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Monthly Archives: May 2017

Home Sales Hit a Wall

Home Sales

A miasma of ennui appears to have enveloped the housing market over the past month or so, at least if we go by the national numbers. Sales (and starts) have gone south recently after heading north to start 2017. 

The unexpected decline in new-home sales induced a spat of brow-furrowing this past week. Sales dropped 11.4% to 569,000 units on an annualized rate in April. The drop counterbalanced the positive sales growth we saw in March and February.

What’s more, meaningful discounting failed to stem the decline. The median price of a new home dropped 3% to $309,200. Year over year, the median price is down 3.8%. If the current sales pace is maintained, we should expect to see more discounting by homebuilders to move inventory, which sufficiently increased last month to push supply up to 5.7 months from 4.9 months in March. 

Fortunately, one month does not make a trend. If we look at the sales trend over the past year, we see the monthly sales are up roughly 55,000 units compared to April 2016. If we look back two years, we see monthly sales are up roughly 90,000. The long-term trend remains our friend. 

When the disappointing news on new-home sales hit the wires, most market watchers adjusted their expectations for existing-home sales. They were right to do so. 

Existing-home sales dropped 2.3% to 5.57 million units on an annualized rate in April. In contrast to homebuilders, though, owners weren’t discounting to move their property. The median price for an existing home actually rose 3.5% month over month to $244,800. Year over year, the median price is up 6%. What’s more, what was offered for sale sold quickly. Days on the market fell to its lowest level since 2011.  

Compared to a year ago, existing-home sales are up 1.6%. That might seem insignificant compared to the year-over-year growth in new-home sales, but new-home sales build off a much smaller base. It’s always easier to go from one to two than it is to go from one million to two million.

As for the future, an immediate pick-up in sales is unlikely. Recent mortgage-purchase activity supports this outlook. Activity has slowed in recent weeks. The MBA’s latest report on purchase loans from a national perspective shows applications were down 1% last week (though thanks to the recent drop in mortgage rates, refinances were up 11%). 

The news on sales was disappointing, but not all that bad. Market heterogeneity is always a mitigating factor. As we know, all real estate markets are local markets. Aggregate national numbers may or may not apply to any local market.

That said, we were expecting to see something a little better than what we saw in April, especially after reading recent reports on the rising trend of millennials and other first-timers embracing homeownership. 

West Coast Inventory Lowest in Nation While Prices Languish Elsewhere


The demand for housing around the U.S. has slightly outpaced the available supply of new and existing homes for the last few years. But certain markets have seen a much more dramatic crunch than others. This trend is particularly pronounced throughout much of the West Coast, where home prices are surging due to a shortage of inventory. 

Based on the most recent data available, found that many of the cities with fewer homes for sale last year were concentrated in several markets throughout Washington, Oregon and California. Seattle led the way with the biggest decrease in homes for sale in 2016 combined with the lowest percentage of housing stock for sale. Last year, according to the data, only 1 out of 263 existing homes in the Seattle area were for sale.

The trend hit an extreme in Eugene, Oregon, home to the state's biggest university. Only 0.6 percent of Eugene's homes were for sale in 2016, a year-over-year decrease of more than 27 percent. One real estate agent who spoke with said that homes in good condition around the Eugene area could be expected to sell in as little as 24 hours after listing. The agent did note that she expected 2017 to be slightly less hectic, however.

These supply shortages have not only made housing of any kind hard to find in certain markets, it's becoming especially hard to simply afford it. Four different parts of the Seattle metro area ranked among the top 10 most competitive real estate markets in 2016, according to analysis by Redfin. In some of these neighborhoods, homes sold as much as 80 percent over their list price, while overall home values grew by at least 20 percent. The median sale price of homes in those four white-hot Seattle markets ranged from $324,000 to a high of $708,500.

Optimism Reigns, and Rightfully So

Optimism Reigns

The latest report on purchase applications for new homes produced a pearl-clutching moment for some market watchers. The MBA’s Builder Applications Survey for April 2017 showed new-home purchase applications dropped 4.3% compared with April 2016. Worse yet, applications were down 20% month over month. Could the bull-market run for new homes be approaching the finish line? 

