Weekly Mortgage and Real Estate Report – Week of February 26, 2018

Assessing ReturnsThere are many questions which have arisen because of the movements in the stock market and interest rates. For example, how high will interest rates need to go in order for investors to start thinking that they can achieve better returns than the stock market? That seems far-fetched because the stock market has done so well since the great recession, with the S&P gaining an average of over 10% per year. But, keep in mind that these gains have included a rebound from sharp losses during the recession and were fueled by record low interest rates.

And where would one go to achieve these better returns? One possible place would be real estate. One reason rates are rising is because recently, inflation has become a factor. Well, inflation has affected rents being paid and home prices for some time. If someone purchased a house five years ago, chances are they have done very well — whether they are living in the home or it is an investment property.

As we have said, this year’s wild ride has made it even tougher than normal to make predictions. It is possible that these gyrations could start affecting economic growth, despite the stimulus of the tax legislation. Investor and consumer confidence are really important factors — and neither likes to witness the uncertainty that volatility brings. The best news would be for the markets, rates and inflation all to calm down a bit as spring approaches. Next week’s jobs report could go a long way to convince the masses that everything is on-track and not overheating — if we don’t get a surprise on the low or high side.

 Homeowners should find their homes adding value through the rest of this decade; but that means more pressure on affordability for buyers. A new report from independent mortgage insurer Arch MI calls for prices to rise 2-6% in each of the next two years. “With interest rates and home prices both on the rise, first-time homebuyers – largely Millennials – may want to consider making the jump from renting to owning sooner rather than later,” said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services, Arch Capital Services Inc. Despite the affordability challenges and the impact of the tax changes, DeFranco is not forecasting a bubble. “Our research shows few signs of a housing bubble because the typical warning signs aren’t present. Overall, the shortage of housing paired with a robust job market should keep the housing market strong and growing, short of an unexpected event and despite the contrary pressures that may be created by the tax bill,” he concluded. Source: Mortgage Professional AmericaHome sellers realized an average home price gain of $54,000 in the fourth quarter, the highest profit since before the Great Recession, said ATTOM Data Solutions, Irvine, Calif. The Company’s Year-End and 4Q 2017 U.S. Home Sales Report said average home price gains rose from $53,732 in the third quarter and from $47,133 a year ago to the highest since Q3 2007. That $54,000 average home seller profit represented an average 29.7 percent return on investment compared to the original purchase price, up from 28.8 percent in the previous quarter and up from 26.8 percent a year ago to the highest average home seller ROI since Q3 2007. At the same time, ATTOM reported homeowners who sold in the fourth quarter had owned their homes an average of 8.18 years, up from 8.12 years in the previous quarter and up from 7.78 years a year ago to the longest average home seller tenure as far back as data is available, Q1 2000. “It’s the most profitable time to sell a home in more than 10 years yet homeowners are staying put longer than we’ve ever seen,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. ATTOM reported the U.S. median home price in 2017 at $235,000, up 8.3 percent from 2016 to a new high. Annual home price appreciation in 2017 slowed slightly compared to the 8.5 percent in 2016. Source: The Mortgage Bankers Association

Home shoppers without children are a growing segment in the housing market, and they tend to desire smaller houses than previous generations. The fertility rate among women 15 to 44 years old is at its lowest level since the CDC began recording such rates 108 years ago. As more couples delay having kids or opt to have fewer children, their needs in the housing market are very different than previous generations who tended to have bigger families. Fewer than eight in 10 childless buyers purchased a detached single-family home between July 2015 and June 2016, according to the National Association of Realtors®. Condos and townhomes are becoming a popular option among those who do not have children. In general, detached homes have been known to appreciate faster and hold their value longer than attached homes, according to Tamara Dorris, adjunct real estate professor at American River College in Sacramento, Calif. But that could change. “We’re seeing more and more people not having children by choice or purchasing homes as singles,” Dorris says. “These people tend to live in urban areas and have homes with less maintenance—such as attached homes.” Source: The Mortgage Reports


Weekly Mortgage and Real Estate Report – Week of February 12, 2018

Rate Predictions and Perspective 

It is amazing how it seems every year we have predictions that interest rates will go up. And each year interest rates do go up. And then, they go back down. The yield of the 10-year Treasuries have gone up over 0.5% over the past few months. But they also went up just about the same amount during the winter of 2016-17. Similar rises were witnessed in 2015 and 2014, though the patterns were slightly different. Each time, rates came back down.

