FICO Scores Hit Record High

FICO Scores Hit Record High

Bajak and Associates

Lesson learned?  Whether they saw their credit decimated by the housing crisis and the Great Recession or merely watched loan standards tightened beyond their ability to qualify, Americans seem to have taken to heart the importance of their credit scores.  The result, FICO says, is that consumer credit scores have reached a new high, an average of 704 points.

How Credit History Impacts Your Credit

Kenneth Harney, in an article for the Washington Post's Writers' Group, quotes FICO Vice President of Scores and Analytics Ethan Dornhelm that Americans are "making more judicious use of credit." This means higher scores on the FICO model that weights them not only in terms of on-time payments but on the length of the credit history, the amount and type of credit a consumer has available, and how much of that available credit is being used.

The 704 point average score, on scale that runs from 300 to 850, is a substantial improvement from the average of 686 in 2009.  Harney points out that a lot of the improvement, 5 points, has been added in the last two years, one of the fastest two-year runups in FICO history.

A score of 704 is considered good, meaning a consumer is a fairly safe bet for performing on a loan as agreed, and usually gets that borrower a fairly good interest rates and other terms.  The best deals are usually reserved for those with scores of 750 or better. However, while FICO scores for most categories of borrowers are rising, Harney points out that the averages for people taking out mortgages are sliding, down from 745 in the years after the crash to about 733.  This, of course, is not a reflection on borrowers but rather an indication that mortgage lenders are relaxing their standards, accepting slightly lower scores in their underwriting.

There are variations in average scores by age. Persons 18 to 29, a range that includes some Millennials and most adults of Generation Z, have an average score of 659.  They will typically have not only credit histories but thinner credit files, many any negative report will weigh more heavily on the score. The average score for people ages 40 to 49 is 690, and for those 60 and older, it's 747.

There are a lot of factors that help account for the overall higher scores.  First, fewer people have truly awful ones.   Those with scores under 500 now constitute 4.2 percent of the total, down from 7.3 percent in 2009 and the share with scores from 500 to 549 has dropped from 8.7 percent to 6.8 percent.

On the other end of the spectrum, 22 percent of those with a FICO number are considered "super-scorers," with a score over 800.  Forty-two percent have scores between 750 and 850.

Some help may have come from a change in reporting by the three major credit bureaus that we noted a few weeks ago. So-called collection reports, defaulted accounts that are sold to a third-party, have been handled differently since the first of this year.  They must be associated with a contract or agreement to pay and marked as paid when they are.  Medical accounts have to be at least 180 days past due before being reported and all collection accounts must have sufficient information to link them to that consumer.  The number of credit files with collection accounts were reported by the Federal Reserve as dropping from 12 percent last year to 9 percent at present.

Dornhelm says that lessons from the housing crisis are clearly affecting scores and consumer behavior.  He thinks more Americans have access to and better understand their credit scores and how to manage them, including managing the amount of their debt.


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Source: Jann Swanson, Mortgage News Daily

Fannie Sees Growth Slowing, Turns Bearish on Housing

Fannie Sees Growth Slowing, Turns Bearish on Housing

Bajak and Associates

Fannie Mae's economists have upgraded their second quarter economic forecast but say that may be about it for the year. In their July forecast, the company's Economic & Strategic Research (ESR) Group, headed by Doug Duncan, noted that the expansion just celebrated its ninth anniversary "with a bang."  Economic growth in the second quarter may have approached the high in that expansion that occurred almost three years ago.

The outlook for housing has turned bearish. Single-family construction starts were up in May for the fourth time in five months but still lagged the post-crash high of last November.  (Fannie Mae's economists prepared this report before the June data was released wherein housing starts plummeted by more than 12 percent.)  Multifamily starts rebounded in May, reversing about half of the prior month's drop but permits dropped for both single and multifamily construction.

Home sales were mixed.  New home sales rose in May, but the increase was driven by sales in the South which were at a decade long high.  Homebuyers are increasingly buying homes still in the planning stage, which suggests that building activity has not kept pace with demand.  Builders continued to face challenges from shortages of labor and rising building material costs.

Existing home sales fell for the second month and were lower year-over-year for the fourth time in five months.  The inventory of available homes has been down year-over-year for three years, impeding sales and driving price increases.  Typical marketing time is now 26 days, the shortest since the National Association of Realtors started tracking the number in 2011.  Pending home sales, a forward-looking indicator of existing home sales, also dropped for the second month in a row.

Even though interest rates stopped rising and even dipped a bit in May, purchase mortgage application activity was flat and refinance applications continued their decline, falling for the fifth straight month and the eighth time in nine months.  May volume was the lowest since December 2000.

The overall bearish activity in housing prompted Fannie Mae to lower its forecast for existing home sales from a slight increase over 2017 to a slight drop and downgrade purchase mortgage originations by $20 billion. They left their forecast for refinancing unchanged at a 26 percent decrease from last year, with an 8 point drop in the refinancing share to 28 percent.  Mortgage originations in 2018 are forecast to total $1.69 trillion, an 8 percent decline.

