Monthly Archives: November 2016

Refinance as mortgage rates in America

While homeowners surged into the market, increasing refinance originations, potential homebuyers held back in the third quarter, according to the Q3 2016 U.S. Residential Property Loan Origination Report by ATTOM Data Solutions, a fused property database.

Overall, over 1.9 million loans were originated in the U.S. in the third quarter of 2016. That’s down 2% from the second quarter, but up almost 1% from last year. The total dollar volume of loan originations increased 8% from last year to over $502 billion due to higher average loan amounts.

The loan origination report is derived from publicly recorded mortgages and deeds of trust collected by ATTOM Data Solutions in more than 950 counties accounting for more than 80% of the U.S. population.

“The nominal increase in overall originations compared to a year ago masks divergent refinance and purchase loan origination trends during the quarter,” said Daren Blomquist, ATTOM Data Solutions senior vice president. “Refinance originations increased 16% compared to a year ago while purchase originations were down 11% and Home Equity Lines of Credit originations were down 6%.”

“Uncertainty surrounding the outcome of the presidential election may have kept some would-be homebuyers on the sidelines while the prospect of rising interest rates following the election may have prompted many homeowners to refinance to lock in low interest rates,” Blomquist said.

In the third quarter, 876,633 refinances loans were originated. That is an increase of 7% from the second quarter, and 16% from last year. Refinance originations made up 45.7% of total originations during the third quarter, up from 42.1% last quarter and 39.5% last year.

Many homeowners are rushing to refinance their homes before interest rates increase. While rates are currently still at historical lows, the 30-year mortgage rate recently hit its highest point since July 2015.

On the other hand, purchase originations totaled 743,880 during the third quarter. This is down 8% from last quarter and 11% from last year. This is the first decrease after nine months of consecutive annual increases in purchase originations. Purchase originations totaled 38.8% of all originations, down from 41.4% last quarter and 43.8% last year.

In fact, according to a new report from Kroll Bond Rating Agency, 2016 will likely be the peak year for mortgage originations for “years to come,” as a fall in origination volume will occur in 2017 and beyond.

The real impact of interest rate for home

As recent reports from Freddie Mac show, mortgage interest rates rose sharply after the election, recently climbing back above 4% for the first time since 2015.

While still low by historic standards, interest rates are still roughly 50-basis points higher now than they were before Donald Trump won the election, and a new report from Black Knight Financial Services shows the real impact of that increase on borrowers and potential borrowers.

The bottom line, according to Black Knight’s report, is that housing is less affordable right now than it was before the election.

In fact, home affordability is now at its lowest point since June 2010.

Per Black Knight’s report, the post-election interest rate bump means that the average home price is $16,400 more expensive for the buyer than it was before the election.

That equates to borrowers being on the hook for $60 more per month in principal and interest in order to purchase the median home. That figures rises to $72 per month for borrowers putting 3.5% down on their home.

According to Black Knight’s report, it now requires 21.6% of median income to purchase the median priced home nationwide, which is still low by historical standards, but the highest it’s been since June 2010.

For reference, interest rates in June 2010 were 4.75%, but home prices were about 20% lower than they are now.

So the interest rate increase impacts potential borrowers and could inhibit home sales some moving forward.

But the impact isn’t felt by new buyers only.

According to Black Knight’s report, the number of potential refinance candidates fell by more than 50% over the last few weeks.

As a result of the increase rate bump, roughly 4.3 million borrowers were removed from the pool of potential refinance candidates.

That leaves 4 million borrowers in the total refinanceable population, which matches a 24-month low.

Black Knight notes that borrowers are still leaving $1 billion in potential savings on the table on a monthly basis, but that’s less than half the $2.1 billion that borrowers could have saved on a monthly basis if they refinanced before the election.

“The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year Treasury and 30-year mortgage interest rates,” said Black Knight Data & Analytics Executive Vice President Ben Graboske.

“As mortgage rates jumped 49 basis points in the weeks following the election, we saw the population of refinanceable borrowers cut by more than half,” Graboske continued.

Increase despite tight labor force

The economy is generally considered at full employment with the unemployment rate hits 4.7%, Steve Rick, CUNA Mutual Group chief economist, told HousingWire.

“Overall it’s a pretty a solid report,” Rick said. “What’s surprising is the unemployment rate, that was a big drop.”

The drop, as it turns out, brings the unemployment rate to its lowest point since August 2007.

“The November jobs report shows an economy running largely at full steam, with the unemployment rate – already low – falling to its lowest level since August 2007,” Zillow Chief Economist Svenja Gudell said. “Given this strength, if there were any lingering doubts that Federal Reserve officials would opt to raise rates at this month’s board meeting, today’s report should toss them out the window.”

Here is where some of the more significant increases occurred:

Professional and business services: increased 63,000

Health care: increased 28,000

Construction: increased 19,000

Employment in other major industries, including mining, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, leisure and hospitality and government, changed little over the month.

On average in 2016, employment growth averaged 181,000 per month, compared with an average monthly increase of 229,000 in 2015.

“Employers are getting their labor force geared up for 2017,” Rick said. “The demand for labor is there, but there’s not enough skilled people to fill those jobs. When you have an employment rate at 4.6% it’s really hard to find the right person to fill that position.”

And it could get even tighter if President-elect Donald Trump focusses on infrastructure during his administration, Rick said. An already tight construction labor market could become even tighter as the government takes workers from private home builders.

This could in turn cause wages to go up, and inflation to increase. If that happens, the Federal Reserve could become less conservative about raising interest rates.

“I’m actually thinking they’re going to raise rates three more times in 2017,” Rick said.

But not all experts agree that the jobs report was solid. One expert explains that the report wasn’t great, but that it was good enough for a December rate hike.

“Today’s November jobs report can be summed up as: not bad, but not great,” said Lawrence Yun, National Association of Realtors chief economist. “The good news is that 178,000 new job additions are positive enough for the Federal Reserve to raise the fed funds rate by a quarter point in a few weeks. It’s likely there will be two to three more rate hikes in 2017.”

Another expert, Curt Long, the National Association of Federal Credit Unions chief economist, pointed out that labor force participation and wage growth both declined.

“Still, the report provided no impediments for a rate hike from the Fed later this month, and a quarter-point increase is now a certainty,” Long said.

In fact, Fannie Mae chief economist Doug Duncan said that this decrease in labor force participation is the reason for the drop in unemployment rate, and is not exactly a positive sign.

“Today’s Labor Department employment report was unremarkable, suggesting a small Federal Reserve rate hike will occur – as the market expected – in December,” Duncan said. “Some attention will be paid to the drop in the unemployment rate to 4.6%, but that is driven by the combination of jobs added and a decline in workforce participation, the latter of which was disappointing.”