The year 2018 was one of contrasts. The U.S. economy remained exceptionally strong, with record-low unemployment rates and strong economic growth. Yet, higher interest rates and headwinds in the housing market made for a challenging year for mortgage originators. The nation’s top originators generally posted lower volume numbers in 2018 compared to the previous two years, reflecting tough realities in the marketplace.
There were notable exceptions, however. Shant Banosian, a Massachusetts-based branch manager for Guaranteed Rate, ranked No. 1 in Scotsman Guide’s annual Top Originators rankings with $536.4 million in 2018 origination volume, increasing his 2017 volume by 17.1 percent.
Mark Cohen, a broker based in Beverly Hills, California, who had placed No. 1 every year in Scotsman Guide’s rankings since 2012, finished No. 2 in the 2018 rankings with $505.5 million in loan volume.
Banosian’s winning total remained consistent with the 2018 market trend toward lower volumes, however. The $536.4 million figure was lower than Cohen’s top-ranking totals of $579.6 million and $631.6 million in 2017 and 2016, respectively.
Another market trend that was reflected in the 2018 rankings was the full-blown shift to a home-purchase market. Roughly three quarters of all loans in 2018 went toward home purchases, according to the Mortgage Bankers Association (MBA).
Mortgage rates jumped up last year. The 30-year fixed-rate mortgage hovered around the 5 percent mark before falling during the final quarter of 2018. As analysts had predicted, the rising-rate environment took rate-and-term refinancing out of play for most of last year.
“With so many borrowers in low-rate mortgages, it doesn’t take a lot to move the market on the refi side,” said Joel Kan, MBA’s associate vice president of industry surveys and forecasting. “With a 50 basis-point increase in rates, we saw a considerable drop in refi volume. That was one main driver of the slide.”
Nationally, origination volume was estimated at $1.64 trillion in 2018, compared to $1.71 trillion in 2017 — a decline of 4 percent, MBA reported. This was largely driven by a 24 percent decline in refinance activity, which fell to $458 billion in 2018.
The housing market also faced headwinds this past year. Home sales were held back by a shortage of inventory, particularly for entry-level homes. Rising rates and purchase prices also hampered affordability.
Overall sales of existing homes in 2018, excluding condominiums, were estimated at 4.74 million, running 3 percent lower than the 2017 pace. Fannie Mae chief economist Doug Duncan noted a plateauing of home sales, which he expects to continue for the next two years.
The bright spot? Driven by rising home prices around much the country, home-purchase mortgage volume increased by about 6 percent year over year to $1.18 trillion in 2018, MBA reported. (VW)
Purchase loans trend downward in 2019
The total dollar volume for U.S. single-family residential mortgage originations is expected to fall slightly in 2019 to $1.63 trillion, down 1 percent from $1.64 trillion in 2018, according to the Mortgage Bankers Association (MBA).
Although purchase originations are expected to increase, that won’t make up for a continuing decline in refinance activity, said Joel Kan, MBA’s associate vice president of industry surveys and forecasting. With the economy humming along and unemployment being so low, why has the mortgage industry been so uninspiring?
The purchase side, Kan said, has been held back by tight inventory. There also were concerns about the overall economic picture at the end of 2018 and early 2019. “The volatility that then showed up in the stock markets shook a lot of potential homebuyers, sort of scared them away,” Kan said.
Affordability is still a challenge in many markets, too. “We’ve had so many years where home-price growth has greatly exceeded income growth that there is still an affordability challenge out there,” Kan said. “It’s not going away. It’ll just be eased in the next year or two.” (JD)
Joel Kan is associate vice president of industry surveys and forecasting, Mortgage Bankers Association.
Fed preaches patience with rates
The Federal Reserve raised the baseline interest rate four times in 2018 — a quarter of a percentage point every three months. That’s on top of raising the rate three times in 2017, also a quarter percentage point each time. Expect the Fed to be less aggressive this year.
