Newsletter – Page 81

Mid-Atlantic States, California and Illinois More Vulnerable to Housing Market Declines in Q3

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Risk of Potential Downturns Highest in New York City, Chicago and Philadelphia;Other At-Risk Markets Scattered Along Eastern Seaboard and Inland California;While South Region Still Less Vulnerable ATTOM, a leading curator of real estate data nationwide for land and property data, released a Special Housing Risk Report spotlighting county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, foreclosures and other measures in the third quarter of 2022. The report shows that New Jersey, Illinois, Delaware, and inland California continued to have the highest concentrations of the most-at-risk markets in the country, with the biggest clusters in the New York City, Chicago and Philadelphia areas. Southern and Midwestern states remained less exposed. The third-quarter patterns – based on gaps in home affordability, underwater mortgages, foreclosures and unemployment – revealed that New Jersey, Illinois and California had 28 of the 50 counties most vulnerable to potential declines. That was roughly the same as the 27 more-at-risk markets that were in those states in the second quarter of this year. During a time when the broader U.S. housing market boom slowed considerably, those concentrations still dwarfed other parts of the country. The 50 most at-risk included eight in and around New York City, seven in the Chicago metropolitan area, four in or near Philadelphia and nine spread through northern, central and southern California. The rest were clustered mainly in other parts of the East Coast, including all three counties in Delaware. At the other end of the risk spectrum, the South, Midwest and western areas outside California had the highest concentration of markets considered least vulnerable to falling housing markets. Counties were considered more or less at risk based on the percentage of homes facing possible foreclosure, mortgage balances that exceeded estimated property values, the percentage of average local wages required to pay for major home ownership expenses on median-priced single-family homes, and local unemployment rates. The conclusions were drawn from an analysis of the most recent home affordability, equity and foreclosure reports prepared by ATTOM. Unemployment rates came from federal government data. Rankings were based on a combination of those four categories in 581 counties around the United States with sufficient data to analyze in the third quarter of 2022. Counties were ranked in each category, from lowest to highest, with the overall conclusion based on a combination of the four criteria. The ongoing wide disparities in risks throughout the country remained in place at a time when the overall U.S. housing market had one of its weakest third-quarter performance in the past decade. Key measures for the period running from July through September of 2022 showed the national median home value decreasing 3 percent, home-seller profits declining, foreclosures doubling, compared to the same period in 2021, and mortgage lending plummeting to its lowest level in three years. That happened as 30-year mortgage rates climbed close to 7 percent, inflation remained at a 40-year high and the stock market fell. Each of those forces cut into what home buyers could afford. As with past ATTOM reports on market risk, the latest vulnerability gaps do not suggest an imminent, major fall in home values or equity anywhere in the nation. What they do show is different locations facing greater or less risk amid an increasingly uncertain future for the U.S. economy hanging over the housing market. Most-vulnerable counties again clustered in the Chicago, New York City and Philadelphia areas, along with sections of CaliforniaTwenty-eight of the 50 U.S. counties considered most vulnerable in the third quarter of 2022 to housing market troubles (from among 581 counties with enough data to be included in the report) were in the metropolitan areas around Chicago, IL; New York, NY; and Philadelphia, PA, as well as in California. California markets on the list remained mostly inland, away from the coast. The 50 most at-risk counties included three in New York City (Kings, New York and Richmond counties, which cover Brooklyn, Manhattan and Staten Island), five in the New York City suburbs (Essex, Passaic, Sussex and Union counties in New Jersey and Rockland County in New York) and seven in the Chicago metropolitan area (Cook, De Kalb, Kane, Kendall, Lake, McHenry and Will counties, all in Illinois). The four in the Philadelphia, PA, metro area that were among the top 50 in the third quarter were Philadelphia County; Gloucester County, NJ; New Castle County, DE, and Cecil County, MD. Another 11 were scattered along other parts of the Mid-Atlantic region, including the other two counties in Delaware (Kent and Sussex) and three others in New Jersey (Atlantic, Cumberland