Mortgage Rate Bloodbath

Posted on June 14, 2022 by grim

From Mortgage News Daily:

Mortgage Rates Surge Well Into the 6% Range After One of The Worst Days in Decades

It’s hard to quantify just how bad today was for mortgage rates because there’s no quality day-over-day mortgage rate data from before 2009 (when we created our own).  In that time, there has only been one other comparable day to today in terms of the jump in mortgage rates.

As a fan of the whole truth, I feel compelled to say that there were a few days in March 2020 that were bigger, but I’m not counting them as comparable days because they were the product of TWO-WAY volatility and a once-in-a-lifetime combination of market conditions and Fed policy response. 

That leaves July 5, 2013 as the only truly comparable day.  It too came at a time when rates had already been rising rapidly in response to an evolving outlook for Fed policy.  The difference back then was that the Fed had simply decided it was time to finally begin unwinding some of the easy policies put into place after the Financial Crisis.  This time around, the Fed is in panic mode about runaway inflation.  And today specifically, it’s the market that’s panicked about the Fed’s potential panic at the upcoming meeting and policy announcement set to be released at 2pm on Wednesday afternoon.

…

In total, rates moved up from the high fives to the low 6s.  But pinning down an actual rate is very tricky right now due to the structure of the mortgage bond market.  It’s hard to explain without getting into esoteric details, but the gist is that there is normally more profit for banks when their clients choose a higher interest rate.  This is why no-closing-cost loans can exist.  The rates are high enough to cover the lenders’ cost and profit.  Those same lenders could also quote lower rates, but with the difference being that the borrower would be paying some closing costs.

At present, that “premium pricing” just isn’t so premium.  That means in many cases, it may make more sense to pay higher upfront costs because they will do more than normal to bring you down to the next rate lower.  To put this in perspective, if it normally costs roughly 1 point to drop your rate quote by 0.25%, that same point can bring the rate 0.50% lower in many cases today.  So if you can opt to pay a point to get your rate down to 5.625%-5.875%, but a more typical closing cost structure suggests rates are 6.125-6.375%, what’s the going rate?  

Our index accounts for fluctuations in upfront cost in order to accurately represent the day over day change.  It suggests the average going rate for the average lender rose from 5.85% to 6.18% on a flawless scenario from Friday to today.

Posted in Economics, Mortgages, National Real Estate | 161 Comments

Different this time?

Posted on June 13, 2022 by grim

From Business Insider:

The Great Recession misled millennials: It made them think high home prices will eventually come down

History often repeats itself — but when it comes to the current housing market, don’t hold your breath. 

If you were a homebuyer in the mid-2000s, today’s hot market might look eerily familiar. Like many of your fellow Americans, you might be wondering when this housing cycle will come to a close and bring prices back down to earth. 

It won’t be that simple this time around. 

That’s because the US housing market is in uncharted waters and it’s throwing homebuyers for a loop. 

A typical real-estate cycle occurs in four phases: expansion, hyper supply, recession and recovery. This is the pattern that gave rise to the housing bubble of the mid-aughts, a time when a combination of cheap debt, predatory mortgage lending, and complex financial engineering led to a foreclosure crisis as well as a credit crisis among investors — and by 2008, a global recession.  

During the Great Recession, US home prices — which had soared during the housing bubble of 2006 and 2007 — tanked to a 17-year low. This created a chance for many Americans to afford a home if they had managed to escape the crash financially unscathed.

As some of the factors that contributed to the housing crash of 2008 reemerge, many Americans, especially millennials — the largesthomebuying cohort of the 2020s who witnessed their parents navigate the rocky real-estate landscape of the 2000s — are expecting a similar outcome. However, the current housing market is a vastly different beast. Although the US is bracing for a possible recession in 2023, home prices won’t be crashing anytime soon.

As Axios’ Nathan Bomey recently wrote in a newsletter, “As an older millennial, the financial crisis trained me to think that housing prices that go up must come down. But this has the makings of a softer landing.”

Posted in Demographics, Economics, Housing Bubble, National Real Estate | 155 Comments

Let’s get those steaks sizzling – if you can afford it

Posted on June 10, 2022 by grim

From CNBC:

Consumer price inflation in May expected to run sizzling hot as energy, food and rent rose

Economists expect inflation in May continued to burn white hot, with energy, food, rent and health-care costs all rising.

