Home prices are showing no signs of falling, according to the latest data from the S&P/Case-Shiller Home Price Indices.
The S&P/Case-Shiller U.S. National Home Price Index recorded a 5.2 percent annual gain in March, down from 5.3 percent the previous month, while the 10-City Composite and 20-City Composites’ year-over-year gains were unchanged at 4.7 percent and 5.4 percent, respectively, from the prior month.
Before a seasonal adjustment, the National Index posted a month-over-month gain of 0.7 percent in March, while the 10-City Composite recorded a 0.8% month-over-month increase and the 20-City Composite posted a 0.9 percent increase in March. After seasonal adjustment, the National Index recorded a 0.1 percent month-over-month increase, the 10-City Composite posted a 0.8 percent increase, and the 20-City Composite reported a 0.9 percent month-over-month increase.
The cities with the year-over-year gains in annual price increases were Portland (12.3 percent), Seattle (10.8 percent) and Denver (10 percent).
“Home prices are continuing to rise at a five percent annual rate, a pace that has held since the start of 2015,” says David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates. Another factor behind rising home prices is the limited supply of homes on the market. The number of homes currently on the market is less than two percent of the number of households in the U.S., the lowest percentage seen since the mid-1980s.”
The latest industry data offered a classic case of yin-yang, with good news and bad news in an equal balance.
The latest Weekly Mortgage Applications Survey issued by the Mortgage Bankers Association found mixed results in housing market for the week ending March 4. The Market Composite Index increased by a scant 0.2 percent on a seasonally adjusted basis and one percent on an unadjusted basis from the previous week. The seasonally adjusted Purchase Index increased four percent its highest level since January 2016, while the unadjusted Purchase Index increased six percent compared with the previous week and was 30 percent higher than the same week one year ago. The Refinance Index, however, decreased two percent from the previous week while the refinance share of mortgage activity decreased to 56.7 percent of total applications from 58.6 percent one week earlier.
Among the government loan programs, the FHA share of total applications remained unchanged at 12 percent from the week prior, while the VA share of total applications increased to 12.6 percent from 12.1 percent and the USDA share of total applications increased to 0.8 percent from 0.7 percent.
Another good news/bad news data report came via Zillow’s Negative Equity Report, which noted that while the negative equity rate fell to 13.1 percent during the fourth quarter of 2015, six million homeowners were still in negative equity during this period while more than 820,000 underwater homeowners owed over twice as much on their mortgages as their homes are worth.
"Even though the number of underwater homeowners has fallen significantly since the peak of the housing crisis, negative equity persists in many markets as it fell at its slowest pace in a year," said Zillow Chief Economist Svenja Gudell. "Things are moving in the right direction, but some owners are still deeply underwater. As we move into the home shopping season, inventory is already low, and negative equity is keeping potential additional stock from becoming available."
Among the major metro areas, Las Vegas had the highest rate of fourth-quarter negative equity at 20.9 percent, followed by Chicago with 20.5 percent, while San Jose only had 2.8 percent of mortgaged homeowners that were underwater.
Still, homeowners with negative equity still have a roof over their head—and fewer people facing the prospect of foreclosure. CoreLogic’s latest National Foreclosure Report found the U.S. foreclosure inventory declined by 21.7 percent and completed foreclosures declined by 16.2 percent on a year-over-year basis, while the volume of completed foreclosures nationwide decreased year over year from 46,000 in January 2015 to 38,000 in January 2016.
As of January, the national foreclosure inventory included approximately 456,000, or 1.2 percent, of all homes with a mortgage—its lowest level since November 2007. In January 2015, the national foreclosure inventory covered 583,000 homes, or 1.5 percent of all mortgaged residences. The five states with the highest number of completed foreclosures for the 12 months ending in January—Florida (74,000), Michigan (49,000), Texas (29,000), California (25,000) and Ohio (24,000)—accounted for almost half of all completed foreclosures nationally.
"In January, the national foreclosure rate was 1.2 percent, down to one-third the peak from exactly five years earlier in January 2011, a remarkable improvement," said Frank Nothaft, chief economist for CoreLogic. "The months' supply of foreclosure fell to 12 months, which is modestly above the nine-month rate seen 10 years earlier and indicates the market's ability to clear the stock of foreclosures is close to normal."
