February mortgage monitor: negative equity rates improve, but lowest-priced homes continue to struggle
- Underwater borrower population fell by 31% in 2015 to 6.5% of all homeowners with a mortgage
- Over half of underwater homes are in the bottom 20% of homes by price in their respective markets
- Negative equity rate among lowest price tier is 16.2% and improving at a slower pace than all other tiers
- Rate/term refinances on mortgages held for less than two years jumped by 800% from Q1 2014 to Q1 2015; and dropped by two-thirds from Q1 2015 to Q4 2015
- 37% of rate/term refinances in Q4 2015 included a term reduction.
The Data and Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of February 2016. This month, in light of its recent reports on rising equity levels nationwide, Black Knight looked at those on the other end of the spectrum and found that as of the end of 2015, there were still 3.2 million borrowers in negative equity positions, representing $126 billion in underwater first and second lien housing debt. While negative equity rates continue to improve on the national level, the recovery is decidedly imbalanced in terms of both home price levels and geography. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, borrowers whose homes are in the lowest tier of home prices continue to struggle with high negative equity rates. “Throughout 2015, the negative equity population in the US decreased by over 30%, bringing another 1.5 million homeowners out from underwater on their mortgages,” said Graboske. “However, even after four years of improvement, the recovery has not reached all corners. When we looked at the population by home price levels, we found that over half of the nation’s underwater properties are in the lowest 20% of their respective markets. That’s the highest share on record. In fact, while the national negative equity rate is now 6.5%, for homes in the lowest price tier, it’s over 16%. Furthermore, this group is seeing a slower recovery than the nation as a whole. At the current rate of improvement, it would take more than five years for the negative equity rate in this lowest price tier to reach 2005 levels – roughly two-and-a-half years longer than homes in the top 20%.”
The data also showed variation in negative equity improvement at the geographic level. InNevada, where the Black Knight Home Price Index shows home prices still 34% below their peak, over 14% of borrowers are still underwater on their mortgages, the largest share in the nation. By volume,Floridaleads the country with just under 500,000 underwater borrowers.Missouriwas the only state to see its underwater population actually rise in 2015, due to falling home prices in the state. This month, Black Knight also looked at recent refinance originations, finding that so-called “serial refinancers” played a large role in the rise and fall of refinance volumes throughout 2015 driven by interest rate fluctuations. Rate/term refinances from borrowers who had held their prior mortgages for less than two years jumped by 800% from Q1 2014 to Q1 2015 as interest rates dropped. Likewise, when rates rose toward the end of the year, this population dropped by nearly 65%, resulting in two-thirds of rate/term refinances in Q4 2015 stemming from borrowers who held their prior mortgages for more than four years. In addition, Black Knight found that term reductions have become an increasingly popular part of refinance transactions, with 37% of rate/term refinances in Q4 2015 including a term reduction. These two trends are linked, as term reductions are more popular among loans of a greater age, as those borrowers are understandably more hesitant to restart the clock on their mortgages. Finally, the data showed that $68 billion in equity was extracted via cash-out refinance transactions in 2015 – the most since 2009 and a 53% increase over 2014. Cash-out refinance borrowers continue to represent a relatively low risk profile for lenders; the average post-cash-outLTVis 67%, with an average credit score of just under 750.
As was reported in Black Knight’s most recent First Look release, other key results include:
- Total US loan delinquency rate: 4.45%
- Month-over-month change in delinquency rate: -12.57%
- Total US foreclosure pre-sale inventory rate: 1.30%
- Month-over-month change in foreclosure pre-sale inventory rate: -0.64%
- States with highest percentage of non-current loans: MS, NJ, LA, NY, ME
- States with the lowest percentage of non-current loans: AK, SD, MN, CO, ND
- States with highest percentage of seriously delinquent loans: MS, LA, AL, AR, ME
Factory orders down 1.7% in February
New orders for US factory goods fell in February and business spending on capital goods was much weaker than initially thought, the latest indications that economic growth remained sluggish in the first quarter. The Commerce Department said on Monday new orders for manufactured goods declined 1.7% as demand fell broadly, reversing January's downwardly revised 1.2% increase. Orders have declined in 14 of the last 19 months. February's drop in factory orders was in line with economists' expectations. Orders were previously reported to have increased 1.6% in January. The report added to weak consumer spending and trade data in suggesting economic growth failed to pick up at the turn of the year after slowing to a 1.4% annualized pace in the fourth quarter.
Manufacturing, which accounts for about 12% of the economy, has been pressured by a strong dollar and weak global demand, which have undermined exports of factory goods, and efforts by businesses to reduce an inventory overhang. In February, factory orders fell broadly, with orders for transportation equipment tumbling 6.2%. Orders for machinery dropped 3.4% and bookings for electrical equipment, appliances and components decreased 3.6%. The Commerce Department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - fell by a steeper 2.5% in February instead of the 1.8% drop reported last month. Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, fell 1.7% in February and not 1.1% as previously reported. Inventories of factory goods dropped for an eighth straight month, suggesting factories were making progress in reducing the inventory glut. While that could support future manufacturing production, it suggests inventories will again be a drag on economic growth in the first quarter.
