The “Brad Pitt” Housing Recovery: Existing Home Sales Up 5% For Million Dollar Homes, Down 12% For $100K and Under Homes

The “Brad Pitt” housing recovery is doing well, if you can afford a million dollar home like Brad Pitt. Or like many households in San Francisco, Los Angeles, San Diego, New York, Washington DC and other expensive housing markets.

NAR Housing Market July

Of course, mere mortals (known as America’s middle class) are not qualifying for a mortgage as they used to due to stagnant labor markets.


It must be wonderful to be a part of the million dollar housing club, like Brad Pitt.

Is Brad Pitt doing a Jeff Lebowski impersonation?


Existing Home Sales Rise 2.4% In July, Back to 2001 Levels (LeBron James Effect Over For Midwest)

Sales of existing homes in the USA rose 2.4% in July, finally getting back to 2001 levels.


Existing home sales are recovering slowly after the housing bubble burst.


Existing home sales have pulled away from new home sales due to the falling/stagnant income of American households.


The South and West regions both grew at over 2% in July. Apparently, the LeBron James effect is over for the Midwest. But not for the South which grew at a 3.41% pace.


States Of Depression: Employment Rates in Most States Still Lag 2007 Levels (NO States Improved In Employment Rates For 25-54 Year Olds)

It is difficult to have a surge in homeownership for the 25-54 year old bracket when not a single state in the US has shown improvement in employment rates since 2007.

According to the Pew Charitable Trusts, employment rates for 25- to 54-year-olds were lower in 29 states in fiscal year 2014 than in 2007, before the Great Recession.

Percentage-point Change in Employment Rate, CY 2007 to FY 2014

A state-by-state comparison of calendar year 2007 with fiscal 2014 shows:

1) No state reported employment rate gains for 25- to 54-year-olds.
2) 29 states had statistically significant decreases.
3) The largest decline in the employment rate was in New Mexico, where 69.9 percent of prime-age workers had jobs in fiscal 2014 — 9.2 percentage points lower than in 2007.
4) Among the least affected were Vermont and Nebraska, which recorded the smallest observed changes in their current employment rates of 83.3 and 85.2 percent, respectively.

And it isn’t helping that household incomes and wage growth have declined since 2007.


This is a pitiful economic “recovery.”


Death Valley: Mortgage Purchase Applications Drop Another 2%, Down 11% From Last Year (Refi Applications Also In Death Valley)

Mortgage applications increased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 15, 2014.


The NON seasonally adjusted Purchase Index decreased 1.95% from the previous week and is down 11% since the same week last year.


The seasonally adjusted Purchase Index decreased 0.42% from one week earlier. And mortgage purchase applications remain stuck in “Death Valley” due to lower real median household income, 50% lower wage growth since 2007 and inability to meet DTI and LTI ratios.


The Refinance Index increased 3% from the previous week, but remains in “Refi Death Valley.”


The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.29% from 4.35%, with points increasing to 0.26 from 0.22 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Underutilized mortgage lenders taking a break in Death Valley.


Welcome To The WORST Real Wage Growth Economy Since WWII (What Will The Fed Do?)

I have been discussing the pathetic state of the economy for several years now … and nothing is changing.

Welcome to the WORST real wage growth economy since World War II.

wage growth bbg

We know that real median household income has declined since 2007 along with average hourly wage earnings growth along with homeowership rates and labor force participation.


The Federal Reserve’s massive intervention hasn’t helped average wage growth which is an anemic 2%, almost equal to the inflation rate. Meaning ZERO real growth rate in wages.


But to have the WORST real wage growth since WWII is really an embarrassment.

Sorry, but the factories have closed and moved to Mexico and Asia. How about food stamps?

Another Nick In The Wall: Cost To Raise A Child In USA Is $245,340, Median Home Price Is $212,400

According to the US Department of Agriculture, the cost to raise a child in the USA in now $245,340. This cost per child is greater than the median price of a home in the USA ($212,400).

So if you have 3 children and own a home at the median home price, you are near $1 million! And if you live in any of the major US urban areas like San Francisco, Los Angeles, New York or Washington DC, fugetaboutit.

Given the decline in real median household income and the stagnation of wage earnings growth, it looks like we have yet another affordability crisis on our hands. This time it is cost of raising a child.


Another nick in the wall for home ownership.


*Thanks to my friend Robert Katula!

Housing Starts Rise … To 1993 Levels, Single Unit Starts DOWN 1% While Multifamily Starts UP 43.61%

Housing starts rose 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department reported today in Washington. It is the first time that 1 million units were started since 1993.


Here is the data.


1 unit starts rose 8.25 percent from the previous month while 5+ unit (multifamily) starts rose 33.02 percent on a seasonally adjusted basis.

However, on a non-seasonally adjusted (NSA) basis, 1 unit housing starts fell 1 percent while 5+ unit starts climbed. 43.61 percent.


