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

Alternative RealityNo, we are not delving into the world of science fiction. We can’t change what happened. But sometimes it is interesting to wonder what would have happened if an event did not take place. In this case, we are referring to the Federal Reserve Board raising short-term interest rates. As we have previously explained, the move was a “no-brainer.” The markets were surely expecting the increase. Therefore, it would have been a surprise if the Fed held rates steady.

The markets don’t like surprises. And a layman might have surmised that rates would have come down if the Fed kept rates where they are. Yet, that conclusion is not necessarily accurate. If the markets feel that inflation is becoming more of a threat and the Federal Reserve is not doing its job to rein in inflation, then long-term interest rates could move up even faster than they have already risen. This is why the Fed can raise interest rates at times and long-term rates can actually go down — though presently short-term rates have not gone up high enough for the analysts to predict that they will halt economic growth.

More evidence on the state of the economy is on the way. This week we have a report on personal income and spending, and next week we will see another jobs report. Coming after a strong report for February’s data, you can be sure that market analysts and the Fed will be watching closely for evidence that the economy and inflation are heating up. If we see that evidence, there will be speculation that another rate increase will be coming sooner, rather than later. A disappointing jobs report could make the Fed pause and ponder whether they are moving too quickly. That would be bad news for the economy, but good news for rates.

  Both buyers and sellers alike are feeling very good about the housing market this spring, even as home values hit new highs and mortgage rates move up. A monthly sentiment index from Fannie Mae rose to the highest level since 2011, when the survey began, thanks to a surprising surge from millennials. “Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time homebuyers,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. Millennials are moving out of their parents’ basements and forming new households at a faster rate, according to Fannie Mae research. The leading edge of the millennial generation is entering the housing market in larger numbers today, with some venturing out of their desired urban cores to more affordable suburbs. Millennials delayed both marriage and parenthood, but that is now changing. Nearly half of millennial buyers had at least one child, according to the 2017 Home Buyer and Seller Generational report just released by the National Association of Realtors®. That is up from 45 percent last year and 43 percent two years ago. Children are the primary driver of homeownership, which is now sitting near a record low. Just 15 percent of millennial buyers chose an urban area, which is down from 17 percent last year and 21 percent two years ago. “Millennial buyers, at 85 percent, were the most likely generation to view their home purchase as a good financial investment,” said Lawrence Yun, chief economist at the Realtors. “These strong feelings bode well for even greater demand in the future as more millennials settle down and begin raising families.”Source: CNBCSingle-family housing starts surged in February to their highest level since late 2007, the Commerce Department reported. Overall, nationwide housing starts, including for both the single-family and multifamily sectors, increased 3 percent in February to a seasonally adjusted annual rate of 1.288 million units. Broken out, single-family production rose 6.5 percent in February to 872,000 units, the highest reading in nearly a decade. Multifamily starts, on the other hand, plunged 3.7 percent last month to 416,000 units. “The growth in the single-family arena is very encouraging, but may be partly attributable to unusually warm weather conditions throughout most of the country,” says Robert Dietz, chief economist of the National Association of Home Builders. “The modest drop in multifamily starts is in line with our forecast, which calls for this sector to continue to stabilize in 2017.” Single-family permits saw a 3.1 percent gain to 832,000 units, the highest level since September 2007. “This month’s gain in single-family starts is consistent with rising builder confidence in the housing market,” says Granger MacDonald, chairman of the National Association of Home Builders. “We should see single-family production continue to grow throughout the year, tempered somewhat by supply-side constraints such as access to lots and labor.” Source: NAHB

Seniors are sitting on a mountain of housing wealth. Homeowners ages 65 and older could access more than $3 trillion in extractable primary residence home equity, but only 6 percent of senior homeowners are interested in tapping into their home equity to help meet retirement financial needs. At the same time, nearly 37 percent of senior homeowners are concerned about their financial situation in retirement. Why are older homeowners so reluctant to draw on housing wealth to secure a more comfortable retirement? Many seniors simply want to avoid debt, while others face structural impediments to borrowing against home equity. There are multiple ways to access home equity, including selling the home and downsizing, using forward or reverse mortgage products to extract equity without selling the asset, and indirectly consuming home equity by underspending on home maintenance. But our recent analysis, supported by Fannie Mae, finds that seniors rarely use financing tools to access their home equity. The most important factor affecting low rates of home equity extraction among seniors is limited demand, which might arise for two reasons: Seniors are typically financially conservative and want to avoid debt and continued improvements in health and medicine are allowing more seniors to work and earn well into old age, reducing the need to depend on home equity extraction. Beyond these behavioral factors, structural impediments to equity extraction are also at play, including poor financial literacy, the complexity and high costs of some financial products, and fear of misinformation and fraud, particularly with reverse mortgages. As varied as these impediments are, they all lead to enormous untapped housing wealth, which represents a potential solution to the financial strains facing some elderly homeowners and a significant untapped market for the housing finance industry. Source: The Urban Institute


