What do housing industry experts think?
US mortgage rates surged to their highest level in more than 13 years following the Federal Reserve’s latest interest rate hike. Freddie Mac reported Thursday that the average 30-year fixed-rate mortgage (FRM) rose more than half a percentage point to 5.78% – the highest since November 2008 and the largest one-week increase since 1987. Last week, the 30-year FRM was 5.23%. The surge is a result of a “shift in expectations about inflation and the course of monetary policy,” said Freddie Mac chief economist Sam Khater. Keller Williams chief economist Ruben Gonzalez expounded on Khater’s point: “Earlier this week, we saw a shift in market expectations around how aggressive a path the Fed is likely to take to combat inflation. Mortgage rates going forward will continue to be responsive to changes in expectations around the Fed’s policy path, as well as inflation expectations. The housing market is still extremely tight, with inventory levels remaining near historic lows, leaving room for the market to absorb falling demand.” Marty Green, principal at Polunsky Beitel Green, added: “It is clear in talking to mortgage company executives that the recent fluctuations in mortgage interest rates have increased the risks in an already challenging market and the belief that the sooner we get to a stabilized rate environment, even at elevated rates, the better it will be for the industry. The belief is that it will also restore a level of predictability for consumers so that they can more comfortably make their financial decision on a potential move to a new home.” Based on their conversations with clients, Green believes many market participants approve of the Fed’s aggressive approach, “as there is some belief the Fed’s decision will more quickly bring stability to the home mortgage interest rate environment,” he said.
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Housing industry continues to be beset by a host of challenges.
A decline in housing starts mirrors a similar drop in homebuilder confidence as the homebuilding industry continues to be beset by supply chain disruptions, rising input costs and concerns that declining affordability is pricing out buyers, an economist told Mortgage Professional America. Odeta Kushi (pictured) reacted to a report on Thursday by the US Department of Housing and Urban Development and US Census Bureau showing overall housing starts falling by 14.4% to a seasonally adjusted annual rate of 1.55 million units in May from an upwardly revised reading the previous month. The May reading of 1.55 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 9.2% to a 1.05 million seasonally adjusted annual rate, according to the report. The multifamily sector wasn’t immune to declines either. The sector encompassing apartment buildings and condos decreased 23.7% to an annualized 498,000 pace. Still, Kushi found a silver lining in the otherwise sobering report: “Completions in May increased 9.1% compared with April and were up 9.3% year over year. The growth in completions means more homes on the market in the short-term, offering some immediate relief in alleviating chronic housing supply shortages.” Overall, however, homebuilder confidence remains low: “Homebuilder confidence dipped lower in May for the sixth month in a row,” Kushi noted. “Homebuilding is a leading economic and housing indicator, and the decline in confidence suggests that housing is cooling.” In addition to supply chain disruptions, rising input costs and affordability concerns, rising rates also played a role in the declining stats, Kushi observed: “The new-home market is particularly sensitive to rising rates, and builders want to ensure that if they build it, someone will buy it,” she said. “Builders are responding to the decline in affordability and cooling demand by building less, but a slowdown in construction is concerning because the US continues to face a housing shortage. We need more homes, not less.” The number of single-family homes authorized – but not yet started – remained flat in May as well, Kushi said, although it remains 3.4% higher than one year ago. “Builders continue to work through a backlog of uncompleted homes before they can break ground on new projects,” she noted. Labor shortages emerged as yet another mitigating factor: “Skilled labor shortages continues to hamper builders, making it difficult to build,” Kushi said. “In April, hires per job opening, a measure of how readily employers can turn openings into new employees, dipped to a series low. No hammers at work, no homes. Yet, it’s not from lack of trying. The annual growth in average hourly earnings of production and non-supervisory employees in construction picked up in May, increasing 6.3% year over year. The best way to attract and retain workers is to pay more.” The National Association of Home Builders also reacted to the disappointing report. NAHB’s chairman, Jerry Konter, sees little change in the future as he predicted construction costs continuing their increase. Konter is a developer in Georgia who has met the challenges firsthand. “Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability,” Konter said in a prepared statement. “Moreover, construction costs continue to rise, with residential construction materials up 19% from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and home buyers.” Robert Dietz, NAHB’s chief economist, sees further weakening ahead: “In further signs that the housing market is weakening, single-family permits are down 2.5% on a year-to-date basis and home builder confidence has declined for the last six months,” he said in a prepared statement. “Due to the acceleration in construction activity in recent quarters, housing completions are rising. Single-family completions were up 8.5% in May 2022 compared to May 2021 as inventories rise.” On a regional and year-to-date basis, combined single-family and multifamily starts are 2.1% higher in the Northeast, 1.2% higher in the Midwest, 12.9% higher in the South and 4.3% higher in the West. Overall permits decreased 7.0% to a 1.70-million unit annualized rate in May. Single-family permits decreased 5.5% to a 1.05-million unit rate. This is the lowest pace for single-family permits since July 2020. Multifamily permits decreased 9.4% to an annualized 647,000 pace. Looking at regional permit data on a year-to-date basis, permits are 8.3% lower in the Northeast, 5.2% higher in the Midwest, 4.6% higher in the South and 1.6% higher in the West, according to the report. Housing industry continues to be beset by a host of challenges.
