Housing starts declined in May on both single-family and multifamily dwellings.Credit…Kim Raff for The New York Times

June 20, 2024

Construction of new homes in the United States dropped below expectations in May as builders pull back on new residential projects largely in response to high interest rates, reinforcing concerns about stubbornly high housing prices.

Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.28 million, a sign of more cracks in the already shaky housing market. Slower construction of both single-family and multifamily homes contributed to the overall drop. Building permits dipped 3.8 percent, pointing to less future construction.

This downturn in home building comes as the average rate on 30-year mortgages, the nation’s most popular home loan, has reached highs not seen in decades, though the rate dipped slightly this week to 6.87 percent, Freddie Mac reported on Thursday.

The magnitude of the decrease in construction last month underscores that high interest rates are both weakening housing demand and raising costs for builders — two dynamics that are ultimately contributing to builders’ reluctance to start projects. Home builder sentiment dropped in May to its lowest level this year before falling even further this month, suggesting relatively tepid home construction data in the coming months, Daniel Vielhaber, an economist at Nationwide, said in a statement.

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Source: nytimes.com

Apache is functioning normally

Homebuilder-stock analysts are increasingly worried about signs of softening in key hot spots like Florida and Texas.

Lennar and D.R. Horton were downgraded by Citigroup analyst Anthony Pettinari on concerns the housing market could stay “sluggish” in the second half of the year. Raymond James Financial’s Buck Horne also cut his recommendation on Lennar to market perform from outperform, particularly pointing to the company’s “outsized exposure” to Florida.

“We see softness in data – permits, starts, sales and prices all recently below expectations – potentially continuing” in the second-half of the year, Pettinari wrote in a Tuesday note to clients. “New and existing home inventories are ticking up and the ‘twin engines’ of the hot U.S. housing market – Texas and Florida – are seeing some areas of softening.”

Shares of Lennar and D.R. Horton each fell as much as 2.9% at the market open on Tuesday in New York.

Homebuilder shares soared in 2023, but had a more measured start to 2024. The S&P Composite 1500 Homebuilding Index was nearly flat through the first six months of the year, while Lennar and D.R. Horton’s shares slipped after notching record highs.

Pettinari downgraded the pair of stocks because he sees long-term positives for both builders as being balanced by the signs of worsening housing fundamentals. The analyst says that single-family housing inventories have climbed quickly in the spring and are back around pre-Covid levels.

The pair of downgrades pushed consensus recommendations on Lennar shares to the lowest level since 2017, according to data compiled by Bloomberg.

Raymond James’ Horne is more specifically concerned about the outlook for the Sunshine State and its impact on Lennar. He said the “surging re-sale inventory, now warrants an added layer of near-term caution” particularly for the company, given its dominant share of the state’s market.

Last month, Lennar’s earnings included a third-quarter forecast for home orders that was below consensus expectations. On the company’s conference call, management said they saw “continued strength” in most Florida markets.

“We still remain constructive on our broader homebuilding coverage and steadfast in our conviction that the sector is long overdue for a material valuation re-rating,” Horne wrote in a note.

Source: nationalmortgagenews.com

Apache is functioning normally

After a rocky start to the year, things began to improve for rates and the inflation outlook in May. June took the improvement to the next level, but this week didn’t affect the bigger picture.

Ahead of Wednesday’s market closure for Juneteenth, the most relevant economic report was Retail Sales on Tuesday morning.  It came in slightly below forecast and the previous month was revised lower.   Rates responded by moving back toward recent lows, but not below them.

Some sources suggest mortgage rates are in fact at multi-month lows, but this relies on Freddie Mac’s weekly survey which is notorious for modest inconsistencies with reality due to the timing and methodology of the survey.  In both 10yr Treasury yields and mortgage rates, the reality has been more of a sideways fizzle as opposed to additional improvement.

Apart from Retail Sales, Friday’s PMI data from S&P Global caused the most notable market reaction after coming in at the strongest levels in more than 2 years–albeit, just barely.

