Prices paid for goods used in residential construction ex-energy rose 1.7% in April (not seasonally adjusted) and have increased 12.4% over the past 12 months, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. Building materials (i.e., inputs to residential construction less food and energy) prices have declined just twice since December 2019.
The index for inputs to residential construction, including food and energy, increased less (+1.3%) as the index for final demand energy declined 2.4% over the month.
Steel mill products prices climbed 18.4% in April following a 17.6% increase in March. Prices are up 55.6%, year-to-date, and the month-over-month percentage increase set a record high for the third month in a row. Steel mill products price volatility is greater than it has been at any time since the Great Recession.
Over the past three months, prices have climbed 22.0%. Perhaps more concerning than rising prices is that the pace of price changes has quickened each of the past nine months.
Prices paid for softwood lumber (seasonally adjusted) rose 6.5%, setting a new record high for the third consecutive month. Lumber prices have remained extremely volatile since the 88.5% increase between April and September 2020. Since falling 22.9% between September and November, the softwood lumber PPI has risen 52.0%.
In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar. The USD has depreciated 5.0%, year-to-date, and 13.1% over the past 12 months.
Prices paid for gypsum products increased 4.4% in March bringing the two-month increase to 6.6%. The PPI for all gypsum products has increased 12.5% over the past 12 months while the index for gypsum building materials (e.g., drywall) is up 13.3%.
Prices paid for ready-mix concrete (RMC) climbed 1.1% (seasonally adjusted), following a 0.2% increase in February. RMC prices have exhibited unusual volatility since early 2018. increasing or decreasing by 1.0% or more five times during the period. Since January 2000, RMC prices have moved by 1.0% or more 26 times and five have been over the past three years.
Prices increased in all four regions from March to April, up 2.8%, 2.0%, 0.8%, and 0.8% in thes Northeast, West, South, and Midwest, respectively. The index increased the most in the Northeast (+5.6%), followed closely by the West (+5.3%). In contrast, prices held relatively steady in the Midwest (+2.0%) and declined 0.6% in the South, year-over-year.
“As expected, mortgage rates continued to inch up but are still hovering around three percent, keeping interested buyers in the market,” said Sam Khater, Freddie Mac’s Chief Economist. “However, residential construction has declined for two consecutive months and given the very low inventory environment, competition among potential homebuyers is a challenging reality, especially for first-time homebuyers.”
30-year fixed-rate mortgage averaged 3.09 percent with an average 0.7 point for the week ending March 18, 2021, up from last week when it averaged 3.05 percent. A year ago at this time, the 30-year FRM averaged 3.65 percent.
15-year fixed-rate mortgage averaged 2.40 percent with an average 0.7 point, up from last week when it averaged 2.38 percent. A year ago at this time, the 15-year FRM averaged 3.06 percent.
The PMMS is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.55 million in November, representing a 1.2% increase from the previous month’s figure, the U.S. Census Bureau reported Thursday. Compared with last year, housing starts were up nearly 13%. The pace of building permits was the highest in 14 years.
Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.64 million, up 6.2% from October and 8.5% from a year ago.
Economists polled by MarketWatch had expected housing starts to occur at a pace of 1.54 million and building permits to come in at a pace of 1.57 million.
A surge in the multifamily sector — which includes apartment buildings and condos — drove the increase in both housing starts and building permits. Multifamily starts were up 8%, versus 0.4% for single-family homes. And the number of permits issued for buildings with five or more units rose nearly 23% between October and November, compared with a 1.3% uptick for single-family structures.
New-home construction activity didn’t grow evenly across all parts of the country. Housing starts surged roughly 59% in the Northeast, driven by the multifamily boom, but fell nearly 5% in the Midwest and 6% in the South. The Midwest and South both experience slowdowns in new construction of single-family homes.
America’s building boom is continuing for now — and that’s good news for prospective home buyers. The severe shortage of existing homes for sale has pushed prices higher. As a result, the new-home segment of the market holds renewed importance.
“New home construction stands out as a clear solution to the rising challenge of affordability especially as housing demand is expected to continue to grow,” said Realtor.com senior economists George Ratiu. “However, without a significant supply of new construction, many would-be buyers will be forced to sit on the sideline due to record-high home prices.”
But Ratiu signaled one concern for the market: The pace at which builders completed their projects slowed in November. The number of completions fell nearly 1% for single-family homes and 35% for multifamily buildings. “The momentum for single-family starts and completions is slowing,” Ratiu said.
