Existing-Home Sales Drop 2.3 Percent in April As Inventory For Sale Remain Missing

Yet another month of missing for-sale existing home inventory and rising median prices for existing home sales.

WASHINGTON (May 24, 2017) — Stubbornly low supply levels held down existing-home sales in April and also pushed the median number of days a home was on the market to a new low of 29 days, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dipped 2.3 percent to a seasonally adjusted annual rate of 5.57 million in April from a downwardly revised 5.70 million in March. Despite last month’s decline, sales are still 1.6 percent above a year ago and at the fourth highest pace over the past year.

For-sale inventory of existing homes remains in the doldrums as the median price of existing homes continues to rise rapidly.

We see the same limited inventory effect in existing home sales MONTHS SUPPLY.  As the months supply collapses, median prices for existing home sales increases rapidly.

I wonder if The Fed was wise to keep The Fed Funds Target Rate at near zero and engage in a third round of quantitative easing (QE3)? Particularly when housing inventory was declining (meaning that low-rate funding was chasing scarce housing)?

As Verbal Kint said in The Usual Suspects, “And like that, (the for-sale inventory) was gone.”

New Home Sales In April Tank -11.4% MoM As Median Price Declines -3% (The West Coast Suffers -26.32% Decline)

Another disappointing new home sales report.

New home sales tanked -11.4% MoM in April.

New home sales remain considerably below any level around the housing bubble. Despite the YUGE intervention by The Federal Reserve.

But while the level of new home sales is considerably below pre-2008 levels, the MEDIAN PRICE of hew home sales is considerably higher than at the peak of the housing bubble.

New home sales fell the most in The West (-26%) and The Midwest (aka, Kasich Kountry) at -13%. Bear in mind that new home sales in California are mega expensive and unless they start buildig more in Riverside and the Inland Empire, new home sales are likely to be weak.

Is this a bubble?

 

Commercial/Multifamily Borrowing Up 9 Percent from Last Year (Retail Originations Down 23%)

The retail sector can’t seem to buy a break these days. With 8,600 brick-and-mortar stores may close their doors in 2017, lending was expected to decline.

According to the Mortgage Bankers Association, commercial/multifamily originations rose 9% from Q1 2016.

That is the good news.

The bad news? 1) Retail originations fell 23% from Q1 2016.  2) CMBS/Conduit originations were down 17%. 3) Hotel originations were down 40%.

The good news? 1) Healthcare originations were up 22%. 2) Industrial originations were up 40%. 3) Multifamily originations were up 14%.

Notice that Fannie Mae/Freddie Mac multifamily origination programs were up 33% from Q1 2016.  At the same time, Life Insurance Companies saw 0% growth in commercial/multifamily originations.

Thanks to The Federal Reserve, short-term interest rates remain suppresed and have for the last ten years.

Office originations grew at a listless 2% from Q1 2016. On-line retailers like Amazon have helped shrinked the retail footprint. But will shared office space and the internet finally drive a spike through office space when employees can work remotely?

So, will this be the final countdown for office space?

5.5 Million Homes Still in Negative Equity Territory (But 13.7 Million Homes are “Equity Rich” (Limited For-sale Inventory And Fed Policy Error)

According to data vendor Attom, there remains 5.5 million homes that are seriously underwater (slightly less than 10%). On the other hand, there 13.7 million homes that are “equity rich” (around 24% of homes).

Equity rich is defined as the combined loan amount secured by the property is 50 percent or less than the estimated market value of the property. Seriously underwater is defined as the combined loan amount secured by the property was at least 25 percent higher than the property’s estimated market value.

One culprit is limited for-sale inventory. This chart is from Zillow:

The other culprit is The Federal Reserve, who have kept rate depressed for around 10 years.

Yes, limited for-sale housing inventory and Fed-depresssed interest rates for 10 years is helping some but not others.

Now, take a wild quess which states are “equity rich?” If you guessed California and New York, you were correct!!

 

Yes, housing is getting progressively more unaffordable to many households as limited for-sale inventory and insanely low monetary policy have effectively jailed (locked-out) many households from owning a home in California and New York.

“Please Chairman Yellen! Stop driving up home prices with your super-low interest rates when for-sale inventory is so low.”

Have Mortgage Applications Peaked For 2017? Purchase Applications Fall 2.75% WoW (Up 9% YoY), Refi Apps Fall 5.7%

 

Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 12, 2017.

