To say that mortgage rates have been on a wild Mr. Toad’s ride in 2022 is an understatement. In less than a year, we went from 2.78% on the 30-year fixed to as high as 6.28%, then recently got as low as 5% — only to have another move higher this week to 5.30%. People thought the mortgage rate drama in 2013-2014 was a lot when rates went from 3.5% to 4.5%. However, as we all know, after 2020, things are just more intense. 

The question is, can lower mortgage rates save the housing market from its recent downtrend? To understand this, we need to look back into the past to realize how different this period is from what we had to deal with in the previous expansion when rates rose and then fell.

Higher rates and sales data

We can see that when rates rise, sales trends are traditionally lower. We saw this in 2013-2014 and 2018-2019. We know the impact in 2022, working from the highest bar in recent history.

The most significant difference now from what we saw in the previous expansion is that mortgage rates never got above 5% in the previous expansion. However, more importantly, we didn’t have the massive home-price growth in such a short time. It does make an enormous difference now that home prices grew above 40% in just 2.5 years. 

This is why I focused my readers on the years 2020-2024, because if home prices only grew by 23% over five years, we would be ok. However, that got smashed in just two years, and prices are still rising in 2022. It’s savage man, truly savage with the mortgage rate rise. Yes, rates bursting toward more than 6% is a big deal in such a short time, but the fact that we had massive home-price growth in such a short time (and in the same timeframe) is even more critical.

While I truly believe that the growth rate of pricing is now cooling down, 2022 hasn’t had the luxury of falling prices to offset higher rates. So we can’t reference this period of time with rates falling as we did the previous expansion due to the massive increase in home prices and the bigger mortgage rate move. In 2018, sales trends fell from 5.72 million to the lows of January 2019 at 4.98 million. This year we have seen sales fall from 6.5 million to 5.12 million, and they are still falling.

Housing acts better when rates are below 4%

In the past, demand improved when mortgage rates were heading toward 4% and then below. Obviously, we are nowhere close to those levels today, barely touching 5% recently to only go higher in the last 24 hours.

Again, I stress that the massive home-price growth is different this time. However, with that said, considering the sales decline trends and that we have seen better-than-average wage growth, housing demand should act much better if rates head toward 4% and below. 

I stress that higher and lower mortgage rates impact the market, but it needs time to filter their way into the economy. When I talk about the duration, this means rates have to be lower for a more extended period. People don’t throw their stuff down and buy a home in a second; purchasing a home is planned for a year. Rates would need to stay lower for longer into the next calender year to make a big difference. 

Millions and millions of people buy homes every year. They have to move as well, so a traditional seller is a buyer most of the time when it’s a primary resident owner. Sometimes when rates go higher too quickly, some sellers can’t move, this takes a sale off the data line, but if rates fall quickly, they might feel much better about the process.

The downside of rates moving up so quickly is that some sellers pull the plug until rates are better. We see some of this in the active listing data as new listings are declining. Lower rates may pull some of these listings forward as people feel more comfortable with rates down; time will tell.

From Realtor.com 

From Redfin:

Of course, a 1% move lower in rates matters, but keep in context where we are coming from and how much home-price growth we have had in just 2.5 years. This isn’t like the previous expansion where home prices were working from the housing bubble crash and affordability was much better back then.

When to know when lower rates are working?

The best data line to see this take place is purchase application data, which is very forward-looking as the fastest data line we have in housing. Let’s take a look at the data today.
Purchase application data was positive week to week by 1% and down 16% year over year. The 4-week moving average is down negative 17.75% on a year-over-year basis.


This is one data line that has surprised me to a degree. I had anticipated this data to be much weaker earlier in the year. However, I concluded that 4%-5% mortgage rates didn’t do the damage I thought they would do. But, 5%-6% did, as I was looking for 18%-22% year-over-year declines on a four-week moving average earlier in the year. So, this makes me believe that if rates can get into a range of 4.125%-4.50% with some duration; the housing data should improve on the trend it has been at when rates are headed toward 6%. Again, we aren’t there on rates yet. 

The builders would love rates to get back to these levels so they can be sure to sell some of the homes they’re finishing up on the construction side. Now assuming rates do get this low; what would the purchase application data look like? Keep it simple, the year-over-year declines will be less and less, and then when things are improving, we should see year-over-year growth in this index. 