Stronger economic data tends to coincide with rates moving up.  Using 10yr Treasury yields as a convenient intraday benchmark for mortgage rate momentum, we can see the impact relative to Retail Sales earlier in the week.  Neither were remotely on the scale of last week’s CPI data.  Additionally, they each argued opposite cases, thus helping the rate range remain subdued for now.

In other words, most of June’s progress was already in place before this week began.  It gets rates within striking distance of a longer term uptrend–one that will be hard to definitively break unless June’s forthcoming economic data paints a picture of economic weakness and lower inflation.  It will be several weeks before most of June’s data starts coming in.

While the rest of this week’s data didn’t necessarily move markets, much of it was housing-focused.  New Residential Construction is measured at several stages with building permits and housing starts (the start of the physical construction process) being the two main headlines.  Both have been trending gently lower (but remain elevated compared to the pre-pandemic levels) and this week’s update was no exception.

The National Association of Homebuilders (NAHB) also released its Housing Market Index which is essentially builder confidence.  In general, the high rate/low affordability environment continues weighing on builders, forcing them to cut prices and/or offer additional incentives.

Existing Home Sales are much more sensitive to the post-pandemic rate volatility and have been doing much worse than new construction as a result.  This week’s update did little to change that, but didn’t offer any fireworks relative to expectations.

The more interesting consideration for home sales is a potential future with another move toward lower rates.  The last notable rate rally resulted in a clear response from the housing market.  The upcoming data in early July will determine whether rates are able to challenge the bigger picture uptrend.  While that challenge could go either way, if it’s successful, it suggests a meaningful uptick in housing activity.

Source: mortgagenewsdaily.com

Apache is functioning normally

Loan Trading, Bank Lending, Bank Statement, HELOC, ROV Products; Disaster and Catastrophe News

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“I saved a bunch of money on my car insurance by… switching to reverse and leaving the scene.” The word on the street is that Guaranteed Rate is changing its name to “Rate,” but of greater concern to lenders is insurance. Homeowner’s insurance costs are no joke, nor are insurance companies stopping business entirely in states and counties. If you have a current homeowner whose bill just went up by $500 per month, know that this is $500 a month that won’t be spent in the general economy buying meals, going to movies, going on vacation… Not only that, but LOs and AEs and capital markets staffs do their darndest to get the best rates for their clients, and saving $50 or $100 a month are a victory, only to have the deal blown out of the water by monthly insurance costs. Insurance, of course, is a state-level issue; certainly, the CFPB does not oversee it. Some state groups are doing something about it. For example, the California MBA would like to point to real-life examples of the consequences across California: Here is a link to a fillable form to enter any helpful information or examples.) Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a warranty, eliminating repurchase worries. Hear an interview with Move Concierge’s Sajag Patel and Gabe Abshire on the home services set up industry.

Software, Products, and Services for Lenders and Brokers

On May 1, 2024, Fannie Mae and Freddie Mac, along with the FHFA, announced new requirements for reconsiderations of value (ROVs), which go into effect Aug. 29, 2024. The requirements help create uniform industry expectations for how lenders should manage ROVs. Now is the time to prepare and implement solutions to help streamline your ROV processes. With ValidateROV™ from ICE, you can provide your borrowers with a quick and transparent solution that helps guide them through the ROV process via a white-labeled mobile app. Learn more today.

“Looking for scalable Growth? We know the industry is slowly recovering from the challenges of 2023, but it’s not quite smooth sailing yet. Every dollar spent on marketing counts, especially when it can make the difference between being in the red or turning a profit. And let’s not forget, there’s another green field opportunity on the horizon. We have a strategy that’s booking 15 to 35 percent cheaper than usual plays. That’s significant, even more in today’s market. Want in on the action? Whether you’re ready to reach out or prefer us to contact you, we’re here to help.”

