A weekend topic starting with Mortgage News Daily. “Quontic Bank has expanded its very popular No Ratio program such that the borrower doesn’t put income or job on the application for owner-occupied borrowers. The borrower could have opened a business yesterday. No bank statements for income; No tax returns; No P&L and No Accountant’s letter. No DTI Calculated, up to 75% LTV, Loan Amounts up to $3,000,000. 100% gifts allowed which can include reserves. First-time Homebuyers welcome.”
“Once again Luxury Mortgage Corp. is here to save the day and is optimally prepared to serve as your trusted Non-QM partner. With the recent announcement of Fannie and Freddie limiting their buying of second home and investment mortgages to just 7% of their total portfolio, Luxury is best positioned as a market leader to bridge the gap. Luxury provides the most competitive alternative solutions with its suite of Non-QM products. Most notably, on investment properties, Luxury will allow loan amounts from $150k-3.5 million, maximum LTV to 80% (purchase, rate/term refi), and 75% cash out. Both Full and Alt doc types available as well as DSCR loans. No history of managing rental properties to verify. Luxury also offers I/O options as well as 40-year terms.”
“Top originators gauge the temperature of the rental market, since very few people go straight from a college dorm to home ownership. And versus the bond market, where Chairman Powell continues with his script, saying, ‘…we’re not going to act pre-emptively based on forecasts… and we’re going to wait to see actual data,’ we indeed have data that MLOs can use.”
“The Mortgage Bankers Association’s Research Institute for Housing America released a study on the location of affordable and subsidized rental housing across large U.S. cities. Nearly all of the 50 largest MSAs since 2001 have become less affordable for renters and prospective first-time homebuyers, with annual median rent growth rising at 2.0 percent above inflation, compared to an 0.8 percent real increase in annual median income.”
From Bloomberg. “Bay Street veteran David Rosenberg said he’s seeing signs that stress in some of Canada’s hottest housing markets is worse than when he first sounded the alarm over the U.S. subprime mortgage crisis nearly two decades ago. Rosenberg, the chief economist and strategist at Rosenberg Research, said in a television interview Friday that by almost any metric he watches, financial conditions in the Toronto and Vancouver housing markets have deteriorated to the point where policymakers should have grave concerns.”
“‘I’m taking a look at all the metrics I had in my hands when I called the housing bubble in 2005 and 2006 in the United States. I was looking at home price-to-rent ratios, I was looking at home price-to-income ratios, I was looking at the extent to which the household sector was overexposed to residential real estate on their balance sheet,’ he said.”
“‘I’ve got news for you: the numbers in Canada, on all the metrics, are higher now than they were at the peak of the U.S. housing bubble 13 years ago.’”
“Amid that rising home price environment, Rosenberg has been steadfast in his call that the market is in a bubble, comparing it to his experience trying to convince Americans they were staring down a similar crisis more than 15 years ago. ‘It’s like listening to [former Federal Reserve Chair] Ben Bernanke in 2006, when he told everybody, ‘Oh, don’t worry, house prices nationwide never go down, don’t worry.’ I’ve got to tell you, when I was at that perch as chief economist at Merrill Lynch, I was laughed out of meeting rooms talking about a housing bubble in 2005 and 2006,’ he said.”
The Globe and Mail in Canada. “‘There are bidding wars on many homes throughout the Lower Mainland, on the Island, and even in the Kootenays,’ says Rudy Nielsen, an industry veteran. ‘Realtors, mortgage brokers, mortgage lenders, have never been busier and are making a fortune.’”
“The Bank of Canada hasn’t yet made a move to increase interest rates, but Elton Ash, regional director and executive vice president for Re/Max Western Canada, said the industry is getting the message that rates will go up likely sooner than expected. That too will have its impact, and he hopes that people aren’t caught out.”
“‘The issue Bank of Canada is faced with is that real estate has led the growth in the GDP. So they are between a rock and a hard spot. They need to stimulate the economic growth that we experienced in 2020, but how do they do that and try to put some brakes on real estate? It’s impossible. So it’s a tough situation, but we are seeing the signaling that interest rates will start to move slowly in the interim.’”
“Mr. Ash, who’s worked in real estate for 40 years, said it worries him when he sees buyers who are willing to overpay due to the low rates. ‘I’ll be frank, I do get concerned when I see the kind of activity with multiple offers, even in Kelowna, with properties selling over list price.’”
From Western Australia Today. “Lending to highly-geared home buyers rose in the December quarter as the property market also rebounded, sparking debate over whether riskier lending is starting to re-emerge. As regulators keep a close eye on the surge in house prices, figures from the Australian Prudential Regulation Authority (APRA) on Tuesday showed a rise in the proportion of new loans with high loan-to-valuation ratios (LVRs), and loans with high debt-to-income multiples.”
