The residential real estate market was frozen, says NAR chief economist.

Existing-home sales dipped another 7.7% in November as the housing market stagnation dragged on for the tenth straight month.

“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said Lawrence Yun, chief economist of the National Association of Realtors.

Total existing-home sales declined 7.7% month over month and were down 35.4% year over year to a seasonally adjusted annual rate of 4.09 million in November. Yun said the main factor behind the slowdown in sales was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes.

According to the latest data from Freddie Mac, the average 30-year fixed-rate mortgage was 6.31% as of December 15 – a slight decline from 6.33% the previous week but up from 3.12% a year ago.

“The market may be thawing since mortgage rates have fallen for five straight weeks,” Yun said. “The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year.”

The median existing-home price for all housing types climbed 3.5% year over year in November to $370,700, marking the 129th consecutive month of annual increases – the longest-running streak on record.

Additionally, housing inventory remains near historic lows, down 6.6% from October to 1.14 million units in November. Unsold inventory sits at a 3.3-month supply at the current sales pace, unchanged from October but up from 2.1 months in November 2021.

Properties typically stayed on the market for 24 days in November, three days longer than in October and up from 18 days in November 2021. Around 61% of homes sold last month were on the market for less than a month.

Single-family housing starts plunge while multifamily construction surges.

Homebuilders continued to cut back on the construction of single-family homes in November, leading to a slight decline in overall housing starts.

The latest report from the Census Bureau showed that privately-owned housing starts in November dropped 0.5% month over month to a seasonally adjusted annual rate of 1.4 million units. Within this figure, single-family-housing starts were at an 828,000 rate, down 4.1% from the revised October figure of 863,000.

But tempering that decline is an increase in the construction of apartment and condominium projects. Multifamily starts increased 4.9% to an annualized 599,000 pace in November.

“It’s no surprise that single-family starts are running at their lowest level since May 2020, given that builder sentiment has dropped for 12 consecutive months as builders remain fixated on rising building material costs and supply chain bottlenecks, with electrical transformers, in particular, being in short supply,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB).

“One important characteristic of the single-family housing market is that there have been more single-family homes that completed construction than have been started over the past four months,” said NAHB chief economist Robert Dietz. “The most recent data for November shows there were 25,500 more single-family homes completed than started, thus pushing down the number of new homes under construction.”

There was a 22.4% annual drop in overall housing permits, signaling that home builders are preparing for a slow 2023. Single-family permits fell 7.1% to a 781,000 rate, and multifamily permits plunged 16.4% to an annualized 561,000 pace – the lowest reading for apartment permits since September 2021.

However, the number of multifamily units under construction for November was 932,000, the highest in 49 years. The number of single-family units under construction was down for the sixth consecutive month, declining to 777,000 homes in November.

“In about a year, these apartments and condos will be ready for occupancy, relieving the upward pressure on apartment rents and condo prices,” said NerdWallet home expert Holden Lewis.

“The for-sale home market continues to feel the impact of rising mortgage rates, which has pushed many first-time buyers to the sidelines because their buying power has been dramatically diminished over the past year,” added Kelly Mangold, principal at RCLCO Real Estate Consulting. “There are signs of optimism as the Fed instituted a smaller rate increase of 50bps in December, and inflation is showing signs of waning. Motivated buyers or those who are not financing a large portion of their home, such as a downsizing empty nester, may be in a position to find a good deal as builders are beginning to adjust their pricing to move inventory.”

Massive settlement isn't the end.

Wells Fargo & Co. agreed to pay $3.7 billion to settle allegations that for years it mistreated millions of customers, causing some to lose their cars or homes. That record-setting amount still doesn’t mean the bank’s problems are over.

The head of the Consumer Financial Protection Bureau vowed that his agency might put further limitations on the bank. And the company itself warned it will have to set aside billions more in the fourth quarter to cover not only Tuesday’s settlement but other litigation as well. 

“While today’s order addresses a number of consumer abuses, it should not be read as a sign that Wells Fargo has moved past its longstanding problems or that the CFPB’s work here is done,” Rohit Chopra, the agency’s director, said on a call with journalists.

“Importantly, the order does not provide immunity for any individuals, nor, for example, does it release claims for any ongoing illegal acts or practices.”

Tuesday’s agreement with the CFPB includes more than $2 billion in redress for customers, with the agency saying it found “widespread mismanagement” of auto loans, mortgages and deposit accounts. Taken together, the episodes chronicle an extraordinary 11-year period of illegal activity and mismanagement at one of the nation’s largest banks.

“We remain committed to doing the right thing for our customers and working closely with our regulators and others to deal appropriately with any issue that arises,” Chief Executive Officer Charlie Scharf said in a statement. “This far-reaching agreement is an important milestone in our work.”

