Weekly Mortgage and Real Estate Report – Week of December 18, 2017

The Fed Decision 

As expected, the Federal Reserve Board decided to raise its benchmark interest rates by .25%. The reaction of the markets was tame because this action was widely anticipated and there was no surprise .50% hike. While each Fed rate hike does signal an overall increase in interest rates, it also does not mean that all rates are spiking upward. For one, the Fed has steadfastly adhered to a plan that is designed to move back to what it calls normal rates in a slow and orderly fashion. The response to the recession and slow recovery was to keep short-term rates close to zero, which is something that could not be sustained forever.

In this regard, the markets are more likely to react to hints about the pace of future rate increases, which are likely to be detected from the minutes of the recent meeting and various public statements from Fed Board members. Right now, the markets seem to be betting on three to four rate increases during the course of 2018, and if the economy continues to perform well, that scenario is not out of the question. While facing that many rate hikes, it should also be noted that the Fed’s action to raise rates directly affects short-term rates, but only indirectly affects longer-term rates, upon which home and even auto loans are based.

The Fed’s control is over funds that are borrowed overnight by banks, which are very short-term. In fact, we can see that six-month Treasuries have moved up over .75% during the course of 2017. Yet, the 10-year Treasury has virtually remained the same from January to December, and actually was lower than January’s level for much of 2017. What does this mean? For one, it means the spread between short-term adjustable home and other loans and long-term fixed loans have narrowed, making fixed rates a more logical choice for most. Secondly, it means that mortgage rates will not necessarily move up as fast as the Fed is moving. Of course, if we see more evidence of inflation taking root, all bets are off in this regard.

 New homes are expected to be a “primary driver of sales in 2018,” as 1.33 million housing starts are predicted next year—up from 1.22 million in 2017, according to a recent Freddie Mac Outlook Report gauging future real estate activity. Total home sales are expected to increase about 2 percent from 2017 to 2018, according to the report. Economists also predict that the uptick in housing starts, coupled with a moderate increase in interest rates, will help slow the run-up in home prices next year. Freddie Mac forecasts a 4.9 percent increase in home prices in 2018, lower than the 6.3 percent growth seen so far this year. Homeowners likely will continue building equity next year. In the second quarter of 2017, the dollar volume of equity cashed out was $15 million, up $1.2 million from the first quarter. As home prices rise, cash-out activity has been rising, too. “The economic environment remains favorable for housing and residential loan markets,” says Freddie Mac Chief Economist Sean Becketti. “For several years, we have had moderate economic growth of about two percent a year, solid job gains, and low interest rates. We forecast those conditions to persist into next year.” Source: Freddie MacZillow. Trulia. Realtor.com. Redfin. All household names in the real estate listings world, right? Well, those companies now have some serious competition from a company that boasts an audience that dwarfs all of those sites put together – Facebook. That’s right. Facebook is coming to real estate listings. Now, anyone who’s “friends” with a real estate agent on Facebook is likely used to seeing real estate listings show up in their news feed, but it appears that Facebook has much bigger plans for real estate listings through its own platform. Facebook announced last week that it is significantly expanding the real estate listings section on its Marketplace, which is Facebook’s attempt to take on Craigslist, eBay, and other e-commerce platforms. And if Facebook’s previous history is any indication of its future successes, Marketplace will eventually blot out the e-commerce sun, just as Facebook already did with social media – as evidenced by Facebook’s monthly active user count of 2.07 billion. And now, Facebook is bringing that audience to real estate listings. Facebook currently allows individual homeowners to list their homes for sale on Marketplace. According to Facebook, the feature is “rolling out gradually” and is currently only available via the mobile app in the U.S. And while the feature is “rolling out gradually” for home sales, Facebook is going full force into rental listings, via partnerships with Apartment List and Zumper. Source: Housing Wire

Sellers’ use of a real estate agent remained at an all-time high this year at 89 percent, according to the survey. Meanwhile, for the third consecutive year, for-sale-by-owner sales continued to be at the lowest share in the history of NAR’s survey at 8 percent. “Homeowners understand the value, and seek the expertise and guidance Realtors® bring to the table when it’s time to sell their home,” says William E. Brown, NAR’s president. “Despite incredibly favorable market conditions for sellers, where finding interested buyers was not a problem, nearly all turned to a Realtor® to help assist them through the intricacies of listing their home on the market, accepting offers, negotiating the sales price, and closing the deal.” Sellers reported mostly being satisfied with the performance of their agents, too. Eighty-eight percent of sellers surveyed indicated they were satisfied with the selling process, and 85 percent said they are likely to use their agent again or recommend him or her to others. Source: NAR


Weekly Mortgage and Real Estate Report – Week of December 11, 2017

Taxes, Jobs and Rates


We promised a busy December and certainly we have not been disappointed in this regard. We entered December with the tax legislation flying through the Senate faster than anyone would have predicted. This is not to say that the work is finished, as there are many differences between the House and Senate versions — differences that must be reconciled in conference before the final package is put to a vote. While it seems like there are a few weeks left in the year, the holidays make it a very short month to get this accomplished. Though you can see that the stock market seems to be very optimistic that it will get done.

