National foreclosure rates continued their recovery in 2018 from their peak during the Great Recession.
Foreclosure filings were reported on one out of every 215 homes last year. That’s down markedly compared with the filings on roughly one in 47 homes in 2010. Last year’s rate is the lowest since at least 2005.
However, the foreclosure picture can look different at the state level.
Almost a third of states saw the number of foreclosure filings — default notices, scheduled auctions and bank repossessions — against homes climb last year, according to the report from ATTOM Data Solutions.
“Plummeting foreclosure completions combined with consistently falling foreclosure timelines in 2018 provide evidence that most of the distress from the last housing crisis has now been cleaned up,” says Todd Teta, chief product officer for ATTOM.
But some evidence of distress was gradually returning to the housing market in 2018, Teta says.
States with the highest foreclosure rates
The states with the highest foreclosure rates were clustered in mostly in the Northeast.
New Jersey has had the highest rate since 2015 and had 1.33 percent of housing units with foreclosure filings last year. Delaware had 0.96 percent; Maryland 0.86 percent; Illinois 0.74 percent and Connecticut 0.72 percent.
States with the lowest foreclosure rates
North Dakota was among the places where foreclosure rates increased from 2017 to 2018. But the Roughrider State’s real estate economy remains strong comparatively.
North Dakota had the lowest rate of housing units with foreclosure filings last year (0.06 percent). South Dakota had 0.07 percent; Montana 0.11 percent and West Virginia 0.12.
Alaska has the fastest-rising foreclosure rate
Alaska’s economy has been struggling in recent years after oil prices dipped in 2014, but the state’s real estate market has proved fairly resilient, according to Terry Fields, assistant professor at the College of Business and Public Policy within the University of Alaska Anchorage.
The data from ATTOM shows homeowners in The Last Frontier may be starting to feel the pressure. A total of 1,145 properties were in the process of foreclosure in 2018 — up from 614 in 2017.
The foreclosure rate in Alaska grew the fastest of all 50 states, rising from 0.20 percent in 2017 to 0.37 percent last year, according to ATTOM.
While local economists are keeping an eye on Alaska’s real estate market, foreclosures are still significantly below the levels they were during the Great Recession and previous bust periods in Alaska, Fields says.
The current growth in home prices is echoing the lead-up to the recession. Is history repeating itself?
The answer is likely not, according to a recently released realtor.com® report. Building is lacking in many markets—one hallmark 10 years ago was over-construction—and credit standards are more stringent, says Danielle Hale, chief economist of realtor.com.
“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” Hale says. “It was rising prices stoked by subprime and low documentation mortgages, as well as people looking for short-term gains—versus today’s truer market vitality—that created the environment for the crash.”
In 2016, home prices (the national median home sales price) were 2 percent higher than they were in 2006, the report reveals. Pre-recession prices have returned in 31 of the 50 largest metropolitan areas.
In contrast with 2006, however, are today’s credit conditions. Currently, the median FICO score for a mortgage is 734; the median in 2006 was 700.
Builds and flips are also different from 2006—starkly. The credit environment, among other factors, is keeping a lid on unfettered flipping and over-construction. In 2006, one household formation generally equaled 1.4 single-family housing starts; in 2016, that number shrank to 0.7 single-family starts. Flips accounted for 5 percent of sales in 2016; in 2006, they comprised 8.6 percent.
“Lending standards are critical to the health of the market,” says Hale. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity.”
Additionally, economic indicators point elsewhere. Employment was healthy then and is now, but inventory is limited more today—at a 20-year low. Presently, the average months supply is 4.2; in 2007, the average months supply was 6.4.
“The healthy economy is creating more jobs and households, but not giving these people enough places to live,” Hale says. “Rapid price increases will not last forever. We expect a gradual tapering as buyers are priced out of the market—not a market correction, but an easing of demand and price growth as renting or adding roommates becomes a more affordable alternative.”
Listings of mansions in Greenwich have dropped for the past four quarters. But this time it wasn’t because sales were brisk.
Luxury-home listings in the Connecticut town plunged 31 percent from a year earlier, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That’s largely because sellers who failed to get their hoped-for price quit trying to find buyers and took their properties off the market to wait for a better day.
“Inventory is declining but sales aren’t rising,” Jonathan Miller, president of Miller Samuel, said in an interview. “It’s mostly listings being pulled off the market.”