A decline in housing starts mirrors a similar drop in homebuilder confidence as the homebuilding industry continues to be beset by supply chain disruptions, rising input costs and concerns that declining affordability is pricing out buyers, an economist told Mortgage Professional America. Odeta Kushi (pictured) reacted to a report on Thursday by the US Department of Housing and Urban Development and US Census Bureau showing overall housing starts falling by 14.4% to a seasonally adjusted annual rate of 1.55 million units in May from an upwardly revised reading the previous month. The May reading of 1.55 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 9.2% to a 1.05 million seasonally adjusted annual rate, according to the report. The multifamily sector wasn’t immune to declines either. The sector encompassing apartment buildings and condos decreased 23.7% to an annualized 498,000 pace. Still, Kushi found a silver lining in the otherwise sobering report: “Completions in May increased 9.1% compared with April and were up 9.3% year over year. The growth in completions means more homes on the market in the short-term, offering some immediate relief in alleviating chronic housing supply shortages.” Overall, however, homebuilder confidence remains low: “Homebuilder confidence dipped lower in May for the sixth month in a row,” Kushi noted. “Homebuilding is a leading economic and housing indicator, and the decline in confidence suggests that housing is cooling.” In addition to supply chain disruptions, rising input costs and affordability concerns, rising rates also played a role in the declining stats, Kushi observed: “The new-home market is particularly sensitive to rising rates, and builders want to ensure that if they build it, someone will buy it,” she said. “Builders are responding to the decline in affordability and cooling demand by building less, but a slowdown in construction is concerning because the US continues to face a housing shortage. We need more homes, not less.” The number of single-family homes authorized – but not yet started – remained flat in May as well, Kushi said, although it remains 3.4% higher than one year ago. “Builders continue to work through a backlog of uncompleted homes before they can break ground on new projects,” she noted. Labor shortages emerged as yet another mitigating factor: “Skilled labor shortages continues to hamper builders, making it difficult to build,” Kushi said. “In April, hires per job opening, a measure of how readily employers can turn openings into new employees, dipped to a series low. No hammers at work, no homes. Yet, it’s not from lack of trying. The annual growth in average hourly earnings of production and non-supervisory employees in construction picked up in May, increasing 6.3% year over year. The best way to attract and retain workers is to pay more.” The National Association of Home Builders also reacted to the disappointing report. NAHB’s chairman, Jerry Konter, sees little change in the future as he predicted construction costs continuing their increase. Konter is a developer in Georgia who has met the challenges firsthand. “Single-family home building is slowing as the impacts of higher interest rates reduce housing affordability,” Konter said in a prepared statement. “Moreover, construction costs continue to rise, with residential construction materials up 19% from a year ago. As the market weakens due to cyclical factors, the long-term housing deficit will persist and continue to frustrate prospective renters and home buyers.” Robert Dietz, NAHB’s chief economist, sees further weakening ahead: “In further signs that the housing market is weakening, single-family permits are down 2.5% on a year-to-date basis and home builder confidence has declined for the last six months,” he said in a prepared statement. “Due to the acceleration in construction activity in recent quarters, housing completions are rising. Single-family completions were up 8.5% in May 2022 compared to May 2021 as inventories rise.” On a regional and year-to-date basis, combined single-family and multifamily starts are 2.1% higher in the Northeast, 1.2% higher in the Midwest, 12.9% higher in the South and 4.3% higher in the West. Overall permits decreased 7.0% to a 1.70-million unit annualized rate in May. Single-family permits decreased 5.5% to a 1.05-million unit rate. This is the lowest pace for single-family permits since July 2020. Multifamily permits decreased 9.4% to an annualized 647,000 pace. Looking at regional permit data on a year-to-date basis, permits are 8.3% lower in the Northeast, 5.2% higher in the Midwest, 4.6% higher in the South and 1.6% higher in the West, according to the report. Increase in foreclosure activity sees more borrowers who've defaulted vacate homes.
