Bulls & Blogs

No need to fear another recession

Real Estate Market Comments Off

Mar 252019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

What I call the “recession whisperers” have been active of late, which may be making you nervous about the housing market. Whether you’re a homeowner now or want to be one in the future, the pain associated with falling home prices probably is fresh in your mind given what happened during the Great Recession ten years ago.

According to Ralph Mclaughlin at Corelogic, that worry may be for naught. The housing market generally does pretty well during a recession. Of the last five recessions, three saw home prices continue to rise. Of the other two, prices dipped only 1.9% in 1991, but they fell almost 20% in the Great Recession, and that’s a very recent memory.

However, Mclaughlin cites two other statistics that suggest the housing market is well-positioned to weather any downturn. First, housing inventory is close to a record low. Based on US Census data, the nation has only 15.7 housing units per 1000 households. This compares to almost 35 units per 1000 just before the Great Recession. Thus, even in the event of another recession, it’s unlikely we’d have a glut of unsold homes as we did ten years ago.

Second, demographic factors are favorable for continued home price growth. Currently, 46% of the US population is under age 35, and the Harvard Joint Center for Housing Studies estimates Millennial households will increase by 32 million in the next twenty years. That points to a lot of demand for housing.

Housing index focused on home prices

Real Estate Market, Residential Mortgage Comments Off

Mar 192019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae’s housing index was down slightly last month, continuing a slow deterioration of the index that began last year. It’s down 1.5 points since last Feb. While consumers still express strong confidence about their personal finances, their confidence in the housing market is slipping.

The overwhelming majority of respondents still expect their personal financial situation to stay the same or improve in the next year, and a 14-point majority thinks the economy is on the right track. Those percentages have changed little over the last year.

What has changed is the share of respondents who think it’s a good time to buy or sell a home. The “good-time-to-sell” component is down 6 points from last year and down 17 points from its peak last Jun. This may be a reflection of consumer’s softening expectations about home price growth. While a net 33% still expect prices to rise in the next 12 months, that’s down 19 points from the peak last year.

The “good-time-buy” component is down 7 points from last Feb, and has been declining steadily since summer of 2013. Interestingly, this also may be due to rising home prices as it’s the most frequently cited concern of potential homebuyers.

The positive takeaway is that as declining expectations for higher home prices sink in, potential homebuyers may begin to view buying a home as an affordable option again. Consumers still expect rents to rise almost twice as fast as home prices over the coming year.

Link to the full report.

Homebuyer beware of authorized user accounts

Credit Scoring, Loan Guidelines Comments Off

Mar 142019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The authorized-user account: It’s been a trick folks with weak credit histories have used for a long time to improve their credit scores. Mortgage lenders have grown wise to this trick, and they’re finally clamping down on its use.

An authorized-user account is an account on which a consumer has signing privileges, but the consumer’s credit history wasn’t used to open it. For example, a parent might allow a child to be an authorized-user on one of the parent’s credit cards to help the child establish credit.

A few years back, credit repair companies started promoting this as a way for folks with weak credit to quickly improve their credit scores. Someone with strong credit would allow the consumer with weak credit to sign on an account, even if the two individuals had no other relationship. Unfortunately for creditors, the score improvement didn’t reflect the consumer’s true credit risk.

Fannie Mae and Freddie Mac loan guidelines now instruct lenders to carefully review loan applications for which a borrower has an authorized-user account. The intent is to weed out potential borrowers who used an unrelated individual’s strong credit to try to improve their chances for loan approval.

According to the guidelines, it’s acceptable for a borrower to be an authorized-user on an account belonging to another borrower on the loan, with the borrower’s spouse, or an account on which the borrower makes the payments.

If these situations don’t apply, the guidelines instruct lenders to review the borrower’s credit to make sure an authorized-user account didn’t have a significant impact on the borrower’s credit scores. If the borrower otherwise has weak or little credit, it’s possible the borrower’s loan request will be denied.

Rate update: 4 events that could break the range

Interest Rates, Residential Mortgage Comments Off

Mar 132019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Still riding the range. It’s not a bad place to be when mortgage rates are the lowest they’ve been in a year. This range has held for an unusually long time, and we’ve been looking towards this month as the time when the range finally might break down. There’s no sign of that yet, but let’s review some events that could make it happen.

US economic data probably carries the greatest weight. Most of the data this year has shown continued economic strength – until the Feb jobs report. The report didn’t just miss expectations, it was anemic. Could it be an outlier due to the government shutdown or seasonal factors? Possibly. The Jan number was oddly high. Regardless, the weak jobs report combined with this week’s tame inflation reports have bond buyers in a frisky mood, and that’s good for interest rates. Any additional weak economic data likely will get the recession whisperers going again, and rates could break lower.

The other elephant in the room is the ongoing Chinese trade talks. I still think a trade deal is likely to pump up rates a bit as it not only will remove impediments to economic growth, it will remove the uncertainty that acts like a weight on rates.

Foreign economic uncertainty carries less weight, but its pervasiveness at the moment may be giving it an over-sized effect. Brexit talks continue to flounder, and a no-deal divorce between Britain and the EU is full of unknowns. The European Central Bank last week again lowered its growth estimates and discussed stimulus measures to shore up the European economy. Chinese growth has cooled significantly, and recent data shows its manufacturing sector in contraction.

Finally, we have the Federal Reserve meeting next week. The Fed had a large part in setting up the current range with its about-face on rate hikes following its Dec meeting. Markets currently see little chance of the Fed raising interest rates soon. Should the Fed’s post-meeting announcement suggest otherwise, rates could make a quick jump higher.

Fewer home flips could be temporary blip

Real Estate Market, Residential Mortgage Comments Off

Mar 052019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Recent data from ATTOM Data Solutions, a national property data warehouse, shows that the total number of homes and condos flipped last fall reached a 3.5-year low. The total of almost 46,000 was a 12% decrease from a year earlier.

ATTOM’s senior vice-president Daren Bloomquist suggested this could indicate a cooliing housing market as home flips are quick transactions and provide almost real-time data on the state of the market. Last fall was the third consecutive quarter of year-over-year decreases for flips. Bloomquist said the last time that happened was in 2014 after mortgage rates jumped.

For some context, flips decreased for eleven consecutive quarters preceding the housing crash, so it’s unlikely this trend is indicative of an echo crash. Like 2014, the recent swoon may be a reaction to rising interest rates, and it will be interesting to see whether flipping activity picked up this winter when rates retreated.

The report contained a wealth of interesting data on home flipping. The average gain-on-sale for home flips was $63,000, a slight decrease from a year ago when it was $65,000. This represented a 42.6% return on investment, which was a 6.5 year low and was lower than the 48.1% ROI a year earlier.

Almost half of all flips in the quarter sold for less than $200k, with most of those flips having a gross ROI of 50% or better. However, the highest ROI occurered for flips with a sales price north of $5 million.

The highest rate of home flipping occurred in AZ, TN, and NV, and the highest gross returns were in PA, OH, and KY.

ATTOM’s summary of the report