Weekly Mortgage and Real Estate Report – Week of October 30, 2017

ECONOMIC COMMENTARY
Trick or Treat 

We rarely get to publish on Halloween (technically once every seven years) and thus we could not resist the headline. There are many theories about the origins of Halloween and evidence of somewhat similar practices go back as far as the Middle Ages. Like other holidays in the United States, Halloween has evolved and grown and become a big commercial — or dare we say “sweet” — success. For some it is the real start of the holiday season in which our economy has grown so dependent upon.

Like every jobs report, every holiday season is a very important indicator of the direction of our economy. Consumer spending makes up about 70 percent of gross domestic product, and a solid chunk of it takes place in November and December, mainly in the form of gift purchases. A fifth of all retail sales occur in the year’s last two months, according to the National Retail Federation. Thus, these holidays are very, very important to our economy.

Speaking of the jobs report, the time has come for another reading. Last month the numbers were skewed as expected because of two major hurricanes. During this month’s statistical period we added another major hurricane and also devastating wildfires in Northern California. Thus, we are expecting major volatility in the numbers. This volatility may not only apply to the October numbers, but also to the revision of the September numbers already released. It will be hard for the markets to interpret these numbers, and therefore reactions may be muted as well.

REAL ESTATE NEWS
  Projections for next year’s housing market are already underway, as 2018 could be seeing significantly more home renovations and repairs taking place. A report released from the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University predicts a growing momentum in 2018 for money spent on remodeling homes. The Leading Indicator of Remodeling Activity finds annual gains in home renovation spending will surge from 6.3 percent in the fourth quarter of 2017 to 7.7 percent by the third quarter of next year. “Recent strengthening of the US economy, tight for-sale housing inventories, and healthy home equity gains are all working to boost home improvement activity,” says Chris Herbert, managing director of the Joint Center for Housing Studies. “Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance.” “And while it’s too early for our LIRA model to capture the effects of recent hurricanes and other natural disasters experienced around the country, there is certainly potential for even stronger growth in remodeling next year as major reconstruction and repairs get underway in affected regions,” says Abbe Will, research associate in the Remodeling Futures Program at the JCHS. Source: Joint Center for Housing Studies of Harvard University — Want help finding financing for major renovations? Contact Us.Prospective homebuyers are resorting to creative approaches in shopping for a home to stand apart in a market seeing increased competition, according to Berkshire Hathaway HomeServices’ latest Homeowner Sentiment Survey. The survey found that 58% of millennial respondents would offer more of an earnest deposit to show their commitment to sellers. Other ways millennial respondents would compete in the market include sending personal letters to sellers (36%) and making offers above asking price to secure the home (31%). Also, 45% of prospective homebuyers are willing to cover closing costs to remain competitive, according to the survey. Although the market is seeing tight competition, consumers continue to view the market enthusiastically given low interest rates and potential increases in home values. Seventy-one percent of homeowner respondents expressed a positive sentiment toward the real estate market, with 51% saying low rates drove their favorable feeling and 44% citing price appreciation. “Historically low interest rates continue making homeownership achievable for many Americans,” Berkshire Hathaway HomeServices President and CEO Gino Blefari said. “We believe rates will remain within a range of current low levels for the foreseeable future.” Source: MPA

Consumers view homeownership as a priority and say they’re willing to make significant compromises in order to purchase a home, according to a survey of more than 1,000 consumers considering a home purchase, conducted by the online brokerage firm Owners.com. Sixty-nine percent of survey respondents say they’re concerned they won’t have enough cash for a down payment in order to buy a home. As such, they’re willing to forgo some financial goals and investments to make sure they save enough. Respondents said that saving for a home takes priority over saving for an emergency (61 percent) or contributing to retirement funds (60 percent). Seventy-two percent of survey respondents said they would limit their contributions to other investment funds in order to save enough to buy a home. Surveyed consumers also say they’re willing to compromise on some elements of the home if it means they can move into a home this year. For example, 51 percent said they would consider buying a fixer-upper, and 36 percent said they would purchase a smaller home than what they desire.Source: USA Today

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Weekly Mortgage and Real Estate Report – Week of October 23, 2017

ECONOMIC COMMENTARY
The Market’s Passion 

Sure, the stock market has risen for over eight years. But the run which started in October of 2016 is quite extraordinary, to say the least. Usually when bull markets get older, they fluctuate and run out of steam, but this one seems to have gotten quite a second wind. The question is — where is the excitement coming from?

