MReport February 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 45 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION A Buyers Market for 2019? As home price growth continues to slow, how will homeowner perception change the market? H ome prices rose 5.1 percent in November 2018, compared to the same period in 2017, according to CoreLogic's Home Price Index (HPI) and the HPI forecast. The report projects home prices calculated using the CoreLogic HPI and other economic variables. While home prices showed an increase year-over-year and month-over-month in November, the report forecast a decrease in home price growth in 2019 projecting home prices to grow by 4.8 percent on a year-over-year basis from November 2018 to November 2019. Month-over-month, too, the report forecast a drop in home price growth by 0.8 percent from November 2018 to December 2018. "The rise in mort- gage rates has damp- ened buyer demand and slowed home-price growth," said Dr. Frank Nothaft, Chief Economist at CoreLogic. "These higher rates and home prices have reduced buyer affordability." The report also included the CoreLogic Market Conditions Indicators (MCI), which analyze the housing values in 100 largest metropolitan areas across the U.S. It indicated that while 35 percent of the metros had an overvalued housing market, 27 percent were undervalued, and 38 percent remained at value. The projected drop in home prices during the year as well as recent declines in the stock market are likely to see homeowners changing their selling strategy. In fact, according to Nothaft, home sellers are already responding to the reduced buyer affordability by "lowering their asking price, which is reflected in the slowing growth of the CoreLogic Home Price Index." "A strong economy helps homeowners feel confident about the value of their property," said Frank Martell, President and CEO, CoreLogic. "If recent declines in the stock market shake consumer confidence in the national econ- omy, we may see homeowners' perception of home value change and a subsequent buyers' market emerge in 2019." At a state-level, the report found that North Dakota was the only state to show a year-over-year de- cline in home prices in November, while Idaho and Nevada showed double-digit growth. At a metro level, Las Vegas posted the maximum gains in home prices at 11.7 percent followed by Denver (6.6 percent); San Francisco (5.9 percent); Los Angeles (5.3 percent); and Boston (5.1 percent). Poised for Growth? Here's what declines in originations and surging home prices mean for the year ahead. T ransUnion's 2019 Con- sumer Credit Report fore- casts an increase in origi- nations and consumer balances for most credit products, while serious delinquency rates are likely to decline or remain steady. This will lead to lenders expand- ing their base of subprime and near-prime borrowers—a positive sign for both lenders and borrow- ers, according to the report. The report also predicts lend- ers will be less risk-averse with the steady pace of delinquency rates. This will also help bor- rowers to showcase their ability to better manage their finances, it said. Subprime borrowers will continue to have access to loans, it noted. Interestingly, the percentage of subprime borrowers originating loans remains far below what was recorded at the onset of the last recession, according to the forecast— wherein 9 percent of borrowers in this group originated mortgage loans in 2007. Pointing to home prices, the forecast indicated that though homes are becoming more expensive, the increase in home equity will benefit buyers. The downward trend in mortgage originations which has been steady over several quarters in the past will continue into 2019 as a result of rising interest rates, surging home prices, and supply con- straints, the report noted. A surge in average balances is expected in 2019, growing from an anticipated $208,831 at the end of Q 4 2018 to $218,490 by the end of Q 4 2019, a 4.6 percent increase. Delinquencies were also predicted to continue to drop from 1.62 percent by the end of 2018 to 1.45 percent by the end of 2019—a consistent downward trend since 2010 on a year-over-year basis, the report stated. "While overall originations will be down in 2019, increases in home prices are resulting in record levels of home equity, which pro- vide homeowners more opportu- nities to tap into low APR home equity products. This will particu- larly benefit consumers deciding to pay off other higher interest rate products, as well as consumers finding it difficult to afford a new 'move up' house, who instead opt to invest in improving their exist- ing home," said Joe Mellman, SVP, Mortgage Line at TransUnion. TransUnion expects non-prime originations to decrease by 2.4 percent "as the composition of new accounts changes." The prime segment will see a resurgence in origination growth in the coming year, indicating lender's desire for credit quality for their portfolios as delinquency continues to increase. "The rise in mortgage rates has dampened buyer demand and slowed home-price growth." —Dr. Frank Nothaft, Chief Economist, CoreLogic

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