If we look at this pattern, we can conclude that rates are likely to come back down again, right? Not so fast. There is one intervening variable that occurred this year, as opposed to previous years. That variable is the tax legislation. Tax reform is designed to stimulate economic growth. In previous years, rates came back down because our economic growth never became too strong to ignite inflation. Nor did rates move high enough to scare the stock market into a correction, as has happened in the past week — not that stocks were not due for a correction after so many years of increases.

Some say that the Federal Reserve Board raising short-term interest rates makes higher long-term rates a certainty. But, we must remember, the Fed raised rates in 2015 and 2016, albeit not as quickly as 2017. In 2015 and 2016, the Fed was “normalizing” rates because the economy had stabilized. Now the economy is growing, and we have added a major stimulus. Rates are not rising because the Fed is raising rates, rates are rising because the markets and the Fed expect further economic growth. That being said, it is still impossible to predict the future of economic growth or rates. On the other hand, if you feel this is the last opportunity to take advantage of historically low rates, you may want to act accordingly.

 The housing market could be on the verge of a shake-up, as well-established credit scoring requirements are being reevaluated by the Federal Housing Finance Agency (FHFA), potentially opening up the mortgage market to a greater number of aspiring homeowners. The FHFA is contemplating whether to change a longstanding requirement for lenders to assess potential buyers using FICO scores, which some believe limit the pool of applicants because they are dated and conservative. The agency announced on Dec. 20 that it was seeking feedback from industry stakeholders regarding competition and operational concerns related to the scoring process. The National Association of Realtors (NAR) said altering the model could help Americans that have traditionally struggled with homeownership prospects. “The National Association of Realtors is a strong supporter of utilizing newer, more predictive and inclusive scoring models, which we believe will responsibly expand access to housing credit and homeownership opportunities to more hardworking Americans, especially first-time borrowers and those who lack access to traditional forms of credit because of ‘thin’ credit files,” NAR President Elizabeth Mendenhall said in a statement to FOX Business. The FICO model was adopted many years ago, but now the FHFA is asking lenders whether it would be advantageous to open the playing field to other, potentially more modern scoring models. The scores the FHFA is currently assessing include Classic FICO (current model), FICO 9 and VantageScore 3.0. Jeff Richardson, the vice president of marketing and communications at VantageScore, says that VantageScore can score more people than FICO. Of the 7.6 million consumers with credit scores at or above 620 who would be eligible for a home loan, Richardson explained that some have been credit inactive for a while by choice, which could render them un-scoreable by FICO. “We score those people. We look deeper into their credit file,” Richardson said. VantageScore has said it can score about 30 million more people than FICO. Source: Fox BusinessBuyers paid more than the asking price in 24 percent of U.S. home sales in 2017, netting sellers an additional $7,000 each on average. Five years ago, 17.8 percent of final sale prices were higher than the asking price, according to the Zillow analysis. “Over the past year the American housing market has been struck by the combination of strong demand and limited supply,” the report said. “Young adult renters are increasingly feeling confident enough to buy, but they are entering a market with very few homes for sale, as inventory has been steadily declining for almost three years. Low interest rates have buoyed buyers’ budgets, raising the limits on what they can afford–and may be willing–to pay.” The report said homes sell quickly in such a competitive market, with the typical U.S. home selling in 80 days, including the time it takes to close on the sale. “Fierce competition means buyers may not win a home on their first offer. The typical buyer spends more than four months home shopping and has to make multiple offers before an offer is accepted,” according to the 2017 Zillow Group Consumer Housing Trends Report. Source: ZillowSpending on residential remodels will continue to grow at a modest pace in the next two years, said industry experts at a press conference hosted by NAHB Remodelers at the International Builders’ Show in Orlando. NAHB predicts that remodeling spending for owner-occupied single-family homes will increase 4.9% in 2018 and another 0.6% in 2019. Remodeler confidence has stabilized at a positive level, as remodeling spending topped $152 billion in 2017,” said 2017 NAHB Remodelers Chair Dan Bawden, CAPS, CGP, CGR, GMB, a remodeler from Houston. “There is steady demand around the country, but the cost of labor and materials is challenging remodelers’ ability to meet that demand.” Economists at NAHB elaborated on several reasons behind the projected growth. “NAHB estimates that real spending on home improvements will grow by nearly 5% in 2018, as below-normal rates of home building are creating an aging housing stock,” said Paul Emrath, NAHB’s vice president for survey and housing policy research. “Factors inhibiting stronger growth include the ongoing labor shortage and rising material prices.” Source: National Association of Home Builders

