Weekly Mortgage and Real Estate Report – Week of February 27, 2017

Jobs and RatesIt has been a whirlwind start to the year with record stock prices and a new administration coming together. And the year could get a bit more interesting with an employment report due out at the end of next week. Of course, the jobs data is always important, but this report could hold a bit more weight with a meeting of the Federal Reserve coming up in a few weeks. The Fed has recently talked about raising rates as much as three times this year, but the markets have been predicting no increase before May or June.

Could a very strong jobs report make a March increase more likely? This is certainly within the realm of possibilities and the recent release of the minutes of the last Fed meeting seemed to be somewhat open to that scenario. Keep in mind, even though the economic news released thus far this year has not been significantly stronger than expected, the inflation data reported recently was higher than forecasted. And the Fed is watching the inflation rate very closely while analyzing the economy.

In addition, while the economic reports have not been that strong, consumer confidence is up, along with the stock market. There is a possibility that this confidence turns into more jobs created because employers are also feeling more confident. More jobs will boost the economy. In addition to the total number of jobs added, one indicator which will be watched very closely will be wage growth. If wages grow more quickly than expected, this would denote that the job market is getting tighter and would be another factor elevating inflationary concerns.

  Consumer sentiment has surged since the November election, as Americans become increasingly optimistic about the future of the economy and their own personal finances. But most consumers seem to understand that better economic growth comes at the cost of higher interest rates. According to data, that may be nudging them into the housing market. In the University of Michigan’s closely-watched consumer sentiment survey, the number of people who said that now is a good time to buy a home because of rising interest rates surged to the highest level in more than 20 years – one in five. It makes sense that Americans are responding to the possibility of higher rates. Borrowing costs jumped nearly a full percentage point in the weeks after the November election. But they’re still low. Even with that late-year surge, the 2016 average for rates was the lowest on record, Freddie Mac noted last month. There’s some uncertainty about the direction of rates over the next year or so. Housing economists surveyed by MarketWatch in early December forecast an average of about 4.5% over the course of 2017. But many economists who watch the bond market think the furious selling of Treasurys in the weeks after the election may have been overdone. Rates on home loans generally track the direction of the benchmark 10-year Treasury yield. Whatever the precise course of rates over the next year, it’s a good sign that consumers are aware that they could be rising, and that their response is to try to get ahead of it in order to buy a home. Source: MarketWatchHome prices ended 2016 with yet another year-over-year uptick, according to CoreLogic. They increased 7.2% year over year in December, CoreLogic said in its Home Price Index Report. The index was also 0.8% higher month over month. Looking to 2017, CoreLogic expects the housing market to hit a new home price peak. “As of the end of 2016, the CoreLogic national index was 3.9% below the peak reached in April 2006,” Frank Nothaft, chief economist for CoreLogic, said in a news release. “We expect our national index to rise 4.7% during 2017, which would put homes prices at a new nominal peak before the end of this year.” Source: National Mortgage News

Many markets are calling for greater new-home construction to meet buyer demand and counter housing shortages plaguing many areas. But the homebuilding industry is facing a big challenge in meeting that call: They can’t find enough skilled workers. The Bureau of Labor Statistics Job Openings and Labor Turnover Survey shows that nearly 200,000 construction industry jobs are unfilled across the country, an increase of 81 percent in just two years. The unemployment in the construction industry is at 4.5 percent, the lowest in a decade. That is putting increased pressure on foremen, project managers, and developers. Further, builders are, in some cases, being forced to stretch delivery times for the homes they are building by weeks or even months. Many workers fled the industry following the housing downturn. As the market rebounded years later, the industry is finding the workers didn’t return. The financial challenges from the labor shortage are causing more builders to devote most of their attention to luxury projects to help recoup the added costs from delays. The lack of trained labor in the residential construction industry is “far and away” the number one issue facing the homebuilding industry today, says John Courson, president and CEO of the Home Builders Institute. The industry is starting to invest in vocational education in response to the labor shortage. For example, HBI is focusing on educational programs that target at-risk youth, ex-offenders, and veterans to help these populations find immediate job opportunities that don’t require a college degree. HBI is also pushing for more vocational programs at high schools to help students partner with professionals for internship opportunities. Source: Curbed.com


Weekly Mortgage and Real Estate Report – Week of February 20, 2017

Optimism Versus Uncertainty


During the past few months we have had a very solid rally in the stock market, which has been accompanied by higher interest rates. Certainly, the economic results that have been released have not changed that much during that period, and thus we can conclude that the changes in the markets are not because of a change in fundamentals. This conclusion is not surprising, because often the markets trade on feelings rather than results.

