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Data Dispatch: Rates Rise Prices Out 1 Million US Renters, But Housing Fundamentals Stay Strong

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Banking & Financial Services
Data Dispatch: Rates Rise Prices Out 1 Million US Renters, But Housing Fundamentals Stay Strong

Highlights

A sharp spike in mortgage rates in the U.S. has made the typical mortgage unaffordable for more than 1 million renter households, but history and leading economists suggest rising rates will not dampen home prices.

Jun. 18 2018 — Through the first five months this year, mortgage rates in the U.S. have increased enough to push up payments by roughly $100 for the typical homebuyer, an amount large enough to price out 1.25 million renter households.

Banks and other companies dependent on mortgage revenue have reason for concern as analysts widely agree that the rate spike will slash refinancing volume. Rates for numerous products have been on the rise lately, a development likely to continue following the Federal Reserve's June 13 decision to hike rates. The jump in mortgage rates can exacerbate affordability issues in high-priced markets.

"There are always some people right on the margin, so changes in interest rates can make them realize they no longer qualify," said Lawrence Yun, chief economist for the National Association of Realtors. He said a 100-basis-point increase in rates would reduce sales by 7% assuming a static economy. However, since job growth and wage gains tend to accompany a rising-rate environment, the impact would likely be smaller.

While wages are rising, the recent increase in mortgage payments has been more dramatic. The typical mortgage payment increased 7.5% to $1,212 at the end of May from $1,127 at the beginning of the year, according to data from the National Association of Realtors and Ginnie Mae. In the latest jobs report released June 1, the Bureau of Labor Statistics reported that average hourly earnings increased by 2.7% year over year.

As a result, more than 1 million renter households are no longer able to afford a typical mortgage. In January, a mortgage required an annual income of $48,301 to be considered affordable. By May, the increase in rates means a household needs to earn $51,937 to afford the same mortgage. Assuming the households are uniformly distributed within the income bands in Census Bureau data, that represents roughly 1.25 million renter households.

But economists doubt the loss of some potential buyers will be sufficient to derail the appreciating housing market. Markets most affected by affordability issues tend to suffer from inventory shortages, so the loss of some qualified borrowers will have little impact, Yun said.

Further, even first-time buyers who might be more affected by the jump in mortgage rates are not necessarily priced out by the increase in rates. While many consumer advocates recommend a mortgage debt-to-income ratio of 28%, government regulations permit higher ratios and lenders are increasingly allowing adjustable-rate and other more flexible mortgages.

"You tend to get more relaxed lending standards during a period of higher interest rates," said Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute, a think tank. "The credit box is slowly expanding, and I think higher rates will make it expand even more."

While adjustable-rate products and the concept of marginal borrowers stretching finances might be reminiscent of subprime practices that triggered the 2008 credit crisis, consumers have much stronger balance sheets today. For example, debt loads peaked in 2007 when mortgage payments accounted for more than 7% of disposable income across the country. The figure as at the 2017 fourth quarter was 4.4%, which is the most recent data available, .

Further, Goodman said a borrower's residual income tends to be a better indicator of future performance than the cruder debt-to-income ratio. Goodman also pointed to increasing nontraditional sources of income, such as driving for Uber, that are generally not included in the income metrics that banks use to underwrite mortgages.

All told, economists think many of the 1 million renter households priced out of affordability can find alternatives to buy a house.

"For the buyer who drops out of the market, it's extremely important, but in the large, national market sense, the scale is small," said Mark Fleming, chief economist for First American Financial Corp., a real estate services company. Fleming agreed that a spike in rates will have little impact on home sales. He estimated that doubling the mortgage rate would reduce home sales by about 5%. He forecast that such a scenario would slow the increase in home prices, but that they would continue appreciating.

Sarah Mikhitarian, an economist for Zillow Group Inc., a real estate listings company, said supply-demand fundamentals will be the more significant factor for home prices and sales. She said rising rates will most affect high-priced markets such as the San Francisco metro area, but intense demand in those markets should offset any negative impact from higher rates. Rising rates could actually tighten supply without affecting demand, she said.

"We have this huge aging millennial population that is looking to buy homes, so there is a lot of demand," Mikhitarian said. "And [rising rates] could worsen the inventory issue because people who would have sold their home could hold on to it instead of purchasing another home."

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.


Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Technology
Every Industry Is Now A Technology Industry

Highlights

And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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