Where We Stand
In our 30 years of writing this economic commentary, the one constant we can say about the economy is change. And there is no doubt that the rate of change has accelerated over the years. We had a huge housing boom just over 10 years ago, followed by a severe recession and a slow, steady and long recovery which has lasted almost eight years. This recovery started excruciatingly slow and was buoyed by record low interest rates. But the length of the recovery has resulted in great progress over the long-run — witness an unemployment rate that has moved from over 10% to just over 4.5%, plus close to 15 million jobs created and record stock prices.
That does not mean we are all the way back. With close to 10 million jobs lost during the recession, when you average the amount of jobs added since the start of the recession, we still have a long way to go. So where do we stand as we enter the new year? The one thing we can guarantee is that there will continue to be change. Even before the new President has taken office, we have seen a solid stock market rally and higher interest rates. So that means that the markets are anticipating change as well. The reaction says that the markets are anticipating a stronger economy and that would translate into higher interest rates.
But what we must remember is that this reaction is based upon anticipation, not reality. For example, the markets are also anticipating fewer regulations and major changes in legislation. Assuming this anticipation comes to fruition–we still don’t know the final format of these changes in laws and rules. For example, will there be tax reform and will this affect the deduction for mortgage interest? It is way too early to tell. We can conclude that we presently stand a lot stronger than we were eight years ago, and we are moving in the right direction. We will see additional change shortly, but it will be some time until we know what this change will look like and how it will affect the economy. If only we could predict the future.
There’s still a lot of equity-building potential for home owners. Freddie Mac’s Multi-Indicator Market Index stands at 86, which the residential lending giant says is on the “outer edge of its historic benchmark range of housing activity.” The index has climbed 45 percent since its all-time low set in 2010. It continues to trail way below its historic benchmark of 100 and far away from its high of 121.7. “The purchase applications indicator is up nearly 19 percent from last year, indicating strong housing demand and a market that’s poised to close out the best year in home sales in a decade,” says Len Kiefer, Freddie Mac’s deputy chief economist. “National home prices have surpassed their pre-recession nominal peak with about half of states still below their pre-recession peak. Factoring in low mortgage rates and modest income gains, house prices still have some room to run, as indicated by the MiMi payment-to-income benchmark which is nearly 33 percent below its historic benchmark. Though we’ve come far, housing still has significant room for improvement in many markets across the country, as indicated by the fact that 24 out of the top 100 metros are still more than 20 percent below their historic benchmark, as measured by MiMi,” Kiefer added. Source: ReutersHomes within walking distance to jobs, schools, shopping, parks, and other amenities are commanding a premium at resale. But buyers will have a tough time locating such properties. Fewer than two percent of all active listings are considered a “walker’s paradise,” having a walk score of 90 or above, according to a new study released by Redfin’s research team. Yet, 56 percent of millennials and 46 percent of baby boomers say they prefer walkable communities that mix housing, local businesses, and public services. Redfin’s research team estimated just how much walkability is worth when buying or selling a home. They looked at the sales prices and Walk Score ratings of more than 1 million homes sold between January 2014 and April 2016 across 14 major metro areas. From there, the team determined the average price of one Walk Score point. Researchers say that one Walk Score point translates into an increase to a home price by an average of $3,250 – or 0.9 percent of the cost. Source: The Wall Street Journal
The Department of Veterans Affairs has announced new loan limits for 2017. The maximum amount for the VA Home Loan Guaranty Program for next year will be $424,100 in most counties. In higher-cost counties, the loan limits will range from $425,500 to $721,050 in the highest cost areas. Veterans eligible for VA home loans can borrow amounts higher than the loan limits, but lenders typically require them to make a 25% down payment for the amount borrowed above these limits. The VA calculates loan limits using counties’ median home values which are published by the federal government. Some county limits will increase in 2017, while others will remain the same and a few decreased. Source: Military.com