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Home Prices Continue To Lose Momentum (#GotBitcoin?)

Gains fell below 6% in August as slowdown in housing market becomes more widespread.

Annual home-price gains fell below 6% for the first time in a year in August, another sign that the slowdown in the housing market is becoming widespread and is likely to persist in the months to come.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 5.8% in the year ending in August, down from a 6% year-over-year increase reported in July.

Price gains accelerated for most of the last two years, growing significantly faster than both incomes and inflation. August marked the fifth straight month of decelerating price gains, as interest rates have risen and inventory in some markets has been growing.

Home buyers “must be breathing a collective sigh of relief that home price growth finally has slowed.” said Skylar Olsen, director of economic research and outreach. Ms. Olsen said the slowing appreciation “is a sign that fierce competition is dying down.”

The Case-Shiller 10-city index gained 5.1% over the year, down significantly for the second straight month from 5.5% the prior month. The 20-city index gained 5.5%, down from 5.9% the previous month.

Fourteen out of 20 cities are showing slower price growth than a year earlier.

Las Vegas had the fastest home price growth in the country for the third straight month, at 13.9%, followed by San Francisco, where prices grew 10.6%. Seattle, where realtors have reported a significant pullback in buyer demand in recent months, fell to third place with a 9.6% annual gain in prices.

David Blitzer, managing director at S&P Dow Jones Indices, said that even though there is a pullback in the housing market there are no signs that the current weakness will become a repeat of the crisis in 2008 because mortgage default rates remain low. “Without a collapse in housing finance like the one seen 12 years ago, a crash in home prices is unlikely,” he said.

More than five years of rapidly rising prices, combined with higher mortgage rates are making homes increasingly unaffordable for buyers. Rates for a 30-year mortgage averaged 4.86% last week, up nearly a full percentage point from the beginning of the year, Freddie Mac said last Thursday. Because Case-Shiller home-price data lags behind by a couple of months, it doesn’t yet reflect the most recent run-up in rates.

“Coupled with mortgage rate increases that picked up steam in September, higher prices are stifling home sales as more buyers are priced out of the market,” said Danielle Hale, chief economist for Realtor.com.

Most sectors of the housing market are slowing, including new home sales and housing starts. Sales of previously owned U.S. homes fell 3.4% in September from the previous month to a seasonally adjusted annual rate of 5.15 million, the National Association of Realtors said Friday.

Fewer people are attending open houses and inventory levels are rising, prompting Lawrence Yun, the group’s chief economist, to acknowledge there has been a “clear shift” in the market.

Updated: 11-21-2018

Existing-Home Sales Suffer Largest Annual Drop in Four Years

Sales of previously owned U.S. homes posted their largest annual decline since 2014 in October, as the housing market continues to sputter due to higher mortgage rates that are reducing home affordability.

The latest data offered a mixed picture of a market that isn’t in free fall but also is far from robust. Existing-home sales edged up 1.4% in October from the previous month to a seasonally adjusted annual rate of 5.22 million, the National Association of Realtors said Wednesday. That broke a six-month streak when sales declined compared with a month earlier.

Sales, however, posted a sharp 5.1% drop compared with a year earlier, indicating the market is likely to end the year on a sluggish note.

Lawrence Yun, the trade group’s chief economist, said the annual decline signals softness in the housing sector that is likely to persist in the months to come.

“There is some feeling that the market could actually go even lower than what it is now in terms of sales,” Mr. Yun said.

When sales began slowing this spring, economists initially blamed a shortage of inventory, which has plagued the housing market throughout the recovery. But rising mortgage rates are playing a bigger role in slowing buyer demand than many economists had expected, shaking confidence that now is a good time to buy a home, according to recent surveys.

Mr. Yun said higher interest rates appear to be choking off buyer demand, and said the Federal Reserve should consider pausing its rate increases to give the housing sector time “to be on firmer ground.”

Mike Fratantoni, chief economist at the Mortgage Bankers Association, said recent declines in the stock market are also causing fresh unease. “The level of volatility in the stock market is reflecting a lot of uncertainty about where we are with the broader economy. There is a little bit of increased anxiety about how much things are going to slow,” he said.

The good news for buyers is that conditions are becoming friendlier to them, as mortgage rate and home-price increases slow and inventory of homes for sale is growing compared with last year.

The rate for a 30-year fixed rate mortgage averaged 4.81% this week, down from 4.94% a week earlier, according to data released by Freddie Mac on Wednesday. Rates are still up significantly from a year ago, when they averaged 3.92%.

The median sale price for an existing home in October was $255,400, up 3.8% from a year earlier. That shows a cooling from a year ago, when prices rose about 5.5%.

There was a 4.3-months’ supply of homes on the market at the end of October, based on the current sales pace, down from 4.4 months in September but up from 3.9 months a year ago.

Mr. Fratantoni said the combination of more muted price growth and a greater number of homes for sale could boost the housing market in the spring, especially if wages continue to rise.

“We’re in this awkward place right now,” he said.

Purchases of previously owned homes account for the bulk of U.S. homebuying activity. The Commerce Department releases data on October new-home sales next Wednesday.

Home construction is weakening some, too. Starts fell in October for single-family construction, and permits, which can signal how much construction is planned, dropped 0.6% from September to an annual pace of 1.263 million last month.

