Housing Market Roundup Jan. 10, 2023

Here’s a summary of recent housing/economics articles that came across the MBA NewsLink desk:

Veros: Housing Market Annual Forecast Goes Negative for the First Time in More Than Decade

Veros Real Estate Solutions, Santa Ana, Calif., released its 2022 Q4 VeroFORECAST that anticipates home prices will turn negative overall and depreciate on average by -0.5% for the next 12 months, a significant drop from the 1.5% annual appreciation forecast just one quarter ago.

“This decrease to an average depreciation of -0.5% over the next 12 months is the first time in over a decade that Veros’ average house price forecast has gone negative,” said Eric Fox, Chief Economist with Veros. “The last time that the annual forecast was expected to be negative was in 2012 following the aftermath of the previous housing market crash. Though average depreciation is expected now, the fundamentals of the U.S. housing market in 2023 are much better than they were a decade ago. This is not going to be a repeat of what we saw in 2007-2008.”

Markets expected to have annual depreciation has grown from a few dozen during last quarter’s update to nearly half of the markets in this update. Though the number of depreciating markets may seem large, many of them are forecast to have only mild depreciation of just a percent or two.

The 10 strongest performing markets in the country forecast over the next 12 months are only forecast to appreciate at the 4% to 6% level which is down significantly from what the top performing markets were expected to do just a year or two ago. The 10 least performing markets over the next 12 months had the most notable changes. In last quarter’s forecast, there were 10 markets forecast to depreciate in the lower single digits. However, now all of these 10 markets are forecast to depreciate in the mid-single digits.

Fitch: Headroom Supports Corporate Ratings as Economy Falters

Fitch Ratings, New York, said weaker economic growth and inflation are key drivers of the sharp rise in the number of deteriorating sector outlooks for non-financial corporates globally in 2023, Fitch Rating says. Forty-three percent of its 2023 sector outlooks in North America, EMEA, APAC and Latin America are deteriorating, compared to only 1% in 2022.

However, the Rating Outlook distribution for issuer ratings is predominantly Stable due to headroom in key credit metrics and negative rating actions taken during 2022. Speculative grade corporates are most vulnerable to operating and ratings pressure from the weaker global macro environment.

The report said demand erosion and weakening pricing power will feed through to corporates in North America. The Rating Outlook is Stable for 87% of Fitch’s publicly rated IG corporates universe, with the remaining 13% near evenly split between Positive Outlooks (6%) and Negative (7%). Sectors with the highest percentage of Negative Rating Outlooks include REITs (17%), Technology (13%) and Electric Utilities (13%). Conversely, Chemicals (21%) and Energy (16%) have the most Positive Outlooks.

Black Knight Originations Market Monitor: Rate Locks Hit Record Low For Second Consecutive Month

Black Knight, Jacksonville, Fla., released its monthly Originations Market Monitor, showing rate lock volumes declined by 19.4% in December as elevated mortgage rates kept buyers, sellers and refi candidates on the sidelines.

The report said purchase locks fell 20.5%, while rate/term refis dropped 11.2% and cash-out refis fell by 14.1%, with total refinance locks making up 16% of the month’s overall activity. Seasonal headwinds combined with interest rate and affordability pressures continue to challenge purchase lending, with the dollar volume of such locks down 45.9% over the past three months and 48.9% from December 2021 

“Mortgage rates declined through the first half of December but reversed course as the Fed doubled down on their stance of additional tightening in 2023,” said Kevin McMahon, president of Optimal Blue, a division of Black Knight. “The spread between mortgage rates and the 10-year Treasury yield narrowed another 22 BPS during the month to 264 BPS, 40 BPS off the recent high, but is still up 81 BPS for the year.”

Knock Buyer-Seller Market Index: Buyers Gain Leverage in West; Sellers Hold Advantage in East

Knock, New York, said homebuyers will gain some leverage in 2023. However, shoppers are in for very different experiences depending on where in the U.S. they are looking to move, according to the Knock Buyer-Seller Market Index 2023 forecast released today, which shows a clear divide between the best markets for buyers versus sellers.

