9.28.2016 Consumer Credit Default Rates Remain Low

With consumer income and spending both growing moderately, consumer credit default rates remained relatively low over the summer, according to data recently released by S&P Dow Jones and Experian.

The S&P/Experian Consumer Credit Default Composite Index stood at 0.85 percent in August, which was near a 12-year low. This was up slightly from 0.83 percent in July, 0.82 percent in June and 0.81 percent in May. A year ago, the Index stood at 0.96 percent, and it was 1.50 percent four years ago.

A Deeper Dive

Digging deeper into the data, default rates on specific types of consumer credit were as follows:

  • Auto loans: 0.93 percent
  • First mortgages: 0.66 percent
  • Bank cards: 2.92 percent

Meanwhile, the overall consumer default rate decreased month-over-month in four of the five major cities monitored as part of the Index:

  • Los Angeles: 0.63 percent, down 4 basis points
  • Dallas: 0.69 percent, down 5 basis points
  • New York: 0.77 percent, down 6 basis points
  • Chicago: 0.89 percent, down 12 basis points

Miami was the only top-five major city where the overall consumer default rate increased month-over-month. It rose by 6 basis points to 1.37 percent, which marked the fifth consecutive monthly increase in this city.

Moderate Spending and Income Growth

In announcing the data, the managing director of the S&P Dow Jones Indices David Blitzer pointed to what he called “moderate growth in spending and incomes” as the main reasons for these low consumer default rates. “The consumer economy is growing with few significant difficulties in accessing credit,” he stated in an article recently published on Autoremarketing.com.

Blitzer went on to cite several consumer economic statistics to back up his thesis. Over the past year:

  • Personal incomes rose 2.7 percent.
  • Retail sales (excluding automobiles) rose 2.3 percent.
  • Median wage growth rose 3.6 percent.

In addition, the employment picture continues to brighten and consumer confidence remains high, according to Blitzer. In this environment, “consumers’ use of debt has expanded with both consumer credit and mortgage debt balances rising,” he stated in the Autoremarketing.com article.

So what should we expect when it comes to consumer default rates for the rest of this year? The chief economist for Stifel, Lindsey Piegza, provides a glimpse, indicated that she senses the beginning of a decline in consumer momentum.

“Heading into the second half of the year, consumers are unlikely to be the solid support they were in Q2, removing or at the very least hindering one of the key sectors of strength for the economy,” she stated in the Autoremarketing.com article.

Impact of the Election

Of course, there’s also a pretty big event coming up on the second Tuesday in November. Blitzer commented in the article about the potential near-term economic impact of the President election:

“This being an election year, and one when there will definitely be a new president next January, the economy faces more than the usual uncertainties. With the electoral outcome unknown and large differences between the candidates’ policy proposals, one should expect these uncertainties to cause some delays in business investments or consumer spending on big ticket items.”

These delays in spending are likely to limit growth in both consumer and corporate debt, he added. And this, in turn, will limit substantial increases in consumer default rates over the near term.

We’re interested in hearing from you. What you witnessing in your market area when it comes to consumer credit default rates? Send me an email at steven@lendtrade.com.

9.26.2016 The Good News for Housing Keeps Piling Up

Another month, another positive report for the housing industry. According to a recent report from the National Association of Realtors, pending home sales increased in July to their highest reading in more than 10 years.

This was based on a rise of 1.3 percent in the Pending Home Sales Index in July to 111.3. The July index reading was up from 109.9 in June. A benchmark index reading of 100 is equal to the average level of pending home sale contract activity in 2001.

Also, new home sales rose dramatically in July, according to estimates from the U.S. Census Bureau and the Department of Housing and Urban Development. They hit a seasonally adjusted annual rate of 654,000, up by 12.4 percent over June and 31.3 percent from a year earlier. This represented a supply of 4.3 months at the current sales rate.

Supply Remains Tight

NAR’s Chief Economist Lawrence Yun says that the news would be even better if there were more affordable homes on the market for buyers to choose from. “Buyers still have few choices and little time before deciding to make an offer on a home available for sale,” Yun was quoted as saying in a recent article on HousingWire.com.

But this may be changing. Data in the NAR report also indicates that the size and price of new homes have both moved lower over the past year. This would appear to be an indication that homebuilders are shifting their focus toward homes in the starter-price range, which could enable more lower-income buyers to enter the market.

In fact, single-family starts are now growing at double-digit rates, according to Trulia’s Chief Economist Ralph McLaughlin. “Supply-constrained homebuyers should rest assured that relief is on the way,” he was quoted as saying in the HousingWire.com article.

More Good News

There was more good news to be gleaned from the most recent Housing Market Index published by the National Association of Home Builders (NAHB). According to this report, homebuilder confidence is increasing along with growth in new home construction and sales.

In September, the Housing Market Index rose from 59 the previous months to 65, the highest level in nearly a year. To put this number in perspective, the Index has averaged 50 since 1985. It hit an all-time high of 78 in December of 1998 and an all-time low of 8 in January of 2009.

Young Homebuyer Demand Is Strong

Yun pointed out that there is robust demand among young buyers for affordable single-family starter homes and townhomes. “The homeownership rate won’t move up from its over 50-year low without a meaningful boost from first-time buyers,” he said in the HousingWire.com article.

However, despite historically low mortgage interest rates, participation in the housing market among these young buyers still has not increased noticeably this year, according to NAR.

These reports and data are certainly good news for the housing industry as we head out of the peak summer home buying season and into the fall. We’ll continue to keep you updated on industry data in the months to come.

We’re interested in hearing from you. What are the current housing trends looking like in your market area? Send me an email at steven@lendtrade.com.