A few things about purchase apps: the comps for this data line will be much more challenging starting in October of this year. Last year’s purchase application data made a solid run toward the end of the year, which led existing home sales to reach 6.5 million. Next year we will have much easier comps to work with, so we need to keep that in mind. However, to keep things simple, the rate of change in the purchase applications data should improve yearly.

To wrap this up, lower mortgage rates should be looked at as a stabilizer first, but for them to change the market, we will need much lower rates for a more extended period. Also, we have to consider that rates moving from 3% to 6% is historical, and if rates fall, we have to look at housing data working from an extreme rise in rates that happened quickly. However, sales levels should fall if purchase application data shows negative year-over-year prints on a double-digit basis. 

Since home prices haven’t lost this year, you can see why I used talked about this as a savagely unhealthy housing market. The total cost of housing had risen in a fashion that isn’t comparable to what we saw in the previous expansion when rates went up and down due to the massive increase in home prices. Also, we have to know that we aren’t working from a high level of inventory data as well. Traditionally, total inventory ranges between 2 to 2.5 million. We are currently at 1.26 million.

NAR total inventory data

We shall see how the economic data looks for the rest of the year and if the traditional bond and mortgage rate market works as it has since 1982, then mortgage rates will head lower over time. However, as of now, it’s not low enough to change the dynamics of the U.S. housing market.

The post Can lower mortgage rates stop the housing recession? appeared first on HousingWire.



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Home equity climbed to a historic high of $11.5 trillion in the second quarter, but it could be nearing its peak as major equity-rich markets on the West Coast begin to show signs of decline. 

Tappable equity, the amount available for homeowners to access while retaining at least 20% equity in their homes, rose again for the 10th consecutive time, according to Black Knight. It rose $500 billion from the previous quarter and $2.3 trillion from the same period in 2021. Black Knight calculates homeowner equity levels by leveraging loan-level mortgage performance data and its home price index. 

While homeowners saw home equity rise, the pace of growth slowed, especially on the West Coast. 

“Equity growth slowed, however, as home price appreciation began to moderate, with some of the hottest markets even posting equity declines amid rising interest rates and affordability concerns,” said Andy Walden, vice president of enterprise research and strategy at Black Knight. 

A total of 11 of the nation’s 50 most equity-rich markets posted declines in the second quarter, according to Black Knight. All of the markets were in the West Coast including eight in California. The Golden State saw a decline of $155 billion in tappable equity posting $3.5 trillion from April to June. 

San Jose, California saw the strongest pull back in tappable equity which fell 12% by $55 billion. Tappable equity in Seattle, Washington fell by $38 billion (-10%), San Francisco, California declined by $42 billion (-5%) and Los Angeles, California dipped by $36 billion (-3%). 

At the end of second quarter, the average U.S. homeowner had $216,900 in tappable equity, up 5% by $9,700 from the previous quarter and an increase of 25% by $43,400 from the same time in 2021. 

“With 73% of equity held by borrowers who have locked in first lien interest rates below 4%, borrowers may be reticent to access their equity via refinancing,” said Walden. “As a result, we expect to see more homeowners turning toward second lien home equity products.”

While home equity lending was dominated by depository banks for years, nonbank lenders are targeting the space as they seek volume in a downmarket.

Rocket Mortgage rolled out a home equity loan this week, which will give homeowners access to up to $350,000 of their home equity while maintaining at least 10% equity. 

Last month, Guaranteed Rate introduced a digital home equity line of credit (HELOC), a revolving line of credit that allows borrowers to draw, for two-to-five years. loanDepot and New Residential Investment Corp. join the list of nonbank lenders that plan on launching HELOC products.

The post Is home equity, now at $11.5 trillion, at its peak? appeared first on HousingWire.



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There’s a lot of talk these days about economic cycles, particularly recessions. I’ve noticed that many people assume that with an economic downturn, real estate will get hit as hard as the broader economy and other asset classes.

The truth is, while real estate does sometimes get hurt during a downturn, there is much less correlation between real estate and the broader economy than most people believe. 

