July 6: A letter about the Atlanta market; a debt primer; Saturday Spotlight: First American Data & Analytics
Key talking points for loan originators while speaking to potential homeowners are rent levels and increases, the cons of apartment living, and lack of stability for renters. Like homes, rental rates are influenced by supply and demand. New York City’s rental vacancy rate is down to a mere 1.4 percent, and there’s little indication that relief is on the way. In May, just 36 permits for multifamily buildings were allocated, the lowest for May in a decade excluding the 2020 situation. Last year, only 15,500 apartment unit permits were filed, the lowest since 2016. Overall, those constraints have had the Econ 101 impacts one might expect: Asking rents in NY are up 33 percent, and median prices are up 24 percent. Of course, those who are interested in buying a place in New York City (made up of five county-level sections called boroughs: Manhattan, Brooklyn, Queens, The Bronx, and Staten Island) have to contend with price/affordability, homeowner’s boards, walk-ups… Other metro areas, like Atlanta, have a different set of problems: more below.
Saturday Spotlight: First American Data & Analytics
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“Trusted industry-leading data sets that span 100% of U.S. housing stock.”
In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).
At the end of 2020, First American rebranded its data division as First American Data & Analytics. The creation of this new data-dedicated division was the culmination of a multi-year effort to build a world-class, property-centric data operation that could deliver critical risk management, analytics, valuation, and marketing solutions. First American Data & Analytics provides best-in-class decisioning solutions to the mortgage, Fintech, and Proptech industries, all powered by the industry’s largest and most complete property information and ownership datasets.
Our technology-based solutions help clients reduce risk and enhance efficiencies within the mortgage, title, fraud/verification, compliance, and valuation sectors. Our solutions are used in more than half of all U.S. mortgage transactions. To give a sense of scale, we curate and maintain the nation’s largest dataset of property ownership information. That’s more than 8 billion recorded property documents, with more than 5 million new property document images added each month.
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.
Our values of integrity, commitment, service, leadership, and teamwork influence the way in which we conduct our business and engage with the communities where we live and work. Our team contributes time, money, and energy to local charities such as the Big Brothers Big Sisters of Orange County and the American Heart Association.
What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?
We take pride in nurturing leadership and fostering employee development. We believe that cultivating strong leaders inspires innovation, propelling us forward in the digital transformation of our industry. We have numerous internal mentor and career development opportunities throughout the company including First American’s Women in Leadership, SPARK, and our Emerging Leaders programs. We believe in developing the Leadership for Tomorrow.
Things you are most proud of that don’t have to do with sales.
We have been recognized as one of Fortune’s 100 Best Workplaces for eight consecutive years. We’ve also been named one of the Best Workplaces for Women and one of the Best Workplaces in Financial Services & Insurance. Additionally, First American earned a score of 100 on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index (CEI) for LGBTQ+ workplace equality.
Interesting fact about First American you wouldn’t necessarily know.
First American Data & Analytics takes March Madness very seriously and holds a division-wide tournament each year. Our employees really get into the competitive spirit. Last year, one of our employees placed second by running the data on the teams and brackets against his statistical modeling method. Now that’s using your brains to boost your bottom line.
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
A case study in affordability, corporate buyers, and land use
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A mortgage banker from Alpharetta, GA, wrote to me this week with an example of local market woes. “Yesterday my wife and I joined an open home tour of five new builds in Alpharetta, where we built our home more than 30 years ago. These homes cost 10 times what we built ours for and I can’t say that they are 10 times better than ours. The interest rates then were close to what we are selling today, so that’s interesting given that the rule of thumb back then was that you could ‘afford’ a more price in the multiples of 3 to 4 times your earnings. Today you just can’t get close to that to buy something. You would need to make $600K – 800K/yr. to qualify for a mortgage with little other debt unless you’ve traded up in homes and bring a million or more to the closing. How much does that say that the ‘dollar’ has depreciated over time?
“For many ‘old timers’ in the business that remember double digit mortgage rates they speak of the home prices relative to income and that today’s prices are just obscene in comparison to then. That’s the difference.