Then we had the jobs report released. The economic numbers leading up to the report had been strong, and this had resulted in some optimistic expectations. In reality, the number of jobs created was even higher than expected. The unemployment rate of 4.1% keeps us near full employment and wage inflation continued to be tame. In addition, the average work week increased to 34.5 hours from 34.4 hours and 18,300 temporary workers were added.

Taking the data into account — along with the specter of a tax package passing — there is little doubt left that the Federal Reserve will not be raising short-term rates this week. The announcement will be coming Wednesday afternoon and the Fed should be comfortable that the economy can withstand another increase as it returns rates closer to what it considers “normalcy.” The stimulus of a tax cut will also place the Fed on high alert with regard to the threat of future of inflationary pressures.

 As was the case recently for conventional conforming loan amounts, loan limits on forward and reverse mortgages insured by the Federal Housing Administration have been boosted for next year. FHA floor loan limits are determined based on 65 percent of conforming limits on residential loans that are acquired by Fannie Mae and Freddie Mac. Late last month, the regulator and conservator of Fannie and Freddie, the Federal Housing Finance Agency, reported that the 2018 conforming limit has been set at $453,100. On Thursday, the Department of Housing and Urban Development issued a letter indicating that the FHA floor limit on forward mortgages for next year on one-unit properties will increase to $294,515 from $275,665 in 2017. This floor applies to those areas where 115 percent of the median home price is less than the floor limit,” the letter stated. “Any areas where the loan limit exceeds this ‘floor’ is considered a high-cost area, and HERA requires FHA to set its maximum loan limit ‘ceiling’ for high-cost areas at 150 percent of the national conforming limit.” In high-cost areas, the one-unit ceiling limit is increasing to $679,650 in 2018 from $636,150 last year. Thanks to rising home prices, FHA loan limits are increasing in 3,011 counties, while no change will occur in 223 counties. HUD also issued a letter indicating that the maximum loan limit for FHA-insured home-equity conversion (reverse) mortgages will be $679,650 next year. Source: Mortgage DailyZillow has dusted off its crystal ball for 2018 housing market predictions, and the forecast is laced with both new and ongoing trends. Looking into the new year, Zillow predicted that the ongoing inventory shortage will persist, with more existing homeowners opting to remodel and stay in place rather than try to elbow their way through tight markets with limited and expensive selections. Home prices will grow 4.1 percent next year, which will be particularly painful for first-time homebuyers in the nation’s more expensive markets. Zillow also predicted that builders will finally respond to the inventory crisis by creating more new construction for entry-level homes. However, much of this construction will be in suburban markets, thus creating a new wave of suburban sprawl. The rise in new suburban construction will be due primarily to higher costs and limited land options in urban centers. “In most markets around the country, housing has become a game of musical chairs, and nobody wants to be the last one without a seat,” said Zillow Chief Economist Svenja Gudell. “Homeowners who are looking for a change will turn to remodeling and redecorating instead of selling their home and facing the challenges of being a buyer in a sellers’ market. New homes will be designed to be particularly appealing to the Millennial and Boomer generations. Wide hallways can make it easier to move in, as well as make it easier to navigate a stroller or wheelchair through the halls. Large drawers will replace cabinets, making it easier to access everyday items that previously were hard to reach.” Source: National Mortgage Professional America

Single women are making up a bigger share of sales. Single females comprised 18 percent of sales this year, which matches the highest share since 2011, according to the National Association of Realtors®’ 2017 Profile of Home Buyers and Sellers. Single women were the second most common household buyer type, behind married couples at 65 percent. Single women tend to purchase slightly pricier homes than single men, despite earning less, according to the report. “Solid job prospects, higher incomes, and improving credit conditions translated to continued momentum in the growing share of single female buyers,” according to NAR’s report. Single men, on the other hand, aren’t as likely to buy alone. For the second consecutive year, the overall share of single male buyers was 7 percent, which is below unmarried couples at 8 percent. Source: NAR

Weekly Mortgage and Real Estate Report – Week of November 4, 2017

Do We Move Closer or Further Away? 

