The Mortgage Corner
First quarter mortgage numbers are in, and we could be having a very good year for mortgage originations, says Equifax, among others. According to Equifax’s report, the total dollar amount of first-mortgage originations during the first quarter of the year was $450.5 billion, which represented a year-over-year increase of 12.3 percent, the highest amount for a first quarter total since 2013.
And privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,189,000, according to the US Census Bureau, which will create future demand for mortgages when completed. This is 4.8 percent above the revised May estimate of 1,135,000, but is 2.0 percent below the June 2015 rate of 1,213,000.
Single-family housing starts in June were at a rate of 778,000; it is 4.4 percent above the revised May figure of 745,000. The June rate for units in buildings with five units or more was 392,000. But starts are still not keeping up with demand, with soaring rental rates and falling vacancy rates in most metropolitan areas, a sign of a very tight—and expensive—rental market, which has to motivate more renters to become homebuyers.
No wonder, as the 30-year conforming fixed rate has dropped to as low as 3.0 percent for a 1.25 point origination fee in California on primary residences, as long as borrowers’ so-called ‘tri-merge’ mid-credit scores are above 740. This is the lowest rate since WWII, and such low rates are projected to continue through the fall, at least, according to Freddie Mac
Why? It’s fairly easy to understand, as Britain’s Brexit vote showed that the Eurozone may be a European Union in name only. The resultant uncertainty is causing a flight to safe haven investments, and US stocks and bonds provide the ultimate safe haven with US growth picking up while most of the developing countries show little or no growth.
Also, builder confidence in the market for newly built, single-family homes in July held, falling just one point to 59 from a June reading of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released on Monday.
“The economic fundamentals are in place for continued slow, steady growth in the housing market,” said NAHB Chief Economist Robert Dietz. “Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses.”
Who will those future homebuyers be? First-time homebuyers now make up some 32 percent, according to the NAR. And Lawrence Yun, NAR chief economist, says although millennials have made up the largest share of buyers for three consecutive years, sales to first-time buyers and the homeownership rate for young adults under the age of 35 remain depressed at levels not seen in decades. This is despite historically low mortgage rates, escalating rental costs and low unemployment levels among those with a college education.
“Even with potentially higher incomes, prospective millennial homebuyers residing in some of the most expensive cities in the country face the onerous task of paying steep rents while trying to save for an adequate down payment,” he said. “However, for those currently living in or looking to move to a more affordable part of the country, there are metro areas right now with solid job growth and that offer a smoother path to homeownership.”
So affordability will continue to be the main obstacle to homeownership, as well as historically heavy student debt loads for those same millennials, unless future Congresses will to make public colleges in particular tuition-free, a benefit which almost all developed and emerging countries already offer their citizens.
Harlan Green © 2016
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