“Single-family housing continues to be well-supported by strong demand and low mortgages rates,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.
“Builders are hyper-optimistic,” Joel Naroff, president and chief economist at Naroff Economics, wrote in a research note. “Whether that is irrational or not, well we shall see.”
Rent prices in top cities are down “substantially” compared to last year — especially in San Francisco, according to Realtor.com.
City landlords are slashing rent prices to attract tenants as they lose renters to cheaper, quieter suburbs during the coronavirus pandemic. In the most dramatic cities studio rent prices fell 31% compared to last year, according to Realtor.com’s September rent prices report.
“This is likely a reflection of people with flexibility, like renters, choosing to relocate elsewhere or even possibly move in with friends and family to save money in a period of economic uncertainty, with flexibility that changes like remote work have allowed them to move elsewhere to places that are more affordable,” said Danielle Hale, chief economist at Realtor.com.
San Francisco rent prices were the hardest-hit by the pandemic as big tech companies in Silicon Valley required or allowed workers to work remotely — first during lockdowns, and then long-term, in many cases.
The median studio apartment in San Francisco is going for 31% less than it did last year, now only $2,285. One bedroom apartments cost 24.2% less than last year at only $2,873 a month (the first time they’ve ever hit under $3,000, according to Zumper, a San Francisco-based listing company). In nearby San Mateo, Santa Clara and Alameda rents dropped 9%-19%. Rents were less volatile for larger apartments, the Realtor.com study found.
But almost two hours outside San Francisco in Sacramento, rent prices are actually rising 10%-16%. Sacramento was the top out-of-metro location where Bay area renters searched for apartments year-to-date, according to Zumper’s 2020 migration report. Sacramento was also tied as the sixth most common migration destination in the country, according to Opendoor, a San Francisco-based iBuyer that operates in Sacramento and 20 other markets.
“People from the Bay area may be moving to Sacramento if they don’t have to commute into the office every day,” said Hale.
Pushing for occupancy before seasonal slowdown
Rent prices dropped significantly in major cities all across the country, plummeting up to 15% for studio apartments in places like New York City, Pittsburgh, Boston and Honolulu, and 12% in Seattle, according to Realtor.com. Rent cuts were less steep for one-bedrooms, between 7% and 12% in most cities.
“Apartment owners are pushing to get occupancy as high as possible before leasing activity suffers the seasonal slowdown that occurs during the cold weather months,” said a statement by Greg Willett, chief economist of RealPage, a Texas-based property management software company. “In some cases, they are cutting rents in an attempt to capture bigger shares of total demand.”
Meanwhile, rent rose in unlikely places such as Tulsa, Okla., which had a staggering 36% hike in studio rent increases. Rent in suburbs that many Americans have never heard of, like Hillsboro, Fla., Montgomery, Pa. and Essex, N.J., rose about 19%-29%.
“Even prior to the pandemic, there was a movement from larger metros to smaller metros…,” said Odeta Kushi, deputy chief economist for First American Financial Corporation, a California-based title insurance, settlement services and risk solutions company. “This trend has been accelerated by the pandemic as younger households look for more space and are increasingly able to work from home.”
New single-family home sales surged in July, as housing demand was supported by low interest rates, a renewed consumer focus on the importance of housing, and rising demand in lower-density markets like suburbs and exurbs.
Census and HUD estimated new home sales in July at a 901,000 seasonally adjusted annual pace, an approximate 14% gain over June and the strongest seasonally adjusted annual rate since the end of 2006. The April data (570,000 annualized pace) marks the low point of sales for the current recession. The April rate was 26% lower than the prior peak, pre-recession rate set in January.
The gains for new home sales are consistent with the NAHB/Wells Fargo HMI, which equaled a data series high in August, demonstrating that housing is the leading sector for the economy. In fact, you can visit The House Guys to find a cash buyer for your property. Consider that despite double-digit unemployment, new home sales are estimated to be 8% higher for the first seven months of 2020 compared to the first seven months of 2019.
Sales-adjusted inventory levels declined again, falling to a just a 4 months’ supply in July, the lowest since 2013. This factor points to additional construction gains ahead. The count of completed, ready-to-occupy new homes is just 61,000 homes nationwide. Total inventory declined almost 9% year-over-year, with inventory down to 299,000.
