Refinancing mortgage? Maybe you don’t need that appraisal after all

Editor’s Note:  The Fed is doing everything in its power to maintain the real estate bubble in order to maintain demand- by lowering credit score requirements, offering lower down payments (1 to 3%), and now removing the lender’s responsibility for home valuations.  What could go wrong?

http://www.miamiherald.com/news/business/real-estate-news/article157002859.html

Fannie Mae eases credit requirements boosting purchasing power by 22%

WOW! BIG Housing & Mortgage Easing News: This Changes Thing

https://mhanson.com/6-2-hanson-wow-big-housing-mortgage-easing-news-changes-things/

by

Fannie Mae pulls a 2006-style credit ease…this changes things.

 

QUESTION:  How do you know you that you are past mid-stage in a housing bubble? 

QUESTION:  How do you know that the overlords are worried about a housing market correction?

QUESTION:  How do you know the keepers-of-the-economy are worried that the mortgage-refi-capital-conveyor-belt coming to a halt will drag the US into recession?

 

ANSWERBecause Fannie Mae just eased credit guidelines to such a degree — specifically, ratcheted higher Debt-to-Income Ratio tolerances from 43% to 50% of GROSS INCOME – purchasing/refinancing power was increased over 20% instantly.

 

Remember, counter-cycle credit guidelines – loosening credit guidelines to fight a tightening credit cycle — is exactly what created BUBBLE 1.0 from 2003 to 2007.

 

Additionally, Fannie made it much easier for self-employed borrowers and ratcheted higher the LTV/CLTV/HCLTC allowances to 95% on all their loans (including interest only) to match the current 30-year fixed guidelines.

 

Bottom line:  This changes things at the margin;  INCREASES PUCHASE & REFINANCE POWER good credits by 22% and requires less down/equity, in order to compete with FHA. Put another way, somebody can suddenly buy 22% more house, or refinance a much larger loan, than they could previously on the same income with less down, or equity respectively.

 

Then, again, based on data I gather and watch daily it may be too late to keep house prices in the green. In fact, major, core metro regions will be printing NEGATIVE YY house prices this year;  he bubbliest parts of the San Fran Bay Area already are.

Think about it…when has .gov or the Fed ever acted truly proactively?  Perhaps Fannie’s models show house prices rolling over in the nearer-term and these changes are a hail-Mary to try to counter that.

 

BUT, this will also make it so the ultimate reversion to the mean is that much more destructive.

 

ITEM 1)  MY CHART SHOWS THAT GOING FROM 43% TO 50% DTI INCREASES PURCHASING POWER BY 22%.

43% vs 50% DTI MEANS A LOT

  1. The 1st column shows you could buy a $370k house with an income of $66k under the OLD, 43% DTI guidelines.
  2. NOW, (2nd column) you can buy a $450k house with the same income under the NEW, 50% DTI guidelines.  

Note, this assumes 20%, which is rare. At 5% down, purchase prices decline substantially but the 20% increase remains intact.

ITEM 2)  FANNIE MAE EASES GUIDELINES TO COUNTER RATE INCREASES (JUST LIKE DURING BUBBLE 1.0)

RED HIGHLIGHTS ARE MY EMPAHSIS. mH

New Fannie Mae DU Version Eases DTI Requirements

by: Jann Swanson

May 31 2017, 10:55AM

Fannie Mae has announced changes in underwriting for loans submitted to its Desktop Underwriter (DU), Version 10.1.  The new DU version will be implemented on or after the weekend of July 29. The changes are outlined in release notes issued on Tuesday and will apply to new loan casefiles submitted to DU on or after the weekend of July 29, 2017. Loan casefiles created in DU Version 10.0 and resubmitted after the weekend of July 29 will continue to be underwritten through DU Version 10.0.

Among the more significant changes accompanying the new version are the following.

