by Calculated Risk on 6/09/2022 01:37:00 PM

Today, in the Real Estate Newsletter: The Home ATM Still Open in Q1 2022; Closing Soon

Excerpt:

First, here is the quarterly increase in mortgage debt from the Federal Reserve’s report since 2000. In the mid ‘00s, there was a large increase in mortgage debt associated with the housing bubble.

In Q1 2022, mortgage debt increased $222 billion, slightly lower than the three previous quarters. Note the almost 7 years of declining mortgage debt as distressed sales (foreclosures and short sales) wiped out a significant amount of debt.

However, some of this debt is being used to increase the housing stock (purchase new homes), so this isn’t all MEW.
...
The bottom line is the recent increase in MEW is not concerning - it is far less as a percent of disposable personal income than during the bubble, and most homeowners have substantial equity.

Also, it is very likely that MEW will decrease sharply in 2022 as refinance activity declines due to higher mortgage rates. I expect significantly lower levels of MEW in the last three quarters of2022.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/ (All ad free, most content free).

by Calculated Risk on 6/09/2022 12:22:00 PM

The Federal Reserve released the Q1 2022 Flow of Funds report today: Financial Accounts of the United States.

The net worth of households and nonprofits fell to $149.3 trillion during the first quarter of 2022. The value of directly and indirectly held corporate equities decreased $3.0 trillion and the value of real estate increased $1.7 trillion.
...
Household debt increased 8.3 percent at an annual rate in the first quarter of 2022. Consumer credit grew at an annual rate of 8.7 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 8.6 percent.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  

Net worth as a percent of GDP is down slightly from the all-time high in Q4.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2022, household percent equity (of household real estate) was at 69.9% - up from 69.2% in Q4, 2021. This is the highest percent equity since the 1980s.

Note: This includes households with no mortage debt.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.  Note this graph was impacted by the sharp decline in Q2 2020 GDP.

Mortgage debt increased by $222 billion in Q1.

Mortgage debt is up $1.27 trillion from the peak during the housing bubble, but, as a percent of GDP is at 49.1% - up from Q4 - and down from a peak of 73.3% of GDP during the housing bust.

The value of real estate, as a percent of GDP, increased in Q1, and is well above the average of the last 30 years.

by Calculated Risk on 6/09/2022 10:38:00 AM

From CoreLogic: US Homeowners Gained Over $60,000 in Equity Per Borrower in Q1 2022 as Historic Home Price Growth Continues, CoreLogic Reports

CoreLogic® ... today released the Homeowner Equity Report (HER) for the first quarter of 2022. The report shows U.S. homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 32.2% year over year, representing a collective equity gain of $3.8 trillion, and an average gain of $63,600 per borrower, since the first quarter of 2021.
...
“Price growth is the key ingredient for the creation of home equity wealth,” said Patrick Dodd, president and CEO at CoreLogic. “Home prices were up by 20% in March compared to one year earlier in CoreLogic’s national Home Price Index. This has led to the largest one-year gain in average home equity wealth for owners and is expected to spur a record amount of home-improvement spending this year.”

Negative equity, also referred to as underwater or upside-down mortgages, applies to borrowers who owe more on their mortgages than their homes are currently worth. As of the first quarter of 2022, the quarterly and annual changes in negative equity were:

• Quarterly change: From the fourth quarter of 2021 to the first quarter of 2022, the total number of mortgaged homes in negative equity decreased by 5.3% to 1.1 million homes, or 2% of all mortgaged properties.

• Annual change: In the first quarter of 2021, 1.4 million homes, or 2.6% of all mortgaged properties, were in negative equity. This number decreased by 23%, or approximately 300,000 properties, in the first quarter of 2022.

Because home equity is affected by home price changes, borrowers with equity positions near (+/- 5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change, respectively. Looking at the first quarter of 2022 book of mortgages, if home prices increase by 5%, 130,000 homes would regain equity; if home prices decline by 5%, 167,000 properties would fall underwater.
emphasis added

Click on graph for larger image.

This graph from CoreLogic compares Q1 2022 to Q4 2021 equity distribution by LTV. There are still a few properties with LTV over 125%.  But most homeowners have a significant amount of equity.  This is a very different picture than at the start of the housing bust when many homeowners had little equity.

On a year-over-year basis, the number of homeowners with negative equity has declined from 1.4 million to 1.1 million.

by Calculated Risk on 6/09/2022 08:34:00 AM

The DOL reported:

In the week ending June 4, the advance figure for seasonally adjusted initial claims was 229,000, an increase of 27,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 200,000 to 202,000. The 4-week moving average was 215,000, an increase of 8,000 from the previous week's revised average. The previous week's average was revised up by 500 from 206,500 to 207,000.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 215,000.

