Apr. 20: What housing trends are showing us; rent to own programs gaining in popularity?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

Current housing trends


Existing Home Sales rose 5.1% MOM to 5.33 million in March. The median home price rose 5.7% to $222,700. This puts the median house price to median income ratio at 3.9x, which is higher than its historical range in the 3.2x – 3.6x. There are 4.5 months’ worth of inventory, which was an uptick from the 4.4 months’ worth in February. Days on market fell to 47 however. Sales slowed at the $1 million + price points, which could be a reflection of the global economic slowdown. The number of first time homebuyers was steady at 30%. Historically, that number has been closer to 40%.


Given the weak housing starts data and the existing home sales data, we aren’t getting the breakout spring selling season that some had hoped for. We should get some important data points tomorrow when we get earnings results out of Pulte and Horton.


The weakness in housing starts remains a conundrum, given the demand for housing. Builders have pointed to a shortage of labor, but as Goldman Sachs points out, you aren’t seeing increases in wages in the construction sector, at least not yet. Interestingly, the average age of a construction worker is the highest ever, as young people are not entering the sector. The other issue: regulations, and lots of them. You would think that government would be interested in seeing more housing construction, because that is the difference between 2% and 3% GDP growth, but the only discussion of housing these days revolves around how hard to slug the originators.



Quick glance at foreclosure environment


Completed foreclosures fell to 34k in February, according to Corelogic. This is a decline of 10% YOY. There are 434k homes in foreclosure, down 24% from a year ago. This is roughly where foreclosures were in late 2007. 1.25 million mortgages are seriously delinquent, which is down 20% from a year ago. Foreclosures remain an issue in the judicial states (especially in the Northeast) but aren’t an issue anywhere else. We are seeing delinquencies creep up in the energy states.


Insight into the future:


NAHB is forecasting 1.26 million total housing starts in 2016, up 13.4 percent from a projected 1.11 million starts in 2015. Single-family production is expected to reach 840,000 units this year, an 18 percent increase from a projected tally of 711,000 units in 2015.


Delving below the national numbers, David Berson, chief economist at Nationwide Insurance, said that most regional housing markets look healthy. Labor market conditions, a key driver of housing demand, are strong in many metropolitan statistical areas (MSAs) – supporting faster household formations and boosting local housing activity through rising incomes. These factors indicate that most of the 400 local housing markets “should see sustained growth in the coming year,” Berson said.


With the unemployment rate declining in 90 percent of the MSAs over the past year, Berson said that the housing fundamentals are the strongest in over a decade, a trend supported by the labor market, demographics and consumer preference to own. However, MSA’s with strong ties to energy exploration and production are expected to see limited housing expansion in the near term, as low oil prices are reducing employment. Berson shook off worries about stock market volatility saying that the stock market is not a great leading indicator of the economy.


With 30-year fixed-rate mortgages running at or below 4 percent during the past year, CoreLogic economist Frank Nothaft said mortgage rates are expected to gradually rise one-quarter to one-half a percentage point this year up to 4.5 percent, going from “cheap to low.”

Nothaft added that overall home sales will rise 4-5 percent in 2016, led by a 13 percent gain for new home sales, with sales volume and growth strongest in the South and West. In fact, the disparity between regions of the country will be a major story for housing this year. “Some markets are stagnant or declining while others will have double digit gains,” he said.


Nationwide, home prices this year will increase about 4-5 percent above last year’s level and are projected to reach the 2006 peak by mid-2017, Nothaft said. Tight mortgage credit for consumers is expected to ease slowly this year, but remain relatively tight.


Try before you buy? Now you’re talking.


Would you buy a car without a test drive or paint a room with sampling the color? Of course not but we make the biggest purchase of our lives without really feeling it out. Heritage Harbor Ottawa Resort, a marina resort community in Ottawa, Ill. is breaking that mold. Potential home buyers can spend the night in a rental cottage in the community to experience what it would be like to live there, says Tammy Barry, director of sales and marketing. The community’s vacation rental program allows current homeowners to make their homes available for short-term rentals through an on-site management program. How amazingly cool is that?


According to Barry, the appeal of “test driving” the community with a stay in one of several one- and two-bedroom rental cottages at Heritage Harbor Ottawa is two-fold. First, it allows buyers to get the lay of the land in the community as well as the surrounding area. This includes discovering where the closest grocery store is, exploring local restaurants, shopping and recreational amenities, and experiencing the atmosphere of the community itself. Available vacation rentals at Heritage Harbor include one and two-bedroom cottages that can sleep from 4 to 11 people. Rates range from $139 to $229 per night.


Secondly, staying in a rental cottage in the community allows prospective residents to experience what it might be like physically living in one of the homes. “While we offer many different housing types, as well as the opportunity to work with us to build a fully custom home, staying in a rental property here gives interested buyers a feel for our floor plans and the type of finishes we typically include,” says Barry. “They can see how the style of these homes works with their own personal aesthetic and get some ideas for specific features they want most in their own home.”



Several years ago a US Navy cruiser anchored in Mississippi for a week’s shore leave.

The first evening, the ship’s Captain received the following note from the wife of a wealthy plantation owner:

“Dear Captain, Thursday will be my daughter Melinda’s Debutante Ball. I would like you to send four well-mannered, handsome, unmarried officers in their formal dress uniforms to attend the dance. They should arrive promptly at 8:00 PM prepared for an evening of polite Southern conversation. They should be excellent dancers, as they will be the escorts of lovely refined young ladies. One last point:  No Jews Please.”

At precisely 8:00 PM on Thursday, Melinda’s mother heard a polite rap at the door which she opened to find, in full dress uniform, four handsome, smiling Black officers. Her mouth fell open, but pulling herself together, she stammered, “There must be some mistake.”

“No, Madam,” said the first officer. “Captain Goldberg never makes mistakes.”





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