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

The Fed Has SpokenSince we spent the past several weeks explaining why the Federal Reserve Board was likely to raise rates last week, we can definitely say that the Fed’s decision was not a surprise — especially since the increase was limited to .25%, which was also expected. A disappointing jobs report could have caused the Fed to hold back, but that did not happen. Now, the most important question is, where do we go from here?

In this regard, the tone of the Fed statement is just as important as their decision to raise rates. While much more information will come out when they release the minutes of the meeting in a few weeks, their statement after the meeting gives us plenty to go on. It is also not a surprise that their statement confirmed that the Fed is satisfied with the direction of the economy at the present time and that they feel that the economy can “withstand” higher rates. It is also not a surprise that they feel that more rate increases are possible in 2017.

This brings up an important question. The economy can withstand a few rate increases, especially because rates were so artificially low. But how many increases can be absorbed before the economy starts to respond negatively? Though we can’t answer this question, we do remind our readers that the Federal Reserve Board’s move directly affects short-term interest rates, and only indirectly affects long-term rates. If the markets feel that the Fed is being aggressive to stave off the threat of inflation, then longer-term rates, such as rates on home loans and even cars, may not move as fast. Of course, if the economy keeps humming, then long-term rates are more likely to be affected at the same time.

  Those wanting to sell their home during the spring season shouldn’t be too quick off the mark to list, as waiting could mean a faster sale and a higher price. According to analysis from Zillow, waiting until late spring may be a better strategy…along with listing on a Saturday. It found that those homes listed in the first two weeks of May sold around 9 days faster and for almost 1 per cent more. “With 3 percent fewer homes on the market than last year, 2017 is shaping up to be another competitive buying season,” said Zillow Chief Economist Dr. Svenja Gudell. “Many home buyers who started looking for homes in the early spring will still be searching for their dream home months later. By May, some buyers may be anxious to get settled into a new home— and will be more willing to pay a premium to close the deal.” The study also found that homes first listed on a Saturday averaged 20 per cent more viewings than those on other days. Source: ZillowU.S. Treasury Secretary Steven Mnuchin said the Trump administration’s tax reform plan will not change the deductibility of home loan interest and charitable contributions. “Let me first clarify, we are not taking away the charitable deduction and we are leaving the mortgage interest deduction as is,” Mnuchin said in an interview on Fox Business Network. “We think those are both very, very important. But what we are going to do is we are looking at other places in which the reduction in deductions will offset the rate decrease,” he said. On Dec. 1, prior to President Donald Trump taking office, Mnuchin told CNBC that Trump wanted to cap the amount of interest on home loans that taxpayers can deduct. The deduction is already capped at loans up to $1 million if you are married and filing income taxes jointly, and at $500,000 if you file separately. Mnuchin said he expects a tax reform plan to be passed by Congress and signed by the president by August. Source: Reuters

The intersection of marriage and homeownership is growing wider, as a new data study from Zillow has found almost 15 percent of all homebuyers between the ages of 24 and 35 during 2015 were unmarried couples, up from 11 percent in 2005. In some markets, there is a greater prominence of unmarried couples buying residential property: in Washington, D.C., for example, almost 16 percent of all young homebuyers in 2015 were unmarried couples, up from 7.5 percent 10 years earlier. But while more unmarried couples are buying houses, fewer singles are entering into homeownership: roughly 25 percent of all 2015 homebuyers ages 24-35 were single, down from 28 percent in 2005. “Buying a home is a big part of The American Dream—equally shared by millennials and Baby Boomers alike—but it’s becoming extremely difficult to make it work on a single income,” said Zillow Chief Economist Svenja Gudell. “Many singles looking to purchase a home on their own may not make enough money to afford or qualify for a mortgage on their dream home. That makes buying a home with a significant other even more appealing, even if marriage isn’t quite part of the picture. Simply put, buying a home is much easier with two incomes. Assuming home value growth continues to outpace income growth, I imagine this trend will continue.” Source: National Mortgage Professional