When you look at the economy as a whole, the economy has gotten slightly stronger as the year goes on. Though, we should keep in mind that we may see a pause in this quarter with the natural disasters that have hit our country. Slightly stronger does not explain the jubilance the market seems to be experiencing. We believe that the passion is coming from not today’s performance, but is a response to hope for a major corporate tax cut. It is simple math. If a corporation’s tax liability goes down by 10 to 30 percent, their profits will go up barring other unforeseen circumstances. Higher profits make companies more valuable.

We caution that tax reform has not been enacted yet, and even if it is, we don’t know the final result. Regardless of what “side” you were on, the health care debate reminded us of how tough it is to implement changes in Washington — even when everyone knows something needs to be done. If our theory about tax reform is true, then any failure to enact significant tax reforms could be seen as a negative by the markets. Even if reforms are enacted, the markets might correct initially because the good news was built into the prices of stocks. We are not trying to predict the future, but when the markets have moved this far, it always is a good idea to be ready for at least a correction.

REAL ESTATE NEWS
  The spring homebuying season may be long gone but that doesn’t mean first-time buyers should wait months to start looking. A report from Trulia looked at the supply of starter, trade-up and premium homes across the 100 largest metros and found that starter homes inventory will increase typically around 7% in the fall; while prices decline 4.8% in the winter compared to the spring. The strongest season for starter homes in 70 of the 100 largest metros is between October and December. Seven of the top 10 metros will see this swing in inventory and prices. “Starter homebuyers should begin looking now. The fall season provides a great opportunity for finding the right home and neighborhood thanks to a bump in homes for sale on the market, followed by lower winter prices,” said Trulia senior economist Cheryl Young. Source: TruliaThe impact immigrants have on U.S. real estate is growing, as 13 percent of the nation’s population—about 42 million people—hails from foreign countries, according to the National Conference of State Legislatures. “Immigrants are a big driving force for housing markets across the nation,” Kusum Mundra, an economics professor at Rutgers University in Newark, N.J., told realtor.com®. “Most want the American dream, which is to own a home.” But the road to homeownership for immigrants can be challenging. It takes an average of five to 10 years for immigrants to be able to purchase a home after arriving in the U.S., says Gary Painter, director of social policy at the University of Southern California’s Sol Price Center for Social Innovation. In 2016, about 40.7 percent of immigrants were homeowners compared to 66.1 percent of native-born Americans, according to a realtor.com® analysis. “Just like those born in the U.S., [immigrants] view home buying as putting down roots in the community,” Painter says. “On average, where immigrants are settling, property values have gone up.” Source: realtor.com®

Americans are still buying homes in areas with high risk of natural hazards and the homes in those cities continue to appreciate in value far faster than homes in low natural hazard locales. The 2017 U.S. Natural Hazard Housing Risk Index by the property analytics firm ATTOM Data Solutions found that median home prices in U.S. cities in the top 20 percent of highest risk for natural hazards have increased more than twice as fast over the past five years and over the past 10 years than median home prices in U.S. cities in the bottom 20 percent with lowest risk. For the report, ATTOM indexed natural hazard risk in more than 3,000 counties and more than 22,000 U.S. cities based on the risk of six natural disasters: earthquakes, floods, hail, hurricane storm surge, tornadoes, and wildfires. ATTOM also analyzed housing trends in 3,441 cities and 735 counties — containing more than 71 million single family homes and condos — broken into five equal quintiles of natural hazard housing risk. Median home prices in cities in the top 20 percent (Very High) for natural hazard risk have appreciated 65 percent on average over the past five years and 9 percent on average over the past 10 years, while median home prices cities in the bottom 20 percent (Very Low) for natural hazard risk have appreciated 32 percent on average over the past five years and 3 percent on average over the past 10 years. “Strong demand for homes in high-risk natural hazard areas has helped to accelerate price appreciation in those areas over the past decade despite the potential for devastating damage to homes that can be caused by a natural disaster — as evidenced by the recent hurricanes that made landfall in Texas and Florida,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “That strong demand is driven largely by economic fundamentals, primarily the presence of good-paying jobs, although the natural beauty that often comes hand-in-hand with high natural hazard risk in these areas is also attractive to many homebuyers.” Source: The Insurance Journal