In fact, during more than half of the previous 34 recessions, dating back over 150 years, real estate has either not been affected or hasn’t been affected nearly as severely as other asset classes like stocks.

Why Does Real Estate Not Get Impacted As Much?

A few reasons: 

  • Real estate isn’t just any old investment. There is intrinsic value in real estate assets, so they tend to be more resilient to economic forces.
  • Recessions tend to occur after periods of increased inflation. Where do people like to put their money during inflationary periods? Real estate. Both the underlying asset and the debt that can be associated with real estate are great hedges against inflation.
  • When the stock market drops and other asset classes get hit, many investors look to real estate as a wealth-preservation option. Real estate values rarely go to zero or anywhere near zero, unlike investments in some other asset classes.

For these reasons, real estate often operates in a counter-cyclical fashion to the broader economy.

In fact, back in the late 19th century, an American economist named Henry George wrote about why our economy goes up and down in cycles (remember, this was before the Federal Reserve existed). And, unlike today’s economists who attribute cycles to inflation and interest rates, George believed land speculation was the driving force behind these cycles.

Here is George’s theory on how land speculation caused the boom/bust cycle we see in the economy:

First, we start with the fact that land has a fixed supply; we can’t make more of it. In economics, we refer to this as inelastic supply. When something has inelastic supply, if demand for that thing increases, so does the price. When the demand for land increases, the price of land increases.

Next, we assume that in most cases, developers purchase land to develop today and resell in the near future. The prices developers are willing to pay for raw land reflect what the developers can sell the property for in a year or two if they start developing now. But during an economic boom, investors (people like you and me) will start to buy land on speculation—in other words, not to develop now, but to hold in the hopes that the price will increase in the future. These speculative purchases push land prices beyond the point where developers can make a profit, so developers are forced to stop buying.

When developers stop buying, they stop building. And when they stop building, this causes an economic ripple throughout the economy, hurting industries such as construction, heavy equipment, and building material manufacturing. This results in an economic recession, especially in those industries.

Eventually, speculators realize that they won’t be able to make money on their land purchases, and they start selling off their inventory at reduced prices, spurring developers back into action. Developers start building again, manufacturers start selling again, and the whole cycle repeats.

See the image below for what this cycle looks like:

real estate land cycle

Over the past 160 years, this real estate cycle has been very consistent. It doesn’t occur as often as the general economic cycle we often talk about (the “business cycle”); instead, this cycle is on its own timetable. And, historically, it has occurred about every 18 years. With the exception of several decades after the Great Depression, this 18-year cycle has been remarkably consistent, producing downturns in the real estate market independent of the broader economic downturns we often talk about.

Final Thoughts

Personally, I believe that both the business cycle and the real estate cycle exist, and they are driven by different, though often interrelated, economic forces.

I would argue that in 2008, the severity of the Great Recession was exacerbated by the fact that the business and real estate cycles both hit a downturn simultaneously. The real estate market collapsed right on schedule, almost 18 years after the last major real estate downturn started in 1989, which saw a correction of over 25% in many markets. And we were about six years into the business cycle after the 2001 downturns, almost exactly the average length of time between business cycles over the past 150 years. So, while 2008 may not have been inevitable, for those of us who follow cycles, the timing wasn’t overly surprising.

While I’m certainly not going to claim that I have any reliable information about whether real estate will get hit during the upcoming recession, and if so, how badly. I would caution anyone from assuming that real estate will necessarily see a downturn as bad as the broader economy or other asset classes. Real estate could get hit, but if history is an indicator, it’s far from certain that we’re in for anything major.

In fact, if you believe in the history of cycles, you should probably be more worried about real estate in 2026, 18 years after the last major real estate crash, than 2022.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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Rocket Loans will be offering loans to customers who are installing solar panels, the lender announced Tuesday. The news comes exactly one year after its parent Rocket Companies announced it would enter the green energy game in 2022. 

Rocket Loans will provide financing to Rocket Solar customers who choose to have a solar electricity system installed, the company said. When a customer applies to buy a solar panel through Rocket Solar, an automated and individualized solar loan will be sent from Rocket Loans in less than 30 seconds, according to the firm.

“It seems to be the right time to be in the business,” said Joel Gurman, president of Rocket Solar. “There was legislation announced the other day that would essentially extend a tax credit for renewable energy and solar investment tax credit.”