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

The Jobs Report and Fed MeetingThe data is in. The jobs report has been released and the Federal Reserve Board’s Open Market Committee is meeting as we release this publication. Keep in mind that the employment numbers are a major factor in affecting the Fed’s decision — but they are not the only factor. The stock market rally, which indicates confidence, as well as inflationary indicators, are also watched closely. As a matter of fact, the numbers on wage growth might be almost as important as the jobs numbers themselves. Last month, wage growth came in 2.8% on an annual basis and this is seen as good news for workers but bad news on the inflation front.

Add a strong stock market and rising wage growth to the fact that the economy added 235,000 jobs last month and the unemployment rate ticked down to 4.7%, and you can see why the markets are predicting a rate increase. You might ask why a rising stock market would affect the Fed’s thinking. We have already spoken about the stock market’s indirect influence upon the economy. Certainly, the growth of equity will make those who own stocks more confident in making large purchases, and this has the potential to boast the economy.

However, there is a more direct link between the Fed and the rise in the stock market. The last thing the Fed wants to do is raise rates and stifle the economy. With the stock market so strong right now, the Fed is much more likely to conclude that the economy can withstand the news of higher rates. If consumers are uncertain, piling on a rate increase just makes things worse. If consumers are hopeful, they are much less likely to envision higher rates as a roadblock to success. Of course, this is all speculation, and by the time you read this commentary, you are likely to know what the Fed was really thinking.

  One in four U.S. adults say they are considering buying a home this year, which extrapolates to a whopping 59 million people, according to a recent survey by Bankrate.com. Minorities are expected to be big buyers this year. More than two in five black survey respondents said they were considering buying a home. That is more than double the percentage of potential white buyers. “Black homeowners were harmed in greater numbers by the housing crash and the foreclosure crisis,” says Holden Lewis, a Bankrate.com mortgage analyst. “Now that the economy has improved and time has passed, maybe they’re ready to jump back in and own a home again.” Also, older millennials and Generation X – which encompasses the ages of 27 to 52 – are showing more willingness to either become homeowners or trade up to a new home, the survey showed. Lewis notes, however, what many people say is not always what they’ll be able to do. Rising rates and an uptick in home prices could prevent some would-be homebuyers from saving enough for a down payment and limited inventories could delay their efforts in finding a suitable home to buy. About 6 million new and existing homes were sold last year, according to the National Association of Realtors® and U.S. Census data. Source: Realtor® Magazine OnlineThe news and research about women and money can be dreary. Women earn less than their male counterparts, pay harsher workplace penalties for pursuing parenthood, struggle more with debt, and save less for retirement. But there’s one area of personal finance where single women are outpacing men in the U.S., and it’s a significant one: home ownership. Nearly a century since the publication of A Room of One’s Own—Virginia Woolf’s essay on women’s urgent need for a private physical space in which to flourish—and a legacy of laws that restricted women in owning property or considered them to be property, single women account for 17 percent of homebuyers in the U.S., compared with 7 percent of single men. The data, from last year, are from the National Association of Realtors®. Although women have been ahead of men in NAR’s data since 1981, the gap has widened even further in recent years, said Jessica Lautz, NAR’s managing director of survey research and communications. Single women are also likelier than single men to be parenting on their own, Lautz noted, and therefore likelier to seek stable housing for raising children. There were 8.6 million single-mother households in 2011, more than three times the 2.6 million single-father households, according to the Pew Research Center. With that comes an increase in financial sacrifices women are willing to make to own a home, Lautz said, such as taking a second job or working their budgets to save for a down payment. “They really value home ownership, and they’re willing to give up a lot to have a home of their own.” Source: Bloomberg

Pets are having more of an influence in home buying and selling as well as renovation, a new study by the National Association of Realtors® shows. Eighty-one percent of Americans say that animal-related considerations play a role when deciding on their next living situation, according to the 2017 Animal House: Remodeling Impact report. “In 2016, 61 percent of U.S. households either have a pet or plan to get one in the future, so it is important to understand the unique needs and wants of animal owners when it comes to homeownership,” says NAR President William E. Brown. “Realtors® understand that when someone buys a home, they are buying it with the needs of their whole family in mind; ask pet owners, and they will enthusiastically agree that their animals are part of their family.” Indeed, a whopping 99 percent of pet owners say they consider the animal part of the family. Eighty-nine percent of respondents say they would not give up their animal because of housing restrictions or limitations. Home owners are willing to move for their pets too. Twelve percent of pet owners have moved to accommodate their animal; 19 percent would consider moving to accommodate their animal in the future. Pets are serving as guides to renovations too. Fifty-two percent of respondents say they had completed a home renovation project specifically to accommodate their pet. Source: NAR

