Although he is correct less than half the time, groundhog Punxsutawney Phil didn’t see his shadow this morning, meaning an early spring is likely. At the other end of the “cute spectrum,” Elon Musk is increasing his control of the roads with Tesla, in internet communications with his Starlink satellites, access to outer space via SpaceX, and now… people’s brains through neural implants. It appears that we’re living in a science fiction novel… and we know how those typically end. Yes, his compensation made headlines this week, but he’s obviously in it for “the long game.” Mr. Musk can work from anywhere, but what about you? Are you back in the office after the pandemic from years ago? Plenty of LOs, AEs, and commentary writers have always worked remotely, but others, not so much. Here’s something to add some fuel to the debate: more proof from the University of Pittsburgh that RTO (return to office) mandates are pointless and don’t help productivity. (More below.) Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. For something different, hear attorney Brian Levy interview Robbie Chrisman about his life outside of mortgage.
Lender and Broker Software, Products, and Services
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Rocket Pro TPO is continuing to support broker partners by providing no-cost credit reports for all loans closed through Rocket Mortgage. This streamlines the process and saves brokers valuable time and resources. Additionally, they've revamped their ONE+ by Rocket Mortgage program, unlocking 16% more client eligibility - providing access to flexible and affordable mortgage options for a wider range of borrowers and expanding business opportunities for brokers. By choosing Rocket Pro TPO, brokers gain access to powerful tools, including their upcoming FHA Streamline and VA IRRRL Pro Performance Sales Training on February 20th at 2pm ET. The lender also launched a special discount for partners using Mobility Market Intelligence (MMI), a leading real estate and transaction database that will immediately impact broker's business strategies. Interested in learning more about a Broker or Non-Delegated Correspondent partnership? Contact Rocket Pro TPO to learn more.
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Demographic News
Good lenders and vendors know their clients. Apparently living with mom and dad is that bad. Millennials are so desperate to own homes that most would buy homes with asbestos (67 percent), mold (62 percent), and foundation issues (58 percent), per this 2024 Home Buyer Report. But living without mom and dad can be stressful. Nearly 2 in 3 millennial home buyers (65 percent) say buying a home makes them feel in over their heads financially.
In addition, 79 percent of millennials would pay above the asking price to beat the competition for their dream home. That figure is down from 85 percent who said the same in 2023. Turns out it's harder to delete a tweet than delete a mortgage. Overall, 90 percent of millennial homeowners have regrets about their first home purchase, up from 82 percent in 2023. The most common regret is a bad location (27 percent), followed by bad neighbors (26 percent) and an interest rate that's too high (25 percent).
Home ownership continues to be a good, arguably the best, way to build wealth. Home prices keep rising. The Case-Shiller National Index was up 5.1 percent year over year in November, and the FHFA Index (overseer of Freddie and Fannie) reported home prices in its survey rise 6.6 percent year over year in November. There is no hint of borrower strain, despite experts waiting for people to stop making payments. But with high levels of equity, the ability to repay in place, and low interest rates, few are thinking about it: the single-family mortgage seriously delinquent rate was just 0.55 percent, notably low.
Renters, however, are “in a different boat.” Fannie Mae reports that about one-third of all households in the United States, or 45 million households, are renters. And as of 2022, about half of that population was “cost-burdened,” spending more than 30 percent of their income on rent and utilities.
“Overall affordability remains the most significant challenge for renters in the U.S., and the issue can affect the immediate and long-term health, well-being, and quality of life of a household. However, other aspects of the renter experience also can lead to housing instability and make long-term housing security more difficult. A recent survey conducted by Fannie Mae found that renters’ struggles are intensifying throughout the lifecycle of a lease: before moving in, during the term of their lease, when renewing their lease, and while moving out.
“In addition to finding a home that meets their needs, many renters said a top challenge was finding the cash for upfront costs, such as the fees for an application and the security deposit. Thirty-four percent of respondents said this was a top concern in 2023, compared with 26 percent who said so in 2021. Other concerning and frequent challenges include unexpected changes in lease terms at renewal, the inability to use rent payments in building credit history, and difficulty and delay in getting security deposits returned.”
In the U.S., it takes an average of 3.7 years of PPP-adjusted income to afford a "globally benchmarked" starter home, assuming an average 636-square-foot, two-bedroom unit price of $287,000. Is the low housing affordability crisis a uniquely American phenomenon or a common pattern across the globe?
Creditnews Research studied purchasing power-adjusted wages and starter home prices in the United States and 25 other OECD countries with populations of at least 5 million people to determine how many years of income first-time homebuyers in those countries need to buy their first home. Switzerland has the worst housing affordability, as it takes 13.5 years of PPP-adjusted income to afford a 636-square-foot two-bedroom unit. Among the least affordable countries also are Australia (7.7 years), Japan (7.7 years), France (7.1 years), Germany (7.1 years), New Zealand (7.7 years), Sweden (7.7 years), and Canada (7 years). It turns out that Turkey (2.7 years), Belgium (3.5 years), the United States, and Costa Rica (3.8 years) have the most affordable starter homes relative to PPP-adjusted income.
