Jun 032019
 

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

By G. Steven Bray

Recent studies have shown that 30% to 40% of prospective homebuyers think they need a 20% down payment to buy a home. The prevalence of this myth makes the results of a recent Freddie Mac study even more interesting.

Freddie’s researchers looked at lender-reported data to the Consumer Financial Protection Bureau on homebuyers’ sources for down payment funds. The data covers a period from 2013 to 2016.

The results show homebuyers still overwhelming rely on their own money with 70% reportedly using savings, retirement funds, or inheritance money for their down payment. However, this is 9 points lower than in 2013.

Repeat buyers were more common in 2016 with 31% reporting they used proceeds from the sale of another property. This is 8 points higher than in 2013.

The share who used money from family or friends remained constant at 25%, but the share using grants or loans from non-profit or government agencies doubled to 10%. (Note that some homebuyers used multiple sources of funds, so the total percentage doesn’t add up to 100.)

One interesting result of the study was the percentage of homebuyers who used a co-borrower to purchase a home. Typically, a buyer uses a co-borrower to afford a more expensive home than the buyer could afford alone. The share for first-time homebuyers with co-borrowers rose from just over 1% before the Great Recession to over 4% in 2015 and 3.2% last year.

Jun 012019
 

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

By G. Steven Bray

Interest rates have had an impressive rally the last couple weeks as investor sentiment has become decidedly dour. The rally began in earnest when the Chinese blew up the trade deal, but it’s taken on renewed life as talking heads have started tossing around the “R” word again.

Unfortunately for economic growth, now they have something on which to hang their hats. While employment growth and consumer sentiment still appear strong, some economic activity indicators are pulling back.

This may be a manifestation of the trade war, which means it could reverse if negotiators are able to craft a deal soon. However, other economies, particularly those of China and Germany, are slowing even more quickly. We may already be past the point of no return in terms of the next recession overseas.

So, what does this mean for mortgage rates? If you like lower rates, it’s all positive. It’s quite likely we haven’t seen the lowest rates of the year yet.

That said, it may take a while before that happens. It’s long-term Treasury rates, which readily respond to economic conditions, that have fallen so much recently. Mortgage rates are lagging behind for reasons that aren’t likely to change soon.

Even so, investor sentiment is such that traders may ignore a positive economic report, such as next week’s jobs report, and keep rates in their current, lower range, and over time, mortgage rates will catch up.

Homebuyers cautious despite strong economy

 Real Estate Market  Comments Off on Homebuyers cautious despite strong economy
May 232019
 

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

By G. Steven Bray

Homebuyers remain somewhat cautious about the housing market according the most recent Fannie Mae National Housing Survey. After last month’s blip higher, the share of respondents saying it’s a good time to buy a home resumed the downward trend that started over 5 years ago. Even so, a 14% majority of respondents still thinks it’s a good-time-to-buy.

That decline in buying sentiment largely was responsible for the 1.5 point decline in the overall survey index. It now stands almost 3 and a half points lower than at the same time last year.

The decline was a little surprising given the positive change to two of the other survey components. The net share of respondents who thinks home prices will continue rising fell 2 points, and while a 36% majority still thinks prices will rise, this share is 13 points lower than last year. A large majority, 40%, still thinks mortgage rates will rise in the next year, but that share has fallen 12 points in the last two months.

Among the other survey components, those related to personal finances remain bullish. Consumers overwhelming are unconcerned about job security and by a 22% margin say their income this year is significantly higher than it was 12 months ago.

In addition, a strong majority of respondents, 43%, still thinks it’s a good time to sell a home. That share hasn’t changed much since peaking a year ago.

Here is a link to the full report.

Rate update: The trade war blues

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The trade war blues
May 212019
 

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

By G. Steven Bray

Mortgage rates have moved very little this month, and it still seems like their next move is tied to the trade war. The announcement of new tariffs on Chinese goods created a nice little rally that brought rates down close to their lows for the year. But lately, it seems like every negative headline has been met with a conciliatory one, which has kept rates stable.

There is other news out there, and absent the trade headlines, it might move rates. Probably the most significant is the action in the Middle East. A new fighting war would roil markets everywhere and lead to lower rates.

Europe also has current crises of note. Great Britain still has a Brexit problem – deciding how it’s going to leave the European Union. Italy, on the other hand, just thumbed its nose at European Union austerity rules, and pundits once again are talking about the survivability of the EU.

