Lending Environment Improving

 

Lending Environment Improving

 

A couple of recent solid reports on mortgages paint a picture of a market that’s healing, with loan access and demand rising.

Recent mortgage reports indicate that consumer access to mortgages is opening up and demand is rising. Low interest rates are fostering rising demand in both existing and new homes. However, now the challenge is for available housing inventory to balance with the market demand.

The demographic profile of consumers is beginning to match boomers who, having endured the fall in home values that accompanied the recession. Having suffered the loss in home values and even short-sales or foreclosures in mass many households are very reluctant to reentering ownership ranks. And those that are buying homes are now bringing a new list of needs and wants. This shift is impacting the demand for existing inventory and reshaping the designs of new home construction…but the market continues to improve

Recently, the Mortgage Bankers Association reported that its monthly gauge of mortgage-credit availability grew in July, improving for a third consecutive month. MarketWatch reports improved access to jumbo mortgages and increasing demand Federal Housing Administration insured loans, which offer lower requirements for down payments and credit histories.

MBA also reported that its mortgage-credit-availability index rose 0.5% in July to 116.4 — the highest level in more than three years — signaling a loosening of credit.

The Fed just reported that more banks are easing than tightening standards for prime residential mortgages, and that they’e seeing stronger demand for these loans for the first time in a year.

However, there continues to be shockwaves from the loose underwriting and lending reflecting in stiff credit standards. Banks have paid out enormous penalties for shoddy loan practices which has made it much tougher for borrowers to qualify thus excluding many families who should otherwise be creditworthy.

At least three significant factors favoring in borrowers:

First – Job growth is improving, a trend that helps both household finances and encourages banks’ willingness to lend.

Second – MBA date loan applications to buy a home have been increasing since earlier this year, though they still lag behind MBA data show.

Third – Last year’s spike in mortgage rates dissolved lenders’ refi business, and they are now eager for loan revenue.

“The strengthening in mortgage demand evident in the Fed’s latest…survey suggests that the housing recovery is back on track after having stalled in the first half of the year,” Paul Dales, senior U.S. economist at Capital Economics, wrote in a research note. “Admittedly, the Fed noted that the level of credit conditions is still stricter than the average seen since 2005. After having tightened in the previous two quarters, though, at least standards are loosening once again.”   Reference Economic Focus

The Economy is Mending

 

There’s No Doubt, The Economy Is Mending

Moody’s Analytics recently released their latest U.S. Macro Forecast, by economist Mark Zandi. Here are two central themes highlighted to support their belief that the economy is truly recovering:

Recovery is in high gear – Since it began five years ago, real GDP growth has been tepid, averaging just over 2% per year. The pace now looks closer to 3%.

– Behind the pickup is the winding down of fiscal austerity. Government spending cuts shaved a full percentage point from real annual GDP growth beginning in late 2010. With the fiscal situation improving, purse strings are slowly opening again, especially among state and local governments.

– With fiscal austerity fading, the strength of the private sector is kicking the recovery into higher gear.

– The private economy, meanwhile, has been growing close to 3% per year throughout much of the recovery. This was masked by the effects of austerity, but is now becoming evident.

– Consumers, businesses, and the banking system are in shape to handle higher interest rates.

– Assuming the Fed can gracefully normalize monetary conditions, prospects are bright.

– The 12-year old Moody’s Analytics survey of business sentiment has never been stronger.

Heading for full employment – Payrolls are expanding at a pace that would bring the economy to full employment by late 2016.

– Wage pressures are likely to develop before the economy is at full employment.

– At the current pace, jobs are being added fast enough to eliminate slack in the labor market by late 2016. This includes people unemployed longer than six months, those who left the labor force discouraged, and part-timers who want full-time jobs. While difficult to measure precisely, this slack is estimated at 1.5% to 2% of the labor force.

– Employers are adding well over 200,000 jobs per month, and the growth is spread across nearly all industries, regions and pay scales. Most encouraging is recent strength in construction, manufacturing, and state and local government jobs, most of which fall in the middle of the income spectrum.   Reference Economic Focus

Homeownership Among Young Up, Middle-aged Down

Homeownership Among Young Up, Middle-aged Down

 

A careful analysis of homeownership numbers has produced some reveling points according to a report by Jed Kolko, Chief Economist for Trulia. Here are some of their findings:

• Though the published homeownership rate for young adults is still falling, true homeownership among young adults started rising in 2013. Adjusted for longer-term demographic shifts, young-adult homeownership is now at pre-bubble levels, but middle-aged homeownership is lagging.

• While the housing market is clearly improving, it looks like the recovery is happening even without much improvement in first-time homeownership. Does that mean the housing recovery isn’t for real?

• Homeownership among young adults is both on the rise and not too far off from where demographics say it should be.

• Homeownership among young adults increased between 2012 and 2013 after hitting bottom in 2012. However, once we adjust for the huge demographic shifts among young adults – far fewer young adults are married or have kids than two or three decades ago – homeownership in 2013 was roughly at late-1990s levels.

• That means that the demographic shifts among young adults account for the entire decline in homeownership for 18-34 year-olds over the last twenty years. In other words, if the pre-bubble years of the late 1990s can be considered relatively normal, than today’s lower homeownership rate for young adults might be the new normal, thanks to demographic changes.

• There may be longer-term damage to homeownership from the recession – but to the middle-aged, not millennials. Homeownership among 35-54 year-olds is lower today than before the housing bubble, even after accounting for demographic shifts.

• The true homeownership rate for young adults fell from 17.2% in 2005 to 13.5% in 2012 – a drop of 22%.

• But our true homeownership rate, which takes household formation into account, turned up slightly in 2013. It’s still the second-lowest year historically, but the tide has turned.

The demographics of 18-34 year-olds have changed dramatically over the past 30 years, between 1983 and 2013, such as:

– The percent married fell from 47% to 30% – The percent living with their own children fell from 39% to 29% – The percent non-Hispanic white fell from 78% to 57%

Each of these demographic shifts is a headwind for homeownership. Young people who are married, have children, or are non-Hispanic white are more likely to own a home than among young people who aren’t.

It’s the middle-aged, not millennials, whose homeownership rate today looks lower than before the bubble. Using the same demographic-baseline analysis, the 2013 homeownership rate for 35-54 year-olds is below the “demographic baseline” (which barely budged over the past 20 years for this age group). Furthermore, homeownership for the middle-aged has not yet begun to turn around as of 2013, unlike for millennials.

And that’s the point: the rise and fall of homeownership during the housing bubble and bust is about people who are middle-aged today. The millennial generation was still in their early 20s or younger in the mid-2000s – too young to have bought during the bubble and then to have suffered a foreclosure.

Turning more millennials into homeowners, therefore, may not be the missing piece of the housing recovery after all. Long-term demographic changes mean that homeownership among young adults is roughly where it should be. The real missing homeowners are the middle-aged.

Reference Economic Focus