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?

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.

Q1 2017 US Homeownership Rate Declines To 63.6% (Back To Clinton, Pre-bubble Levels)

According to the US Census Bureau, the US homeownership rate is back to pre-bubble levels.

“The Great Leap Forward (in homeownership)” from various Presidential administrations (most notably Clinton’s with HUD’s “National Homeownership Strategy: Partners in the American Dream”) nhsdream2 helped increased homeownership to unsustainable levels following 1995). Homeownership rates ALMOST reached 70% but then the wheels came off home prices, foreclosures surged and homeownership fell back to pre-NHS levels.

Despite all the monetary stimulus thrown to the banks, homeownership rates continued to fall.

Of course, the amazing disappearance of low credit score mortgage borrowers didn’t help. But there has been a recent uptick in low credit score originations.

Now that mortgage foreclosures are down near pre-bubble lows, we are at stable homeownership levels. That “Great Leap Forward” towards 70% homeownership rates resulted in “The Great Fall Backwards.”

The Taylor Rule (according the the SF Fed’s Rudebusch specification) should be 5.83%. It is currently 1.00%.

Yellen must think that the Taylor Rule is a ham product rather than a guide to monetary policy.

“I could have sworn that incredibly low interest rates would work.”

 

 

It’s PBR Time! Atlanta Fed GDP Q1 Forecast Falls to 0.2% (Declining Durable Manufacturing, etc.)

Today opened with several negative economic reports, including a MoM decline in wholesale inventories and durable goods order ex-transportation. Not to mention a decline MoM in pending home sales.

The Atlanta Fed has now lowered their Q1 (and final) GDP growth to an anemic 0.2%.

According to The Atlanta Fed GDPNow tracker,  Their model: GDPTrackingModelDataAndForecasts 042717

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.2 percent on April 27, down from 0.5 percent on April 18. The forecast of first-quarter real consumer spending growth fell from 0.3 percent to 0.1 percent after yesterday’s annual retail trade revision by the U.S. Census Bureau. The forecast of the contribution of inventory investment to first-quarter growth declined from -0.76 percentage points to -1.11 percentage points after this morning’s advance reports on durable manufacturing and wholesale and retail inventories from the Census Bureau. The forecast of real equipment investment growth increased from 5.5 percent to 6.6 percent after the durable manufacturing report and the incorporation of previously published data on light truck sales to businesses from the U.S. Bureau of Economic Analysis.

Notice how The Fed keeps raising their Fed Funds Target rate as the Q1 GDP forecast deteriorates? Or is the NY Fed’s Nowcast Q1 forecast the correct one?

Q1 GDP growth of 0.2%??? No more Heineken for American consumers. Its Pabst Blue Ribbon time!

I wonder if Fed Chair Janet Yellen and Vice Chair Stanley Fischer will be tempted to take another hit of pure oxygen?

 

Simply Unaffordable! Case-Shiller Home Price Index Grows At 5.8% YoY In February (>2x Earnings Growth)

It is April 25, 2017 and S&P/CoreLogic just released the home price indices for February.

The good news (for homeowners)? Home price growth keeps on rising, now at 5.8% YoY.

The bad news (for renters)? Earnings growth YoY for Production and Non-supervisory workers is growing at 2.34% YoY. That is less than half of home price growth.

Yes, there is a lack of available inventory and median sales price for existing homes is growing at a steady rate around 6.8% YoY.

And home listinga hit a new record low.

But WHERE at home prices growig the fastest? Seattle at 12.2% YoY followed by Portland at 9.7% YoY. The slowest? New York City and Washington DC at 3.2% and 4.1%, respectively. Followed by Cleveland at 4.5% YoY.

With home prices rising at over 2x earnings, housing in the US is becoming simply unaffordable.