MBA – mortgage credit availability increased in July

Mortgage credit availability increased in July according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI rose by 0.3 percent to 119.1 in July. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased 0.8 percent, while the Government MCAI was unchanged. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 3.8 percent, and the Conforming MCAI fell by 3.2 percent. “Credit availability slightly increased in July, driven by an increase in jumbo loan programs. The overall gain was despite another month of pullbacks in high-LTV refinance programs due to GSE policy changes,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The elimination of more high-LTV refinance loans drove most of the 3 percent drop in the conforming index, but that was somewhat offset by lenders adding new refinance loan programs to help qualified, lower-income GSE borrowers. The bounce back in jumbo credit availability followed a sharp drop in June, as some investors renewed their interest in jumbo ARM loans for cash-out refinances and investment homes.” Some borrowers are still in pandemic-related forbearance status, and servicers continue to work through possible resolutions for these borrowers.” The MCAI rose by 0.3 percent to 119.1 in July. The Conventional MCAI increased 0.8 percent, while the Government MCAI was unchanged. Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 3.8 percent, and the Conforming MCAI fell by 3.2 percent. 

Producer prices soar 7.8% annually in July, most on record

Producer prices accelerated at the fastest annual pace on record in July as supply chain disruptions and materials shortages continued to put upward pressure on costs. The producer price index for final demand increased at a 7.8% pace for the 12 months ended July, according to the Labor Department. The July print was faster than the 7.3% pace recorded in June and ahead of the 7.3% rate that analysts surveyed by Refinitiv were expecting. The reading was the strongest since recordkeeping began in November 2010. Producer prices rose 1% in July, matching the increase from June. Analysts were anticipating prices would grow at a 0.6% pace. Nearly three-quarters of the increase was due to the 1.1% rise in prices for final demand services, the largest on record. Almost half of the increase was due to a 1.7% rise in margins for final demand trade services, which measure changes in margins received by wholesalers and retailers.

Approximately 20% of the increase can be attributed to margins for automobiles and automobile parts retailing, which jumped 11.2%. Airline passenger services and hospital outpatient care were among the other indexes that saw gains. Portfolio management saw a 1.8% decline. Indexes for chemicals and allied products wholesaling and for fuels and lubricants retailing also turned lower. Prices for final demand goods, meanwhile, rose 0.6%. Prices for tobacco products saw a notable 2.7% increase while prices for beef and veal fell 11.6%. Core producer prices, which exclude food and energy, rose 1% in July, double the 0.5% gain that was expected. Core prices climbed 6.2% annually, compared to the 5.6% increase that was forecast. The year-over-year increase was the largest since the data series began in August 2014. The annual data has a “base effects” skew as a result of the price decline that occurred at the beginning of the pandemic. The Federal Reserve has said the recent price increases are “transitory” and that cost pressures will subside as supply chain issues caused by the pandemic are resolved.

NAHB – Democrats take aim at NAHB-supported pass-through deduction for businesses

Senate Finance Committee Chairman Ron Wyden recently introduced a bill that would make several changes to section 199A of the tax code, which provides many owners of sole proprietorships, partnerships, S corporations, and some trusts and estates a deduction of income from a qualified trade or business. The 20% pass-through deduction — also known as the qualified business income deduction — was implemented by the Tax Reform and Jobs Act in late 2017 to provide qualifying “pass-through” business owners a tax deduction equal to 20% of qualifying business income (subject to limitations). NAHB supported the creation of this deduction as a means to provide parity between the lower corporate tax rate and the higher individual rates pass-through businesses face. Sen. Wyden’s bill includes the following key changes:

–  Elimination of trusts and estates as qualifying businesses. Under current law, trusts and estates that function as a business may be eligible for the 199A deduction so long as income is “qualified business income” (QBI). The Wyden bill would narrow eligibility so that it excludes trusts and estates.

–  Deduction fully phased out once taxable income reaches $500,000. The QBI deduction currently has an income threshold of roughly $320,000, above which the deduction begins to phase out over the next $100,000. However, current law includes another eligibility criterion based on W-2 wages paid to employees and the business’s basis in owned property. The bill eliminates the W-2 wages/basis test and changes the current income threshold to $400,000. –  A taxpayer’s QBI deduction would fall to zero once their income reaches $500,000.

–  Married individuals must file separately. If a married taxpayer or their spouse is taking the 199A deduction for a given tax year, the couple loses the “married filing jointly” option. Rather, each taxpayer must file taxes separately.

