LendingTree Chief Economist Cameron Findlay's blog posts now at the LendingTree blog

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LendingTree Chief Economist Cameron Findlay is no longer posting his updates on this Posterous site.

But that doesn't mean he has stopped blogging. Not a chance. You can still keep up with his insightful perspectives on the economy, housing and loan industries at the LendingTree blog. Just look for him under the Market News category:

 http://blog.lendingtree.com/blog/category/market-news/

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Anna Cearley

Social Media Director, Tree.com

 

 

Housing affordability trends up and mortgage rates low

Sept. 8, 2010
Min Kim within the Capital Markets Risk Group at LendingTree Loans prepared the following report for your review on Housing Affordability. For your reference, the HOI [Housing Opportunity Index] calculates the percentage of households that can afford a median priced home. The NAHB [National Association of Home Builders] assumes household affordability is a monthly mortgage that is no more than 28 percent of household monthly gross income.

The HOI/Median Home Price graph exhibits a rough inverse relationship between affordability and home prices.

• As home prices increase, fewer households can afford traditional mortgage payments.  Households were able to secure “unaffordable” mortgages due to the availability of exotic loans that required little or no income verification and flexible interest/principal payment options.

• These factors drove affordability downward. The lowest national affordability occurred on 2006 Q3 with only 40% of households being able to afford a median priced home. 

•  Current affordability is near an all time high with 72.3% of households being able to afford a median priced home. Affordability increased due largely to lower home prices (currently at 2004 levels) and low mortgage rates .

   The inverse relationship between affordability and mortgage rates is obvious with the exception of the period of exotic mortgages (between 2003 and 2008). As mortgage rates decrease, higher priced homes become more affordable based on monthly mortgage payments. For example, if a household can afford a $1,500 monthly mortgage payment, with an 8% mortgage rate they can only qualify for a $204,000 loan. At a 5% mortgage rate, that same household can qualify for a $279,000 loan.

• Affordability increases as mortgage rates come down because a household can qualify for higher priced homes 

In short, we remain in an exceptionally low rate environment but will continue to be challenged by an unemployment rate that may breach 10% this year. Even the threat of the loss of 770,000 jobs (from 9.6% to 10.0%) is staggering and will clearly threaten spending. For families looking to move out of the cycle of renting, now may be an opportune time.

 - By LendingTree Chief Economist Cameron Findlay

(viewpoints expressed in this blog are that of the author, and do not necessarily reflect that of LendingTree)

Chief Economist Cameron Findlay on the new Consumer Finance Protection Bureau

Sept. 7, 2010

The Dodd / Frank Act created a new agency called the Consumer Finance Protection Bureau [CFPB] and the first of a few deadlines is fast approaching on Sept 19th. This is the last day the Secretary of the Treasury has to define the “designated transfer date” which will be sometime between Jan. 17, 2011 and July 21, 2011. The date that is chosen will be an important one since it establishes the timeline the new CFPB will take over rule-making, supervisory authority and enforcement from the Federal Reserve.

  Borrower Alert
The rules enacted by the CFPB will ensure consumers have access to fair, transparent and competitive markets. Borrowers looking to refinance before the date of transfer will want to pay close attention to market rates and expect a larger than normal amount of rate volatility as the investment community struggles with interpretation around basic concepts like “Qualified Mortgage” which is still to be defined by the CFPB. If you are considering refinance we have free tools available that allow you to do a “mortgage checkup <http://www.lendingtree.com/mortgage-loans/loan-coach/checkup/> ” that take 3 minutes or less to complete, it’s an easy method of evaluating current rates against what you have today.

Dodd/Frank Act
The Act basically created two views on protection:

• Consumer
• Prudential (Safety and Soundness)

By stripping out the consumer protections and assigning them to one agency, the Federal Reserve (an independent agency) created the CFPB as an independent agency within an independent agency. So while the various government arms such as the Office of Thrift Supervision, Office of the Comptroller, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union and Federal Trade Commission all have the “prudential” interests in mind, the new CFPB will be focused on you -  the consumer. Today, enforcement of the rules / laws are by the regulators listed – your mortgage broker is governed by the Federal Trade Commission and your banking institution by one of the others depending on their charter. Once the CFPB takes control and the “transfer” occurs, everyone (except for some small depository institutions) will be under the guidelines established by the CFPB.

  The new rules take time and understanding, so let us help. If you have questions, contact one of our Licensed Loan Officers 1-800-555-TREE  and start the process of getting answers to understand your options.
  

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Chief Economist Cameron Findlay on today's jobs report

Sept. 3, 2010

Today’s release of unemployment data from the Labor Department  showed companies added only 67,000 private payrolls jobs (that excludes government agencies). Overall total employment was a net negative as the economy shrank by 54,000 jobs, resulting in an unemployment rate of 9.6%  - which was in line with expectations. The results (although bad) were not as bad as what was expected. The “expectation” of these numbers, usually released on the first Friday of each month, is critical given how the market reacted to this morning’s news with the bond market selling off (meaning yields are going higher).