Builders are taking a cautious stance given the Federal Reserve’s plan to continue gradually raising interest rates, the National Association of Home Builders said Monday. The trade group’s gauge of U.S. home-builder confidence fell sharply in November, dragged down by heightened concerns about affordability in the housing market.

Sales fell on an annual basis in October, as higher mortgage rates reduce home affordability

Rising Rates Are Roiling Nonbank Mortgage Lenders

Many are dependent on refinancings, which are shrinking rapidly. Some are selling themselves, shutting down or laying off workers.

The decade of low mortgage rates is winding down. Its end will be particularly painful for the nonbanks that now control the bulk of the market.

Nonbank lenders—less known and less regulated than their bank counterparts—have enjoyed a yearslong renaissance, with many springing up or expanding after the financial crisis. That also means some of those lenders have never navigated an era like today’s, marked by rising rates and cooling home sales. Many are dependent on refinancings, which are shrinking rapidly. And already some lenders are selling themselves, shutting down or laying off workers.

It is a reminder of how rising rates are roiling the mortgage market in all corners. The average rate on a 30-year fixed-rate mortgage is 4.81%, according to data released Wednesday by Freddie Mac , up from 3.99% at the end of last year. For consumers, the higher rates have made homes less affordable and discouraged some would-be buyers. They have also cut into home sales, which has squeezed lenders’ profit margins.

“I tell ya, everybody is crying the blues,” said Tom Millon, head of Capital Markets Cooperative, an organization of about 500 mortgage lenders.

Nonbanks have become crucial to the market in recent years. As big banks have pulled away from the mass market to focus on wealthier borrowers, nonbanks are often the only route for first-time buyers or moderate-income families to get a mortgage. Though most nonbanks are little known outside the industry —even bigger players like Freedom Mortgage and loanDepot are hardly household names—they now account for more than half of U.S. mortgage volume. Nonbanks made more than 52% of $1.26 trillion in originations in the first three quarters of this year, according to industry research group Inside Mortgage Finance.

Unlike banks, these lenders don’t have deposits to fund themselves and generally don’t have other lines of business to buoy them when housing is slow. Instead, they usually rely on short-term bank loans. If the housing market sours, banks could cut their funding, which doomed some nonbanks in the last crisis. Already, banks are telling nonbank lenders to let them know if they are going to miss profit targets or other commitments on their borrowing agreements, bankers and other industry watchers said.

Ginnie Mae, the government-owned mortgage corporation that guarantees certain mortgage securities, has warned some nonbanks to raise capital if they want to keep doing business with the government. The government guarantee is coming “with more strings attached” for some lenders, said Michael Bright, the agency’s chief operating officer.

Bankers and other industry watchers expect the ranks of nonbank lenders to keep shrinking over the next year or so. Smaller lenders, which don’t benefit from the economies of scale that are crucial to mortgage making, are particularly vulnerable.

Nonbanks have been growing for years, but their ranks are starting to shrink. The number of mortgage loan originators working at nonbanks dropped by about 7%, or more than 11,000 employees, from the end of last year to the middle of this year, according to the Conference of State Bank Supervisors, which operates the system that processes mortgage licenses and registrations. The number of nonbank mortgage lenders fell by about 3.5%.

Jeffrey Levine, a Houlihan Lokey senior banker who advises mortgage lenders, said he expects a continued uptick in deal-making among nonbank mortgage lenders.

“Consolidation is a natural part of the cycle, and right now there’s too much capacity in the business,” Mr. Levine said.

Some lenders are selling their mortgage-servicing rights to raise money, though that means giving up a steady income stream. Others are lending to borrowers they might have previously ignored, like those with slightly lower credit scores.

Mark Jones, chief executive of a Kalamazoo, Mich., nonbank lender called Amerifirst Home Mortgage, said he has seen competitors offering “crazy low interest rates” to try to drum up business. “You can only do that for so long before you’re either going to be dead or be bought by someone who will raise your price to what it needs to be,” he said.

The fortunes of nonbank lenders vary widely. At Quicken Loans Inc., for example, mortgage volume rose about 4% in the first nine months of this year from the same period in 2017, according to Inside Mortgage Finance. At Freedom Mortgage, volume fell 31%. Freedom said in a statement that rising rates and “a major decline in refinance activity” were affecting the entire industry.

But overall, nonbanks are continuing to gain share from the banks.

“Conventional wisdom is that a downturn hits nonbanks harder than it hits banks, because banks have other businesses to fall back on,” said Guy Cecala, CEO of Inside Mortgage Finance. “But nonbanks tend to be more flexible on their underwriting. They are willing to try new things.”

Many nonbank lenders rely heavily on refinancings, which were relatively quick and cheap to make amid low rates. But refi volume this year is expected to be less than half what it was in 2016, according to the Mortgage Bankers Association.

More than half of mortgage originations at loanDepot were refis in the first half of this year, according to estimates by Inside Mortgage Finance. Refis made up more than two-thirds the volume at Quicken, the group estimated.

Quicken declined to comment on that estimate.

Dan Gilbert, Quicken’s chairman, said purchase loans are becoming a bigger part of Quicken’s business. When the company refinances borrowers, they often return to Quicken for a purchase loan when they are moving to their next homes, he added.

“Rising rates are headwinds to us. When rates go low, those are tailwinds,” Mr. Gilbert said. “But either way the plane has to fly.”

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