As Democrats begin to assemble their large tax proposal this fall, NAHB anticipates changes to 199A will be among those that are considered. In June, NAHB joined more than 100 business groups in a letter to Congress opposing any reduction or repeal of this deduction. We will continue to engage with Congress as lawmakers assemble their tax plan. 

Social Security cost of living adjustment could be largest in nearly 4 decades

Social Security beneficiaries might be in for the highest cost of living adjustment (COLA) in nearly four decades, according to new projections. The latest estimate from nonpartisan senior advocacy group the Senior Citizens League puts the 2022 COLA, which will be announced in October, around 6.2%. “The estimate is significant because the COLA is based on the average of the July, August and September CPI data,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, said in a statement.  “With one-third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%.” Cost of living adjustments, which began in 1975, are implemented in order to counteract the effects of inflation.

The Social Security Administration uses a formula to determine what the COLA will be each year. It is based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, which are calculated on a monthly basis by the Bureau of Labor Statistics. Benefits will increase if there is a measurable increase in the index year over year. Benefits increased by 1.6% in 2020. For a recipient earning $1,479, the average monthly benefit among all retired workers, checks increased to about $1,503 per month. The Senior Citizens League noted that about 86% of beneficiaries said the bump was not enough. The cost of living adjustment for 2019 was 2.8%. In 2018 it was 2%, but it was largely perceived to be offset by increases in Medicare costs. There was a 0.3% increase in 2017 and no adjustment in 2016.  As previously reported by FOX Business, a spike in inflation has squeezed seniors – who received a modest cost of living increase in 2021. That situation, however, is expected to ease due to a relatively large benefit bump next year, as well as expectations that inflation will ease.

ATTOM – opportunity zone redevelopment areas still reaping benefits of national home-price boom in second quarter 2021

ATTOM, curator of the nation’s premier property database, today released its second-quarter 2021 Opportunity Zones report analyzing qualified low-income zones established by Congress in the Tax Cuts and Jobs Act of 2017 (see full methodology below). In this report, ATTOM looked at 5,236 zones across the United States with sufficient sales data to analyze, meaning they had at least five home sales in the second quarter of 2021. The report found that median single-family home prices increased from the second quarter of 2020 to the second quarter of 2021 in 75 percent of Opportunity Zones and rose by at least 15 percent in about half of them.

Price patterns in Opportunity Zones continued to roughly track trends in other areas of the U.S., even surpassing them in some ways, much as they did in the first quarter of this year. Home values in Opportunity Zones did continue to lag well behind the national median of $305,000 in the second quarter of 2021. About three-quarters of the zones with enough data to analyze had typical second-quarter prices below the national figure. Some 39 percent also still had median prices of less than $150,000 in the second quarter of this year. But that was down from 47 percent a year earlier as values inside some of the nation’s poorest communities kept surging ahead with the broader national housing market, despite the Coronavirus pandemic remaining a threat to the U.S. economy.

Even as the national economy was gradually recovering during the Spring of 2021 from the economic damage that came after the pandemic hit early last year, the impact continued to hit hardest in lower-income communities that comprise most of the zones targeted for tax breaks designed to spur economic redevelopment. Nevertheless, Opportunity Zones largely kept pace with national home-price trends as increases roughly paralleled the nationwide boom now in its 10th year. Opportunity Zones are defined in the Tax Act legislation as census tracts in or along side low-income neighborhoods that meet various criteria for redevelopment in all 50 states, the District of Columbia and U.S. territories. Census tracts, as defined by the U.S. Census Bureau, cover areas that have 1,200 to 8,000 residents, with an average of about 4,000 people.

“Housing markets kept chugging along in some of the nation’s poorest neighborhoods during the second quarter of this year in another sign that the decade long home-price boom across the nation knows pretty much no boundaries. Values kept rising inside specially designated Opportunity Zones at around the same rate as they did in other areas even as the Coronavirus pandemic continued causing economic hardship,” said Todd Teta, chief product officer with ATTOM. “For sure, property values in Opportunity Zones remain depressed. But the price spikes there not only suggest that those communities are a very viable option for households priced out of more-upscale neighborhoods. They also indicate the ongoing potential for the economic revival that underpins the Opportunity Zone tax breaks.”