HELOC Borrowers can now PAYOFF DEBT TO QUALIFY and still close in as little as 1 day! NFTY and Homebridge Financial have deployed the “Debt Eliminator” enhancement to their EQUITY ACCESS Digital HELOC. Debt Eliminator allows borrowers to select which debts they to pay off as part of the user-friendly automated application process. With loan amounts up to $400k, Equity Access is designed for fast easy closings. Highlights include: instant income verification for most W-2 borrowers, automated analysis of bank statements to determine Income for both W-2 and Self-employed borrowers, AVMs up to $400k, and a banker or broker portal with robust functionality and real-time loan status. Minimum FICO 640 and CLTV up to 80 percent. The hybrid platform is digitally fast with a full staff of customer service professionals to solve real-life complexities and close more loans. Ultra-fast fee payout utilizing ACH. Correspondent white label and broker solutions are available with full branding capabilities to showcase your company/MLO. For more information, contact your Account Executive at REMN or Homebridge Wholesale, or email Joe Sheridan.

“LoanStream wants you to Make a Splash this Summer by closing more Non-QM Bank Statement loans. Join the upcoming webinar on Bank Statement & P&L! Plus, we’ll dive into the intricacies of calculating income to qualify borrowers! Register now. Don’t Miss Summer Specials! Includes Specials on Prime, Non-QM and Closed End Seconds now through 6/30/24. Includes 25 BPS Price Improvement on FHA/VA loans 620+ FICO (excludes DPA and CalHFA) and a 25 BPS Price Improvement on all Non-QM loans (excluding our ‘Select’ credit grade). Get another 25 BPS Price Improvement on Closed-End Seconds. Restrictions apply – contact your LoanStream AE to learn more. Specials valid for loans locked 6/1/2024 through 6/30/2024. Offers subject to change at any time, terms and conditions apply. Non-QM Specials also available through our Correspondent lending channel, Home – LoanStream Mortgage Correspondent (lscorrespondent.com) now through 6/30/24, contact your Regional Sales Executive for more information.”

“Webinar: Thriving in a new market: How banks are shifting their mortgage strategy to succeed. Join us for an exclusive webinar presented by Maxwell on Wednesday, June 26 at 12:00 p.m. CT. In this session, you’ll discover powerful tactics to leverage your mortgage platform that retain and increase consumer deposits, enhance transaction speed by aligning delivery channels with your customer segments, and bring cutting-edge technology to your customers and loan officers without lengthy, costly projects. Plus, you’ll learn how our variable cost model can help you generate profit on every loan you originate. Click here to save your seat today, and if you can’t make the live event, you can still register for the on-demand recording!”

Disaster Updates Continue

FEMA’s Disaster Declarations set the stage for servicers, lenders, and investors to change policies and procedures for loans in process or for existing borrowers in those areas. In the last week or two we’ve had Iowa (DR-4784-IA), Florida (DR-4794-FL), and New Mexico (DR-4795-NM).

Waters in the tropical portion of the Atlantic Ocean, around the Caribbean, are hotter than they have been for any other late May on record. The area is averaging around 84.7 degrees Fahrenheit, a temperature the waters usually don’t hit until August and September after a summer of warming up. This is bad for a lot of reasons, including the future of coral reefs, which are already experiencing a fourth global bleaching event this year, according to NOAA. The previous record-breaking May for sea temperatures in the area was in 2005, a notorious year that brought one of the most destructive and active hurricane seasons ever for the U.S.

The USDA recently released a new plant hardiness zone map as much of the country has, on average, gotten warmer. The new 30-year minimum temperature average was 2.7 degrees Fahrenheit warmer than the previous average. The map classifies the U.S. into zones based on an area’s average annual minimum temperature and is most useful for knowing which perennial outdoor plants will possibly not die in your area if you keep them outside. You can and will still kill your plants even if you plant according to the map, since it does not factor in how wet, dry, or volatile your area’s climate is. It also won’t tell you if your plants can actually survive the extreme heat of summer.

On 6/14/2024, with Amendment No. 1 to DR-4784, FEMA revised the Incident Period End Date to May 31, 2024, for Iowa counties affected by severe storms, tornadoes, and flooding from 5/20/2024 to 5/31/2024. See AmeriHome Mortgage disaster announcement 20240614-CL for inspection requirements.

On 6/17/2024, with DR-4794, FEMA declared federal disaster aid with individual assistance to Florida county, Leon. See AmeriHome Mortgage disaster announcement 20240616-CL for inspection requirements.