The number of vacant zombie properties in the US shot up in the second quarter amid a jump in foreclosure activity, according to a report by real estate data provider, ATTOM. Zombie foreclosures rose by 3% from the first to the second quarter this year just as foreclosure activity increased (it went up by 13%), with just over 1.3 million residential properties in the United States sitting vacant. A ‘zombie’ property is a home left vacant by homeowners who have defaulted on their mortgage and expect to lose it in the pending foreclosure. However, the property title remains in the homeowner’s name along with all financial responsibilities. ATTOM analyzed county tax assessor data for some 99 million residential properties for vacancy, broken down by foreclosure status and owner-occupancy status. Only metropolitan statistical areas with at least 100,000 residential properties and counties with at least 50,000 residential properties were included in the analysis. The report revealed that a total of 259,166 residential properties in the US were in the process of foreclosure during the same period, up by 12.7% from the first quarter of 2022 and up by 15.9% year over year. At the end of 2021, during Q4, the number of residential properties in the process of foreclosure stood at 223,256, which already represented a 3.6% increase from the previous quarter and by 11.6% compared to the same period in 2020. However, the report also pointed out that the number of zombie-foreclosures was down by 6.3% from a year ago, adding that it represented “a tiny segment of the nation’s total stock of 99.7 million residential properties”. But the latest data is also the third straight quarter that the number of pre-foreclosure properties has risen since a COVID-led nationwide foreclosure moratorium was lifted at the end of July 2021. Among those pre-foreclosure properties, 7,569 sat vacant in the second quarter of 2022, meaning that the number of zombie-foreclosure properties went up quarterly by 2.8%. Rick Sharga, executive vice president of market intelligence at ATTOM, said: “The incidence of zombie foreclosures tends to be higher in cases where the foreclosure process has dragged on for many months and sometimes even for years. “We’re now seeing properties where the borrower was already in default prior to the government’s moratorium re-enter the foreclosure process, and undoubtedly some of these homes will have been vacated over the past 26 months.” Nonetheless, just one out of every 13,171 homes in Q2 of 2022 remained vacant and in foreclosure, meaning that most neighborhoods have no zombie properties. The number of pre-foreclosure properties that have been abandoned and classed as ‘zombie’ also continues to fall, down from 3.6% a year ago to 3.2% in the first quarter of 2022. And with median single-family home prices having increased by 17% over the last year, homeowner equity continues to rise - at least for now - greatly limiting the likelihood that homeowners facing foreclosure “will simply walk away from their homes”, ATTOM noted. Sharga added that almost 90% of homeowners in foreclosure “have positive equity”, pointing out that having equity would give financially distressed homeowners an opportunity for a “relatively soft landing” as they would be able to sell their home at a profit rather than losing everything to a foreclosure. “That factor alone should keep the number of zombie-foreclosures from rising too much,” he said. The overall findings coincide with market predictions from Craig Torrance, CEO of Mortgage Contracting Services (MCS), which specializes in foreclosures and the inspection and maintenance of these types of properties. In November 2021 he told MPA that he expected “increased movement across the industry through Q1 and Q2 next year (2022)” as the COVID pandemic had “triggered a great deal of confusion and inactivity in the foreclosure market that is just beginning to work itself out”. Asking rents hit new all-time high across the US.