Weekly Mortgage and Real Estate Report – Week of October 9, 2017

ECONOMIC COMMENTARY
The Story Continues 

With the release of last month’s job numbers, we were able to get a glimpse of the major effects of three major hurricanes hitting within a few weeks. We have seen many pictures of devastation from Texas to Puerto Rico. The jobs report was one more picture which has made the national numbers look bad, even considering the drop in the national unemployment rate, but the national numbers still dwarf the drastic effects upon the local economies and millions of lives.

This story will not be a short story. It will be a novel with many chapters. It starts with mass devastation and the delivery of food and water, as well as other supplies of survival. It will end differently for many. Some will relocate and many others will be part of the rebuilding process. That rebuilding process will create thousands upon thousands of jobs. This is likely to result in construction job shortages in other parts of the country.

How long will it take to recover? No one knows the answer to that question. Many economic reports will be skewed as these regions go through the process. Even the federal budget deficits will be affected by a slowing economy and increased funds spent on recovery efforts. Along with the budget deficits, there will be a spike in mortgage defaults. But again, the housing stock will be rebuilt. For market analysts, this will be a very interesting story, but not nearly as meaningful as those affected locally.

REAL ESTATE NEWS
  An adage in the legal profession goes, “A man who represents himself has a fool for a client.” In the housing industry–particularly realtors–feel the same way about those who attempt to sell their own homes. And yet, For Sale By Owner, or FSBO, persists, with the temptation to cut out an agent and the typical 6 percent commission that comes with them. Trulia, San Francisco, estimated 6.2 percent of all home listing in the U.S. are FSBO. But with such temptation comes risk, Trulia said. When it comes to actually listing the home, Trulia reported FSBO sellers are slightly more optimistic about the value of their home and list their homes at a 2 percent premium nationally. “This sounds like great news for sellers, but there is a risk: FSBOs often see their homes sit on the market longer than agent-listed homes, sometimes by more than a month,” Trulia said. So, is FSBO worth it? “Ultimately, it’s not unreasonable for sellers to consider a FSBO listing considering the potential payoff,” Trulia said. “But it’s important to remember the value agents bring to the table. They have access to more listings and buyers, know a market’s ins and outs and have experience negotiating a deal.” More importantly, a listed price in many markets is just a starting point,” Trulia said. “In some markets, properties can be priced lower to start bidding wars,” it said. “FSBOs also run the risk of underpricing their homes.” Additionally, Trulia said FSBO properties run the risk of languishing–perhaps due to the inexperience of the seller in finding and negotiating with a potential buyer. Source: The Mortgage Bankers AssociationAmericans with an education level of bachelor’s degree or higher are more likely to own a home by age 30, according to a new study from the Federal Reserve Bank of New York. That’s regardless of their student debt situation too, the study finds. Researchers who tracked college attendance and homeownership rate by age for those born between 1980 and 1986 concluded that college graduation is associated with higher homeownership rates. By age 33, the homeownership rate for those who did not attend college trails about two years behind those who did attend college with debt but did not graduate, the study showed. “Past research has not been able to disentangle how different types of educational attainment and student debt interact to impact the likelihood of owning a home,” according to a blog post at Liberty Street Economics. “Because we observe not only whether an individual owes student debt and has attended college but also graduation status, level of degree obtained, and homeownership status, we are able to further disentangle the relationship between different education levels and homeownership.” Yet, the amount of student debt a person has is related to homeownership rates, the study concluded. Americans carrying more than $25,000 of debt are less likely to own a home than those with smaller debt numbers. Source: RIS Media

Recent housing data point to house buying as actually being cheaper than renting, but the demand for apartments reached a record high over the second quarter of the year. Nationwide, apartment demand increased by a third in the second quarter year over year, according to a recent RealPage report. “Today’s strong demand for apartments reflects the combination of solid job formation and widespread availability of appealing new apartments,” said Greg Willett, chief economist for RealPage. There were 175,645 apartments completed last quarter – exceeding 86,431 units completed in the same period in 2016. Mid-year apartment occupancy stood at 95% but still stood a bit shy from mid-2016’s 95.3% rating, according to Axiometrics. Source: MPA

