Feb292016
US housing market finds strength in the eye of a financial hurricane
The US housing market starts 2016 with a strong economy, low unemployment, improving wage growth, and very low mortgage rates: A recipe for strong sales and price increases.
The US Housing market is poised for a strong start in 2016. The underlying economy was strong enough for the federal reserve to start raising interest rates in December. Unemployment is low and wage growth is picking up, so more qualified borrowers are likely to become buyers in the days ahead. Further, with mortgage interest rates trending down toward record lows, the demand for housing as expressed in dollars borrowers can put toward a purchase is near record highs.
The conditions as described above will likely lead to robust sales and strong price increases this spring. So does that mean happy days are here again? Perhaps not.
Right now, the housing market is safely sheltered in the eye of an economic hurricane. The housing market faces two very strong potential future headwinds, and there is no way to avoid them both.
The bears roar again
When the federal reserve raised rates in December, it signaled the end of cheap money that supported numerous Ponzi schemes and inflated asset values in nearly every asset class. The anticipation of higher rates caused commodities to trend lower for the last few years, and the reality of higher rates caused stock and bond markets to crash earlier this year. 
However, I recently reported that the Collapsing stock market may spawn a huge rally in real estate because investors fled risky asset classes and bought both 10-year treasuries and mortgage-backed securities, driving mortgage rates lower.
The bears are loudly proclaiming the next Great Recession, but I’m not so sure. The stock market is not a reliable indicator of economic calamity, forecasting nine of the last five recessions. However, investors fear a recession, so they are investing accordingly. Investors are either right, or they are wrong, but in either case, the forces feeding the hurricane will turn against housing.
Scenario 1: The economy is heading into recession
Based on recent market action, investors currently believe the federal reserve actions stalled the economy, and we are heading into recession. I recently spoke with one market watcher who believes the federal reserve is laying the groundwork for negative interest rates to respond to the upcoming recession. Gold is rallying, and safe-haven bonds are very popular, which is why we are at near record low mortgage rates.
Let’s assume for a moment the investors driving current market action are correct and the economy is about to slip into a recession. If that happens, mortgage interest rates will remain low, but unemployment will increase, and wage growth will slow down again. Higher unemployment and weak wage growth will be a headwind to housing. If it get really bad, we could see more delinquencies and foreclosures again.
Scenario 2: The economy is better than investors currently believe
Let’s assume investors are wrong, the underlying economy is strong, and we don’t get a recession. At some point investors will collectively realize their mistake, probably as jobs and wage data comes in better than expected. If this happens, the people with jobs and rising income will provide strong demand for housing. However, if the economy does show resiliency, investors will quickly retreat from their safe-haven buying and move into riskier asset classes. The exodus from 10-year treasuries and mortgage-backed securities will push mortgage rates up, acting as a headwind to housing.
Many analysts would like to believe strong job and wage growth will overcome the increasing costs of mortgage debt. It won’t. The math simply doesn’t favor it. Each percentage point mortgage interest rates go up, wages must rise 12% to compensate. Strong wage growth would be 4%, not 12%. It would take three years of very strong wage growth just to compensate for 1% higher mortgage rates. The federal reserve liked the math when they needed lower rates to reflate the housing bubble, but the math makes raising mortgage rates very problematic.
A headwind either way
Notice that either scenario leads to strong headwind to housing. Right now, we are experiencing the low mortgage rates the forecast a recession without the unemployment and weak wage growth that typically accompany a recession. These two factors can’t remain in alignment for long. One of the two scenarios above will play out.
My guess is that the economy will perform far better than the bears expect. When investors realize this, we could see a sudden and dramatic rise in mortgage rates similar to the taper tantrum in mid-2013 when mortgage rates went from 3.5% to 4.5% in about six weeks. As some higher rate level, the market friction will prevent further mortgage rate hikes, but for now, we have the best of both worlds — a strong economy and low mortgage rates, so I anticipate housing may prosper in early 2016.
Why The U.S. Housing Market Will Remain Alive And Kicking in 2016
Sara Zervos, February 25, 2016
If you live in Coastal California, you don’t need national housing statistics to tell you that the housing market is in good shape – stick a “For Sale” sign in the yard and there are dozens of offers within a few days. If you are a seller or homeowner in the some of the less-than-hot spots, you can still take some comfort from the majority of indicators that suggest that the market is not only solid, but still improving.
There is no denying the current strength in the market. The question is whether or not this strength is sustainable. I don’t think it is.