Moreover, sales are increasingly coming from homes that have not started construction, with that count up 34% year-over-year. In contrast, sales of completed, ready-to-occupy homes are down almost 24%. These measures point to continued gains for single-family construction ahead.
Thus far in 2020, new home sales are higher in all regions. Sales on a year-to-date basis are 5% higher in the South, 9% in the West, 20% in the Midwest, and 22% higher in the Northeast.
New single-family home sales jumped in June, as housing demand was supported by low interest rates, a renewed consumer focus on the importance of housing, and rising demand in lower-density markets like suburbs and exurbs.
Census and HUD estimated new home sales in June at a 776,000 seasonally adjusted annual pace, a 14% gain over May and the strongest seasonally adjusted annual rate since the Great Recession. The April data (571,000 annualized pace) marks the low point of sales for the current recession. The April rate was 26% lower than the prior peak, pre-recession rate set in January.
The gains for new home sales are consistent with the NAHB/Wells Fargo HMI, which returned to pre-recession highs and demonstrates that housing will be a leading sector in an emerging economic recovery. Consider that despite double-digit unemployment, new home sales are estimated to be 3.2% higher through for the first half of 2020, compared to the first half of 2019.
Moreover, pricing firmed in June, with median new home price expanding to $329,200. However, headwinds remain, including elevated unemployment and surging lumber prices, which exceeded their 2018 peak this week.
Sales-adjusted inventory levels declined again, falling to a 4.7 months’ supply in June, the lowest since 2016. This factor points to additional construction gains ahead. The count of completed, ready-to-occupy new homes is just 69,000 homes nationwide. Inventory (including homes available for sale that have not started construction or are under construction) is 7% lower than a year ago.
Thus far in 2020, new home sales are higher in all regions. Sales on a year-to-date basis are 0.2% higher in the South, 3.1% in the West, 12.6% in the Midwest, and 22% higher in the Northeast.
Housing Starts Miss Expectations as Permits Rebound Strongly
U.S. homebuilding increased less than expected in May, but a strong rebound in permits for future home construction suggested the housing market was starting to emerge from the COVID-19 crisis along with the broader economy.
Other data on Wednesday showed applications for loans to buy a home surged to a near 11-1/2-year high last week.
“Housing is a leading economic indicator and it is pointing the way forward but there is a limit to growth when the economy has to drag along the millions and millions of unemployed workers displaced in this pandemic recession who won’t be seeing paychecks anytime soon,” said Chris Rupkey, chief economist at MUFG in New York.
Housing starts rose 4.3% to a seasonally adjusted annual rate of 974,000 units last month, the Commerce Department said. That compared with the median forecast of 1.1 million.
Starts declined 26.4% in April and 19.0% in March. They dropped 23.2% on a year-on-year basis in May.
Single-family homebuilding, which accounts for the largest share of the housing market, edged up 0.1% to a rate of 675,000 units in May. Starts for the volatile multi-family housing segment jumped 15.0% to a pace of 299,000 units.
Homebuilding fell in the Midwest and the populous South. It rose in the West and Northeast.
Permits for future home construction rebounded 14.4% to a rate of 1.220 million units in May, reinforcing economists’ expectations that the housing market will lead the economy from the recession that started in February, driven by historically low mortgage rates.
Though the housing market accounts for about 3.3% of gross domestic product, it has a larger footprint on the economy.
Mortgage applications have climbed back above pre-COVID-19 levels.
Signs of recovery in the housing market were underscored by a survey of Tuesday showing single-family homebuilders very upbeat in June about conditions in the industry. Builders reported increased demand for single-family homes in lower density neighborhoods.
But with nearly 20 million unemployed and a resurgence of COVID-19 infections in some parts of the country, the housing market is not out of the woods yet.
Single-family building permits increased 11.9% to a rate of 745,000 units in May. Permits for multi-family units surged 18.8% to a rate of 475,000 units.
As the economic carnage from the coronavirus pandemic continues, a long-forbidden word is starting to creep onto people’s lips: “depression.”
In the 19th and early 20th centuries, there was no commonly accepted word for a slowdown in the economy. “Panic” was the term typically used for financial crises, while long slumps were commonly called depressions. Presidents such as James Monroe and Calvin Coolidge used the d-word to describe downturns during their administrations. There was even a slump in the 1870s that many referred to as the Great Depression at the time.