Last week, Senate Democrats unveiled a budget reconciliation bill that includes $369 billion in energy security and climate spending over the next 10 years. The bill contains tax credits to spur clean energy production, consumer incentives for energy efficiency and funding for transmission development. 

In announcing plans to enter the renewable energy market in August 2021, Rocket Mortgage rolled out a rate-and-term refinance product that allows borrowers to consolidate any solar panel with their mortgage for one interest rate. While the refinance was available to homeowners with Property Assessed Clean Energy (PACE) program loans and private loans, the loan issued by Rocket Loans is a solar loan for homeowners looking to finance the equipment itself, the company said. 

“It allows people to lock in a payment today versus a majority of what they’ll be paying in their utility bill,” Gurman said. “We know that will continue to increase because it follows the inflationary path.”

Founded this year and operating in 16 states, Rocket Solar provides consulting, system design and offers solar panels to homeowners across the U.S. The company claims that Rocket Solar customers can save an average of $1,300 on their electric bill in the first year of their solar panel installment.

The move represents further diversification for Rocket Companies, which has branched out beyond mortgages into auto loans, home equity loans and personal loans over the last decade.

Inside Mortgage Finance reported that Rocket was the largest producing mortgage lender in the first half of this year. According to IMF, Rocket generated  $37.5 billion in originations in the second quarter of 2022, down 30.5% from the previous quarter. The Michigan lender is scheduled to issue second-quarter earnings on Aug. 4. The company reported a $1 billion profit in the first quarter.

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The mortgage servicing rights (MSR) market is continuing to pump out new deals. 

Freedom Mortgage, one of the country’s largest mortgage servicers, recently unveiled its second private-label offering this year backed by MSRs.

In addition, two mortgage advisory firms are out with three new MSR bulk-sales offerings involving agency loan portfolios exceeding $1.4 billion in value combined.

Mount Laurel, New Jersey-based Freedom Mortgage’s latest private-label offering seeks to raise $300 million through the sale of interest-only notes backed by participation interests in Ginnie Mae MSRs. In April, Freedom Mortgage also launched a private-label offering involving a $350 million interest-only note offering backed by participation interests in its Ginnie Mae MSRs holdings.

Monthly valuations of the MSRs for both offerings will be performed by SitusAMC, Kroll Bond Rating Agency (KBRA) reports. SitusAMC supports more most of the country’s largest MSR asset holders, including banks, mortgage banks and servicers, KBRA notes, and “every month, SitusAMC values approximately $5 trillion of MSRs and has traded more than $280 billion of MSR … since 2017.”

As of the end of June, according to mortgage-analytics firm Recursion, Freedom Mortgage ranked as the sixth largest all-agency mortgage servicer in the country, with a 4.6% market share and some $380.3 billion in agency loans serviced. It ranked as the top servicer of Ginnie Mae loans, however, with a 12.5% market share and some $256.6 billion in loans serviced, according to Recursion’s data.

MSRs gain value as interest rates rise, in part because upward-bound rates cause mortgage refinancing to slow to a crawl. That reduces mortgage-prepayment speeds — increasing the effective long-term yield of the servicing rights tied to those loans.

Freedom Mortgage is not the only mortgage originator to tap the private label market seeking to leverage its MSR holdings. Subsidiaries of Westlake Village, California-based Pennymac Financial Services Inc. (PFSI), which ranks as one of the top five mortgage lenders nationally, this past June also unveiled private-label offerings seeking to raise more than $700 million in the debt markets through the sale of notes secured by MSRs.

The transactions include a note offering of $305 million sponsored by PFSI subsidiary Pennymac Mortgage Investment Trust that is “secured by certain participation certificates relating to Fannie Mae mortgage servicing rights [MSRs],” according to a filing by PFSI with the U.S. Securities and Exchange Commission (SEC).

Another subsidiary of PFSI, Pennymac Loan Services LLC, issued a separate private-label issuance of participation certificates valued in total at $400 million. The notes are backed by Ginnie Mae mortgage-servicing rights, according to a presale report by KBRA. 

Monthly valuations of the MSRs for both offerings will be performed by Denver-based Incenter Mortgage Advisors, KBRA reports. Incenter has managed more than $1.5 billion in MSR sales and purchases, according to KBRA.

