Boomers Struggle to Pay Off Mortgages Before Retirement

Posted on October 17, 2017 by Laura Lam

While outright homeownership increased among Baby Boomers after the last recession, they still lag previous generations, and may never catch up, according to the Fannie Mae Economic and Strategic Research Group’s latest Housing Insight Series.  Older generations such as Baby Boomers have criticized Millennials for waiting longer than their generation to buy a home, however even Boomers are failing to keep up with the pace set by the generation before them.

Baby Boomers are much less likely to own their home outright than the generations before them and may struggle to catch up before reaching retirement age.  According to the report, “The leading edge of the large Baby Boom generation has reached retirement age with a greater likelihood of carrying housing debt, raising concerns about their retirement financial security.  The oldest Boomers, who were aged 65 to 69 in 2015, were 10 percentage points less likely to own their homes outright than were pre-Boomer homeowners of the same age in 2000.”

Outright homeownership picked up after the Great Recession, and the younger end of the generation is more likely to be close to previous generations with their rate of outright homeownership.

boomers 2The chart above, which uses data from U.S. Census Bureau and the 2000 Census and American Community Survey, shows 26% of Baby Boomers aged 50 to 54 in 2015 owned their home outright, compared to 22% of homeowners of the same age in 2000.  But despite this uptick, even the youngest Baby Boomers will likely not be able to pull up their outright homeownership rates to the level of previous generations.

According to the report, “The relatively high incidence of housing debt among Boomer homeowners has the potential to strain their retirement finances. Given that income typically declines in retirement, monthly mortgage payments could stretch the household budgets of Boomers.”

The chart to the left shows the youngest Boomers will come the closest at 58%, compared to 59.8% among previous generations. The oldest Baby Boomers will come in significantly lower with a share of 49.4% reaching free and clear homeownership by retirement age.

Source:  Housing Wire/Fannie Mae

Consumer Delinquencies Improve in 2Q

Posted on October 16, 2017 by Laura Lam

Delinquencies in closed-end loans held steady in the second quarter as bank card delinquencies fell and home-related categories continued their return to normal levels, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin. Overall, delinquencies fell in 8 of the 11 individual consumer loan categories.  The composite ratio, which tracks delinquencies in 8 closed-end installment loan categories, remained at 1.56% of all accounts – well below the 15-year average of 2.16%.

“Delinquencies remain below historical levels as consumers continue to show great command of their finances,” said James Chessen, ABA’s chief economist. “The outlook remains very positive, as the strong job market, growing wages and rising wealth provide the financial wherewithal for consumers to keep current on their financial obligations.”

Delinquencies in bank cards (credit cards provided by banks) fell 7 basis points to 2.67% of all accounts and remain significantly below their 15-year average of 3.64%.  “Consumers continue to manage their credit cards very well,” Chessen said.  “Quarter after quarter, Americans have succeeded at keeping credit card balances low in relation to their disposable income.”

Delinquencies in all 3 home-related categories decreased. Home equity loan delinquencies fell 9 basis points to 2.50% of all accounts, dipping further under their 15-year average of 2.94%. Home equity line of credit delinquencies fell 4 basis points to 1.07% of all accounts and remain below their 15-year average of 1.18%. Property improvement loan delinquencies fell 3 basis points to 0.95% of all accounts, well below their 15-year average of 1.33%.  “Home equity-related delinquencies fell across the board as the housing market continued to improve, and they’re now back down to levels last seen in 2008,” said Chessen.

Delinquencies in indirect auto loans (arranged through a third party such as an auto dealer) rose only 1 basis point to 1.84% of all accounts, but remain well below their 15-year average of 2.19%. Delinquencies in direct auto loans (arranged directly through a bank) also rose 1 basis point to 1.04% of all accounts, remaining well under their 15-year average of 1.56%.

Chessen is encouraged by current economic conditions and consumer behavior, and remains cautiously optimistic amid uncertainty that lies ahead.  Despite the still-unknown financial impact of the recent hurricanes, he stated that “A strong economy and good consumer practices point toward steady delinquency levels in the near term.”

Source:  American Bankers Association

Meet the Next Generation of Homebuyers: Gen Z

Posted on October 13, 2017 by Laura Lam

gen z chartIn its most recent study, Zillow Group examined the newest generation to enter the housing market – Generation Z.  Generation Z is considered to be those born from 1995 to 2010, meaning the oldest in the generation are now 22 years old.  The Zillow Group Report on Consumer and Housing Trends 2017 shows this new generation now makes up more than 21% of the U.S. population, and is the most ethnically and racially diverse generation in our history. They are beginning to enter the housing market – as renters.

However, this generation is just as likely as older generations to say owning a home is a key component of the American Dream. In fact, 57% responded that they already considered buying a home while looking for their last rental.