High-level findings from the report include:

–  Median prices of single-family houses and condominiums rose from the second quarter of 2020 to the second quarter of 2021 in 2,901 (75 percent) of the Opportunity Zones with sufficient data to analyze and increased in 2,916 (64 percent) of the zones from the first quarter to the second quarter of this year. By comparison, median prices rose annually in 81 percent of census tracts outside of Opportunity Zones and quarterly in 70 percent of them. (Of the 5,236 Opportunity Zones included in the report, 3,850 had enough data to generate usable median prices in the second quarters of both 2020 and 2021; 4,577 had enough data to make comparisons between the first quarter of 2021 and the second quarter of 2021).

–  Measured year over year, median home prices rose at least 15 percent in the second quarter of 2021 in 2,011 (52 percent) of Opportunity Zones with sufficient data. Prices rose that much during that time period in 51 percent of other census tracts throughout the country.

–  Opportunity Zones did even better when comparing areas where prices rose at least 25 percent from the second quarter of 2020 to the second quarter of 2021. Measured year over year, median home prices rose by that level in 1,366 (35 percent) of Opportunity Zones but in only 30 percent of census tracts elsewhere in the country.

–  Typical home values in four of every 10 Opportunity Zones increased annually in the second quarter of 2021 by more than the 22-percent increase in the overall national single-family median home price during that time period.

–  Among states with at least 20 Opportunity Zones, those with the largest percentage of zones where median prices rose, year over year, during the second quarter of 2021 included New Hampshire (median prices up, year over year, in 95 percent of zones), Massachusetts (94 percent), Idaho (91 percent), Utah (90 percent) and Arizona (89 percent).

–  Of all 5,236 zones in the report, 2,021 (39 percent) still had median prices in the second quarter of 2021 that were less than $150,000 and 914 (17 percent) had medians ranging from $150,000 to $199,999. The total percentage of zones with typical values below $200,000 was down from 65 percent in the second quarter of 2020 to 56 percent in the second quarter of 2021.

–  Median values in the second quarter of 2021 ranged from $200,000 to $299,999 in 1,081 Opportunity Zones (21 percent) while they topped the national median of $305,000 in 1,183 (23 percent).

–  The Midwest continued in the second quarter of 2021 to have the highest portion of Opportunity Zone tracts with a median home price of less than $150,000 (63 percent), followed by the South (45 percent), the Northeast (41 percent) and the West (6 percent).

–  Median household incomes in 88 percent of Opportunity Zones were less than the medians in the counties where they were located. Median incomes were less than three-quarters of county-level figures in 56 percent of zones and less than half in 16 percent.

MBA – mortgage applications increase 

Mortgage applications increased 2.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 6, 2021. The Market Composite Index, a measure of mortgage loan application volume, increased 2.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week. The Refinance Index increased 3 percent from the previous week and was 8 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 18 percent lower than the same week one year ago. “Mortgage applications rebounded last week, including an increase in purchase applications for the first time in nearly a month.

Rates slightly rose but remained below 3 percent, driven by an end-of-week increase in the 10-year Treasury yield following the positive July jobs report,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Homeowners continue to respond to lower rates, with refinance activity climbing to the highest level since February 2021. The refinance share of loan counts was at 68 percent, compared to a 63.4 percent share for refinances by dollar volume, as purchase loans continue to see significantly higher loan sizes.” Added Kan, “The higher level of purchase activity last week was driven by more government purchase applications, including a 3.3 percent increase in FHA loans. With low for-sale inventory keeping home-price appreciation in many markets at record highs, the jump in FHA purchase applications is potentially a sign that more first-time buyers are finding purchase options despite the high prices.”  

The refinance share of mortgage activity increased to 68.0 percent of total applications from 67.6 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.2 percent of total applications. The FHA share of total applications decreased to 8.9 percent from 9.0 percent the week prior. The VA share of total applications decreased to 9.6 percent from 9.9 percent the week prior. The USDA share of total applications remained unchanged from 0.5 percent the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 2.99 percent from 2.97 percent, with points decreasing to 0.30 from  0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.15 percent from 3.12 percent, with points decreasing to 0.29 from 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.06 percent from 3.08 percent, with points decreasing to 0.27 from 0.29 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.35 percent from 2.33 percent, with points increasing to 0.25 from 0.23 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for 5/1 ARMs decreased to 2.52 percent from 2.93 percent, with points decreasing to 0.15 from 0.20 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.   