According to Dow Jones, economists expect the consumer price index rose 0.7%, up from 0.3% in April. On a year-over-year basis, that would work out to an 8.3% rate, the same pace as April. The CPI report is released at 8:30 a.m. ET Friday.

Economists expect to see some cooling in core inflation, meaning the measure with energy and food excluded. Core CPI is expected to rise 0.5% or 5.9% year over year, according to Dow Jones. That compares to 0.6% in April, or 6.2% on a year-over-year basis.

“It’s a very disquieting number. It’s going to re-energize concerns about has inflation peaked,” said Mark Zandi, chief economist at Moody’s Analytics. “I think we peaked. On a quarter basis, it was 8% in Q1.”

Year-over-year inflation reached a high of 8.5% in March.

Sarah House, senior economist at Wells Fargo, does not expect oil prices have peaked, and therefore she does not expect inflation has either. She expects headline CPI rose by 8.4% in May.

“That’s what changed our view over the last few weeks. We’ve seen gasoline hit record levels. And naturally what’s prevented the peak from being behind us is what’s coming out of the energy sector,” she said. The national average for gasoline reached $4.97 per gallon Thursday, according to AAA.

The market has been keenly focused on whether inflation has peaked since that will affect how aggressive the Federal Reserve may be with interest rate hikes.

Posted in Economics, Politics | 147 Comments

Remember these guys from Bloomberg?

Posted on June 9, 2022 by grim

From Barrons:

This Fund Promised Market-Beating Returns. Now It Has Filed for Bankruptcy.

Brian Casey, who was appointed NRIA’s independent manager in late April, said in a first-day motion Wednesday that the Chapter 11 petition aimed to buy the Secaucus company time to reorganize after past overspending on salaries and other financial strains.

The petition’s goal “is to provide the debtors with a breathing spell to prevent a disorderly liquidation of their estates through subscriber redemptions and to reject and/or terminate disadvantageous contracts and other arrangements,” wrote Casey, a Towson, Md.-based real-estate finance expert.

“At the conclusion of the process, the debtors plan to propose a plan of reorganization that will provide a substantial, if not full, recovery to all stakeholders and position the debtors to continue operating as a profitable mid-sized real estate firm,” he continued.

An attorney for NRIA didn’t respond to a request from Barron’s seeking comment on the petition. 

NRIA’s principal offering is a real estate portfolio known as Partners Portfolio Fund, which is covered by the bankruptcy petition. 

The firm has sought investors for the fund through frequent ads on national broadcast outlets such as Fox News and Bloomberg Radio that promised market-beating returns. 

Posted in Lowball, Where's the Beef? | 108 Comments

“Tappable Equity” at $207,000 per Homeowner

Posted on June 7, 2022 by grim

From CNBC:

Housing wealth gains a record $1.2 trillion, but there are signs the market is cooling

Homeowners are in the money, and it just keeps coming. Two years of rapidly rising home prices have pushed the the nation’s collective home equity to new highs.

The amount of money mortgage holders could pull out of their homes while still keeping a 20% equity cushion rose by an unprecedented $1.2 trillion in the first quarter of this year, according to a new analysis from Black Knight, a mortgage software and analytics firm. That is the largest quarterly increase since the company began tracking the figure in 2005.

Mortgage holders’ so-called tappable equity was up 34%, or by $2.8 trillion, in April compared with a year ago. Total tappable equity stood at $11 trillion, or two times the previous peak in 2006. That works out to an average of about $207,000 per homeowner. 

Tappable equity is largely held by high-credit borrowers with low mortgage rates, according to Black Knight. Nearly three-quarters of those borrowers have rates below 4%. The current rate on the 30-year fixed mortgage is over 5%.

The flipside of rising home values is that prospective buyers are increasingly being priced out of the market. Mortgage rates have also been rising sharply, putting homeownership further out of reach for some.

“It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, president of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.”

Posted in Demographics, Economics, Mortgages, National Real Estate | 287 Comments

Not sure I’d trust Zillow

Posted on June 6, 2022 by grim

From Marketwatch:

I’m a senior economist at Zillow. Here are 3 things home buyers should know about the housing market now

Buyers should prepare for higher monthly costs

There’s no doubt that mortgage rates are rising quickly after hitting a record low in 2020 and remaining near 3% for a 30-year mortgage for much of the past two years, keeping payments in check. But 3% mortgages are a thing of the past. “Now the typical 30-year rate is over 5%, which means much higher monthly costs for any given purchase price. Shopping around for a mortgage to find the best rate can bring significant savings and using a mortgage calculator can help a buyer stay up to date on what they can afford,” says Tucker. (You can find the lowest mortgage rates you may qualify for here.) 

