FHFA House Price Index (HPI) Monthly Report: “The 12-month gain of 10.2% in October is the highest annual appreciation observed since the 2004- 2005 period. Extremely low mortgage rates and a limited supply of homes for sale continue to propel price gains. The data do not yet reflect renewals of some local and state COVID-19 restrictions.”
This index is derived from data on mortgages conforming to Fannie Mae and Freddie Mac limits.
"The S&P CoreLogic Case-Shiller index covering home prices of all nine U.S. census divisions, reported an 8.4% increase in October from a year ago. The National Index is now up 24.5% from its former high in July 2006."
Many reasons, but the one provided by the guy overseeing the index, that “it’s likely COVID-19 has pushed buyers to move from urban apartments to suburban homes” is one of the less plausible ones since the we have yet to see undisputed data supporting thesis of a secular bum rush out of the cities (ex-NYC).
“The National Index is now up 24.5% from its former high in July 2006.” — This daunting stat translates to a slightly less almighty CAGR of roughly 1.6%
The median Manhattan rent of $2,776 this past November was down 12.7% year over year, exceeding “the biggest price drop during the Great Recession, when prices fell nearly 10 percent,” while the suburbs witnessed 20%+ growth in median sale prices. Looking forward, however, the number of new signed contracts in NYC’s urban centers have been on an upswing while the suburbs are reverting to long-run norms.
As ever, The New York Times seems to have forgotten that land mass west of the Hudson in its reporting, where “sales of luxury homes skyrocketed 101.6% year over year.”
“The 49 most populous U.S. metropolitan areas all experienced at least double-digit growth in luxury-home sales during the three months ending Nov. 30. The biggest jump was in Newark, NJ, where sales of luxury homes skyrocketed 101.6% year over year.”
As we head into the second calendar year of this pandemic-fueled housing bull run, we seem to have encountered two word pairs that likely have not entered our collective consciousness in a single sentence in well over fifty years - “Newark, NJ” and “luxury homes.”
In all seriousness, the Northern NJ market has been a key beneficiary of the one major evidence-rich migration story of 2020, the once-in-a-generation outflow of residents from NYC that have also tilted definitively toward the upper end of housing stock. Despite my sophomoric attempt at humor, kudos to Redfin for illustrating the dispersion of trends across the housing stratifications.
Thoma Bravo acquires RealPage, Inc. for $10.2 billion. The pace of proptech transformation is quickening.
After losing his Tennessee bid for the US Congress, Davy Crockett was quoted as saying to his constituents,
"Y’all can go to hell and I will go to Texas"
In this epoch, middle-aged aged tech pioneers seem to be adopting this mindset. Another week and Oracle, one more tech giant with its hypergrowth phase a distant memory, has announced its HQ move to Texas.
Will these moves catalyze a new manner of collaboration across the Red-Blue divide, with Texas and California, in essence, holding joint custody of a growing number of major corporations?
Akin to divorces, one hopes that a spirit of cooperation, however uncomfortable, will arise after dawning realization of the futility of antagonism and games of one-upmanship. The fate of both states will be inextricably connected for the foreseeable future.
While we are ending 2020 with mortgage originations “on pace for best year ever” (https://lnkd.in/grd-epN) turbocharged by refinance volume, should we be concerned by the increasing disparity in Fannie Mae home purchase sentiment between those who already are homeowners and those renters looking to get into home ownership? The latter category have been harder hit by the economic ravages associated with pandemic and have been sitting on the sidelines during this housing value bull market.
Door #1: The HPSI disparity between cohorts must converge for a long term sustainable purchase mortgage market, or
Door #2: We have nice single family rental unit for you...
What to make of a year-over-year comparison of the top housing markets as published by realtor.com?
Despite the mounds of breathless anecdotes about discontinuous mobility, the real action is in the larger established markets, as consumers take the leap into home ownership, existing ones trade up and others incrementally fan out within the metro areas in search of space and affordability.
The M2 grew by $3.5Tr since early March. In other words, nearly one in five of all US dollars were created during the period. By comparison, the supply expanded by less than $1.0Tr during the Great Recession. (Source: Federal Reserve Bank of St Louis)
“The (buy now, pay later) movement has left banks puzzled.” Clear example of the incumbents lacking customer empathy. By enabling the tracking of spending in terms of set cash flow, BNPL provides consumers a level of simplicity and real control to counter the complexity and illusory control of open ended credit cards.
"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.
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.
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)
Great piece about my one-of-a-kind high school and college classmate Jack Silbert #resilience
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.
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.
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. 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?
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.
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.”