and Warren). “As the prospect of a possible recession hangs over the U.S. economy, counties in three of the seven largest metropolitan areas – New York City, Chicago, and Philadelphia – are among the most vulnerable to a potential downturn in their housing markets,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “These counties, and many more in Central California share a number of traits – poor affordability, relatively high unemployment and foreclosure rates, and homeowners who are underwater on their loans – which could spell trouble if the economy takes a turn for the worse.” California had nine counties in the top 50 list: Butte County (outside Sacramento), Humboldt County (Eureka) and Shasta County (Redding) in the northern part of the state; Madera County (outside Fresno), Merced County (outside Modesto), Stanislaus County (Modesto) and Tulare County (outside Fresno) in central California, and Kern County (Bakersfield) and Riverside County in the southern part of the state. Higher levels of unaffordable housing, underwater mortgages, foreclosures, and unemployment continued in counties most at-risk of downturnsMajor home ownership costs (mortgage payments, property taxes and insurance) on median-priced single-family homes consumed more than one-third of average local wages in 33 of the 50 counties that were most vulnerable to market problems in the third quarter of 2022. The highest percentages in those markets were in Kings County (Brooklyn), NY (106.1 percent of average local wages needed for major ownership costs); Rockland County, NY (outside New York City) (75.6 percent); Riverside County, CA (63.8 percent); Richmond County (Staten Island), NY (63.3 percent) and New York County (Manhattan), NY (60.6 percent). Nationwide, major expenses on typical homes sold in the third quarter required 30 percent of average local wages. At least 7 percent of residential mortgages were underwater in the third quarter of 2022 in 28 of the 50 most at-risk counties. Nationwide, 5.7 percent of mortgages fell into that category, with homeowners owing more on their mortgages than the estimated value of their properties. Those with the highest underwater rates among the 50 most at-risk counties were Peoria County, IL (16.8 percent underwater); Tangipahoa Parish, LA (outside New Orleans) (15.7); Saint Clair County, IL (outside St. Louis, MO) (15.1 percent); Kankakee County, IL (outside Chicago) (14.8

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The Midwest will move to the forefront as affordability remains housing’s biggest issue Midwestern markets will heat up, and more friends and family members will pool their money to buy homes together in 2023, as people look for new ways to overcome the housing affordability crisis. However, that crisis will stabilize — if not improve — from its pandemic-era apex, Zillow® economists predict. New construction will be focused on rental units, and we should see a jump in homeowners becoming first-time landlords. Those are among a slew of new predictions the Zillow Economic Research team has made heading into 2023. “Americans finding ways to make payments on a roof over their heads is going to drive the market next year. Where costs are lower, we’ll see healthier sales and inventory levels. If rent is less expensive than a new mortgage, we’ll see increased demand for rentals — something builders and landlords understand,” said Zillow chief economist Skylar Olsen. “Affordability is going to be the biggest factor in housing for 2023, but there’s room for optimism on that front if mortgage rates recede.” The Midwest to feature front and center in 2023Unlike in nearly every other region of the United States, prices in most Midwest metro areas haven’t risen to outrageous extremes. Mortgage costs are still within reason compared with incomes across Missouri, Kansas, Iowa, Ohio and smaller metros in Illinois, which will allow first-time buyers to take the plunge. Lower rents and home prices in these areas, as well as in some Pennsylvania, New York and other Northeastern metros, make it easier to save up for a down payment. A typical mortgage payment1 in Topeka is $1,269, compared to $4,129 in Sacramento. Having houses available to choose from is another key component of a healthy market, and the Midwest stands out. Inventory there isn’t in a massive hole compared to pre-pandemic times, and more homeowners are willing to list than elsewhere in the country, encouraged by more consistent demand from buyers. Buying with friends and family will gain momentumSoaring housing costs have been a popular topic of conversation in 2022, but buying a home with a friend or relative who isn’t a partner or spouse turned out to be more than idle chatter for a surprising share of folks. With housing costs rising far beyond previous affordability norms, those chasing homeownership are turning to unconventional means of making it pencil out financially, and this should increase in 2023. A Zillow