In the US, we’re watching for economic data that indicates something other than a steady as she goes economy. The next big reports aren’t due for a couple weeks, culminating in the May jobs report due on Jun 7th. Analysts aren’t predicting any surprises based on recent economic activity.

And that brings us back to the trade war. Barring something extraordinary happening elsewhere in the world, I think the fate of interest rates depends on the success or failure of trade talks. Resolution would remove the biggest uncertainty for the economy and almost certainly would lead to higher rates.

3 reasons the next recession won’t lead to a housing collapse

 Real Estate Market  Comments Off on 3 reasons the next recession won’t lead to a housing collapse
May 132019
 

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

By G. Steven Bray

Some pundits have suggested we’re staring at the beginnings of a new recession fueled by the housing market. Not so, says Ralph DeFranco, Global Chief Economist for Arch Capital Services. He says current housing trends bare no resemblance to conditions that existed prior to the Great Recession.

A recession is inevitable at some point in the future, but DeFranco says it should be less severe for the housing market than the 2008 recession due to three factors:

  • He estimates the current market is underbuilt by 1 million homes;
  • Homebuyers are more cautious; and
  • The quality of loans originated since the Great Recession is much higher.

Conditions were exactly opposite before the Great Recession.

DeFranco also noted that big price drops during recessions are the exception rather than the norm. In the five recessions since 1975, home values have declined only once. Moreover, the current housing inventory shortage likely would soften the effects of a recession on the housing market.

Renters twice as cost burdened as homeowners

 Residential Mortgage  Comments Off on Renters twice as cost burdened as homeowners
May 082019
 

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

By G. Steven Bray

With all the ink spent on affordability in the last year, I found a recent study by Corelogic provided some novel insights. It found that housing costs in Austin for renters rose almost twice as fast as those for homeowners.

The study period was Dec 2005 to Dec 2018, so it roughly covers one full economic cycle. Corelogic compared its rental index, which analyzes the same rental properties over time, to a “typical mortgage payment,” which it calculates assuming a 30-year fixed mortgage with a 20% down payment.

In Austin, the rental index rose more than 60% over the study period while the typical mortgage payment rose about 35%. The difference between the two in Dallas and Houston wasn’t as large, but the rental index still rose faster. A part of this difference is attributable to the fact that mortgage rates in 2005 were a point and a half higher than they were last Dec.

And this reinforces another interesting point highlighted by Corelogic. Renters are almost twice as likely to be “cost burdened,” meaning 30% or more of their income goes towards housing expenses. Forty-six percent of renters were cost-burdened in 2017 as opposed to about 27% of homeowners. Moreover, the share is down 10 points for homeowners in the last 10 years whereas it’s held steady for renters. This highlights the fact that homeowners can leverage the market through refinancing to lower their housing costs whereas renters’ only recourse is to move to a less expensive (and probably lower quality) rental.

Here is a link to the study results.

Rate update: Trade war is our headliner again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Trade war is our headliner again
May 072019
 

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

By G. Steven Bray

Last week’s two big ticket items, the Federal Reserve meeting and the jobs report, lived up to their billing. The Fed didn’t change policy, nor did the post-meeting announcement really make any waves. It was Fed head Powell, at his post-meeting press conference, who got things moving. He acknowledged that foreign economies look a little stronger than earlier in the year and was equivocal when asked whether the next rate move would be a cut or a hike. (Investors have been hoping for a cut.) Interest rates quickly bounced higher.

Then, we got the jobs report on Fri. The headline numbers were great: a solid beat on jobs created and the lowest unemployment rate in 50 years. However, wage growth was tepid, reinforcing concerns about falling inflation (which tends to depress rates). On top of that, the services sector report missed expectations. Interest rates edged down again, and it looked like we’d be riding the range a while longer.

This week set up to be rather quiet until Friday’s inflation report – until the Chinese pulled away from trade negotiations. Markets have been hopeful for a trade deal, so the president’s threat to impose new tariffs created waves of uncertainty. Investors responded to that by buying bonds, which pushed rates down.

So, where do we go from here? Given that multiple recent economic reports have agreed about receding inflation, it’s unlikely Friday’s Consumer Price Index is going to have much effect on rates. If the index surprisingly doesn’t agree with the other reports, rates may tick up a bit.

However, I suspect rates will rise or fall based on the trade talks. A further breakdown is bound to make investors nervous about a full blown trade war, leading to lower rates.