Despite the sudden spike in rates, the US multifamily market has continued to see unprecedented demand and rent growth, according to the latest Yardi® Matrix Multifamily Report. On average, nationwide asking rents jumped $19 in May to an all-time high of $1,680, rising 3% over the quarter and 13.9% over the past year. Twenty-six (26) of the top 30 metros in Yardi’s report posted at least a 10% year-over-year increase in rent growth, with Miami (24.2%), Orlando (23.2%), and Tampa (21.6%) reporting the biggest gains. “Multifamily rents continue to defy gravity,” Matrix analysts wrote in the report. “Decelerating economic growth and concerns about gas prices and inflation have not eroded multifamily demand much nor slowed down the upward climb of rents.” However, some high-growth metros are showing signs of cooling. Occupancy rates dwindled in Las Vegas (-1.1%), Sacramento (-0.7%) and Phoenix (-0.7%) year over year. “A robust delivery pipeline could be the root cause in some, but new supply in others is on par with the national average. While rents are up at least 13% year-over-year in each, it may portend an easing of demand,” Matrix analysts said. The recent interest rate hikes have left many in the multifamily industry wondering how investors will adapt to rising prices and borrowing costs, which have climbed along with the increase in Treasury yields. “Transaction activity is slowing as investors take in the new landscape,” the report said. “Buyers using the leverage of 70% or more are finding that financing is drying up, and deals with aggressive bids have fallen through. Property values—which rose around 20% in 2021—are down 10-15%, based on reports from investors and sellers. However, the change in pricing has been slow to be recorded because many sellers are holding out rather than accepting lower bids.” Even with the strong performance last month, Matrix analysts reminded investors and lenders to “heed the lesson of the Global Financial Crisis” and “maintain conservative underwriting.” Mortgage credit supply falls to a new low.
Mortgage lenders tightened their guidelines in May, with the Mortgage Bankers Association reporting that mortgage credit supply plummeted to its lowest level since July 2021. According to the trade association, its Mortgage Credit Availability Index (MCAI) edged down by 0.9% to a reading of 120 in May. This is the third consecutive month the index has declined, signaling a continued tightening in mortgage credit. Joel Kan, MBA’s associate vice president of economic and industry forecasting, noted that the index remains more than 30% below pre-pandemic levels. The report showed that May’s tightening was most notable in the government and jumbo segments of the mortgage market. MBA’s Conventional MCAI dropped 0.4%, while the Government MCAI fell by 1.3%. Jumbo credit supply decreased by 1.1%, while the availability of conforming loans rose by 1%. Kan cited recent months’ credit tightening in refinance programs as the major contributor to the downturn. “The decrease in government credit was driven mainly by a reduction in streamline refinance programs, as mortgage rates increased sharply through May, slowing refinance activity. Jumbo credit availability, which was starting to see a more meaningful recovery from 2020’s pullback, declined after three months of expansion,” Kan explained. Fannie Mae weighs in on the sky-high inflation figures.
US consumer inflation accelerated further in May to its fastest pace in over 40 years, putting even more pressure on mortgage rates. The Consumer Price Index spiked 8.6% from a year ago and up 1% from April, the Bureau of Labor Statistics revealed on Friday. The May CPI reading came in above Fannie Mae’s market expectations and will likely lead to upward revisions to its inflation forecast. “We had already anticipated significant upward revisions to our near-term energy price outlook based on increases in oil prices and issues with refining capacity, but this report extended well beyond just food and energy,” Fannie Mae’s Economic and Strategic Research (ESR) Group wrote in its weekly blog. One bright spot, the group noted, is that durable goods prices only rose 0.1% over the month despite price increases for both new and used cars, which were up by 1% and 1.8% in May, respectively. “Still, there’s little evidence in this report that underlying inflationary pressures are easing, and we expect that it will cement a 50-basis point hike from the Fed next week and increases the possibility of a lengthier or more aggressive monetary policy tightening thereafter,” the ESR group said. In terms of growth, Fannie Mae said it will upgrade its near-term GDP expectation based on stronger than expected net exports. However, this upgrade will be partially offset by a downgrade to the group’s near-term forecast for business fixed investment. “Further, higher energy prices will weigh on our growth forecast, and we are growing increasingly concerned about signs of a stressed consumer weighing on medium- to long-term consumption growth, as revolving credit exceeded its pre-pandemic level. As a ratio of aggregate incomes, total debt levels remain below the pre-COVID peak, pointing to further room for consumers to turn to more debt to drive consumption, but the current pace of growth in debt levels is not sustainable.” The worsening inflation has pushed the Federal Reserve to get more aggressive with interest rates to curb it. Last month, Fed officials increased the benchmark federal funds rate by 0.50%, driving average mortgage rates up to 5.23% as of June 09. “After little movement in the last few weeks, mortgage rates rose again on the back of increased economic activity and incoming inflation data,” said Freddie Mac chief economist Sam Khater. “The housing market is incredibly rate-sensitive, so as mortgage rates increase suddenly, demand again is pulling back.” Consequently, mortgage applications hit a 22-year low of 6.5%, according to the Mortgage Bankers Association’s latest survey. Fannie Mae’s home purchase sentiment index is also hovering near its 10-year and pandemic low of 63 as consumers continue to express concerns about housing affordability and rising mortgage rates. The fixed rate rise is to blame.