Even with rising rates, there’s still a lot of competition in the market

Indeed, demand is still sky high. The median seller is accepting a purchase offer less than one week after listing their home for sale, says Tucker. “There will be a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now there’s plenty of fuel in the tank,” says Tucker. 

What’s more, demand should remain high thanks to generational demographics, he says. “There’s a massive wave of millennials aging into their prime home-buying years and baby boomers are more active in the housing market than earlier generations. And inventory has a long way to catch up from more than a decade of under-building following the mid-2000s housing crash, meaning supply and demand realities will keep pressure on prices for the foreseeable future,” says Tucker.

Home prices may cool, but they likely won’t drop

Still, he says this is not a bubble and he doesn’t expect home prices will fall. “The combination of more new homes being built, higher prices and rising mortgage rates should help throw cold water on the market in the near future.” says Tucker. This will lead to a cooldown in price growth, but not a price drop, he predicts.

Posted in Demographics, Economics, National Real Estate | 171 Comments

Barry says no recession

Posted on June 2, 2022 by grim

From the Big Picture:

Are We in a Recession? (No)

Are we heading into a recession? According to quite a few observers, this is almost no longer a question, but rather seems to be a fait accompli.

I am skeptical, but others are much less so.
…

As a reminder, the official NBER’s definition states “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Specifically, the criteria include “depth, diffusion, and duration” — none of which is present today.

Given the economic data, it is startling (if not foolish) to state we are in a recession right now. As noted, “low unemployment, continued job growth, and other signs of economic health” make that timing moot. Second, because the economy is cyclical, it means a recession is always coming. (It’s called a “Business Cycle” for a reason).

The key issue is timing. Is a recession imminent?

I think not. Not in this quarter, or the third quarter. I am doubtful even the fourth quarter of 2022 (possible, but improbable).

Why? Because most of the leading indicia of economic contractions are not present today. Inflation remains a concern, and the biggest warning sign is the stock market: Year to date, the S&P 500 is off 13.3% and fell nearly 20% from its all-time highs. But neither of those are determinative. As my colleague Ben Carlson points out, bear markets can occur outside of a recession, and “they tend to be shallower and less lengthy while recessionary bears are greater in both.”
…
The current monthly coincident state index shows all 50 states economically expanded. That not only makes it impossible for us to be in a recession today but also makes it highly unlikely we will be in a recession anytime soon.

Posted in General | 214 Comments

Blame COVID

Posted on May 31, 2022 by grim

From CNN:

The ‘Great Reshuffling’ played a big part in pushing home prices higher 

The pandemic changed the way people lived and, for many, where they lived. Working from home was a significant driver of this “Great Reshuffling” and accounted for more than half of the steep increases in home prices seen during the pandemic, new research has found.

Remote work allowed some people to move to places farther away from their office and prompted others to buy larger homes to accommodate their new lifestyles. The demand for more house and the ability to move to warmer climates played a sizable role in pushing home prices higher, according to a new National Bureau of Economic Research working paper by researchers from the Federal Reserve Bank of San Francisco and the University of California, San Diego.

Home prices grew by 23.8% during the pandemic, according to the researchers’ population-weighted analysis of Zillow’s home price index between December 2019 and November 2021. And the study found that remote work accounted for 15.1% of that growth.

The findings suggest there was more than just speculation behind the turbo-charged growth in home prices during the pandemic, said Johannes Wieland, an associate professor of economics at the University of California, San Diego, and co-author of the study. He added that the evolution of remote work is likely to have a large impact on the future path of home prices and inflation.

“We were pretty shocked remote work had this impact, once we saw the estimates,” Wieland said. “We thought about how people moving to different locations would be important. And it is. But it is the people who are remaining in a metro area — the people who need more space at home if they work at home — that is really pushing up prices. That is the majority of the story.”

Posted in Demographics, Economics, Employment, National Real Estate | 171 Comments

Sorry, you missed the top

Posted on May 29, 2022 by grim

From Fortune:

The housing market just slid into a full-blown correction, says top economist Mark Zandi

Moody’s Analytics chief economist Mark Zandi is ready to call it. He tells Fortune that we’ve officially moved from a housing boom into a “housing correction.”

The real estate data rolling in for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is rising fast, while mortgage applications and existing home sales are also falling.