Olick - rent growth eases: Why it is happening here and not there
Sky-high apartment rents are finally beginning to crack. Annual gains in the first quarter were still a relatively strong 4.1% nationally, but that is a significant drop from the 5% gains the market was seeing one year ago, according to Axiometrics. The first quarter rate was also 52 basis points lower than that reported in the fourth quarter of 2015. Rent growth has been 4% or higher for seven-straight quarters, but wage growth is nowhere near strong enough to meet the gains, leaving renters more cash-strapped than ever before. Rent gains had been strongest in some of the largest metropolitan markets, and they are now the first to see the easing. Younger workers, priced out of these markets, have been choosing smaller cities, and now rents in those cities are strengthening. "The significant declines in primary metros such as the Bay Area, New York, Denver and Houston are being somewhat offset by robust gains in secondary markets like Sacramento, Orlando and Salt Lake City," said Jay Denton, Axiometrics' senior vice president of analytics. SacramentoandPortland,Oregon, reported double-digit rent growth in the first quarter.Oklahoma Citywas the only among the nation's top 50 markets to report negative rent growth. Cities like Boston, San Francisco and Austin, Texas, which have some of the highest rents in the nation, are seeing just about 5% annual gains now.
Occupancy remains high at 94.8% nationally in the first quarter, tied for the highest first quarter rate since the 95.7% at the start of 2001. It is about the same as one year ago, but down slightly from the fourth quarter of 2015. Supply of new rental units continues to flood major markets, but mostly on the higher end. Supply of apartments is still well below demand in suburban areas and smaller cities, which is keeping rent growth strong there. In the hottest markets, like Denver, apartment developers have been particularly busy, and that will likely ease rent gains, but not for a few more years. "While demand so far has been sufficient to absorb those units that have already come online, it may be stretched to accommodate the tens of thousands of units builders are planning to deliver over the coming years," Zillow director of research Krishna Rao wrote in a report. "In those coming years, Denver's run as one of the hottest rental markets in the country may come to an end as supply finally catches up to (and passes) demand."
Alaska Air strikes deal to buy Virgin America
Alaska Air Group said Monday morning that it had reached a deal to buy Virgin America, winning a frenzied bidding war with rival JetBlue Airways. The parent company of Alaska Airlines said it would pay $57 a share for Virgin, a 47% premium to Friday's closing price, representing a total equity value of $2.6 billion. The Wall Street Journal had reported Sunday that Alaska won the bidding contest for Virgin, whose shares have risen lately on takeover speculation. Bidding betweenAlaskaand JetBlue was feverish, a person familiar with the matter had told the Journal, with the price continuing to rise. Alaska prevailed in part because of its clean balance sheet, which will allow it to more easily borrow funds for the acquisition, the person said. A person familiar with the jousting said it was "a fierce back and forth between the two sides, with multiple bids for a number of days." But ultimately, JetBlue "put the pencil down" because the price had gotten too high. Alaska, an 84-year-old airline based in Seattle, has an investment-grade credit rating, no net debt and $1.3 billion of cash, according to its latest financial disclosures. JetBlue, which began flying in 2000, had $876 million of cash at year-end and an undrawn $600 million credit line. Its debt stood at $1.8 billion. Due to low fuel prices of late, both are highly profitable. The combination of Alaska and Virgin America, which is expected to undergo scrutiny from the US Justice Department, would create the No. 5 US airline by traffic, eclipsing JetBlue, which currently holds that spot. But the combined company still would be very small compared with the largest four US airlines, all expanded by recent mergers, that control more than 80% of domestic capacity.
WSJ - office property market posts strong first-quarter growth
The US office market grew at a strong pace in the first quarter, an indication of strength in the economy as employers continue to expand. The amount of occupied office space grew by 10 million square feet in the quarter, and 45 million square feet over the prior 12 months, the strongest yearlong period since 2007, according to real-estate research firm Reis Inc. The growth helped push vacancy to 16.2%, down from 16.3% the prior quarter and 17.6% in 2010. Rents grew modestly to an average of $25.20 per square foot per year, up 3% from a year earlier, Reis said. The data cover 79 metropolitan areas. While the growth is stronger than it has been in a nearly a decade, the office market is by no means soaring across the US Rather, the pace of expansion is still considerably slower than in past times of economic expansion, when 15 million square feet to 20 million square feet of expansion was common in a quarter. One reason for the more tepid appetite is that employers have been packing more employees into less space—doing away with private offices and making smaller cubicles.
The result is that companies need less space, which overall has led to slower growth in rents, another plus for employers. In aggregate, though, the office market’s growth is “accelerating,” said Ryan Severino, an economist at Reis. “Unless there’s some kind of random shock, I think it’s more likely we see an acceleration going forward from here,” Mr. Severino said. Leading the growth were markets throughout the West Coast, with the Bay Area accounting for the top three markets Reis tracked in the data. Rents in theEast Bay, for instance, grew 6.9% from a year earlier, the most in the country, according to Reis. Orange County and Los Angeles both saw rent growth of 5.1% and 4.8%, respectively, followed bySeattlewith 4.8%. Seattle’s office market has seen explosive demand lately from the technology sector, particularly Amazon.com Inc. and Google Inc., both of which are rapidly growing in new buildings. But technology isn't the only growing segment of the local economy. Last week developer Wright Runstad announced it struck a preliminary deal with outdoor gear retailerREIto build a new, larger, headquarters inBellevue, a dense suburb to the east ofSeattle. “We’ve got a very healthy market dynamic,” said Greg Johnson, Wright Runstad’s president. “I don’t know of anyone who’s shrinking.”
Chris McLaughlin
Keller Williams
Keller Williams
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