  1. The maximum allowable debt-to-income (DTI) ratio that can be submitted in DU will be 50%. For DTIs between 45 and 50 percent, certain additional compensating factors will no longer be required. Cases exceeding a 50 percent DTI will receive an “ineligible” recommendation.
  2. The criteria that determines the documentation required to verify a self-employed borrower’s income will be updated and the number of DU loan casefiles eligible for the one year of personal and business tax return documentation requirements will increase.
  3. The maximum allowable LTV, CLTV, and HCLTV ratios (LTV ratios) for adjustable-rate mortgages will be aligned with fixed-rate mortgage LTV ratios for all transaction, occupancy, and property types, up to a maximum of 95%. Additional information on the effective dates of this change will be available in the Selling Guide.
  4. A loan casefile with a disputed tradeline that is approved with that information will no longer require further action. If such a loan casefile does not receive an Approve recommendation, the lender must determine the accuracy and completeness of the tradeline information. If the borrower is responsible and the information accurately and completely reports the account, then the lender may manually underwrite the loan if it is eligible. Tradelines reported as medical debt will continue to be excluded from the disputed tradeline identification and lenders are not required to investigate disputes.
  5. DU is regularly reviewed to determine if its risk analysis is appropriate. Version 10.1 will include an update to this risk assessment and it is expected to increase the percentage of Approve/Eligible recommendations received by lenders, particularly those with DTI rations between 45 and 50 percent.

The new DU version will also contain changes in or will generate new messages about underwriting issues in the following areas:

  • Income and Employment Updates
  • Property Inspection Waivers
  • Student Loan Cash-Out Refinance
  • Employment Offers
  • Multiple Financed Properties
  • Site Condo Reviews
  • Timeshares
  • Homebuyer Education

Version 10.1 will also support the final Consumer Financial Protection Bureau rule implementing amendments to the Home Mortgage Disclosure Act (HMDA) which modified the reportable data requirements related to collection of information of borrower ethnicity, race, and gender.

Fannie Mae says that with the release of the DU Version 10.1, Version 9.3 will be retired.  Effective the weekend of July 29, resubmissions of loan casefiles to the old version will not be accepted although applications and Underwriting Findings reports will still be available for viewing. To obtain an updated underwriting recommendation after the retirement date customers must create a new loan casefile.

http://www.mortgagenewsdaily.com/05312017_fannie_mae_lending.asp

39 Million Americans can’t afford their Housing

Nearly 39 million households can’t afford their housing, according to the annual State of the Nation’s Housing Report from Harvard’s Joint Center for Housing Studies.

Experts generally advise budgeting about 30% of monthly income for rent or mortgage costs.

But millions of Americans are far exceeding that guideline.

One-third of households in 2015 were “cost burdened,” meaning they spend 30% or more of their incomes to cover housing costs. Of that group, nearly 19 million are paying more than 50% of their income to cover their housing needs.

When so much of your paycheck is going toward keeping a roof over your head, it forces sacrifices in other budget areas, including food, health care and transportation.

“It depends on household type: Families with kids … they cut back pretty severely on food,” said Jennifer Molinsky, a senior research associate at the center. “Older adults cut back a lot on health care.”

In 2015, there were almost 25 million children living in cost-burdened households.

Low-income families with children that are paying more than half their incomes to cover housing cut back the most on food, according to the report. They spend less than $300 a month, compared to households with no cost burdens, which spend about $500.

“To make ends meet, these families often do not buy enough food for their households or they substitute cheaper but less nutritious foods, either of which can jeopardize their children’s health and development,” the report stated.

Low-income households are also more likely to compromise on the quality of housing, including living in places with structural issues.

Low housing inventory levels have helped push up home prices as many markets struggle with a supply and demand imbalance. Bidding wars are common in some places.

Home prices fell off a cliff after the 2007 housing crash, but they have been rising and last year surpassed their pre-recession peak.

That price appreciation has scared away many wanna-be buyers, who have been forced to rent. Demand for rental units has increased and pushed up prices.

As a result, the report found, more than 11 million renter households pay more than half their income on housing — a 3.7 million increase from 2001.

Miami has the highest percentage of cost-burdened renters, at nearly 62%, followed by Los Angeles and Deltona-Daytona Beach, Florida at 57%.

 http://money.cnn.com/2017/06/16/real_estate/rising-home-costs-affordability-harvard/index.html

Richest Americans Will Control 70% Of Country’s Wealth By 2021

 https://www.bloomberg.com/news/articles/2017-06-16/the-u-s-is-where-the-rich-are-the-richest
Being rich is great. But being rich in America? That’s even better.