MSR Bulk Offerings

On another front, three new bulk MSR offerings for agency loan portfolios valued at some $1.48 billion are now in circulation with bids due in early August.

Alexandria, Virginia-based advisory and brokerage firm Prestwick Mortgage Group, along with its strategic partner, San Diego-based Mortgage Capital Trading (MCT), recently released bid documents for an MSR offering involving a portfolio of 1,004 Fannie Mae loans valued at $409 million. Separately, Prestwick just released bid documents for an MSR offering involving a pool of 1,079 Fannie Mae and Freddie Mac loans valued at $257 million.

The seller for both deals is identified as “an independent mortgage banker.”

In addition to the MSR offering being marketed by Prestwick and MCT, New York-based Mortgage Industry Advisory Corp. (or MIAC Analytics) recently released bid documents for an $816 million MSR offering involving a bulk Fannie Mae, Freddie Mac and Ginnie Mae loan-servicing portfolio composed of 2,400 mortgages. The seller is identified in bid documents as a “mortgage company that originates loans with a concentration in California.”

In early July, as the third quarter was kicking off, four mortgage-servicing rights (MSR) offerings for agency loan portfolios valued at some $3.7 billion also hit the market. 

Prestwick Mortgage Group and MCT released bid documents for two separate MSR offerings involving agency loan portfolios valued at $1.85 billion in total. In addition, Incenter Mortgage Advisors in July came out with two large MSR offerings tied to agency loan packages worth $1.84 billion.

Finally, on the last day of June, MIAC Analytics released bid documents for an MSR offering it is brokering that exceeds $5 billion in value. “MIAC Analytics, as exclusive representative for the seller, is pleased to offer for your review and consideration a $5.22 billion Fannie Mae, Freddie Mac and Ginnie Mae mortgage-servicing portfolio,” the offering documents state. “The portfolio is being offered by a mortgage company that originates loans with a concentration in California.”

MIAC also came out with two large MSR offerings earlier in June involving a $4.8 billion loan pool and a separate $816.7 million package, both composed of Fannie Mae and Freddie Mac loans.

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Rithm Capital, formerly known as New Residential Investment, lost $3.3 million in the second quarter of 2022, largely due to fees caused by its break from Fortress Investment Group and a decline in residential mortgage originations.

In an earnings presentation Tuesday, executives at Rithm said the company paid approximately $325 million to break from an affiliate of the asset management firm and be internally managed. Resulting cost savings should be about $60 million, executives said.

The rebrand comes as Rithm looks to reduce expenses across its businesses and complete the integration of its mortgage companies New Rez and Caliber.

In an investor presentation, Rithm said it reduced run-rate administrative expenses at its mortgage division to $1.9 billion, down from $2.6 billion at the beginning of 2022 and $3 billion pro forma at the acquisition of Caliber. It has completed the integration to one origination platform and is “focused on identifying ways to drive additional cost savings through the end of the year,” the investor presentation said, adding the positioning is ” right-sizing origination business for current cycle and focused on innovative ways to reach consumers.”

The real estate investment trust has shed hundreds of jobs at its mortgage companies throughout 2022, with the most recent layoff occurring in July.

The originations business segment lost $26.4 million, down from a $26.5 million profit in the first quarter. Origination volume in the second quarter came in at $19.1 billion, down from $26.9 billion in the first quarter.

Rithm’s servicing segment generated $427.2 million in net income in the second quarter, thanks to surging values in mortgage servicing rights. The MSR portfolio totaled $623 billion UPB at the end of the quarter, down from $626 billion at the conclusion of the first quarter. Servicer advance balances came in at $3 billion as of June 30, 2022, down 3% from the end of the first quarter.

In the second quarter, Rithm priced one securitization representing $346 million UPB of collateral. It also acquired $444 million in non-QM loans and grew its single-family rental portfolio by 324 units.

The company had a cash position of $1.8 billion at the end of the quarter.

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Rocket Mortgage, the nation’s largest lender, is expanding its product portfolio to home equity loans amid a significant slowdown in mortgage origination volume.