According to the Index, which analyzes key housing market metrics to measure the degree to which the nation’s 100 largest markets favor home buyers or sellers, the top five buyers’ markets are west of the Mississippi, while the top five sellers’ markets are concentrated in the East Coast.

“With home prices and interest rates cutting into purchasing power, the relocation hotspots where prices grew quickly during the pandemic will increasingly favor buyers in 2023, while more mid-sized markets offering good job opportunities and affordable housing will be the top performing real estate markets in 2023,” said Knock Co-Founder and CEO Sean Black. “This will usher in a more balanced housing market. However, home shoppers will find different scenarios depending where in the U.S. they are looking.”

Based on the November Buyer-Seller Index, inventory rose in 80 of the 100 largest housing markets and all but two moved at least marginally toward favoring buyers.

A total of 2,336,520 homes were sold in the 100 largest housing markets in the first 11 months of 2022, down 19% from a year earlier. Median days on market increased to 22, up from 13 in November 2021. The average sale-to-list ratio, which measures how close homes are selling to their asking price, was 98%, down from 99% in October and 100% a year ago. There were 14 buyers’ markets in November 2022, 46 markets favored sellers and 40 were in neutral territory.

This year’s top buyers’ markets are all west of the Mississippi and were popular relocation spots during the pandemic, which caused home prices to accelerate at a faster pace than the rest of the nation on average. Prices in the top five buyers’ markets rose by 44.6% on average between January 2020 and last month, compared to 34.9% for the rest of the nation during the same period. In rank order, the top 5 buyers’ metros for 2023 are Phoenix-Mesa-Chandler, Ariz.; Colorado Springs, Colo.; Las Vegas-Henderson-Paradise, Nev.; Dallas-Fort Worth-Arlington, Texas and Denver-Aurora-Lakewood, Colo.

CoreLogic: Rising Mortgage Interest Rates Put Brakes on U.S. Housing Market

CoreLogic, Irvine, Calif., released its major U.S. housing trends wrap-up for 2022, noting year-over-year home price growth increased for the 130th straight month in November, but gains have slowed significantly since the spring. Still, most homeowners were in positive-equity territory throughout the first three quarters of the year, and mortgage delinquencies and foreclosure rates remain near historic lows.

“The wild ride known as the U.S. housing market slowed dramatically in the fall of 2022, as mortgage rates surged and home prices remained high,” said Molly Boesel, principal economist at CoreLogic. “Home sales started strong in early 2022 but took a nosedive later in the year. On the plus side, generous amounts of home equity will protect many borrowers from experiencing the type of foreclosure activity seen during the Great Recession.”

According to CoreLogic’s monthly Home Price Index data, U.S. year-over-year home price growth reached 20.1% in April 2022, the highest level recorded in more than two decades. However, appreciation has tapered off every month since, falling to 8.6% in November.

CoreLogic’s quarterly Home Equity Report shows that in first quarter 2022, borrowers gained a collective $3.8 trillion in home equity since first quarter 2021, a 32.2% increase. During that period, U.S. homeowners with a mortgage gained an average of $64,000. But since home price growth is the primary driver of equity growth, increases slowed as prices cooled. In third quarter 2022, homeowners gained a total of $2.2 trillion in equity than during the same quarter in 2021, an increase of 15.8% and averaging $34,300 per borrower.

Fitch: Structured Finance Ratings Resilient to Deteriorating Asset Performance

Fitch Ratings, New York, said structured finance asset performance will weaken in 2023, although the vast majority of Rating Outlooks across its SF portfolio are Stable given deleveraging, robust structural protections and credit enhancement growth that provides cushion to absorb worsening asset performance.

