Weekly Mortgage and Real Estate Report – Week of April 23, 2018

              The Impact of Trade Battles 

There seems to be a lot of rhetoric going back and forth on the topic of trade wars. Much of this debate centers upon the question of whether we are in a trade war or not. We can’t answer that question definitively, but certainly we do understand that some of the basic characteristics of a trade war have been implemented and others have been threatened. We have imposed tariffs on other countries’ goods and they have done the same to our goods.

The important question is not whether this is a full-blown trade war, but what is the impact of the implementation of tariffs? In the short run, we have seen one major impact — the stock market has become very volatile. As we have previously discussed, this volatility is caused by more than one factor. However, the risk of trade wars certainly is playing a significant part in contributing to volatility. Why are the markets uneasy regarding these tariffs?

For one, tariffs raise prices to our consumers. On the other side of the equation, when other countries retaliate against our goods, it hurts the producers of these goods — from manufacturers to farmers. These two factors can actually balance each other out. For example, higher prices contribute to inflation which can bring higher interest rates. On the other hand, lowering exports can hurt certain sectors of the economy and that might bring rates down. Which side of the equation might win out? It is hard to tell. We actually hope that these “shots being fired” are precursors to the negotiation of better trade agreements that will benefit all parties. In the meantime, there will be some negative impacts and certainly a lot of noise.

 Millennials are increasingly entering the housing market as first-time buyers and are expected to lead the growth in new home buyers too, the National Association of Home Builders reports from its analysis of Census data. The overall homeownership rate of millennials is at 36 percent, which is the largest gains among all age groups in 2017, the Census data shows. Millennials are the nation’s largest demographic group, and more than 70 million are expected to enter the housing market over the next few years. “Millennials are recognizing the benefits of homeownership and are eager to buy their first homes,” says Randy Noel, chairman of the NAHB. “And contrary to conventional wisdom, this generation is in the market for single-family homes in the suburbs as they look ahead to raising their families.” Homebuilders are responding by increasing the amount of entry-level homes they are building, according to the NAHB. But they note that rising construction costs and limited lot availability have created challenges to building smaller, single-family detached homes that are affordable to first-time buyers and yet still cost-effective for builders. More townhomes may be the answer, builders say. The townhome sector plunged during the Great Recession, but it has steadily been on the rise since 2009. Townhouse construction was up 7 percent in 2017 over 2016, according to Census data. Builders are also taking note of millennials’ preferences as they look to add inventory. Millennials desire a three-bedroom and two-bathroom home, outdoor space, flexible areas that can be used for multiple purposes, and more luxurious finishes, such as quartz countertops, the NAHB says of its surveys. Source: National Association of Home BuildersSome housing economists believe that “granny flats” could be the key to alleviating housing shortages across the country, and they are calling on more municipalities to ease up the rules to allow such dwellings to be built on or into more single-family homes. Nicknamed “granny flats,” these accessory dwelling units tend to be separate, cottage-like structures, but may be a converted garage or basement that houses an extra living area. Some city and state governments have zoning laws that prevent these extra living quarters from being added into single-family homes. But that is changing in several areas of the country. “At a time when many housing markets are experiencing severe supply constraints and housing affordability is under stress nationwide, accessory dwelling unit legalization represents a low-profile free-market solution that requires little from government actors beyond getting out of the way,” noted Jonathan Coppage, a visiting senior fellow at R Street Institute, a think tank, in a 2017 report. Granny flats also might allow more homeowners to generate extra income from short- and long-term rentals of these units. But many counties either still have zoning restrictions that don’t allow these units, or they are making the building permit process difficult. There are concerns that the extra dwellings could lead to limited parking spaces and more congestion on their streets from tenants renting the units. Source: MarketWatch

There’s a lack of rich information about American neighborhoods according to Trulia, which aims to plug the gap. The online listings service has launched ‘What Locals Say’ to help prospective buyers and renters get a deeper understanding of local housing markets. Around 7 million polls have been answered with locals providing their unique insights such as nearby parks and restaurants, to help buyers get a feel for living in the neighborhood. The service launch follows Trulia research conducted in 2017 which found that 85% of homebuyers who plan to buy within 18 months said that the neighborhood is equally or more important than the house. “We understand that neighborhoods matter. Our new mission will guide Trulia to deliver even more innovative products to help buyers and renters discover and understand what it’s really like to live in a home and neighborhood before they move in, much like a trusted friend or neighbor,” said Tim Correia, senior vice president and general manager of Trulia. Trulia’s ‘mission’ to serve homebuyers and renters with better information about neighborhoods is being supported by a new advertising campaign. The ads showcase Trulia’s 34 different map overlays that offer details on commute, reported crime, schools, and nearby businesses, and the new What Locals Say feature. Source: Trulia