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

The Jobs Report and ConfidenceIn the past few weeks we have spoken a lot about confidence. Certainly, confidence has been the major influence behind the recent stock rally. It has also influenced the recent movements in rates and oil prices. If this confidence spills over to a hiring spree, then the chances of another rate increase by the Federal Reserve Board’s Open Market Committee likely comes sooner than later.

In other words, confidence begets confidence. For example, a bigger stock portfolio can move someone to purchase a home. Home purchases also can be spurred by fear. Existing home sales were up to start the year and one factor cited was the fear that rates could rise even further. For years, we have indicated that the time may come when the sale on money may be over. Keep in mind that we are not declaring this sale over, but certainly the recent confidence could help influence its demise.

It is interesting to note that interest rates spiked just after the election, along with the stock market rally. But since the first of the year, stocks have continued to shine, as rates have been fairly stable. Of course, the jobs report released this week could go a long way towards determining if this trend continues. A strong report which influences the Fed to act quickly, could create volatility. If the report is moderate, rates could remain calm. In a couple of days, we will know for sure.

  Existing-home sales in January reached their fastest pace in nearly a decade, the National Association of Realtors® reports. Total existing-home sales—completed transactions that include single-family homes, townhomes, condos, and co-ops—rose 3.3 percent to a seasonally adjusted annual rate of 5.69 million in January. That’s 3.8 percent higher than a year ago and marks the strongest month since February 2007, according to the NAR. “Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home,” says NAR chief economist Lawrence Yun. “Market challenges remain, but the housing market is off to a prosperous start as home buyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.” Additional data from the report:

  • The median existing-home price for all housing types in January was $228,900—a 7.1 percent increase from a year ago.
  • Total housing inventories at the end of the month increased 2.4 percent to 1.69 million existing homes available for sale. That is still 7.1 percent lower than a year ago.
  • All-cash transactions comprised 23 percent of transactions in January, down from 26 percent a year ago. Source: NAR

Bigger isn’t necessarily better when it comes to appreciation. In fact, a new study shows that smaller homes likely will offer a bigger percentage return on a home shopper’s investment. A new study conducted by NerdWallet culled three years of listing data from realtor.com® of 20 of the largest U.S. metro areas and shows that smaller homes, in general, appreciate at a faster rate than larger homes. Markets can vary greatly, however. In 17 of the 20 metro areas analyzed, listing prices of the smallest 25 percent homes rose faster when calculated as a percentage, according to NerdWallet. The median annual growth rate for the smallest quartile of homes was 8.9 percent from 2013 to 2016, the study showed. The second smallest group of homes had the second-fastest growth rate: a median annual growth of 7.4 percent. Still, while the smallest homes appreciate fastest when viewed as a percentage, larger homes appreciate fastest by absolute dollar amount, the study showed. Richard K. Green, a professor and chair of the Lusk Center for Real Estate at the University of Southern California, says one reason smaller homes are likely appreciating faster is due to less inventory of starter homes available. Buyer demand for starter, smaller homes remains high, however. Source: NerdWallet

Wellness-minded design is gaining traction in the construction world as younger generations demand healthier environments in their workplaces and homes. That means developers are devoting more attention to the air quality, potential toxins, and impact of lighting in their projects. The resulting shifts affect everything from the numbers of particulates in water to even the kind of food being sold in a building’s vending machines. In homes, systems that can introduce and circulate probiotics in the air, diffuse homeopathic scents throughout the home, and purify water are becoming more popular. The International WELL Building Institute (IWBI) has partnered with the American Institute of Architects, the Cleveland Clinic, and other sustainability certification programs, such as LEED, and design firms like HKS to devote more attention to how to create healthier environments for occupants. Millennials are really driving the wellness trend, says John Kirk, architect and partner at Cooper Robertson. “It is a kind of milieu we’re in, that we’re probably going to stay in, driven by younger people who are much more sensitized to everything from environmental issues to sustainability to wellness and quality of life,” says Kirk. Source: ConstructionDive