But then 1929 came, and there was no longer any doubt as to which depression deserved the modifier “great.” The crash hit the entire world, reducing economic output 15%. And it ground on mercilessly for years — by 1933, unemployment in the U.S. was at 25%. The Great Depression was so severe that governments permanently expanded their role in the economy.
Since the 1930s, economists and commentators have used the word “recession” to describe economic slumps, and none of them have been nearly as severe as the Great Depression. The only time this convention was really challenged was after the financial crisis of 2008. The global nature of the downturn, sparked by troubles in the financial industry, led many to draw parallels with the Great Depression. In the end, the term “Great Recession” stuck.
The economic damage from coronavirus, however, threatens to dwarf the 2008 downturn. More than 22 million people, or about 13% of the U.S. labor force, have already filed for unemployment:
Current forecasts are for the unemployment rate to reach 20% this month. Some predict it could go as high as 30% this year. That would eclipse even the Great Depression in severity.
So if severity alone is the criteria for a depression, this one will certainly deserve the moniker. President Ronald Reagan once quipped that “recession is when your neighbor loses his job; depression is when you lose yours.” There will be few people whose economic livelihoods are not hurt by the coronavirus.
But there are other possible criteria for deciding what gets labeled a depression. Besides severity, there’s duration; both the 1870s and the 1930s saw a decade of economic pain. Many hope that the economy will bounce back from the coronavirus in a so-called V-shaped recovery. It stands to reason that if the economy crashed because it was intentionally turned off by mandatory shutdowns, then letting people out of their houses will turn it back on.
Many of the economic relief measures now being implemented, such as the Paycheck Protection Program — which extends loans to small and medium-sized businesses that are forgiven if they retain their workers — have this sort of quick restart in mind. But while that’s a good idea, there are reasons to believe this downturn will not be over quickly.
First, there’s evidence that the main reason people are staying at home is not lockdowns but the threat of the virus itself. Data from online restaurant-reservation websites shows that in major cities, most of the decline in restaurant attendance happened before stay-at-home orders were issued. And polls indicate that most Americans are very wary of returning to their normal activities. This means that unless virus suppression regimes give people confidence that coronavirus isn’t a threat to their personal safety, they’re unlikely to come out and shop even if the government says there’s no need to worry. Because effective treatments probably won’t be available at least until the fall or later, that means many more months of business devastation except in the few competent and lucky places that get test-and-trace systems in place.
Next, there’s the global nature of the downturn. Gross domestic product is set to decline in almost every country. Some forecasters expect all economies to bounce back simultaneously, but a more likely scenario is that many countries will struggle to recover. That will hurt both U.S. export markets and international investors for years to come.
Finally, there’s the possibility of long-term financial market turmoil. In addition to severity and duration, a third common criterion for distinguishing depressions from recessions is that the former involves years of financial industry dysfunction and declines in lending.
The Federal Reserve is struggling mightily to preserve the solvency of U.S. banks and prop up asset markets, and so far it has succeeded. Interest rates are low, bank failures have not been widespread and stock markets have partly recovered:
But keeping banks on a government lifeline during years of business weakness, although better than the alternative of letting the financial system collapse, might still not equip the financial industry to do its traditional job of lending to productive enterprises. The threat of repeated coronavirus outbreaks, along with continued business failures, may make banks just as afraid to lend as they were after 2008.
Although the U.S. government can and should do its utmost to ensure that the coronavirus recession doesn’t check all the boxes for a depression, its powers to stop both the virus and the international slowdown are limited. Let’s hope this depression won’t last a decade, but an unprecedented slump followed by years of pain seems inevitable.
Megabank raises lending standards amid economic struggles to protect themselves
As the country struggles through the economic impact of the coronavirus, numerous mortgage companies have raised their lending standards to protect both borrowers and themselves. Now, one of the largest mortgage lenders in the country is joining that list.
JPMorgan Chase this week is increasing its minimum lending standards to require nearly all borrowers to have at least 20% down in order to buy a home. Beyond that, Chase is also raising its minimum FICO credit score to 700 on purchase mortgages.
Put simply, if a borrower doesn’t have a 20% down payment and a FICO score of 700 or above, they will likely not be able get a loan from Chase to buy a home. According to Chase, those lending standards also apply to refinances on non-Chase mortgages.
The bank will still move forward with refis under its previous lending standards if the loan is either serviced by Chase or in Chase’s portfolio, but for all other refis, it’s 700 FICO or look somewhere else.