Worries about the state of the economy and the stock market justifiably create some jitters. However, the factors that positively influence real estate, such as employment, interest rates, and low inventory, are likely to trump the detractors looking ahead into 2016. …
Unfortunately, strong unemployment and low mortgage rates won’t coexist for much longer. That’s the core problem.
So what has naysayers worried? The top worry, according to a blog post on the best cryptocurrency app, is the overall economy. Fears over China’s slowdown and the crash in energy prices have caused stocks to falter and coincided with a lull in manufacturing. Since housing is tied to economic activity, analysts worry that the sector will follow suit. In addition, new, tighter credit regulations have likely slowed down mortgages on the margin. To avoid another housing credit bubble, officials have tried to make house lending a slower and more careful process. These regulations were likely sand in the gears of the market over the past few months. Finally, consumer confidence has slipped in last month’s data; likely due to the swings and plunges in the stock market. All else equal, since a more confident buyer translates into more sales and higher prices, this is negative news on the margin.
This is the kind of weak, glib analysis that pervades the financial media. All the buyer confidence in the world isn’t going to overcome the increasing costs of mortgage debt likely to accompany a strengthening economy.
That said, there are many positives underpinning the longer run housing story. The housing crisis that was the epicenter of the 2008 crisis has almost finished healing. The massive overhang of foreclosures has nearly cleared, and new foreclosures are back to a long run average. There is also less debt in the system, as distressed homeowners had to sell, and also since many have shifted to renting given tighter lending standards. With less leverage in the system, we can expect less turmoil induced by a cyclical slowdown in the economy. …
Overall, the positive price and sales trends in the housing market look intact. Ongoing economic malaise could dent sentiment on the margin, but cheap financing along with solid employment should provide a deep underpinning to home sales and prices this year.
The positive forces working on the market now will buoy the market for at least part of this year. As I stated above, these conditions are unique and subject to change with the winds of the broader economy and the financial markets. Don’t be surprised if a sudden rise in mortgage rates spoils the party.
Nine-Year Anniversary
Saturday February 27, 2016 marked the nine-year anniversary of my first public post, I am IrvineRenter (Inventory Cholesterol). In the nine years that followed, I posted five to seven days a week without missing a weekday post. I’m looking forward to a 10-year anniversary next year.
Thanks for your continuing readership.
[listing mls=”IG16039802″]
A map of where U.S. job growth is spiking
The White House recently touted that U.S. businesses have added more jobs than any time since the 1990s, with unemployment dropping to 4.9%. President Barack Obama called the economy “the strongest, most durable” in the world.
So where exactly is all this job growth?
Cost-estimating website HowMuch.net used data from the Bureau of Labor Statistics to create this three-dimensional representation of the number of jobs added by metro area. As you can see, the action is on the coasts, where California led all states with more than 464,000 jobs related.
Conversely, North Dakota, a victim of falling oil prices, saw the biggest decline at -19,000.
The Greater New York metropolitan area, which includes Newark and Jersey City, showed the highest increase for any single metro area in the country with 156,400 new jobs. Meanwhile, the Los Angeles metro area, including Long Beach and Anaheim, was second at 135,100 jobs.
Lafayette, La. and Davenport-Moline-Rock Island, Ill. were the hardest hit.
In terms of growth rate, Idaho Falls, Idaho. was tops in the country at 4.5%. The heart of Silicon Valley posted an increase of 4.4%.
Overall, the number of jobs grew in 280 of the 286 metro areas.
http://ei.marketwatch.com//Multimedia/2016/02/23/Photos/ZH/MW-EG087_map_20160223102024_ZH.jpg?uuid=f5fec03e-da40-11e5-8139-0015c588e0f6
There are many more scenarios than this that can play out.
Mortgage rates can go down further
Mortgage rates can go up along with hyperinflation
As shown time and time again mortgage rates can go up while prices go up…. conversely prices can also go down when mortgage rates go down.
The bottom line is urban California is dominated by renters, renting will continue to be the primary way people live
A.k.a. false dichotomy.
One more: mortgage rates can remain where they are as the economy continues to plod along.
