Those ads aren't going to sell so fast…
Zillow Group Inc. shares plummeted after the company predicted that a significant contraction in home sales would weigh on the amount of advertising it can sell to real estate agents. The company, which makes most of its money by helping agents connect with homebuyers, has been riding the housing roller coaster for more than two years, shifting from a sharp slowdown in the early days of the pandemic, to the boom that followed, and now a period of higher mortgage rates and cooling sales. The ongoing downturn led Zillow to project earnings before interest, taxes, depreciation and amortization of $73 million to $88 million in the third quarter, according to a shareholder letter Thursday. That missed the $170 million analysts were expecting, and Zillow shares fell as much as 11% in trading after New York markets closed. Zillow wasn’t the only real estate technology company to provide discouraging guidance for the third quarter. Brokerage Redfin Corp. also fell in late trading after the company forecast wider losses than analysts estimated. Opendoor Technologies Inc. projected a loss, saying the sharp slowdown in housing demand would push it to cut prices on some of its listings. Its shares rose slightly. “Agents saw demand go down and longer cycles for their customers to close,” Zillow Chief Financial Officer Allen Parker said on a conference call with investors. “Their natural reaction at a time like this is to reduce their advertising spend somewhat as a protection.” Zillow, led by chief executive officer Rich Barton, has bounced between business models in a bid to wring greater profits from its massive online audience, which reached 234 million unique visitors per month in the second quarter. In 2018, the company made an audacious bet on a business called iBuying, predicting that the tech-powered spin on home-flipping would supercharge profits. Zillow’s attempt to rapidly expand the effort faltered, pushing Barton to shutter the business last year in a move he said would protect the company from bigger losses in a future downturn. Zillow pivoted again, laying plans to build a housing “super app” to integrate tools consumers and agents use to navigate the buying or selling process. The company is adding a new component to that effort, allowing visitors to Zillow’s sites and apps to request a cash offer for their homes from Opendoor. The arrangement lets Opendoor tap into Zillow’s audience, while helping Barton’s company fulfill consumer demand for a service without putting capital at risk. “Despite the challenging housing environment that we cannot control,” Barton said on the call, “we are as confident as ever in what we can control.”
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As home values keep rising even those facing foreclosure have positive equity.
Half of all US mortgaged homes are now considered equity-rich, according to a new report by real estate data curator, ATTOM. According to the US Home Equity and Underwater report for Q2, 48.1% of mortgaged residential properties in the country were considered equity-rich in the second quarter this year, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50% of their estimated market values. Data was collected on more than 155 million properties across the US. The report provides counts of properties based on several categories of equity — or loan to value (LTV) — at the state, metro, county and zip code level, along with the percentage of total properties with a mortgage that each equity category represents. ‘Equity-rich’ properties are those with a loan to value ratio of 50% or lower, meaning the property owner had at least 50% equity, while ‘seriously underwater’ properties are those with a loan to value ratio of 125% or above, meaning the property owner owed at least 25% more than the estimated market value of the property. The portion of mortgaged homes that were equity-rich in the second quarter increased from 44.9% in the first quarter and from 34.4% in the second quarter. The latest increase, covering almost half of all mortgage payers in the US, marked the ninth straight quarterly rise in the portion of homes in the equity-rich territory. The report found that at least half of all mortgage-payers in 18 states were equity-rich in Q2, compared to only three states a year earlier. Rick Sharga, executive vice president of market intelligence at ATTOM, said he was not surprised by the report’s findings, given how property prices had been rising for so long. He said: “After 124 consecutive months of home price increases, it’s no surprise that the percentage of equity rich homes is the highest we’ve ever seen, and that the percentage of seriously underwater loans is the lowest. “While home price appreciation appears to be slowing down due to higher interest rates on mortgage loans, it seems likely that homeowners will continue to build on the record amount of equity they have for the rest of 2022.” ATTOM’s report also revealed that only 2.9% of mortgaged homes, or one in 34, were considered seriously underwater in Q2, with a combined estimated balance of loans secured by the property of at least 25% more than the property’s estimated market value. That was down from 3.2% of all homes with a mortgage compared to the previous quarter and 4.1%, or one 24 properties, a year earlier. Across the US, every state except one saw equity-rich levels increase this year due to the fact that home values have kept increasing, while seriously underwater percentages fell in 46 states. After a flat first quarter, the median single-family home price shot up another 9% quarterly and 15% annually during the Spring of this year to a new high of $346,000. The report noted that for owners keeping up with mortgage payments – including many that weren’t – that meant a widening gap between what they owed and