Wells Fargo Mortgage Applications Fall To Lowest Since 2005* (The Wells Fargo Mortgage Wagon ISN’T Coming!)

It is reporting season for American banks and Wells Fargo’s came out today. first-quarter-earnings-supplement

Of particular interest is the decline in residential mortgage applications for Wells Fargo, the lowest since 2005. Because that is the last year for which there is data on Bloomberg for Wells Fargo.*

Mortgage originations? About the same as Q1 2016, but substantially below levels seen in 2012. Q1 2017 is the second lowest level of originations sine 2005.

It just isn’t Wells Fargo. Take Bank of America. But Wells claimed their niche was the residential mortgage market while other banks retreated from the market.

Low wage growth coupled with regulatory overreach by Dodd-Frank and the Consumer Financial Protection Bureau has diminished residential mortgage lending by the banks.

So, the Wells Fargo (mortgage lending) wagon isn’t coming. And it isn’t for other big banks either. But PROFITS increased for mortgage bankers  in 2016.

While Wells Fargo was still the leading mortgage originator in Q3 2016, shadow bank Quicken is challenging Chase for 2nd place with PennyMac challenging US Bank for 4th place in the mortgage origination derby.

Maybe Dan Gilbert, the CEO of Quicken Loans and the owner of the Cleveland Cavaliers basketball team, should adopt the Wells Fargo wagon song for Quicken! Because it seems that Wells Fargo’s wagon isn’t bring the home loans as expected.

US construction spending rose to nearly 11-year high?? (how about slowed to 3% YoY)

According to the US Census Bureau (as interpreted by Fox News). US construction spending rose to nearly an 11 year high.

WASHINGTON – U.S. developers ramped up construction spending in February to the largest amount in nearly 11 years, led by more building of homes, highways and schools.

The Commerce Department says construction spending rose 0.8 percent in February to the highest level since April 2006, after two months of declines.

Builders are rapidly putting up more homes in response to strong demand that has pushed up prices for existing homes. Yet it hasn’t yet been enough to relieve a shortage of homes for sale. The accelerated building could boost the economy this year.

State and local governments spent 0.9 percent more on construction, driven by roads, schools and recreational buildings.

The federal government, meanwhile, cut construction spending for the second straight month and has cut back 9 percent from a year ago.

Here is the report from the Census Bureau.

The 11-year headline from Fox is really overselling the report.

In fact, construction spending has slowed dramatically YoY to 3% for February 2017.

Non-residential construction spending? It slowed to under 1% in February YoY.

Residential construction spending actually rose 6.36% YoY, but still remains considerably lower than the 22.6% YoY in August of 2015.

The more accurate headline should have been “Construction Spending Slows.” But that is not a feel-good business headline.

But I suppose that Fox News’ headline is better than the Pawnee Sun headline.

Zillow:10.5% National Negative Equity Share Declining (But Chicago And Las Vegas Have 2X National Rate)

According to Zillow (and their methodogy for calculating “underwater mortgage loans”), US negative equity hit 10.5% in Q4 2016. That is a considerable improvement of the peak of 31.4% in Q1 2012.

But more than 55 percent of all homeowners in negative equity nationwide were underwater by more than 20 percent as of the end of Q4.

Where are the negative equity “zones”? Not on the West Coast. The West Coast is home to all five major metros with the lowest rates of negative equity. As of the end of 2016, Las Vegas and Chicago had the highest rates of negative equity among the largest U.S. metros, with 16.6 and 16.5 percent of homeowners underwater, respectively.

How about EFFECTIVE negative equity rates? Even though a borrower may barely be in positive territory, brokerage fees (say 6%) on sales can push the homeowner into negative territory. The national average for EFFECTIVE negative equity still exceeds 25%.

Let’s compare Washington DC with Prince Georges County in Maryland. The share of homes with a mortgage in negative equity is almost double in PG County compared with DC. The same holds true for the shares in EFFECT negative equity (that is exactly double the rate of Washington DC).

To show how much Phoenix AZ has improved in terms of negative equity, Phoenix now has the same negative equity share as Washington DC: 10.5% and the US. But Maricopa County has a larger EFFECTIVE negative equity share of 27.3%.

But how about Chicago, home of the World Series Champion Chicago Cubs? Negative equity in Chicago is even worse than it is in Prince Georges County in Maryland!

How about Lackawanna County, PA, the home of Scranton and the Dunder-Miflin regional sales office? Even worse negative equity problems than Chicago!!

The WORST negative equity county in the US? Pulaski County in Missouri, home of the US Army’s Fort Leonard Wood with a 47.4% share of negative equity mortgages and  76.1% share of EFFECTIVE negative equity mortgages.

Despite the improvement of negative equity in the US, a number of counties (many rural) are still struggling which is an impediment to both mortgage refinancing and mortgage purchase lending despite near-record low mortgage rates.

Bubble? Home Prices in 20 U.S. Cities Rise at Fastest Pace Since 2014 (But Wage Growth Is Terrible)

Bloomberg has an interesting article on rapidly rising home prices.  Despite the fact that US wage growth has been terrible since the Great Recession and is now (depending on how you measure it) 4 times lower than home price growth.

