Sentiment dips but multifamily developers remain largely optimistic

Growing demand has boosted developers’ sentiment about current conditions in the apartment and condo market, according to the National Association of Home Builders.

NAHB’s Multifamily Production Index (MPI) improved by one point to 54 in the fourth quarter of 2021, while the Multifamily Occupancy Index (MOI) decreased six points to 69 quarter over quarter. Despite the drop, the MOI remains as high as it’s been at any time before the second quarter of 2021.

NAHB chief economist Robert Dietz explained that the January MPI reading is consistent with Census production statistics, which show 750,000 apartments under construction and new apartments being started at a rate of over 500,000 per year.

“The modest decline in the very strong MOI number is not likely to result in any significant change in Census rental occupancy rates, which are still rising and will likely remain high given the strong 69 index number from our survey,” Dietz added.

Two of the three components increased in Q4: The component measuring low-rent units declined seven points to 48, the component measuring market-rate rental units increased one point to 61, and the component measuring for-sale units saw a six-point gain to 53.
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“Multifamily developers remain largely optimistic about this segment of the market,” said Sean Kelly, chairman of NAHB’s Multifamily Council. “Demand in many parts of the country has been strong enough to compensate for the rising costs of land, labor and materials.”

"Buyers are still having a difficult time finding a home"
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US home sales based on contract signings decreased for the third consecutive month in January due to volatile economic conditions and the persistent supply constraints that homebuyers still face.

The National Association of Realtors reported that pending home sales were down by 5.7% from December to a reading of 109.5 in January. Compared to a year ago, contract activity was down by 9.5%.

“With inventory at an all-time low, buyers are still having a difficult time finding a home. Given the situation in the market – mortgages, home costs and inventory – it would not be surprising to see a retreat in housing demand,” said NAR chief economist Lawrence Yun.

According to data from the latest Freddie Mac survey, the average 30-year mortgage rate climbed to 3.89% last week, up from 2.97% during the same period the previous year.


NAR said the impending conclusion of the Federal Reserve’s asset purchase program in March and the impacts of the Russia-Ukraine war on global oil supply will likely impose further burdens on inflation and bring about more aggressive rate hikes.

“There’s also the possibility that investors may flee toward safer US Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun said.
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Broken down by US regions, the Northeast posted a 12.1% decrease in pending home sales to 84.3, the Midwest saw a 5.9% decrease to 104.4, and the South reported a 6.3% decrease to 134.6. Meanwhile, the West experienced a 1.5% increase in pending home sales, up to 95.2 month over month.

Increase coincides with lifting of CFPB restrictions

​More properties were in foreclosure filings in the US than at any time since the beginning of the COVID pandemic, according to a report by property analytics firm, ATTOM.

The January Foreclosure Market Report, compiled together with ATTOM subsidiary RealtyTrac, shows that a total of 23,204 properties were in foreclosure filings, including default notices, scheduled auctions and bank repossessions, representing a significant 139% increase compared to a year ago and by 29% from a month ago.

In addition, lenders started the foreclosure process on 11,854 properties last month, up 29% from in December and 126% from a year ago.

Foreclosure activity refers to properties with foreclosure filings, namely those that have been taken back by lenders after borrowers fall behind on their mortgage payments. Data typically includes information on default notices, public foreclosure auctions, and bank real estate owned completed foreclosures (also known as REOs).
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Data was collected from more than 3,000 counties across the country, accounting for more than 99% of the US population.

REOs also hit the highest level of foreclosures since March 2020 and were continuing to rise, the report noted.
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Lenders repossessed a total of 4,784 properties through completed foreclosures (REOs) in January, up 57% from last month and a staggering 235% from last year. This was also the seventh consecutive month with an annual increase in completed foreclosures.

States with at least 100 or more REOs which experienced the biggest monthly increase during the same period, included Michigan (up 622%), Georgia (up 163%) and Texas (up 98%). The highest foreclosure rates were in New Jersey, where one in every 2,336 housing units had a foreclosure filing, followed by Illinois, and Nevada.

Nationwide, one in every 5,922 housing units had a foreclosure filing in January 2022.

Among the large metropolitan areas with more than one million inhabitants, those with the worst foreclosure rates included Chicago, (one in every 2,514 housing units), followed by Las Vegas (one in every 2,654 housing units), and Miami (one in every 2,731 properties).

Metropolitan areas with populations in excess of 200,000 that saw the greatest number of REOs included Detroit, in Michigan, with 1,013 REOs, followed far behind by Chicago, Illinois, (210) and New York (129).