  Borrower Perspective
For borrowers, this will translate into higher rates since confidence in the economy is showing at least some signs of resistance (I almost wrote strength)  – and to think it was only last Wednesday (just over a week ago, with the release of the Existing Homes sales data) when the media was discussing the potential for a “double dip” as very real. As the federal government considers its next move - such as the idea of a payroll tax relief to encourage spending and encourage new hires -  most state and local governments also face budget cutbacks given reduction in tax receipts caused by home prices declines and delinquency rates, which still break every record we have. This will only compound unemployment results and make the recovery slower and more painful.

  From the graph below you can see the under-employed or gross unemployment (those who want a full time job) remains at approximately 16.7%, which is the same level we had a year ago. At 9.6% we are only 0.5% away from the 26-year high we reached back in Oct’09 of 10.1%

Disclaimer: Views expressed in these blog posts represent that of the author, and not necessarily that of LendingTree

Chief Economist Cameron Findlay on Pending Home Sales Results

Sept. 2, 2010

The National Association  of Realtors released Pending Home Sales results today (these are a prelude to the “Existing Homes Sales” results which the market reacted adversely to last week). From the below graph you can see the erratic nature of the results skewed by the expiration of the tax credit -  and the surprising boost they showed in July of +5.2% That suggests the double dip being discussed in the news is not so close after all. It’s not great news, but clearly it’s not bad -  being lead by the West Coast purchase contracts that rose +11.6% month over month.

  For perspective, I’ve placed the results on a historical table below. You can see why the July result was positive (mainly because the June result was so negative). Between April and June mortgage rates to borrowers have declined from approximately 5.25% to their current levels of approximately 4.30%, on a $200k loan  -  that’s $114/month in savings. Despite this decline, purchase contracts  (pending home sales) have not increased substantially and inventories have continued to expand. In fact, existing home sales inventory at 12.5 months was the highest levels in more than 27years.

  Impact
The market did not move significantly one way or another today, with only a slight increase in mortgage rates. Most of the change was due to advance trading given expected light volume in trading on Friday (in advance of the Monday holiday) and prior to the Non Farm Payrolls data also due out tomorrow. Unemployment Rate is expected to grow to 9.6% from 9.5% (to be released at 8:30am EST).

(Disclosure: The views here are that of my own, and not necessarily that of my employer LendingTree)

Chief Economist Cameron Findlay Taking a Poll: Vote Now for Your Housing Solution!

Aug. 31, 2010

 This morning LendingTree participated in the ongoing housing debate on CNBC to discuss the concept of just letting housing freefall or to continue to provide government assistance and prolong the slow decline we have seen. It’s a contentious debate and I’d like your opinion.

Please write back to me and “vote” your preference:

·        NO – Do not provide government support and let home prices fall to whatever level they may go to

·        YES – Continue to allow government intervention in the mortgage market to artificially sustain home prices


My view is there is probably a balanced approach, somewhere in the middle, but if you have an opinion I’d like to hear about it. We will be publishing results of our survey next week.

You can watch the CNBC video interview here:  http://www.cnbc.com/id/15840232?video=1579110618&play=1 
********
Below we show the Case-Shiller results on home prices. The graph shows clearly that we have experienced home price improvement, BUT these are June results so you can expect the July release to be less positive. Despite this less-than-positive future perspective we have seen some substantial and sustained improvement: I point to California and Minnesota prices as an example over the past year, with both reflecting increases greater than 10%.

(Disclaimer: The views in these posts are that of my own and not necessarily that of my employer, LendingTree)

Chief Economist Cameron Findlay on GDP & Bernanke - and what that means for homes

*RATE ALERT – 10yr Treasury higher in yield by 0.13% (8:30am PST)*

Aug. 29, 2010

The Bureau of  Economic Analysis released a few key numbers this morning that measure the strength of the economy. I have actually got some a positive spin on all this bad news and to make it simple we include some graphs below to help discuss why. First, the release:

• Economic growth as measured by GDP (gross domestic product) in the 2nd Quarter was +1.6% (2.4% was the estimate just last month to give you an idea of how quickly things have deteriorated). The slowdown was attributed to a decline in housing and investment in business, suggesting spending by consumers will follow suit.

• It’s important to note today’s GDP release is the second ESTIMATE for the 2nd Qtr with FINAL numbers due on Sept 30th.

• Consumer spending as measured via personal consumption for 2nd Quarter ( This represents approximately 70% of the economy) was revised from the prior estimate of 1.6% to 2.0% annual rate  - but it is expected that the increase was driven by natural gas usage and electricity.