With DR-4795, FEMA declared federal disaster aid with individual assistance to New Mexico’s Lincoln County affected by the South Fork Fire and Salt Fire from 6/17/2024 and continuing. See AmeriHome Mortgage disaster announcement 20240618-CL for inspection requirements.

Capital Markets

“In 2016, MAXEX changed the face of the secondary market with the establishment of the industry’s first digital mortgage exchange and clearinghouse. More than $36 billion in loan trades later through our unique marketplace, we’re giving our 350+ sellers even more unprecedented liquidity across the non-agency and conforming markets. Coming mid-July, MAXEX sellers will be given exclusive access, only through MAXEX, to a major buyer of Conforming investment and non-owner-occupied loans. MAXEX allows sellers to avoid punitive LLPAs on NOO, second-home and high-balance loans via best efforts or mandatory flow, bulk and forward trading. With MAXEX, sellers sign a single standardized contract, face a single counterparty and have turnkey access to over 30 of the market’s leading buyers. Contact us today to learn how you can gain access.”

Last week’s economic releases didn’t pack the same market moving punch as data released earlier in June but did point to a gradual softening in certain areas. Retail sales moderated in May to 0.1 percent, lower than market expectations of a 0.2 percent increase. Additionally, the prior month’s data was revised lower. A frugal U.S. consumer is a helpful development for the Federal Reserve. Consumers kept spending through the pandemic but are now pinching pennies. Industrial production rose more than market expectations and was driven by a surge in manufacturing output; however, the interest rate environment and credit conditions remain restrictive. Housing continues to struggle as housing starts fell to their lowest annualized pace in four years in May. Both housing starts and building permits were expected to be higher in May, continuing their recovery after a big dip in the spring months. Builder confidence fell to its lowest reading since mortgage rates peaked in December.

Speaking of the tight housing market, we all know that high mortgage rates are keeping people from giving up mortgages they secured before or during the early days of the pandemic. Existing-home sales slipped 0.7 percent in May, as expected, to a seasonally adjusted annual rate of 4.11 million. Sales descended 2.8 percent from one year ago. However, the median existing-home sales price jumped 5.8 percent from May 2023 to $419,300, the highest price ever recorded and the eleventh consecutive month of year-over-year price gains.

The inventory of unsold existing homes grew 6.7 percent from the previous month to 1.28 million at the end of May, or the equivalent of 3.7 months’ supply at the current monthly sales pace versus 3.5 months’ supply in April and 3.1 months from a year ago. The market is not likely to see any meaningful relief in both supply and affordability until mortgage rates subside.

Inflation will take the spotlight in this final week of June, with market participants looking ahead to Friday’s U.S. personal income and outlays data for May. That report contains a reading on the core personal consumption expenditures (PCE) price index, which is widely seen as the Federal Reserve’s preferred inflation gauge. Economists expect core PCE to rise 0.1 percent month-over-month and 2.6 percent year-over-year, marking a deceleration on both counts from April. The bulk of the week’s economic releases are tomorrow (Philly Fed services for June, House Price Indices for April, consumer confidence for June, Richmond Fed manufacturing & services for June, and Dallas Fed services for June), though other highlights this week include new home sales for May, advance economic indicators for May, durable goods for May, final Q1 GDP, Chicago PMI for June, final June consumer sentiment, and the aforementioned core PCE price deflator for May. There is also the $183 billion mini-Refunding consisting of $69 billion 2-year notes on Tuesday, $70 billion 3-year notes on Wednesday, and $44 billion 7-year notes on Thursday.

This week has a quiet start today, with the sole economic release due out later this morning being Dallas Fed manufacturing for June. Markets will also receive Fed remarks from San Francisco President Daly and Governor Waller. We begin the week with Agency MBS prices unchanged from Friday’s close, the 10-year yielding 4.26 after closing Friday at 4.26 percent, and the 2-year at 4.74.