FHA crack down on down payment assistance

 Loan Guidelines, Residential Mortgage  Comments Off on FHA crack down on down payment assistance
Apr 292019
 

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

By G. Steven Bray

One of a myriad of causes of the housing collapse during the Great Recession was the absence of “skin-in-the-game.” Borrowers used no-money down loans to purchase homes, then walked away from those homes when the economy went sour. Given that they had put none of their savings into the homes, walking away was easier.

One way to achieve no-money down during that time was to use seller-provided down payment assistance with an FHA loan. The seller provided the necessary 3.5% down payment and usually boosted the home’s sale price a little to make up for it. Congress outlawed this practice in 2008, mandating that no party with a financial interest in the home sale – including the seller, the agents, and the lender – could provide the homebuyer’s down payment funds. However, the law allowed governmental programs to continue providing down payment assistance.

Well, where there’s a will, there’s a way, and an entrepreneurial fellow in UT partnered with the Paiutes tribal government to create a fund, the Chenoa Fund, that lenders could use for down payment assistance. Whereas government down payment programs target homebuyers in the governmental jurisdictions, the Chenoa Fund was available nationwide, and it made a profit on the transactions.

Borrowers in down payment assistance programs become delinquent about twice as often as those who use their own funds, and the Feds see these programs as an increasing risk to the FHA Mutual Mortgage Insurance Fund, which backstops FHA mortgages.

Last week, HUD published new guidelines that clarify which entities can provide down payment assistance. The guidelines seem to target the Chenoa Fund, and it will be interesting to see how it responds.

But that still leaves the bigger issue of higher default rates for down payment assisted loans unaddressed. Many of these programs offer the assistance in exchange for higher-than-market interest rates, which stretch a homebuyer’s ability to repay the mortgage. In addition, they perpetuate the problem Congress thought it had addressed in 2008 – homeowners with no skin in the game.

FHA changes aim to deny riskier borrowers

 Loan Guidelines, Residential Mortgage  Comments Off on FHA changes aim to deny riskier borrowers
Apr 272019
 

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

By G. Steven Bray

Late last month, FHA made some changes to its automated underwriting system that may prevent as many as 50,000 potential borrowers from qualifying for an FHA loan. FHA said the changes are meant to limit exposure of its insurance fund from higher risk situations.

According to the agency’s annual report to Congress, it’s seeing a concentration of mortgages with high debt-to-income ratios and low credit scores. It also reported a 60% increase in cash-out refinances. (This isn’t an issue in TX as TX homeowners cannot take cash out using an FHA loan.)

An FHA official told The Wall Street Journal that the system changes will affect 40,000 to 50,000 loans each year, which is 4 to 5% of all loans FHA insures.

The changes will flag loans with a combination of higher debt-to-income ratios and lower credit scores for “manual underwriting,” which means underwriting performed by a human being. Unfortunately for borrowers, manual underwriting also means more stringent loan guidelines, and many of those who qualified before the system changes no longer will qualify.

Rate update: Stuck in the middle again

 Interest Rates, Real Estate Market  Comments Off on Rate update: Stuck in the middle again
Apr 122019
 

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

By G. Steven Bray

After a quick move lower following last month’s Federal Reserve meeting, mortgage rates have moderated a bit. Concerns of a global recession prompted the move lower, and the Fed seemed to add fuel to that concern with the changes to its policy stance, announcing what is in a sense version 5 of quantitative easing, which has helped keep rates low for years.

Rates rebounded a bit when investors realized the US economy certainly isn’t circling the drain. We’ve had two strong jobs reports, and retail sales rebounded after the government shutdown. The data isn’t as strong as it was last year, but it certainly doesn’t seem to indicate an imminent recession.

Overseas is another story. At its meeting this week, the head of the European Central Bank all but predicted a recession in Europe, and European economic data continues to weaken. Britain still hasn’t figured out how it’s going to leave the European Union, which breeds uncertainty, a close friend of low interest rates. And China’s economy also is slowing, and analysts worry that a resolution to the trade dispute may not be enough to stop the slide.

So, that’s the bad news – the news that’s pressuring rates lower. But investors see a US economy that seems to be chugging along. Thus, rates are stuck in the middle – not sure which force is going to be stronger. And they’re liable to stay that way until new headlines tip the scales.

Among the predictable headlines I’m watching right now are the Chinese trade talks and inflation data. I still believe a good trade deal penned in the next couple months will put some upward pressure on rates. However, it has to happen before the Chinese economy slips too far. On the inflation front, recent reports show inflation sliding lower again, which makes the Fed nervous. Receding inflation should put downward pressure on rates.