Home prices in 20 U.S. cities climbed in the 12 months through January at the fastest pace since July 2014, while nationwide the increase in property values also accelerated, according to S&P CoreLogic Case-Shiller data reported Tuesday.

Key Points

  • 20-city property values index rose 5.7 percent from January 2016 (forecast was 5.6 percent) after increasing 5.5 percent in the year through December
  • National home-price gauge increased 5.9 percent in the 12 months through January
  • Seasonally adjusted 20-city index advanced 0.9 percent from a month earlier (forecast was 0.7 percent)

Big Picture

Lean housing inventory helps explain why home prices are appreciating at more than twice the rate of inflation and wage growth, an impediment to an even bigger advance in housing demand. That’s making it difficult for some Americans to transition from renter to homeowner, a reason investors remain a big part of the market as they purchase properties and convert them to rental units.

Economist Takeaways

“Tight supplies and rising prices may be deterring some people from trading up to a larger house, further aggravating supplies because fewer people are selling their homes,” David Blitzer, chairman of the S&P index committee, said in a statement. “The prices also hurt affordability as higher prices and mortgage rates shrink the number of households that can afford to buy at current price levels.”

The Details

  • All 20 cities in the index showed year-over-year gains, led by an 11.3 percent advance in Seattle and a 9.7 percent increase in Portland, Oregon
  • After seasonal adjustment, Seattle had the biggest month-over-month rise at 1.7 percent, followed by a 1.3 percent increase in Chicago; home prices fell 0.1 percent in Cleveland

This Bloomberg chart shows that median home price growth is not quite 4x wage growth.

My “homebrewed” chart shows that it a similar effect except I show the decline in the volume of mortgage originations to borrowers with a credit score below 620.

Anyway you want it, home price growth is beating the tar out of wage growth .. but any metric.

Has the robot monster (aka, The Fed) helped create a home price bubble with its uber-accomodative monetary policies that did not help wage growth?

Yes, The Robot Monster (Federal Reserve and other Central Banks) stalks the earth.

 

Freddie Mac Serious Delinquencies Fall To Lowest Since June 2008 As Home Prices Grow At 5.87% YoY Clip

Freddie Mac reported that the Single-Family serious delinquency rate in February was at 0.98%, down from 0.99% in January.  Freddie’s rate is down from 1.26% in February 2016.  That is the lowest reading since June 2008.

Notice how tame serious delinquencies were during the housing/credit bubble. The US seems to be repeating the housing bubble in terms of house price growth and low serious delinquencies, but without the higher levels of mortgage originations to borrowers with credit scores less than 620.

Bear in mind, the Case-Shiller reading is for January and it is almost April. Be that as it may, home price growth is at 5.73% YoY versus wage growth at 2.3% YoY, over 2x. And yes, Seattle, Portland and Denver lead the nation in YoY growth in home prices. The slowest growing cities? New York City and Cleveland (the Shooting Guards JR Smith/Iman Shumpert effect having been traded from the Knicks to the Cavaliers).

It says here that when home prices are growing at two times wage growth it would mean we have a housing bubble … again.

 

 

 

New Home Sales Rise 6.1% MoM in February (Mostly In Midwest) Following -3.7% Decline in Existing Home Sales

New home sales rose by 6.1% in February, greater than expected.

The biggest winner? The Midwest! (Home of the Chicago Cubs, Cleveland Indians and … Pawnee Indiana!)

The growth in new home sales has lagged existing home sales since 2009.

But in terms of median price, median price for new home sales has been accelerating from median price for existing home sales since 2009.

Existing home sales? Down 3.7% MoM in February.

The Midwest includes Pawnee Indiana!

Clinton Country Credit Scores: California and New York Lead US In Credit Scores (Also Have The Worst Income Inequality)

Remember the furor over the 2016 Presidential Election where Donald Trump won the Electoral College vote, but not the Popular Vote? A substantial number of Hillary Clinton’s electoral votes (and popular votes) came from California (55 electoral votes) and New York (29 electoral votes). 

The 2016 electoral map is correlated with CoreLogic HCI Credit Score averages by state. The highest two average credit score states are California and New York. Actually, the District of Columbia has the highest average credit score in the country. The top five states (and DC) are all in Clinton Electoral Country (that is, they all voted for Hillary).

The bottom five states? All these states were in Trump Electoral Country.

Washington DC, New York and Connecticut lead the US in income inequality.  With California and Massachusetts in 5th and 6th place. 5 of the top 6 states for income inequality voted for Clinton. One 1 state (Louisiana) for Trump.

The correlation is not perfect, of course. Arizona has a higher than average credit score, yet voted for Trump. The same goes for Montana (all three electoral votes), Tennessee and North Carolina.

Wealthier, coast states have higher than average credit scores and votes for Clinton. Flyover country have lower than average credit scores and for the most part voted for Trump.

Of course, the wealthiest counties in the nation surround Washington DC, New York City and West Coast cities like Seattle, Portland, San Francisco, Los Angeles and San Diego.

Just like those who believed that all you needed was a credit score to be underwritten for a mortgage loan, one could conceivably predict Presidential voting using credit scores (at the state level).  But I do NOT recommend it!!! Just like with mortgages, we need more information than just credit scores (for both borrowers and voters).

An ALT-A mortgage borrower during 2006.