The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 9 percent higher than the same week one year ago.

Typically, applications for a purchase mortgage peak in May (sometimes in April, sometimes in June). So, last week’s mortgage purchase applications print may have been the high water mark for 2017.

The Refinance Index decreased 6 percent from the previous week.  But notice that while mortgage refinancing applications plummeted aroud MayJune rapid the rise in the Freddie Mac 30 year mortgage survey rate (thanks to Fed Chair Bernanke saying that The Fed might end their asset purchase programs), the recent rise in the 30 year mortgage rate has produced decline in refi application.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.23 percent, with points increasing to 0.37 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Mortgage originations have not recovered to previous levels due to the amazing disappearance of subprime (sub 620 credit score) lending,

So, we at (or near) the peak for 2017 in terms of mortgage purchase applications. Historically, it will be all down hill until January 2018. But a 9% increase in mortgage purchases applications YoY is pretty impressive!

 

How Homeownership Became the Engine of American Inequality (Or NOT!)

The New York Times had an interesting piece recently entitled “How Homeownership Became the Engine of American Inequality.”

The author blames the mortgage interest deduction (MID) in part for inequality. But the MID has been used for decades to stimulate and preserve homeownership, one of platforms of the Democrat Party. Unfortunately, housing is often no longer “affordable.”

One measure of housing affordability is home prices relative to household income or wages. For example, check out YoY earnings growth for 2001-2003 period. Wage growth was declining as YoY home prices grew. As wage growth grew from 2004-2007, home price growth slowed.  The housing bubble is characterized as a period of declining/low wage growth coupled with rapidly rising home prices. (orange box)

Since 2012, home price growth has started to grow rapidly again and has been higher than earnings growth (pink box).

True, the MID does tend to support home purchases in more expensive housing areas like the west coast. And raising the standard deduction will reduce the demand for housing in lower cost areas like the US flyover states. But is the home affordability problem in the more expensive areas of the country as MID problem? Or is it a supply problem? (as in zoning results in higher home prices making housing progressively more unaffordable). And what about The Federal Reserve with its zero interest rate policies (ZIRP) which contributes to income inequality?

But let’s look at the GINI coefficient (a measure of income inequality) and homeownership rate in the US. Despite continued attempts at leveling the playing field, income inequality has just been getting worse and worse. Notice that income inequality was positively correlated with homeownership rates until 2004; after 2004, income inequality has risen as homeownership has fallen.

How has The Fed helped lower income inequality? It hasn’t.

So focusing on the mortgage interest deduction (MID) as the cause of income inequality is misplaced. Again, Democrats have pushed the homeownership (and affordable housing) platform for decade, but it is only now that it is “unfair?”

Here is Phil Hall”s assessment of the NY Times article.

There is little doubt that removing the MID will result is a slowing or decline in home price growth. Not something that mortgage investors are looking forward to.

Simply Unafforable? Canada’s Troubled Mortgage Lender Home Capital Sees Deposit Run As Crisis Deepens

 

While the US is experiencing a fiasco with healthcare insurers pulling out of states leaving some states with only 1 or zero insurers (and healthcare premiums skyrocketing in many states),

there is a fiasco north of the border as well  with Alt-A mortgage lender Home Capital. Home Capital is seeking ADDITIONAL emergency funding as depositors flee the sinking ship. Home Capital has drawn an addition C$400 million on its loan, leaving only C$600 million available. As of May 8, deposit balances are expected to be approximately $192 million.  According to the latest data, another 50% of deposits have exited Home Capital in the past week, and are now down over 90% since March 28.

TORONTO – May 8, 2017 – Home Capital Group Inc. (“The Company” TSX: HCG) today announced that it has drawn down a total of $1.4 billion from its $2 billion credit line, the termsof which were announced by the Company on April 27, 2017. HCG Liquidity Update May 8 2017

Home Capital added this line to their liquidity update: The Company’s existing mortgage portfolio continues to perform well. 

That is, as long as the Canadian home price bubble doesn’t burst, eh?

Home Capital’s stock price is collapsing as depositors flee the scene.

And good ‘ol ANONYMOUS is leading the dumping of Home Capital shares.

Well, Toronto home prices are a bit “frothy” and not exactly “affordable.”

There you have it. Another fiasco courtesy of Central Planners.

Like the West Coast of the US and major east coast cities, Canadian home prices as Simply Unaffordable.