Consumer harm 

According to the CFPB, Wells Fargo illegally repossessed vehicles, bungled record-keeping on payments and improperly charged fees and interest. The bank agreed to a consent order without admitting the agency’s allegations. 

The CFPB found some of the bank’s misdeeds continued until earlier this year. Take its auto loan servicing business: Wells Fargo repossessed vehicles even if a borrower had made a payment or entered into an agreement with the bank to stall the action, according to the agency. In all, customers affected by conduct in the car-loan business will receive more than $1.3 billion in redress. 

The problems didn’t stop there. In the mortgage business, Wells Fargo erroneously identified some 190 customers as dead, and therefore didn’t assess whether they were eligible to modify a government-backed loan in the five years leading up to 2018. The bank agreed to pay those borrowers $2.4 million, or an average of $12,631 per person.

Wells Fargo also illegally charged surprise overdraft fees, and in more than 1 million cases, it unlawfully froze consumer accounts “based on a faulty automated filter’s determination” that there may have been a fraudulent deposit.

“The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes,” Chopra said. “We see this as an initial step to bring relief quickly to families who had their cars illegally possessed, who were tricked into seeing their accounts drained by illegal junk fees, and who had their accounts frozen without cause.”

More charges 

Under Scharf, Wells Fargo has been trying to resolve a raft of scandals that emerged in 2016 with the revelation that the bank opened millions of bogus accounts. Problems surfaced across business lines, resulting in the departure of two previous CEOs and a number of costly penalties, including the Federal Reserve’s decision to cap the San Francisco-based firm’s assets. 

Securing Tuesday’s agreement actually marks a win for Scharf, who joined the firm in 2019 and has sought to move quickly to resolve the bevy of problems that have plagued the company. Scharf has long distanced himself from the actions of his predecessors, who oversaw much of the conduct described in this week’s settlement. 

Still, Wells Fargo said it expects a pre-tax operating loss expense of about $3.5 billion in the fourth quarter, which it said includes the CFPB civil penalty and remediation, as well as other litigation expenses. The move comes after Wells Fargo already set aside $2.2 billion for similar matters in the third quarter. 

“This sizable fourth-quarter number also means that Wells Fargo has been booking losses for other actions along the way that are still open-ended,” Ken Usdin, an analyst at Jefferies Financial Group Inc., said in a note to clients. “We do not see today’s action as having a direct read-though to the asset cap and its potential removal.”

Chopra warning

In prepared remarks Tuesday, Chopra said he’s grown increasingly concerned that Wells Fargo’s recent efforts to boost profitability — through product launches and other growth initiatives — has delayed necessary reforms across the bank. 

The director said federal banking regulators will have to consider whether further limitations must be placed on the bank in addition to the Fed’s asset cap and a move last year by the Office of the Comptroller of the Currency. The OCC limited Wells Fargo’s ability to acquire new mortgage-servicing business and required the bank ensure borrowers aren’t transferred out of its loan-servicing portfolio until remediation is provided.
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“Our nation’s banking laws provide strong tools to ensure that insured depository institutions do not breach the public trust, and in the new year we expect to work with our fellow regulators on whether and how to use them,” Chopra said. 

Report shows builders continue to struggle to keep housing affordable for home buyers.

Builder confidence in the market for newly built single-family homes declined every month in 2022, falling in December to its lowest level in over a decade, with the exception of the pandemic in 2020.

US builder sentiment posted its 12th consecutive monthly decline in December, sliding two points to 31, according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI).

The NAHB said the deteriorating builder confidence reflects the housing market weakened by high mortgage rates, stubborn inflation, elevated construction costs, and low consumer demand.

“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB chairman Jerry Konter. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced home prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”

“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” said NAHB chief economist Robert Dietz. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”

The HMI index measuring current sales conditions dropped three points to 36, and traffic of prospective buyers remained unchanged at 20. Meanwhile, the component gauging sales expectations in the next six months rose four points to 35.

“NAHB is expecting weaker housing conditions to persist in 2023, and we forecast a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” Dietz said.

"The reality is now we’ve got to go through this"

The US housing market has been on shaky ground over the past year. While most experts agree the real estate industry has been incredibly resilient, many have not been surprised that the sector is heading for a major slowdown.

“In many ways, we’ve been expecting this for some time,” said John Beacham, CEO of Toorak Capital Partners. “The reality is, from a macro standpoint, we have created a very low-interest environment for probably way too long. We have too much money sloshing around the financial system - there is too much liquidity historically. And that’s resulted in inflation, high interest rates, increasing interest rates and all the things we’re seeing now. I think that’s reasonably predictable, and we’ve been expecting this for a while.”