So, what defines this new generation? The report showed they work hard to win a home, and even submitted more applications than any other generation at 3.1 versus 2.5 applications for all renters.  But despite the higher number of applications submitted, they also move more quickly through the process and spend the least amount of time searching. Generation Z typically spent less than one month searching for a place to live.  “It’s encouraging to see that Generation Z is inheriting the same notion of what home means as their parents and Millennial siblings,” said Jeremy Wacksman, Zillow Chief Marketing Officer.

“These tech-savvy, yet risk adverse renters are bringing their social personalities home, desiring communal amenities geared toward bringing people together,” Wacksman said. “As they mature and look toward homeownership, it will be interesting to see how their aspirations and preferences will shape the housing market.”

Currently, the housing market is still focused on Millennials, realizing they don’t all live at home with their parents, and are actually less likely to live at home than Baby Boomers were at that age.  While some studies show factors such as student debt could delay some Millennials from homeownership for up to 7 years, more and more they are becoming the driving force behind housing demand.  Zillow’s study shows Millennials poured about $514 billion into the U.S. housing market over the past year, and became the largest generation of homebuyers.

Source: Housing Wire

PNC Has the Edge in Bank Customer Satisfaction

Posted on October 12, 2017 by Laura Lam

JD Power big banksNational retail banks have invested heavily in digital transformation and marketing initiatives designed to position themselves as the best one-stop shops for all consumer banking, credit card, loan and investment needs. When it comes to real-world customer satisfaction, though, the biggest drivers of success are low problem incidence and consistency across all lines of bank business, according to the inaugural J.D. Power 2017 National Bank Satisfaction Study.

In the complex field of competition among the nation’s biggest banks, Pittsburgh-based PNC just edged out New York behemoth Chase Bank – the nation’s largest bank with more than $2 trillion in assets – in customer satisfaction, according to J.D. Power.  The first-ever survey of national bank satisfaction focused exclusively on the country’s 6 largest commercial banks.

““The largest retail banks in the nation are playing a different game than smaller, regionally focused rivals, so they should be evaluated on their own scale,” stated Bob Neuhaus of J.D. Power.  “These banks offer a full line of products, including deposits, credit and investments, and to achieve high levels of customer satisfaction in every market, they must deliver consistently on all of these.”

“Ultimately, our study shows that the ability to minimize customer problems and deliver consistently across all lines of business are among the keys to success in building that nationwide base of strong customer relationships,” he continued.

Nationally, PNC beat out Chase in satisfaction by the thinnest of margins, rating an 855 on a scale of 1,000 to Chase’s 854. If there was any sliver of weakness at PNC, the survey indicated lower scores in the area of “problem resolution.” Chase suffered most in the survey in the category of “investment accounts.” Still, based on their composite scores, both banks are identified as “among the best” by J.D. Power.

Source: J.D. Power/Tampa Bay Times

Leasing Delinquencies Remain at Historic Lows

Posted on October 11, 2017 by Laura Lam

Recent statistics from the Federal Reserve validate what leasing professionals have understood about their industry for years. The data reach back to the first quarter of 1985 and underscore the fact that, when it comes to delinquencies and charge-offs, equipment leasing remains one of the best performing sectors under the broader umbrella of commercial finance.

According to Bob Rinaldi, CEO of Commercial Industrial Finance, Inc., the most recent data on charge-offs and delinquencies offer no surprises. Rinaldi stated, “There’s nothing in this data that should alarm anyone in the industry…the data points are exactly where they should be. Everything here just makes common sense.”

The stability of leasing assets hangs on 3 attributes: the fact that lessors deal with essential use equipment, the value of the collateral and the short maturities with payment schedules that amortize to zero with no option to charge back up as is the case with lines of credit.

While the facts speak for themselves, Rinaldi says the Federal Reserve data serve to debunk the assumption that leasing is a riskier product offered by the commercial finance segment. He explains that because the data is compiled by the Federal Reserve, it is easier for bankers to believe.

“As far as where we are to date, if you look at the MLFI-25 – and you’ll note that delinquencies have picked up a bit,” said Rinaldi.  “But in the big picture, those increases are at historic lows, and delinquencies and losses are lower than I can remember them being in the last 20 years or so.”

Going forward, Rinaldi sees things holding steady for the leasing industry as a whole. Like his colleagues, he is optimistic but tempers this optimism until he sees some tangible results on the regulatory front. “I don’t see businesses throwing gas on the fire for growth…I think they’re still extraordinarily cautious with their capital spending.”

Source:  ELFA Magazine

Banks Rebuilding Positive Image

Posted on October 10, 2017 by Laura Lam

gallup poll banks 2017The banking industry’s image with the American public has climbed to its highest point since the 2008 financial meltdown, with 43% now viewing it positively and 30% negatively. But Americans still view banking less positively than they did in the years leading up to the crisis, when it ranked above the average for other industries Gallup measures.

