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As mortgage rates hit a 22-year high and existing homeowners continue to stay in their homes, new single family home sales hit a 17-month high in July, according to HUD and U.S. Census Bureau data.
Last month’s data recorded a seasonally adjusted annual rate of 714,000 new single-family home sales, up 4.4% from the revised June rate of 684,000 and is 31.5% above the July 2022 estimate of 543,000. The median sales price of new houses sold in July 2023 was $436,700 and the average sales price was $513,000. First-time buyers now make up 50% of all buyers, up from 45% in 2022 and 37% in 2021.
Chief economist at the National Association of Realtors, Lawrence Yun, said he expects rates will begin decreasing by the end of the year, citing the Fed’s slowing of its interest rate increases. The Mortgage Bankers Association, said they expect the average 30-year mortgage rate to decrease to 5% by the fourth quarter of next year.
Meanwhile, Morgan Stanley reiterated concerns for regional banks. Vishy Tirupattur, its Chief Fixed Income Strategist, said the firm does not accept a growing narrative that “the issues in the sector that erupted in March are largely behind us.” “The ratings downgrades by both Moody’s and Standard & Poor’s,” Tirupattur said, “provide a reminder that the headwinds of increasing capital requirements, higher cost of funding and rising loan losses continue to challenge the business models of the regional banking sector.” While acknowledging that comment periods are open and changes could occur, on the heels of proposed rules around capital requirements, the Fed’s proposed capital rule on implementing capital surcharge for the eight U.S. global systemically important banks, and proposed regulations on new long term debt requirements for banks with assets of $100-700 billion, Tirupattur said “suffice to say that the documents envisage significantly higher capital requirement for much of the U.S. banking sector, and extends several large bank requirements to much smaller banks.”
In short, Morgan Stanley argues the result — supported by the latest Senior Loan Officer Opinion survey and a paper by the San Francisco Fed evaluating regulatory impacts on the real economy — is tighter credit going forward. “The bottom line is that more tightening lies ahead for the broader economy,” . …[and] “the evolution of regulatory policy can weigh on credit formation and overall economic growth.”
A report by Newmark in the Commercial Observer said debt origination volumes in the sector fell 52 percent year-over-year in the second quarter. They said there are also 32 percent fewer lenders than a year ago and lenders have grown “more selective in recent months, demanding lower loan-to-value ratios amid the Federal Reserve’s interest rate hikes.”
Additionally, the Washington Post ran a story this week about what is being referred to as the “urban doom loop” affecting midsized cities if commercial real estate headwinds persist. “The fear is that a commercial real estate apocalypse could spiral out and slow commerce, wrecking local tax revenue in the process. Midsize cities have some of the highest rates of office delinquency, where loan payments on buildings are behind schedule, and the lowest rates of office occupancy,” the Post reported. “The average delinquency rate across the 50 largest metro areas in the country is about 5 percent. But in places like Charlotte in North Carolina or Hartford in Connecticut, it is almost 30 percent, according to data from the real estate analytics company Trepp. Likewise, occupancy rates average about 87 percent. But in Oklahoma City, it is just 71 percent, and 76 percent in both Memphis and St. Louis.”
The Wall Street Journal reports that after the average city office occupancy rates surpassed 50% earlier this year for the first time since the pandemic began, “many landlords viewed this milestone as a sign that employees were finally resuming their former work habits.” Office usage rates have barely budged since, as most companies have settled into a hybrid work strategy “that shows little sign of fading,” the Journal wrote.
Meanwhile, total consumer debt hit $17.05 trillion, an increase of nearly $150 billion, or 0.9% during the January-to-March period, the New York Federal Reserve reported Monday, up about $2.9 trillion from the pre-Covid period ended in 2019, though the level of those taking on new housing-related debt dropped sharply, the New York Fed said.
The Fed said Thursday its emergency lending to banks rose to $92.4 billion in the week ended May 10, from $81.1 billion last week. Bank borrowing from the Fed peaked at $164.8 billion in mid-March. Bank loans from the Fed’s emergency Bank Term Funding Program totaled $83.1 billion, up from $75.8 billion in the prior week. Banks borrowing from the Fed’s traditional discount window rose to $9.3 billion from $5.3 billion last week.
The Mortgage Bankers Association (MBA) is urging the Federal Housing Finance Agency to delay implementing proposed changes to the Enterprise Regulatory Capital Framework, saying they “oppose strongly” any risk-weighting of re-securitizations issued by one of the GSEs that contain securities issued by the other GSE. In a letter to FHFA MBA said they support the changes in the proposal that would reduce the risk weight and credit conversion factor for commingled securities form 20% and 100% to 5% and 50%, respectively.” MBA says “The existing 20% risk weighting resulted in the implementation of a 50-basis-point commingling fee last year.”
MBA also expressed concerns that implementing a change to capital framework “ahead of the transition to the bi-merge credit report requirement could artificially raise scores for some borrowers.” It then recommends that FHFA delay implementing the change and perform additional analysis, and then report any findings “as part of the new credit score implementation process.”
Last week FHFA announced a rescission of the controversial LLPA charge for DTI ratios over 40%. Yesterday, FHFA also issued an RFI seeking feedback on the single-family guarantee fee and LLPA pricing framework. Comments are due by August 14.