, said, “Chase and Pinterest have similar missions in helping people make their dreams a reality. The partnership between our companies on the Chase Dream Boards visual interactive experience demonstrates the way in which we're able to offer personalized recommendations that deliver unique value and guidance to potential home renovators.

The report noted that pinners continue to prioritize DIY projects at home for decor and personalization, setting up a gym or laying bathroom countertops. Millennial homeowners also ranked ‘new landscaping’ as their top choice for renovation space. Projects like a closet overhaul are increasing over 7,000 percent in year-over-year search results.

Pinterest said that it has experienced an increase in searches for ‘gold bar carts’ by 300 percent since 2017. Those looking to remodel outdoor areas were found 1.7times as likely to search for backyard party ideas. Interestingly, these Pinterest users are more than 1.5 times as likely to search for topics on budgeting as financial planning assumes great significance among first-time homebuyers.

Author: DSNEWS -  Donna Joseph

What caused the housing crisis, and what can we learn from it to prevent another? In her paper titled“Failure to learn from failure: The 2008 mortgage crisis as a déjà vu of the mortgage meltdown of 1994” Natalya Vinokurova, Assistant Professor of Management at the Wharton School, cites several key factors as instrumental in the Great Recession of 2008, including the introduction of mortgage-backed securities and the development of tranching.

First, Vinokurova notes that when they were introduced, mortgage-backed securities (MBS) were not believed to be bonds. MBS were originally introduced to, according to Vinokurova’s research, find funding for the baby boomers as they began to buy houses in the 1970’s.

According to Vinokurova, MBS and bonds are different “on a number of levels.” Investors would have the risk of a mortgage-backed security being payed off earlier than expected.

“The dimension that bond investors were most concerned about in the 1970s and early 1980s was prepayment risk, with the idea being that mortgage-backed securities are bundles of mortgages,” said Vinokurova. “Your average borrower can repay his or her mortgage at any time. Most of the time, these borrowers would not incur a penalty. As an investor, this meant that if you were buying a security backed by 30-year mortgages, there was a very small chance that the security would still be around 30 years out.”

“As a bond investor, somebody’s trying to sell you something and they can’t even tell you how long this thing is going to be around. Obviously, bond investors pushed back,” Vinokurova added.

Tranching was an important development in getting investors to accept MBS as bonds, as it divided the investors into different levels of risk.

“You had the junior tranches, which were supposed to absorb the risk,” said Vinokurova. “The senior tranches were protected by the fact that you had the junior tranches as part of the security.”

The first security only had three tranches, but by the 1990’s there were securities with up to 68 tranches. When Freddie Mac issued the collateralized mortgage obligation in 1983, bond investors in each tranch were finally given a ballpark range of repayment. After a while, though, the junior tranch disappeared, leaving the senior tranches vulnerable. Vinokurova’s paper discusses how the faith in tranching, followed by increased bond investor capital into the mortgage market “is exactly predictive of the events of 2008.”

According to Vinokurova, the solution is to force people who work in the industry to remember the previous cycle and its mistakes.

“Once the securities were introduced, you don’t see any of these actors making specific appeals to these prior experiences. As they don’t remember the history, they literally repeat it,” said Vinokurova.

“The question is, are we now back at the end of the cycle, heading toward another recession?

I think that house price inflation is an incredibly potent signal of us being in a bubble, of us being on the verge of a crisis,” she said. “I think the quantitative easing, which is effectively creating liquidity by printing money, has been shown by folks like Markus Brunnermeier at Princeton to bring about crises.”

“When you have too much money chasing too few attractive options, you end up in the bubble. And the bubble will have to burst,” Vinokurova added.

The best solution, according to Vinokurova, is to just learn from the past.

“I feel like one of the challenges reformers often face is that they think they are the first people who tried to reform the system, and I feel like learning from the people who came before them would actually be helpful.”

Find the Wharton School interview on Vinokurova's paper here.

 About Author: Seth Welborn

New home sales slipped 5.3 percent to 631,000 in June 2018, compared with the previous month. Yet they remained 2.4 percent above the same period last year, according to the latest data on the sales of new single-family houses released by the U.S. Census Bureau and the Department of Housing and Urban Development.

According to the data, the median sales price of new houses sold in June was $302,100, whereas the average home sold for $363,300.

The data also indicated a rise in the inventory of new homes. Around 301,000 new homes were available for sale at the end of June representing a supply of 5.7 months at the current sales rate.

"Affordable homes have become severely depleted and any boost in inventory would provide some much-needed relief for weary first-time buyers," said Danielle Hale, Chief Economist at Realtor.com. 

Tian Liu, Chief Economist at Genworth Mortgage Insurance agreed, saying that new home sales were driven by a "strong shift in housing demand toward owner-occupied housing, a lack of available alternatives in the previous-owned market, and historically-low construction for the past decade."

"The inventory of homes for sale also rose to the highest since May 2009 and months’ supply of 5.7 was the highest since August 2017," said Tendayi Kapfidze, Chief Economist at LendingTree. However, he pointed out that the 3-month average of 646,000 home sales was at the weakest level since February and coupled with weakness in existing home sales "may be signaling a peak in home sales."

"After disappointing news earlier on existing home sales and new construction, which raised concerns of a housing slowdown, new home sales were mixed," said Hale.  "Strong employment and moderate income growth are driving sales. If employment levels continue their current trajectory we expect to see new home sales growth continue for the rest of the year."

Kapfidze also pointed out to the margin pressure on homebuilders that likely affected the sale of new homes. "We had previously expected the tax cuts to improve builder margins by 10-15 percent, which we anticipated may have led builders to consider increasing activity at the lower end of the market where inventory challenges are particularly acute," Kapfidze said. "The tariffs may negate this benefit."

