A weekend topic starting with the Wall Street Journal. “Detroit is making a comeback after years of decline that led to a bankruptcy filing in 2013. But large swaths of the city are left behind, starved of the housing credit needed to revive them. No purchase mortgages were made last year in almost a third of Detroit’s census tracts, and fewer than five each in another third, according to data from LendingPatterns.”
“The dearth of credit is largely a consequence of battered property values plus a commercial reality that depresses them further: Lenders can’t earn money on tiny mortgages, so they don’t make them. Less than a quarter of Detroit home sales were financed by mortgage loans last year, the smallest share in the 50 biggest U.S. cities, according to Attom Data Solutions.”
“Vincent Orr, a production supervisor at Fiat Chrysler Automobiles NV, has bought two houses in northwest Detroit for cash at auctions run by the Detroit Land Bank Authority, a public repository of properties that are vacant or seized through tax foreclosure. The agency has been unloading hundreds of houses a month to the highest bidder. Prices start at $1,000, but buyers must agree to fix them up.”
“Mr. Orr paid $2,100 in 2017 for a house for his mother. The roof was caved in, but he liked the brick work on the outside. He spent months redoing the electrical and plumbing, replacing windows and doors and putting up drywall. Then he did it again, buying the house next door for himself last year for $1,200. He is nearly finished fixing it up, too. He has used about $100,000 of savings, plus a good bit of elbow grease, to complete the renovations.”
“‘Cash is king because nobody can deny you,’ said Mr. Orr, who is 30. ‘The houses that require a mortgage, a lot of people are reluctant.’”
“When Kelly Brown bought a fixer-upper several years ago for roughly $5,000, she went to a bank where she had an account seeking a personal loan for about $15,000. The banker told her he couldn’t approve it because of her subprime credit score, Ms. Brown said. She said she thinks it was low because she didn’t have many financial accounts in her name and hadn’t attempted to build her credit.”
“Instead of borrowing, she used her savings to rehabilitate the house, which she bought in an annual Wayne County auction of foreclosed homes. She went on to buy more. Though her credit score improved, she paid with cash, completing renovations as she saved, which took as long as a year. Ms. Brown, who is 36, now owns four properties, living in one and renting out three.”
“‘I’m not looking for the system to help, because I know it’s not going to,’ she said.”
From Housing Wire. “The Federal Housing Finance Agency (FHFA) released its strategic plan for fiscal years 2021 – 2024 on Tuesday, which aimed to establish new goals for its sanctioned duties, including a responsible ending to the conservatorship of Fannie Mae and Freddie Mac. Though no timeline has been established, a statement by FHFA director Mark Calabria outlined the steps the agency is taking toward achieving its three main goals.”
“After injections of liquidity by the Federal Reserve and under the CARES Act, the FHLBanks’ balance sheets – both advances and debt outstanding – fell to or below pre-crisis levels, the report said. However, the FHFA said the Enterprises lack the capital to withstand a serious housing downturn. According to the report, after Q2 2020, the Enterprises owned or guaranteed approximately $6 trillion in single-family and multifamily mortgages, nearly half of all mortgage debt outstanding in the United States. Yet their combined leverage ratio was over 200 to 1.”
“‘By contrast, the largest financial institutions in the nation have an average leverage ratio of approximately 12 to 1. Such high leverage, over the long term, would hinder FHFA’s ability to achieve the objective under Strategic Goal 2 that calls for ensuring the regulated entities ‘appropriately respond to market events and downturns,’ the report said.”
“Beyond safety and soundness, the FHFA said the housing finance system remains in urgent need of reform and said that careless mortgage credit risk backed by insufficient capital in 2008’s financial crisis has yet to be resolved – an issue the FHFA said only Congress can dissolve.”
“To achieve the strategies laid out, the organization called for Congress to give FHFA the same flexibility as the federal banking regulators by amending or removing the statutory capital definitions so that the FHFA could simplify the proposed capital rule.”
“‘The regulatory environment could also affect FHFA’s ability to achieve its strategic goals. FHFA does not currently possess the power to examine important counterparties of its regulated entities, such as nonbank servicers,’ the report said. ‘In addition, FHFA will need to partner with other financial regulatory agencies to ensure a fair playing field and mitigate opportunities for regulatory arbitrage.’”
The Ouachita Citizen. “How do we determine the truth about home prices? Why is it some homes in places like Aspen Colorado are $1,000 psf while in some areas a comparable size home will sell for $100 psf or less? Generally home prices everywhere increased in value each year from 1963 to 2007.”
“The average price of homes in the U.S. increased from below $50,000 in 1963 to $384,500 in 2020. Then came the 2007 housing bubble but by 2013 housing prices had returned to pre-2007 levels. However, by 2018 nationwide housing prices had leveled off. In 1975 every region of the country had an average home sale price of under $75,000 but by 2020 the Northeast had an average sale price of over $500,000 while the South and Midwest had an average price of just more than $300,000.”