Oh no, you’ve landed on planet reality…
where mortgage rates plod along, the economy plods along… while wealth is funneled to the top quartile and real estate around job centers continues to be in high demand….
while 60-70% of people continue to rent in Irvine, Los Angeles, the Bay Area…. etc etc…. it’s always a joke when I see the home ownership rate for the country
The Goldilocks scenario. That would require the economy to grow, but no so fast as to lead the federal reserve to raise rates or investors in mortgage-backed securities to find better alternative investments. While that is possible, it’s a very narrow path for the economy to walk, and the likelihood of veering off is high.
Narrow path?
Or the exactly what has happened the last 5 years…..
Discuss amongst yourelves
“The Goldilocks scenario.”
Yes. But not without precedent.
Looking at post-war rates/income: conventional mortgage rates rose from 4.5% to 5% between 1947 and 1956. During the same time period, incomes rose an average of 7.5%/yr, and personal consumption expenditures rose 3.0%/yr. Net housing value added was also 3.3%/yr.
http://www.nber.org/chapters/c2341.pdf
See BEA website Tables for 1929-1969:
Table 1.10. Gross Domestic Income by Type of Income
Table 2.3.1. Percent Change From Preceding Period in Real Personal Consumption Expenditures by Major Type of Product
Table 7.4.4. Price Indexes for Housing Sector Output, Gross Value Added, and Net Value Added
Interesting how incomes were able to rise 7.5%, spending rose 3.3%, AND HOUSING ROSE 3.3%, every year; and yet rates only rose 0.5% over TEN years. It seems like investors were making money from the rising economic expansion instead of rising interest rates.
Given the large amount of public debt taken on for WWII, I think this period is most similar to present day. Something to consider…
I hope you’re right. If you look at the period from 1969 to 1980, everything they tried failed. There was no middle ground. Whenever rates went up, the economy went into the toilet. Whenever rates went down, inflation picked up significantly. Perhaps since we are closer to deflation than inflation, the Goldilocks scenario might play out, but it could easily run into the 70s scenario where we had to pick our poison.
The difference I see from the 70s is a lack of cost-push inflation. When the oil embargo hit, costs shot up and economic activity fell. Gasoline was the lifeblood of the economy back then (and now, for that matter). When gas prices rose and rationing hit, price inflation begat wage inflation, which then fed back into prices.
With alternate domestic supply, I don’t see a scenario for oil supply constrictions driving inflation. Without inflation as the driving force, the Fed won’t need to raise rates to contain it. In ’72 the fed funds rate was at 4.44%, by ’73 it was at 8.74%, and in ’74 it topped at 10.51%. A year later it was at 5.82% as the Fed tried to stimulate out of the oil embargo.
At the same time the US went off what was left of the gold standard, two income households went mainstream, global trade ramped up, consumer credit expanded, and baby boomers came of age. Shockingly, inflation continued to rise unabated until the early 80s when the Fed destroyed to economy to save it.
I won’t say its impossible, but it’s hard to imagine how we get there from here. If you’re right about the 70s scenario playing out, then buying with a FRM would be cheap insurance. If rates stay low and the economy takes off, then rents and housing prices will rise.
Russ,
The only thing different I could think of is that affordability may have been different back then. At this time, I think housing affordability is peaking… could we say the same thing back then? If so, then you have a point. If not, then it may be different in this case.
Lansner: Home affordability chasm between O.C., U.S. widens
Orange County’s price of paradise keeps getting steeper.
The gap between the share of people who can comfortably afford to buy a home here and elsewhere in the U.S. has, sadly, never been wider, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
This quarterly benchmark measures the financial burden of homeownership by determining how many of the homes sold in a three-month period would be “affordable” – house payments at prevailing mortgage rates that are no more than 28 percent of the median income.
I tossed this benchmark into my trusty spreadsheet going back to 2005, when NAHB/Wells economists started tracking Orange County affordability. I discovered the county’s huge “affordability gap” – local housing was 47.3 percentage points more unaffordable than U.S. homes – with 16 percent affordability here in the fourth quarter vs. 63.3 percent nationwide. That gap is wider than the homebuying mania days of 2005 and the more recent high point set in 2014’s first quarter.
Look, it’s not much of a surprise that Orange County had the nation’s third-worst home-affordability score as 2015 ended. What’s painful is the gap is growing as home prices outpace pay.
“The US housing market starts 2016 with a strong economy” ??
Actual data does NOT support this claim; ie.,
http://i2.wp.com/investmentresearchdynamics.com/wp-content/uploads/2016/02/Untitled-12.png?resize=768%2C304
btw, even the Fed is squawking about negative rates; this in itself is signaling that DEFLATION is expanding. Hence, any increase in price is nothing more than NOISE around a broader declining trend.