Now let's take all the guess work out of what GDP numbers mean and provide a quick perspective.

1) The bond market sell off  (prices down, yields higher…10yr Treasury is 0.13% higher this morning alone) had less to do with the GDP release and more to do with Bernanke’s comments in Wyoming where he stated the central bank will provide additional stimulus as needed - but did not go so far as to say that will be anytime soon. That basically took a second round of Quantitative Easing off the table. He also re-iterated growth in 2011 appears on target. That's great news for your home’s value and not-so-great news for mortgage rates (they drifted higher already by 0.05% this morning).

2) In the graphs below we use the “GDP deflator” as a better measure. I show both “CPI ” and “GDP Deflator” both year-over-year. Notice how the GDP deflator is a more smooth indicator of what’s happening. With all the changes (one month higher -  the next month lower), the deflator is my suggested gauge for measuring the risk to inflation. This will be the key to what happens to rates and your home’s value.

3) The results from today  - in summary - indicate “Don’t worry about inflation yet,” meaning we won’t be seeing home price increases, and rates should remain relatively low.

Chief Economist Cameron Findlay in a CNBC interview about the housing market

Aug. 25,  2010

This morning we had an opportunity to appear on CNBC to discuss the housing market and influences impacting borrowers.  We discussed three main elements during the interview which aired live on “Squawk on the Street” at 7:05 am Pacific Standard Time.

·        The disconnect between Banks and Non Banks in terms of licensing demands

·        Home Prices

·        Mortgage Rates

On the mortgage rate topic we didn’t make the argument as clear as I would have liked, but below I provide some guidance as to why many market participants don’t’ fully grasp how disconnected government efforts and mortgage rates are...traditionally, they have always been aligned.

  With concern over deflation, rates have ticked LOWER…but not at the same pace as mortgage rates. So while we have seen a decline in the rate to borrowers, those rates could actually afford to be lower…much lower. That means rates today (relative to the treasury market) are actually too high, but I do not expect them to fall.

You can watch the video from the CNBC interview here: http://www.cnbc.com/id/15840232?video=1574377500&play=1

  Below, I offer a brief discussion document on this topic and some evidence of the disconnect. 

Chief Economist Cameron Findlay on today's home sales figures

Aug. 24, 2010

The just-released Existing Home Sales figures from The National Association of Realtors indicate we experienced a 27.2% decline month over month for July to 3.83 million units annually. These results are the worst figures released by this index in more than 15 years as inventories have swollen to 12.5 months of supply (a whopping 40% increase from the previous month's results). 

This didn't come as too much of a surprise, based on pending home sales data and other items we saw last week. It was anticipated that the results would be negative - and we may have some volatility in the market resulting from this and other data being released. However, in general, the market was prepared for bad news.

  Impact
The impact from these weaker-than-expected results will help borrowers in the form of rates (10-year Treasuries rallied and yields have declined since the results were release by 0.09%) BUT today I’d argue further rate declines won’t create further refinance opportunities as much as the opportunity that would be created from some moderate home price appreciation. Borrowers who do not qualify given loan-to-value constraints are being held back by homes that have depreciated, not by rate. The results today will place additional pressure on home prices to decline further  - exacerbating the issue.

  It’s not all bad news, as you can see from the below table. Prices in the Northeast and West both increased month-over-month by 4.3% and 2.0% respectively, and both regions also show year-over-year improvement.  

  Stay tuned...new home sales will be released tomorrow (8/25)

Chief Economist Cameron Findlay on recent refinancing activity

Aug. 20, 2010

Borrower applications to refinance an existing mortgage are produced weekly by the Mortgage Bankers Association. The graph below shows the impact low rates have had on the number of applications to refinance a home, and it also shows the significance of the government’s role (using the tax incentive for 1st-time home buyers) in the purchase market , which is clearly inhibited by concerns over further home price erosion.

  We have overlaid borrower rates in the second graph below on the same timeline to show when the refinance inquiry started to heat up (April 2010) as rates began their downward trend falling 0.70% over the next four months to today’s levels of approximately 4.52%. Clearly the magnitude and velocity of the fall isn’t significant, but the rhetoric from the Fed has clearly indicated a period or prolonged low rates helping sustain and fuel inquiry for refinance.
If you haven’t evaluated your loan recently, or you have a quote and simply want to see if it’s fair, you can use some of the free tools at LendingTree and also get a “Best Deal Guarantee." 

Outlook
Origination pipelines are extending, making it more difficult to measure the difference between “Applications” and “Actual” refinance loans being made (which, because of processing delays, will skew the results). As we move into next week with "existing home sales" on Tuesday (8/24), I would expect we will see a median price decline erasing much of the 5.2% month-over-mon

th gain posted in June.