Weekly Mortgage and Real Estate Report – Week of October 2, 2017

ECONOMIC COMMENTARY
Clouded Jobs Report 

The jobs report is a very significant economic indicator. Yet, it seems that every monthly jobs report takes on some extra form of significance. This one is certainly no exception, with the report coming in the midst of the recovery from two natural disasters hitting major population centers within the United States. Hurricanes Irma and Harvey caused major damage to some of the largest states in America — Florida and Texas — as well as affecting several other population areas.

Along with major damage, lives were changed radically. It is anticipated that we will certainly see the effects of these disasters in our economic numbers, and the jobs report should be the first major indicator. It was no surprise that initial claims for unemployment were up in the weeks after the hurricanes hit and that these additional claims were concentrated in the affected areas. The numbers may not be affected radically on a national level, but there are likely to be major changes regionally and these will affect the national numbers. How much? We will know by Friday.

The good news is that these numbers should be temporary, as many jobs will be created in the rebuilding of affected areas. So, the markets will be prepared for one or two down months, but should be anticipating a rebound pretty quickly. The Federal Reserve Board meets two more times this year and most are expecting one more rate increase in December. The size and extent of the damage and rebound may very well be one of the determining factors in this decision.

REAL ESTATE NEWS
  A new report projects that U.S. housing starts will reach a total of 1.6 million units in 2021 as strengthening consumer finances boosts construction. The “Housing: United States” report, released recently by Freedonia Focus Reports, showed that single-unit conventional housing represents the largest and fastest-growing segment. Starts for such units will be driven by growing household creation and gains in the economy. The report also said that the projected improvement in single-unit starts comes as many consumers have a preference for detached homes and other types of single-unit housing. Other housing options will dampen demand for single-unit housing, however, according to the report. These options include manufactured housing, which offers a substitute at a lower cost. Single-unit demand will also be affected by the availability of multiple-unit housing options like condominiums. The report further said that the number of young people based in urban areas who want to live in or near downtown will be a factor in single-unit demand as space in such areas for single-unit housing developments are unlikely to exist. Source: Mortgage Professional AmericaHispanics are increasingly making up what’s considered the typical American home buyer, Curbed.com reports. Latinos are expected to make up 52 percent of new home buyers between 2010 and 2030, largely driven by the country’s 14.6 million Latino millennials. Since 2000, the number of Hispanic households has jumped by 6.7 million, which comprises 42.5 percent of the country’s overall household growth. Hispanics’ “fervent desire to own a home” has fueled homebuying by Latinos across the country, demographers note. “The fact is, the majority of Latinos want to be home owners and will make up half of all new home buyers in the next 20 years,” Scott Astrada, director of federal advocacy at the Center for Responsible Lending, told NBC. “They have a central place in the housing market and finance system.” Harvard University Joint Center for Housing Studies’ “State of the Nation’s Housing” study predicts minorities overall will drive three-quarters of the gains in U.S. households. Latinos will likely account for one-third of those increases alone. Source: Curbed.com

Open floor plans, which typically combine the kitchen, living room, and dining room in one large, open area, have dominated home design trends in recent years. But now, buyers may be starting to shun this type of layout. “While [the open floor plan] was successful in allowing multiple generations to congregate, it also led to consolidated visual chaos,” New York-based designer Phillip Thomas said. Some designers say the “helicopter” parenting style—parents seeking to keep a more watchful eye over their children—may have led to the open floor plan’s popularity. But some parents may find they need more personal space. Jen Altman, a child and family psychologist in Ho-Ho-Kus, N.J., says the pendulum is beginning to swing away from helicopter parenting, with many of her adult clients saying, “I just need 10 minutes to myself.” Such an attitude may be influencing a rise in the “broken floor plan,” which London architect Mary Duggan describes as large spaces with an element such as a three-quarter height wall to section off areas. Some designers may also use barn doors or pocket doors (sliding doors that tuck inside walls) to close off an open floor plan when needed. Pivoting glass and curtains are other ways to section off space. Source: The Wall Street Journal