Weekly Mortgage and Real Estate Report – Week of April 16, 2018

The Volatility Issue 

In the first three weeks of the year, the stock market experienced gains that were nothing short of spectacular, extending a great year for equities in 2017. Starting with the last week in January, the markets have been experiencing extreme amounts of volatility — both up and down. It has not been unusual to see the headlines read “the biggest one-day gain/loss in ___ years.”

The question is, should we be worried about such volatility? Though the markets have turned lower since the end of January, the magnitude of losses certainly are not worrisome. This is especially true considering the extent of gains we have experienced for the previous two years. Certainly, one would think that the markets are due for a breather after running so hard and fast. On the other hand, breathers don’t have to be accompanied by extremes. It should be noted that the volatility in stocks has not been accompanied by nearly the same amount of volatility in the bond or commodity sectors. If all sectors were extremely volatile, this might be interpreted as a more pressing concern.

Extremes can be caused by factors which are promoting uncertainty. For example, rising interest rates, implementation of tax reforms and threats of trade wars are factors we are dealing with today. Certainly, higher rates and threats of trade wars can cause uncertainty in the markets. On the other hand, tax reform has been a positive factor affecting the markets — up until the point of implementation. Uncertainty and volatility seem to go hand-in-hand. It may just be that stocks are finding a new level of comfort. However, if rates keep rising and trade wars bloom, that comfort level may be harder to find. In reality, we don’t know why markets behave as they do, but it helps to at least understand the factors influencing today’s environment.

 Most homeowners with adjustable-rate loans could experience their first interest rate increase if the low-interest-rate environment ends, according to survey results released by HSBC. The study revealed that 87% of US homeowners have never experienced a rate increase on their home loan. “From a homeowner’s perspective, we’re heading into unfamiliar territory,” said Pablo Sanchez, HSBC’s regional head of retail banking and wealth management for HSBC Bank USA. “The average US homeowner is already spending almost 40% of their monthly income on their housing payment. When you factor potential interest-rate rises into household budgets, making that monthly payment could become a struggle.” “The good news is that US homeowners are well-informed about their home loans,” Sanchez said. The survey found that 81% of US homeowners are aware of how much interest they are paying while 79% are aware of their loan terms. Although increasing rates are a concern, HSBC said homeowners continue to have options. Fifty-two percent of homeowners have switched providers and 46% have studied switching their loan to get a better deal. According to the survey, 53% of those who switched were primarily driven by a desire to obtain a better deal or because of increases in their rates. Other reasons homeowners switched included moving or buying a new property with 19% and the expiration of their existing loan terms with 12%. Source: Mortgage Professional America  — Have an adjustable that is going up? Contact us for alternatives.Thousands of potential homeowners fail to pursue the American Dream due to confusion over the homebuying process, according to the fifth annual America at Home survey from NeighborWorks America. The new survey found that the average Millennial believed that the minimum required down payment is 21 percent, while 70 percent of adult respondents believed they lacked the necessary funds for a down payment. Seventy-four percent of adults and 84 percent of Millennials found the homebuying process complicated, while 29 percent of respondents said they knew someone who delayed homeownership because of student loan debt. Furthermore, nearly 73 percent of all consumers and 62 percent of Millennials were either unaware or unsure about down payment assistance programs in their communities for middle-income homebuyers. Among those familiar with these programs, 53 percent reported receiving “not much information” or “nothing at all” about them. However, there was still reason to be optimistic despite the mostly negative data: 93 percent of adults believed owning a home is part of the American Dream, while 81 percent of adults and 72 percent of Millennials felt homeownership increases financial stability. Source: NeighborWorks America