The prior increases pushed 30-year fixed-rate mortgages to nearly 5 percent last year, according to investment-decisionmaking platform YCharts. That figure has softened through the beginning of this year, however. Still, a onemonth snapshot of the 30-year rate this past January was far higher than the same time period of the previous three years.
Fed policymakers announced earlier this year that the case for raising rates had weakened. At the end of last year, housing-industry experts expected the Fed to raise the benchmark rate two times this year. Although that may happen, the Fed is preaching patience and may raise the rate only once — or not at all. (JD)
Price appreciation likely to decline again
U.S. home-price growth is expected to slow once again in 2019, Realtor.com reports, with the median price of an existing home estimated to rise by 2.2 percent compared to 2018. The slowing appreciation rate is good news for potential first-time homebuyers, but it may be tempered by rising mortgage rates. The Mortgage Bankers Association expects rates on a 30-year fixed loan to reach 4.8 percent by the end of 2019. Realtor.com expects a modest inventory increase of 7 percent, although many highpriced markets could see inventory gains of at least 10 percent.
A December 2018 report from Zillow showed that home-price growth decreased year over year in more than half of the nation’s largest housing markets, with the largest declines occurring in Seattle and San Jose, California. Prices for homes backed by conventional mortgages through Fannie Mae and Freddie Mac rose 6.3 percent year over year in third-quarter 2018, the Federal Housing Finance Agency (FHFA) reported. Prices rose in all 50 states and the District of Columbia during the same period, with Idaho, Nevada, Washington and Utah all eclipsing an annual appreciation rate of 10 percent, FHFA said. (NP)
Home sales expected to rise
The National Association of Realtors (NAR) expects existing-home sales to grow in 2019. In a news release, NAR chief economist Lawrence Yun predicted 5.4 million existing homes to sell this year, a 1 percent increase from 2018. That reverses the downward trend that occurred last year, when about 5.35 million existing homes were sold, significantly less than the 5.51 million sales that occurred in 2017.
Yun cautioned, however, that this forecast is contingent on higher levels of new-home production. And homebuilder confidence reached a three-year low at the end of 2018, the National Association of Home Builders (NAHB) reported, with several major home-construction companies downgrading their production forecasts for 2019.
Although millennials are expected to continue purchasing more homes and will account for 45 percent of mortgage originations this year — more than twice the share of baby boomers — younger millennials looking to purchase for the first time may be discouraged by rising home prices, rising interest rates and a lack of entry-level homes for sale, Realtor.com reported. (NP)
Foreclosure levels hit 13-year low
Foreclosure filings continued to fall in 2018, with the 624,753 default notices, scheduled auctions and bank repossessions of U.S. residential properties declining 8 percent from 2017, according to Attom Data Solutions. The 2018 figure represents a 78 percent decrease from the 2.9 million foreclosures that occurred in 2010 and it is the lowest number recorded since 2005.
As of this past September, CoreLogic reported, foreclosures represented 0.5 percent of all U.S. home mortgages, down one-tenth of a percentage point over the prior 12 months. Delinquent loans — those at least 30 days overdue, including those in foreclosure — declined from 5 percent to 4.4 percent of all mortgages from September 2017 to September 2018. In some areas impacted by natural disasters, however, delinquency rates have risen. These areas include the Carolinas after Hurricane Florence, Northern California after the Carr Fire and Hawaii following the eruption of the Kilauea volcano. (NP)
Housing starts plummet late in 2018
Although the number of singlefamily and multifamily housing starts were up last year compared to 2017, estimates from the U.S. Census Bureau revealed a sharp decline at the end of 2018 in the number of homes under construction. Census figures showed 1.246 million homes were started in 2018, a 3.6 percent increase over 2017. This past December, however, housing starts were at a seasonally adjusted annual rate of 1.078 million units. That was down 11.2 percent from the prior month and down 10.9 percent year over year.
