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Apartment Construction Leads the Way

It’s no mystery that the construction market is closely linked to the mortgage market. Around the Lynnwood area, a low inventory of homes and increased mortgage rates are inspiring many developers to get busy with new developments. And, while we are seeing a significant increase in single family homes, it would seem that multi-family rental spaces are taking the helm in housing recovery.

With the recovering economy and the increase of job availability, a greater number of young people are finally able to move out of their parents’ houses and get a place of their own. This is a population that is eager to be on their own, but reluctant to settle down yet or take on the financial burden of a mortgage. For this reason, the Millennial population has been fueling a greater demand for affordable rental spaces.

Regions struck hardest by this demand for apartments have been places like Seattle, New York, Boston, and San Francisco. Such markets are on their ways towards building upwards of fifty percent more new homes in 2014, according to a study of building permits.

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Rises in Home Prices Slowing Down

Recovery in the real estate market has been marked with increased home prices and mortgage rates. June was no exception to this trend, but the news is not all bad; according to the Home Price Index released by Black Knight Financial Services, the rate of price growth has been gradually dropping.

Month-over-month price changes have varied, with December of 2013 seeing price increases of 0.1 percent and February hitting 0.7 percent. However, the annual rate of increase has been moderating steadily throughout the country. While home prices in September of 2013 were up 9 percent over the previous year the year-over-year price increase seen last month was only 5.5 percent. The year-to-date increase has been at 4.3 percent. Nationally, prices are currently 10.4 percent below June of 2006’s peak of $268,000.

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Mortgage Rates Hold Going Into Labor Day Weekend

Going into Labor Day weekend, mortgage rates remained more or less unchanged. While some mortgage lenders saw some increases and some saw some decreases, a majority showed a negligible difference, or no difference at all.

The lack of improvement this past week is notable, as recent activity in the underlying markets that most strongly affect mortgage rates should be driving improvement. Not only are mortgage-backed securities in good shape, but the European markets are also serving to bring US rates lower than they might otherwise be.

In part, this can be attributed to the three-day weekend. Such events, particularly when they come at the end of a month, have historically hampered improvement in the market. For a lender, it is risky to make commitments ahead of a long weekend. This is all the more true during times of geopolitical uncertainty. We may therefore expect more activity in the coming weeks, and look forward to some potential improvement.

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MMIF Returns to Solvency

As the economy continues to improve, more good news is coming into the housing market. Though forecasts as recent as 2012 were grim for the future of the Federal Housing Administration’s Mutual Mortgage Insurance Fund, HUD recently announced that the MMIF has returned to solvency a full three years ahead of schedule. As of Monday, it was reported that the Fund was up nearly $6 billion dollars in value from the same time last year. Meanwhile, its capital ratio jumped from negative .11% to a positive .41%.

HUD is attributing this impressive growth to the aggressive policy actions put into place over the past five years. Since the onset of the financial crisis, the FHA introduced tougher standards for their underwriting, recovery strategies, loss mitigation policies, and insurance premiums. This has resulted in a drop of delinquency rates in the agency’s portfolio of 14%, and a 16% improvement in recovery rates over the previous year.

Going forward, the FHA hopes to maintain this strong trend and continue to be a valuable asset to the housing market. To do so, the agency plans to continue improving transparency and certainty in regards to their loans. Meanwhile, with mortgage insurance premiums at an all-time high, the FHA hopes to find a way to achieve a proper balance that will maintain their sustainability while simultaneously serving the borrowing public.

Could Obama’s Immigration Plan Stimulate the Housing Market?

Immigration reform has been a big deal for the Obama administration recently, with ambitious new legislation being put into place to protect many undocumented immigrants from deportation. Though there remains some controversy around the president’s plan, the housing industry could likely look forward to a healthy and robust future if Obama gets his way.

The fact is that Hispanics, which represent the greatest portion of the immigrants who can look forward to benefit from the new legislation, also represent a significant part of the housing market’s future. At present, one out of every four Millennials is of Hispanic origin. As the largely white Boomer generation settles into their permanent homes, it is this younger and larger generation that is going to be driving most new home purchases throughout the coming years.

Meanwhile, statistics show that Hispanics are trending towards homeownership more rapidly than other racial groups. Hispanics are expected to be the driving force behind 180,000 to 220,000 new homeowners every year up to 2020, and then even more into the following decade. This could account for over 55.5 percent of new homeowners through the end of this decade.