Yes, the falling/stagnant income problem in the US economy is a big winner for apartment builders, not so much for single unit builders.


Here is a new trend in multifamily housing design.


I haven’t seen multifamily housing this nice since I saw the original “Planet of the Apes” in 1968.


Homebuilders Signal Continued Economic Stagnation (Confidence Rises … In Apartments!)

The National Association of Homebuilders (NAHB) issued their index of homebuilder confidence this morning. It rose to 55 meaning that 55% of members are confident about future prospects.

But confident about WHAT future prospects?

It sure isn’t mortgage purchase applications driving homebuilder confidence.


New home sales (yellow line) have been sluggish since The Great Recession, primarily because of falling/stagnant real incomes and wage growth.


But multifamily housing housing (aka, apartments) has been sizzling since The Great Recession, for the same reasons: falling/stagnant real incomes and wage growth.


So, homebuilders seem confident that the economy is NOT recovering and households will demand apartments.

At the signpost ahead, your next stop … The Stagnation Zone!

Schild Stagnation

Recovery? The S&P 500 and Case-Shiller House Price Indices WITHOUT Fed Intervention (Bad News!)

The Federal Reserve began their extraordinary bond and mortgage market intervention in 2008. Although bond and agency mortgage-backed securities have been slowing (aka, tapering), The Fed is still manipulating interest rates and propping up asset prices (like the S&P 500 Index and house prices).

Here is a chart of the S&P 500 stock market index against The Fed’s balance sheet expansion.


And here is the Case-Shiller 20 metro house price index against The Fed’s balance sheet expansion. Note that house price growth at a national level didn’t really kick in until 2012 due to the foreclosure crisis and the overhang of foreclosed homes.


Now, if I divide the S&P 500 index by the Fed Balance sheet, we didn’t a different picture of the stock market without Fed intervention. That is, …, no recovery.


It is even worse for the Case-Shiller house price index. Sans Fed intervention, house prices would continue to fall.


The Fed’s massive intervention has successfully masked how poor the “recovery” has been. These charts are more closely associated with the decline in M2 Money Velocity that we have seen.


Instead of Don Ho’s “Tiny Bubbles,” The Fed is blowing BIG bubbles. Especially since income growth has stagnated.



US Treasury 10Y Yields Plunge To Lowest Level Since June ’13 As Yield Curve Flattens (NOT A Signal Of Economic Recovery)

The US Treasury 10 year yield plunged 6.2 basis points today back to June 2013 levels.


The slope of the yield curve (10y – 2y) flattened by the most since June 2013 as well.


Falling 10 year Treasury yields and a flattening yield curve are NOT signs of a dynamic economic recovery.


The 30 year mortgage rate (Bankrate) is now at 190 basis points above the 10 year Treasury yield.


Lots of housing data is due out next week.


Stay tuned!

Industrial Production Grows At 4.97% YoY! Too Bad Average Earnings Growth Is Only 2% YoY (And 0% REAL Growth!)

Industrial production for the US was released this morning showing the it grew at a 4.97% clip YoY.


Too bad average earnings growth is only 2%. And since the inflation rate is around 2% as well, this translates to NO REAL EARNINGS GROWTH.


This is indeed a terrible jobs recovery from an income/wage standpoint. As George Mason University’s Tyler Cowan said, wages are likely to be stagnant for another 14 years.

Can you be replaced by a machine? If so, the humans will be like the humans from “Planet of the Apes.”



Expanding The Credit Box When Wage Growth Is Stagnant: Delinquency Rates Lowest Since Q3 2007 (Will It Continue?)

We have good news from the New York Federal Reserve. Delinquency rates on debt are the lowest since Q3 2007. With the exception of student loans, of course.


Unfortunately, wage earnings are stagnant along with lower real median household income.


Despite the stagnation of wages since 2009, bank credit is expanding at a much faster rate than real average earnings growth (which is 0%).


This is a dramatically different credit cycle than during the housing bubble. This is a stagnant wage credit recovery.


We shall see how this plays out. But this is a low money velocity “recovery.”


Hollandaise Sauce: Japan’s GDP Tanks -6.8% After Sales-Tax Increase Aimed At Curbing Japan’s Debt Burden (Real Household Income Fell -6.6%)

Japan’s Prime Minister Shinzo Abe took a page from French President Francois Hollande’s playbook and RAISED taxes to solve Japan’s economic woes. But it must have been the recipe for Hollandaise Sauce instead, since Japan’s GDP tanked -6.8% in Q2 while real household income fell -6.6%.

Aug. 13 (Bloomberg) — Japan’s economy contracted the most since the record earthquake three years ago as consumption and investment plunged after an April sales-tax increase aimed at curbing the world’s biggest debt burden.

Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent.