Employment

loanDepot continues to demonstrate its commitment to growth with another key retail leadership hire in Justin Andrews, a 25-year veteran of home finance who most recently served as National Director of Branch Partnerships at another top IMB. Andrews is an Area Sales Manager who will focus on driving continued market share growth in and around Seattle. He was inspired by the company’s continued investments in its platform, saying “loanDepot has best-in-class systems that make life easier, faster and smoother for both the originator and the customer. That level of efficiency means I have more time to support our team and develop our people.” This is the third win for loanDepot in recent months, coming on the heels of two other significant additions: Jeff Wilkish as RVP for New England and David Rossiello as Area Sales Manager in the mid-Atlantic. Sales leaders who are interested in learning more can reach out to Shane Stanton.

Congratulations to Radian’s Shelly Schwieso-Kramarczuk who, after 35 years in the biz, announced her retirement slated for the end of the month. “Wow, the changes we have seen. Costs just continue to rise to produce a loan, even with all the tech, AI, BOTs etc. I can’t wait to watch the future of mortgage banking. There is so much more to come! It’s been the people along the way that have made the difference. We have so many passionate professionals in our industry who truly care about the borrower, their journey, and moving the puck forward with technology and improving the customer experience. I have been fortunate to have spent my last 6+ years at Radian: Steady through the storm of late!”

(Remember: job seekers can post their resumes for free on www.lendernews.com where employers can view them for several months for a nominal charge.)

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

The impact of the elevated Federal funds rate and morgage rates on our economy is stark. The 5-unit sector, in particular, entered a recession in September 2023 and those permits have been at COVID-19 recession lows for an extended period. However, in the last few months, single-family permits have also been falling. The key turning point in every economic cycle is when construction workers lose their jobs in enough numbers that it pushes jobless claims higher.

Let’s take a closer look at today’s housing starts report.

From Census: Building Permits: Privately‐owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,386,000. This is 3.8 percent below the revised April rate of 1,440,000 and is 9.5 percent below the May 2023 rate of 1,532,000.

We want to keep this very simple. We have a backlog of orders that need to be built out, so that has kept labor on five-unit housing going, as it takes 21 months to finish a 5-unit construction project. Once those projects are done, there will be far less residential work for these construction workers and they will need to look at alternatives, like government-funded projects such as semiconductor fabrication plants. This is why we keep an eye on permit data.

We all know that 5-unit permits have been at COVID-19 recession lows for some time now, but what is different now is that the single-family permits are falling too. We still have a backlog of single-family homes that need to be built and the purchase application data for those new homes is growing. However, once those homes get built, and if permits for new single-family houses continue to fall, that will be an issue for construction labor. Construction labor for single-family homes already took a hit after rates rose toward 7% in 2022.

From Census: Housing Starts: Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,277,000. This is 5.5 percent (±9.4 percent)* below the revised April estimate of 1,352,000 and is 19.3 percent (±10.0 percent) below the May 2023 rate of 1,583,000.

As we can see below, housing starts are at the lows that we saw in the COVID-19 recession. This is happening while permits for single-family homes have only recently started to trend down. As more and more homes get built, if we don’t grow permits soon, then that labor force pool that are building homes are at risk when their jobs are completed. Hopefully, mortgage rates will fall soon, increasing builders confidence and getting more deals in the pipeline. This is what happened last year.

Why is this so important?

Economic cycles have similar patterns: one is that the Fed raises rates too much and is too restrictive, which leads housing to go into recession first, meaning construction workers on the residential side of things go down first. In the past few months we have been creating jobs in this sector, but if this trend of falling continues, then the labor pool is at risk of a decline.

All in all, it is a disappointing trend report on housing starts data, but this has been in the works for some time. The other side of this equation is that if construction labor breaks, mortgage rates will fall and that will spur demand, so hopefully we can limit the future damage of production when that happens.

However, for now, we will keep a close eye on it. For those who hear the stories about higher rates being inflationary, this is what they’re talking about: that eventually, the restrictive policy will prevent the future production of housing. As I always say: “Supply is the best way to defeat inflation. Demand destruction is a short-term fix, supply wins in the long run.”

Source: housingwire.com