The public’s net positive rating of banking — the percentage with a positive view minus the percentage with a negative view of it — slid from +32 in 2007 to -23 in 2009, and bottomed out at -28 in 2010 and 2012. This year’s +13 rating, an increase of 11 points from 2016, is the industry’s highest since 2007. But the current rating is still well below the +29 net positive that banking averaged from 2001 through 2007.

During that period, the banking industry’s net positive rating was higher than Gallup’s industry-wide average. But since 2009, banking has been below the industry average every year. In contrast to banking, the images of most other major industries (oil and gas, airline, auto and real estate) that suffered serious damage in the financially tumultuous years from 2008 through 2010 have either regained their pre-recession net positive ratings or surpassed them.

Though Americans overall have become more positive in their views of the banking industry during the past 2 years, views of upper-income Americans have been in negative territory, with a -7 net positive rating in 2016-2017. Offsetting the upper-income negativity, net positive ratings among middle-income Americans have made impressive gains, from -4 in 2014-2015 to +20 for the last two years, while the views of those with lower incomes have stayed roughly the same.

Before the 2008 financial crisis, middle-income Americans’ views of the banking industry were similar to those of upper-income Americans. In the years immediately afterward, upper-income Americans turned sour on banking to a far greater extent than did those with lower incomes; and in 2016-2017, the middle-income group continues to be significantly more positive about the industry than those with higher incomes.

Source: Gallup

Mortgage Lending Getting Riskier

Posted on October 09, 2017 by Laura Lam

credit riskDuring the second quarter this year, the risk in mortgage lending inched up as the market shifted toward an increased share of investor loans, according to the Q2 2017 Housing Credit Index released by Core Logic.  The index increased to 117 during the second quarter, up a full 20 points from the second quarter last year. However, even after this increase, the credit risk in the second quarter is still within the levels seen from 2001 to 2003, a timeframe that is considered to be a normal baseline for credit risk.

The chart shows that while mortgage risk remains at the 2001 to 2003 benchmark level, it has been increasing since 2016, and if the trend continues, could soon surpass these levels.

“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,” CoreLogic Chief Economist Frank Nothaft said. Despite this, he added that “purchase mortgage underwriting remains relatively clean with an average credit score of 745 and low delinquency risk.”

The index measures trends in 6 areas of mortgage lending.  Here are the changes to the attributes from the second quarter 2016 to the second quarter this year:

  1. Credit Score: Credit scores increased an average of 9 points from last year, from 736 to 745. The share of homebuyers with scores less than 640 dropped to 2%, down from 25% in 2001.
  2. Debt-to-Income: Average DTI remained unchanged from last year at 36%, and 22% of homebuyers had a DTI at or above 43%, down slightly from 25% of homebuyers last year.
  3. Loan-to-Value: LTV dropped slightly as it lagged the second quarter of 2016 by nearly two percentage points, down from 87.4% to 85.5%. The share of homebuyers with an LTV greater than or equal to 95% is up 50% from 2001.
  4. Investor Share: The investor share of home-purchase loans increased from 3.6% last year to 4.2% in the second quarter of 2017.
  5. Condo/Co-op Share: The share of mortgages secured by a condo or co-op building increases as well, hitting 11.1%, up from 9.6% last year.
  6. Documentation Type:  Low or no documentation loans remained a small share in the mortgage market, but increased slightly from 1.5% to 1.7% of home purchase loans from last year.
Source:  Housing Wire

What to Buy in October

Posted on October 06, 2017 by Laura Lam

When it comes to shopping, October is an odd month sitting smack in the middle of the back-to-school frenzy and the holiday extravaganza. But there are plenty of October deals to be had. The best buys range from leftover items from previous months to goods discounted in advance of the big shopping days to come.

Halloween Stuff – Unless you bought a costume and decorations last November, when prices were at their lowest, be on the lookout for bargains this month. The closer the holiday, the bigger the deals, as retailers try to clear the shelves by Halloween. However you won’t find many costume choices and sizes if you wait too long. The best time to buy is mid-month, when the selection is still decent and prices have started dropping.

Denim – Much like the month of October, denim is in a down time between back-to-school shopping and the holiday season. Retailers want to sell off back-to-school denim and make room for the winter trends that will appear on gift lists, so keep your eye out for October deals on jeans.

Iphone and Accessories – Apple’s new iPhone 8, 8 Plus, and X were announced Sept. 12. That means now is the time to buy a 7S or 7S Plus at a discount. Along with the release of a new iPhone comes a slew of new cases, headphones, and other accessories. If you have an older model iPhone, you can get accessories for less as retailers look to move them out.