The median rent in the United State rose 2.8 percent over the past year to $1,445, the fastest pace of appreciation since May 2016, according to Zillow. Rental appreciation had slowed in the past two years as new apartment supply came online following a construction boom. But it is now rising again due to the record-low supply of homes for sale. The strong pace of apartment construction in the last five years has mitigated some of the supply problem, but most of the new apartments are in luxury buildings. Luxury rents have actually come down in the past six months, but rents in the rest of the market, where supply is leaner, are doing just the opposite. New households are forming at the fastest pace in two years, and more of them are owner households, a reversal from the recession when renter households outpaced owners by far. But current renters are not moving to ownership at a normal pace, and that is keeping occupancies high. National apartment occupancy was 95 percent at the end of last year, and that could move even higher in coming months. Construction of new apartments has been slowing, and new single-family home construction is nowhere near where it needs to be, given red-hot demand. “The country’s apartment market remains tight, with product availability generally limited to recently completed properties moving through initial leasing,” said Greg Willett, chief economist at RealPage. “Unless a renter can afford that expensive new stock, finding a ready-to-lease unit takes some real work in most locations.” Source: CNBC

Weekly Mortgage and Real Estate Report – Week of April 9, 2018

Employment Report


The job numbers for March give us another indication of where our economy is headed in the short-term. The headline numbers showed 103,000 jobs added and an unemployment rate of 4.1%. While the number of jobs added was disappointing, the report followed a very high number of jobs added for the previous month which was not revised downward. In addition, each month we look at wage growth to see whether inflation is starting to rear its ugly head. March saw wage inflation in line with expectations — a good sign.

The markets are also watching for movements in the labor participation rate, as this measure tells us where there is potential for growth in employment. Even though the headline numbers say that we are at full employment, there are millions who are available to come back into the workforce. When there is more demand for workers, those who are not participating are more likely to become employed, thus raising the labor participation rate. In March, the labor participation rate fell slightly from a five month high and thus there continues to be room for improvement within this indication.

Considering that the markets have turned much more volatile since the first of the year, what do these numbers tell us? To answer that question, we must understand why the markets seem to be uneasy. It is very easy to blame rising interest rates and certainly the movement of rates is a factor. But we must also remember that the markets have had quite a run and there is always a concern as to when the markets might lose some energy. In reality, there are several factors at work and the jobs numbers only serve to put one other factor into the pot which is being stirred enthusiastically this year.

 All good things come to an end—even low interest rates on home loans. They’ve been steadily rising and are poised to climb even higher this year. When they do, the cost of buying a home will rise as well. This could make the challenges of today’s buyer’s market even worse for some prospective purchasers—particularly first-time buyers, having to settle for smaller abodes, fixer-uppers (in the real sense, not the TV sense), and homes farther out where real estate is cheaper. Rates on home loans are expected to go up even more as the Federal Reserve raises short-term interest rates. The new Fed chairman, Jerome H. Powell, says the Fed is likely to gradually increase them this year. It is expected to bump up rates at least three times this year, in 0.25% increments. “For the bulk of buyers, it’s not going to kill their decision to purchase a home. If anything, it will get them off the fence by creating a sense of urgency,” says Rick Palacios Jr., director of research at John Burns Real Estate Consulting. Higher rates are “a kick in the pants for you to start thinking seriously about buying.” “Buyers thought they could wait forever because rates were going to stay low forever,” says Palacios. “They’re starting to realize if they’re going to buy they should probably buy now.” Source: Realtor.com®There was a lot of flipping in 2017 with 207,088 single-family homes and condos flipped nationwide, 5.9% of all homes sold. It was a 1% rise in flipping year-over-year and meant an 11-year high in volume terms, and 4-year high in share of sales, according to a report from ATTOM Data Solutions. There was also a 10-year high in the number of entities doing the flipping; a total of 138,410 individuals or institutions, up 4% from 2016. Despite the rise, ATTOM’s senior economist Daren Blomquist says that, rather than mirroring the frenzy of just over a decade ago, this was more considered. “Flippers are behaving more rationally, as evidenced by average gross flipping returns of 50% over the last three years compared to average gross flipping returns of just 31% between 2004 and 2006 — the last time we saw more than 200,000 home flips in consecutive years,” he said. Source: ATTOM Data Solutions

