Monthly Archives: August 2016

The recovering housing market

This increase is already making waves in the housing market. According to Black Knight’s report, the number of potential refinance candidates fell by more than 50% over the last few weeks.

And it could only continue to increase from here. Housing experts are saying there is a 100% chance that the Federal Reserve will elect to raise rates at its last meeting of the year.

But now, next year could bring a new danger to the housing market via raising interest rates, according to Mark Fleming, First American senior vice president and chief economist. Supply for first-time buyers will be in greater demand than ever.

“As rates go up, all those existing home owners now don’t have an incentive to move,” Fleming told HousingWire. “They may not supply their homes to the market for that potential first-time homebuyer to buy.”

While previously first-time buyers tended to look at pre-existing homes, currently homeowners may be running out of incentives to put their home on the market, making the need for affordable newly constructed homes more important than ever, Fleming said.

“The need for new housing to be more affordable I think will be more important than it’s been in a long, long time,” he said.

However, there is still an upside. While interest rates may be increasing, they are still at historic lows, and are expected to remain so throughout 2017. Home supply could continue to be a problem throughout next year, but affordability is still much better than it was during housing’s peak years of 2006 and 2007.

In fact, despite increasing interest rates, 2017 will still finish out the year 34% more affordable than the market peak in 2007, according to First American’s forecast.

“We do lose more affordability – rates go up, purchasing power goes down – but even having done that, it still goes from 36% more affordable than housing peaks down to 34% more affordable, which, in qualitative terms, means still highly affordable,” Fleming said.

Overall, the housing market continues to improve. Mortgage credit availability increased, easing credit standards slightly in October, according to the Mortgage Bankers Association’s Mortgage Credit Availability Index, which analyzes data from Ellie Mae’s AllRegs Market Clarity business information tool.

Pending home sales increased only slightly in October, but enough to hit the highest pacesince July this year, according to the most recent report from the National Association of Realtors.

And a new report from Black Knight Financial Services shows that by one metric, the housing market is healthier than it’s been since the crisis began: the rate of loans in active foreclosure is lower right now than at any point in the last nine years.

Election pushes up consumer optimism

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.

“Consumer confidence surged in early December to just one-tenth of an Index point below the 2015 peak—which was the highest level since the start of 2004,” said Richard Curtain, Survey of Consumers chief economist. “The surge was largely due to consumers’ initial reactions to Trump’s surprise victory.”

“When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys,” Curtin said. “To be sure, an equal number volunteered negative judgments about prospective economic policies, but the frequency of those negative references was less than half its prior peak levels whereas positive references were about twice its prior peak.”

Within the index, current economic conditions increased 4.5% from last month’s 107.3 and 3.7% from last year’s 108.1 to 112.1 at the beginning of December.

“There were a few exceptions to the early December surge in optimism, mainly among those with a college degree and among residents of the Northeast, although no group has adopted a pessimistic outlook for the economy,” Curtin said. “The most important implication of the increase in optimism is that it has raised expectations for the performance of the economy.”

The index of consumer expectations increased 4.3% from last month’s 85.2 and 7.5% from last year’s 82.7 to 88.9 at the beginning of December.

So what does that mean for the Trump administration as it looks to take over in January? Curtin explains.

“President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance,” he said. “Either too slow growth or too high expectations represent barriers to maintaining high levels of consumer confidence.”

Curtain concluded that until specific policies are proposed, there is no reason to alter the 2017 forecast of 2.5% for real consumption.

Black Knight Financial Services

The bottom line, according to Black Knight’s report, is that housing is less affordable right now than it was before the election.

In fact, home affordability is now at its lowest point since June 2010.

Per Black Knight’s report, the post-election interest rate bump means that the average home price is $16,400 more expensive for the buyer than it was before the election.

That equates to borrowers being on the hook for $60 more per month in principal and interest in order to purchase the median home. That figures rises to $72 per month for borrowers putting 3.5% down on their home.

According to Black Knight’s report, it now requires 21.6% of median income to purchase the median priced home nationwide, which is still low by historical standards, but the highest it’s been since June 2010.

For reference, interest rates in June 2010 were 4.75%, but home prices were about 20% lower than they are now.

So the interest rate increase impacts potential borrowers and could inhibit home sales some moving forward.

But the impact isn’t felt by new buyers only.

According to Black Knight’s report, the number of potential refinance candidates fell by more than 50% over the last few weeks.

As a result of the increase rate bump, roughly 4.3 million borrowers were removed from the pool of potential refinance candidates.

That leaves 4 million borrowers in the total refinanceable population, which matches a 24-month low.

Black Knight notes that borrowers are still leaving $1 billion in potential savings on the table on a monthly basis, but that’s less than half the $2.1 billion that borrowers could have saved on a monthly basis if they refinanced before the election.

“The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year Treasury and 30-year mortgage interest rates,” said Black Knight Data & Analytics Executive Vice President Ben Graboske.

“As mortgage rates jumped 49 basis points in the weeks following the election, we saw the population of refinanceable borrowers cut by more than half,” Graboske continued.

“These changes will likely have an impact on refinance origination volumes moving forward,” Graboske added. “And, since higher interest rates tend to reduce the refinance share of the market – specifically in higher credit segments – which typically outperform their purchase mortgage counterparts, they may potentially impact overall mortgage performance as well.”

New fully digital mortgag

On Thursday, Caliber Home Loans, a mortgage origination and servicing company, unveiled a fully digital mortgage that the company claims can shrink the loan process from 45 days down to 10 days or less.

HousingWire got a preview of the program, which Caliber Home Loans calls the “Caliber Ultimate Homebuying Experience.”

According to details provided by Caliber, the “Ultimate Homebuying Experience” is a streamlined application, approval and closing experience for conventional, government, and Caliber portfolio loans.

The program takes nearly all of the mortgage process online, using various technological advancements to automate the process, from application all the way through closing.

Caliber boasts that this program is different than some other digital mortgages because of the company’s “best-in-class” loan officers and account executives, who work with the borrower throughout the process.

According to the company, the program can “simplify the mortgage process and to reduce stress” on borrowers.

So how does Caliber close a loan in 10 days or less?

According to the company, its “Ultimate Homebuying Experience” automates much of the home buying process, including appraisals in some cases, which several other lenders recently cited as a impediment to shorter loan closing times.

Caliber said that it developed a full application process that takes only minutes, as well as electronic verification for some of the “most important” parts of the mortgage application, including income, assets and employment.

That electronic verification reduces the need for loan applicants to provide physical documents, like W-2 forms or bank statements.

Using those technological advancements, Caliber claims that it take a loan from application to closing in less than 10 days on eligible mortgages, all while providing “personalized assistance” from Caliber loan officers and account executives to help borrowers through the entire loan process.

Sanjiv Das, the CEO of Caliber Home Loans and a former CEO of CitiMortgage, said that the shorter loan process does not mean that the lender’s underwriting standards are impacted in any way.

“We place the consumer experience at the center of all the products and services we offer, and this program underscores that commitment,” Das said.

“The Caliber Ultimate Homebuying Experience will make mortgage applications, approvals and closings easier and faster and does not impact our robust underwriting guidelines,” Das added.

“With our high-touch business model, we think it’s the best of all worlds,” Das concluded. “We are thrilled to launch this program and look forward to enhancing the homebuying experience for our clients.”