what their homes were worth, boosting more home values into equity-rich status. Equity continued “on a relentless upward path” despite home-mortgage rates doubling this year, inflation soaring to a 40-year high and rising fuel costs, among other issues. Despite the economic uncertainty, the report stressed that there was “little immediate sign that equity gains will flatten out”, mostly because of a “historically tight” supply of properties for sale. Broken down by region, seven of the 10 states where the equity-rich share of mortgaged homes increased the most between Q1 and Q2 were in the south. The biggest increases were in Wyoming, where the portion of equity-rich mortgaged homes rose from 26.1% in the first quarter to 33.9% in Q2, Maine, Florida, Mississippi and South Carolina. By contrast, states where the equity-rich share of mortgaged homes decreased, or went up the least, during the same period were New Jersey (down from 38.6% to 37.9%), Utah, Idaho, North Dakota and West Virginia. In addition, the largest declines in seriously underwater properties spread across the Northeast, South and Midwest, led by Mississippi (share of mortgaged homes seriously underwater down from 17% to 8.1%), Wyoming, Missouri, Maine and Connecticut. The only states where the percentage of seriously underwater homes increased from the first quarter to the second quarter were Montana (up from 3% to 3.9%), New Jersey and New York. Significantly, more than 90% of homeowners facing foreclosure have at least some equity. Only about 214,800 homeowners were facing possible foreclosure in Q2, the equivalent of just four-tenths of 1% of the 58.2 million outstanding mortgages in the US. Of those facing foreclosure, about 195,400, or 91%, had at least some equity built up in their homes. Sharga said: “The fact that over 90% of homeowners in foreclosure have positive equity is good news for borrowers who find themselves in financial distress. These homeowners have the opportunity to leverage this equity to either secure short-term financing to resolve their delinquencies, or to sell their properties at a profit and avoid a foreclosure auction.” Consumers are the most pessimistic since 2011.
Consumers have become the most pessimistic about housing since 2011, when home prices bottomed in the wake of the global financial crisis, data from Federal National Mortgage Association shows. Fannie Mae’s Home Purchase Sentiment Index dropped to the lowest level in over a decade, as consumers expressed pessimism about home buying prospects. The index, which reflects consumers’ views on the housing market, has fallen from roughly 76 to 63 year-over-year, according to a release Monday. Sentiment hasn’t been as bad since the post-crisis era, when home values plunged as borrowers struggled to make payments, leaving millions facing foreclosure. But this time, the concern is different: this is an affordability crisis. As the Federal Reserve raises benchmark borrowing costs, rates on a 30-year fixed-rate mortgages have almost doubled year-over-year, standing at 5.43% in late July compared to 2.97% a year earlier, putting home ownership out of reach for more and more Americans. Sales of new US homes fell to a more than two-year low in June. “The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” Doug Duncan, Fannie Mae senior vice president and chief economist, said in a statement. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home.” Four of the index’s six components dropped month-over-month, including views on buying and selling conditions, home-price outlook and job-loss concerns, said Fannie Mae. Consumers were most concerned about buying conditions, as the sentiment changed the most year-over-year with 76% of respondents saying it’s a bad time to buy. And although home price appreciation has been the story of the year, consumers are starting to say that the trend is over. Respondents who believe home prices will go up in the next 12 months fell to 39% in July from 44% in June, while the percentage who said home prices will go down increased to 30% from 27%. With home price growth slowing, and projected to slow further, Duncan expects a mixed reaction from consumers. “Some homeowners may opt to list their homes sooner to take advantage of perceived high prices, while some potential homebuyers may choose to postpone their purchase decision believing that home prices may drop,” he said. The index gets the information about consumers’ home purchase sentiment from Fannie Mae’s National Housing Survey. Reading marks largest monthly decline since April 2020
Mortgage credit supply fell by 9% in July as lenders continued to tighten their lending standards amid rising mortgage rates and heightened economic ambiguity. The Mortgage Bankers Association’s Mortgage Credit Availability Index (MCAI) decreased 9% to a reading of 108.8 in July. A drop in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The MCAI index was benchmarked to 100 in March 2012. Credit availability fell last month to the lowest level since May 2013, as lenders streamlined their loan offerings in this declining volume environment,” said Joel Kan, associate vice president of economic and industry forecasting at MBA. “The 9% decline in the July index was the largest monthly decrease since April 2020. Lenders have responded accordingly to the decrease in demand for refinance and purchase loans by reducing loan offerings, including for ARMs, cash-out refinances, and investment properties.” Kan noted that the general tightening in credit availability also affected jumbo and non-QM loan programs. According to MBA, the credit supply of jumbo loans was down by 13.4% and the availability of conforming loans dwindled by 3.3%. Overall, the Conventional MCAI plunged by 9.8%, while the government index plummeted by 8.4%. |
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