After getting an appraisal on the home, homeowners can access between $45,000 and $350,000 of their home’s equity in a 10- or 20-year, fixed-rate loan, while maintaining at least 10% equity in their home, Rocket said Monday. 

Rocket is targeting American homeowners with high household debt and credit card balances but strong home equity positions

“In the current market, short-term interest rates have risen sharply – making it much harder to pay off credit card debt,” said Bob Walters, CEO at Rocket Mortgage. “With our new home equity loan, clients can improve their lives by having a payment they can more comfortably afford.”

U.S. credit card balances in the first quarter were $841 billion, $71 billion higher than the same period in 2021, according to a report from the Federal Reserve Bank of New York. The country’s total household debt stood at $15.8 trillion as of the first quarter of this year, which is $1.7 trillion higher than at the end of 2019. The Federal Reserve estimates Americans have about $28 trillion in home equity.

While home price growth is expected to slow in the coming months, it’s still higher than a 5% annual home price appreciation rate, making home equity products an attractive option for lenders to invest in. 

Last month, Guaranteed Rate rolled out a digital home equity line of credit (HELOC) that offers customers a fixed rate and a fixed term of up to 30 years. Homeowners can later draw from the line of credit for two-to-five years, depending on the term selected at then-current market rates. (The Chicago-based lender also debuted an unsecured personal loan product.)

On a home equity loan, the lender disburses a lump sum upfront to the borrower, who then pays the loan back in fixed-rate installments. A HELOC, which allows homeowners to access their equity without refinancing their primary mortgage, is a revolving line of credit that allows borrowers to withdraw as needed, with a variable interest rate.

Depository banks have dominated home equity lending for years, but nonbank lenders seeking volume are increasingly targeting the space.

loanDepot, another top nonbank, plans to launch its all-digital HELOC by the fourth quarter of 2022. The lender’s HELOC product is the first offering of its mello business unit, which was created in March that focuses on developing mortgage-adjacent lending products and services. 

New Residential Investment Corp. also plans to launch a HELOC product, the firm said in its first quarter earnings call, as part of its strategy to address the origination slowdown. 

“Since over half of our customer base now has at least 40% equity in their home, we are launching a new HELOC product that will target our servicing customers and allow homeowners to retain their existing low-rate mortgage while allowing them to tap into their home equity for home expansion renovations or otherwise,” said Baron Silverstein, president of Rocket.

Figure, a lender that focuses on providing HELOCs, said the company’s HELOC product surpassed $325 million in funding volume from the previous month. Setting new records for eight consecutive months, June figures represented a 300% year-over-year increase, the firm said.  

Data from Inside Mortgage Finance again confirms Rocket as the largest mortgage lender in the U.S. by volume in the first six months of 2022. According to IMF data, Rocket generated $37.5 billion in originations in the second quarter, down 30.5% quarter over quarter. 

In the first three months of this year, Rocket reported $54 billion in closed loans, down from $75.8 billion in the previous quarter.

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A common issue with eClosing technology is that even the best solutions can result in fractured workflows made up of multiple systems, logins, and workflows. This can make the adoption of eClosing technology a difficult task. 

ICE Mortgage Technology has set out to change this with its Encompass eClose solution, the ideal closing solution for Encompass LOS lenders who want to maximize their cost savings and gain operational efficiency in closing and post-closing. 

Unlike other solutions, the Encompass eClose process keeps stakeholders in the systems they use today, removing the adoption friction that many other platforms may present. This helps reduce origination costs by eliminating the expense and complexities of dealing with multiple vendors and technologies. Encompass eClose is extending this model with the recent introduction of the Point-of-Sale (POS) Framework which integrates with any point-of-sale (POS) platform its lender customers and their borrowers are using today.

Additionally, Encompass eClose offers the same workflow regardless of the type of closing being performed, from full ink to hybrid to full eClose. This gives lenders, borrowers and settlement agents flexibility in the closing process. 

“While our broad goal with Encompass eClose is to help drive industry-wide adoption of electronic closings, it goes beyond eClose adoption,” said Rebecca Frisbie, Director of Product Management. “We want to fundamentally change how residential loan closings are done by removing the inherent inefficiencies in the process. We do this by incorporating document ordering, borrower engagement, settlement agent collaboration, eSignatures, investor delivery and more in a single workflow. We call this the power of one.” 