If we dig a little deeper into the data, it appears unlikely. An exceptionally strong showing in March likely pulled forward demand from April. When the two months are combined and averaged, it looks decidedly less onerous. Year to date, mortgage applications for new homes are still up 3%. 

What’s more, the people with the most penetrating insight into the new-home market are hardly gasping. Homebuilder optimism continues to hold at a high level. Indeed, the latest homebuilder sentiment index topped expectations, rising two points to 70, in May. Optimism for future sales was exceptionally strong: The component for the six-month sales outlook was up four points to a giddy 79. Homebuilders expect to sell a lot of homes this year. 

A quick glance at the starts data could lead a market observer to believe that homebuilders are unrealistically optimistic. Housing starts have plateaued in recent months; they were even down in April, dropping 2.6% to 1.172 million starts on an annualized rate.

But if we delve deeper, we find the shortfall is related to the less important multi-family component, which dropped 9.2% month over month. The more important component, single-family starts, was up 0.4% to 835,000 on an annualized rate. 

At the rate of reported in April, starts continue to lag the historical annual average of 1.5 million. What’s more, homebuilders are unlikely to approach the historical average in the near future. The demand is there, but homebuilders are constrained by a shortage of qualified labor and rising material costs (much of the costs are related to lumber, which is why the tariff on Canadian lumber is such a bad idea). 

Mortgage activity bodes well for future sales -- new and existing. Purchase activity has been strong for most of 2017. The latest MBA data on purchase applications show purchases down 3% week over week, but still up 9% year over year. Purchase activity hasn’t been this strong in nearly a decade.

Many sectors of the economy continue to struggle since the last recession ended in 2009. Housing is the one sector that has continually maintained an upward trajectory. Recent housing data show nothing to suggest the trajectory is likely to change this year, and possibly not for many years after. 

Why Millennials Still Have Difficulties Finding a Home

Despite historically low interest rates and a growing economy, millennial homebuyers still run into obstacles when trying to buy a home.

These days, millennial buyers simply can't find a home to purchase.

Inventory remains tight

According to the National Association of Realtors, housing inventory increased 2.4 percent in January to about 1.7 million homes, which is equal to a supply of about 3.6 months. However, inventory levels still remain at their lowest point since the NAR started tracking the statistic in 1999, and have declined year over year for the previous 20 months.

Many millennials now find themselves in the challenging position of wanting to buy a home, but there aren't any to purchase. A housing shortage directly affects millennial buyers in three ways.

First, having fewer available homes makes it difficult for buyers to take advantage of low interest rates before future hikes.

Second, a low supply prevents millennials from building more equity and wealth, as they may have to wait months or years to finally find a home, The Washington Post stated.

Finally, low inventory drives up home prices. Millennials finally think they can afford a starter home, but competition between other prospective buyers eventually puts a home out of financial reach. Not only are starter homes becoming more expensive, but they aren't lasting long on the market.

Millennials can prepare ahead of time

Given tight inventory, millennials have to act quickly when they find a home. Getting a mortgage preapproval is one way millennials can quickly close on a home, because they have all the necessary paperwork taken care of ahead of time.

Preapprovals typically last 30-60 days. If millennials want to buy a home during the spring or summer, they should meet with a lender soon to start the process.









New Penn Financial Promotes Kevin Harrigan to Chief Operating Officer

New Penn Financial, a nationally-recognized mortgage lender, announced that Kevin Harrigan has been promoted to the position of Chief Operating Officer. In this capacity, Harrigan will lead the corporate operations teams and the organization’s three business channels.

“New Penn has grown from a start-up lender in 2008 to a significant presence in today’s mortgage marketplace,” said Jerry Schiano, founder, President & CEO of New Penn. “The creation of the COO role is an important step toward building a fully integrated model for sales strategy and operational support.” Schiano explained, “Kevin understands our culture and our goals as an organization. He brings significant business and leadership experience that will enable us to continue evolving.”