We do know that the change in psychology is due to a change in leadership. New leadership and new policies bring a lot of uncertainty to the table. Generally, the markets do not like uncertainty. On the other hand, it is not unusual for optimism to trump uncertainty (excuse the pun). If the markets are optimistic that the changes will help the economy, high stock prices and higher rates are justified. Of course, it does help that the economy is already heading in the right direction.

As slow as it has been, the recovery has seen a precipitous drop in the unemployment rate and a net gain of several million jobs. Revving up an economy which is already growing requires much less energy, as opposed to turning around an economy. And that is what is likely making the markets more optimistic. It is unusual to apply stimulus to a growing economy, as opposed to moving an economy out of recession. On the other hand, too much stimulus to a growing economy could stimulate inflation, and this is the risk which is supporting higher rates. Remember, the markets are not always right regarding what will happen, because there is no way of accurately predicting the future.

  How tough is it to get approved for a mortgage? How low can your FICO credit score go before your lender shows you the door? And how much monthly debt can you be shouldering — credit cards, student loans, auto payments — but still walk away with the home loan you’re seeking? You might be surprised. New data from technology company Ellie Mae, whose loan application and management software is widely used in the residential finance field, reveals that even if you’ve got what seems to be a deal-killing low FICO score or you’re carrying a high amount of debt, you still might have a shot at qualifying for a home loan to buy the house you want. Consider some of these findings from Ellie Mae’s latest sampling of recently closed loan applications nationwide: The credit scores of most successful applicants remain well above historical averages, but significant numbers of homebuyers are squeaking through with sub-par scores. The amount borrowers must pay upfront can be much smaller than a lot of buyers sitting on the sidelines might think. The average down payment on Department of Veterans Affairs loans at the end of 2016 was just 2 percent — and that’s higher than the VA’s bare minimum requirement, which is zero down. FHA’s minimum is 3.5 percent and the typical approved applicant came close to that at 4 percent down. So how do buyers with sub-par FICOs, skimpy down payments and high qualification ratios manage to get a home loan? The key is this: They don’t have these negative factors rolled into their applications all at once. If they did, they’d be rejected. If they’ve got a weak FICO, they need strong “compensating factors” elsewhere in their application to counterbalance the credit score deficiency. Maybe it’s a larger down payment than typical, lower than average qualification ratios or higher bank reserves. Source: Ken Harney, The Nation’s HousingAccording to the U.S. Census Bureau, the homeownership rate in the fourth quarter of 2016 was 63.7 percent, which was not statistically different from the rate in the fourth quarter of 2015 (63.8 percent) or the rate in the third quarter of 2016 (63.5 percent). Approximately 87.3 percent of the housing units in the fourth quarter were occupied and 12.7 percent were vacant. Owner-occupied housing units made up 55.6 percent of total housing units, while renter-occupied units made up 31.7 percent of the inventory. But while the homeownership rate barely seemed to move, it appears that potential homeowners are on the hunt for a new residence. The Redfin Housing Demand Index increased 15.1 percent to a seasonally adjusted level of 124 in December, the highest level recorded since Redfin started measuring demand in January 2013. Compared to one year earlier, homebuyer demand increased by 26.3 percent, fueled by a 36.4 percent year-over-year increase in homebuyers requesting tours and 10.2 percent year-over-year increase in buyers making offers. “In general, buyers are attracted to brand-new listings,” said Redfin Chief Economist Nela Richardson. “In December, we started seeing homes that spent time on the market, perhaps because they were not in the hottest neighborhood or needed renovation, finally get offers. Based on the number of sellers who’ve contacted Redfin this month, we expect a sizeable increase in new listings in the next two months. With new listings on the way and this year’s buyers willing to take a look at older inventory, we anticipate that sales in early 2017 will be strong.” Source: NMP

Millennial first-time homeowners are showing more willingness than previous generations to complete do-it-yourself projects around the house or wait until they can afford to make the improvements they desire, a new survey by Better Homes & Gardens magazine shows. Fifty percent of those surveyed say that at move-in, their current home’s conditions require some degree of repair or remodeling. They’re showing some compromise in their first home. Only 50 percent of first-time millennial homeowners say they are willing to spend top dollar to get exactly the features and quality they want in a home, the survey showed. “These first-time millennial homeowners are focused on building equity, not debt,” says Jill Waage, editorial director of Digital Content and Products at Better Homes & Gardens. “They are strong believers in being able to afford their dreams as they achieve them and not over-stretch themselves.” Eighty-five percent of first-time millennial homeowners say they view homeownership as a sound investment. Their housing wish-list is for a mid-sized home (about 2,000 square feet) with a renovated kitchen and bathroom as well as a deck or patio space. The DIY projects that landed the highest on their to-do lists are installing light fixtures and tile and painting walls, the survey showed. Source: RIS Media

