New Data Points to a Softening in the Housing Market
March 26, 2019
Today’s housing market data is pointing a slowdown in construction, much less vigor in the upward motion for home sale prices and declining quarterly profits for independent mortgage banks.
New statistics from the U.S. Census Bureau and the Department of Housing and Urban Development found single-family housing starts in February were at a rate of 805,000, a 17 percent plummet from the revised January figure of 970,000. Privately-owned housing starts in February were at a seasonally-adjusted annual rate of 1,162,000, down 8.7 percent from the revised January estimate of 1,273,000 and down 9.9 percent from the February 2018 rate of 1,290,000.
Single-family authorizations in February were at a rate of 821,000, unchanged from January. Privately-owned housing units authorized by building permits in February were at a seasonally-adjusted annual rate of 1,296,000, a 1.6 percent drop from the revised January rate of 1,317,000 and two percent below the February 2018 rate of 1,323,000.
Single-family housing completions in February were at a rate of 816,000, a 10 percent tumble from the revised January rate of 907,000. However, privately-owned housing completions in February were at a seasonally-adjusted annual rate of 1,303,000, up 4.5 percent from the revised January estimate of 1,247,000 and up 1.1 percent above the February 2018 rate of 1,289,000.
“Housing starts falling in February is not what is needed to assure a sustainable housing market recovery. Home prices will rise in 2019 for sure. However, the home price increase could be too strong as homebuilders are insufficiently constructing new homes," said Lawrence Yun, Chief Economist for the National Association of Realtors (NAR). "The imbalance between demand and supply can once again lead to a case of home price appreciation outpacing income growth for the eighth straight year. That is good for homeowners accumulating wealth but not healthy for the broader market as it limits homeownership opportunity, especially among the millennials and widens intergenerational wealth inequality. More affordable homes need to be built to assure market balance and better access to homeownership."
This new data was presented with a caveat that noted data collection and processing was delayed due to the recent partial federal government shutdown.
“While response rates were consistent with normal levels, delays in data collection for December and January could make it more difficult to determine exact start and completion dates,” the government agencies noted. “The revised data collection schedule caused the adjustments for anticipated late reported December starts and completions to be less accurate than normal, resulting in larger than normal revisions.”
Separately, the latest S&P CoreLogic Case-Shiller Indices data found the lowest annual gains since 2015. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a 4.3 percent annual gain in January, down from 4.6 percent in the previous month, while the 10-City Composite annual increase was 3.2 percent, down from 3.7 percent in the previous month, and the 20-City Composite saw a 3.6 percent year-over-year gain, down from 4.1 percent in the previous month.
“Housing affordability has worsened over the past two years due to a combination of higher home values and rising interest rates," said Tian Liu, Chief Economist at Genworth Mortgage Insurance. "The second half of last year saw a slowdown in buyer activity. The resulting increase in inventory shifted the market in favor of potential buyers. While interest rates have come down since December 2018, many potential homebuyers continued their wait-and-see approach to avoid overpaying. As a result, the inventory level continued to rise in January, making any quick recovery in home price growth unlikely.”
Before the seasonal adjustment, the National Index posted a month-over-month decrease of 0.2 percent in January while the 10-City and 20-City Composites reported 0.3 percent and 0.2 percent decreases for the month, respectively. After the seasonal adjustment, the National Index recorded a 0.2 percent month-over-month increase in January while the 10-City Composite was unchanged and the 20-City Composite posted a 0.1 percent month-over-month increase. In January, five of 20 cities reported increases before the seasonal adjustment, while 14 of 20 cities reported increases after the seasonal adjustment.
“Home price gains continue to shrink,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “In the year to January, the S&P CoreLogic Case-Shiller National Index rose 4.3 percent, two percentage points slower than its pace in January 2018. The last time it advanced this slowly was April 2015. In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018. Only Phoenix saw any appreciable acceleration. Some cities where prices surged in 2017-2018 now face much smaller increases: In Seattle, annual price gains dropped from 12.8 percent to 4.1 percent from January 2018 to January 2019. San Francisco saw annual price increases shrink from 10.2 percent to 1.8 percent over the same time period.”
Other minimal gains were reported by the Federal Housing Finance Agency (FHFA), which reported home prices rose in January inched up by 0.6 percent from December 2018 to January 2019. For the nine census divisions, the FHFA determined that the seasonally adjusted monthly house price changes from December 2018 to January 2019 ranged from -0.7 percent in the New England division to +1.1 percent in the East North Central division. The 12-month changes were all positive, ranging from +4.3 percent in the Pacific division to +7.8 percent in the Mountain division.
The softening market was also felt by independent mortgage banks and mortgage subsidiaries of chartered banks. The Mortgage Bankers Association (MBA) reported a net loss of $200 on each loan originated by these entities in the fourth quarter of 2018, down from a reported gain of $480 per loan in the third quarter. Average production volume was $440 million per company in the fourth quarter, down from $474 million per company in the third quarter, while the volume by count per company averaged 1,799 loans in the fourth quarter, down from 1,948 loans in the third quarter.
The MBA also noted that the average pre-tax production loss reached 11 basis points (bps) in the fourth quarter, down from an average net production profit of 20 bps in the third quarter and down 20 bps from the fourth quarter of 2017—a record low for the report, which has been tracking this market since 2008. This was the third time that production profitability was in the red, with the other negative movement recorded in the first quarter of 2014 and the first quarter of 2018. The purchase share of total originations, by dollar volume, decreased to 79 percent in the fourth quarter of 2018, from a study-high of 82 percent in the third quarter, and the average loan balance for first mortgages was $253,689 in the fourth quarter, down from $255,539 in the third quarter.
“Independent mortgage bankers continued to struggle in this very competitive mortgage market environment, with the average pre-tax net production income per loan reaching its lowest level since the inception of our report in 2008,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “Among the headwinds for mortgage bankers were lower volume, lower revenues and higher costs relative to the previous quarter. On the servicing side of the business, mortgage servicing right impairments resulting from December’s drop in interest rates hurt profitability. Including all business lines (both production and servicing), only 44 percent of the firms in the study posted a pre-tax net financial profit in the fourth quarter.”
FMJ Job Listings
- Assistant Vice President of Mortgage Services - SAFE Federal Credit Union - sumter, SC
- Retail Personal Banker Associate II - Fifth Third Bank - EUCLID, OH
- Mortgage Closer I - Fifth Third Bank - Cincinnati, OH
- Retail Personal Banker Associate I - Fifth Third Bank - Nashville, TN
- Mortgage Loan Originator - Fifth Third Bank - LOUISVILLE, KY
- Retail Personal Banker Associate i - Fifth Third Bank - Fort Lauderdale, FL