Cars – October is prime time for striking a deal on a new car that happens to be stamped with last year’s date. Auto dealers are eager to make room on their lots for 2018 models.

Summer Stuff – This is most likely the last month when shoppers will see patio furniture, yard tools, and summer-themed decor in stores until next spring. Add air conditioners to the list of October deals and get ready for next summer now, for less.

Camping Gear – With summer hikes and campouts now a memory, camping gear will go on sale this month. Find cheap and discounted sleeping bags, tents, and other camping equipment.

Vacations – Prices on cruises and vacations typically take a dip in October, the shoulder month between summer vacations and holiday travel. With school back in session, many destinations aren’t very crowded but still enjoy balmy and temperate weather.

Seasonal Produce – October is when the fall bounty begins coming in and some warm-weather plants produce their final yields. Look for cheap apples, beets, broccoli, cabbage, cauliflower, cranberries, grapes, honeydew melon, kale, leeks, lettuce, oranges, pears, spinach, squash, sweet potatoes, and yams. If there’s an apple orchard nearby, picking your own may be cheaper and make for a fun weekend outing.

Wait: Appliances – September and October used to be the prime time to buy big appliances, because this is when new models are introduced. In recent years, however, big appliance deals have been popping up in November, especially around Black Friday, so hold off a few weeks before hitting the stores.

Wait: Cookware – Deals on pots, pans, and small kitchen appliances are also more enticing next month, so don’t bother searching right now. Better to wait for Black Friday sales and other holiday discounts.

CMBS Delinquencies Continue to Decline

Posted on October 05, 2017 by Laura Lam

CMBS Sept 17Trepp, LLC, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, recently released its September 2017 US CMBS Delinquency Report.  For the third straight month, the Trepp CMBS Delinquency Rate was pushed lower. The delinquency rate for US commercial real estate loans in CMBS is now 5.40%, a decrease of four basis points from August. The September 2017 rate is now 62 basis points higher than the year-ago level.

“After more than two years, the ‘wave of maturities’ has been reduced to a mere ripple,” according to Manus Clancy, Senior Managing Director at Trepp. “The volume of maturing debt coming due every month has already begun to wane, meaning the rate of delinquent loans should hold steady or recede in the coming months. We will probably look back on the past two years with a sense of relief.”

Nearly $1.3 billion in CMBS loans became newly delinquent in September, which is about $200 million more than what turned delinquent in August. However, more than $800 million in loans were cured in September, and almost $700 million in previously delinquent CMBS was resolved with a loss or at par.

The delinquency rate for the office sector decreased by the largest amount of all major property types in September, as it fell 21 basis points to 7.10%. Also dropping was the retail delinquency rate, as it shed six basis points to 6.55%. The steepest increase among major property types belonged to the lodging sector, as that delinquency reading climbed 35 basis points to 3.84%.

Source:  Trepp, LLC

Millennials Over-Extended and Frustrated with Home-Buying Process

Posted on October 04, 2017 by Laura Lam

Millennials poured some $514 billion into the U.S. housing market over the last year as the largest generation of home buyers, Zillow reported.  But new survey data shows their home-ownership aspirations are stymied by affordability issues, frustration with the buying and selling process, and a cutthroat housing market.

More than half of young buyers (53%) make multiple offers to buy their first home, and only 2 in 5 millennials (39%) are able to make the recommended 20% or more down payment.  The results of the Zillow Group Report on Consumer Housing Trends 2017 show how the nation’s highly competitive housing market is changing the way a new generation approaches buying a home.

More than half of millennials (62%) shop for a rental while they’re looking to buy a home, indicating they accept the fact that buying a home is not a sure thing. They are more likely to say they struggled to find a home in their price range and on their time frame, and over one-third (37%) of millennial buyers say they went over their budget, compared to 29% of all buyers.

Coming up with a down payment is one of the biggest hurdles young buyers face.  Zillow reports that less than half (39%) of millennials put down the recommended 20% or more on their home purchase, while 1 in 4 (21%) put down the bare minimum –5% or less — in order to secure a home loan.  One in 3 (29%) millennial buyers now gets financial help from friends or family to make a down payment, and 1 in 3 (31%) millennial buyers cobbles together a down payment from multiple sources.

The study reports that home ownership is out of reach for many Americans, including many families. In today’s hot housing market, more Americans are renting than at any time in recent history – 40% of families with children are renters.

Renters typically face higher monthly payments than homeowners, and 79% of renters who moved in the last year said the rent increase is the reason they moved.  In order to find their new affordable rental, 25% of renters had to look beyond the area they initially considered moving.  More than a third (37%) of renters who have not moved in the past year say they can’t afford to move elsewhere. Nearly half (48%) of renters who make less than $25,000 a year say they can’t afford to move.

Source:  Zillow Group/Builder