With US stock benchmarks trading just below record highs, and Treasury yields not too far from the all-time lows reached last summer, the gulf between the world’s wealthy elite – those 18 million households worldwide with more than $1 million in assets – and everybody else is rapidly widening.

According to a new study by Boston Consulting Group via Bloomberg, these households – with a total head count of roughly 70 million people, or about 1% of the world’s population – control 45 percent of the $166.5 trillion in wealth. By 2021, they will control more than half, suggesting that, while wealth inequality in the rest of the world is simply accelerating, in America, it’s gone into overdrive. Right now, 63 percent of America’s private wealth in the hands of U.S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70 percent.

More Americans Will Become Millionaires In 2017, But It’s Not All Good.

“The share of income going to the top 1 percent in the U.S. has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at high double-digit rates). The tide shifted in the 1980s under Republican President Ronald Reagan, a decade when “trickle-down economics” saw tax rates for the rich fall, union membership shrink, and stock markets spike.”

In its report, BCG puts the global rate of wealth creation in 2015 and 2016 at 5.3 percent, though the consulting firm expects it to accelerate to about 6 percent annually for the next five years. Those gains will accrue almost exclusively to the wealthiest Americans, while wealth held by everyone else is just barely growing.

Of course, there’s a caveat: In America, most of these gains exist only on paper. More than 70% of new wealth creation is derived from the rising value of rich investors’ portfolios. The rest is what BGC describes as “new wealth creation” aka real money earned by workers and entrepreneurs. Globally, the share derived from asset valuations falls to about 50%.

“In the U.S., the creation of “new” wealth is a minor factor, making up just 28 percent of the nation’s wealth increase last year. It’s even lower in Japan, at 21 percent. In the rest of the Asia Pacific region, meanwhile, two-thirds of the rise is driven by new wealth creation.”

The richest Americans could receive an additional bump if/when President Donald Trump pushes the fiscal agenda on which he campaigned through Congress – an agenda that includes tax cuts, deregulation and trillions of dollars’ worth of new infrastructure projects. However, since the exact details of these policies are not yet widely known, it’s difficult to predict their specific impact, BCG says.

“’No one knows’ what kind of tax changes will become law, said BCG senior partner Bruce Holley. However, “this could buoy the [growth in U.S. wealth] that we are predicting.”

America remains home to the highest concentration of millionaires and billionaires in the world, and their ranks are growing fast: Today, about 7 million Americans are worth more than $1 million. BCG expects that number to balloon to 10.4 million by 2021 – an annual growth rate of 8 percent, or about 670,000 new millionaires each year.

China has the second most millionaires and billionaires, at 2.1 million, though its population is four times the size of the US.

Within the US, glaring disparities exist from region to region. As Fortune reported back in 2015, roughly two-thirds of America’s millionaires and billionaires live in 12 metro areas, mostly wealthy enclaves along the coasts.

Meanwhile, according to the Federal Reserve’s latest survey of household economics and decisionmaking, a quarter of American adults can’t pay all their monthly bills, and 44% have less than $400 cash on hand in case of an emergency.

 http://www.zerohedge.com/news/2017-06-17/richest-americans-will-control-70-countrys-wealth-2021-bcg-says

MOAB: The Mothers of all Bubbles coming to a Town near You

Editor’s Note: Right before the housing bubble burst in 2008 the American public was being told by the media and government that the economy was sound.  We are now in the 9th year of an artificial recovery.  If you look at the real economic indicators, we are at the tipping point that will likely make the 2008 Bubble look like a dress rehearsal for the real thing.

Authored by Chris Martenson via PeakProsperity.com,

Global macro economic data has been weak for many years, but there’s now a very real chance of a world-wide recession happening in 2017.

Why? A dramatic and worsening shortfall in new credit creation. 

The world’s major central banks have, again, done the world an enormous disservice.  Instead of admitting that maybe/perhaps/possibly the practice of issuing debt at more than twice the rate of underlying economic growth was a very bad idea over the past several decades, they instead doubled down and created an even larger debt monster to be dealt with.

The resulting global asset price bubble — or, more accurately, set of nested and incestuously intertwined bubbles — can collectively be called the Mother Of All Bubbles (MOAB). None has ever been larger in history.

