Data is the oil... residential real estate edition

"In recent years, as finance has computerised and algorithms have come to dominate markets, data has evolved from being a byproduct of transactions to 'the lifeblood of finance'" (quote by Audrey Costabile Blater PhD of Aite Group)

Buried in nearly every piece on this matter is mention of the Ellie Mae purchase by Intercontinental Exchange which may seem a bit dissonant, but residential mortgages provide some of the richest and most sizable, long duration data sets around, one that's barely being leveraged when compared to adjacent financial sectors, and generally at a remove. This may be attributable to the cloistered nature of the US mortgage market, a $10Tr+ cul-de-sac in the financial markets.

But, don't fret. The Black Fleet of exogenous disruption is at the mouth of this sector's Edo Bay.

The myth of GSE release

“(FHFA) Director Calabria seems more interested in crippling the GSEs operationally than making a release from government control truly possible.”

Christopher Whalen may be indulging in a bit of psycho-analysis, but if you take Grover Norquist’s quip about getting government “to the size where we can drown it in the bathtub,” and substitute the object of affection with Fannie Mae/Freddie Mac, you’re likely close to the good director’s world view.

Disparate outcomes of loan deferral/forbearance programs

The Wall Street Journal highlights the disparate outcome of loan deferral programs set out by the Cares Act, which have been "of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit."

In a fractal turn within mortgages, one sees a marked divergence in impact, with the Federal Housing Administration and U.S. Department of Veterans Affairs loans having 2.6x higher rate of forbearance than the generally better credit Fannie Mae and Freddie Mac loans. (Source: Black Knight McDash Analytics)

Hoboken’s Jack Silbert is unapologetically himself

Great piece about my one-of-a-kind high school and college classmate Jack Silbert #resilience

Class C apartment occupancy tightest

Impressive analysis by Jay Parsons at RealPage showing the divergence in occupancy levels across apartment classes that point to a severe undersupply in affordable housing.

US mortgage refinance heatmap

 From Leonard Kiefer... Heatmap showing how mortgage refinances are bringing the heat.

Overheated? Maybe not. The market hasn’t been this robust since 2012-13 with six intervening years of robust HPI growth. Also the peaks this time around are measurably lower than that last refi tsunami. In both instances, sizable portions of homeowners remain on the sidelines, due to underwater (in equity) last time, employment distress this time. 

"In one year, foreign buyers spent $800M on Austin-area homes"

The #texasrealestate news of the day about Hewlett Packard Enterprise moving its HQ to the Houston area recalled the buzz around a recent piece highlighting how foreign buyers spent $800mm in Austin area homes (Mar '20 LTM)

Seems like a lot, but what to make of it? Total foreign purchase of US residential real estate over the same timeframe was $74B, with Texas coming in third at 9% or $6.7B. Florida and California topped the charts with 22% and 15%, respectively.

It looks like Austin accounted for 12% of foreign resi real estate investment in Texas, a bit over 1% of the total US pie. So, plenty of room to grow, and, given the state's outsized ambitions and other recent HQ moves by McKesson CBRE Charles Schwab AT&T PGA of America and potentially TikTok among others, I'm sure it will.

Class C operators last to resort to rent cuts

Class C operators last to resort to rent cuts. Interesting new data point on the back of last week's report by RealPage, Inc. showing strong occupancy levels in 3Q20 for the same apartment class. Looks like a catch up the pack, but is this a portent of 4Q20 softness? 

WSJ: Fannie, Freddie overseer looks to end Federal control before Trump leaves

Federal Home Finance Agency head Mark Calabria, the reg­u­la­tor who over­sees Fannie Mae and Freddie Mac is push­ing to speed up the mort­gage gi­ants’ exit from 12 years of gov­ern­ment conservatorship, but has yet to reach an agreement with U.S. Department of the Treasury Secretary Steven Mnuchin. Two major considerations: (1) concern about any action that would inject uncertainty in the government’s backing of the firms which have helped drive the record low mortgage rates of late and (2) potential write down of the government’s $220B+ of senior preferred shares in the two firms which would disincent any private investor interest.

Student loans: “Trouble ahead, trouble behind”

My friend Per von Zelowitz’s recent post on student loan debt prompted me to examine one of the drivers of the growth from about decade ago: for-profit colleges.

Sure enough, The Century Foundation recently explored the resurgence in student debt since 2017, pointing specifically to the trend of nonprofit institutions renting “out their names to third-party, for-profit online program management companies (OPMs). OPMs run many aspects of colleges online programs, including marketing, and in exchange frequently take half or more of the tuition revenue charged to federal student loans.”

While these observations are retrospective, a recent report from The Brookings Institution also pointed to how the for-profit sector is better poised for growth in this environment since, pre-pandemic, “72% of students in four-year for-profits were attending exclusively online, compared to just 12% of students in four-year public colleges.”

October existing home sales see ‘spectacular’ 26.6% annual gain

October’s 26.6% y/y gain in unit home sales as reported by CNBC’s Diana Olick is indeed “spectacular” in the words of the prolific Lawrence Yun. That the month’s sales was recorded on the basis of a 19.8% y/y drop in supply and led to a 15.5% y/y increase in median home price leads one to be concerned about the impact of any shifts in the characteristics of the homes on the market, however unlikely given the scope of this measurement.

One intriguing option for answering this query is the Common Haus Price Index created by Ralph McLaughlin at Haus.com which tracks the asking price of homes within markets on a like-to-like basis. The chart below shows a “clear, though not perfect, correlation between the CHPI home value in a market and the year-over-year decrease in inventory.” So, looks like I can sleep well tonight having (sorta) addressed my concern.

Pandemic mobility: "Well... how did I get here?"

There's a sense that, once this pandemic subsides, many of us will be living that Talking Heads classic with the refrain stuck on repeat. LendingTree recently announced 46% of its mobility survey respondents are considering moves over the coming year. One in five are thinking out-of-state, so it's more tweaking than migration.

Just as interesting... 38% had changed living arrangements due to the pandemic. For men, it was nearly half.

Geopolitical game of Go in action...

15 Asia-Pacific countries form world's largest trading bloc accounting for nearly one-third of all economic activity; excludes US

“Inequality compounds in exactly the same way as interest..."

“Inequality compounds in exactly the same way as interest — small, nearly negligible differences accrue into significant gaps over time.”

Morgan Stanley estimates that the lack of access to homeownership has cost nearly 800,000 jobs, $400 billion in tax revenue and nearly five million from owning homes. This comes at the heels of a recent MIT Golub Center for Finance and Policy research showing that African American homeowners on average pay $67,320 more for their houses over their lifetimes because they pay slightly higher mortgage rates, mortgage insurance premiums, and property taxes on a monthly basis, which, if eliminated, would reduce the $130,000 black-white gap in liquid savings at retirement would by half.

The Blue economic tsunami

Does the economic bifurcation around political parties evidenced by The Brookings Institution highlight a system that has taken leave of equilibrium?

Trump won counties generating 29% of America’s GDP this cycle, down from 36% in 2016. If this trend continues, what if the Red constituency become increasingly big government redistributionist to better share the spoils while those in Blue areas respond by seeking more local control to stem that sort of wealth transfer?

Regional differences in housing affordability deterioration

Two charts from a recent National Association of Realtors report neatly summarize the differing affordability picture between regions.