Hat tip to PC for sending in this doomy article about the future of real estate – an excerpt:
At some point, housing prices become so expensive that no matter how low interest rates go, the average household simply can’t afford to buy.
We may very well be at that point now. But even if not yet, it’s clear that the tremendous tailwind driving US housing prices since the Great Financial Crisis is sputtering out.
With this year’s plummet in mortgage rates and the seasonally-strong summer months just ended, one would expect a strong boost to home sales. But instead, Realtor.com just reported a highly unusual price drop from July to August — the largest summer decline seen since the company started compiling this data set.
Suddenly, many of the most incandescent of the red-hot US housing markets are now cooling off fast. This list of the 16 Fastest Shrinking Housing Markets includes San Francisco, San Jose and Boulder, CO
It’s not just prices that are slumping. Home construction is plummeting in hot markets, too. Take San Diego, which just reported that there were 43% fewer homes built in H1 2019 than the year prior. All of SoCal fell 25% for the same period.
What’s behind the sudden softening?
Well, as mentioned, affordability is a big issue. While wage growth has been anemic since the Great Recession, US household debt is now higher than it has ever been.
We should get a steady stream of doom from now on because it’s such good click bait. Just look for the only answer that matters in each article: who is going to give their house away?
Because the FHA reverse mortgages (HECM) have loan limits, are expensive, and got harder to obtain, the private reverse-mortgage market is growing. These can be used to buy a home too, and have no payments! Maybe the realtor disrupters will get into the reverse-mortgage business instead?
Borrowers of proprietary reverse mortgages are increasingly becoming more closely aligned with the typical profile of a Home Equity Conversion Mortgage (HECM) borrower, through two very identifiable attributes: loan amounts that are in-line with those of a more traditional HECM, and the use of a loan’s proceeds to consolidate and pay off existing debt of other types. This is according to data about borrowers of proprietary products from Reverse Mortgage Funding (RMF) in a webinar hosted last week by RMD.
“We’re getting a lot of borrowers who are not necessarily the ‘jumbo’ market over that max claim limit of a HECM,” said Craig Barnes, head of training and education at RMF in discussing the company’s Equity Elite proprietary reverse mortgage. “We’re doing a lot of loans for much less than that.”
While most proprietary reverse mortgages have maximum loan amounts of up to $4 million – including RMF’s Equity Elite – Barnes shared that some of the greater flexibility granted by proprietary products are attracting more borrowers that would previously have only been served by a traditional HECM.
“[Our typical borrower is] age 77, they have a home valued at $1.5 million. So, as I said, it’s not a super jumbo product,” Barnes describes. “With the change in max claims last year, really you have to get well above $1 million or so depending on a borrower’s age in order to maximize the HECM anyway. We just had one yesterday that was for $400,000.”
The Cars were the first new-wave band in my life, followed by the Pretenders. Both felt like the straight ahead rock and roll that we were used to, with a bit of a twist musically and visually.
As I remember, the Cars didn’t tour much in the beginning – at least not in Arizona, which added some mystique. But they cranked out the albums – four between 1978-1981 – and they were as big as any of the new-wave bands on the planet.
Here’s what it was like when they hit the stage for the US Festival in 1982:
Hat tip to Matthew for a great piece on mortgage rates:
Mortgage rates have risen rather abruptly from their long term lows 2 weeks ago and are now at the highest levels in more than a month. Fortunately, the average lender is still easily able to quote rates in the high 3% range, which is still a significant savings for anyone who bought or refi’d in 2018 and even the first part of 2019.
That’s great and all, but what have rates done for us lately?
More importantly, what are rates going to do in the future?
Unlike forecasting the weather, the more of an expert someone is in the mortgage world, their ability to predict the direction of rates doesn’t meaningfully diverge from the layperson’s best guess. What we do know is that tomorrow’s Fed announcement is a big potential source of volatility, but NOT for the reasons most laypersons may assume!
I’m often asked if the Fed rate cut/hike will have an effect on mortgage rates. I’m also often asked to reiterate the correct answer to that question which is almost always “NO!”
The Fed only meets to potentially change rates 8 times a year. The bond market that underlies mortgage rates, however, can change 8 times in less than a second. Markets have LONG since priced in the Fed’s likely course of action (which is currently a high probability for a rate cut). If the Fed surprises markets and doesn’t cut rates, it will definitely cause some movement in financial markets, but there’s no telling where mortgage rates would be at the end of the day.
Part of the reason for that is the market’s bigger focus on the Fed’s updated forecasts. In other words, the (probable) rate cut is old news and has already been accounted for in today’s mortgage rate landscape. But if the Fed’s forecasts show deceleration in the pace of expected rate cuts versus the June forecasts, rates could rise.
A lot has happened since June, however, so it’s possible the forecasts will call for even lower rates over the next 3 years. Even if that happens, there’s still no telling what the reaction would be in longer-term rates like mortgages. After all, more rate cuts in 2019/2020 could act to keep the economic expansion going, and that’s bad for rates, all other things being equal.
The bottom line is that the Fed announcement is a multifaceted event that can move markets in different ways for different reasons, expected or otherwise. Investors burn the midnight oil trying to get ahead of the market reaction and surprises are still the rule. The safest bet is to be prepared for a reaction in either direction as opposed to crossing fingers for rates to move lower.
Loan Originator Perspective
Bonds continued to regain some of last week’s brutal losses today, and my pricing improved slightly. We’ll take whatever gains we can get prior to tomorrow’s FOMC statement. I don’t see us regaining our recent multi-year low rates anytime soon, so folks yearning for rates in low 3’s need to temper their expectations. Nothing wrong with locking here. – Ted Rood, Senior Originator
Did you hear that rates bumped up 1/4% in the last week?
It doesn’t take much!
Doug Duncan, Fannie Mae chief economist, discusses if the rise in mortgage rates could help the housing market (causing those buyers on the margin to jump in quickly):
Even though mortgage rates have improved this year, the NSDCC pendings and sales are struggling to keep up with where they were in 2018 (Jan-Aug closed sales = 1,969 in 2018, and 1,925 in 2019):
With rates being 21% lower than last year, there really should be at least 5% more sales this year – but there have been 2% fewer. Sellers are holding out!
A guy yesterday said he was going to wait-and-see how the drone bombings in Saudi Arabia are going to affect the market. But isn’t there always going to be something?
Won’t there always be a headline that makes you wonder?
Regardless of what actually does happen, the government is much more involved with interfering with the natural market forces, so the likelihood of dramatic swings is remote.
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