Tastes are changing in Greenwich, home to many Wall Street executives who take the 50-minute train ride to Manhattan. Lavish mansions on several acres have languished, while smaller homes closer to downtown get scooped up. In the third quarter, sales of luxury homes — the top 10 percent of deals by price — fell 13 percent from a year earlier to 21, the firms said. Condo purchases, meanwhile, jumped 35 percent to 58 transactions, the most for a quarter in data going back to 1999.
“Small is the new big,” said Scott Durkin, chief operating officer of Douglas Elliman. “Millennial buyers, they want to be in town, they want to be close to services, they don’t need 5,000 to 10,000 square feet — they’re OK with 1,600 to 2,200.”
“We really don’t have enough of those listings to sell,” he said. “We need more.”
The closer that homes are to Greenwich’s commercial district or waterfront, the faster they’re selling. At the current pace of deals, it would take 7.8 months to sell all the listed properties south of Post Road, an area that includes the train station and tony shops of Greenwich Avenue, Miller Samuel and Douglas Elliman said. In the Back Country section — north of the Merritt Parkway, featuring oversized estates set back from winding, two-lane roads — it would take more than three years to clear the listed inventory.
One listing that struggled to find a buyer was 16 Old Mill Road, a 10,881-square-foot home that had three price reductions in its more than two years on the market, according to listing records. The property, on 5.3 acres that include a 2,329-square-foot guest house, was first listed in May 2015 for $17.35 million, and eventually whittled to $11.45 million before it was pulled in September. Brokers shifted tactics, relisting the home under a different address — 781 Lake Ave. — and with an additional discount, to $10.95 million.
High-end sales had picked up earlier this year, largely because of price cuts, helping to clear some of the backlog. Sellers were still discounting this quarter, offering an average of 6.7 percent off the last listed price. The reductions drew in buyers for some costlier homes, pushing the median sale price in the luxury category up 34 percent to $6.5 million, Miller Samuel and Douglas Elliman said.
That’s the upside to having so many fatigued sellers giving up, according to Durkin. It clears the distractions and boosts confidence for those who want to commit to a high-end purchase in town.
Sales of both new and existing homes slipped over the summer, which typically might slow price gains.
But demand remains strong and has created bidding wars among potential buyers, pushing up prices at a much faster pace than incomes. The number of existing homes for sale fell 6.5 percent in the past year.
Seattle, Portland, Oregon and Las Vegas saw the largest increases, with prices in Seattle soaring 13.5 percent in July from a year earlier.
Other cities are also seeing strong gains. Home prices rose 7.3 percent in Dallas and Detroit, and 7.2 percent in Denver. The slowest increases were in Washington, D.C. and Chicago, which both reported 3.3 percent gains.
With unemployment low and paychecks rising modestly, more people are in the market for a home. But construction of new single-family homes has been held back by a limited supply of land in hot markets and difficulty in finding construction workers.
That has intensified the competition in the housing market. Homes sold after an average of just 30 days on the market in August, according to the National Association of Realtors, down from 36 days a year ago.
Hurricanes Harvey and Irma began to pinch sales in August and should drag on the sales in the months ahead.
The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The July figures are the latest available.
BEIJING — When the Chinese government privatized housing in the 1990s, enriching a vast swath of the urban population, it was hailed as a remarkable achievement of the reform economy. Since then, the housing industry has ballooned into a juggernaut that accounts for 70 percent of the country’s household wealth.
More than just a place to live, private housing in the past two decades came to underpin the aspirations of urban Chinese. Homeownership, especially in cities, proved to be a reliable investment outlet. The skyrocketing values of housing have been providing money for sickness and old age in a country where the state has largely dismantled the welfare system. Real estate profits have allowed parents to finance their children’s education abroad.
But the impressive size and wealth of the propertied class belies the growing strains plaguing new home buyers. The country now has some of the least affordable housing markets in the world. The ratio of median home price to median income, a common measure of affordability, in most first-tier cities has soared to higher than that of London.
To cool the markets, local governments have issued myriad purchasing restrictions, like requiring high down payments and banning the purchase of multiple apartments. The proliferation of red tape, together with the increasingly unaffordable real estate, has become a potent symbol of the thwarted economic hopes and the dwindling social mobility that characterize today’s urban China.
In newspapers and dinner table conversations, stories abound of husbands and wives filing fake divorces to get around stringent real estate purchasing restrictions for families. There are also tales of acrimonious disputes between the parents of divorcing couples when both sets claim ownership of the couple’s apartment because they contributed to the purchase. Recently, more than 10,000 home buyers in Beijing found themselves stuck in financial limbo when the government suddenly increased down payment requirements after they had agreements to buy, leaving them short overnight.