The National Association of Home Builders (NAHB) reported that construction of single-family units was expected to rise by about 2 percent in 2019 to roughly 900,000 units. That figure, however, is still well below the 1.3 million units built, on average, during the pre-recession years of 2000 to 2003. Builders have been focused on creating more affordable-housing units through increased townhome construction, NAHB chief economist Robert Dietz said. The share of new construction dedicated to first-time homebuyers has increased from a 20 percent share to nearly 30 percent in the past few years, Dietz said. (NP)
Mark Zandi, chief economist, Moody’s Analytics
I think there will be some administrative changes initiated by FHFA [Federal Housing Finance Agency] and [the U.S.] Treasury around the kind of lending that Fannie Mae and Freddie Mac do. Cash-out refinances might be curtailed. There might be some pullback on the caps on multifamily lending and loans to investors. There is an outside chance they might look at loan limits and guarantee fees. Those are the most likely changes that will occur in 2019.
There is going to be a legislative effort. The Senate banking committee released its vision broadly of what GSE reform will look like. It is pretty similar to where [U.S. Sens. Bob Corker and Mark Warner] wound up in the last Congress. There is some difference, but it is pretty similar.
Mark Zandi is chief economist, Moody’s Analytics.
Foreign interest cools on U.S. homes
Rising home prices and a lack of inventory are being blamed for a drop in U.S. property sales to foreign homebuyers, according to the National Association of Realtors (NAR).
Foreign nationals purchased $121 billion worth of residential property over the 12-month period through March 2018, according to NAR. That’s down 21 percent from the same period in 2017 when these buyers purchased $153 billion worth of property.
Five countries accounted for nearly half of the dollar volume of purchases: China, Canada, India, Mexico and the United Kingdom. Chinese buyers made the most purchases, in terms of dollar volume, of any other country at $30.4 billion, according to NAR.
In general, international buyers purchase more expensive properties than the U.S. average. For the same 12-month period ending in March 2018, the median purchase price for a foreign buyer was $292,400. The median price for all existing homes was $249,300.
The median price for Chinese buyers in this time frame was $439,100. Forty-seven percent of all foreign purchases were reported as all-cash transaction, compared with 21 percent of purchases by U.S. residents. (JD)
I think that is still a pretty heavy lift to get done. You still have the same problem in that you have many stakeholders that are really comfortable with the status quo, and don’t want to make any changes unless they are absolutely sure that what they get out of it is not only as good as the status quo, but better. That is a pretty physical circle to square.
I think that is still a pretty heavy lift to get done. You still have the same problem in that you have many stakeholders that are really comfortable with the status quo, and don’t want to make any changes unless they are absolutely sure that what they get out of it is not only as good as the status quo, but better. That is a pretty physical circle to square. (VW)
Affordable housing is in short supply
Homeownership is at its least affordable point in more than a decade, according to a fourth-quarter 2018 report from Attom Data Solutions.
In its analysis of 469 counties nationwide, the company found that 357 (76 percent) had median home prices that were less affordable than their county’s long-term affordability average. Nationally, the report said, home-price growth was up 9 percent compared to fourth-quarter 2017, outstripping wage growth of 3 percent during that time.
The report noted that, based on the average U.S. yearly wage of $56,381, buying a median-priced home required 35 percent of the owner’s income, above the historical average of 32 percent. In 15 percent of the markets analyzed in the report, buying a median-priced home required an annual income of at least $100,000 — including segments of New York City and San Francisco.
This past November, according to the S&P CoreLogic Case-Shiller 20-city index, home prices were anticipated to rise 3.7 percent in 2019 and 2.8 percent in 2020. Those figures, however, were lower than what was forecast this past August, when prices were expected to rise 4.7 percent in 2019 and 3.5 percent in 2020. (NP)
Equity gains are starting to cool
CoreLogic reported that U.S. homeowner equity increased by more than $775 billion, or 9.4 percent, from third-quarter 2017 to third-quarter 2018. The average homeowner gained $12,400 in equity during that time. That was significantly less, however, compared to the average gain of more than $16,000 during the 12-month period that ended in second-quarter 2018, reflecting a trend of cooling home prices.
