Ugly But Honest Real Estate News 7-16-2017
Discussing some potential negative possibilities from the Fed tightening monetary policy, improved mortgage performance, housing demand remains strong and the reasons why, is it easier to get a mortgage and much more!
Rooftop Solar Is No Match for Crony Capitalism
Rooftop solar panel growth has come to a shuddering stop this year, with a projected decline in new installations of 2 percent, according to projections from Bloomberg New Energy Finance…Since 2013, Hawaii, Nevada, Arizona, Maine and Indiana have decided to phase out…programs that spurred explosive growth in the rooftop solar market. (Nevada recently reversed its decision.) Many more states are considering new or higher fees on solar customers.
The clobbering of rooftop solar should cause dismay not just among environmentalists worried about global warming, but also among economists, policy makers and anyone who cares about economic efficiency. This is a case of an incumbent industry using the power of government to suppress a revolutionary new technology. That’s not good for anyone except the incumbent.
Will Fed be Able to Stick its Move to Trim Massive Securities Holdings by $2.3 Trillion?
From CoStar Group:
After being credited for steering the U.S. economy off the precipice in the global financial crisis through its massive stimulus program, the Federal Reserve is now facing the delicate task of paying the bills.
The Fed is preparing to unwind a huge chunk of its $4 trillion portfolio of bond securities it began accumulating 10 years ago, part of the measures it took to prevail over a collapsing economy. This past week, the Fed disclosed plans to gradually reduce its holdings of Treasury and mortgage-backed securities (MBS) beginning sometime between September or December.
The monetary policy body was careful to frame the move as a deliberate continuation of the “normalization” policy it announced back in December 2015 when it first began raising the federal fund borrowing rate.
This next move is not without risk. Reducing such a massive amount of securities likely will impact the corresponding interest rate moves planned by the Fed, and could make mortgage-backed securities less attractive to investors than Treasury bonds.
While I am not suggesting we need to panic, we are entering into something never before dealt with. Hang on because it could get bumpy…
Improved Mortgage Performance in First Quarter of 2017
From the OCC:
Performance of first-lien mortgages improved during the first quarter of 2017 compared with a year earlier, according to the Office of the Comptroller of the Currency’s (OCC) quarterly report on mortgages. The OCC Mortgage Metrics Report, First Quarter 2017, showed 95.6 percent of mortgages included in the report were current and performing at the end of the quarter, compared with 94.9 percent a year earlier.
The report also showed that foreclosure activity has increased from the previous quarter. This is the first quarter-over-quarter increase in two years. Reporting servicers initiated 47,546 new foreclosures during the first quarter of 2017, a 4.5 percent increase from the previous quarter but a decrease of 19.3 percent from a year earlier. Servicers implemented 35,137 mortgage modifications in the first quarter of 2017. Eighty-eight percent of the modifications reduced borrowers’ monthly payments.
Mixed signals as it is good that such a high percentage of mortgages are current but the increase in foreclosure activity is concerning.
Household Formation, Loosening Lending Criteria Stimulate Housing Demand
From Marcus & Millichap:
The current pace of existing single-family home sales is at the highest level since the Great Recession. For-sale inventory appears to be the only hindrance to pushing sales activity closer to previous levels.
Higher home prices and fierce competition for existing single-family homes, as well as a lack of entry-level home construction, will also continue to weigh on the transfer of households into homeownership and strengthen demand for apartments.
Facts is facts people. I would say that increasing home prices, rising mortgage rates and tight inventory are putting buyers are under pressure.
Mortgage Credit Availability Increases
From Urban Institute:
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability increased slightly to 5.4 in the first quarter of 2017 (Q1 2017), up from 5.2 in Q4 2016 and the highest level since 2016.
The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.
Good news that it is getting easier to get a mortgage. This couldn’t come at a better time…
Rent Growth Slows
Single-family rents, as measured by the CoreLogic Single-Family Repeat Rent Index (SFRI), climbed steadily between 2010 and 2016. However, rent growth has softened during the last 18 months. The index shows that rent growth has been slowly decelerating since February 2016 when rent growth peaked at a 4.3 percent year-over-year increase. As of May 2017, single-family rents increased 2.9 percent year over year, a 1.4 percentage point deceleration since the February 2016 peak. The index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time.
While investors want healthy growth in rents, remember that this helps renters that are trying to save money to buy a home. If someone is paying too much for rent, it means they are not going to be able to save for down payment, closing costs, etc.
Remember that you do NOT always need a 20% down payment to buy a home!
U.S. Economy in a Snapshot July 2017
Highlights from NY Fed’s Snapshot Report for July 2017:
While real consumer spending rose at a modest pace in May, data still suggest a notable pickup in consumption growth in Q2 compared to Q1.
Housing activity data indicate that the gradual recovery in this sector is being maintained
Payroll growth was solid in June. The unemployment rate, the employment-to-population ratio and the labor force participation rate all increased slightly.
Check out some of the charts:
It’s Almost an Embarrassment Being American
Interesting quotes from Jamie Dimon in the The Guardian:
It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with in this country.
Who cares about fixed-income trading in the last two weeks of June? I mean, seriously. That is the weather. It goes up and down, this and that, and that’s 80% of what you guys focus on.
It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with. At one point, we would have to get our act together, do what we’re supposed to do to the average American.
We need infrastructure reform. We need corporate tax reform. We need better skills and education. If we don’t focus on these things, we are hurting average Americans every day.
The USA has to start to focus on policy which is good for all Americans, and that is regulation, tax, education, we have to get those things done. You guys [journalists] should be writing a lot more about that stuff. That is holding it back and hurting the average American citizen if we don’t do it.
It’s not a Republican issue, it’s not a Democratic issue. Why you guys don’t write about it every day is totally beyond me.
So is Dimon laying the groundwork to run for office? Certainly sounds like it based on some of his recent public remarks. But remember what he is and what he has done…
It isn’t what you say, it is what you do…
Adventures in Quantitative Tightening
From Acting Man:
All remaining doubts concerning the place the U.S. economy and its tangled web of international credits and debts is headed were clarified this week. On Monday, Mark Yusko, CIO of Morgan Creek Capital Management, told CNBC that:
“…we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises, lots of things that don’t happen and the fall is when people realize, ‘Wait, it hasn’t played out the way we thought.’ [By the fall], we’ll have a lot more evidence of declining growth. Growth has been slipping.”
If you recall, autumn of 1929 is when the U.S. stock market commenced a multi-year swan dive and the economy commenced a decade long Great Depression. This is the path Yusko believes we’re on.
This article goes on to describe, in detail, how the Federal Reserve tightening of monetary policy may prove to be dangerous. Like I said earlier, hang on because it could get bumpy…
That’s it for today!