In response to the report, Rick Sharga, executive vice president of RealtyTrac, downplayed the importance of the data, saying that the increased level of foreclosure activity in January “wasn’t a surprise”.

He said: “This year, the increases were probably a little more dramatic than usual since foreclosure restrictions placed on mortgage servicers by the CFPB (Consumer Financial Protection Bureau) expired at the end of December, (but) foreclosure completions are still far below normal levels – less than half as many as in January of 2020 before the pandemic was declared, and about 60% lower than the number of foreclosure completions in 2019.” 

He added that there would likely continue to be “large year-over-year percentage increases for the rest of this year” and that foreclosure activity would remain below historically normal levels until the end of 2022.

Sharga’s views are in line with those of other industry observers, such as Marina Walsh, vice president of industry analysis for the Mortgage Brokers Association (MBA), who said as far back as August 2021 that she did not expect to see widescale foreclosures.

At the time, she pointed out that although foreclosures could be started in certain circumstances, with the CFPB stepping in, servicers “were going to walk very gingerly in terms of making sure they complied with all the terms and conditions to be able to move forward”.
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She stressed, though, that even without the limitations imposed by the CFPB, there would not be massive foreclosures.

"Higher mortgage rates have quickly shut off refinances".

US mortgage applications continued their downward trend this week, falling to their lowest level since December 2019.

Mortgage loan application volume posted a seasonally adjusted 13.1% decrease for the week ending Feb. 18, according to data from the Mortgage Bankers Association’s latest survey. Refinance application activity was down by 16%, and purchase applications fell 10% week over week. As a result, the refi share of mortgage activity dropped from 52.8% to 50.1%.

Joel Kan, AVP of economic and industry forecasting at MBA, said higher mortgage rates have shut off refinances and slowed purchase activity.

“Conventional refinances, in particular, saw a 17% decrease last week,” Kan said. “Purchase applications, already constrained by elevated sales prices and tight inventory, have also been impacted by these higher rates and declined for the third straight week. While the average loan size did not increase this week, it remained close to the survey’s record high.”

​The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) inched up from 4.05% to 4.06%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) rose from 3.81% to 3.84% week over week.

MBA reveals "some deterioration" in the performance of borrowers with existing loan workouts.

More homeowners have requested an extension or to re-enter their forbearance plans in January, the Mortgage Bankers Association reported Tuesday.

Data from the report showed that the total number of loans in forbearance fell by 11 basis points to 1.30% of servicers’ portfolio volume – bringing the estimated number of homeowners still in forbearance to 650,000 as of Jan. 31.

By stage, 26.8% of total mortgages in forbearance are in the initial forbearance plan stage, while 59.5% are in a forbearance extension. The remaining 13.7% are forbearance re-entries, including re-entries with extensions.

“For the second straight month, the pace of forbearance exits reached another low since MBA began tracking exits in June 2020,” said Marina Walsh, vice president of industry analysis at MBA. “There was also a pick-up in new forbearance requests and re-entries for all loans, and particularly for Ginnie Mae loans. Even though the forbearance rate continued its downward trajectory, it was the smallest monthly decline since January 2021.”

By investor type, the share of Ginnie Mae loans in forbearance decreased by three basis points to 1.60% month over month. The percentage of Fannie Mae and Freddie Mac loans in forbearance was down by four basis points to 0.64%, and forbearance share for portfolio loans and private-label securities (PLS) decreased 41 basis points to 3.02%.

The positive news, Walsh pointed out, is that the percentage of borrowers who were current on their mortgage payments rose slightly from 94.85% in December to 94.91% in January.

“However, there was some deterioration in the performance of borrowers with existing loan workouts. Borrowers in loan workouts may have experienced new life events unrelated to the pandemic, or alternatively, the Omicron variant may have triggered or re-triggered employment, health, or other stresses,” Walsh said.
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Total completed loan workouts from 2020 and onward (repayment plans, loan deferrals/partial claims, loan modifications) that were current as a percent of total completed workouts dropped from 83.50% to 82.26% month over month.

Is this finally the end of an era? Here's what experts have to say…

US mortgage rates jumped to their highest level since May 2019, a few days after Fed officials agreed on hiking interest rates starting March to combat inflation.

Freddie Mac reported Thursday that the average 30-year fixed mortgage rate climbed 23 basis points to 3.92% for the week ending Feb. 17. A year ago, the average rate for the long-term loan was 2.81%.

