Morning Report – Some housing affordability numbers 2/20/14

Vital Statistics:

Last Change Percent
S&P Futures 1828.6 3.1 0.17%
Eurostoxx Index 3095.7 -25.2 -0.81%
Oil (WTI) 103.3 0.0 -0.01%
LIBOR 0.236 0.002 0.86%
US Dollar Index (DXY) 80.22 0.080 0.10%
10 Year Govt Bond Yield 2.75% 0.01%
Current Coupon Ginnie Mae TBA 105.4 -0.1
Current Coupon Fannie Mae TBA 104.1 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.31
Markets are higher this morning on no real news. Inflation at the consumer level and initial Jobless Claims came in as expected. Bonds and MBS are down small.
The latest CoreLogic Market Pulse is out, and it has some really good stuff on the state of the first time homebuyer. The rise in real estate prices (especially on the coasts) has hit first time homebuyers harder than existing homebuyers (in other words, buyers who currently own a home). Existing homeowners aren’t as affected by increasing home prices because they have equity in their existing home. First time homebuyers do not. Of course, historically housing remains very affordable.

CoreLogic also has a piece on the new rental boom, and whether we are experiencing a new age in the single family rental market. We have seen a massive conversion of single family homes into rentals as professional investors have scooped up distressed properties and put them out for rent. Certainly the demand for rental housing has been somewhat driven by a lousy economy, and lousy economies don’t last forever. On the supply side, don’t forget that professional investors are driven by the economics of a trade going forward, and the potential returns from single family rentals may look a lot different today as the easy money in distressed properties has already been made and future home price appreciation may be harder to come by. For the first time homebuyer, the buy vs rent decision is still almost as skewed towards buying as it has ever been:

If professional investors begin to let some of their rental property go (and given the tight inventory, they would be wise to) we will begin to see some of this property absorbed by “real” buyers – in other words, buyers with a mortgage. This will be the next big change in the mortgage banking industry – the exit of cash-only buyers and the return of a more normal mix of cash buyers vs buyers with a mortgage.

Following on this, tomorrow we will get existing home sales, which is expected to come in around 4.7 million. In normal times, that number is over 5 million and during booms it will approach 7 million. The thing to keep in mind however is that cash sales represent 40% – 50% of all transactions right now, while historically, that number is closer to 20%. In terms of “gettable” business right now, 55% of 4.7 million homes is about 2.6 million purchase mortgages. If we get back to a normal cash / mortgage ratio of 20%, that number becomes 3.8 million, an increase of 46%. And if we get back to historical existing home sales numbers, it become goes above 4 million. As a purchase shop, we are in a good position to pick up that incremental business.

So LOs, this lousy environment too shall pass. Better days lie ahead, even if the refi boom doesn’t return.

41 Responses

  1. First!

    *drops mic

    (Where have we heard that before??)


  2. Its Frist…


  3. Certainly the demand for rental housing has been somewhat driven by a lousy economy, and lousy economies don’t last forever.

    So here’s my question: despite your statement a few sentences later about the decision still being skewed toward buying, do you think that it’s possible that this lousy economy may go on long enough to make a sea change in that mindset? I know that I, for one, went from intending to purchase a house after my divorce to losing a job and finding out that it’s easier sometimes to move to where the jobs are than to try to fight the market–and that it’s a LOT easier to pick up stakes and go if you’re a renter.

    I guess that’s more of a macro-economics or social science type question than a housing market question, but I’m interested in what you see in your crystal ball as an analyst.


  4. Frist, first, whatever. . . I beat “Carl” this morning, and that’s what counts!

    This is hilarious:


  5. On one hand, I have never been more bullish on the US economy, due to cheap energy, which is a game changer on so many levels. It will bring manufacturing back to the US, which will double the pay of a lot of Wal Mart greeters. We have underbuilt residential housing for 10 years, and skilled construction workers are seeing 50% increases in wages. Finally the deficit will become less of an issue as the Middle East becomes as strategically important to us as, say, Botswana and we cut defense spending. (Sorry Israel!)