In some cases, the housing challenges affect decisions about having children. After the one-child policy was scrapped in 2015, several mothers with single sons confessed to me their reservation about giving birth again: Adding another son would wreck the family’s finances in the future, they explained, because parents are still expected to provide sons with apartments when they reach marriage age to make them eligible bachelors for potential mates.
Nowhere are home buyers’ struggles better reflected than in the saga surrounding “school-district apartments.” Home ownership guarantees owners access to public schools, and the fierce competition among parents for apartments near highly valued schools has long been considered a culprit of the exorbitant housing prices in prosperous metropolises. In certain areas in Beijing, families are now asked to own homes for at least three years before they can qualify for local schools.
The U.S. House of Representatives voted on Thursday to pass the Republican-led Financial CHOICE Act, H.R. 10, which would abolish the Dodd-Frank Wall Street Reform and Consumer Protection Act.
From here, the Financial CHOICE Act moves to the Senate for a vote, where it will likely struggle to succeed without more bipartisan support. A bill of this magnitude would need a filibuster-proof vote in the Senate, which is 60 votes or more, meaning Senate Democrats will need to flip sides and vote to support the act.
Of the 100 seats in the Senate, Republicans make up 52 seats, Democrats make up 46 seats and Independents make up 2 seats (both caucus with the Democrats).
And so far, the act has mainly garnered partisan support, passing through the Financial Services Committee in May in a completely partisan vote (34-26).
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, first introduced the act last year in an attempt to replace the Dodd-Frank Act. He released an updated version of the act this year on April 19. CHOICE stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
“The Financial CHOICE Act offers economic opportunity for all and bank bailouts for none. The era of ‘too big to fail’ will end and we will replace Dodd-Frank’s growth-strangling regulations on community banks and credit unions with reforms that expand access to capital so small businesses can create jobs and consumers have more choices and options when it comes to credit,” Hensarling said.
Some of the biggest changes in the bill affect the Consumer Financial Protection Bureau. The CFPB would be changed to the Consumer Financial Opportunity Agency, an executive agency with a sole director removable at will. The deputy director would also be appointed and removed by the president.
The only hearing on the bill was met with a lot of opposition from committee Democrats, who ended up using a political work-around to schedule a follow-up hearing in order to voice their disproval of what they’ve dubbed the “Wrong Choice Act.”
In light of the act passing through the House, House Financial Services Committee Ranking Member Maxine Waters, D-Calif., said, “It’s shameful that Republicans have voted to do the bidding of Wall Street at the expense of Main Street and our economy. They are setting the stage for Wall Street to run amok and cause another financial crisis. I urge my colleagues in the Senate not to move on this deeply harmful bill.”
Activity levels and selling prices for the domestic real estate market last peaked in 2005, two years after the prior peak of the economic cycle (i.e., GDP) in 2003 (at 4.4%). Thus, by preceding the 2008-09 recession, this most recent national housing bust set a precedent as the first in recorded history in which housing helped lead the economy down.
And when economic activity bottomed in early-’09 (March GDP fell 4.9%), domestic housing remained at stubbornly low levels for a few more years.
Sources: US Dept. of Labor (BLS), National Association of Realtors (NAR), US Bureau of Census.
Note: sales of existing homes account for >90% of all homes sold in the US, up from ~85% pre-crisis.
Even today, more than a decade after the start of housing’s precipitous decline, total US sales volumes (including new homes) remain nearly 30% below peak levels, and over 15% below the 2000-’05 average.
It is a different world post-crisis / housing bust, and residential real estate’s demographic hurdles remain high. For example, baby boomers, many of whom live on fixed income payments, are only beginning to downsize or move into managed care facilities.
The more pervasive demographic challenge to home-ownership rates – now below 64%, vs. more than 69% in 2004 – is posed by ‘echo boomers’, in their 20’s and 30’s. Born in the 80’s and 90’s these younger demo’s that nevertheless still account for the bulk of entry-level home purchases, more often favor renting over buying, a contrast to their parents and grandparents.
Thus, Entry-level home-buying now represents only about one-third of housing activity, down solidly from pre-crisis historical levels averaging 40%. First-time buying has, however, slowly improved from cycle lows in the high 20%’s, and in my opinion has plenty of runway ahead.
A couple quick observations. The tight relationship between labor force participation and home-ownership, both of which appear to be bottoming or at least steadying. And, more importantly, the nearly six percentage point drop in home-ownership since 2004, and the comparable decline in entry level home purchases from most past averages.
