Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Here’s a look at what’s happening in the real estate market. I found this info in a recent CoreLogic Market Update report.
Regarding the Housing Market
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The U.S. foreclosure rate remains at a 10-year low as of July, but the rate across the 100 largest metros varies from 0.1% (Denver) to 2.2% (New York).
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Overall mortgage delinquency rate fell to 0.9% points year over year.
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Early-stage delinquencies declined 0.3% points year over year.
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As of July 2017, the foreclosure inventory rate was 0.7%, down from 0.9% in July 2016.
CoreLogic Chief Economist Frank Nothaft said in the report:
“Even though delinquency rates are lower in most markets compared with a year ago, there are some worrying trends.
For example, markets affected by the decline in oil production or anemic job creation have seen an increase in defaults. We see this in markets such as Anchorage, Baton Rouge and Lafayette, Louisiana where the serious delinquency rate rose over the last year.”
Regarding Mortgage Activity
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Purchase mortgage loans are still high quality in terms of credit risk.
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In Q2 2017, the Housing Credit Index (HCI) increased to 117, up 20 points from Q2 2016. Even with this increase, the level of credit risk in Q2 2017 is still within a range of the HCI for the period of 2001 to 2003.
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The investor share of home-purchase loans increased from 3.6% in Q2 2016 to 4.2% in Q2 2017.
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The share of home-purchase loans secured by a condominium or a co-op building increased from 9.6% in Q2 2016 to 11.1% in Q2 2017, making loans appear riskier.
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Applications in the lower credit score range were almost non-existent in 2016 when compared to 2006. Applicants may be “self-removing” themselves from the applicant pool. This may explain some of the decline in new-loan credit risk.
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The average credit score for homebuyers increased 9 points year over year between Q2 2016 and Q2 2017, rising from 736 to 745.
Again, CoreLogic Chief Economist Frank Nothaft said in the report:
“Mortgage risk for new originations increased modestly in the second quarter of 2017, but much of this rise was due to a small shift in the mix of loan types to more investor and condominium loans, which have slightly higher risk attributes.
Despite the somewhat higher risk of new origination loans, purchase mortgage underwriting remains relatively clean with an average credit score of 745 and low delinquency risk.”
Regarding Mortgage and Credit Availability
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The Mortgage Credit Availability Index (MCAI) increased 0.7% to 181.4 in September.
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Credit availability for conforming and conventional loans saw the greatest increase in September (both were up 1.5%).
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Credit availability for jumbo loans increased 1.4%, while credit availability for government loans increased 0.2%.
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Of the 4 component indices, the Conforming MCAI and the Conventional MCAI saw the greatest increase in availability over the month (both up 1.5%), followed by the Jumbo MCAI (up 1.4%) and then the Government MCAI (up 0.2%).
“Mortgage credit availability increased in September due to continuing updates to conforming loan programs as well as agency jumbo programs that have been phased in over the last few months,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “For the year to date, the supply of credit has increased only modestly in the non-jumbo space while it has expanded significantly among jumbo programs.”
Again, this month it’s a mixed bag…
Lots of good news regarding mortgages and credit, but affordability continues to be an issue pretty much across the board.
What Do You Think?
Share your thoughts in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.