The share of properties with negative equity — those with larger mortgage balances than the home’s value — dropped by 16 percent, or 416,000 homes, during the same period, CoreLogic reported.
Experian, one of the three major crediting-reporting bureaus, found that HELOC originations decreased year over year during the first three quarters of 2018, from $132 billion in 2017 to $129 billion in 2018. Borrowers also are drawing less money from their HELOCs, Experian reported.
As of third-quarter 2018, the total balance drawn on existing HELOCs was $438 billion, representing the 12th straight quarter of declines since second-quarter 2015. This indicates borrowers are paying off older credit lines faster than they are borrowing from new ones. (NP)
Equity gains are starting to cool
Single-family homebuilding was a closely watched industry last year as the U.S. housing market continued to face shortages. Single-family starts increased for the seventh consecutive year in 2018, rising by 2.8 percent over the 2017 level to an annualized pace of 872,800 units, the U.S. Census Bureau estimated.
Home starts have more than doubled since the low-water mark for single-family construction in 2009, but still lag far behind the pace of 1.72 million single-family units started in 2005.
Among housing types, townhouse construction notably picked up in 2018, a sign that builders were responding to the demand for more affordably priced homes.
In the four quarters ending in September 2018, townhouse starts totaled 123,000 units, up 24 percent compared to the four quarters ending in September 2017, the National Association of Home Builders said. Townhouses comprised 13.8 percent of all single-family starts in the four quarters through September 2018, a post-recession high. (VW)
Purchase originations trend upward
It’s a small increase, but it’s an increase. Home-purchase mortgage originations are expected grow to $1.24 trillion in 2019, according to a forecast released by the Mortgage Bankers Association (MBA). That’s up by 4.2 percent from the $1.19 trillion total in 2018. The U.S. median home price also is expected to rise, MBA said, although home-price growth is anticipated to slow from 6.3 percent in fourth-quarter 2018 to 4.5 percent in fourth-quarter 2019. Sales prices of existing homes will increase from $259,400 to $272,900 during the same time frame, MBA reported.
Economists expect the housing market to slow down, but not bust this year. The housing market still faces inventory problems, especially with more affordable housing. A decline in mortgage rates earlier this year helped the market, but the tax-law change passed in late 2017 may hurt the market in higher-value areas such as the Northeast, California and Florida. Limits on mortgage interest deductions and a cap on state and local tax deductions could hit taxpayers in the pocketbook. (JD)
Refinancing continues to look bleak
The refinance market is expected to struggle again in 2019. Refinance production is expected to decline to $392 billion nationwide this year, according to a Mortgage Bankers Association (MBA) forecast from this past February. That’s a 14 percent drop from 2018, when MBA estimated total refi activity at $458 billion. In 2016, the U.S. totaled nearly $1 trillion in mortgage refinances.
Fannie Mae and Freddie Mac reported a nearly 600,000 decline in the number of refinance loans in a one-year snapshot. Through the first 11 months of 2018, the government-sponsored enterprises (GSEs) reported 1.08 million refinance loans. That’s down from 1.52 million completed through November 2017. In fact, refinances through the GSEs are occurring about half as often as they did in 2016. MBA expects that refinances will account for only 24 percent of the total mortgage market by fourth-quarter 2019. (JD)
FHA loan programs see decreased activity
Last year was a challenging year for mortgage companies as demand for refinances waned due to higher interest rates and home-purchase activity also slowed. Home affordability became an issue in numerous high-cost metro areas, with record home prices and a lack of entrylevel homes for sale. The fiscal-year 2018 endorsement activity in the Federal Housing Administration’s (FHA) forward-loan program reflected this double punch.
FHA loan counts fell to a four-year low of 1,014,320 loans in fiscal-year 2018 (the 12-month period ending in September 2018), according to the U.S. Department of Housing and Urban Development (HUD). That figure was down 18.8 percent compared to fiscal-year 2017. Refinances declined by 34.6 percent to 238,284 and FHA home-purchase counts also dropped by 12 percent to 776,036.