This paucity of first-time purchases, of relatively inexpensive homes, in fact overstates housing’s recent strength and helps underscore the housing industry’s lack of breadth. Case-Shiller, a commonly used barometer of domestic house prices (only), echoes later price charts, and indicates average selling prices (ASP’s) are still below levels more than 10 years ago.
Source: S&P Corelogic Case-Shiller.
It’s About Jobs (Mainly)
The most important driver for housing demand is job growth. Moreover, it’s the absolute number of jobs created, rather than the unemployment rate, that housing most depends.
The 2017 YTD figure is annualized, and based on latest figures: April’s jobs and March’s home sales.
Indeed, existing home sales have tracked changes in jobs, but in direction – rather than in magnitude. Since housing peaked in late-2005, the US economy has added roughly 11 million new jobs, yet housing activity remains solidly below past levels, as we’ll talk more about. At some point new jobs will more accurately translate into similar increases in home sales.
Confidence Is Key
Consumer confidence is the next most important driver of home sales, after employment. Multiple cycles of empirical data bear this out.
Consumer sentiment based on annual averages of month-end figures
Sources: University of Michigan, US Dept. of Labor (BLS), NAR
Despite steady improvements in consumer confidence since its 2008 trough, the figure, though still steadily upward trending, remains below it base level (100) just as home sales volumes track below their ‘normalized’ levels.
To paraphrase Jamie Dimon, CEO of JP Morgan Chase, the country’s #2 mortgage originator (after Wells Fargo), consumer confidence is the ‘secret sauce’, to housing.
Interest Rates Matter, Though Less Than Is Assumed
Of course rates matter for housing: a single percentage point decline in mortgage rates buys a 15% more house (over 30 years, ceteris paribus). But, contrary to conventional beliefs, empirical evidence suggests interest rates rank behind consumer confidence in terms of importance for the industry.
Although it’s the third leg of the proverbial stool supporting home sales, (mortgage) rates are the factor that most directly benefit from a Federal Reserve Board that has been decidedly ‘dovish’, pursuing relatively easy monetary policy these past 35 years or so.
Yet as investors (and borrowers) handicap a potential increase in short-term rates by the central bank in its next (NYSEARCA:JUNE) meeting, we tend to overstate the impact of mortgage rates on housing.
Favorable borrowing rates had a mitigating effect on the housing ‘bust’. The Fed’s move to zero short-term rates, which lasted a full seven-years (Dec. ’08 – Dec. ’15) has thus far had a similarly benign impact on the subsequent recovery.
Their impact (low rates) has been partly muted by a number of factors, mainly mortgage originators’ basic business decisions (i.e., risk / reward), stricter home-lending regulations, the disappearance of independent mortgage brokers (e.g., Washington Mutual, Countrywide, etc.) and the reduced activity among government sponsored mortgage securitizers (e.g, Fannie Mae).
Yet were it not for mortgage rates following 10-year Treasurys to just over 2% with the launch of quantitative easing (late-2008), financial history might have been much different: One can only speculate on the further damage to home prices, mortgages (especially adjustable), securitizations, etc. that would have occurred had the Federal Reserve not stepped in with zero rates and levered its balance sheet by $4 trillion.
A tax-reform proposal by House Republicans that would make the mortgage-interest deduction moot for most Americans is starting to set off alarm bells across the housing, lending and real estate industries.
The right to take a deduction for interest paid on your mortgage has always been a political third rail, and the reforms introduced last June would not directly eliminate the write-off.
Instead, the Better Way tax-reform “Blueprint” of Speaker Paul Ryan and his cohorts would make the deduction irrelevant for about 95 percent of homeowners. By “doubling the standard deduction that taxpayers receive…most people would have no need to take the mortgage interest deduction,” according to National Mortgage News.
The specific language in the Better Way says: “This Blueprint will preserve a mortgage interest deduction for homeowners. …For those taxpayers who continue to itemize deductions, no existing mortgage will be affected by any changes in the tax code. Similarly, no changes will affect re-financings of existing mortgages. But just as importantly, because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions, with the vast majority of taxpayers finding they are better off by taking advantage of the larger, simpler standard deduction instead.”
Before the election, when it did not look as though Republicans would control both houses of Congress and the White House, the future of the Blueprint seemed far from certain, and even given the GOP sweep in Washington, it is nowhere near a done deal.
But National Mortgage News says the National Association of Homebuilders, the Mortgage Bankers Association and the National Association of Realtors (NAR) have all woken up to what they see as an “indirect threat” to the mortgage-interest deduction.