This week we will see the release of the November employment numbers. The key question we will be watching is whether we will be moving closer to a rate increase or further away with respect to the Federal Reserve Board’s meeting next week. According to the minutes of the last meeting, the Fed’s members had a healthy debate about the threat of inflation. Inflation “hawks” were worried that the tight labor market carries a risk that rising wages will quickly increase inflationary pressures.

On the other hand, the “doves” feel that the absence of large wage increases could mean that if the Fed raised short-term interest rates, it could cause inflation to stay too far below the Fed’s target of 2.0% for a prolonged period of time. Thus, we will not only be looking at the number of jobs created, but also looking for any sign that wage inflation is starting to take off. Judging by the economic reports we have seen in the past month, market analysts are still counting on a rate increase.

Speaking of higher costs, the Federal Housing Agency raised the limits for conforming mortgage loans for 2018. This affects the size of loans allowed under Fannie Mae and Freddie Mac mortgage programs. The new limits are $453,100 for 1-unit properties, with a maximum of $679,650 in high cost areas. While we have talked about higher housing prices making purchasing less affordable, the higher loan limits are one of the benefits of higher housing prices. Owners of homes gain more equity when prices go up. And these higher conforming limits will allow first time home buyers to purchase more home with a smaller down payment.

 The Federal Housing Finance Agency (FHFA) announced the maximum conforming loan limits for home loans to be acquired by Fannie Mae and Freddie Mac in 2018. In most of the U.S., the 2018 maximum conforming loan limit for one-unit properties will be $453,100, an increase from $424,100 in 2017. The Housing and Economic Recovery Act (HERA) requires that the baseline conforming loan limit be adjusted each year for Fannie Mae and Freddie Mac to reflect the change in the average U.S. home price. According to FHFA’s seasonally adjusted, expanded-data HPI, house prices increased 6.8 percent, on average, between the third quarters of 2016 and 2017. Therefore, the baseline maximum conforming loan limit in 2018 will increase by the same percentage. In addition, the new maximum loan limit for one-unit properties in high-cost areas will be $679,650 — or 150 percent of $453,100. Areas which exist between the base limits and maximum high-cost areas may have increased as well. For a list of the 2018 maximum loan limits for all counties and county-equivalent areas in the U.S. click here. It is expected that FHA and VA will follow suit with increased loan limits. Source: FHFAAbout 60 percent of first-time home buyers put down 6 percent or less on a home purchase in September. The median down payment has dropped from 6 percent to 5 percent for first-time buyers, according to the National Association of Realtors®’ 2017 Profile of Home Buyers and Sellers. But there are still many potential buyers who may be under the impression they need a bigger down payment before they can buy. NAR conducted a survey of non-homeowners earlier this year and found that most consumers believe you need a down payment of 10 percent or 20 percent to buy a home. “They may not be aware that these programs are available, and they may not be taking advantage of them,” Jessica Lautz, NAR’s managing director of survey research and communications, said in the latest Down Payment Report, published by the Down Payment Resource. Thirty-two percent of first-time buyers said they saved for more than two years in order to be able to have enough to buy a home. Student loan debt was the most often cited obstacle to saving. The second most cited barrier for saving was credit card debt. Source: The Down Payment Report

As more builders face labor shortages, they’re starting to look for new and faster ways to train more workers. For example, the Colorado Homebuilding Academy, a nonprofit organization, opened this year to offer a free eight-week “boot camp” to help increase the builder labor force. The course is founded and funded by Oakwood Homes, a homebuilder based in Denver that is owned by Berkshire Hathaway. “Every single year, the labor situation has basically gotten worse,” Patrick Hamill, CEO of Oakwood, told CNBC. “People retire, and there’s nobody to replace them, and as an industry, ultimately we’ve just done a lousy job marketing our opportunities to young people.” The construction labor shortage is worsening nationwide and it’s causing the new-home sector to be unable to keep up with buyer demand. Homebuilders blame growing costs and a shortage of labor as the two biggest challenges confronting them this year, according to surveys conducted by the National Association of Home Builders. During the housing crash, many builders left the industry and have never returned. Also, an aging workforce approaching retirement age and a lack of young people drawn to the building industry are making the situation worse, builders say. Only 3 percent of young adults ages 18 to 25 recently surveyed by NAHB said they wanted to go into the construction trades when they start their career. Source: CNBC