It is therefore that a revamped immigration system designed to accommodate reasonable and hard-working immigrants could very well translate into a significant boon for the country as a whole. By allowing more incoming Hispanics to qualify for mortgage loans and achieve their dreams of homeownership, we can look forward to a thriving real estate market well into the future.

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More Cities Achieve Housing Stability

According to Freddie Mac, about half of the country’s large metropolitan areas have returned to a historic stable range. This is according to their Multi-Indicator Market Index, or MiMi. Using proprietary data along with local market data, including home purchase applications, payment-to-income ratios, proportions of on-time mortgage payments, and local employment rates, MiMi rates cities based on their own individual stable ranges.

At present, a full forty-seven of the United States’ one hundred biggest metros fall within the stable range. Cities throughout the west coast have been particularly strong, with Seattle, Portland, and all of California’s big cities ranking as “in range”. Washington State itself is among the most improved states, with an improvement of 10.41%.

The national MiMi value currently stands at 81.2. Such a number is indicative of an overall housing market that is on the outer range of stable. This represents an improvement of 37% over the all-time low experienced in October of 2010. However, it still has a way to go to reach the high of 121.7.

November Opens With Increased Volatility

Last week, October ended with one-month highs in mortgage rates. As we go into November, rates are inching up even further. Much of this activity can be attributed to the recent Fed Announcement, which promised to tighten policy. This serves to push up US Treasuries, which influences the mortgage-backed securities that directly influence mortgage rates.

The good news is that, as this represents the market correcting itself in anticipation of the Fed’s policy rate hike, we can likely expect it not to be affected any further by the time the hike goes into effect. In the meantime, though, the market will be under all the more pressure. The more it looks like the planned hike will happen in December, the more we can expect rates to move upward. This week in particular has a high potential for volatility, with the upcoming jobs report on Friday morning marking the time of highest risk. Unless you can afford to take risks, you would be well-advised to lock into current rates by Thursday.

Jobs Report Shines, Rates Go Up

Last week ended with the release of the jobs report, which represents the most influential piece of economic data in the world. Though many were expecting a lackluster report, and hoping that it would inspire the Fed to postpone the rate hike they scheduled for December, the report exceeded expectations across the board. Employers added more jobs than they have in any month since December of 2014, with a total of 271,000. The unemployment rate dipped down to 5%. Meanwhile, hourly earnings went up by 0.4.

The main takeaway is that the Fed is now almost certain to raise rates next month. With this revelation, mortgage rates jumped significantly higher today. Most lenders are offering their highest rates since July. This may result in some of the pressure being released, and it is not impossible that we may see this trend reverse throughout the coming days. However, floating remains a risky prospect, outweighing the potential rewards for most people looking to secure a loan in the near future.

Mortgage Fraud Risk on the Rise

Back in the period between 2005 and 2008, instances of mortgage fraud were at a peak. Fortunately, increases in regulation and lending standards led to a strong reversal of this trend, and we have seen very little in the way of fraud in the past few years. However, according to Bret Fortenberry of CoreLogic’s Insights blog, there is reason to believe that mortgage fraud is once again on the rise.

CoreLogic has been tracking mortgage fraud risk since 2010. Risk has moved up and down significantly, dipping into a deep valley early this year, but the overall trend still seems to be moving gradually upward. Low interest rates and rising home prices, which give unscrupulous individuals an opportunity to misrepresent down payments, can be attributed to much of this risk. Moving forward, the group expects these trends to continue, placing us at the bottom of a peak that should reach its highest level at some point in the second quarter. According to projections, this could be the highest level of fraud risk since CoreLogic first started tracking.

April’s Mortgage Rates Idle

We’ve passed the midway point in April, and the outlook for the mortgage market is pretty flat. Despite volatility in underlying financial markets, mortgage rates can’t seem to get any significant momentum in either direction. As of the seventeenth, it is the third consecutive day of minimal movements in rates.

This lull in mortgage rate movements can be attributed to the mixed messages coming from Fed officials. Lenders are looking for definitive signals regarding an imminent rate hike. With this in mind, the common wisdom is to favor locking into current rates; it is entirely possible that rates will move significantly higher without departing from observed trends. Meanwhile, the market is looking forward to the FOMC Announcement on April 29th, representing the next event that presents a good chance to initiate greater movements in rates markets.