“Atlanta leads the nation in non-owner-occupied purchases so much so that many subdivisions are putting provisions in place to cap the number of rental homes allowed within their subdivision HOA rules. Over 20,000 have been bought by the hedge funds, and these homes will never hit the market again in traditional distribution models. I suspect they will be grouped into a pool of homes and sold in some time, much loke commercial real estate that falls from ‘A’ grade to ‘B’ grade instead of maintaining them as if owned by the occupants. The old adage that no one takes care of a rental car as well as their own but on a much bigger scale.
“Another factor hurting our market is the lingering memory of foreclosures back in 2010+/- a few years. Many kids experienced firsthand either the pain that their parents experienced or parents of their friends that lost their homes. Many of these kids are now in their early 30’s, prime home buying ages.
“Atlanta was a leader in this category, and I’ve spoken to some clients who would naturally be prime candidates for ‘step up’ homes but are staying in place with an interest rate below 4 percent and many below 3 percent even, I capitalized on the refinances. They have no interest in assuming any more risk and as one told me when they were so fortunate to bring a third child into their lives that they would stay in a 3BR/2BA home because of this as well as neither parent lives far away so they never expect to need a ‘guest bedroom’ and that ‘2 can share a bedroom, it’s not the end of the world’. This will not show up in any statistic but just as my grandmothers hoarded water for some unknown reason to me there very well may be many that stay in their first home all their lives, not that that is a bad thing actually for everyone but a mortgage banker.
“Finally, Atlanta isn’t able to build starter homes anymore anywhere reasonable to commute. You can’t build a ‘starter home’ between land acquisition costs, building materials, labor, etc. for under $400K. So, the starter homes are tough to find, many aren’t leaving as they can’t find the step-up homes for many of them aren’t interested in moving up for reasons mentioned above and no one is building below $1.5MM to $2MM+ range in popular areas. On my street we have 12 homes and 11 are empty nesters living in 5-6 bedroom 4-6 bathroom homes, granted, I could sell my home for 4 times what I bought it for 30 years ago but still can’t afford the new builds that aren’t significantly higher quality and not that much above what I have in terms of square footage, details as we’ve kept our home up to date with trends, etc.”
The writer finished with, “It’s rather bleak to report this but thought you ought to know about what’s going on here as you keep a finger on the pulse of the market.” Thank you!
A primer in debt
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Every day our business deals in individual’s debt, whether it is mortgages, credit cards, student, debt, car loans, or personal loans. But every election, and budget session, brings up debt on a larger scale… Namely, the debt incurred by the United States.
Did you know that the national debt is not the budget deficit? The national debt increases faster than the deficit because money also is borrowed to make student loans, Small Business Administration loans, export-import bank loans, and more. Domestic debt can be divided into four sets: Federal government debt and obligations; state and local government debt and obligations; corporate debt; and individual debt. Federal obligations, apart from Treasury debt, stem from the social safety-net programs of Social Security and Medicare. State and local government obligations, apart from debt, stem from pensions. At some point, our capacity to borrow will not be enough to sustain the regular budget plus the entitlement spending of Social Security and Medicare. This can potentially be solved by raising taxes, decreasing benefits, increasing employee contributions, or a combination of the three.
The extent to which the amount of federal debt is a problem depends on two things: interest rates on Treasury debt and the national debt to gross domestic product (GDP) ratio. Professionals in the mortgage business are familiar with debt ratios. A similar metric for Treasury debt is the ratio of national debt to GDP. The higher the ratio is, the more difficult it is to service. The Federal Reserve produces a graph of the ratio of total federal (or national) debt to GDP. If interest rates rise, it is more expensive to service the interest on the national debt.
Too much debt has some major ill effects on the mortgage business. People who are too heavily indebted may never be able to buy a home. Students with too much debt will, at minimum, delay buying homes. According to the National Association of Realtors, student-loan debt delays homeownership by seven years for millennials, the younger generation that is now the largest source of first-time homebuyers. It also delays marriage, having kids, and auto purchasing. If debt causes people to have fewer children, the problem is compounded because in the future there will be fewer people to pay off the debt. If the total amount of borrowing gets excessive, compared to total savings, it can create higher rates for all lending. That outcome would not bode well for the mortgage business in the long term. Stay tuned…
I told my friend that, in order to have sex, I’d said to my girlfriend that I’d marry her in the summer.
“July?” he asked.
“Of course I did,” I replied.
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