NAR – 94% of Metro Areas Saw Double-Digit Price Growth in Second Quarter of 2021

–  The median sales price of single-family existing homes rose in 99% of measured metro areas in the second quarter of 2021 compared to one year ago, with double-digit price gains in 94% of markets.

–  The median sales price of single-family existing homes rose 22.9% to $357,900, an increase of $66,800 from one year ago. Over a 3-year period, 46 markets had price gains of over $100,000.

–  The monthly mortgage payment on a typical existing single-family home rose to $1,215 and the income a family typically needed to afford an existing single-family home increased to $58,314.

Continued low levels of housing inventory, combined with record-low mortgage rates spurring housing demand, have caused an increase in median sales prices for existing single-family homes in all but one of 183 measured markets during the second quarter of 2021. That is according to the National Association of Realtors®’ latest quarterly report, which reveals that 94% of 183 metro areas also experienced double-digit price increases (89% in the first quarter of 2021). The median sales price of single-family existing homes rose 22.9% to $357,900, an increase of $66,800 from one year ago. All regions saw double-digit year-over-year price growth, which was led by the Northeast (21.8%), followed by the South (21.0%), West (20.9%), and Midwest (17.1%).

“Home price gains and the accompanying housing wealth accumulation have been spectacular over the past year, but are unlikely to be repeated in 2022,” said Lawrence Yun, NAR chief economist. “There are signs of more supply reaching the market and some tapering of demand,” he continued. “The housing market looks to move from ‘super-hot’ to ‘warm’ with markedly slower price gains.” That said, 12 metro areas did report price gains of over 30% from one year ago, eight of which are in the South and West regions, including Pittsfield, Mass. (46.5%); Austin-Round Rock, Texas (45.1%); Naples-Immokalee-Marco Island, Fla. (41.9%); Boise City-Nampa, Idaho (41%); Barnstable, Mass. (37.8%); Boulder, Colo. (37.7%); Bridgeport-Stamford-Norwalk, Conn. (37.1%); Cape Coral-Fort Myers, Fla. (35.6%); Tucson, Ariz. (32.6%); New York-Jersey City-White Plains, N.Y.-N.J. (32.5%); San Francisco-Oakland-Hayward, Calif. (31.9%); and Punta Gorda, Fla. (30.8%).

Yun notes that home prices are increasing sharply in the San Francisco and New York metro areas. Over the past three years, the typical price gain on an existing single-family home totaled $89,900, with price gains in all 182 markets. In 46 out of 182 markets, homeowners typically experienced price gains of over $100,000. The largest price gains were in San Francisco-Oakland-Hayward, Calif. ($315,000); San Jose-Sunnyvale-Sta. Clara, Calif. ($294,000); Anaheim-Sta. Ana Irvine, Calif. ($279,500); Barnstable, Mass. ($220,600); and Boise-City-Nampa, Idaho ($206,300). With home prices rising, the monthly mortgage payment on an existing single-family home financed with a 30-year fixed-rate loan and 20% down payment rose to $1,215. This is an increase of $196 from one year ago. The monthly mortgage payment grew even as the effective 30-year fixed mortgage rate3 decreased to 3.05% (3.29% one year ago). Among all homebuyers, the monthly mortgage payment as a share of the median family income rose to 16.5% in the second quarter of 2021 (14.0% one year ago).

“Housing affordability for first-time buyers is weakening,” Yun explained. “Unfortunately, the benefits of historically-low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner.” Among first-time buyers, the mortgage payment on a 10% down payment loan jumped to 25% of income (21.2% one year ago). A mortgage is affordable if the payment amounts to no more than 25% of the family’s income. In 17 metro areas, a family needed more than $100,000 to affordably pay a 10% down payment mortgage (14 metro areas in 2021 Q1. These metro areas are in California (San Jose-Sunnyvale-Sta. Clara, San Francisco-Oakland-Hayward, Anaheim-Sta. Ana-Irvine, San Diego-Carlsbad, Los Angeles-Long Beach-Glendale), Hawaii (Urban Honolulu), Colorado (Boulder, Denver-Aurora), Washington (Seattle-Tacoma-Bellevue), Florida (Naples-Immokalee-Marco Island), Connecticut (Bridgeport-Stamford-Norwalk), New York (Nassau, New York-Newark-Jersey City), Massachusetts (Boston, Barnstable), District of Columbia-Virginia-Maryland-West Virginia (Washington-Arlington-Alexandria), and Oregon-Washington (Portland-Vancouver-Hillsboro). There were only 84 metro area markets in which a family needed less than $50,000 to afford a home, down from 104 markets in 2021 Q1.

