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?

 

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.

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.”

 

 

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.

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.