survey fielded this spring found that among recent successful home buyers, 18% had purchased with a friend or relative who wasn’t their spouse or partner. Of prospective home buyers, 19% intended to buy with a friend or relative in the next 12 months. Affordability and qualifying for a mortgage were cited as the top reasons for buying a home with someone else — both are challenges that are now even more acute. Mortgage payments for a typical U.S. home rose from requiring 27% of median household income in January to 37% in October — far beyond the 30% threshold at which housing becomes a financial burden. As more millennials and now Generation Zers enter what will still be a historically expensive market in 2023, more folks are set to put “bestie” to the ultimate test. Affordability crisis will stabilizeMonthly mortgage costs have doubled since 2019, driven by pandemic-era price hikes and, to an even greater degree, by rapid mortgage rate growth this year. High mortgage rates are not only pushing buyers to the sidelines, they’re tanking new inventory as homeowners hang on to their current houses and their historically low mortgage rates. Rents have grown faster than wages, making it harder to save up for a down payment, and renters of color are more likely to have experienced rising rents for their units. Affordability will continue to be the driving force in the housing market in 2023, but there is a decent chance it will improve. At the very least, the market should stabilize, making it possible for households to budget and plan for housing decisions coming up in the months and years ahead. Zillow expects national home values to remain relatively flat next year, and even fall in the markets most challenged by affordability issues. Mortgage rates are seeing some recent and encouraging progress downward as inflation and labor market tightness show some small signs of easing. If we’ve actually turned the corner on inflation, that should continue. Rent growth should move closer to historical norms next year, as well. Annual growth came down quickly from a massive peak of 17.1% in February to 9.6% by October. Rents fell during the month of October, the first time in two years, signaling a return to regular seasonal patterns. New construction strength will be in rentalsDespite a pullback in permits and starts for single-family construction, the sheer number of houses currently under construction after the pandemic boom – still up 50% since February 2020 – will mean continued rolling deliveries to the market. This temporary glut in available new homes will drive price reductions for new construction, and potentially in the existing home market, too, which otherwise will continue to experience low inventory. In contrast, builders of multifamily units are feeling much more bullish. The number of multifamily units to start construction each month has increased steadily, rising 8% from pre-pandemic levels in October. Elevated multifamily permits point to a strong vote of confidence in continued demand for rental units, despite looming recession fears. This confidence will also encourage more construction of build-for-rent single-family homes, as many would-be homeowners will need to continue renting into later stages of life if they’re currently unable to qualify and move forward with a purchase of their own home. We’ll see a surge in first-time landlords in 2023 The record-low mortgage rates of 2020 and 2021 provided the leverage of a lifetime for investment in a second house. Vacation areas saw significant upticks in sales, and 34% of buyers surveyed by Zillow in 2021 said the opportunity to rent out their entire house was an important reason for buying it – up from 27% in 2018 and 28% in 2019. With rent growth expected to rise faster than home values over the next year, many

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500,000 homes could be constructed, renovated and sold under the bipartisan bill With Congress set to reconvene for a post-election legislative session, 100 members of the U.S. House of Representatives and 24 senators have now signed on to support a new tax incentive that would produce 500,000 starter homes in struggling communities over the next decade. The legislation would address the needs of families throughout the country that are struggling to find entry into the homeownership market, as costs continue to rise and the supply of homes is on the decline. The Neighborhood Homes Investment Act (Neighborhood Homes), introduced in both the House (H.R. 2143) and the Senate (S.98) last year, is designed to address a difficult market reality: in many areas, the cost to build or rehab a home exceeds the price at which the home could be sold once completed. The new tax credit would help fill that “value gap,” up to 35 percent of eligible development costs for new homes, thus reducing the developer’s risk of loss and encouraging investments in new and rehabbed housing. This will in turn widen the