The previous week was revised up.

Weekly claims were higher than the consensus forecast.

by Calculated Risk on 6/08/2022 09:01:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 210 thousand up from 200 thousand last week.

• At 12:00 PM, Q1 Flow of Funds Accounts of the United States from the Federal Reserve.

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	66.7%	---	≥70.0%1
Fully Vaccinated (millions)	221.6	---	≥2321
New Cases per Day3🚩	104,511	103,774	≤5,0002
Hospitalized3🚩	23,230	21,425	≤3,0002
Deaths per Day3🚩	291	275	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

New cases have quadrupled from the recent low.

Average daily deaths bottomed in July 2021 at 214 per day.

by Calculated Risk on 6/08/2022 05:12:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Homebuilder Comments in May: “Builder metrics quickly deteriorating"

A brief excerpt:

Read these comments. These are clear signs of a market shift.

Some homebuilder comments courtesy of Rick Palacios Jr., Director of Research at John Burns Real Estate Consulting (a must follow for housing on twitter!):
...
#Austin builder: “Some parts of town where finished homes are now taking a month to sell versus hours. Market is definitely correcting. Incentives are back and seeing some builders cutting prices on inventory.”
...
#Birmingham builder: “Steep decline in sales over past 2 weeks.”
...
#Greenville builder: “Lowest traffic in many months.”

#LosAngeles builder: “Seeing more cancellations due to payment shock for those in backlog that didn't lock rates.”
...
#Portland builder: “Incentives are back in the market.”

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 6/08/2022 11:00:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Current State of the Housing Market

A brief excerpt:

This is a market overview. There are clear signs of a market shift. A few quotes:

From Denver Metro Association of Realtors® “modest numbers this month became a sign that the market has returned to a semblance of ‘normal.’”

From Las Vegas: “The slowdown in sales and increase in our housing supply are signs that things may be starting to calm down a bit.” [LVR President Brandon] Roberts

From Seattle area: Mike Larson, a member of the board of directors at Northwest Multiple Listing Service described the market as "more balanced and not so crazy”.
...
We have to be patient waiting to see the impact on house prices of the slowdown in sales due to the significant data lags. Meanwhile, Altos Research CEO Mike Simonsen noted this week that “prices reductions” are the story right now.

Note the dark red line on the graph below. The percent of recent price reductions is still below normal for this time of year but increasing quicky - and it is well above last year at this time, and also above the level in 2020. This is an early indicator of the coming slowdown in house price growth.Mike Simonsen tweeted: Price reductions!

"That's the story of the US real estate market now.

While still fewer than normal, more sellers are cutting prices every day."

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 6/08/2022 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 6.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 3, 2022. This week’s results include an adjustment for the Memorial Day holiday.

... The Refinance Index decreased 6 percent from the previous week and was 75 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index decreased 18 percent compared with the previous week and was 21 percent lower than the same week one year ago.

“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years. The 30-year fixed rate increased to 5.4 percent after three consecutive declines. While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40 percent from 5.33 percent, with points increasing to 0.60 from 0.51 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index has declined sharply over the last several months.

The refinance index is at the lowest level since the year 2000.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 21% year-over-year unadjusted.

Note: Red is a four-week average (blue is weekly).

by Calculated Risk on 6/07/2022 09:01:00 PM

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	66.7%	---	≥70.0%1
Fully Vaccinated (millions)	221.6	---	≥2321
New Cases per Day3🚩	108,891	97,584	≤5,0002
Hospitalized3🚩	22,764	21,287	≤3,0002
Deaths per Day3	287	295	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

New cases have quadrupled from the recent low.

Average daily deaths bottomed in July 2021 at 214 per day.

by Calculated Risk on 6/07/2022 04:18:00 PM

From Dodge Data Analytics: Dodge Momentum Index Shows Gains in May

The Dodge Momentum Index (DMI) jumped 7% in May to 176.2 (2000=100), up from the revised April reading of 165.2. The Momentum Index, issued by Dodge Construction Network, is a monthly measure of the initial report for nonresidential building projects in planning shown to lead construction spending for nonresidential buildings by a full year. In May, the institutional component of the Momentum Index rose 9%, and the commercial component increased 6%.

May’s increase in the Dodge Momentum Index pushed the level of planning above the most recent cyclical high in November 2021. During the month of May, commercial planning was led higher by an increase in office and hotel projects. Institutional planning was boosted by an increase in education and healthcare projects entering planning. On a year-over-year basis, the Momentum Index was 17% higher than in May 2021. The commercial component was 24% higher, and the institutional component was 8% higher than one year ago.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 176.2 in May, up from 165.2 in April.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggested a decline in Commercial Real Estate construction through most of 2021, but a solid pickup this year and into 2023.