“Mortgage rates jumped again due to high inflation and stronger than expected consumer spending,” said Freddie Mac chief economist Sam Khater. “The 30-year fixed-rate mortgage is nearing 4%, reaching highs we have not seen since May 2019. As rates and house prices rise, affordability has become a substantial hurdle for potential homebuyers, especially as inflation threatens to place a strain on consumer budgets.”

The 15-year fixed-rate mortgage averaged 3.15%, up from 2.93% last week and 2.21% at this time last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) posted an 18 basis-point week-over-week increase to 2.98% and was up from 2.77% a year ago.

“An uptick in rates, followed by increased volatility driven by geopolitical events, has made for one of the bumpiest weeks for rates in some time,” said Robert Heck, vice president of mortgage at Morty. “This is reminiscent of the February/March leading up to the COVID shutdowns in 2020 and has created a challenging environment for homebuyers to navigate.”

“We were expecting to see volatility in rates this year, and that’s certainly holding true,” Heck added. “While rates are on the rise overall, they are unlikely to trend directly upward, meaning that volatility will continue. This environment is where the value of a mortgage marketplace really comes into play. There are mortgage options out there that protect against volatile and rising rate environments.”

Speaking of product options, Bankrate chief financial analyst Greg McBride warned consumers not to “fall into the trap of using an adjustable-rate mortgage as a crutch of affordability.”

“There is little in the way of up-front savings, an average of just one-half percentage point for the first five years, but the risk of higher rates in future years looms large,” he said. “New adjustable mortgage products are structured to change every six months rather than every 12 months that had previously been the norm.”
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Heck also advised buyers to consider their overall financial picture and assess homebuying plans independent of the rate changes. “Regardless of where rates sit, a strong economy, significant demand for housing, and limited supply indicate that price growth will continue this year. There’s a new generation of homebuyers that are still coming into the market, and not enough housing has been built to accommodate them.”

In addition to higher mortgage rates, MBA said prospective buyers still weighed down by hefty home prices.

Mortgage applications declined once again as the inflation-driven increase in mortgage rates discouraged prospective homebuyers.

Figures released by the Mortgage Bankers Association showed that overall home loan applications fell 5.4% for the week ending February 11. The previous week, mortgage application volume was down by 7.1%.

“Mortgage rates increased across the board last week following the recent rise in Treasury yields, which have moved higher due to unrelenting inflationary pressures and increased market expectations of more aggressive policy moves by the Federal Reserve,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “The 30-year fixed-rate saw the largest single-week increase since March 2020 and was above the 4% mark for the first time since 2019.”

Week over week, MBA’s refinance index decreased 9%, and the seasonally adjusted purchase index dipped 1%. However, purchase applications were up by 5% on an unadjusted basis.

“Consistent with this period of higher mortgage rates, refinance applications fell 9% last week and stood at around half of last year’s pace. The refinance share of applications was also at its lowest level since July 2019,” Kan said. “Purchase applications saw a modest decline over the week, with government purchase applications accounting for most of the decrease.”

Of total applications, the refi share of mortgage activity declined from 56.2% to 52.8%, while the adjustable-rate mortgage (ARM) share of activity grew to 5%.
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“Prospective buyers still face elevated sales prices in addition to higher mortgage rates. The heavier mix of conventional applications again contributed to another record average loan size at $453,000,” Kan said.

​A group of Chicago condominium owners has launched another class-action lawsuit over what they call “unconscionable fees” charged to condo owners to access documents they need to complete the sale of their units.

On Jan. 20, named plaintiffs Katherine M. Atkins and Zane Fulton, each a DuPage County resident who formerly owned condominiums in suburban Cook County, filed their putative class action complaint in Cook County Circuit Court against vendors RealManage and HomeWiseDocs.
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The plaintiffs are represented in the action by a collection of attorneys, including Thomas A. Zimmerman Jr., and others with the Zimmerman Law Offices, of Chicago; Rusty Payton, of Payton Legal Group, of Chicago; Arthur C. Czaja, of Niles; and Joseph S. Davidson, of the Law Offices of Joseph P. Doyle, of Schaumburg.

The complaint takes aims at hundreds of dollars in fees the vendors allegedly charged to Atkins, Fulton, and other owners in the Chicago area, for documents they said Illinois law requires them to provide to buyers when they close the sale of their units.

For instance, according to the complaint, Atkins sold a condo unit she owned in Roselle in 2021.
Similarly, Fulton was seeking to sell a condo unit he owned in Westmont.