entry-point for homeownership and support broader revitalization and economic development strategies in disinvested urban and rural communities. With the 100th House member added to the legislation earlier this month, there are now 124 Members of the House and Senate from 37 different states, from Delaware to North Dakota to California, that have sponsored the bi-partisan legislation. “The affordable housing crisis has touched every community in the country. The widespread, bipartisan support for the Neighborhood Homes Investment Act shows the desire for new tools to address the affordable housing shortage, invest in our neighborhoods, and create opportunities for first-time homeownership, especially among those who are historically left out,” said Congressman Brian Higgins (D-NY), the author of the House legislation. “Together with the skilled and diverse group of advocates in the Neighborhood Homes Coalition, we will continue to push for the bill’s passage this year.” “It is critical that we get the Neighborhood Homes Investment Act over the finish line,” said Senator Rob Portman (R-OH), the lead Republican sponsor of the Senate legislation. “This bill would give us a critical new tool in the fight against rising housing costs, drive investment for more homes in the communities that need it most, and work alongside other powerful tools such as the New Markets Tax Credit, Opportunity Zones, and the Low-Income Housing Tax Credit to unleash investment and revitalize communities across the nation. I am thrilled that the support for this credit has continued to grow, now reaching 100 members in the House, alongside the 24 of us in the Senate. With our partners in the Neighborhood Homes Coalition, we will continue the fight to pass this bill before the end of this Congress.” Neighborhood Homes is particularly important given the nation’s deepening affordable housing crisis, much of it the result of insufficient housing investments in recent decades. Economists have pointed to the connection between housing availability and inflation, noting that the supply-demand mismatch has fueled rising costs and pushed both rents and homeownership beyond the means of many families. A recent study by the Bipartisan Policy Commission (BPC)/Morning Consult found that a majority of adults expect the federal government to tackle these challenges head on: 81 percent said it’s important for the federal government to address high housing costs that are contributing to inflation, and 71 percent said that bipartisan legislation to grow the supply of homes and improve housing affordability should be a priority for Congress. “Everyone deserves a safe and affordable place to call home. Our bipartisan tax credit builds on the success of the Low-Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC) to attract investment and revitalize neighborhoods,” said Senator Ben Cardin (D-MD), the lead Democratic sponsor of the legislation in the Senate. “By creating this incentive in the tax code, we can create opportunities for families in Baltimore and across Maryland to build equity and wealth for their family.” Under Neighborhood Homes, tax credits would be awarded to project sponsors through statewide competitions administered by state housing finance agencies, much as the successful Low Income Housing Tax Credit program does for rental housing. Sponsors—which could include developers, lenders, or local governments—would use the credits to raise capital for their projects, and the investors would claim the credits against their federal income taxes once the homes are sold and occupied. “It is vital that we, as a country, make equitable investments in our housing infrastructure—both for the stability of our economy and the well-being of families and communities across the country,” said Kris Siglin, vice president of policy and partnerships for the National Community Stabilization Trust. “Neighborhood Homes encourages private investments in communities that would not otherwise have access to this kind of capital, creating new opportunities for families to put down roots in their own homes, strengthen their communities and build wealth for the future.” The Neighborhood Homes Coalition estimates that the Neighborhood Homes legislation would support a substantial economic impact over the next 10 years. In addition to the 500,000 homes that would be rehabbed and $100 billion in development activity, estimated impacts of this legislation include: About UsThe Neighborhood Homes Coalition is a national advocacy group comprised of 36 national organizations, including housing and community development nonprofits, financial institutions, and related trade associations—all supporting enactment of the Neighborhood Homes legislation. The Coalition recently sent a letter to House and Senate leadership calling for action on the Neighborhood Homes legislation before the end of the year. Please visit https://neighborhoodhomesinvestmentact.org/ for additional information.