Harrigan joined New Penn in 2013, serving most recently as Chief Risk and Administrative Officer. He has over 30 years of senior management experience in financial services and mortgage banking, including positions with CIT Group, Bank of America, and KeyCorp. In addition to studies at the Weatherhead School of Management at Case Western Reserve University, he earned his B.S. in Finance/Economics from Rutgers University, and an MBA from Seton Hall University.

“This is an exciting time to be part of New Penn,” said Harrigan. “We have a great team in place and I look forward to leading New Penn through this next stage of operational maturity and sustained growth.”

New Penn offers residential mortgage loans through three business divisions – Direct-to-Consumer (Call Center), Retail (Distributed and Joint Venture), and Third Party Origination (TPO). The organization has over 2,000 employees and operates 160 offices across the country.
For more information on New Penn Financial or media inquiries, contact: Jennifer Smith at jwsmith(at)newpennfinancial(dot)com.

Spring Fever Takes Hold

This spring offers a dichotomy.

On the one hand, we have seen an increase in housing and lending activity. Home sales are up (and up for 2017), and so are housing starts and residential investment. Purchase-lending activity has trended higher in weekly comparisons since late March. 

Movements in mortgage rates, on the other hand, have adhered to the typical perception of spring fever: They’ve remained relatively staid and inert, having settled into a range where movements at best come in languid steps. In fact, the steps have been so languid that Mortgage News Daily tells us that the average effective rate across the spectrum has moved only 11 basis points over the past two weeks. It should be no surprise, then, that the fixed-rate 30-year loan for top-tier borrowers continues to hold the 4%-to-4.125% range that it has held for the past two months. 

That said, let’s be careful not to extrapolate indefinitely. It’s not foreordained that the events of today must invariably occur tomorrow. Rate quotes stretched the upper limits of the range this past week. 

Some economists are again thinking about economic growth (after thinking there was little of it to be had) and rethinking interest rates, and with good reason: The employment data from last week show job growth regaining its footing. Payrolls increased by 211,000 in April to drop the unemployment rate to 4.4%. Payroll growth was more than doubled that of March. 

The good news on jobs has pushed the yield on the 10-year U.S. Treasury note up to 2.4%; two weeks ago it was below 2.2%. Gold, $1,270/ounce a fortnight ago, trades at $1,220/ounce today. (The gold price moves inversely to interest rates.) 

We could see 4.25% become the new upper bound on quotes for prime 30-year loans. The spring fever that has overcome mortgage rates could be about to break.

 Spring Home

The Difference between Loan Officers at Banks and Private Lenders

Homebuyers on the hunt for a mortgage in 2017 have more options at their disposal than ever before. As always, name-brand banks continue to dominate the conversation regarding home loans. But increasingly, new homeowners are finding it easier and more cost effective to finance their home purchases with the help of a private mortgage lender.

While they each share the same goal, private mortgage lenders differ from their big bank counterparts in a few key ways. Homeowners should familiarize themselves with the best private mortgage lenders before signing onto a loan. After all, closing that loan could very well mark the beginning of a years-long relationship.

How private lenders differ

At any financial institution, the person who reviews and approves mortgage applications is called a loan officer. But despite similar titles, there are some significant differences between a loan officer working at a typical bank and one at a private lender.

What does a loan officer do, and how do those duties differ depending on their institution? One of the biggest differentiators between the two can be seen in legally mandated licensing and registration requirements:

  • A loan officer working at a depository institution, like a bank or credit union, must be registered under the National Mortgaging Licensing System. Once approved under this federal system, the loan officer is authorized to conduct business in all 50 states.
  • Private lenders, however, are held to a different, arguably higher standard. Since they are considered "non-depository institutions," loan officers at a private lending firm must not only be registered under the NMLS, but also must obtain a license in the state where they will operate.

This additional license requirement means private lenders must undergo at least 20 hours of state-mandated coursework, as well as at least eight hours of continuing education per year. The course requirements vary by state but usually include extensive coverage of federal and state lending laws, ethics courses and other technical training.


