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Where are the foreign investors in this phenomenon?
The decline in home sales in the United States is a baffling phenomenon, as mortgage rates have fallen sharply since the recent peak in November and home sales are expected to have jumped, logically. But no.
Sales of existing homes – single-family homes, townhomes, condominiums and co-ops – rose 4.4% in April from April and were 4.4% lower than in April of the year last, to establish at 5.19 million dwellings, seasonally adjusted, according to the National Association of Realtors, after decreasing 5.4% from a year ago; March, 2.3% in February, 8.7% in January and 10.1% in December. The declines recorded from November to January were the largest since the housing crisis 1 (data via YCharts):
One of the makers of declining home sales is that student loans "hinder millennial homebuyers," according to the report. And yes, they do it. But they did it before too. It's a permanent factor in the American economy and not something that suddenly came out of nowhere.
But mortgage rates have gone down. And that should have boosted sales. According to Freddie Mac, the average commitment rate of a 30-year conventional fixed rate mortgage fell to 4.1% in April, its lowest rate since January 2018, compared to 4.9% in November 2018 and the 4.5% range in April 2018.
The graph below clearly shows how much lower mortgage rates have had a minimal impact. Even the miracle of a month in February was still 2.8% lower than in February 2018. And in April, the seasonally adjusted annual rate (SAAR) of sales of 5.19 million dwellings was not only 4.4 % lower than April 2018, but also 6.3% lower than April 2017 and 5.3% below April 2016 (data via YCharts):
But here's the problem: Mortgage applications, as reported weekly by the Mortgage Bankers Association, have increased. These are mortgage applications made by potential buyers to buy a home, rather than mortgage applications by homeowners to refinance an existing mortgage. Mortgage purchase requests began to rise year-over-year in January, as expected, given lower mortgage rates.
Between the end of March and the beginning of May, the four-week moving average of mortgage purchase applications experienced double-digit growth compared to the same periods last year, with gains ranging from 10% to 21%. %:
This poses an interesting situation: months of declining sales of existing homes compared to mortgage purchase requests up sharply.
This can mean that people who borrow money to buy a house are trying to buy, while some people or entities that do not need mortgage – such as wealthy households in cash or investors who can borrow at the institutional level through the sale of bonds and so on, or investors who buy their funds abroad, including those who have to launder money dirty – withdraw from the market.
According to the NAR report, cash cash sales accounted for 20% of total transactions in April, up from 21% last April.
This corresponds to a seasonally adjusted annual rate of 1.04 million cash transactions in April 2019 compared to a rate of 1.14 million in April 2018: a decrease of 8.8% or 100,000 on an SAAR basis, resulting in a decline in overall sales of about 2%. .
This indicates the low demand for cash buyers, as reported by NAR real estate agents. But that only explains a small part of the difference between the rise in mortgage applications and the drop in sales.
In some circumstances, tightening lending standards could result in the rejection of a larger number of mortgage applications, but lending standards are not tightening; and for unsecured jumbo mortgages, banks relaxed their lending standards in the first quarter, according to the survey of senior loan officials, published by the Federal Reserve in early May.
And new home sales only pick up a small part of the slackening of existing home sales. Data for new home sales in April have not yet been released, but in March they were up only 3% from the previous year, and the numbers are modest: the seasonally adjusted annual rate of New home sales were 692,000 in March, compared with existing home sales of 5.21 million in March. For example, a 3% increase in new home sales does not have much impact on single-detached home sales.
Something else is going on here to create this gap between rising mortgage applications and declining home sales. I will reconstruct a theory, returning to the opaque nature of many residential real estate transactions and the way in which payment methods are declared.
A few years ago, the Financial Crimes Division of the US Treasury began to selectively repress money laundering systems in certain regions by imposing reporting requirements for real estate transactions in these areas. At the end of last year, it expanded the program, lowered reporting thresholds to $ 300,000 and above, and included payments with cryptocurrencies to "further help track illicit and other funds." criminal or illegal activities, as well as inform FinCEN's future regulatory efforts in this area. "
The "Geographic Targeting Orders" now cover certain counties in the metropolitan areas of Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York, San Antonio, San Diego, San Francisco and Seattle.
As a result, it is possible that these government-imposed reporting requirements, in addition to capital controls in China and other factors, have reduced the number of real estate transactions financed by cash transfers or cash transfers. And, because of the opaque nature of these transactions, they may have never been fully reflected in "all cash" transactions. Reported by the NAR, so their decline would not be reflected either.
A shift among investors, including foreign investors, would explain why existing home sales have fallen, while households, induced by falling mortgage rates, are still trying to buy, as evidenced by the increase in the number of homes sold. mortgage applications.
Money laundering in Canadian real estate is a widely accepted reality today, but the impact is not one. Read … How a little money laundering can have a big impact on real estate prices
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