MReport May 2019

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TH E M R EP O RT | 53 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 DATA Will Mortgage Prepayments Spring Back? The mortgage prepayment rate is at its lowest in nearly two decades, but change may be on the horizon. T he decline in mortgage rates hasn't impacted the mortgage prepay- ment rate, which was the lowest in more than 18 years, according to Black Knight's latest First Look, a high-level data report that is released before the company's monthly Mortgage Monitor report. The reason, the report revealed, was the slowdown in home sales, despite an increase in refinance incentives from the falling rates. However, the report said that this could be due to the seasonal- ity of the market, with January and February being the low seasons for home sales historically. It indicated that prepays could pick up during the spring homebuying season if the rates remained low. The data, which also looks at mortgage delinquencies and foreclosures, indicated that the national delinquency rate in January fell to 3.75 percent after rising on a seasonal basis in the previous months and was now 13 percent below the level during the same period last year. Even though foreclosure starts indicated a month-over-month in- crease, they remained down 19.4 percent on a year-over-year basis. The number of loans in active foreclosure also continued to de- cline, falling to 265,000, down by 72,000 from last year. According to the report, this foreclosure inven- tory is also "the smallest it's been since May 2006." Properties that are 30 days past due fell to around 1.9 million, declin- ing by 257,000 year-over-year. Properties that were 90 days past due also fell 203,000 year-over- year to 504,000, the report indi- cated. Mississippi led the top five states by non- current percentage with homes that remained past due at 10.10 percent. However, Mississippi's noncurrent percent- age declined 7.77 percent from the same period last year. Louisiana, Alabama, West Virginia, and Arkansas were the other states where the non-current levels remained high. Utah topped the states that saw the lowest percentage of non-cur- rent mortgages at just 2.45 percent, declining 16.25 percent compared to last year. Idaho, Washington, Oregon, and Colorado were other states where the non-current levels remained low. Prepays could pick up during the spring homebuying season if the rates remained low. The Builders' Dilemma The road ahead may be flat when it comes to housing starts. A new report from the National Association of Homebuilders is predicting that single- family home production will be relatively flat in 2019. Greg Ugalde, NAHB Chairman, said, "Looking back, the December drop in hous- ing production correlated with the peak increase in mortgage rates and a corresponding decline in builder sentiment." Possibly due to the govern- ment shutdown, December had a combined decrease of 11.2 percent (single-family and multifamily) to a seasonally adjusted annual rate of 1.08 million units. Ugalde added, "During that time, build- ers adopted a cautious wait-and- see approach as demonstrated in the rise of single-family and mul- tifamily units that were permitted but not under construction." Digging deeper, overall per- mits—an indicator of future hous- ing production—slightly increased from 0.3 percent in December to a seasonally adjusted annual rate of 1.33 million. Of this, single-fam- ily permits fell 2.2 percent while multifamily permits increased 4.9 percent. In 2018, single-family permits increased 4 percent. In December, the regional combined single-family and multifamily housing starts were unchanged in the Northeast. However, in the West starts fell 26.3 percent,13.2 percent in the Midwest and 6 percent in the South. Overall permit issuance in December rose 17.1 percent in the West, while permits were down 6 percent in the Northeast, 17.6 percent in the Midwest and 2 percent in the South. What does this suggest for 2019 according to the analysis? NAHB Chief Economist Robert Dietz said, "Looking ahead, we expect single-family production will be relatively flat in 2019 and multifamily starts will level off as well." He added, "The biggest challenge facing builders this year will be ongoing housing afford- ability concerns as they continue to grapple with a shortage of construction workers, a lack of buildable lots, and excessive regu- latory burdens."

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