On the brighter side though, home prices have also fallen. "Although two months is hardly a trend if new home prices continue to fall it may indicate a shift towards what we have all been waiting for; new construction in entry-level price points," Hale said.

Author: Radhika Ojha of DSNEWS

Tight inventory continued to boost home prices as housing activity remained upbeat towards the end of 2017, according to the Economic and Housing outlook released by Fannie Mae’s Economic & Strategic Research (ESR) Group on Monday.

The monthly forecast, which details interest rate movements, the housing market, mortgage market, and the overall economic climate, noted that total housing starts rose in October to the highest level in a year, even as new home sales approached a decade high. ESR said that existing home sales posted the first back-to-back gains this year, and contract signings to close on existing homes increased for the first time in four months, as sales rebounded from hurricane disruptions.

“The housing market continues its upward grind, as it struggles to balance strong demand and house price appreciation with inventory shortages and affordability concerns,” Doug Duncan, Chief Economist at Fannie Mae, said.

As a percent of real estate value, homeowner equity rose to 58.6 percent, only 1.2 percentage points below the most recent peak at the end of 2005, ESR noted, adding that the yield on 30-year fixed-rate mortgages is expected to average 4 percent this year.

ESR said that, while they had expected shortages of skilled labor and land as factors restraining building activity in their January 2017 forecast, the problem was more severe than anticipated. Compared with the January forecast, ESR overestimated mortgage rates for 2017 by two-tenths. However, their forecast for total home sales came very close to the January prediction, as year-to-date sales showed a 2 percent gain in 2017 over 2016, compared with a forecasted 2.2 percent increase at the beginning of the year.

Considering 2018, ESR expects mortgage rates to rise gradually, averaging 4.2 percent in the fourth quarter of 2018 from 3.9 percent in the current quarter. Total housing starts and total home sales should rise about 5 percent and 3 percent, respectively, in 2018.

Author Radhika Ojha of DSNEWS

If a recent survey from Trulia is any indication, there could be some relief for today’s inventory woes on the horizon. According to an online poll commissioned by the site, American consumers are more enthusiastic about selling a home than buying one in 2018.

Just over 31 percent of those surveyed said 2018 would be a better time to sell than 2017. Only 14 percent said it would be worse.

“At a 17-percentage point differential, the home-selling sentiment (net belief that the upcoming year will be better for selling a home than the current year versus those who believe it will be worse) is the second highest gap we’ve seen since we first started asking this question back in 2014,” Trulia reported.

Still, that sentiment won’t immediately translate into more inventory. In fact, only 6 percent of homeowners surveyed said they have plans to sell in the next 12 months.

Optimism toward buying is down, according to Trulia’s poll. Just 25 percent think next year will be a good time to buy—the same share that thinks 2018 will actually present worse buying conditions than this year did.

“This is the first time in the past four years that Americans’ homebuying sentiment (net belief that the upcoming year will be better for buying a home than the current year versus those who believe it will be worse) for the upcoming year has been a wash,” Trulia reported. “As for what this could mean for homebuying activity in 2018, only 10 percent of Americans said they plan to buy a home in the next 12 months.”

Those who do plan to buy in 2018 will likely factor in natural disaster risk when scouting potential properties. According to the survey, 39 percent of Americans are more concerned about the threat of a natural disaster in 2018 than they were this year. In the South, that share jumps to 43 percent.

Trulia’s experts also offered their expectations for 2018, which included a cooling off of home prices on the coasts, a higher demand for homes in the Midwest and South, more millennials joining the market, and a higher homeownership rate overall.

See the full results of the survey at Trulia.com.

DSNEWS Author: Ally J. Yale 

Housing is more affordable now—but not because of home prices. According to the Real House Price Index (RHPI) released by First American today, it’s low mortgage rates that are driving affordability upward for buyers.

The RHPI, which takes into account income, interest rates, and home prices across the nation, shows real house prices up 9.6 percent over the year, though they dropped 0.4 percent between July and August. Prices are also down 38.4 percent below their peak, seen in July 2006, and 17.2 percent under January 2000 levels.

Unadjusted, home prices increased 6.1 percent between August 2016 and August 2017, largely due to supply issues, First American reported.

“According to the National Association of Realtors, the number of existing homes listed for sale declined to a 4.2-month supply in September, which marked the 28th consecutive month of year-over-year declines in inventory levels,” according to First Am. “The lack of supply is driving unadjusted house prices higher.”

Still, despite rising nominal prices, housing is getting more affordable thanks to lower rates and better incomes.

“Lower mortgage rates in August compared with July, combined with a modest 0.1 percent month-over-month increase in wages, helped offset rising nominal house prices, producing a slight 0.4 percent increase in affordability in August,” First Am reported.

Overall, consumer house-buying power—or “how much one can buy based on changes in income and interest rates,”—rose 0.8 percent from July to August. Those interested in buying a home shouldn’t be too optimistic, though, according to First Am’s Chief Economist Mark Fleming.

“Though consumer house-buying power improved in August, affordability is likely to fade as mortgage rates are expected to rise in the months to come, but lower affordability is only significant to potential first-time buyers,” Fleming said. “Existing homeowners with fixed-rate mortgages benefited from the rising prices with increased equity. If you're renting and thinking of buying, then now is the time."

Over the past year, affordability has declined more than 9 percent, Fleming said.

Delaware had the greatest increase in real house prices over the last year, with a jump of 16.2 percent. Nevada, Alaska, Massachusetts, and Washington also made the top five.

The smallest increase in real house prices was seen in Alabama, where they rose just 2.8 percent. North Dakota, Hawaii, New Jersey and Washington D.C. also posted lower year-over-year increases.

See the full RHPI at FirstAm.com.

Author: Aly J. Yale of DSNEWS http://www.dsnews.com/author/alyyale