Separately, Equifax’s latest National Consumer Credit Trends Report found the total balance of outstanding first mortgages in January was more than $8.3 trillion, an increase of 2.1 percent from same time a year ago. The severe delinquency rate for first mortgages in February was 1.75 percent, down from 2.50 percent same time a year ago.
But home equity installment activity fell 5.1 percent (from $138.5 billion to $131.4 billion) on a year-over-year basis while home equity lines of credit (HELOC) activity took a 3.7 percent (from $514.2 billion to $495 billion) year-over-year dive. Amy Crews Cutts, chief economist at Equifax, was encouraged by this data seesaw.
"Home purchase activity accelerated in 2016 as economic conditions boosted consumer confidence," she said. "When first-time homebuyers move into homeownership or existing homeowners upgrade to a larger, more expensive home, new debt is created. This trend is finally dominating the accelerated amortization from borrowers paying a little extra each month or paying their mortgages in full, and foreclosure activity is also greatly diminished. With many HELOCs hitting their recast into amortization, we are seeing increased payoffs, reducing the debt and numbers of HELOCs outstanding. About 20 to 25 percent of HELOCs active a year prior to their recast anniversary will payoff and close within the year after date. Originations of new loans are not keeping pace with the payoffs."
But another debt study suggested that the Americans are still struggling with their finances. CardHub’s 2015 Credit Card Debt Study found U.S. consumers tallied up $52.4 billion in credit card debt during the fourth quarter of 2015—which is extremely close to $57.4 billion total of credit card debt for the entire year of 2014. The fourth quarter debt numbers resulted in a $71 billion net increase in credit card debt for 2015.
“As a result, the average household with credit card debt now owes $7,879 and we’ve far surpassed $900 billion in credit card debt—a mark last breached in 2007 during the ramp up to the financial system’s 2008 collapse,” said Diana Popa, communications manager at CardHub. “If we don’t get a record-setting debt pay-down during the first quarter of the year (when consumers typically get tax refunds and annual salary bonuses) and we continue to add debt at this rate, it won’t be long before default rates begin to rise and credit availability tightens.”
In his first speech as the new president of the Minneapolis Federal Reserve, Neel Kashkari took on a strikingly political edge by complaining about the limits in enforcing the Too Big to Fail (TBTF) aspect of a Dodd-Frank Act. Speaking this morning at the Brookings Institution in Washington, D.C., Kashkari noted that his regional Fed bank was taking aim at the issue and then challenged Capitol Hill to do the same.
“I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy,” said Kahskari. “Enough time has passed that we better understand the causes of the crisis, and yet it is still fresh in our memories. Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all. The Federal Reserve Bank of Minneapolis is launching a major initiative to develop an actionable plan to end TBTF, and we will deliver our plan to the public by the end of the year. Ultimately Congress must decide whether such a transformational restructuring of our financial system is justified in order to mitigate the ongoing risks posed by large banks.”
Using language that sounded closer in spirit to Bernie Sanders than Janet Yellen—or, for that matter, either Ben Bernanke or Alan Greenspan—Kashkari offered several alternatives that would ensure the TBTF banks would not keep their current status.
“I believe we must begin this work now and give serious consideration to a range of options, including the following: Breaking up large banks into smaller, less connected, less important entities; turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail, with regulation akin to that of a nuclear power plant; [and] taxing leverage throughout the financial system to reduce systemic risks wherever they lie.”
Kashkari also pointed to the financial services industry and its lobbyists for working to preserve the current environment regarding the TBTF banks. But he insisted their arguments were “unpersuasive” and that a flawed effort to break up these banks was better than no effort.
“If we are serious about solving TBTF, we cannot let them paralyze us,” he said. “Any plan that we come up with will be imperfect. Those potential shortcomings must be weighed against the actual risks and costs that we know exist today. Perfect cannot be the standard that we must meet before we act. Better and safer are reasons enough to act. Otherwise we will be left on the default path of incrementalism and the risk that we will someday face another financial crisis without having done all that we could to protect the economy and the American people.”
However, Senate Majority Leader Mitch McConnell (R-KY) does not appear to be giving a full-throttle push for Dodd-Frank and CFPB reform. Last week, he told Bloomberg that the bipartisan support needed to make any changes was non-existent.