Last week saw the mortgage market index falling to its lowest level in 22 years as mortgage applications dropped 6.5% on a seasonally adjusted basis, according to the Mortgage Bankers Association’s (MBA) weekly survey. Left unadjusted, mortgage applications have decreased by 17% compared to the previous week. Joel Kan, associate vice president of economic and industry forecasting at the MBA, said the low volume of refinance and purchase applications had dragged the market index to a 22-year low after the 30-year fixed rate increased to 5.4% – the first rate rise after three consecutive declines. “While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” Kan said. “The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers.” Refinance and purchase applications were 6% and 7% lower than the previous week, respectively. Both percentages are significantly lower compared to the same time last year. Meanwhile, the adjustable-rate mortgage share sank to 8.2% of total applications. Not all rates have seen lower percentages, however. The refinance share of mortgage activity noted an increase from 31.5% to 32.2%, the FHA share from 10.8% to 11.3% and the VA share from 10.2% to 11.4% this week. Only the USDA share of total applications remained relatively unchanged at 0.5% from the previous week. "Sellers are losing control of the housing market," says Redfin economist.
The number of homes for sale fell 8% during the four weeks ending June 05. This is the smallest year-over-year decline since January 2020 and a reflection of a slump in homebuyer demand, according to online brokerage Redfin. According to the Redfin Homebuyer Demand Index, tours, offers and other requests for help with homebuying were down 12% last week, indicating the eighth consecutive week of decline. New listings fell 2% during the four-week period, while 21% of sellers dropped their list price, the second-highest share on record since 2015. Pending home sales also dropped 8% year over year, matching the decrease seen in May 2020. Moreover, homes that sold during the four-week period were on the market for a record-low median of 15 days, down from 18 days last year. “Sellers are losing control of the housing market as homes that are overpriced and/or less desirable are increasingly having price reductions and taking longer to sell,” said Redfin deputy chief economist Taylor Marr. Marr said that although demand is easing, homebuyers may soon jump back into the market once home price growth eases and interest rates stabilize. “A strong labor market will continue to be a driving force for the bulk homebuying demand this year,” he said. Redfin’s housing data for the four-week period revealed a 15% year over year increase in median home sale price to a record $401,372. The median asking price of newly listed homes, meanwhile, increased 17% year over year to $413,950. Additionally, the monthly mortgage payment on the median asking price home increased to $2,428 at the current 5.23% mortgage rate, said Redfin. This is a 42% increase from the $1,710 reported last year, when mortgage rates averaged 2.96%. "The housing market is incredibly rate-sensitive"
Mortgage rates have risen again after a few weeks of minor movement, with Freddie Mac reporting that the 30-year fixed-rate mortgage (FRM) averaged 5.23% as of June 09, up from 5.09% last week. According to Freddie Mac’s Primary Mortgage Market Survey, the 15-year FRM averaged 4.38%, also up from last week’s 4.32%. Additionally, the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.12%, up from 4.04%. Back in June of the previous year, the 30-year FRM averaged 2.96%. The 15-year FRM averaged 2.23% and the five-year Treasury-indexed hybrid ARM averaged 2.55%. Sam Khater, chief economist at Freddie Mac, said the increases seen this week came on the back of “increased economic activity and incoming inflation data.” “The housing market is incredibly rate-sensitive, so as mortgage rates increase suddenly, demand again is pulling back,” Khater said. “The material decline in purchase activity, combined with the rising supply of homes for sale, will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home.” |
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