Meanwhile, in the working world, a survey of workers found that 43 percent said that working from home made them more productive, 14 percent said that it made them less productive, and 43 percent said that it didn’t make a difference either way. This runs up against perceptions among bosses, who in general tend to think that flexible working relationships somehow have a negative impact on productivity.
Capital Markets
The Federal Reserve does not set mortgage rates, but the same factors that influence its Open Market Committee’s decisions impact the bond markets, and in turn mortgage rates. Barring some monumental event, the Committee is on hold until March, but that doesn’t mean that the bond market is frozen until then. We should continue to see slights moves in rates, up and down, based on economic news from the United States and around the world as investors guess where rates are going over the long term. Even with the Federal Reserve’s preferred gauge of underlying inflation cooling to an almost three-year low, Chair Powell struck a cautious tone in his post-FOMC press-conference on Wednesday, saying that the committee needs to see more progress prior to cutting interest rates.
There are obviously a lot of factors at play here. Global shipping rates have surged due to attacks in the Red Sea, and economists fear that inflation might rebound as supply chains become stretched. However, we learned yesterday that nonfarm labor productivity increased at a stronger-than-expected 3.2 percent annualized rate in the fourth quarter. The increase in output per hour worked, alongside cooler growth in compensation costs, has reduced some inflationary pressure out of the job market. Yes, the U.S. labor market appears to be cooling. Initial and continuing jobless claims rose to two-month highs yesterday. While that isn’t good news for the employment situation in this country, it is good for mortgage rates: 30-year fixed mortgage rates fell to 6.63 percent this week, down from 6.69 percent last week.
The improvement in rates is from both falling Treasury yields and “tightening” MBS spreads. MBS spreads, the incremental return that investors require to entice them to hold MBS instead of Treasuries, are a function of market bond market volatility, which has been falling. While both Treasuries and Agency MBS have the same credit risk credit risk (e.g., zero), MBS have much higher interest rate risk due to “negative convexity” where a bond's duration increases in conjunction with an increase in yield. Spreads are much lower than early 2023 (around the fall of Silicon Valley Bank), but still much higher than pre-Fed-rate-hikes. That is good news, because spreads can fall a lot further, lowering mortgage rates.
As inflation (and mortgage rates, and other types of longer-term borrowing rates that peaked in October) continues to fall, an unchanged fed funds rate means that inflation-adjusted rates are rising. This could force the Fed to cut rates to maintain the current level of monetary tightness. Powell explicitly stated that a March cut is unlikely, but hope-springs-eternal pricing in fed funds futures contracts currently implies around a one-in-three chance that the FOMC cuts rates by 25 basis points on March 20th. Some Fed members think that a rate cut might be appropriate as early as March, but a critical mass lean toward waiting longer.
The Fed pivot toward future rate cuts, in conjunction with the decline in inflation, is good news for home sales and mortgage originations that (likely) bottomed out in the latter half of 2023. A gradual improvement is now underway. Homebuilders continue to add new supply, which should aid affordability. Before I get too far ahead of myself, rates still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic. Mortgage rates need to fall under 4 percent before the out-of-the-money status of much of the universe would begin to wash away.
All eyes are now on today’s jobs report. Nonfarm (353k, twice as strong as expected, with strong back-month revisions, and continues to point to an exceptional labor market). The unemployment rate (unchanged at 3.7 percent, two years below 4 percent!) when it was expected to tick up to 3.8 percent from 3.7 percent previously. Hourly earnings were up .6 percent for the month, +4.5 percent year over year, very strong. The economic calendar closes out later this morning with December factory orders expected to increase 0.2 percent month-over-month versus 2.6 percent in November, and final January consumer sentiment which is expected to rise slightly. We begin the day with Agency MBS prices worse .250-.375 and the 10-year yielding 3.95 after closing yesterday at 3.86 percent: after the strong jobs data, the Fed cutting rates at its next meeting in March is pretty much “off the table.”
Jobs
Northpointe Bank, a top-performing bank in the nation, appoints four leaders to their residential lending team. The announcement signals a new era for Northpointe as it looks to capitalize on its position as a leader in the industry. Amy Butler is taking on a new role as Senior Vice President of National Sales, overseeing the execution of sales strategy for the organization. Jesse Cronen will step into the Senior Vice President of Sales role, serving as the internal voice of Northpointe Bank’s loan originators countrywide. Steven Davids, Senior Vice President of Retail Lending Strategy, will continue his focus on spearheading major strategy shifts across the company’s portfolio of products and services. Jessica Fancett, Senior Vice President of Operations, will continue to deliver improved execution and financial performance for the Bank. Northpointe Bank continues building its dynamic sales teams across the United States. Interested parties can contact Cody Archer.
Synergy One Lending is proud to announce its first major expansion of the year by adding 11 branch locations formerly with Draper and Kramer. The teams are led by Lorna Davis and add several states to Synergy One’s existing retail footprint. “Lorna and her team represent such tremendous origination leadership and professionalism that perfectly align with our vision of the future, right from our first discussions. We are so proud to partner with her and the entire team,” said Synergy One President, Aaron Nemec. Synergy One’s planned expansion to several new markets is expected throughout the year. For interested parties, reach out to Aaron Nemec or Eric Kulbe, SVP Growth.
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