The downturn was inevitable, Beacham told Mortgage Professional America in an exclusive interview.

“The reality is now we’ve got to go through this,” he said. “We have too much liquidity, which needs to come out. What that means for our business is that we’re seeing, like everyone else, a period of rapidly rising interest rates once a year, and we don’t know how many times we’re to increase our interest rates, but it seems like it’s pretty much every two weeks or three weeks.”

Beacham noted that the significant decline in overall lending volumes is just a “natural reaction” as it becomes harder to find deals for borrowers.

“As we look forward to next year, there’ll be more pressure on the housing market, probably more pressure on mortgage rates, and that will mean more declines in housing prices,” Beacham said. “So, we’re prepared for that, and we’ll be ready for that.”

US home loan applications drop for the second straight week.

US mortgage applications fell for the second consecutive week despite a recent drop in mortgage rates, suggesting that tougher economic and financial conditions continue to keep potential home buyers on the sidelines.

Adjusted to the Thanksgiving holiday results, total mortgage application volume dropped 1.9% and was down 36% on an unadjusted basis, according to the Mortgage Bankers Association. Applications continued to trend downward despite the pause in mortgage rate increases in the previous weeks.

“Mortgage applications decreased 2% compared to the Thanksgiving holiday-adjusted results from the previous week, even as mortgage rates continued to trend lower,” said Joel Kan, MBA’s vice president and deputy chief economist. “Rates decreased for most loan products, with the 30-year fixed declining eight basis points to 6.41% after reaching 7.16% in October. The 30-year fixed rate was 73 basis points lower than a month ago – but was still more than three percentage points higher than in December 2021.”

Refinance applications posted a 5% increase – bouncing back from a 13% plunge the week before – while purchase applications slid 3% week over week. Due to rising rates and the slower pace of mortgage application activity, mortgage originations in the third quarter plummeted 62%, with refis driving most of the decline, according to the Milliman Mortgage Default Index (MMDI).

“With interest rates rising, fewer homeowners are refinancing for a more favorable rate or length-of-loan compared to the year prior,” MMDI author Jonathan Glowacki explained.

“Purchase activity slowed last week, with a drop in conventional purchase applications partially offset by an increase in FHA and USDA loan applications,” Kan added. “The average loan size for purchase applications decreased to $387,300 – its lowest level since January 2021. The decrease was consistent with slightly stronger government applications and a rapidly cooling home-price environment.”

… but they are still below pre-pandemic levels.

Foreclosure activity year on year has shot up by 57%, with foreclosure starts increasing by a whopping 98%, according to a new report by real estate data firm, ATTOM.

The November 2022 US Foreclosure Market Report shows that a total of 30,677 properties had foreclosure filings last month - namely default notices, scheduled auctions or bank repossessions.

Across the country, one in every 4,580 properties had a foreclosure filing in November, while the states with the highest foreclosure rates were Illinois (one in every 2,401 housing units), followed by Delaware (2,736), and New Jersey (2,916).

Large metropolitan areas with the worst foreclosure rates included Cleveland along with Chicago (one in every 2,221 housing units); Riverside in California (2,294); and Philadelphia (2,539).

Lenders started the foreclosure process on 20,686 properties in November, and the states reporting the greatest number of starts were in California, Texas and Florida.

The foreclosure process normally starts when a borrower has received a default notice after missing four monthly mortgage payments in a row, although most lenders will reportedly send a notice of default when they are 90 days – or three months - past due.

California had 2,244 foreclosure starts, followed by Texas with 2,114 and Florida with 1,709.

Large metropolitan areas with the greatest number of foreclosure starts last month included: New York with 1,593, followed by Chicago (1,028) and Houston (685). Miami reported 657.

On a slightly more positive note, although foreclosure starts have jumped by 98% compared to last year, they were down 5% from last month. In addition, foreclosure completions were also down during the same November period (9%).

Foreclosure completions

Data from ATTOM shows that lenders repossessed a total of 3,770 properties through completed foreclosures (REOs) across the country in November.
States with the largest number of REOs included Illinois (343 REOs); New York (313); Pennsylvania (220); Michigan (210); and Ohio (208).

Major metropolitan statistical areas (MSAs) with a population greater than one million reporting the greatest number of REOs last month included: Chicago (278 REOs); New York (174 REOs); Philadelphia (103 REOs); Detroit (77 REOs); and Houston (59 REOs).

Despite the monthly drop, foreclosure completions shot up by 64% compared to last year.

Below pre-pandemic levels
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Rick Sharga, executive vice president of market intelligence at ATTOM, nonetheless noted that foreclosure starts were “still just above 80% of pre-pandemic levels”, in spite of nearly doubling from last year’s numbers.