9.15.2016 How Will Brexit Affect Mortgage Interest Rates?

A couple of months ago, Brexit — or the decision by voters in the UK to leave the European Union — was the big news headline. Since then, though, the Brexit noise has died down considerably here in the U.S. as most Americans come to realize that the impact of Brexit on them is pretty minimal.

But that doesn’t mean Brexit won’t have any effect on Americans. One impact of Brexit that hasn’t gotten much attention is the effect it’s having on mortgage interest rates, which have fallen even further since the Brexit vote.

Mortgage and Treasury Rates

The interest rates on mortgages tend to move in the same direction as U.S. Treasury rates, which fell after the Brexit vote. And sure enough, the 30-year fixed-rate mortgage dropped from 3.73% to 3.6% the day after the vote. A month before the vote, the rate was 3.82% and a year before the vote, it was 4.16%.

In late July, the 10-year Treasury yield spiked sharply and mortgage rates started ticking up, rising to 3.65%. On July 20, Capital Economics Property Economist Matthew Pointon stated in an article on HousingWire.com that “the downward pressure on mortgage interest rates from Brexit already appears to be unwinding.”

A month later, though, rates have ticked down again. On September 13, the average rate on a new 30-year fixed-rate mortgage was down to 3.44%, while the rate on a refi was 3.47%. According to a recent report from Black Knight Financial Services, the drop in mortgage rates since Brexit means that 1.3 million more borrowers could benefit by refinancing their mortgage.

The report concluded that a total of 8.7 million borrowers could now benefit from a mortgage refi — the highest level since 2012. These are borrowers with a current mortgage interest rate of 4.25% or higher. “This has produced a nearly 50 percent increase in the number of borrowers with new-found incentive to refinance,” said a Black Knight executive in an article recently published on CNBC.com.

Managing Increased Volume

Rates could be even lower were it not for the drastic increase in mortgage applications. According to the CNBC.com article, lenders are keeping rates slightly higher in order to keep up with the increased volume. “As capacity constraints ease, you may see rates go even lower,” an executive with one of the country’s largest non-bank lenders was quoted as saying in the article.

It’s worth pointing out that while mortgage refinance applications are high, the volume of mortgage applications to purchase a home is trailing behind. Experts attribute this to higher home prices that are offsetting the mortgage savings.

As for where rates are headed in the future, no one has a crystal ball. But Pointon, the Capital Economics Property Economist, said in the HousingWire.com article that they expect rates to start ticking back up again by the end of the year.

“Given we expect Brexit will have a minimal impact on the U.S. economy, we see no reason to change our forecast for mortgage rates to reach 3.85% by the end of this year, and 5.0% by the middle of 2018.”

We’re interested in hearing from you. In what direction do you think mortgage interest rates will move in the future? Send me an email at steven@lendtrade.com.

9.2.2016 Mortgage Rates Are Still Low — But For How Long?

When it comes to low mortgage interest rates, we are truly entering uncharted territory. The week of August 22 marked the ninth straight week that the 30-year fixed mortgage rate held below 3.5 percent.

As a recent online headline on The Mortgage Reports put it, “Mortgage rates have never been this low, for this long”. The article pointed out that mortgage rates are showing surprising resolve in the face of market forces that might otherwise be expected to raise rates.

For example, rates haven’t increased since Brexit at the end of June, instead staying within a tight range. As a result, homebuyers and homeowners looking to refinance have an extended opportunity to lock in historically low mortgage interest rates.

How Long Can They Last?

This unprecedented period of low mortgage rates has many wondering how long it can last? While nobody has a crystal ball to predict the future, some experts believe the current low-rate environment can be extended for awhile longer.

According to Freddie Mac, the 30-year fixed mortgage rate will remain at or below 3.7 percent heading into 2017. That’s a tad higher than the current rate of 3.42 percent, but certainly not a drastic jump.

One word of caution, though: When rates start rising, they can rise fast. For example, rates rose 100 basis points over an eight-week period in 2013. A big bump like this can significantly impact a homebuyer’s monthly mortgage payment and ability to qualify for a larger loan.

Demand Remains Strong

As of right now, homebuyer demand remains strong and shows no signs of slowing down as we head into the fourth quarter. This is true even though home values continue to rise in many parts of the country.

One reason, of course, is low rates. For example, mortgage rates are currently down about 50 basis points this year. On a $350,000 home purchase, this would increase a buyer’s purchasing power by about $17,000.

Another is looser lending standards by some lenders, which is resulting in higher mortgage approval rates. In July, three out of every four mortgage loan applications closed and resulted in a successful home purchase. In 2014, by comparison, the loan closing rate was just 63 percent.

Home Purchase Programs Help, Too

In addition, a number of attractive home purchase programs are making it easier for more people to buy a home. One example is HomeSteps from Freddie Mac. Homebuyers in 10 states can buy a house with just a 5 percent down payment and not have to buy private mortgage insurance, which can add hundreds of dollars a month to a mortgage payment.

The USDA loan is another such program. These loans are available in designated rural areas and enable qualifying homebuyers to purchase a home with no down payment. Also, if the home appraises for more than the purchase price, the closing costs can be financed into the loan.

Of course, FHA loans remain popular due to their low down payment requirement (3.5 percent) and acceptance of many homebuyers with low credit scores (as low as 580) or no credit scores at all. This often makes them a good choice for young homebuyers and recent college graduates who haven’t yet established credit in their own names. About 40 percent of homebuyers 37 years old or younger opt for an FHA loan.

And let’s not forget VA home loans, which are available to military veterans who have served for 90 or more days during wartime or 181 or more days during peacetime, or served at least six years in the National Guard or Reserves. VA loans account for about nine percent of all home mortgages, according to Ellie Mae.

We’re interested in hearing from you. How long do you think low mortgage interest rates will last? Send me an email at steven@lendtrade.com.