National Mortgage News quoted Lawrence Yun, chief NAR economist, as a warning against any moves that might derail the housing recovery. “Even a discussion of mortgage interest deduction is counterproductive right now,” he said.
A spokesperson for the NAR said Yun was unavailable to expand on that view given that under the Blueprint, most homeowners would still get the same break on their taxes.
But homebuilders, lenders and realtors may have more to worry about than House Republican attempts to neuter the mortgage-interest deduction.
In a CNBC interview on Nov. 30, Steve Mnuchin, Trump’s nominee for Treasury Secretary said in the context of a discussion on tax reform: “…We’ll cap mortgage interest but allow some deductibility.”
CNBC real estate reporter Diana Olick explained later that “The mortgage interest deduction is already capped at loans up to $1 million if you’re married and filing jointly and at $500,000 if you file separately. That said, the median price of a home in the United States is just more than $200,000, so not a lot of people make it to that cap.”
But, she added, the mortgage-interest deduction is seen as a key selling point for the housing industry and therefore is “a hot potato that lawmakers really don’t want to touch.”
The Richmond Times Dispatch’s Carol Hazard writes on the growing trend among baby boomers: aging in place. According to the National Association of Home Builders, home modifications are the fastest-growing segment in residential remodeling.
To look at how one woman is changing her home, Hazard interviewed Donna Edgerton, who had an elevator shaft installed, which she will eventually turn it into an actual elevator. Furthermore, she added an open-plan kitchen and family room. She also widened the doors throughout the home to at least 3 feet to accommodate a wheelchair and a walker, along with choosing drawers over cabinets in her kitchen to better mange things around her home. Edgerton’s home renovation now includes doors and faucet features with lever handles rather than knobs, along with a bathroom that has a built-in bench, sinks that allow for a wheelchair, and tilted mirrors.
Aging in place has allowed baby boomers to not move, continue to enjoy their neighborhoods and communities, and enjoy the new amenities of their homes.
As the Richmond Times-Dispatch reports:
In the Richmond area, the number of people ages 65 and older will outnumber the school-age population for the first time in history over the next 15 years, according to a 2015 report by the Greater Richmond Age Wave, a collaboration of public and private organizations working to prepare for the region’s growing aging population.
By 2040, the number of people 85 and older (40,541) in the area will have more than quadrupled since 2000, according to the report.
“One of the biggest challenges over the next decade is how we will accommodate the growing senior population and make sure the houses they live in and the housing choices they make will be suitable for their changing needs,” said Bob Adams, executive director of Virginia Accessible Housing Solutions, whose EasyLiving Home program is designed to encourage builders to include accessibility features in home design and construction.
The problem is particularly acute in rural areas, as young people leave for urban areas and the number of senior households increases, Adams said.
“The number of seniors who live alone is growing dramatically in these areas,” he said, “and they are more susceptible to being isolated.”
The Case-Shiller (CS) National Home Price Index, reported by S&P Dow Jones Indices, rose at a seasonally adjusted annual growth rate of 1.1% in March, down from 3.8% in February. The Home Price Index from the Federal Housing Finance Agency (FHFA) rose at a seasonally adjusted annual rate of 8.4% in March, faster than 6.2% in February.
After the boom and bust, home prices have been recovering from the trough since 2012. As of March 2016, the CS national house price index was at 97% of the February 2007 peak. Nine years after their collapse, house prices are re-approaching their housing bubble peak, but now this level is in line with longer term trend growth.
However, housing markets are local and the pace of price appreciation varied greatly in different markets during the boom, so proximity to earlier peaks may not mean the same thing in different markets.
House prices in Denver and Dallas now exceed their mid-2000s levels but these markets were among the most stable during the boom with the smallest increases and the shallowest declines, so new peaks shouldn’t be seen as warning signs of new bubble conditions.
In contrast several markets have current house prices that are at or near their previous peaks, but these peaks were significantly inflated during the boom, suggesting these markets may have supply and demand imbalances that are re-inflating price bubbles. These markets include San Francisco, Portland OR, and Seattle.
At the same time several markets are at or near peak levels, but the earlier peaks and declines were relatively restrained. This current proximity to earlier peaks suggests price increases reflect house price recovery, not bubbles. These markets include Boston, Charlotte NC, Atlanta, Cleveland, Detroit, Minneapolis, New York and Chicago.
San Diego and Los Angeles are markets that are not as close to their earlier peaks as some markets, but those peaks reflected some of the most inflated house prices. Even a sizable gap between current and peak prices may reflect some ongoing supply and demand imbalance. The Washington DC and Miami markets share a similar distinction.