“Analysis by UBS economist George Tharenou found the share of new loans that were more than four times the borrower’s income rose from 57.7 per cent to 59.3 per cent, the highest level since the figures started in 2018. Mr Tharenou said loans with an LVR above 80 per cent also rose from 39.9 per cent to 42 per cent, the highest since 2008. ‘We assess today’s data on home loans as showing a significant quarter-on-quarter increase in ‘higher risk’ home loans,’ Mr Tharenou said.”
“With property prices forecast to keep climbing, some analysts have predicted banks may curb riskier lending later this year. One lender, ME Bank, this week tightened some credit standards for customers who were very highly-geared, saying it would decline customers wanting to borrow more than seven times their income. The bank said it had a positive outlook towards property and the changes were aimed at making sure customers could meet their repayments.”
“Despite the focus on potential risks in bank lending, regulators on Tuesday signalled they were not yet overly concerned, as they remain focused on helping the economy recover from the massive shock of COVID-19. The Reserve Bank’s latest board minutes, also published on Tuesday, made it clear the central bank has a close eye on property prices, but it viewed lending standards as ‘sound.’”
From ABC News in Australia. “On the eve of Victoria’s last lockdown, Peter Mares was feeling cautiously optimistic. He was about to bid on behalf of a friend for a two-bedroom apartment in Princes Hill, in inner Melbourne. ‘I was authorised by my friend to bid up to $780,000, but I didn’t get to put my hand up because it sailed past that and went to $845,000,’ he says.”
“A few streets away, another friend of his had just moved into a similar apartment to take advantage of falling rents. It was a lighter, better place than her previous house, and much cheaper. ‘Theoretically rent is an indication of the value of housing,’ Mares, a journalist who has researched the Australian housing market, says. ‘The rental return should rise with the value of housing. But if you see prices going up in one place and rents going down in another, it seems quite odd.’”
“Sky high prices have become all too familiar to Hal Pawson, a Professor of Housing Research at University of New South Wales. Professor Pawson says the problem is structural, because Australian governments have effectively subsidised housing investment through tax incentives for home owners. Combined with low interest rates, this has changed the way many of us think about our homes – they are an asset, a place to grow capital and transfer wealth to the next generation.”
“‘It is a worldwide trend, this ‘financialisation’ of housing, but it’s on steroids in Australia,’ Professor Pawson says. This has consequences for the economy. ‘There’s a lot of drag on economy from the way our housing system operates,’ Professor Pawson says. ‘We’re talking about the relationship between incomes and the cost of housing — when you’re paying too much for housing, you don’t have as much left to spend on other forms of consumption, other goods and services that may be more may more employment generating than housing.’”
“‘The flip side of that is that we are over investing in our housing, which is essentially an unproductive asset.’”
From Stuff New Zealand. “A copy of the Auckland Star from 1975 reveals how much the city’s housing market has changed over that time. Found in the wall of a Westmere house in the midst of a renovation, the battered property pages of the paper provide a window into a past where there was no housing shortage and house prices were reasonable. The properties for sale were largely priced in a range between the early $20,000s and the early $50,000s. An average income at the time was about $125 a week.”
“Given the Auckland region’s average value is now nearing the $1.2 million mark with CoreLogic’s latest data putting it at $1,198,564 in February, the 1970s prices advertised are startling. They also beg the question of what those properties might be worth in 2021, so Stuff selected one of those advertised to get an idea what it might go for in the current market.”
“The property we zeroed in was a three- to four-bedroom, brick and tile house at 12 Moana Terrace, Maraetai. Built in 1965, it was for sale for the highest offer over $36,000. Using the Reserve Bank’s inflation calculator to adjust the house’s value for inflation reveals it was worth $1,038,757 in the third quarter of 2020 (which is the most recent comparison date available).”
“Veteran housing affordability campaigner Hugh Pavletich says the house price to income ratio was very different in 1975. He and his wife bought their first home in Christchurch around that time. It cost $24,000 with a mortgage of $20,000. They were a single-income household, as was common then, and his income was $8000 per annum.”
“‘That equates to roughly three times my income for a new home – and that was normal in that era,’ Pavletich says. ‘There were no housing affordability issues as there were plenty of new homes available to buy and their cost was more in line with the average income.’”
“These days the latest Demographia international housing affordability report puts Auckland’s house price to household income ratio at 10.0, which makes the city the fourth least affordable in the world.”