The long term trend of increasing wealth disparity is accelerating.
Buy in the best neighborhood you can
History affirms that too much cheap money chasing too few opportunities leads to disaster.
History shows that the rich get richer
Tell that to the Russian nobles in 1917.
+1 Woody
The Russion Oligarchs are still alive and well
Someone got richer
Yes the poor (Vladmir Putin) became the rich.
The last word hasn’t been written on the history of the Russian Oligarchs. Historically, Monarchy and Oligarchy works well until it doesn’t. Russia hasn’t faced a populist revolt for about 100 years. If the bread and circuses doesn’t work for Putin and the Oligarchs, things could get ugly for them.
If you are correct and the economy is weakening, then job growth and income growth should wane, and the fundamental support for housing will weaken along with the economy.
Both of these charts predict recessions in 2012, 2014, and now 2016.
The first chart shows GDP and PMI staying within a fairly narrow range over the last six years. PMI has remained above 50, which indicates expansion. PMI has recently fallen to 50 as a result of decreased spending in the energy sector. This is not unexpected since there is a lag between falling oil prices and the stimulus this creates.
The second chart of service sector activity has also been within a positive range the last six years. Since this measures all service sector business activity, a severe pull back in energy-related activity overshadows modest expansion in all other sectors. There is also a lag between falling energy prices and increasing sales in non-energy-related sectors.
Recession? The big four indicate otherwise.
Last 12 months:
Employment – strong
Real Income – moderate
Real Sales – mediocre
Industrial Production – weak
Last month:
Employment – moderate
Real Income – strong
Real Sales – moderate
Industrial Production – strong
In a typical recession you will see sales drop off, then production drops to match falling sales. Then income falls followed by job cuts.
Industrial production has been in a recession for the last year. I think this is due to a drop in energy-related equipment as the oil-rush has ended. When oil prices fell, this stimulated the economy causing real sales, real income, and employment to rise.
With industrial production jumping back up in January 2016, there is no indication we are about to slip into recession.
Can you provide a link? We can get the charts in that way.
Here:
http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators-PI
I found this:
Industrial production: Why the US is not in a recession
This morning’s industrial production numbers clarify why the US economy is not in a recession.
Although the rubric of two quarters of negative GDP is common, the NBER defines a recession as a widespread downturn in production, sales, income, and employment. This simple fact is, while our current slowdown might produce a negative GDP reading, it is simply not a widespread downturn.
Let’s begin with the consumer side of the economy, and then turn to the producer side.
Employment has continued to steadily increase:
https://lh3.googleusercontent.com/-LXOIKaE9Ebo/VsSvn8teNqI/AAAAAAAAD9A/cV1py_2JI80/s640/blogger-image-1040624579.jpg
So has income:
https://lh3.googleusercontent.com/-EEj1f5XCZvs/VsSvvhPgLpI/AAAAAAAAD9M/lip9Prc7bp4/s640/blogger-image-434890017.jpg
And both personal consumption expenditures and real retail sales have also continued to increase:
https://lh3.googleusercontent.com/-JlQnWLU3Ytc/VsSvqVTDsiI/AAAAAAAAD9E/jR5Ls77GII0/s640/blogger-image–1073621807.jpg
So, as I said last week, the consumer is alright.
Turning to production, here are total business sales broken down by manufacturers (blue), retailers (red), and wholesalers (green):
https://lh3.googleusercontent.com/-ymeF8c1Rsxs/VsSvs0lrhDI/AAAAAAAAD9I/yeFkS5DuEWI/s640/blogger-image–344665356.jpg
While manufacturing and wholesale sales are down, retailers sales are not.
Now let’s look at industrial production (blue in the graphs below) . Production is broken down into manufacturing (red), mining (green), and utilities (purple):
https://lh3.googleusercontent.com/-bHrPGlIKV6s/VsSwAeIacZI/AAAAAAAAD9Q/g78nfB2NfME/s640/blogger-image–420292240.jpg
https://lh3.googleusercontent.com/-2ZHxA1bcVhg/VsSwDCniVdI/AAAAAAAAD9U/ODYPgZOSbUQ/s640/blogger-image-1149450917.jpg
Although mining turned down a full year and a half ago, and utilities have suffered (in part because autumn and December east of the Mississippi remained unseasonably warm), manufacturing has continued to increase, tying its all time high in January.
