2016 U.S. Housing Market Faces Inventory Shortage

Barron’s has conducted an interview with Ivy Zelman, in which the famed housing analyst warns of a critical shortage of housing inventory in America. Zelman, who rose to prominence for betting against home builders in 2006, states in the interview that, four years into the post-recession housing recovery, America is still 35% below a normal level of housing starts.

Broadly, she observes that the cycle has been “elongated” and that the recovery slope has not been as steep as analysts previously believed it would be. The sluggish recovery has, in turn, impeded growth in home building and created a shortage of shelter, even as demand for homes has grown and driven prices up.

First-time homebuyers are being crowded out by the lack of affordable housing, whereas would-be sellers are shying away from putting their starter homes on the market due to fears that they cannot afford the next step up. Investors have snapped up low-end properties looking for returns, further exacerbating the shortage. Overall, the number of starter homes on the market has declined 43.6% in the past four years.

The National Association of Realtors found that total housing inventory by the end of 2015 dropped 12.3% to 1.79 million existing homes available for sale. Currently, total housing inventory is 3.8% lower than a year ago. Zelman concurs, noting that the “ U.S. is at a 30-year low of inventory available for sale.” As such, she predicts “double-digit housing-starts growth this year, next year, and in 2018.” Moreover, Zelman notes that there is a shortage of affordable housing concentrated at the low-end of the market, which large builders are only now addressing and making a killing while doing so.

This shortage comes at a time when millennial unemployment rates have dropped from a 14% peak to 7% and nonbanks are experiencing a boom in requests for FHA loans. Millennials, the oldest of whom are turning 34, are approaching an age where they are more likely to live in or seek single-family shelter, especially if they are married. Zelman cites figures showing that 70% of households 40 years of age or older and 80% of married couples live in single-family shelters.

One impediment to housing starts is impact fees, which can reach prohibitively high levels and make it impossible for builders to profit from low-end housing construction. There is a positive correlation between low impact fees and robust housing start growth, Zelman observes.

In addition, the occupancy rate of single-family rentals in the U.S. is a staggering 97%. Sensing demand and an opportunity, single-family rental operators continue to snap up 10% to 15% of new single-family homes. As new houses are acquired by rental operators and people are pushed to rent due to low inventory levels, the market becomes more susceptible to inflationary increases in housing costs.








7-Year High for New Home Sales

8.3.16 | 7 Year High for New Homes Sales – Rusty Tweed team

7 Year High for New Homes Sales - Rusty Tweed team

Demand Remains High for New Homes

Sales of new homes across the U.S. increased by 10% in the second quarter as prior month sales data were revised upward. Revisions to March, April and May data increased the sales tallies for those months by a total 22,000. The average pace across the second quarter, 576,000, is 10% more than the 524,000 for the first quarter.

Earlier this week, the Commerce Department reported that June sales rose by 3.5% to a seasonally adjusted rate of 592,000. This was above the economists’ prediction of 560,000 new units being sold a month. The median price of a new home is $306,700, 6% more than a year ago. New home sales are currently at their strongest since the recession hit in 2008.

The biggest surge in new home sales happened in the Midwest and West (the most significant surge since November 2007) seeing prices rise by over 10%. Both areas have seen a sharp rise in home prices within tight inventories. In the Northeast and South, sales actually dipped slightly. The Northeast saw sales fall by 5.6% whereas they only slipped by 0.3% in the populous South.

Barclays analyst Rob Martin wrote, “Despite some softness in prices reported earlier today, the housing market remains healthy. We expect housing to continue to firm, on average, over the medium term, with a buoyant household sector supporting both prices and volumes.”

New home purchases are only a tenth of all home sales; however, the data arrives amidst a host of other signs that growing numbers of Americans are buying homes. Strong job growth, slightly looser lending standards and historically low mortgage rates are all contributing to the surge in home purchases.

Rise in Confidence from Home Builders

Home builders are showing increasing amounts of confidence. Last week, PulteGroup (PHM) reported that it would be expanding its stock buyback program in the light of better-than-predicted earnings and revenue.

If builders do increase their construction this year, there are hopes this will help lift the wider economy. However, there are fears that mortgage rates will rise if the Federal Reserve raises a key interest rate, as is widely believed will happen later this year. The Fed, meanwhile, has indicated that any rate increases from the current near zero will be minimal and gradual. Economists believe that demographic shifts, including younger Americans starting families and continued growth in the labor market, will help the housing market overcome such obstacles.

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Fannie Mae Mortgage Serious Delinquency Rate is Down

7.30.2016 | Fannie Mae Mortgage Serious Delinquency Rate is Down by Rusty Tweed team

Serious Delinquency Rate is Down by Rusty Tweed team

Today, Fannie Mae Mortgage reported that the Single-Family Serious Delinquency rate had declined in May to 1.38%, down from the April figures of 1.40%. The serious delinquency rate is down from 1.70%.

These statistics relate to mortgage loans that are “three monthly payments or more past due or in foreclosure”. This rate is the lowest since June 2008.

In February 2010, the Fannie Mae serious delinquency rate peaked at 5.59%; but has been generally declining since. It has fallen 0.32 percentage points over the last year, but at that pace, the serious delinquency rate will not be below 1% until the second half of 2017. The “normal” serious delinquency rate is under 1%.

The heightened delinquency rate is mostly a result of older loans as the lenders continue to work through a backlog.

Lowered Mortgage Delinquency Rates Linked to Lower Unemployment Rates

The seasonally adjusted delinquency rate for U.S. wide loans on one-to-four unit residential properties is 4.77%. This is 77 basis points lower than a year ago, and its lowest in almost a decade, according to the National Delinquency Survey.

According to Bloomberg news, U.S. mortgage delinquencies have closely followed the unemployment rate since the financial crisis in 2008.

A 2015 working paper for the National Bureau of Economic Research, titled “Can’t Pay or Won’t Pay? Unemployment, Negative Equity and Strategic Default,” a group of researchers led by the Federal Reserve Bank of Atlanta attempted to understand the factors behind some homeowners being more likely to default than others.

The findings show a similar assessment to that exhibited by Bloomberg news.  Heads of household who had defaulted on their loans exhibited a 21% unemployment rate compared to an overall unemployment rate of 6%. In these households, spouses had a 31% unemployment rate, compared to 13% in households that paid their mortgages.

References for Fannie Mae Mortgage Serious Delinquency Rate is Down by Rusty Tweed team