Weekly Mortgage and Real Estate Report – Week of February 13, 2017

The Barrage of Executive OrdersAs we indicated previously, we are not about to speculate as to what might happen as a result of the policies of the new Administration. There is still a tremendous road to be laid. However, we can say that the President has moved quickly to issue a barrage of Executive Orders during his first weeks in office. Some of these are merely presages of actions to come, such as the promise to dismantle the Dodd-Frank Act, and for those we will continue to wait for the eventual results. In addition, it may take quite some time for these actions to come to fruition and even longer for the results to be realized.

However, some of these orders are implementing policies and already are affecting the markets and economy. The one that stands out as an example is the travel restrictions or ban (whichever name you prefer) applied to several countries. Certainly, the lives of many individuals are affected by this action. But so are businesses and even schools. Foreign countries provide teachers for our schools and students from these countries attend these schools. And some industries, such as the medical and tech sectors, depend upon foreign workers. The next question is–could the new policy or a similar one affect economic growth negatively?

The fate of the ban rests in the courts as we write this commentary. If it is reinstated, there could be some negative consequences in the short-run. If the restrictions are expanded or extended, these negative consequences would continue or grow. On the other hand, if the restrictions are reinstated and then are eased as our country examines the targeted countries’ vetting procedures, the effect could be minimalized. Thus, even though this was an example of an Executive Order which was implemented immediately and has caused a wide-ranging reaction from many, we still don’t know of the extent of the long-term influences it might have on our economy. Of course, if it does not overcome the court challenge, the analysis will be moot.

  Existing-home sales finished out 2016 as the best year since the housing boom days, the National Association of Realtors® reported. Total existing-home sales – which are completed transactions that include single-family homes, townhomes, condos, and co-ops – closed 2016 at 5.45 million sales, surpassing 2015 (5.25 million). It was the highest total for existing-home sales since 2006 (6.48 million), NAR reported. “Solid job creation throughout 2016 and exceptionally low interest rates translated into a good year for the housing market,” says Lawrence Yun, NAR’s chief economist. “However, higher rates and home prices combined with record low inventory levels stunted sales in much of the country in December. In addition, the median existing-home price for all housing types in December was $232,200, up 4 percent from a year ago, and all-cash sales comprised 21 percent of transactions in December, down from 24 percent last year. Distressed sales were down from 8 percent a year ago. Source: NARReports from the Joint Center for Housing Studies at Harvard University and the National Association of Home Builders forecast a strong and stable market for home improvement and repair in 2017. The Joint Center’s Leading Indicator of Remodeling Activity projects annual growth in home improvement and repair expenditures will remain elevated throughout 2017 with spending levels ending the year up 6.7 percent at $317 billion, on par with the 6.9 percent growth estimated for 2016. Chris Herbert, Managing Director of the Joint Center for Housing Studies, said home remodeling and repair should see sustained momentum in 2017. “Growth in home prices is continuing at a healthy pace and encouraging homeowners to make remodeling investments,” Herbert said. “Home sales are remaining on an upward trajectory, as well, and this coupled with continued growth in remodeling permit activity suggests another strong year for home improvements.” Abbe Will, Research Analyst in the Remodeling Futures Program at the Joint Center, said spending in 2014 and 2015 was not quite as robust as their model estimated, growing 11.3 percent over these two years compared to 14.3 percent as estimated. Source: Mortgage Bankers Association

Perhaps you are living on a fixed income and need some extra money to pay the bills. Maybe you need some help with daily chores. Or perhaps you simply yearn for companionship. If any of those scenarios seems to fit, it might be time to consider a roommate: someone with whom to share your house — and perhaps your life. House-sharing among empty nesters, retirees and other aging adults certainly isn’t a new phenomenon. But with something like 10,000 people a day turning 65, it is definitely on the rise, says Wendi Burkhardt. She’s the co-founder and CEO of Silvernest, a Boulder, Colorado-based online matching service that helps seniors find compatible housemates. Proof: In the 12 months since Silvernest’s launch, the service has signed up 10,000 clients, the majority of whom are 50 to 75 years old. The client list includes would-be landlords, who pay $29.99 to use the site for three months, as well as wannabe roomies, who pay the same amount to cover their application fee and the cost of various background checks. People considering a roommate can use a matching service like Silvernest, or they can save a few bucks by going it alone. But be forewarned: Choosing someone to share your house with is much harder than picking out a ripe melon or the proper exterior paint.Source: Lew Sichelman Uexpress