There has been an intense and focused severe downturn in the sector of the economy having to do with commodity extraction and exports. The rest of the economy has continued to improve. That’s why the US is not in a recession.
Sorry, but narrow unenlightened deflection doesn’t impress me.
Let’s review…
claim was made: “The US housing market starts 2016 with a strong economy” ??
el O said: Actual data does NOT support this claim.
Then, I provided a chart that confirms the economy is NOT strong.
http://i2.wp.com/investmentresearchdynamics.com/wp-content/uploads/2016/02/Untitled-12.png?resize=768%2C304
..then you proceed to insert the word “recession” into the conversation not about a recession, then go off on an armchair economist tangent about why we’re not about to slip into recession.
“Sorry, but narrow unenlightened deflection doesn’t impress me.”
But, narrow unenlightened analysis does, apparently.
Those charts only show the broadest possible picture of the global economy. They don’t factor out energy or mining, which are down because of a supply glut, not demand. Consequently, the charts don’t show that outside of those two sectors the economy is doing great.
So, do you agree that we are not about to slip into recession?
“outside of those two sectors the economy is doing great” ??
—————————
Orly?
Market participants in 9 sectors do NOT concur.
http://finviz.com/grp_image.ashx?bar_sector_y.png&rev=635923488270151571
Also, debt markets do NOT concur; ie.,
http://wolfstreet.com/wp-content/uploads/2016/02/US-SP-Distressed-dollarissuers2008-2016-02.png
Latest BEA Q/Q GDP Q3 2015
agriculture 452 459.4 1.6%
mining 455.4 411.2 -9.7%
utilities 385.9 395.6 2.5%
construction 1317.3 1345.1 2.1%
manufacturing 5978.9 5985.1 0.1%
wholesale 1588.4 1567.8 -1.3%
retail 1605.2 1641.2 2.2%
trans 1066.3 1080.1 1.3%
info 1560.3 1573.8 0.9%
finance 5543 5552 0.2%
prof services 3478.4 3530.5 1.5%
education 2543.8 2596.5 2.1%
Lastly,
dividend cuts do NOT concur.
https://1.bp.blogspot.com/-URVWTcJ44RI/Vsu-O9prv1I/AAAAAAAANDA/J3iYOKJnjio/s1600/cumulative-announced-dividend-cuts-in-US-by-day-of-quarter-2015Q1-versus-2016Q1-snapshot-2016-02-22.png
This exchange illustrates how mixed the messages are right now. We don’t have any clarity on where the economy is or where it’s going right now.
I personally believe the mixed signals are caused by the disruption in financial markets due to higher interest rates, but the underlying economy is still strong and data over the next six months will bear this out.
Of course, I could be completely wrong.
Good points, and I hope you’re right.
But, markets tend to trade in anticipation, so we need to see another big leg up (QE4) and pronto 😉
The market action has certainly been forecasting a rocky road ahead. If they are wrong, and if the data points to an improving economy over the next few months, we could see a ferocious rally on Wall Street and gold prices fall back off a cliff.
Lansner: House hunting momentum rises but consumers grow antsy
Are Americans finally in a serious homebuying mood?
I recently stumbled upon a slice of the monthly consumer confidence survey by the Conference Board that asks folks about their intent to buy a home in the next six months. Let’s face it, nothing says “I’m financially secure” than purchasing a residence.
I tossed a half-century’s worth of data on consumer desires into my trusty spreadsheet and found that starting late last year, the poll showed a noteworthy increase in the interest in house hunting. In the three months ended in February, an average 6.3 percent of those American adults surveyed saying they’re ready to buy a home. That’s up from 5.3 percent a year earlier and up from the 3.63 percent bottom, which hit in December 2010.
The uptick is part of a longer pattern. February was the fourth consecutive month with 6 percent or more of those polled having homebuying plans, the longest such streak since 21 straight months in 2006-2007.
This real estate euphoria isn’t a total surprise. Last year, Americans bought 5.5 million existing homes, up 8 percent in a year, and the best year of since 2006. Builders sold 544,000 more residences, up 11 percent in 2015, and the best year for new homes since 2007.
Of course, a cynic would note that the last bout of homebuying mania ended poorly in the Great Recession. But at this juncture in the business climate, renewed interest in homebuying seems to be a welcome turn in a less-than-remarkable recovery for housing.
“We’re seeing a bounce-back in the housing market that took much longer to achieve than other parts of the economy,’ says Conference Board economist Lynn Franco. “The consumer remains optimistic, and that bodes well for housing.”
