Where People In Their 20s And 30s Are Buying Homes

By rchrisman@robchrisman.com

 

A pompous, pretentious and newly promoted Colonel in a foreign military is exploring his brand new office. While sitting at his desk, he contemplates his good fortune as he ponders what to do next.

Just then, through the glass door he becomes aware of a Private who is knocking.

The Colonel waves him in as he grabs his telephone and says, "Yes General. Thank you General. I appreciate your good wishes."

As he hangs up he glances with annoyance at the Private and says, "What do you want?"

The Private responds, "Nothing sir, I just came to connect your new phone."

"I call home improvement projects 'teaching my son to swear" jobs." One group of folks not swearing are people in the residential lending industry - at least those who can handle the nearly overwhelming and overlapping myriad of rules. For me April has included visits to Colorado, Kansas, North Carolina, Tennessee, Idaho, and Northern California. March and April were great months for many in terms of fundings, and the mood has been good, not great, as companies do their best to help their clients in spite of the palpable fear of making a mistake in a loan file.

In what is becoming more and more of a trend for lenders and financial institutions that don't want the regulatory burden of home lending, Embrace Home Loans, a direct lender for Fannie Mae & Freddie Mac and an issuer for Ginnie Mae, announced a partnership with Orlando, Fla.-based McCoy Federal Credit Union. As part of the partnership, McCoy FCU will now offer its more than 58,000 members home financing through Embrace's Affinity Mortgage Solution which offers residential mortgages. "As a private label, outsourced program, Affinity removes all regulatory oversight from McCoy FCU while managing the credit union's brand and cross-sell opportunities."

 And speaking of regulatory burden, the U.S. Department of Housing and Urban Development (HUD) announced a $1 million agreement between the Fair Housing Project of North Carolina Legal Aid and North Carolina-based Fidelity Bank to resolve allegations the mortgage lender engaged in unfair lending practices against minority applicants. Read the agreement.

 For anyone who has been out of the country for the last several decades, the Fair Housing Act makes it unlawful to make housing unavailable or to discriminate in the terms, conditions, or privileges of the sale of a dwelling because of race. "The Fair Housing Act also makes it unlawful for any person or entity whose business includes residential real estate-related transactions to discriminate in these transactions, or related terms or conditions, because of race. Banks and other lenders are prohibited from discriminating with respect to home mortgage loans."

 The press release read, "'Whether intentional or not, stark disparities exist in lending patterns and access to credit along racial and ethnic lines,' said HUD Assistant Secretary for Fair Housing and Equal Opportunity Gustavo Velasquez. 'HUD remains committed to not only enforcing the law, but also facilitating productive relationships between lenders and advocacy groups that help make lenders more aware of their obligations under the Fair Housing Act.'"

 Under the agreement, Fidelity will make investments and community development loans in predominantly minority census tracts where at least 40 percent of these loans will specifically promote affordable housing. For this purpose, the Bank has committed to earmarking at least $500,000 each year for two years, for a total of $1 million.

 The complaint was rooted on the belief that the bank denied or made housing and home mortgage loans unavailable because of race. HUD notes that last year 28 percent of all fair housing complaints filed with HUD and Fair Housing Assistance Program agencies (HUD partners,) cited race as the basis for the complaints.

 Switching gears somewhat, the folks who follow such things say that American consumers are actually out shopping for homes - especially their first affordable ones - they just don't have enough supply to meet demand. Lower-priced homes are being picked up quickly whereas more expensive ones are languishing on the market, making competition intense as spring home buying season approaches.

 On the refinance side of things Ben Graboski, SVP of Data & Analytics at Black Knight, wrote to me a while back saying, "It's a fact that homeowners aren't tapping their equity. And we have the data to prove it. There's $4.2 trillion in 'tappable' equity amongst US mortgage holders.

 "When Black Knight last looked at the refinanceable population just two months ago, there were 5.2 million potential candidates, and that number was on the decline," said Graboske. "That analysis was shortly after the Federal Reserve raised its target rate by 25 basis points, at which time the prevailing wisdom was that mortgage interest rates would rise in response. Global economic shocks then sent investors looking for the safety of U.S. Treasuries, driving down yields on benchmark 10-year bonds. Mortgage interest rates began to fall in defiance of prevailing wisdom, and the refinanceable population grew by 30 percent in the first six weeks of 2016.

 "As a result, an additional 1.5 million mortgage holders could now likely both qualify for and benefit from refinancing, bringing the total number of potential refinance candidates to 6.7 million. Given that refinance originations fell by 27 percent from Q1 to Q4 2015, and prepayment rates -- historically a good indicator of refinance activity -- hit their lowest level in two years in January -- this expansion of potential candidates could very well provide a welcome and unexpected lift to the market as we move forward in 2016."

 Black Knight released its latest Home Price Index report this morning, looking at February 2016 real estate transaction data. U.S. home prices showed stronger monthly gains than they have since last April, rising 0.7% from January, and were up 5.3% from last year. National home prices are now 27.5% above where they were at the bottom of the market at the start of 2012. Using Black Knight's figures, at $254K, the national level HPI is now just 5% off its June 2006 peak of $267K.