As to the overall economy, the ESR group estimate that GDP growth shot up to 4.2 percent during the second quarter from 2.0 percent in the first.  This was due to spending by consumers and the government, inventory investment and more favorable trade. Residential investment, which was a drag on growth in the first quarter appears to have made a modest contribution in the second.

Enjoy it while it lasts.  The economists say this growth will not be sustainable and that the GDP will finish out 2018 with 2.8 percent growth, one tenth-point higher than they predicted last month.  It will then slow to 2.2 percent in 2019 as fiscal impacts fade.

Trade will be a factor in the slowdown.  Canada has already implemented tariffs on $12.5 billion in U.S. goods and there is a back and forth with China involving tariffs on $34 billion in goods on each side.  The U.S. has proposed a 10 percent tariff on a list of another $200 billion in Chinese imports. The impact of these actions so far, Fannie Mae's economists say, have been small but potential retaliation from China "could be devastating for some local economies."

Even though wages remained flat - up another 0.2 percent - in the June employment report, inflation did increase.  The Fed's preferred indicator, the personal consumption expenditures (PCE) deflator, moved up, also by 0.2 percent, in May for the second straight month.  That brings annual growth to 2.3 percent, above the Fed's target measure of 2.0 percent.  The Fed has indicated it would tolerate inflation overshooting its target and there are also concerns about the flattening yield curve, the spread between  2-year and 10-year yields was at about 30 basis points at the time the forecast was written.  Despite these contra-indications, the ESR group says it expects the Fed to stay on its monetary normalization track and they changed their rate hike call to two increases in the second half of this year, in September and December, compared with the one hike they anticipated in their June forecast.


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Source: Jann Swanson, Mortgage News Daily, July 20, 2018

US Existing Home Sales Fall for Second Straight Month

US existing home sales fall 

for second straight month

Bajak and Associates

·         Existing home sales fell in May.

·         The number of transactions was expected to increase.

·         This is the second straight month of declines.

U.S. home sales unexpectedly fell in May as an acute shortage of properties on the market pushed house prices to a record high.

The National Association of Realtors said on Wednesday that existing home sales slipped 0.4 percent to a seasonally adjusted annual rate of 5.43 million units last month. It was the second straight monthly decline in sales.

April's sales pace was revised down to 5.45 million units from the previously reported 5.46 million units.

Economists polled by Reuters had forecast existing home sales rising 1.5 percent to a rate of 5.52 million units in May. Sales rose in the Northeast, which accounts for a small fraction of the market. They fell in the West, South and Midwest.

Existing home sales, which make up about 90 percent of U.S. home sales, dropped 3.0 percent on a year-on-year basis in May. They have declined on that basis for three straight months.

Home sales have largely treaded water this year as strong demand depletes the supply of properties on the market, causing house prices to rise faster than wages.

Supply has been especially tight at the lower end of the market, which accounts for a large portion of the housing market. With mortgage rates rising back to seven-year highs, purchasing a home could become even more expensive for first-time buyers. Housing demand is being driven by the lowest unemployment rate in 18 years.

The 30-year fixed mortgage rate rose eight basis points to an average of 4.62 percent last week, according to mortgage finance agency Freddie Mac. Mortgage rates are likely to rise further after the Federal Reserve increased interest rates last week for a second time this year and forecast two more rate hikes before the end of 2018.

There were 1.85 million previously-owned homes on the market in May. While that was up 2.8 percent from April, housing inventory was down 6.1 percent from a year ago. Supply has declined for 36 straight months on a year-on-year basis.

At May's sales pace, it would take 4.1 months to exhaust the current inventory, up from 4.0 months in April. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median house price increased 4.9 percent from a year ago to an all-time high of $264,800 in May. That was the 75th consecutive month of year-on-year price gains.

U.S. financial markets were little moved by the data. U.S. Treasury yields rose after Fed Chairman Jerome Powell said the U.S. central bank should continue with a gradual pace of rate increases.

Stocks on Wall Street were trading mostly higher while the dollar was almost flat against a basket of currencies.

US Existing Home Sales

Supply likely to improve

Builders have struggled to plug the inventory gap, citing higher prices for lumber as well shortages of land and labor. The NAR is, however, optimistic the inventory situation will improve later this year.

The Commerce Department reported on Tuesday that housing starts increased 5.0 percent to a rate of 1.350 million units in May. Housing completions increased 1.9 percent to a rate of 1.291 million units last month.

Still, both starts and completions remain below the range of 1.5 million to 1.6 million units that realtors and economists said is needed to ease the supply squeeze.

According to the NAR, sales of homes priced below $100,000 plunged about 18 percent in May from a year ago. Houses for sale typically stayed on the market for 26 days in May, matching April's seven-year low and slightly down from 27 days a year ago. Fifty-eight percent of homes sold in May were on the market for less than a month.

First-time buyers accounted for 31 percent of transactions in May, down from 33 percent in both April and May 2017. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

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Source: CNBC Wed. 20 June 2018