This drop-off isn’t a result of seasonality, or a soft month or two. Zandi says it’s a trajectory flip: Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically. 

“The housing market has peaked…everything points to a rolling over of the housing market,” Zandi says. “In terms of home sales, they’re falling sharply. Housing demand is coming down fast. Home price growth [will] go flat here pretty quickly; we will see [home] price declines in a significant number of markets.”

Unlike a stock market correction, which means a greater than 10% drop in equities, Zandi says a “housing correction” means the end of the housing boom and the beginning of a period where home prices will fall in some regional markets. Over the coming 12 months, he expects year-over-year home price growth to be 0%. If that comes to fruition, it’d mark the worst 12-month stretch since 2012. It would also be whiplash for real estate agents and brokers who’ve watched home prices soar 19.8% over the past year.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 21 Comments

At the top now?

Posted on May 27, 2022 by grim

From CNBC:

Home listings suddenly jump as sellers worry they may miss out on the red-hot housing market

Sharply higher mortgage rates have caused a sudden pullback in home sales, and now sellers are rushing to get in before the red-hot market cools off dramatically.

The supply of homes for sale jumped 9% last week compared with the same period a year ago, according to Realtor.com. That is the biggest annual gain the company has recorded since it began tracking the metric in 2017.

Real estate brokerage Redfin also reported that new listings rose nearly twice as fast in the four weeks ended May 15 as they did during the same period a year ago.

“Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further,” said Redfin Chief Economist Daryl Fairweather.

Sellers clearly see the market softening. Pending home sales, a measure of signed contracts on existing homes, dropped nearly 4% in April from March. They were down just over 9% from April 2021, according to the National Association of Realtors. This index measures signed contracts on existing homes, not closings, so it is perhaps the most timely indicator of how buyers are reacting to higher mortgage rates. It marks the sixth straight month of sales declines and the slowest pace in nearly a decade.

Posted in Housing Bubble, Mortgages, National Real Estate | 119 Comments

Yeah Right

Posted on May 25, 2022 by grim

From NJ1015:

GOP plan for ‘once-in-a-lifetime opportunity’ to cut NJ taxes

Assembly Republicans want to cut income taxes as part of the new state budget, part of a four-pronged plan for responding to an unprecedented surge in state revenues and surplus.

Assembly Minority Leader John DiMaio, R-Warren, said the tax brackets haven’t been adjusted in nearly a quarter-century – and that given inflation rates and the state’s multi-billion surplus, now is the time.

“It’s going to give long-term, sustainable relief to many, many New Jerseyans, particularly those on the lower end of the scale,” DiMaio said.

Taxes would be reduced on income under $128,455 for a single taxpayer and $256,910 for a married couple. Savings would amount to $1,600 for a married couple earning $110,000 or $1,000 for a single taxpayer with income of $70,000, DiMaio said.

The 1.75% tax bracket that currently starts at $20,000 of income for a single-filer taxpayer would be applied starting at $34,255, according to the proposal. The 3.5% rate would start at $59,946, rather than $35,000; the 5.525% rate at $68,510, rather than $40,000; and the 6.37% rate at $128,455, rather than $75,000.

For married couples filing jointly, all those income thresholds are doubled. The plan also eliminates a 2.45% bracket that currently applies to married couples on their income between $50,000 and $70,000, described by critics as a marriage penalty in the tax code.

Posted in Economics, Employment, New Jersey Real Estate, Politics | 302 Comments

No national price decline?

Posted on May 23, 2022 by grim

From Yahoo Finance:

Housing Prices Are Expected to Drop in These Cities — Is Yours One of Them?

Housing prices could drop by as much as 10% in many U.S. cities, per Fortune, referencing a new report from Moody’s Analytics. However, the dip won’t represent a national home price correction, according to Moody’s chief economist Mark Zandi.

Rather, per Zandi, within the next 12 months, home price growth will reach zero year-over-year. Some of the most overpriced housing markets will experience declines, he predicts.

Zandi attributes the cooling market to rapidly rising mortgage rates in an already-overvalued market. He doesn’t consider the current prices to represent a housing bubble, because the market overvaluation isn’t accompanied by speculation, he told Fortune. However, he noted that he sees some “speculation creeping in” to markets like Phoenix and Charlotte, which are overvalued by 46% and 33%, Fortune reports.

When a housing market is overvalued, it means home prices are higher than expected compared to average local incomes. Moody’s research showed that 96% of the 392 metropolitan area markets considered are “overvalued,” with 149 overvalued by at least 25%.