Fitch has a deteriorating asset performance outlook for 55 of 71 SF sectors globally, indicating a negative trend in core credit drivers for these sectors relative to 2022 as a result of worsening macroeconomic conditions. Asset performance deterioration will be greater in sectors with lower payment priority as well as those with exposure to weaker credit quality borrowers, including unsecured consumer loans and subprime auto loans. Higher interest rates will also have a negative effect on sectors backed by variable rate loans and loans subject to refinancing.

For most regions, Fitch expects the deteriorating macroeconomic environment to ease some of the positive rating momentum, although negative rating actions will be limited in 2023 as our ratings analysis incorporates loss expectations that are stressed at higher levels according to the rating such that loss expectations for high investment grade ratings are consistent with remote, high severity stresses. However, downside risks, including a drastically deteriorating macroeconomic environment with higher inflation and policy rates, shifts in government policies and geopolitical risks could increase asset performance risks and negative ratings pressure.

FHA Seeks Feedback on Enhanced Policy to Support Requests for Reviews of Appraisal Results

The Federal Housing Administration posted a draft Mortgagee Letter that proposes policy changes intended to strengthen FHA requirements for processing and documenting Reconsideration of Valuation requests, particularly when those requests are initiated by a borrower’s request for review of appraisal results. The Draft ML, Borrower Request for Review of Appraisal Results, is posted on FHA’s Single Family Housing Drafting Table web page on HUD.gov for public feedback through February 2.

With this Draft ML, FHA provides proposed guidance to improve the process when prospective borrowers applying for FHA-insured Title II forward or Home Equity Conversion Mortgages request an ROV on a property if the initial valuation is lower than expected, there is indication of illegal bias, Fair Housing regulations have been violated or unlawful discrimination has been identified. This Draft ML also proposes updated appraisal review standards intended to provide mortgagees and appraisers with clarifying guidance regarding the quality of an appraisal report and the ROV process and responsibilities.

Fannie Mae: Easing Mortgage Rates, Home Prices Provide Slight Boost to Homebuyer Sentiment

The Fannie Mae Home Purchase Sentiment Index increased by 3.7 points in December to 61.0, but the index remains only slightly above its record low set in October.

Three of the index’s six components improved month over month, including those associated with homebuying conditions, mortgage rate outlook and job security. Only 21% of respondents believe it’s a good time to buy, likely owing to the ongoing affordability challenges posed by elevated mortgage rates and home prices. Year over year, the full index is down 13.2 points.

“The HPSI remains very low by historical standards, particularly the ‘good time to buy’ component, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism. As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers, as even small declines in rates and home prices – from the perspective of the buyer – may not produce sufficient purchasing power,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

Key report findings:

–Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home increased from 16% to 21%, while the percentage who say it is a bad time to buy decreased from 79% to 76%.

–Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home decreased from 54% to 51%, while the percentage who say it’s a bad time to sell increased from 39% to 42%.

–Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months remained unchanged at 30%, while the percentage who say home prices will go down increased from 34% to 37%. The share who think home prices will stay the same decreased from 30% to 29%.

–Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 10% to 14%, while the percentage who expect mortgage rates to go up decreased from 62% to 51%. The share who think mortgage rates will stay the same remained increased from 24% to 31%.

–Job Loss Concern: The percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 78% to 82%, while the percentage who say they are concerned decreased from 21% to 17%.

–Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 27% to 25%, while the percentage who say their household income is significantly lower decreased from 17% to 15%. The percentage who say their household income is about the same increased from 55% to 59%.

MCTlive! Lock Volume Indices: Total Lock Volume Down 67.5% from Year Ago

Mortgage Capital Trading Inc., San Diego, released its MCTlive! Lock Volume Indices for December, showing year-over-year total lock volume (-67.5 percent) continues to drop, as expected, when compared to activity in 2021.

Both the month-over-month rate/term refinance lock figure and purchase index decreased for the third consecutive month. Total mortgage rate locks by dollar volume decreased 19.8 percent month-over-month in December.

Cash out refinances are down 23.5 percent month-over-month and from one year ago volume is down 90.0 percent, while rate/term refinance volume has dropped 93.3 percent from 2021.