As with all prior bubbles, it shares the collective delusion that there’s such a thing as a free lunch. History has seen many attempts to eat this elusive meal, with each generation convinced that they were the chosen ones who could finally crack that nut.

So, dutifully, our central bankers have tried, and tried again, to deliver that free lunch — i.e. to print up prosperity.

But, alas, prosperity cannot be printed out of thin air. All that can be accomplished by central bank slight of hand is a transfer of wealth.  Central banks steal from the many to give to the few.  They are the reverse Robin Hoods of our day.

They also encourage everyone to steal from the future, which is what excessive borrowing really represents. It’s future consumption taken today at the expense of tomorrow.

The most charitable thing that can be said about the central banks is that perhaps they actually believed their own BS, but I seriously doubt it.  Even the most dense of observers has noticed by now that we are 9 years into the ‘emergency measures’ and nothing even remotely close to healthy economic growth has emerged.

One year of emergency measures is already a bit too long.  3 years is embarrassing.  9 years tells you that the Fed isn’t in this for the reasons they state.  Instead, they are orchestrating the largest wealth transfer in all of history, from the many to the few.

Once you realize this is their goal, then they’ve succeeded amazingly.  Mission accomplished! 

We have the widest wealth and income gaps in all of history. The big banks have complete control of the political and financial machinery of every country of the world. And the corporate controlled media simply cheerleads the whole thing, convincing most people it’s all been for their own good.

Honestly, from a planning and execution standpoint, I have to give the central banking cartel very high marks for pulling off such a magnificent heist almost completely undetected by the average person.

Of course, they needed lots of assistance from a complaint media.

Economic Propaganda

Propaganda noun – information, especially of a biased, emotionally charged or misleading nature, used to promote a political cause or point of view.

Let’s turn now to exploring the ways that the media serves to deliver propaganda instead of providing useful context and essential information.

People are anxious these days. One explanation for this is that their personal lives are getting harder and more difficult on multiple fronts.  Wages are flat (to down) and expenses are skyrocketing. There’s no sense of safety, and everybody can sense the massive injustice of the reverse Robin Hood policies of the central banks and governments. 

Injustice, of course, makes us very unhappy.  That’s true of all social creatures, ranging from primates to dogs.  Fairness matter — a lot. And when systems or individuals operate unfairly, then the other participants tend to withdraw and/or give up.  If things become bad enough, however, the victims get angry and will eventually retaliate.

To keep this unfairness from boiling over, a couple of tricks of the government’s trade are to first get the afflicted parties blaming the wrong people — preferably each other, as opposed to the actual perpetrators of the unfairness.  This works great; we see it in police pitted against protesters, even though they both are being unfairly treated in similar ways by the system. Ditto for the left vs. right protests that have been erupting all over the world.

A second trick is to simply confuse everyone, to try and convince them that nothing unfair has actually happened in the first place.  This is achieved through lies, either by omission or commission, and this is now daily fare in the leading mainstream news outlets.  And I use the term ‘news’ very, very loosely.

What results when we are told (and/or believe) one thing but our experiences indicate another, is cognitive dissonance.

Cognitive Dissonance — noun – the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change.

The creation of ‘inconsistent thoughts or beliefs’ is now an entrenched industry with hundreds of billions of advertising dollars at its disposal.  It’s now so thoroughly part of the societal fabric that many of its most advanced practitioners have no idea that they are even carrying out a sophisticated program of deception with savant-like precision.

Born, bred and raised within the system of delusion, they’re unaware of their own role, or why they’re playing it.

Let’s pull an example I found, easily enough, in this morning’s news cycle (6-16-17).

Today’s propaganda headline from Bloomberg is a classic:

This U.S. expansion may be moving like a tortoise, but it’s on its way to win the race.

Widely disdained for its relatively weak growth and pay gains, the expansion is about to complete its eighth year — and it’s headed to become the longest on record, according to a Bloomberg survey of economists. Respondents put a 60 percent probability, based on the median estimate, on the growth streak running through at least July 2019 and thereby reaching 121 months, topping the 10 years of gains during the 1990s.

The U.S. economy looks pretty healthy right now when you think in terms of sectors that could blow up,” said Stephen Stanley, chief economist at New York-based Amherst Pierpont Securities LLC. Having avoided any “violent bounceback” during the recovery, “most sectors seem to have room to run,” signaling continued moderate growth, he said.