While Prime Minister Shinzo Abe is counting on a quick rebound, the economy was struggling in June, with output falling the most since March 2011 as companies tried to pare elevated inventories. The government is ready to take flexible action if needed, Economy Minister Akira Amari said today, as Abe weighs whether Japan can bear another bump in the levy in 2015.

“The probability is high that the July-September quarter will see a rebound,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “But the fall in real incomes and weakness in production could weigh on the recovery.”

The contraction followed a surge in growth in the three months through March when consumers and companies rushed to make purchases before the tax rose. Abe is striving to sustain a recovery after initial success in fighting off two decades of economic stagnation.


Yes, I would consider a debt-to-GDP ratio of 226.10% to be a burden.


Coupled with real household income declining 6.6%.


And Japan’s house price index continues to fall after peaking in 1991.


Yes, Abe’s recipe for breaking out of stagnation is the same one the France’s Hollande uses: Hollandaise Sauce. That is, raising taxes to fix the economy.


If I were Abe and Hollande, I would throw this recipe away and try something healthier.


Mortgage Malaise: Mortgage Applications Drop 2.7% From Preceding Week, Purchase Applications Down 10% From Last Year (Refi Applications Dead)

Even Jed Kolko and Bill McBride will have a difficult time spinning today’s Mortgage Bankers Association Weekly Applications Survey into something positive.

Mortgage applications decreased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 8, 2014.


The raw mortgage Purchase Index decreased 1.80% from the previous week and is down 10% YoY.


The seasonally adjusted Purchase Index decreased 1% from one week earlier to the lowest level since 1995.


The Refinance Index decreased 4% from the previous week to the lowest level since May 2014.


The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.35%, with points unchanged at 0.22 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Banks Loosening Standards for U.S. Mortgages (Too Bad The Fed Can’t Stimulate Wage Growth!)

According to The Federal Reserve, lenders are loosening standards for mortgage loans. Too bad The Federal Reserve can’t stimulate wage growth which remains at 2% nominal and 0% real growth.

Aug. 12 (Bloomberg) -By Jody Shenn- Perhaps more U.S. banks than at any time in two decades are making it easier to qualify for a mortgage.

The CHART OF THE DAY shows the net share of banks telling the Federal Reserve that they’re tightening standards in the home-loan market. In the central bank’s July survey of senior loan officers released last week, the net percentage for prime mortgages was negative 18.3 percent, by far the most loosening since it started asking the question by loan-quality category in 2007. It was also greater than the highest net share of banks easing in “all” mortgages in the 1990s or 2000s.


Still, lenders have a long way to go before they unwind the restrictions they imposed in the wake of the global financial crisis that risky home loans helped to create. The current trend is mainly about “small tweaks around the edges,” according to JPMorgan Chase & Co. mortgage-bond analysts.

“The magnitude of tightening during the crisis was so extreme that it dwarfs recent changes,” the analysts led by Matt Jozoff and Brian Ye wrote. And, “just because a large percentage of survey respondents said that they were loosening standards doesn’t mean that they were loosening them by a large amount.”

Banks are getting less stingy as home prices rise and the Fed’s stimulus sparks demand for higher-yielding assets. Business is also slowing after a rise in interest rates, and Fannie Mae and Freddie Mac have also been seeking to reduce banks’ concerns that they’ll be forced to buy back loans they’ve sold to the U.S.-backed firms if the debt sours.

A separate credit availability index created by the Mortgage Bankers Association shows how things aren’t nearly as loose as during the housing boom, when — as an expression in the industry went — if you could fog a mirror, you could get a loan. While the group’s measure climbed to 116.4 last month from 100 in March 2012, it approached 900 in the mid-2000s, signaling borrowing conditions were about nine times as easy.


Now, if The Fed can only get real earnings growth above 0%, we can have a party!


Otherwise, we will continue to be stuck in Death Valley for mortgage purchase applications.



French Recovery Going In Wrong Direction! Unemployment Remains Above 10%, Bankruptcies Near All-time Highs

I love visiting France. That is why it pains me to see Germany and the UK recovering while France continues to go in the wrong direction.

France’s real GDP QoQ is currently … 0% growth while Germany and the UK are in positive territory.


Take unemployment, for example. France continues to have an unemployment rate is excess of 10% under Socialist leader Francois Hollande while Germany under Merkel and UK under Cameron are just south of 7%.


France jobseekers continue to rise.


France is also experiencing near record bankruptcies and declining corporate profitability.


Resulting in a wide gap in popularity between Germany’s Merkel and France’s Hollande.


Dare I suggest to Mr. Hollande that he push for LOWER taxes, rather than higher taxes?

“Yes, we can’t!”


Along Came A Spider: Jobs Openings Increased To 4.7 Million In June, Highest Since 2001, But Real Wage Growth Still At 0%

According to the BLS, jobs openings increased to 4.7 million in June. That is the highest since 2001!