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Housing market perspectives are synthesized with the new interactive interface U.S. News & World Report, the global authority in rankings and consumer advice, unveiled its new Housing Market Index. The new tool leverages IBM Watson® Natural Language Understanding – and the recently acquired Housing Tides Index from EnergyLogic – to help enable U.S. News to interpret and synthesize large volumes of housing data for easy viewing. This new index comes as the housing market crisis continues to raise concerns about the current and future state of interest rates – and homeownership as a whole. The computing power supporting this platform allows users to find tailored data results for different regions and time periods, allowing them to make informed decisions about housing. “Our platform features an incredibly intuitive interface that simplifies housing market insights,” said U.S. News Real Estate Director Matt Bray. “We incorporate housing demand signals, housing supply data, and key financial indicators to provide a detailed market score. Whether you’re looking for an aggregated view of the top U.S. markets, or want to analyze a specific metropolitan market, single-family or multi-family, our new index is at your fingertips.” U.S. News experts are also enthusiastic about the platform’s robust sentiment analysis feature which interprets the sentiment of 500 media pieces related to housing monthly. “Sentiment analysis of major media sources helps us see market trends and understand economic changes,” said Bray. “The impact of media coverage on the housing market and home builder equity returns should not be underestimated. Our housing market sentiment analysis tool lets you see how each regional housing market is being discussed, positively or negatively, in near real-time.” The new Housing Market Index expands on its capabilities through its single and multi-family housing permit tool, another core feature that provides forecasts for the top 50+ U.S. markets. Many models only predict construction start dates, but this tool provides a competitive advantage by peering further into the future with permit forecasts. Read more about the sentiment analysis methodology behind the new Housing Market Index here. About U.S. News & World Report U.S. News & World Report is the global leader in quality rankings that empower consumers, business leaders and policy officials to make better, more informed decisions about important issues affecting their lives and communities. A multifaceted digital media company with Education, Health, Money, Travel, Cars, News, Real Estate and 360 Reviews platforms, U.S. News provides rankings, independent reporting, data journalism, consumer advice and U.S. News Live events. More than 40 million people visit USNews.com each month for research and guidance. Founded in 1933, U.S. News is headquartered in Washington, D.C. SOURCE U.S. News & World Report, L.P. CONTACT: Jessica Lewis Young, jlyoung@usnews.com, 202-955-2203.

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– Prepayments fell 16.5% to a single-month mortality (SMM) rate of 0.48%, well below the previous record of 0.55% and the lowest recorded since at least 2000 when Black Knight began reporting the metric – The national delinquency rate rose 4.5% in October to 2.91% – up 12 basis points since September – driven by a sharp 9.4% rise in 30-day delinquencies – Florida led the jump in new early delinquencies (+19K) – with the state delinquency rate rising 53 basis points to 3.42% — giving an initial indication of Hurricane Ian impact – Loans 60 days past due ticked up 2.9% nationally, while those 90 or more days delinquent saw continued – if modest – improvement, inching down another 1.5% in October – October’s 19.6K foreclosure starts represented a 7% increase that partly reversed September’s decline, but are still 55% below pre-pandemic levels – Foreclosure starts were initiated on 4% of existing serious delinquencies in October, up slightly from September but still less than half the rate seen in the years leading up to the pandemic – Active foreclosure inventory held steady as volumes have remained subdued in 2022 due to still historically low foreclosure start levels Black Knight, Inc. reports the following “first look” at October 2022 month-end mortgage performance statistics derived from its loan-level database representing the majority of the national mortgage market. Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure): 2.91%Month-over-month change: 4.45%Year-over-year change: -22.32% Total U.S. foreclosure pre-sale inventory rate: 0.35%Month-over-month change: 0.42%Year-over-year change: 33.22% Total U.S. foreclosure starts: 19,600 Month-over-month change: 6.52%Year-over-year change: 390.00% Monthly prepayment rate (SMM): 0.48%Month-over-month change: -16.48%Year-over-year change: -75.47% Foreclosure sales as % of 90+: 0.59%Month-over-month change: -1.47%Year-over-year change: 117.07% Number of properties that are 30 or more days past due, but not in foreclosure: 1,557,000Month-over-month change: 66,000Year-over-year change: -429,000 Number of properties that are 90 or more days past due, but not in foreclosure: 551,000Month-over-month change: -7,000Year-over-year change: -555,000 Number of properties in foreclosure pre-sale inventory: 186,000Month-over-month change: 1,000Year-over-year change: 48,000 Number of properties that are 30 or more days past due or in foreclosure: 1,743,000Month-over-month change: 66,000Year-over-year change: -382,000 Top 5 States by Non-Current* PercentageMississippi: 6.50%Louisiana: 5.75%Oklahoma: 4.88%Alabama: 4.64%West Virginia: 4.47% Bottom 5 States by Non-Current* PercentageColorado: 2.05%Oregon: 1.99%California: 1.84%Idaho: 1.74%Washington: 1.67% Top 5 States by 90+ Days Delinquent PercentageMississippi: 2.38%Louisiana: 1.90%Alabama: 1.66%Oklahoma: 1.55%Arkansas: 1.54% Top 5 States by 6-Month Change in Non-Current* PercentageAlaska: -23.82%Hawaii: -20.35%New York: -14.00%North Dakota: -10.47%New Jersey: -3.13% Bottom 5 States by 6-Month Change in Non-Current* PercentageIowa: 22.96%Florida: 16.80%Colorado: 15.91%South Dakota: 13.12%Arizona: 12.43% *Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.Notes:1) Totals are extrapolated based on Black Knight’s loan-level database of mortgage assets.2) All whole numbers are rounded to the nearest thousand, except foreclosure starts, which are rounded to the nearest hundred. For a more detailed view of this month’s “first look” data, please visit the Black Knight newsroom. The company will provide a more in-depth review of this data in its monthly Mortgage Monitor report, which includes an analysis of data supplemented by detailed charts and graphs that reflect trend and point-in-time observations. The Mortgage Monitor report will be available online at https://www.blackknightinc.com/data-reports/ by Dec. 5, 2022. For more information about gaining access to Black Knight’s loan-level database, please send an email to Mortgage.Monitor@bkfs.com.

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The overall delinquency rate dropped for the 18th straight month on an annual basis CoreLogic, a leading global property information, analytics and data-enabled solutions provider, released its monthly Loan Performance Insights Report for September 2022. For the month of September, 2.8% of all mortgages in the U.S. (approximately 1.4 million loans) were in some stage of delinquency (30 days or more past due, including those in foreclosure), representing a 1.1 percentage point decrease compared to 3.9% in September 2021. To gain a complete view of the mortgage market and loan performance health, CoreLogic examines all stages of delinquency. In September 2022, the U.S. delinquency and transition rates, and their year-over-year changes, were as follows: Overall U.S. mortgage delinquencies again hovered near record lows in September, with every state and all but one metro in Illinois posting at least slight annual declines. However, with a potential recession and projected increase in the national unemployment rate looming, some uptick in delinquency rates could be expected in 2023. That said, 99% of homeowners with a mortgage have locked in rates below 6%. As a result, even if delinquency activity posts a minor increase, it is unlikely to cause the type of housing downturn seen during the Great Recession, when questionable underwriting practices allowed buyers to take out mortgages that exceeded their budgets. “All stages of delinquency remained low in September,” said Molly Boesel, principal economist at CoreLogic. “Early-stage, overall and serious delinquencies were either at or below their pre-pandemic rates. Low unemployment, which has also returned to the level seen before the COVID-19 outbreak, is contributing to strong mortgage performance. However, if the U.S. enters a recession, increases in delinquency rates can be expected.” State and Metro Takeaways: The next CoreLogic Loan Performance Insights Report will be released on December 29, 2022, featuring data for October 2022. For ongoing housing trends and data, visit the CoreLogic Intelligence Blog: www.corelogic.com/intelligence. Source: CoreLogic