Residents from other countries are increasingly eyeing U.S. real estate as a good investment, and they’re making up a significant portion of buyers in some markets. But who is coming is changing. Chinese buyers have been the biggest portion, spending the most of any foreign group on U.S. real estate. They spent $31.7 billion on residential real estate in the U.S. between April 2016 and March 2017, according to the National Association of REALTORS®. But mainland China has since tightened restrictions on how much capital residents can spend outside the country. That has caused some markets to see a drastic decrease of Chinese buyers. “You turn off one faucet, and another one opens,” says Jonathan Genton, the founding partner and CEO of the Genton Property Group. Buyers from other countries have been coming in to fill the gap. For example, Genton is seeing more buyers coming in from Taiwan, Vietnam, and Thailand and more investors from Dubai, Kuwait, Georgia, and Turkey. “Everyone recognizes the stability and security of the U.S. market more than ever before,” Genton says. “Foreign buyers make up a significant presence in the U.S. luxury market that will only increase as generations come here to study and geopolitical and safety factors continue to play a role,” Shahab Karmely, the CEO of KAR Properties, a New York-based development firm, told Mansion Global. Source: Mansion Global

Weekly Mortgage and Real Estate Report – Week of April 2, 2018

That Time Again


Now that April’s Fools Day has passed, we can get down to some serious business. And the first order of business each month is the release of the employment report. Each report seems to have a special meaning with regard to the economy, and this month the job numbers will be no exception. In February we had very strong employment growth, and we will be watching for any revisions of February’s numbers, as well as focusing on the data for the month of March.

Two very strong months could signal the Federal Reserve Board to move up their timeline for rate increases this year. As of their meeting in March, they are sticking with an estimate of three increases this year and the markets have already built in at least some of these increases. If the numbers ease back and there is any significant downward revision for February, then the focus will shift the growth of wages.

Right now, the Fed is not only looking at a strengthening economy, but also how this growth will affect the inflation rate. Any evidence of increased pricing would also serve as justification for future rate increases. While increasing wages are great news for the American worker, any acceleration of the growth of wages could be felt by consumers in the form of higher rates. The best scenario for Friday? Solid growth in jobs and wages, but just not too hot.

 Some tax deductions for home sellers may amount to potentially big savings. As such, homeowners who are selling their home soon or sold it last year will want to educate themselves on the tax deductions available. Realtor.com® recently highlighted some, including:

  • Selling costs: “You can deduct any costs associated with selling the home—including legal fees, escrow fees, advertising costs, and real estate agent commissions,” says Joshua Zimmelman, president of Westwood Tax and Consulting in Rockville Center, NY.
  • Home improvements and repairs: Some renovations done to make a home more marketable for resale may be eligible for a tax break. “If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing,” says Zimmelman.
  • Property taxes: You can deduct the amount you paid in property taxes for the time you owned the home. This has been capped at $10,000 in total deductions, starting in 2018.
  • Mortgage interest: You can deduct the interest on your mortgage for the amount of time you owned the home. Starting in 2018, new homeowners and sellers can deduct the interest on up to $750,000 of mortgage debt. Homeowners who had a mortgage prior to Dec. 15, 2017, can continue to deduct up to $1 million under the old law, Zimmelman says.
  • Capital Gains Exclusion: Capital gains are your profits from selling a home. Those profits are taxed as income, but you can exclude up to $250,000 of the capital gains from the sale if you’re single and up to $500,000 if filing as a married couple. To be eligible, you must have lived in your home at least two of the past five years. Source: Realtor.com®

Landlords own thousands of single-family homes across the U.S. With housing shortages abounding, some are calling on landlords to start selling. A slowdown in rent growth may convince more to finally unload their inventories. “As new multifamily supply catches up with demand and slows rents, some large investors may begin putting their holdings of affordable single-family homes up for sale, which would be great news, particularly for first-time buyers,” says Lawrence Yun, chief economist of the National Association of Realtors®. A jump in apartment construction has slowed rent growth for many multifamily buildings across the country, but single-family landlords are still mostly reaping profits. Invitation Homes Inc., the nation’s largest single-family landlord, owns more than 80,000 properties. It is forecasting its revenue growth to be about 4 percent to 5 percent in 2018, which far outpaces rent-growth projections for apartments, according to Green Street Advisors LLC, a research firm. “Single-family rental top-line growth should continue to fare much better than that of apartments due to steady demand and limited impact from competitive new supply,” Green Street Advisors note in a recent report. Source: Bloomberg