Weekly Mortgage and Real Estate Report – Week of February 6, 2017

Where the Economy StandsCertainly, this past week was one to get a good assessment of where the economy stands coming into the new year and a new Presidency. In the past week or so, we have had reports on overall economic growth for 2016; personal income and spending for December; the jobs report for January; and a meeting of the Federal Reserve Board’s Open Market Committee. That is a lot of information to assess. Let’s start with the economic growth. Our rate of economic growth for 2016 was 1.6%, which was the slowest since 2011. The fourth quarter came in at 1.9% and is subject to revision, but even a significant upward revision will not affect the overall 2016 growth results by that much.

The next release measured personal income and spending for December, which was another report which shows how we finished out the year. December personal spending numbers are especially important because they reflect spending through the holiday season. These numbers came in moderately robust, and met expectations. We then had the meeting of the Federal Reserve mid-last week. The markets were not expecting the Fed to increase rates since they did so in December. And this prediction was right on the mark. However, the markets were watching the Fed’s statement closely. This statement indicated that economic growth remains moderate and the economy was balanced as of right now–with no more risks on the upside vs. the downside.

Finally, on Friday we had the all-important jobs report, which is the first economic reading for January. The report was a real mixed bag with strong employment growth of 227,000 jobs added, but an up-tick in the unemployment rate to 4.8% and lower wage growth than forecasted. The increase in the unemployment rate is not necessarily bad news because it indicates that more long-term unemployed are re-entering the workforce. Indeed, the labor participation rate did increase as well, but remains near all-time lows.

  Are you delaying listing your home until the season begins? Many believe sales and prices tend to peak in the spring and summer. However, this year is different. Jonathan Smoke, realtor.com®’s chief economist, stresses in his latest column that the conventional wisdom isn’t correct this winter. Here’s why: At the beginning of 2017, inventory levels plunged to multiyear lows. Sellers are currently facing very little competition, he says. Mixed with that, buyer demand is “abnormally strong for the off-season,” Smoke writes. “The climb in interest rates that started in October and accelerated in November and December has created a sense of urgency among buyers.” With interest rates largely forecasted to move higher this year, buyers are more in a rush to lock in a low rate sooner. Plus, your sellers may have to worry about lending rates as well; Smoke estimates that 85 percent of sellers are planning to buy another home after they sell. Here’s the best tip, Smoke says: “If you are thinking of selling and buying in 2017, the early bird may get the worm. And the best new nest.” Source: National Association of Realtors®Millennial motherhood is on the rise. Could the increase in births for the millennial generation bode well for real estate and finally convince them to move into homeownership? About 1.3 million millennial-aged women gave birth in 2015, which accounts for 82 percent of all U.S. births that year, according to Pew Research Center data. Millennial women have lagged other generations in birth rates. Nearly half of Generation X women were already into motherhood by the time they were in the 18-to-33 age range, which millennials are at now. About 42 percent of millennial women aged 18 to 33 gave birth in 2015. However, birth rates among millennials whose ages are beyond 30 are rising, Pew research shows. The desire for parenthood is strong. Sixty percent of millennials say that being a parent is extremely important to their overall identity, according to a 2015 Pew Research Center survey. Millennials are a generation carefully being watched by the real estate industry since their numbers rival baby boomers. They now comprise 34 percent of the workforce in the U.S. Source: BUILDER

Porches are becoming more common on new homes over the past decade, showing their increasing popularity with homebuyers. Sixty-four percent of new single-family homes started in 2015 included a porch while 23 percent included a deck, according to the Census Bureau’s Survey of Construction data. Decks, on the other hand, have seen a decline in new homes. From 2005 to 2008, over a quarter of single-family homes started included decks. But that share has dropped to under 24 percent since 2011. There are clear preferences regionally for decks versus porches. For example, the share of new homes with porches ranged from a low of 46 percent in the Mid-Atlantic division to nearly 90 percent in the East South Central, the National Association of Home Builders’ reports on the survey data. In New England, decks are more popular with two-thirds (69 percent) of new homes including them. Certainly, both decks and porches can be added after a home is built. NAHB remodelers report that adding or enclosing a porch and adding a deck were among the most commonly requested projects in 2015. Source: National Association of Home Builders