The Normalization Trend Continues

The Wall Street Journal ran an article titled “Rent or Buy? More Young People Are Choosing Homeownership” last week. The Journal tells us that the first quarter saw more new households buy a home than rent one. This phenomenon hasn’t occurred in a decade.  

We’re not surprised that young people are backing away from renting and embracing buying. Data from Fannie Mae and other sources have long shown that the vast majority of us prefer to own a home than to rent one. Most of us have a nesting instinct, and we can’t really nest in a home we don’t own. No matter how magnanimous  the landlord might be, he or she will never be magnanimous enough to let the renter fully his way. 

For the aforementioned reasons, we’ve never bought the narrative that the country is morphing into an agglomeration of mobile, transient renters. The single-family housing market has, and always will be, driven by owners who occupy their properties, and for good reason: A stable neighborhood of homes occupied by their owners contributes to higher levels of social cohesion, lower levels of crime, and lower levels of other socially undesirable behaviors.

This is no revelation on our part. A1942 paper, authored by sociologists Clifford Shaw and Henry McKay, suggests that residential instability leads to many social problems. Instability is marked by a neighborhood of renters continually coming and going. (We’ve always been somewhat skeptical of the business sustainability of the recent industrialized approach to single-family-home rentals.) 

We understand that rental properties serve a useful economic purpose, but we also understand that housing dominated by occupied owners serves an even greater purpose. The good news is more data show that more people are turning to what they really want -- a home of their own that they own.

Recent data also show the trend in homeownership should continue to rise.

For one, the trend in mortgage purchase applications remains up. Purchase applications were up 5% week-over-week last week. The longer-term trend -- year over year -- is also up 5%. With the prime 30-year mortgage holding at a steady 4%-to-4.125% range across the county, more potential home buyers should consider elevating their situation to actual home buyers. 

And there should be more homes for home buyers to buy. Home builders continue to invest in what they do best. Bureau of Economic Analysis data show investment in single-family structures was $257 billion for the first quarter, up a stout 13.7% compared to the previous quarter. But at 1.4% of GDP, it’s still low compared with historical norms.  Single-family investment has averaged roughly 2% of GDP since 1959.   

Housing has come a long way since the 2008-2009 recession, and it still has a long way to go. Good for us.

Most Everything Trends Higher

Rising prices usually result in reduced sales. That is, rising prices result in reduced sales if demand remains constant. Demand for housing has hardly remained constant; it has been accelerating.

Existing-home sales were up a strong 4.4% to 5.71 million units on an annualized rate in March. This is the best month-over-month increase since February 2007. More impressive, sales volume wasn’t juiced up by price concessions. To the contrary, the median price of an existing home was up 3.6% to $236,400 in March. Accelerating demand is further evinced by days on the market, which dropped to 34 in March from 45 in February.

It’s not just existing-home sales clawing to higher ground. New-home sales continue to claw higher as well. Sales of new single-family homes posted higher than most economists expected. New-home sales posted at 621,000 on an annualized rate in March. This is 5.8% higher than February sales. Only July 2016 sales have posted higher since the recession ended in 2009. 

As with existing-home sellers, new-home sellers weren’t discounting to move inventory. The median price of a new home rose 7.5% to $315,100 for March. Supply did move up marginally, but at the current sales pace, inventory remains steady at a 5.2-months supply. 

Though mortgage rates have trended lower since March, they, too, were actually up over the past week, though not by much. Quotes between 4% and 4.125% on a prime conventional 30-year loan are the norm around the country these days. Quotes could move up if the Trump administration’s recent talk of a 15% corporate income tax rate gains traction.

Financial-market participants reacted favorably to the talk of lower corporate income tax rates this week by moving out of haven investments, like U.S. Treasury securities, and into riskier investments, namely stocks. If lower corporate income tax rates come to fruition, more money will flow out of bonds and into stocks. Mortgage rates, in turn, will be pressured to rise. 

That said, we have to keep our perspective; for now it’s only talk. As we saw with the proposed overhaul of the Affordable Care Act, talk can lead to nowhere. Because we’re dealing with talk at this point, we see the current range of mortgage-rate quotes established over the past week holding for the immediate future.