Housing Market Roundup: May 20, 2022

Catching you up on housing and economic reports that came across the MBA NewsLink desk this week during and after the MBA National Secondary and Capital Markets Conference & Expo in New York:

CoreLogic: 1Q Mortgage Fraud Risk Index Up 15%

CoreLogic, Irvine, Calif., said its quarterly Mortgage Fraud Risk Index rose by 15% from a year ago but remained flat quarter over quarter.

The report said refinances made up 46% of the loan applications in Q1 2022, down from 53% in Q4 2021. However, rate-reduction refinance share is projected to continue to decrease rapidly while more of the refinance population will be for cash out, which will translate to higher fraud risk going forward. “We may expect to see additional increases in risk behavior as borrowers try to quickly close on their loans ahead of rate increases,” the report said.

Redfin: Growth in Asking Rents Slows for the 1st Time in a Year

Redfin, Seattle said the median monthly asking rent in the U.S. increased by 15% year over year to a record high of $1,962 in April. However, that’s below March’s 17% increase, marking the first slowdown in a year.

“The fact that rents are growing at a slower pace may be a very early sign that the Fed’s tactic of raising interest rates to quell inflation is working,” said Redfin Chief Economist Daryl Fairweather. “However, rents are still growing at nearly double the rate of overall inflation. Landlords in hot migration destinations like Austin, Portland and South Florida are charging new tenants 30% more than last year’s rent.”

Just three of the 50 most-populous metro areas saw rents fall in April from a year earlier.

Zillow: Home Buyers Could See Less Competition in City Centers

Zillow, Seattle, said for the first time since the Great Recession, buyers may have an easier time buying a home in the city than in nearby suburbs this home shopping season. That’s because homes in the suburbs recently have been appreciating faster than urban homes, according to a new analysis.

Zillow reported home values in suburban ZIP codes have been growing faster than those in urban areas since July 2021. The typical home in the suburbs gained $66,490 in value in the past year, compared to $61,671 for the typical urban home. That is a reversal from previous norms and from the first 15 months of the pandemic. From January 2013 — about the time when home values began to recover following the housing crash — through June 2021, urban homes were generally gaining value more quickly.

“In the beginning of the pandemic, home values in urban areas generally outpaced suburban areas, counter to what many expected during the rush for more space,” said Zillow economist Nicole Bachaud. “And while urban home value gains have continued to accelerate, the suburbs are even hotter, showing just how strong demand is for limited suburban inventory. That could mean competition for homes will be lighter near city centers this home shopping season, something we haven’t been able to say for nearly a decade. That’s not to say shopping for a home in the city will be a leisurely affair, but any sliver of opportunity for buyers is welcome in this market.”

Redfin: Homebuyer Competition Falls for Second-Straight Month

Redfin, Seattle, said nationwide, 60.7% of home offers written by Redfin agents encountered competition on a seasonally adjusted basis in April, the lowest level since March 2021. That’s down from a revised rate of 63.4% a month earlier and 67.4% a year earlier, and marks the second-consecutive monthly decline.

“The meteoric rise in mortgage rates is prompting more house hunters to back out of the market, causing competition to cool,” said Redfin Chief Economist Daryl Fairweather. “Higher rates are also limiting homebuyers’ ability to significantly bid up home prices, meaning some homes aren’t selling for as much over the asking price as they would have a year ago. This could help set off a slowdown in home-price growth in the coming months.”

The report said Riverside, Atlanta and Olympia, Wash., saw the biggest declines in homebuyer competition.

ATTOM: Single-Family Rental Returns Drop as Home Price Spikes Outpace Rent Increases

ATTOM, Irvine, Calif., released its Single-Family Rental Market report, showing profit margins on three-bedroom single-family home rentals are declining annually in 2022 across most of the United States, and are slightly more likely to decline in areas that already have lower yields.

The report shows that average gross rental yields before expenses on three-bedroom, single-family homes purchased by landlords this year are decreasing in 72 percent of the counties included in the report. (The latest yields are based on annualized 2022 gross rent income divided by median purchase prices in the first quarter of 2022).

Most declines are less than one percentage point from rental yields in 2021. But rental yields are dropping in about three-quarters of markets where median home prices exceeded $250,000 in the first quarter of 2022. The report further shows that those markets commonly have smaller profit margins, with yields that mostly fall below 7 percent.

Meanwhile, gross returns are decreasing in two-thirds of markets where homes typically sell for less than $250,000, located mainly in the Midwest and South. Returns remain above 8 percent in more than half of those counties, despite the declines.

“Investors who own single family rental properties have seen their margins compressed over the last year as home prices have risen faster than rental rates,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “The good news for these property owners is that their yields should improve as annual rental rates increase, and they should also benefit from home price appreciation over time.”

Fannie Mae: Rapidly Rising Rates, Persistent Inflation Further Soften Economic Outlook

Fannie Mae, Washington, D.C., said persistent inflation, rising interest rates and a slowdown of global economic growth are the primary contributing factors to updated expectations that full-year 2022 real GDP will grow at the reduced rate of 1.3 percent, 0.8 percentage points less than previously predicted, according to its May commentary.

The ESR Group also expects a meaningful slowdown in home sales for the second and third quarters, followed by a softening in construction activity and, ultimately, a large deceleration in home price growth. With mortgage rates having risen faster in the last 5 months than in any period since 1981, the ESR Group expects both purchase and refinance originations to decline meaningfully. With only 1.4 percent of mortgages now predicted to have a 50-plus-basis point incentive to refinance, it’s expected that, going forward, a majority share of refinance activity will be of the cash-out variety.

