Approaching an apples-to-apples comparison of home prices with Common Haus Price Index (CHPI)

The inimitable Case-Shiller family of regional real estate indices adopt a repeat sales methodology to control for the ever-changing composition of housing stock, but still lack a measure of geographic transitivity that challenges comparisons across markets. Haus.com’s Common Haus Price Index (CHPI) normalizes for housing stock tracked across regions by focusing the asking price of the “most common American home: a three-bed, two-bath, 1,600-square-foot home built in 1977 on a 7,500-square-foot lot.” Moreover, the lag between measure and report is just over two weeks, versus the 1-3 month lag of most other home indices.

While there are a number of considerations, including the supply of the “most common American home” within specific markets and the focus on asking price, this is a very intriguing step forward in transforming home indices from essentially descriptive to something approaching prescriptive.

OCC: Seven national banks servicing over a million seriously delinquent loans?

The 2Q20 Office of the Comptroller of the Currency mortgage metrics report show that among the seven national banks with large servicing books, over 1 million loans (or 6.8% ) were seriously delinquent, a 4.7x increase from the quarter before. 

Some points for added context...

• Reason for concern: The banks (Bank of America, Citi, HSBC, Chase, PNC, U.S. Bank and Wells Fargo) have limited exposure to FHA/VA mortgages which, as a group, have seen more distress than the Freddie or Fannie mortgages that predominate their books.
• Reason for hope: There is no mention of loans in forbearance programs. Recent research by dv01 highlighted material reporting discrepancies in privately securitized pools. Could there be an overlap between loans in serious delinquency and those in forbearance?

UWM to go public

United Wholesale Mortgage to go public through a SPAC, merging with the Gores Holdings IV Inc. affiliate of The Gores Group. The combination will operate under the United name listed on the NASDAQ under the UWMC ticker. The transaction is valued at $16.1B or 9.5x the estimated 2021 Adjusted Net Income of $1.7B.

High speed train, Texas style

Texas Central Railway gets Federal approval. Cue the inevitable California-Texas comparison... Phase 1 of the California High-Speed Rail, scoped at 520 miles of tracks, is currently projected to take 2.5x the time, at 2.26x the cost/mile when compared to the Texas Central Railway. In any event, I predict the most popular bird by the banks of the Brazos will soon be the (construction) crane.

WSJ: Household Net Worth Highest Ever

The Wall Street Journal reports that US household net worth hits highest level ever.  The 6.8% jump between 1Q20 and 2Q20 masks the roller coaster dip of 6% followed by a rapid ascent of 14% in the interim. I’d be interested in seeing the distribution since we’ve been told that 1 in 5 Americans have zero or negative net worth. How are they doing these days?

WSJ: Wall Street landlords ready for the millions of house-rich, cash-poor, in-distress

What to do when homeowner equity on mortgage properties head towards $10 trillion yet over 9% of homeowners are either in forbearance plans or delinquent, meaning they have no good way of extracting that excess equity? Single family rental outfits like Invitation Homes, American Homes 4 Rent and EasyKnock are bringing to market sale-leaseback products that can help these homeowners as their forbearances start ending early next year. If these options take off, mortgage servicers may see less loss mitigation challenges, but may also lose out on these customers who claw their way back yet are sufficiently impaired that they’re essentially stuck in their mortgages.

What to do with urban parking garages?

“The pandemic has left many of these parking garages mostly empty as more people work remotely. But even before the pandemic, ride-hailing services like Uber and Lyft and the rise of urban bicycling infrastructure had been leading to a decline in car ownership in the city. Now, developers are targeting urban parking garages as prime sites for redevelopment.”

The number of parking garages and lots increased by a third since 2000.

Banks retreat again from residential servicing

Chris Whalen delves into why bank servicing of residential mortgages have fallen in 2020 even as origination volume is set to increase by 40% year-over-year.

1. Nonbank lenders have been taking the lion’s share of the volume expansion, most notably in refinance activity, which is set to roughly double year-over-year.
2. A “handful of hyper-efficient lenders” have become quite quite good at recapturing the refinance activity, which stems the pressing leak in the servicing portfolio during these refi waves.

Observations...

1. Those institutions with leading recapture capabilities are increasingly able to articulate a platform-driven value proposition (see Rocket Mortgage)
2. The share of servicing done by nonbanks lender will likely continue to grow, may have long-term systemic implications since these shops are borrowing short term to hold long term without the permanent government support accorded to banks

Showdown at Big Data Gulch

Great power rivalry in the post-industrial era.  “There’s a shift from the weaponization of supply chains toward the weaponization of data and platforms. There hasn’t been much medium-to-long-term thinking about it yet -- but that’s starting to happen.”

Mortgages boom amidst Coronavirus-driven economic gloom

$1.1 trillion in mortgages were issued in the first quarter of the pandemic era (2Q20). To put in perspective, the entirety of 2020 saw $2.5 trillion in originations. Refinances were up 200% while purchase mortgages were down 8% from the year earlier.

But it’s not all good news... “This boom in mort­gage orig­i­na­tions isn’t nec­es­sar­ily go­ing to be that awe­some for the broader econ­omy,” said Ralph B McLaughlin, chief econ­omist at Haus.com a home-fi­nance startup. “There is less of a mul­ti­plier ef­fect in the econ­omy when some­body refinances ver­sus buy­ing a house.”

Ginnie Mae refis no longer tracking their Fannie and Freddie brethren

The August edition of the Urban Institute's always interesting housing finance chartbook has an exhibit that shows the refi share of Ginnie Mae (FHA/VA) loans no longer tracking the equivalent share Fannie and Freddie loans after having had a predictable trailing relationship for most of the past decade. 

A major factor has been the pandemic’s disparate negative impact on the less creditworthy (average credit scores nearly 80 points lower) that constitutes the core of Ginnie Mae borrowers.

Zillow: Rental concessions on the rise

“Concessions can often be a leading indicator of a coming price drop in that landlords will often offer them first, before reducing rent.”

The percentage of rental listings with concessions nearly double between February and July as annualized rent growth drops by 75% over the same period, but situation is disproportionately impacting multifamily rentals common in urban cores.

“Renters in multifamily and other home types are more likely to receive some sort of concession than those in single-family rentals: 63% of multifamily renters report getting at least one, as do 59% of renters in other home types. Only 35% of single-family renters reported receiving any concessions.”

Recovery in employment rates since March/April

1. Yet more data points for those wondering why housing and equities have been on such a tear of late.
2. Clear correlation between CARES stimulus and a meaningful steadying of the economy

Source: Opportunity Insights

What's driving mortgage origination (beyond refis)?

What’s going on in the market beyond refinances, which comprised nearly two-thirds of 2Q20 mortgage originations?

Purchase: Down 2% y/y... I’m sanguine about near term prospects given the stabilization of existing home sales and boom in housing starts - up 23.4% y/y.

FHA: Share of market at 12-year low... This is a proxy for the near/lower prime, starter home category. I’d be concerned, especially given the plentiful evidence that the current economic stress has been felt disproportionately by those on the lower rungs of the economic ladder. Watch for continued gains in institutional ownership of single family rentals.

HELOC: Down 25% y/y... With rates this low, why bother with a HELOC?

Shout out to Pittsburgh, the only metro area in the country where refinance activity decreased, down 5.7% y/y. Curious...