The most affordable markets – where a family can typically afford to buy a home financed with a 10% down payment with an income of $25,000 or less – are in the Rust Belt areas of Youngstown-Warren Boardman, Ohio ($24,401); Peoria, Illinois ($24,013); Cumberland, Maryland ($23,773); and Decatur, Illinois ($21,481). “Housing supply will be critical in moderating the growing housing costs and rising rents,” Yun said. “Any disincentive to produce more housing inventory, such as extending the eviction moratorium, will only worsen the current shortage,” Yun said. Yun noted that NAR has requested “expeditious release” of rental subsidy funds in order to assist those who may be facing eviction.

NAHB – CPI growth slows in July

Headline inflation and core inflation slowed in July after hitting a 13-year high in June. As the economy reopens, supply-chain disruptions and rebounding demand for certain services and products, such as travel-related services, pushed up consumer prices. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.5% in July on a seasonally adjusted basis, following an increase of 0.9% in June. Excluding the volatile food and energy components, the “core” CPI increased by 0.3% in June, the smallest monthly increase in four months. While the indexes for new vehicles (1.7%), recreation (0.6%), medical care (0.3%), and personal care (0.8%) all rose over the month, the indexes for motor vehicle insurance (-2.8%) and airline fares (-0.1%) declined in July. Meanwhile, the index for shelter, made up more than 30% of the headline CPI, rose by 0.4% in July. The index for owners’ equivalent rent (OER) increased by 0.3%. The price index for a broad set of energy sources increased by 1.6% in July, after a 1.5% increase in June. All the major energy component indexes increased over the month. Gasoline (all type) rose by 2.4% in July, following a 2.5% increase in June. The food index rose by 0.7% in July. The index for food away from home rose by 0.8% in July, the largest monthly increase since February 1981. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 5.4% in July, the same increase as in June. The “core” CPI increased by 4.3% over the past twelve months, slower than a 4.5% increase in June. The food index rose by 3.4% and the energy index rose by 23.8% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). In July, the Real Rent Index declined by 0.2%, after a 0.6% decrease in June. Over the first seven months of 2021, the monthly change of the Real Rent Index was -0.3%, on average. We expect the rent component to rise in future data releases, adding pressure to inflation due to higher construction costs.

MBA – commercial/multifamily borrowing bounces back in the second quarter of 2021

Commercial and multifamily mortgage loan originations were 106 percent higher in the second quarter of 2021 compared to a year ago and increased 66 percent from the first quarter of 2021, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. “Borrowing and lending tied to commercial and multifamily properties rebounded in the second quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Mortgage originations doubled compared to the second quarter of 2020, when loan demand cratered, and pandemic-related uncertainty made extending credit difficult. Even more notable is that compared to levels seen in 2019, a record year for originations, this year’s second quarter showed a modest 1 percent increase.” Woodwell added, “Significant differences still exist between property types. Originations of loans backed by industrial and multifamily properties hit second-quarter records, while retail and lodging loan volume remained muted.” All property types showed an increase in the second quarter in commercial/multifamily lending volumes when compared to the second quarter of 2020.

The second quarter saw a 327 percent year-over-year increase in the dollar volume of loans for industrial properties, a 302 percent increase for health care properties, a 234 percent increase for hotel properties, a 149 percent increase for office properties, a 88 percent increase for retail properties, and a 63 percent increase for multifamily property loan originations. Among investor types, the dollar volume of loans originated for Commercial Mortgage-Backed Securities (CMBS) increased by 1,913 percent year-over-year. There was a 144 percent increase for life insurance company loans, a 72 percent increase for commercial bank portfolio loans, and a 33 percent decrease in the dollar volume of Government-Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) loans. On a quarterly basis, second quarter originations for hotel properties increased 228 percent compared to the first quarter 2021. There was a 219 percent increase in originations for health care properties, a 76 percent increase for industrial properties, a 65 percent increase for office properties, a 62 percent increase for retail properties, and originations for multifamily properties increased 49 percent. Among investor types, between the first and second quarter of this year, the dollar volume of loans for commercial banks portfolios increased 107 percent, loans for life insurance companies increased 94 percent, and originations for CMBS increased 76 percent. Only the dollar volume of loans for the GSEs decreased last quarter, by 8 percent.