Unfortunately, nominal private earnings growth is around 2% which also happens to be the inflation rate. So, REAL private earnings growth is … zero.

The Atlanta Fed has this nice spider chart to sum up the labor market. The numbers of people who are marginally attached or who are working part-time while desiring full-time hours remain elevated, and the overall job-finding rate is still well below prerecession levels.


The lack of wage growth combined with part-time employment makes having sufficient income to qualify for a mortgage (DTI, LTI) more difficult.


Mortgage balances outstanding are increasing, however, thanks to the million dollar plus housing markets on the coasts and jumbo mortgages.


So even though wage growth has ground to a halt, deleveraging has stopped and the great debt machine has started its engine!

But let’s see how much legs a zero wage growth recovery has for the housing market.


Fannie’s Multifamily MBS Issuance Up 30% In Q2 As US Homeownership Falls To 1993 Levels (Real Median Household Income Back To 1995 Levels)

“Once more unto the breach, dear friends, once more” – William Shakespeare, Henry V.

As homeownership in the United States falls to levels not seen since 1993 (and real median household income levels not seen since 1995), Fannie Mae once more unto the breach, dear friends, once more.

The issuance of securities backed by mortgage loans on multifamily properties guaranteed by Fannie Mae increased over 30% from the first quarter of 2014 as the company issued approximately $4.6 billion of multifamily MBS backed by new multifamily loans delivered by its lenders.

Fannie Mae also re-securitized $3.2 billion of Delegated Underwriting and Servicing (DUS) MBS through its Fannie Mae Guaranteed Multifamily Structures (Fannie Mae GeMSTM) program in the second quarter. This issuance volume was generated over three Fannie Mae GeMS real estate mortgage investment conduit (REMIC) transactions.

In addition, Fannie Mae says it issued one multifamily REMIC backed by $632.9 million of dealer-contributed DUS MBS in the second quarter of 2014, adding to the liquidity of Fannie Mae DUS MBS.

Also, Fannie Mae Capital Markets sold approximately $3.7 billion of Fannie Mae multifamily mortgage securities from its portfolio in the second quarter.

“We saw an increase in loan deliveries from our DUS lenders in Q2, and the activity for our securities was robust, with total issuance increasing thirty percent from Q1,” says Manny Menendez, senior vice president of multifamily capital markets and pricing for the government-sponsored enterprise.


Of course, declining labor force participation isn’t helping the homeownership rate either.


So Fannie Mae, Freddie Mac, the FHA and the Federal Home Loan Banks are jumping into the multifamily market now that residential mortgage purchase applications and originations are down so much.

Fannie Mae and Freddie Mac are a part of the original two-man quarter of government-related entities.


The Gilded Age: A Tale of The Federal Reserve (Rising Asset Prices [S&P500, Residential & Commercial RE Prices], Falling Income)

Mark Twain and Charles Dudley Warner published The Gilded Age: A Tale of Today in 1873 where they satirized what they believed to be an era of serious social problems disguised by a thin gold gilding. In this case, using monetary policy to increase wages and family income disguised by gold gilding the form of asset price appreciation.


The serious social problem? Fed policy hasn’t worked in improving wage income growth or real median household income. We have declining real median household income (toxic green line) and 50% lower hourly wage growth (putrid pink line) since the advent of Fed intervention.


It gets worse. According to Bank of America, credit card spending is slow to recover, but the reasons mentioned above.


And the use of revolving credit is declining. For the same reasons.


I am sure that Mark Twain would be amused by the second coming of The Gilded Age. This one by The Federal Reserve system.


FICO Recalibrates Its Credit Scores (Borrowers Still Need Better Income To Qualify For A Mortgage Loan)

As the Wall Street Journal reports, “FICO Recalibrates Its Credit Scores – Changes Could Lead to More Bank Lending, Easier Credit for Some Consumers.

Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.

The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report.

Most lenders check applicants’ FICO scores to help determine whether to extend credit to consumers and what interest rate to charge. Fair Isaac will begin rolling out the new scoring model, named FICO 9, to credit bureaus this fall and to lenders later this year.

More than half of all debt-collection activity on consumers’ credit reports comes from medical bills, according to the Federal Reserve. Such activity results in lower credit scores for consumers, meaning that lenders are more likely to be cautious in extending credit.

The lower weight given to unpaid medical debt could increase some affected borrowers’ FICO scores by 25 points.

Unfortunately, changing FICO rules to raise scores does little to offset the decline in household income and average hourly wage earnings growth that have plagued the housing recovery.


It is still all about DTI (Debt-to-income) and LTI (Loan-to-income) and less about FICO scores.

At least that is what I would have told Nick Timiraos at the Wall Street Journal when he called last night. Unfortunately, I was out eating dinner and couldn’t share this with Nick.