A strong job market, subdued inflation, low borrowing costs and healthier finances will be a tailwind for consumer spending while business investment, a laggard so far, is expected to join the drivers of growth. Even trade may become less of a drag.

(Source)

This Bloomberg article is a really strong effort by the media to spin things as being much rosier than they are.  Many people’s direct experiences will be completely counter to the happy-talk put forth in this article, which basically readsl like the intro to Garrison Keillor’s Lake Woebegone radio program, which told of a magical place where all the women are strong, all the men are good looking, and all the children are above average.”

In other words, a fantasy land where the supporting data provided cannot possibly be correct.

So let’s review the amazing list of data, shall we?

  • Economists agree, this expansion will become the longest on record
  • The US economy looks pretty healthy right now
  • Most sectors have room to run
  • There’s a strong job market
  • Inflation is subdued
  • There’s also something called ‘healthier finances’

Given all that, you’d be a total loser to think anything other than “Everything is awesome!”  

But is that true?

Well, once you take a closer look at each of these authoritative claims, they are anything but clear-cut and certain.  If you question any of them, or even just dig slightly into them, questions swirl up like flies from a knocked-over garbage pail.

To begin, if we choose to question the “strong jobs market”, we quickly come across charts such as this one:

(Source)

In this less-than-“amazing” chart we see that the “strong job market” is actually the most horrifically weak one in the entire data series.  The illusion of “strength” has been manufactured by the hocus-pocus of excluding people off of the unemployment rolls, so they simply aren’t counted in the “strong” number. 

It’s an old trick.  If you’re counting the unemployed, then the best way to have a rosier number is to not count people who don’t have a job as ‘unemployed.’  You call them something else (“out of the labor force”) and revise them away.

If you don’t count them, they don’t exist, right? That then allows the media to trumpet the Fed’s victory in creating today’s “strong job market.”

If this wasn’t so patently, ridiculously Orwellian, and didn’t create so much human misery, it would be funny.

How anyone can, with a straight face, claim that this is a “strong job market” is beyond me.  It’s not. And the record number of homeless people showing up in every major and minor city in the US validates the data in the chart above.

So that’s cognitive dissonance area #1:  Being told we have a strong job market while your own eyes see homeless people everywhere, and people looking for jobs report extreme difficulty landing anything beyond a part-time, minimum wage gig.

Next we turn to the idea that “inflation is subdued.”  While we’ve shredded this idea mercilessly in such areas as our Crash Course chapters on Fuzzy Numbers and Inflation, as well as in our podcast with Ed Butowski, the creator of the Chapwood Index, you can just as easily use your own personal observations and a few pieces of data to destroy this farce of ‘subdued inflation.’

Let’s start with car prices.  According to the BLS, new cars have not gone up in price at all over the past ten years.  In fact, according to their calculations, a new car costs exactly the same today as it did back in 1997, a full twenty years ago:

But your own eyes and personal experience may have noticed something different.  If you’ve made a car purchase over the past 20 years, you’ve probably observed that actual out-of-pocket costs to purchase a new vehicle have steadliy risen from just over $19,000  in 1997 to over $33,000 today:

(Source)

Where the US government is convinced that cars costs exactly as much as they did 20 years ago, your personal experience might be that they are not terribly far away from costing 100% more. 

The explanation for the difference is that the BLS has decided that today’s automobile is vastly improved compared to that of 20 years ago. It believes that your dollar buys you nearly 100% more “car” than it did before, so the whole thing is a wash.

This is the magic of “hedonic improvements” which I am not entirely unsympathetic to.  If things improve and we pay the same amount for them, then that’s a gain in living standards, of a sort.

But the idea that “inflation is too low” is anchored in the idea that we are paying the same for things today as we were yesterday.  The very essence of cognitive dissonance is being told that things cost twice as much but they haven’t gone up in price.

That the issue at play here. While the Fed frets about inflation being too low — you struggle to afford rising new car costs, as well as the skyrocketing associated fees like maintenance and insurance.

