Linkage 8/20/18

California: “Housing market retreats”, Inventory up 11.9% YoY

Some markets like Huston are still hot due to influence of Oil Prices, but many are starting to follow California’s lead as affordability as higher interest rates and rising home prices eroded housing affordability has dampened demand.
Helping the baby boomers be more self-reliant is one of the main benefits of the HECM. Not everyone has an inheritance to fall back on. #Retirebetter
With the current rush of private reverse mortgage products hitting the market shopping for the product is even more important to ensure you get the right product/rate/margin for your situation. This financial planner and Forbes contributor recommends getting at least 3 different quotes.
Will Zillow cannibalize its primary digital ad business with its foray into the mortgage business? Are you going to continue to advertise on their platform or are the leads now suspect?
Over the past 5 years, FHA’s implementation and use of the False Claims Act was the primary reason the larger banks curtailed their FHA lending. It seems pretty suspect that days after Wells Fargo agreed to the $2B fine that they are suddenly open curtailing its use. My question would be: For how long and what guarantees do these lending institutions have that it wont just be re-instituted?
The problem with this argument is that it is rare to see an originator that can sell both a HELOC and HECM. The HELOC space is dominated by Wells/BofA/Chase/Citi and none of those financial institutions offer a HECM. This means that the consumer is the one that loses out as they only have one option to choose from. If we had more comparisons presented to the 62+ customer I am confident the bias against the HECM would start to disappear.


Inverted Yield Curves

The inverted yield curve is one of the best predictors of a recession. You can see below that each time bonds with a shorter duration return higher yields than those that have longer duration’s that the economy falters (indicated by the grey highlights). We have been slowly marching towards this point since 2014. As the Fed continues to set rate hikes, based on their perception of the economy’s strength, it has continued to press the two rates together. This tells me that investors have less confidence in the near-term economy than the government.


My economics professor Christopher Schwarz at UCI recently supported this notion when he plotted the market’s forecast of the fed fund rate diverges from the Fed’s internal forecast. They start to diverge by an entire rate hike by 2018. See the chart below for a visual of this.


Linkage 7/31/18

Home Price Gains are Beginning to Hurt Sales

“Continuing price increases appear to be affecting other housing statistics. Sales of existing single-family homes – the market covered by the S&P CoreLogic Case-Shiller Indices – peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale. Sales of new homes are also down and housing starts are flattening. Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”

America Is Running Out of Family Caregivers, Just When It Needs Them Most

“The demand for caregivers will far outstrip the supply: Between 2015 and 2050, the number of older Americans who may need in-home care is projected to rise by 84%, while the supply of caregivers will only grow by 13%.” How will you pay for this needed expense, that just got pricier, later in life? Tapping into your home equity might be the only viable solution. We need financial vehicles, like the HECM, readily available to make this process easier.

The Fintech Playbook: What Financial Services Leaders Need To Know

“Whether the goal is to protect their turf or conquer new territory, success on fintech for financial services companies ultimately will mean integrating those new technologies into their operations. Here again, the KMPG survey found that there is no one true way to proceed, but four clear options are emerging:

  • Building tailor-made solutions in-house.
  • Sourcing or white-labeling technologies from fintech developers.
  • Acquiring or investing in a fintech startup.
  • Partnering or collaborating with an innovator.”

Housing Starts

There has been a lot of new about the stagnation of sales even as inventory has started to come up slightly. This is indicating that we are going to see some price softening. When taken by itself this data suggests a housing recession is around the corner. However; below is a the most recent information around housing starts that paints a different picture.

Having worked in real-estate for 15+ years it is my belief that this is a great gauge of the housing market. When new homes start to drop by a couple of million units a year you can bet that we will hear many of the pundits start to talk about how the housing market is way down. Similarly; if we get back to the 2,000,000 units/year number you can also count on most everyone saying things are starting to heat up. It is the later that generally causes the real-estate professionals to start saving their money to invest.

The chart below indicates that we are still somewhat in the middle of the two with an upward trajectory. This gives me pause in jumping on the sky is falling bandwagon. It looks like we still have at least a couple of years before a downturn to me. We might not see the staggering growth of the past couple of years, but it would be unique to see that type of growth given how it has outpaced both inflation and wage growth. starts

The Housing Market is Not Cyclical.

Timing the Market is Pointless.

It might seem odd that a blog dedicated to tracking the housing bubble would start by telling you that timing the market is pointless. However; this is not the contradiction it might seem. Instead of timing your purchase based on the perceived strength of the housing market I would argue that you should focus instead on the affordability of the purchase.

In other words, stop falling for those 10 year housing market forecast scam articles. While we might see a correction that adjustment is generally recovered in 5-7 years time. There are variations of purchasing power and supply in the short term that can cause prices to either stagnate or decline temporarily, but as long as you are making long term buying/selling decisions you are going to come out ahead. If, instead, you focus on buying and selling a property every 3 years you are going to barley stay ahead of hte 6-9% in fees you occur with every transaction.

Below is a chart of the Case Shiller index going back to 1987 to illustrate this point. Even if you bought during the peek of ’06 you have recovered everything by ’16. Given this is the most drastic example of a housing correction we have seen I think it is safe to say that buying an affordable home that meets your long-term needs is the way to go.