While I believe our media leaves plenty of room for improvement, I am thankful I don’t live in a country where the media is under State control.
Chinese property mogul silenced for criticizing state media
BEIJING (AP) — Following its pledge to more tightly control media, Chinese authorities shut down microblogging accounts belonging to a real estate mogul and frequent government critic after he lambasted state media organs for swearing fealty to the ruling Communist Party.
The Cyberspace Administration of China published on its website Sunday remarks by a spokesman saying Ren Zhiqiang had published illegal information that harbored “evil influence” and urged other online celebrities to behave as “role models who follow laws and regulations.”
Known among his more than 30 million online fans as “Cannon Ren” due to his tendency to shoot off on topics ranging from neoliberal economics to housing policy, the 65-year-old stood out in recent years as a high-profile persona who dared to challenge the party leadership in a political environment increasingly intolerant of dissenting voices.
Ren was again a prominent critical voice last week, when he lambasted state media outlets for hosting Chinese President Xi Jinping, who had urged journalists in newsroom visits to focus on “positive news” and to “love the party, protect the party and act in the interest of the party.”
I would suggest that the housing market is anything but healthy. Prices are not supported by growing wages. Inventory kept low by the banks letting squatters live free for years. Its manipulation pure and simple, and it will fail just like the first housing bubble.
One big difference today is that the lending products are more stable. We shouldn’t have millions of delinquencies and foreclosures if the economy turns bad. Lenders and the federal reserve have no idea how they will wean the market off low mortgage rates. I question whether they can do it without creating some significant air pockets of low affordability and falling prices.
Stable loan products don’t protect against loss of income though. When people start losing jobs, it will lead to the next cycle of defaults and modifications will have a harder time saving the day because we are already starting from an era of stable loan products. Somebody with an interest rate between 3-4% is helped much less by a modification than somebody with a rate of 6-8%, as we had during the last cycle.
Astute!
Yes. The banks have less room to maneuver, but based on their past behavior, they will can-kick as long as necessary to save themselves.
Indeed, they will attempt to can kick as long as necessary.
Key word being attempt.
I’m not convinced they can actually execute the ‘as long as necessary’ part.
Why?
Markets are myth-busters.
They don’t have as long as necessary because if investors/depositors/bond holders don’t think they will get their money back then the bank will fail. Bank failures can happen within seconds or minutes.
what percentage of delinquencies and foreclosures were result of unstable loan products during the last housing downturn?
Again, I keep harping on affordability, but I see many people stretching themselves thin to get into a house. I suspect there is not much wiggle room and even if there was a small bump in the road, I expect to see many people go delinquent regardless of whether they had stable or unstable loans.
The downward substitution effect in action.
Oakland is the new urban hot spot as San Francisco homes get too pricey
Have you noticed? Oakland has become an urban hot spot for housing, arts, food and, of course, tech. Today, more than 16,000 new residents call Oakland home. Businesses from Uber to Sunset Magazine are moving their headquarters here, and there are more than 300 new restaurants, bars and cafes.
So what happened? People and businesses are crossing the bridge from San Francisco’s high prices in search of more affordable solutions. Buyer’s housing priorities are increasingly less defined by borders and more by price, neighborhoods and proximity to work. Businesses are also looking at affordability, as well as access to transportation. “Why not Oakland?” is the new buzz. The whole market is undergoing a ‘spreading out’ phenomenon, and the search for affordability is driving it.
When Zillow announced this years’ predictions for the hottest neighborhoods in the nine-county San Francisco metro area, it came as no surprise to Realtors working in the East Bay that all five of the projected hottest neighborhoods for 2016 are in Oakland.
“The neighborhoods on our list of the hottest neighborhoods for 2016 are the places we think home values will rise fastest over the next year,” said Svenja Gudell, Zillow’s chief economist. The five Oakland neighborhoods that made the fastest growing list are: Jefferson, Fairfax, Arroyo Viejo, Oak Knoll-Golf Links and Havenscourt.
This is nothing new.
Oakland is just seeing high demand and prosperity like the rest of the bay area.
Oakland has been gentrifying for years, but it really accelerated about 5 years ago.
With increasing wealth disparity, robberies occur often there.