    On the other hand, I remember my grandparents being scarred by the Great Depression and I think many in their generation had this sense that it could all get taken away from you in an instant, so plan accordingly. It definitely affected their mindset (and thrift – talk about people who wouldn’t waste a thing!). So could that affect a generation to believe that you want to take as few financial risks as possible? Maybe.


  6. On the other hand, I remember my grandparents being scarred by the Great Depression and I think many in their generation had this sense that it could all get taken away from you in an instant, so plan accordingly.

    That’s exactly what I was thinking of, too. My paternal grandmother never left a restaurant without taking a few sugar packets home “just in case”. I think about them, and how they drove savings and thrift into my head (that savings streak is what has gotten me through the last year and a half) and compare it to how everyone seemed to be living before the economic downturn (credit and home equity and buying every toy and luxury possible) as well as how it’s affecting the job market for the 20-somethings right now and I wonder what that will mean 10 – 15 years down the road.

    I foresee a lot of PhD dissertations. . .


  7. Brent, doesn’t cheap energy have a flip side, as in cheap transportation and further exporting of manufacturing? Even of the manufacturing of the tools used to create cheap energy?

    It seems to me that to battle cheap labor and transportation you have to create a regulatory and tax environment to more then offset that. Do you see that occurring here, because if the Abomination has taught anything it’s that governmental tentacles only grow.


  8. For example, the EPA is doing it’s best here in Houston to destroy the refining industry.

    Example 2, Keystone pipeline disapproval.


  9. Like

  10. obama could absolutely fuck this up by increasing taxes on energy.. I hope he doesn’t (and according to the left, he has disappointed them on a lot of things), so anything can happen. But yes, if obama decides to declare a war on cheap energy in the US, that assumption goes out the window…

    The funny thing is, this is the unscrewable pooch. All Washington has to do is let it happen and not fuck with it.


  11. What portion of Obama’s base think cheap energy is worse than a bad economy?

    And regulatoraly it’s already happening via the EPA.


  12. Hardly a nonpartisan study, “Carl”.


  13. I guess what I’m asking Brent is given what I’ve described, is bullishness justified?


  14. This calls into question the competency of these politicians. They do not have answers to questions any rational person knows will be asked?

    How is this possible?


  15. @Troll: “This calls into question the competency of these politicians.”

    Politicians? Incompetent? That hardly seems likely.


  16. What about it is wrong?

    What about it is right?


  17. Heh. No study conducted by the American Action Forum, and reported in the Washington Examiner, would ever be even close to nonpartisan.

    Edited for bad punctuation


  18. What portion of Obama’s base think cheap energy is worse than a bad economy?

    A lot of it… That is what has me worried. That said, according to the PL crowd, the guys is really a republican, you teabagging nitwit.

    I don’t think a carbon tax is possible without Congress, so all he can really do is play small ball with the EPA. Pushing utilities to substitute natural gas plants for coal plants probably won’t discourge the migration.

    That said, I don’t think he hears about the negative economic consequences of his green initiatives from his staff, so that is my worry..


  19. What is so controversial about the idea that the increased costs and expenses from obamacare will end up getting passed on to the consumers?


  20. What is so controversial about the idea that the increased costs and expenses from obamacare will end up getting passed on to the consumers?

    In and of itself, nothing. But that study is laughable on its face.


  21. Why is it laughable. Can’t even partisans be right?


  22. All they are doing is dividing the tax up by the number of policyholders out there, and calculating how much insurers would have to hike premiums to account for the fact that it is non-deductible.

    It is a very straightforward analysis


  23. That “tax expenditure” is passed directly onto municipal borrowers via lower interest rates. Take away the exemption and muni rates will equal Treasuries with the corresponding risk premium.

    Hopefully the left gets this, but my guess is that they don’t..


  24. @Michigoose: “No study conducted by the American Action Forum”

    I’d argue that no study conducted by a group with the words “American” or “Action” in their title (or “Social” or “Justice” or “Workers” or “Peace” or “Children”) is non-partisan. 😉

    Of course, when studies are conducted to prove foregone conclusions, they become uninteresting to anybody but party faithful. They are like religious liturgies. Important if you are part of the church, not so interesting if you aren’t.

