Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.
Black Knight’s latest Mortgage Monitor report finds that rising home prices have both decreased the number of borrowers underwater on their mortgages while increasing the amount of equity available to homeowners.
Total ‘tappable’ (or lendable) equity increased by $695 billion over the last year. Growth during the last year brought the total lendable equity market to just under $5 trillion as of the end of Q1 2017. Now, more than 40 million American mortgage holders have ‘tappable’ equity available to them.
If home prices continue to rise at or near their current rate of appreciation, lendable equity will likely hit record highs by this summer, according to Black Knight. Nearly half of the nation’s 100 largest metropolitan areas have already reached record levels of available equity, with the majority in coastal areas with the 10 largest metro areas accounting for more than half of the total equity. Fun fact: California holds nearly 40% of available equity.
Black Knight Data & Analytics Executive Vice President Ben Graboske explained that continued growth in the equity landscape has also improved the net worth of many, but not all, homeowners with mortgages. He also explained the increase represents an uptick in risk for those in the larger mortgage market.
“While the growth in tappable equity is obviously good news for both homeowners and lenders alike, it does represent some risk as well,” Graboske said. “Investors in mortgages and mortgage servicing rights – as well as others with a stake in the broader mortgage market – need to be prepared to account for a higher share of equity-driven prepayment risk, as well as an increased chance of borrowers adding on second liens that primary loan servicers and investors may not be aware of.”
The number of underwater borrowers fell by 35% over the last year, with a 16% decline in Q1 2017 alone. This means there are now 1.8 million homeowners who owe more on their mortgages than their homes are worth, marking the first time that population has fallen below 2 million since 2006. Black Knight noted that this is still well above end-of-year 2005 levels, when only 750,000 borrowers were underwater.
Black Knight also reported that negative equity is becoming concentrated among borrowers whose homes fall into the lowest 20% of prices in their respective markets and that nearly half of all underwater borrowers own such homes. These properties are more than twice as likely to be underwater as those in the next price tier up, and 6.5 times more likely to be underwater than those living in the top 20% of the market.
“This is the highest differential we’ve seen between high and low price tiers since we began keeping track in 2005,” Graboske said. “In some areas, the disparity between the lowest price tier and the highest is staggering. In Detroit, for example, borrowers whose homes are in the lowest 20% of prices are 50 times more likely to be underwater than those in the top 20%.”
In housing-starved Silicon Valley, Related Companies has submitted a proposal to build a $6.7 billion mixed-use complex on a former landfill, according to the Mercury News. The paper reports the development will be set on the site of the former Santa Clara All Purpose Landfill and could be the largest housing project ever proposed atop a landfill in the Bay Area, or the state.
From the article:
Environmental overseers have accepted Related’s massive technical document, which includes elaborate safety systems to block the escape of combustible methane gas and other dangerous vapors, and to prevent groundwater contamination.
“The regulators were pretty skeptical at the start, I have to say,” said Stephen Eimer, an executive vice president with Related and co-managing partner of the 9.2 million-square-foot project, known as City Place. “But we kept at it, working and working, and they came around.”
Set on 240 acres atop what was once the Santa Clara All Purpose Landfill — a golf course and BMX track now occupy the site — the project also would include 5.7 million square feet of offices, 1.1 million square feet of retail space and 700 hotel rooms. The planning document for the development, which calls for a foot-thick concrete barrier covering more than 30 central acres of landfill where the housing would be built, spells out “multiple layers and multiple means of protecting” residents, shoppers and workers “from any kind of problem,” Eimer said.
The company still does not have the green light yet. The paper reports the project has been stalled by litigation. In 2016, the city of San Jose sued the city of Santa Clara over the project, charging that the imbalance between the project’s number of jobs and housing — 23,000 jobs and 1,680 housing units — will increase housing demand in San Jose and tax its overstretched services and infrastructure. The next court date is scheduled for August, but both sides say they hope for an out-of-court resolution.