Another prime area for “fuzzy numbers” is in living expenses related to housing.  According to the government ,housing costs have been modestly rising by an average of less than 3% per year for a decade:

However, these charts from Charles Hughes Smith show that the experience of homebuyers in many major metropolitan areas is anything but subdued:

(Source)

Add all this up and what do you get? 

A very different impression of the state of ‘the economy’ than Bloomberg is working hard to present.

And even more egregious than the misinformation is the complete inappropriateness for the media to praise economic ‘strength’ while ignoring the role of debt in bringing about the growth being celebrated. If the ‘prosperity’ is simply due to a drunken debt-binge, it should be criticized, not lauded.

The Pin To Pop This Mother Of All Bubbles?

Which brings us to a very important risk factor to the over-leveraged global economy: declining credit impulse.

Unfamiliar with the term? You won’t be for long.

Defined as net new credit to GDP, credit impulse is one of the best statistical predictors of recession. As of today, credit impulse has gone negative across the world for the first time since the start of the Great Recession.

*  *  *

In Part 2: Everything You Need To Know About The Credit Impulse, we lay out the evidence for why there’s a credit impulse-driven recession on the way. It will come whether or not the underlying economy is recovering or not. Why? Because the amount of debt creation was absolutely massive across the globe, particularly in China. The excessive debt service will simply overwhelm the economy — it won’t even be a close fight.

The Valium Era: The Calm before the Storm

Authored by Bonner & Partners’ Bill Bonner, annotated by Acting-Man’s Pater Tenebrarum,

Don’t Be Fooled by These Calm Markets

What is happening in the world of money? Well – the most striking thing is: nothing.

It doesn’t seem to matter what happens. Dysfunction in Washington. Meltdown of the techs. No matter how rough the seas get, the markets glide along… scarcely noticing the storm-tossed waves below.

Thankfully the world’s central planners are so well-versed in egging on the creation of an ever greater mountain of debt and seemingly limitless asset price inflation with their “scientific” monetary policy that a complete blow-up of the the financial system only threatens now and then… most of the time we are in “moderation” mode. Nowadays we are in something that feels like a Valium-induced waking dream. It couldn’t be better… volatility has just served up its greatest disappearance act since the end of the last “moderation”.  What could possibly go wrong? – click to enlarge.

Remember “The Great Moderation”? That was the title of a speech then-Fed Chairman Ben Bernanke gave in 2004. Thanks to such able guidance by the Fed, he implied, the world’s financial system was calm, stable, and safe:

“One of the most striking features of the economic landscape over the past 20 years or so has been a substantial decline in macroeconomic volatility…

Several writers on the topic have dubbed this remarkable decline in the variability of both output and inflation “the Great Moderation.” Similar declines in the volatility of output and inflation occurred at about the same time in other major industrial countries, with the recent exception of Japan, a country that has faced a distinctive set of economic problems in the past decade.

“Reduced macroeconomic volatility has numerous benefits.(emphasis added)

 

The courageous mastermind of the Valium Era explains the secret sauce behind his success.

 

Well, yes. Bernanke was talking about the economy. But investors got the message. The Fed chairman was not merely describing “moderation.” He was promising it.

And so, for the next three years, it was up, up, and up for the stock market. And then, it was down. The Great Moderation set up investors for the crisis of 2008.

When market volatility – a.k.a. price swings – seems to vanish, people feel no need to protect themselves.  They buy without doing research. Or if they are traders, they sell “vol” – confident that whatever heebie-jeebies markets may have suffered in the past, they’ve got nothing to worry about now.

No need to put on hedges. No need to hold some cash just in case. And no need to watch your back. The Fed will watch it for you!

Foolish Courage

The Great Moderation continued… until it was history. In 2008, stocks were cut in half and the entire world’s finances were on the verge of a complete meltdown.

This overdue correction was snuffed by the Fed – led by Mr. Moderation himself, Ben Bernanke, who mounted the most immodest rescue effort ever attempted.

The Fed increased its balance sheet eightfold. The world – suckered by lower borrowing rates – added another $80 trillion of new debt. Mr. Bernanke, with conceit bordering on insanity, lauded this act of bumbling vandalism in his book, calling it The Courage to Act.

 

An illustration of what happens when Fed chairmen are overwhelmed by courage – click to enlarge.