With Encompass eClose, ICE Mortgage Technology has created the industry’s only true end-to-end eClosing solution that provides a single source within the industry’s leading LOS. Encompass eClose is connected to the ICE Mortgage Technology network, leveraging the industry’s largest ecosystem of lenders, settlement agents, counties, investors and services through integrations with Simplifile and MERS. 

Encompass eClose leverages leading technology, in compliance with all eSign and eNote requirements, as well as a tight integration between Encompass, Simplifile and MERS. This integration keeps the data trusted between systems and eliminates the need for manual rekeying and reconciliation. By replacing manual processes with a fully digital experience, Encompass eClose helps lenders increase efficiencies and reduce time spent at the closing table.

The Encompass eClose platform provides both the lender and borrower with choice and real return on investment. With hybrid, lenders are seeing a return on investment right away, and often are up and running in less than a month. With eNotes, lenders like Googain see all the same benefits of a hybrid eClose, in addition to faster funding, shorter warehouse time, reduced risks, and a better borrower experience. 

“We are focused on our customer experience and digitizing mortgage for our customers,” said Shawn Song, President, Googain. “By adopting eClosing, we are reducing errors and delays – reducing frustration for borrowers and giving them peace of mind. With more than 70% of our loans being eClosed with ICE Mortgage Technology, we know that this is just the beginning of our efficiency and digitization.”

Rebecca_Frisbie-Web-Res

Rebecca Frisbie, Director Product Management, ICE Mortgage TechnologyAs Director of Product Management, Rebecca Frisbie has spent the last 12+ months working tirelessly on the launch of ICE Mortgage Technology’s highly anticipated product, Encompass eClose solution. Her extensive knowledge of the borrower’s journey during any mortgage process makes her the perfect leader to drive solutions towards a fully digital experience.

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A few months ago, the United States housing market failed Econ 101. Table 1, below, reports the 10 hottest U.S. metropolitan areas in February 2022, based on year-over-year growth in median listing price according to the residential real estate listing website, Realtor.com. The table also reports the year-over-year percent change in new listings for each market.

Table 1: 10 Hottest Housing Markets out of the Top 250 Metro Areas, February 2022

Metro AreaMedian Listing Price (Y/Y)New Listing Count (Y/Y)
Bridgeport-Stamford-Norwalk, CT64.5%-8.9%
Naples-Immokalee-Marco Island, FL53.0%-16.7%
Bellingham, WA51.7%-8.3%
Myrtle Beach-Conway-North Myrtle Beach, SC-NC50.8%-18.2%
Santa Fe, NM48.9%-4.7%
Cape Coral-Fort Myers, FL45.0%-0.8%
Punta Gorda, FL43.6%-7.7%
Torrington, CT43.0%-4.6%
Panama City, FL39.7%17.9%
Las Vegas-Henderson-Paradise, NV39.6%-6.2%
Source: Realtor.com  

Even though sellers’ median valuations in each of these housing markets grew by an astounding 40% or more over the previous year, only one market, Panama City, Florida, saw a year-over-year increase in the number of homes newly listed for sale.

The finding was equally confounding on the other side of the distribution where house price growth was weakest; though home values dropped by at least 10% in each of the 10 coldest markets, the number of homes added to the for-sale inventory increased in eight of them.

These results defy economic logic; a big price increase is supposed to attract more sellers into a market, not fewer. When economists observe this pattern, they usually attribute it to a downward shift in supply that is unrelated to price. For example, if a natural disaster destroyed thousands of homes in a housing market, prices would rise due to the loss of inventory. But this explanation cannot support the data in Table 1; no calamity decimated housing markets across the United States in February.

A different explanation makes more sense: Growth in the for-sale inventory slowed in nearly all the hottest markets a few months ago because of speculation. Despite unprecedented house price appreciation, homeowners in the hottest metro areas gambled that their property values would continue to grow at red-hot rates, and these gamblers did not want to risk missing out on an even bigger payday in the near future.

That “near future” may now be in the past; the latest data indicate that homeowner speculation in the housing market has come to an end.