HELOC Abuse on the rise
In a new white paper titled Home Equity Lending Landscape, CoreLogic says that in the recent past homeowners who wanted to tap the equity in their homes might have looked to a cash-out refinance. The housing crash and the record low interest rates that followed have perhaps modified that behavior. “After years of being out of favor,” the company says, “home equity lending is making a comeback.”
For the past two year home equity loans (HEL) and home equity lines of credit (HELOC) originations have been growing as homeowners reclaimed equity in their homes and lenders regained confidence in the market. In the last three quarters of 2015 there were 976,000 new HELOCs put in place with combined limits of $115.8 billion; both numbers the highest for those quarters since 2008. The numbers were up 21 percent and the dollar volume increased 31 percent over the same period in 2014.
Home price appreciation has sharply reduced the negative equity that existed a few years ago, especially at the bottom of the market. According to the Federal Reserve homeowners have regained more than $6 trillion in equity since the first quarter of 2009. By the end of the third quarter of 2015 there were more than 15.6 million borrowers with loan-to-value (LTV) ratios below 50 percent, another 18.3 million with LTVs between 50 and 75 percent and 30 million more who own their homes free and clear. Thus there are increasing numbers of people who are able to borrow against their homes’ value while job growth and increasing consumer confidence have increased the number who are willing to do so.
Mortgage Delinquencies at 11 Month High
Mortgage delinquencies rose in January, topping the 5 percent mark for the first time in 11 months Black Knight Financial Services said on Monday. The rate, at 5.09 percent, represented a 6.62 percent increaseMortgage delinquencies rose in January, topping the 5 percent mark for the first time in 11 months Black Knight Financial Services said on Monday. The rate, at 5.09 percent, represented a 6.62 percent increase from the previous month although the rate is still 7.10 percent below its level in January 2015.
Mortgage loans that were 30 or more days past due numbered 2.58 million in January, an increase of 167,000 month-over-month but down 189,000 from a year earlier. There were 831,000 seriously delinquent loans, that is loans 90 or more days past due but not yet in foreclosure. That was also an increase from December, up 23,000, but 239,000 loans fewer than in January 2015.
There were 71,900 foreclosure starts during the month, a 7.94 percent decline from December and 22.94 percent year-over-year.
The foreclosure inventory – homes in the process of foreclosure – continued to shrink as well, down 30,000 units month over month to 659,000 properties and 226,000 fewer homes than a year earlier. The percentage monthly and annual decreases in the inventory were 4.63 percent and 25.69 percent respectively.
The rate of completed foreclosures (measured as a percentage seriously delinquent loans, was 2.17 percent. This was a 15.61 percent rise from December, a month when, Black Knight said, many lenders declare a temporary foreclosure moratorium but it was also 24.76 percent higher than in January 2015.
At the end of January there were a total of 3.23 million mortgages that were 30 or more days past due or in foreclosure, up 137,000 units from December but nearly a half million lower than the previous year.
The rate of loan prepayments, historically a good indicator of refinancing, dropped to .81 percent, down 29 percent during the month to its lowest level since February 2014.
The five states with the largest percentage of non-performing mortgages in January were Mississippi (13.0 percent), Louisiana (10.49 percent), New Jersey (10.38 percent), Alabama (9.25 percent), and West Virginia (9.19 percent). All five posted improvements in their delinquency rates year over year, the largest at nearly 13 percent by New Jersey.
The data came from Black Knight’s “first look” at information that will be presented in more detail in its Mortgage Monitor. The company said the March edition of the Monitor will be out on March 7.
If it had been a 12 month high, that would be news worthy, but due to the seasonality of mortgage delinquency, this is a non-news event. January always spikes as the Christmas bills come due and a certain percentage of the populace that isn’t good at managing their finances falls behind. Once they start getting tax refunds in February-April they catch up again.
Digging into the numbers, foreclosure activity is really low. The article says that only 2.17% of seriously delinquent loans are foreclosed on. Since there are 834k serious delinquencies, this is ~18k completed foreclosures. As a percentage of all households this is 18,000/130,000,000 = 1/7222 foreclosures per housing unit.
With the new loss mitigation procedures developed during the housing bust, I think we will see a new low normal for foreclosure rates, perhaps only half as many as during previous low periods.
The Donald—–The Good And Bad Of It
America will need the Almighty’s unstinting favor if Donald Trump becomes our 45th President. Still, blessed be The Donald for running a demolition derby in the Republican primaries.
There is no hope for the future of capitalist prosperity and a free society at home and world peace abroad unless the Republican Party is destroyed. And, by golly, Trump may well accomplish the deed.