Weekly Mortgage and Real Estate Report – Week of February 5, 2018

Jobs Numbers Released Post Fed 

And so, the Double Feature played out this week. First, we had a decision by the Federal Reserve Board not to raise the benchmark short-term rate at the present time. The markets were expecting this because the Fed had raised rates in December. However, all eyes were on the Fed statement and certainly this statement held out the possibility that they could raise short-term rates at their next meeting in March.

What data will the Fed be looking at in order to make a decision? Actually, the first report was released just two days later. Last week’s jobs report indicated that the economy had added 200,000 jobs in January. The number of jobs added for the previous month was revised upward as well. The unemployment rate came in at 4.1%, which was unchanged. Finally, the focus was upon the wage data, which showed that wages were up 0.3% month-to-month and 2.9% year-to year. The yearly wage increase was higher than expectations.

Why is the wage data important? With the economy humming and the stock market soaring, the Fed is now most concerned with the threat of inflation. And certainly, any increase in the growth of wages is a big component of inflation. The Fed will get to see another jobs report, as well as a revision of the first estimate of growth for the fourth quarter, before they meet again in March. If the numbers are strong, we could see another hike in short-term rates.

 When touring open houses, watch for signs of larger issues with the property. Jenna Dougherty and Greta Eoff of the DeMasi Group at Keller Williams Realty in Davis, Calif., shared items that should raise alarms for potential buyers.

  • Overpowering scent. Don’t be too heavy-handed with scented candles or other fragrances, it could be a signal to buyers that you are trying to cover up the source of more serious odors, such as a musty smell from mold, pets, or something else.
  • Poor tiling. If there are gaps in the tiles or if the tiles are slightly uneven, it may indicate a poor DIY remodeling project that doesn’t meet professional standards.
  • Major cracks. Most homes have a few hairline cracks, but watch out for large cracks. Check for doors and windows that stick or cracks above window frames, which may indicate a larger foundation issue.
  • Mold. Open the cabinets around bathroom and kitchen sinks and look around the drains for any mold. Even small black or gray spots may indicate a more serious issue. Mold can signal water damage or improper ventilation in the home. Source: realtor.com®

Despite the impact on homebuyers of the tax reforms, economists are confident it will benefit the housing market. That’s because they predict that the positive impact for businesses will mean a boost for the economy and for jobs, handing the housing market new entrants and confident consumers. “We expect that tax reform will boost GDP growth to 2.6% in 2018, and this added economic activity will also bode well for housing, although there will be some transition effects in high-tax jurisdictions,” said NAHB Chief Economist Robert Dietz. “Ongoing job creation, expected wage increases and tight existing home inventory will also boost the housing market in the year ahead.” Not that it will be an easy time ahead for builders with shortages of labor and lots still challenging their ability to meet demand. The panel at a NAMB conference forecast that there will be 1.21 million housing starts with production up 2.7% year-over-year to 1.25 million units. Single-family starts will gain 5% this year and in 2019 to 893,000 and 940,000 respectively. Multifamily starts will decline 1.6% to 354,000 this year (from 360,000 projected for 2017). “Rates on home loans are expected to rise from 4 percent to 4.5 percent by the end of year,” said David Berson, senior vice president and chief economist at Nationwide Insurance “However, housing demand remains strong and wages are solid, and this will more than offset the negative effects from rising rates.” Source: The NAMB