by Bill McBride on 5/21/2014 07:52:00 PM
Wednesday, May 21, 2014
From economist Tom Lawler: Realogy: Spring Selling Season Softer than Expected: Cites Weak First-Time Homebuyers, Blames Tight Mortgage Underwriting AND FHA’s “Onerous” Premiums
Speaking of FHA and first-time home buyers, first-time home buyers came up 18 times, and FHA 17 times, in Realogy Holdings Corporation’s earnings conference call earlier this month – and not in a good way. ... Realogy’s results last quarter, of course, were well below “consensus” (RLGY is down about 17% from the day before it released earnings), and company officials gave a somewhat downbeat assessment of the spring selling season and likely home sales in Q2 – especially for first-time home buyers. Here are a few excerpts from the conference call transcript.Thursday:
“As we have moved into our spring selling season, thus far the level of open activity we expected has not materialized particularly as it relates to home sale transaction size.Realtors and home builders have noted that home purchases by first-time home buyers so far this year have fallen short of last year’s pace.
“Tight credit standards and limited inventory are factors affecting the first-time buyers but we also believe that the high costs of an FHA loan are discouraging first-time homebuyers. The FHA's unusually high mortgage insurance premium structure which was raised to help improve the overall health of the FHA, is now more than double its historic average
“Our current forecasts for 2014 are not assuming any significant increase in first-time buyer activity. But I think most people are expecting some increase principally because -- we hope -- change in credit underwriting for next year. So I don't expect to see a material change in first-time buyer activity this year but we do expect to see some change -- some improvement next year.
“I don't see anything else that has changed or impacted the market with the exception of the first-time buyer. The first-time buyer continues to be under pressure from a cost perspective. I mean the FHA loan is extraordinarily high, the insurance premiums are very high, up about twice what they have been previously. I think that is an impediment to many first-time buyers.
“This is where we have faith in the private sector so let's say FHA continues with its onerous minimum premium obligations which are very onerous by any definition, this private sector will step in and capture that market share that otherwise would not be available if FHA were more reasonable. So you can see examples of that as FICO scores are starting to decline, Wells Fargo as an example has made it clear they are going after business they haven't tackled in the past by reducing the down payment requirements. They are more I think reasonable in their underwriting. So still have a long ways to go but they are getting there.
“So if this persists, we are of the view that the private sector will jump in and be more relevant to the first-time buyer. That is not going to happen overnight but it will happen as industry shift gears. Remember the mortgage industry is trying to recover from the downturn in refinance as well so they are going to be aggressive in going after purchase money and we see that now so we just expect they will become more aggressive.”
• At 12:01 AM ET, the Black Knight “First Look” at April 2014 Mortgage Data
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 310 thousand from 297 thousand.
• Also at 8:30 AM, the Chicago Fed National Activity Index for April. This is a composite index of other data.
• At 10:00 AM, Existing Home Sales for April from the National Association of Realtors (NAR). The consensus is for sales of 4.67 million on seasonally adjusted annual rate (SAAR) basis. Sales in March were at a 4.59 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.70 million SAAR.
• At 11:00 AM, the Kansas City Fed manufacturing survey for May.
Posted by Bill McBride on 5/21/2014 07:52:00 PM