During the sale process, both sellers were required to obtain a so-called documentation bundle, which included a Paid Assessment Letter, through RealManage, which does business under the name American Community Management, and HomeWiseDocs.

RealManage provides services to assist condo management associations with a range of administrative duties. HomeWiseDocs helps condo associations manage required owner documents.

However, to obtain the documents, Atkins and Fulton said they were both forced to pay $491 in fees to HomeWiseDocs.

The complaint asserts the amount of those fees violates Illinois’ condo law, which authorizes condo associations only to charge “reasonable” fees to retrieve and provide such documents.

Instead, the complaint asserts document storage and retrieval vendors have allegedly turned such required document processes into “a cash cow at the expense of the condominium owners (the vendors and associations) are supposed to serve.”

“Simply put, (the Illinois Condo Act) prohibits Defendants from turning the Condo Act’s disclosure requirements into a revenue source for Defendants or for others,” the complaint states.
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The new lawsuit comes about a month after an Illinois appellate court specifically ruled Illinois’ Condominium Act allows for class-action lawsuits over the collection of allegedly unreasonable document fees.

In that December 2021 ruling, a three-justice panel of the Illinois First District Appellate Court noted they believed the language of the Condo Act indicated lawmakers who included the documentation requirements also wished to protect sellers in the process, as well as buyers.

And the justices ruled vendors hired by condo associations to manage the document retrieval process cannot get away with conduct that the law prohibits to condo associations, as well.

The plaintiffs seek to expand the action to include everyone in Illinois who paid such fees to HomeWiseDocs to retrieve documents required by law to disclose to buyers at the time of sale.

The complaint does not estimate how many condo sellers this class action may ultimately include.

However, the complaint notes RealManage helps manage condo associations in seven Illinois counties and 11 cities and villages, including Chicago, Naperville, Joliet, Aurora, and Elgin.
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And the complaint notes “RealManage is just one of approximately 1,300 condominium association management companies that use HomeWiseDocs.”

The complaint seeks unspecified damages, including treble damages and punitive damages, plus attorney fees.

Freddie Mac reveals updated US mortgage rates.

The average 30-year US mortgage rate edged up on Thursday after a three-week hiatus as inflation soared to its highest level in four decades last month.

Mortgage buyer Freddie Mac reported a 14-basis-point increase in the 30-year fixed-rate home loan, jumping to 3.69% for the week ending February 10. A year ago, the 30-year mortgage rate averaged 2.73%.

“The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic,” said Freddie Mac chief economist Sam Khater.

The 15-year fixed-rate mortgage (FRM) and the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) also posted week-over-week gains. The 15-year FRM rose 16 basis points to 2.93%, while the five-year ARM climbed nine basis points to 2.80%.

Khater pointed to the combination of rising inflation and an improving job market as the main driver of this week’s mortgage rate hike. US inflation hit a 40-year high in January, accelerating to a 7.5% annual rate, the Labor Department said Thursday. The pace of labor market recovery also grew stronger last month, with total nonfarm payrolls increasing by 467,000.
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“Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand,” Khater said.

MBA's latest weekly mortgage applications survey released.

Overall mortgage applications slid back by more than 8% for the week ending February 04 after a double-digit gain the previous week, data from the Mortgage Bankers Association showed.

The latest MBA survey pointed to an 8.1% seasonally adjusted decline in mortgage loan application volume. Unadjusted, applications dropped 6% week over week.

“Mortgage rates continued to edge higher last week, with the 30-year fixed-rate climbing to 3.83%,” said Joel Kan, AVP of economic and industry forecasting at MBA. “Rates followed the US 10-year yield and other sovereign bonds as the Federal Reserve, and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies.”

The refinance index was down 7% from the week before and was 52% lower than the same period a year ago. The seasonally adjusted purchase index saw a 10% week-over-week decline and was 12% lower than the same week in 2021.

“With rates 87 basis points higher than the same week a year ago, refinance applications continued to decrease,” Kan added. “Purchase activity slowed after the previous week’s gain. Both conventional and FHA purchase applications saw proportional declines, resulting in purchase activity overall dropping 10%. The average loan size again hit another record high at $446,000. Activity continues to be dominated by larger loan balances, as inventory remains tight for entry-level buyers.” 
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The refinance share of mortgage activity shrank to 56.2% of total applications from 57.3%, while the adjustable-rate mortgage share of activity held steady at 4.5% of total applications.