He said: “We may continue to see below-normal foreclosure activity, since unemployment rates are still very low, and mortgage delinquency rates are lower than historical averages.

“We may be at or near a peak level of foreclosure activity for 2022. While foreclosure starts and foreclosure completions both increased compared to last year’s artificially low levels, they declined from last month, and lenders often put a moratorium on foreclosures during the holiday season.”

According to the Institute for Housing Studies at DePaul University, data is often used not only to understand the activity of foreclosure filings throughout the country but to assess the cumulative impact of the crisis on properties and, significantly, as an indicator of distress in a local housing market.

The Pew Research Centre described a foreclosed home as “a visible symbol of today’s housing crisis”, in reference to the 2008 market crash. At the height of the crisis there more than 2.3 million homes (1.8% of all housing units) with reported foreclosure filings in 2009 alone.

US homeowners rack up $2.2 trillion in equity.

US homeowners with mortgages racked up a collective gain of $2.2 trillion in the third quarter, data from CoreLogic’s Homeowner Equity Report (HER) showed.

Home equity gains grew at a 15.8% year-over-year pace for an average of $34,300 per borrower in Q3. However, this is a significant slowdown from the second quarter’s nearly $60,000 year-over-year gain due to the home price correction seen in recent months.

According to CoreLogic, the annual price appreciation fell from roughly 18% in June to 10% in October. Home price appreciation is projected to fall into single digits for the rest of the year and possibly move into negative territory by the spring of 2023.

“At 43.6%, the average US loan-to-value (LTV) ratio is only slightly higher than in the past two quarters and still significantly lower than the 71.3% LTV seen moving into the Great Recession in the first quarter of 2010,” said Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic. “Therefore, today’s homeowners are in a much better position to weather the current housing slowdown and a potential recession than they were 12 years ago.”

Annually, the number of borrowers with negative equity increased by 4% to 1.1 million homes of 1.9% of all mortgaged properties. If home prices decline by 5%, approximately 172,000 homes would fall underwater.

“Weakening housing demand and the resulting decline in home prices since the spring’s peak reduced annual home equity gains and pushed an additional number of properties underwater in the third quarter,” said Hepp.

 “Nevertheless, while these negative impacts are concentrated in Western states such as California, homeowners with a mortgage there still average more than $580,000 in home equity.”

Surging mortgage rates have hit demand.

US household net worth fell for a third-straight quarter as equities continued to retreat.

Household net worth decreased $392 billion in the July-September period, or 0.3%, after falling a record $6.3 trillion in the second quarter, a Federal Reserve report showed Friday.

The value of equity holdings dropped $1.9 trillion and the value of real estate held by households rose by about $820 billion.
Over the third quarter, the central bank signaled not only further interest-rate hikes but also the intention to leave them elevated for a while. The S&P 500 index slid sharply from mid-August through the end of the quarter.

Meantime, surging mortgage rates have severely restrained demand for homes — a key source of wealth for Americans. That said, home values have only just recently begun to decline.

The Fed’s report also showed household checkable deposits, or the money Americans have in checking, savings and money market accounts, continue to rise. Checkable deposits have swelled amid rising wages and a variety of pandemic-era support, helping explain why consumer spending is holding up despite rapid inflation.

Still, Americans have been leaning on credit cards and dipping into savings to keep spending.

Consumer credit not including mortgages rose at a 7% annual rate in the third quarter.

While still elevated, that marked a deceleration from the previous three months.
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Business debt outstanding increased at a 5.3% pace. Federal debt also rose, though state and local government borrowing fell. 

But sales may bounce back in November, experts predict.

Pending home sales tumbled 4.6% in October, marking five consecutive months of decline as higher mortgage rates continue to scare off potential homebuyers.

The National Association of Realtors’ Pending Home Sales Index – a forward-looking indicator of home sales based on contract signings – fell 4.6% month over month to 77.1 in October. Compared to a year ago, pending transactions were down by 37%.

“October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR chief economist Lawrence Yun. “The West region, in particular, suffered from the combination of high-interest rates and expensive home prices. Only the Midwest squeaked out a gain.”

The Northeast PHSI sank to 68.7 in October, down 4.3% from last month and 29.5% from a year ago. The South PHSI dropped to 90.6 (-6.4% month over month and -38.2% year over year), and the West index plunged to 55.6 (-11.3% month over month and -46.2% year over year). Meanwhile, the Midwest index posted a 3.3% month-over-month increase to 83.5 in October. However, it was down 32.1% from last year.

“Pending home sales fell 4.6% in October, which is little surprise because mortgage rates peaked in that month,” NerdWallet mortgage expert Holden Lewis added. “We might see pending home sales bounce back the following month because mortgage rates have fallen back in November.”
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Yun agreed: “The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”