FHA loan volume, or the overall loan balances endorsed by the agency, declined by 16.7 percent year over year to $209 billion in fiscal-year 2018, driven mainly by a 33 percent year-over-year decline in refinance volume. Refinancing activity was at its slowest pace since 2014.
In the fall of 2018, FHA Commissioner Brian Montgomery drew attention to weaker-quality loans emerging from the FHA’s cash-out refinance program. As of this past February, however, HUD had made no moves to tighten the standards of the program. (VW)
VA loans see drastic decline
As was the case with the mortgage industry as a whole, loan counts and dollar volumes in the U.S. Department of Veterans Affairs (VA) guarantee program were down sharply in fiscal-year 2018 compared to a year earlier.
VA loan counts totaled 610,513 in the fiscal year ending Sept. 30, 2018, down 17.5 percent compared to fiscal-year 2017, the agency reported. The overall VA volume, which reflects the total balances guaranteed in the fiscal year, declined by 14.5 percent year over year to $161.3 billion.
The decline was entirely driven by a steep drop in refinancing activity, which plunged across all government- backed loan programs due to higher interest rates. Overall refinancing counts fell by nearly 37 percent to 227,398 loans. VA home-purchase counts edged up by 70 basis points to 380,437 loans.
The steepest decline came in the VA’s streamline-refinance program, which was down 65 percent year over year in fiscal-year 2018.
The VA loan program also became a magnet for controversy in 2018. Several VA lenders were accused of loan churning, or aggressively soliciting existing VA borrowers to refinance. The bond insurer Ginnie Mae sanctioned a handful of lenders after determining that VA loans issued by these companies had faster prepayment speeds than the industry average. (VW)
HELOC originations weaken in 2018
Despite rising home prices and record levels of home equity, lenders saw demand fall for home equity lines of credit (HELOCs) in 2018. A total of 1,484,000 new HELOC lines were opened during the year, down 3.7 percent compared to 2017 counts and also slightly lower than the 2016 total, according to Experian.
Similarly, the available balances extended to borrowers was at a two-year low of $168 billion, down from $175 billion in 2017, Experian reported. The credit-reporting bureau expected HELOC originations to remain flat going forward.
The decline was entirely driven by a steep drop in refinancing activity, which plunged across all government- backed loan programs due to higher interest rates. Overall refinancing counts fell by nearly 37 percent to 227,398 loans. VA home-purchase counts edged up by 70 basis points to 380,437 loans.
“When you look at these numbers, we have kind of stabilized [with HELOC originations] and topped out,” said Alan Ikemura, a senior product manager and business consultant at Experian, in a fourth-quarter 2018 report.
“The bulk of the real estate recovery and price appreciation has already taken place over the past three to five years,” Ikemura added. “Going forward, the forecast is for prices to decline in many areas and the overall real estate market to soften. So, the ‘equity build’ has now come to its peak.” (VW)
Signs of optimism and pessimism for housing
The housing market can shift quickly, so forecasting how things will look in the coming months can be dicey. Still, economists can look to the horizon to see signs of both sunshine and dark clouds gathering.
Affordability is the main reason to be hopeful when it comes to housing, said Genworth Mortgage Insurance chief economist Tian Liu. Interest rates declined at the beginning of the year, making a home purchase easier. Homebuilders have signaled that they expect to release more affordable offerings. And home sellers are being more flexible on pricing.
“Those developments on interest rates and home prices are positive, and I think they are the top reasons for being optimistic about the housing market,” Liu said.
That optimism could be derailed, however, if would-be homebuyers take a wait-and-see attitude with the market. Also, interest rates have dropped recently, but that might spark inflation, Liu said.
“That would put pressure on the Federal Reserve to raise interest rates,” Liu said. (JD)
Tian Liu is chief economist, Genworth Mortgage Insurance.
Contributors: Neil Pierson (NP), Jim Davis (JD) and Victor Whitman (VW)