 To no one's surprise California, Colorado, and Washington showed particular strength, with multiple metros in each of these states among the month's best performing areas. Washington led all states with 1.8% appreciation from January, followed by Colorado at 1.7%; Oregon (1.3%), California (1.3%) and Hawaii (1.2%) rounded out the top 5. San Jose, CA led metro areas with 2.4% growth from January, followed by Seattle, WA at 2.1%. Not exactly laggards, San Francisco & Denver each saw 2% monthly appreciation, and the rest of the top 10 metros saw 1.4% or better. In fact, CA, CO & WA accounted for 9 of the top 10 performing metro areas.

 But it isn't all unicorns and rainbows. Black Knight's report showed that Connecticut, Rhode Island, and New Jersey were the only states to see negative price movement in February, and together accounted for 7 of the 10 worst performing metro areas.

 And there is certainly the argument to be made that younger, non-home owners are not participating in this improvement in home prices, and in fact are being negatively impacted by some markets growing increasingly unaffordable. Millennials are the largest group by population, outnumbering baby boomers. Does everyone like them? No - here's an interesting Google app, sent in by Ceci B., for those with a sense of humor.

 Did someone say "rent?" Market research firm Reis Inc. reports the national vacancy rate was 4.5% in the first 3 months of this year. Meanwhile, apartment research company Axiometrics Inc. reports average rents climbed 4.1% to $1,248 over the same period. Both data points indicate the multifamily lending sector is slowing down, so bankers should monitor this closely in coming months and quarters before issues develop in the lending book.

 Nearly 1 million homeowners regained equity in their home in 2015, while 4.3 million homes remain in negative equity, according to CoreLogic. Equity rose YoY by $682 billion in the last quarter of 2015 and 91.5 percent of all mortgaged properties had equity at the end of Q4 2015. The number of homes in negative equity did rise 2.9 percent from Q3 2015 but the value of negative equity declined 10.7 percent in 12 months. Looking at properties with a mortgage, which encompasses more than 50 million properties, 18.9 percent have less than 20 percent equity and 2.3 percent have less than 5 percent equity. The states with the largest share of homes in negative equity include Nevada, Florida, Illinois, Arizona and Rhode Island, while the states with the greatest percent of homes in positive equity are Alaska, Hawaii, Montana and Colorado.  The majority of homes with positive equity tend to be centralized at the higher end of the housing market. For example, 95 percent of homes that are valued greater than $200,000 have equity compared to 87 percent of homes that are valued less than $200,000.

 Alitsource's RentRange released the top 25 cities with the largest rental rate increases. Not surprising, nine out of the twenty-five metro areas are on the West Coast.  The rise in rental prices boasts well for real estate investors, particularly those in the South as rent prices are on the rise along with gross yield, which demonstrates income return from an investment. Whereas some of the West Coast markets experience low gross yield, as they are consistently among the lowest on the list. Some of the top cities with the greatest rental rate increase include, Cape Coral-Fort Myers, FL, New Orleans, LA, Daytona Beach, FL, San Jose-Sunnyvale-Santa Clara, CA, Little, AR and Knoxville, TN. Other notable cities on the list include Charleston, SC, Portland, OR, Denver, CO, Dallas, TX and San Diego, CA

 CoreLogic determined the top and bottom counties where Millennials are most likely to purchase a home and found that the most popular metros are those with strong and growing economies, with opportunities for income growth. According to the analysis, there is an expected shift from Millennials purchasing homes in less expensive areas that border the improving counties to more expensive housing markets in the heart of the improving counties. The top ten counties include Douglas, CO, Fairfax, VA, Boulder, CO, Forsyth, GA, Placer, VA and Hamilton, IN. The bottom counties include Lackawanna, PA, Clayton, GA, Bronx, NY, York, ME, Miami, FL and Cameron, TX. 

 Bond markets?

 We've had a dearth of scheduled economic releases during the past few weeks, but that is about to change. We have a ton (a technical term) of it this week, ranging from housing to manufacturing. We start today with New Home Sales at 10AM. Tomorrow is Durable Goods - always volatile depending on things like aircraft orders, and also the S&P/Case Shiller series of numbers if you want to find out housing prices in February as well as Consumer Confidence. Wednesday are the MBA's application numbers for last week, but also Pending Home Sales and the FOMC rate decision - don't look for any changes to overnight Fed Funds.

 The day after "hump day" we'll have Initial Jobless Claims and GDP for the 1^st quarter. We wrap up the week with the Employment Cost Index (a favorite of the Fed to follow), Personal Income and Consumption, some Personal Consumption Expenditure figures, the Chicago Purchasing Manager's survey, and the University of Michigan Consumer Sentiment figures. And for anyone trying to guess where rate sheets are going to be today we closed the 10-year at a yield of 1.89% and this morning its sitting at 1.88% with agency MBS prices better a tad.