 

And now, thanks to continued reckless courage on the part of the European Central Bank and the Bank of Japan – which are both still pumping more cash into the system – we enjoy another period of “moderation.”

Volatility is back down to brain-dead levels. The news hath no sting. Bloomberg:

“U.S. stocks snapped a two-day slide to close at fresh records as technology shares rebounded from the worst drop of the year… Treasuries were steady as the Federal Reserve policy meeting kicked off.”

Nothing shocks this market. Nothing rocks it. Nothing socks it to it.

Nothing does –  that is, until something does.

The Housing Recovery Illusion

What Housing Recovery? Real Home Prices Still 16% Below 2007 Peak

http://www.zerohedge.com/news/2017-06-16/what-housing-recovery-real-home-prices-still-16-below-2007-peak

Since the financial crisis, home equity has gone from being America’s biggest driver of (illusory) wealth to one of the biggest sources of economic inequality.

And while the post-crisis recovery has returned the national home price index to its highs from early 2007, most of this rise was generated by a handful of urban markets like New York City and San Francisco, leaving most Americans behind.

To wit: home prices in the 10 most expensive metro areas have risen 63% since 2000, while home prices in the 10 cheapest areas have gained just 3.6%, according to Harvard’s annual State of the Nation’s Housing report. And while nominal prices may have returned to their pre-recession levels, when you adjust for inflation, real prices are as much as 16 percent below past peaks.

Despite seven years of rock-bottom interest rates, valuations in 3 out of 5 metropolitan areas remain below their pre-recession peak. Outside, of a few rich coastal cities, the only advantage that this “housing recovery” has brought is that some homes remain affordable for some Americans. However, thanks to the disproportionate rise in home valuations in certain densely populated areas, the number of Americans paying more than 50% of their income in rent is near a record high.

US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier. Achieving this milestone reduced the number of homeowners underwater on their mortgages to 3.2 million by year’s end, a remarkable drop from the 12.1 million peak in 2011.But as Bloomberg reports, nationally, just 1 in 3 homes has recovered peak value. Meanwhile, in the country’s most densely-populated markets, housing supplies are incredibly tight following nearly a decade of historically low construction.

The lack of inventory for sale is evident in both the new and existing segments of the market. In 2016, the typical new home for sale was on the market for 3.3 months, well below the 5.1 months averaged since record keeping began in 1988. Meanwhile, only 1.65 million existing homes were for sale in 2016, the lowest count in 16 years. And with sales volumes picking up, the inventory represented just 3.6 months of supply, an 11-year low.

Conditions are particularly tight at the lower end of the market, likely reflecting both the slower price recovery in this segment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly 500,000 units to only 136,000. Similarly, the number of townhouses started in 2016 (98,000) was less than half the number started in 2005.

Renters, it seems, are bearing the brunt of the US housing stock crunch. Despite a relatively strong pickup in multi-family housing, rental markets are tighter than they’ve been in more than 30 years, though there has been some softening on the high end.

According to the Housing Vacancy Survey, the rental vacancy rate fell for the seventh straight year in 2016, dipping to 6.9 percent—its lowest level in more than three decades. MPF Research reports that the vacancy rate for professionally managed apartments was also just 4.4 percent. While some rental markets showed signs of softening in early 2017—most notably in San Francisco and New York—there is generally little indication that increases in supply are outstripping demand.

Meanwhile, the number of Americans exceeding the 30%-of-income “affordability threshold” has declined for five straight years, but while homeowners have enjoyed greater financial freedom, rates for renters have barely budged.

Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001. The share of renters with severe burdens varies widely across the nation’s 100 largest metros, ranging from a high of 35.4 percent in Miami to a low of 18.4 percent in El Paso. While most common in high-cost markets, renter cost burdens are also widespread in areas with moderate rents but relatively low incomes. Augusta is a case in point, where the severely cost-burdened share of renters was at 30.3 percent in 2015.

In summary, the US housing market’s gains since the crisis have disproportionately benefited certain cities, which creates two problems:

Renters in markets that have seen the strongest comebacks are being squeezed as wages fail to keep up with runaway rents; and,

Cities in the south and midwest, typically post-industrial towns, are filled with homeowners who might still be struggling with an underwater mortgage, and with only tepid gains in housing prices, many are trapped in their homes.

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