It should be noted that the changes do not apply to Chase’s DreaMaker mortgage program, which makes loans available for low-to-moderate income borrowers with as little as 3% down and reduced mortgage insurance requirements.
According to Chase, the changes will allow the bank to spend more time on the loans it is working on and do the appropriate verifications to ensure the loan is the right move for all involved.
“Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers,” Chase Home Lending Chief Marketing Officer Amy Bonitatibus said in a statement.
With the changes, Chase becomes the latest lender to tighten its lending standards. Certain segments of the business, including government, non-QM, and jumbo loans, have dried up substantially as lenders pull back from loans that are seen as riskier than conventional loans. But as the crisis continues, lenders are beginning to change their conventional lending standards as well.
United Wholesale Mortgage, the second-biggest mortgage lender in the country, recently announced that it will require reverification of a borrower’s employment on the day their loan is scheduled to close. The purpose of that move is to ensure that borrowers are actually still employed when their mortgage closes.
“If people don’t have a job, I’m not going to put them in a bad position,” UWM CEO Mat Ishbia told his employees last week. “By doing this, we’re protecting borrowers, the company, and the country.”
But UWM wasn’t the only one making employment verification changes as COVID-19 pushes layoffs to record levels in the U.S. Fannie Mae and Freddie Mac recently announced that they changed the age of document requirements for most income and asset documentation from four months to two months. What that means is all income and asset documentation must be dated no more than 60 days from the date of the mortgage note.
The bottom line of all these changes is lenders are attempting to protect themselves and borrowers from getting into a mortgage that is not in the borrower’s or lender’s best interest.
And despite Chase being the biggest name to make changes like these so far, it likely won’t be the last lender to do so.
The changes to Chase’s lending policies were first reported by Reuters.
Homeowners in Italy are seeing many of their bills suspended – including mortgages – as the country deals with the coronavirus pandemic, and now other European nations are considering similar moves.
Is a “mortgage holiday” coming to America?
The short answer is: probably not. Most American mortgages are packaged into bonds with legal terms that dictate what the servicers who handle the billing can and can’t do. There are ways servicers can offer forbearance – an agreement to let borrowers either pay at a lower interest rate or suspend payments temporarily because of a hardship. But it’s on a case-by-case basis.
“Somebody owns those bonds,” said Mark Vitner, a senior economist with Wells Fargo. “Who is going to make those interest payments?”
Any missed or reduced payments typically have to be repaid, with interest. Sometimes, that means the loan will be re-amortized, so whatever you don’t pay now, you’ll be paying off over the remaining years of your loan, with interest.
America’s mortgage market is much bigger than Italy’s $423 billion of outstanding home-loan debt. The U.S. has about $11 trillion of mortgages on one- to four-family homes, according to Federal Reserve data. More than half of that is contained in bonds compiled and backed by Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency, which oversees those government-controlled mortgage securitizers, issued a directive last week urging servicers to offer help to people who fall behind on mortgage payments because of the coronavirus pandemic.
“To meet the needs of borrowers who may be impacted by the coronavirus, last week Fannie Mae and FreddieMac reminded mortgage servicers that hardship forbearance is an option for borrowers who are unable to make their monthly mortgage payment,” said FHFA Director Mark Calabria. “For borrowers that may be experiencing a hardship, I encourage you to reach out to your servicer.”
In addition, regulators such as the Federal Reserve on Tuesday urged U.S. banks such as Wells Fargo and JPMorgan Chase to work “constructively” with borrowers affected by the coronavirus outbreak, promising they won’t get dinged by examiners as long as the measures show good judgment.
Italy has been the nation with the biggest outbreak of COVID-19, the disease caused by the new coronavirus, outside of China. Italy has more than 15,000 cases, and more than 1,000 people have died, according to Johns Hopkins University.
While Italy is the only government to introduce a plan to suspend mortgage payments for people affected by the lockdown – and so far it’s only for the worst-hit areas of the nation – other European countries may follow suit, according to an S&P report.
“New monetary and fiscal stimulus measures are currently being launched daily and the Italian government is contemplating broadening the mortgage payment suspension scheme nationwide,” S&P said.
“Some banks and governments in other countries, including France, Spain, and the U.K., have mooted similar measures, although the potential scale of eligibility and level of uptake among borrowers could vary widely and are not yet known,” the report said.