    Still, it looks pretty straight forward to me. I’m not clear on what’s wrong with it, or what they did wrong.

    That being said, there was never any way the ACA was going to save money. Putting more fingers in the pie and more management into the process cannot reduce costs. Mandating additional coverage is going to raise costs. Those costs will get paid for, and given their nature are almost sure to be distributed across all consumers. There may be individuals who save money on ACA, and bully for them, but in general the only thing something like the ACA can do is increase the cost of healthcare and lower the quality of healthcare, on average, versus what it would have been without it.

    Just one part of the ACA—the website—has so far cost $677 million. That is $677 million additional that has be paid as startup “overhead” for the program that would not have existed, minus the ACA. Thus, that’s an additional $677 million that will have to paid for right there that otherwise would never have had to have been covered. When that’s just one thing, and one thing that cost 10 times more than it ever should have, it’s hard to imagine that there are no other additional costs, or that any savings, if any ever materialize, are going to do anything to offset those expenses. The website will be perpetual overhead. Hopefully not $677 million per annum but if that’s what they paid at the outset, I can see it costing $50 million a year, in a place where originally $0 per year were spent. It’s not replacing anything. It’s just adding a layer.

    And that’s just the tip of the iceberg concerning the additional expenses the ACA is bringing to the whole healthcare pot. It may improve some things, I don’t dispute that, but it’s going to be at a very high overall cost that’s almost impossible to avoid.


  25. Still, it looks pretty straight forward to me. I’m not clear on what’s wrong with it, or what they did wrong.


    It is a very straightforward analysis

    I have no doubt that you’re both right and that the data itself is very straightforward, and the analysis may be as well. But it’s the interpretation and presentation that I don’t trust for a nanosecond. A group headed by Douglas Holtz-Eakin? Pshaw!


  26. Cute. I guess the only way obama can silence his critics it to, well, silence them via the FCC

    Question for the crowd… Any chance this will bother the NYT, WaPo, or the left-leaning networks?


  27. @Brent Nyitray: “Cute. I guess the only way obama can silence his critics it to, well, silence them via the FCC”

    You’re in charge. You control this stuff. It’s very tempting. It never, ever, ever works. And it didn’t work well before cell phones and the Internet and every other modern mode of communication and recording and so on.


  28. No, of course not.

    Michi, which part of the interpretation and presentation do you find objectionable and wrong?


  29. Looks like Hack Sargent’s got another “new” immigration thread.

    Homie’s really out busting his ass uncovering stories! I see another AquaBuddha scoop on the horizon. Could a Pulitzer or a cushy desk job at MMfA be all that far away? David Brock can’t live forever!


  30. Do it! I beg you!


  31. @Troll : it would certainly prove what an economically disastrous strategy such a tax would be.


  32. Grist for the gay marriage mill.

    Try turning the moral math around as a thought experiment: Imagine you are the gay owner of a restaurant in Chelsea, a member in good standing of the National Gay and Lesbian Chamber of Commerce, rainbow flag flying out front — and the cretins from the Westboro Baptist Church decide that they want to rent your party room for their annual “God Hates Fags” Sunday brunch. Shouldn’t you have the right to refuse? There is in this sad world such a thing as a Ku Klux Klan wedding — should the management of Harlem’s famous Sylvia’s Restaurant be prosecuted under civil-rights law if the establishment should decline to cater such a wedding? It is impossible for me to imagine that that should be the case.

    Yello, what does my interest in this article say about me?

    By thee way, what did QB’s choice of adjective say about him? I didn’t understand your video’s reference. You obviously have an opinion, what prevents you from sharing it?


  33. More great news from the world of Obacare!

    en after the administration said this month that it would ease coverage requirements for larger employers, public employers generally said they were keeping the restrictions on work hours because their obligation to provide health insurance, starting in 2015, would be based on hours worked by employees this year

    I’m sure though that the private sector won’t react the same way to these, er, incentives.


  34. Grist for the gay marriage mill.

    For all the talk about rights and equality and yadd yadda, the movement is showing its true totalitarian colors. That’s the ugly truth. The modern totalitarian impulse always seeks to destroy culture and values, and do so by force. That’s what they are doing. A shoe that fits.


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