This change is evident in Table 2, which lists the 10 hottest housing markets in June, the most recent month of available data from Realtor.com. Contrary to the findings from five months ago, eight of these housing markets reported a year-over-year increase in the number of new listings, which is the supply response normally follows a hefty price increase. Gamblers in the housing market appear to be content with their gains, and now they are cashing in their chips.

Table 2: 10 Hottest Housing Markets out of the Top 250 Metro Areas, June 2022

Metro AreaMedian Listing Price (Y/Y)New Listing Count (Y/Y)
Panama City, FL42.9%65.6%
Cedar Rapids, IA40.9%6.8%
Waterloo-Cedar Falls, IA40.7%-2.9%
Topeka, KS40.7%-12.0%
Miami-Fort Lauderdale-West Palm Beach, FL40.1%4.1%
Fayetteville, NC37.7%9.0%
Killeen-Temple, TX36.1%31.2%
North Port-Sarasota-Bradenton, FL36.0%21.2%
Huntington-Ashland, WV-KY-OH36.0%18.3%
Punta Gorda, FL35.3%7.5%
Source: Realtor.com  

The end of seller speculation in the housing market is long overdue and welcome news for buyers. If this trend persists, it will mean that more existing homes will soon be added to housing markets that have been starved for inventory for the last two years. This rise in inventory will tilt the bargaining power in these market toward buyers, and house price growth will ease.

Early signs of blossoming competition for buyers are already evident in the data from Reator.com. Nationwide, the number of listings with a price cut surged 74% month-over-month in May and 51% month-over-month in June, easily the biggest increases on record.

But some analysts may be missing these signals. For example, in the face of rising mortgage rates and reduced affordability, forecasters at Realtor.com recently revised their prediction for the annual change in existing home sales in 2022 from 6.6% increase to 6.7% decrease. But contrary to this new projection, home sales will not falter if sellers are speculating no longer, adding more inventory to the market, and settling for lower prices.

The forecast is uncertain because economic fundamentals have been absent from the housing market for a while. Figure 1 below plots the correlation between the year-over-year change in the median listing price and the year-over-year change in new listing count for the top 250 housing markets in the nation.

This analysis is restricted to the top 250 markets because smaller markets typically have fewer than 200 active listings per month, which makes average values more susceptible to a handful of random, unusual events. (Graphs for cut-offs ranging between the top 100 and top 400 housing markets have the same pattern.)

Figure 1: Correlation between Median Listing Price (Y/Y) and New Listing Count (Y/Y), Top 250 Metro Areas

image-3
Source: Author calculations, Realtor.com

As previously mentioned, conventional economic reasoning predicts that housing markets with faster house-price growth will attract more listings; in other words, the correlation between changes in these two series should be positive. But Figure 1 illustrates that the data over the last five years generally contradicts this expectation. Since 2017, the start of the series from Realtor.com, this correlation has been negative 80% of the time. Steady house price growth has not encouraged more listings in the hottest markets.

When put in context, this history makes sense. During the earliest years of the series, many residences were still worth less than they were at the peak of the housing bubble in 2006. This was especially true in low- and moderate-income ZIP codes. Even though homeowners had enjoyed several years of rapid house-price appreciation during the recovery, many resisted selling their properties at a loss.

The end of the series was punctuated by unparalleled house price growth following the COVID-19 recession. Homeowners in the hottest markets did not sell because they anticipated or hoped for even greater returns.

Neither of these conditions remain true today. For the first time in a generation, almost all long-term homeowners have substantial equity and no expectation of outsized house-price gains. Put differently, the housing market is returning to normal, and the latest findings reflect this new reality.

For the first time on record, the correlation between house price growth and the change in new listings has been positive, as expected, for three consecutive months. And last month, this positive correlation was three times stronger than any previous month in the series. Conventional economic wisdom predicts this outcome, but home sales models that have been tuned to the market’s abnormal behavior over the last decade might not be accounting for a return to normalcy.

Kwame Donaldson is an economist whose research focuses on residential and commercial real estate markets, demographic trends, and GIS analysis. Over the last decade, he has held senior roles in the U.S. Census Bureau, Moody’s Analytics, and Zillow.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Kwame Donaldson at knd@alumni.rice.edu

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com

The post Opinion: The end of seller speculation in US housing market appeared first on HousingWire.



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