“Financial conditions have tightened significantly, and the economy is slowing faster than previously expected as markets adjust to the Federal Reserve’s tightening guidance,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Uncertainty continues to weigh heavily on markets, with geopolitical risks rising as the Russian war on Ukraine extends into its third month. The impact to prices of expected reductions in agricultural production, as well as continued increases in house prices, suggest to us a difficult path for the Fed to return inflation to its two-percent target rate in a timely manner – and, of course, in the absence of an economic downturn.”

Zillow: Housing Market ‘as Competitive as Ever’ Despite 53% Rise in Mortgage Costs

Zillow, Seattle, said the housing market is as competitive as ever, according to its latest Real Estate Market Report. Buyer demand has been strong enough to keep the market moving at a record pace, even after a massive spike in mortgage rates.

Year-over-year home value growth set a record for the 13th consecutive month in April. The typical U.S. home is worth $344,141, 20.9% higher than a year ago. That record pace of growth comes despite rising mortgage rates eating away at what home buyers can afford. The monthly mortgage payment on the typical U.S. home is 11.7% higher than it would have been in March, and 52.5% higher than a year ago, assuming a 30-year mortgage with a 20% down payment.

“We do expect the market to begin rebalancing this spring as rising costs keep enough would-be buyers on the sidelines for inventory to begin catching up with demand, but we have not yet reached that point,” said Nicole Bachaud, Zillow economist. “Nearly half of homes are selling above their list price, and April sales happened as fast as we’ve ever recorded. It may very well be that fewer people are trying to buy, but with bidding wars continuing to drive up prices on limited inventory, those in the market today likely won’t feel much relief.”

Zillow also reported the pace of annual rent growth slowed for the second consecutive month. Rents are up 16.4% year over year, down from 17% annual growth in March. The typical U.S. rental unit costs $1,927 a month.

Black Knight: Mortgage Delinquencies Fall to Record Low

Black Knight, Jacksonville, Fla., said while April has historically been one of the worst months for mortgage performance, but this year it bucked the trend. The company’s First Look Mortgage Monitor reported the national delinquency rate fell another four basis points in April to a record-low 2.80%,  putting overall delinquencies down 40% from this time last year.

The report also said after last month’s strong reduction in such loans, the number of borrowers a single payment past due increased 7.9% month-over-month, following typical seasonal patterns. This was offset by strong improvement among borrowers who are three or more payments past due – with volumes falling by 8% from March. But even though such serious delinquencies have fallen between 6%-12% in each of the past 14 months, volumes remain more than 55% above pre-pandemic levels.

Despite that fact, foreclosure starts fell another 12% from March, though the number of loans in active foreclosure did tick up slightly (4,000). “That said, active foreclosure inventories remain far, far below pre-pandemic ‘norms,’” Black Knight said.

Prepayment activity fell due to the sharp rise in rates, by 19.1% from March and 61.8% from a year ago.

CFPB Bolsters Enforcement Efforts by States

The Consumer Financial Protection Bureau issued an interpretive rule that describes states’ authorities to pursue lawbreaking companies and individuals that violate the provisions of federal consumer financial protection law.

“In the years leading up to the financial crisis, federal regulators undermined states seeking to protect families and businesses from abuses in the mortgage market,” said CFPB Director Rohit Chopra. “Our action today demonstrates our commitment to promoting state enforcement, not suffocating it.”

Today’s interpretive rule affirms:

•           States can enforce the Consumer Financial Protection Act, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law. This provision covers the Consumer Financial Protection Act itself as well as its 18 enumerated consumer laws and certain other laws, along with any rule or order prescribed by the CFPB under the Consumer Financial Protection Act, an enumerated consumer law, or pursuant to certain other authorities. 

•           States can pursue claims and actions against a broad range of entities. The Consumer Financial Protection Act outlines entities over which the CFPB may exercise its enforcement authority under the statute. States are able to bring actions against a broader cross-section of companies and individuals. 

•           CFPB enforcement actions do not put a halt to state actions. Sometimes states bring enforcement actions in coordination with the CFPB. A state may also bring an enforcement action to stop or remediate harm that is not addressed by a CFPB enforcement action against the same entity. Nothing in the Consumer Financial Protection Act precludes these complementary enforcement activities that serve to protect consumers at both the national and state levels.

Redfin: Sellers Rushing to Find Buyers Before Demand Weakens Further

Redfin, Seattle, said homebuyers might finally start to notice signs that the market is shifting toward their favor, as more sellers came to the market during the four weeks ending May 15.

The report said new listings climbed nearly twice as fast as they did at this time last year, and the share of listings with a price drop rose to its highest level in two and a half years. Redfin noted homebuyers continue to pull back in the wake of record-high purchasing costs. Mortgage purchase applications fell to their lowest level since May 2020, and the number of homebuyers touring and offering on homes.

“Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further,” said Redfin Chief Economist Daryl Fairweather. “Not only are more homes hitting the market each week, but sellers are dropping their prices at rates not seen since before the pandemic. This sudden pressure on sellers is good news for those homebuyers who can still afford to buy at today’s higher mortgage rates. These trends point to an even cooler market this summer.”