We need to be clear. There is no longer a Republican Party rooted in the main street highways and byways of America. What’s left of it is not really even the xenophobic, nativist, crypto-racist flotsam and jetsam of the populist right that Trump is successfully calling to political arms.
The fact is, the GOP has mutated into the Warfare State party. Nestled comfortably in the Imperial City, it operates a plethora of special interest rackets which underwrite its incumbents’ bi-annual electoral campaigns out in the provinces.
In the interim, GOP politicians idle their time in the capital and on foreign junkets conjuring and embellishing scary stories about terrorist threats and hostile regimes. So doing, they perceive enemies of the American Imperium to be stalking the planet everywhere and even creeping onto these exceptional shores.
In a word, as the party of the Warfare State, the GOP’s main business has become promoting the agenda, campaigns, machinations and glory of the Imperial City. Whenever its pro forma rhetoric about small government and fiscal prudence becomes inconvenient to the needs of the military/industrial/surveillance complex or the fund-raising requirements of its special interest rackets, the GOP’s putative conservative economics platform quickly becomes “inoperative” in the Nixonian vernacular.
There is no better prototype for the new GOP than Senators Lindsay Graham and John McCain. Their agenda consists exclusively of promoting and superintending Washington’s foreign projects, occupations, alliances and maneuvers. Cycling through Tel Aviv on a regular basis, showing up on the battlements of Kiev and lecturing the Chinese about maritime law in international waters, for example, they comically imitate the first century Roman Senators they fancy themselves to actually be.
Yet after decades in Washington they and most of their Senate colleagues have accomplished nothing that resembles the old Republican verities. In fact, during 2000-2006 when Republicans controlled the Congress and the White House, not a single welfare state program or agency was eliminated or even reformed, while vast new expansions of education, Medicare, agriculture, alternative energy subsides and much more were piled on the pre-existing heap of state.
Accordingly, the Federal spending share of GDP grew faster than at any time in history; and the $4 trillion worth of new national debt incurred during the eight Bush years smashed all prior peacetime records.
MORE…
All self-inflicted mortal wounds from increasingly extreme rhetoric, subsisting unchallenged, by Fox News and talk radio.
I’m just a simple-minded Trump supporter do I don’t understand any of this.
If Trump succeeds in destroying the power of the current establishment withing the Republican party, his run for president will be a victory. I hope Bernie does the same to the Democrats.
Hear hear!
Once Upon a Time, There Came a Negative Rate…
Cartoon at link.
That’s awesome. I wish I could get all of my economic theory in cartoon form. I’m totally pro wedding-cake now.
Charles Koch says he agrees with Bernie Sanders — on one issue
Bernie Sanders probably never expected to hear the words “I agree” from one of the Koch brothers.
Billionaire industrialists Charles and David Koch are at the helm of a political organization that spends hundreds of millions of dollars pushing free-market ideas in elections — and Sanders has made no secret of his disdain for them.
Sanders, a Vermont independent senator and democratic socialist, consistently cites the Kochs as he warns against the country’s shift toward an “oligarchic society” where a handful of billionaires control the economic and political system as the gap between the rich and poor widens.
It turns out, Charles Koch thinks he’s right — at least, when it comes to a “rigged” political and economic system.
The chairman and chief executive of Koch Industries, in a Washington Post op-ed, wrote: “The senator is upset with a political and economic system that is often rigged to help the privileged few at the expense of everyone else, particularly the least advantaged. He believes that we have a two-tiered society that increasingly dooms millions of our fellow citizens to lives of poverty and hopelessness. He thinks many corporations seek and benefit from corporate welfare while ordinary citizens are denied opportunities and a level playing field.
“I agree with him,” he wrote.
IR – Congrats. 9 years without missing a post is an incredible run of consistency. That by itself is remarkable, but it’s the quality of your posts that keep people coming back.
One of these days, I’ll stop by JT Schmit’s to buy you a beer.
Thanks for the kind words. Even after all this time, I still have enthusiasm for the writing, so I will keep at it.
and planet reality continues to read… (a reference to a post from planet reality a few months back in case you are wondering)
He posts some rude things to me periodically, but he does keep reading. On his more lucid days, he contributes a lot to the astute observations. After maintaining an active conversation about housing for nine years, I’ve learned to ignore people when they’re rude and pay attention to them when they’re not. The astute observations is one of my favorite parts of the blog.
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