Posted in Demographics, Economics, Employment, National Real Estate | 237 Comments

NJ UE Falls to 4.1%

Posted on May 21, 2022 by grim

From InsiderNJ:

NJDOL: New Jersey Job Growth Continues in April 

New Jersey’s employment growth continued for the 17th consecutive month in April, as non-farm employment increased by 14,800 jobs to reach a seasonally adjusted level of 4,191,500, while NJ’s unemployment rate declined to 4.1 percent.

Job growth so far in 2022 has averaged nearly 18,700 jobs per month and the unemployment rate has fallen from 5.1 percent recorded this past January. New Jersey has now recovered 695,700 jobs, or about 95 percent of the number lost in March and April 2020, due to the impact of the coronavirus pandemic.

Based on more complete reporting from employers, the previously released total nonfarm employment estimates for March were revised higher by 1,500 to show an over-the-month (February – March) increase of 19,300 jobs. Preliminary estimates had indicated an over-the-month gain of 17,800 jobs. The March upward revision occurred entirely in the private sector. The state’s March unemployment rate was unchanged 4.2 percent.

In April, employment increases were recorded in eight out of nine major private industry sectors. Sectors that recorded job gains include leisure and hospitality (+4,700), trade, transportation, and utilities (+4,400), education and health services (+4,200), other services (+1,200), professional and business services (+1,000), manufacturing (+800), financial activities (+500), and information (+300). Construction (-2,600) was the only sector that decreased from the prior month. Over the month, public sector employment increased by 200 jobs.

Posted in Economics, Employment, New Jersey Real Estate | 27 Comments

Some go up, some go down

Posted on May 19, 2022 by grim

From the Record:

Bergen County home prices up 5.3% in April, while Hudson and Passaic County rise as well

A typical Bergen County home listed for $679,000 in April, up 5.3% from a month earlier, an analysis of data from Realtor.com shows. The median list home price in April was up about 8.6% from April 2021. Bergen County’s median home was 2,111 square feet for a listed price of $327 per square foot.

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Passaic County’s home prices rose 0.5%, to a median $429,900, from a month earlier. The typical house was on the market for 21 days, from 23 days a month earlier. The typical 1,840-square-foot house had a list price of $242 per square foot.

Hudson County’s home prices fell 1.9%, to a median $500,000, from a month earlier. The typical house was on the market for 30 days, from 30 days a month earlier. The typical 1,002-square-foot house had a list price of $549 per square foot.

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Essex County’s home prices rose 6.3%, to a median $449,000, from a month earlier. The typical house was on the market for 23 days, from 25 days a month earlier. The typical 1,876-square-foot house had a list price of $274 per square foot.

Across metro New York, median home prices rose to $715,000, up 2.3% from a month earlier. The median home had 1,424 square feet, at a list price of $598 per square foot.

…

Across all of New Jersey, median home prices were $469,900, rising 4.5% from a month earlier. The median New Jersey home for sale had 1,658 square feet at list price of $254 per square foot.

Posted in General | 247 Comments

Aaannnddd… They’re Off!

Posted on May 16, 2022 by grim

From the Star Ledger:

New home listings up 40%. What the market is like in all 21 N.J. counties.

Anyone who has shopped for a house in this red-hot market can tell you, there aren’t many to choose from.

The bidding wars and sky-high prices that have been the norm for the past two years were driven largely by the low inventory of homes for sale.

But the latest figures for new home listings show a 41% gain in new listings from February to March. Statewide, 9,281 homes hit the market in March, versus 6,566 new listings in February, according to the most recent data available from New Jersey Realtors.

The biggest increases were in Middlesex, Bergen and Monmouth counties. The smallest increases in new listings month over month were in Hunterdon, Salem and Essex counties, according to New Jersey Realtors.

Despite the month-over-month gains, the stock of houses for sale in New Jersey is still woefully low.

New listings were down 10.5% from a year ago. And if the trend of 9,200 new listings were to continue for the rest of the year, coupled with the number of current listings, that would put new listings for the year statewide at about 105,000.

“It sounds like a lot but it isn’t,” said Robert White president of New Jersey Realtors and a broker with Coldwell Banker in Spring Lake.

In 2018 there were 131,000 new listings and in 2019 there were 128,000. Inventory was already dropping before the pandemic and has slipped since.

“In a better market there would’ve been closer to 20,000 new listings,” White said.

Posted in New Jersey Real Estate | 307 Comments