Discussing the impact of government policy on housing, this week’s mortgage rates, the credit scores of recent home buyers, the NFIB Small Business Optimism Index, more encouraging predictions for 2018 plus more!
The Impact of Housing Policy on Housing Demand and Homeownership
AEI just released a VERY interesting paper about the impact of government policy on housing and the home ownership level:
Federal housing policy promotes homeownership by subsidizing mortgage debt for many households with few assets and low credit scores. In this paper, we exploit the Federal Housing Administration’s (FHA’s) surprise 50 basis point cut to its annual mortgage insurance premium in January 2015 to study the impact of federal housing policy and interest rates on housing demand for a population of households likely to be influenced by changes to policy. The premium cut, which reduced monthly payments the same amount as a three-quarter percentage point drop in the mortgage rate, increased the purchasing power of the typical FHA borrower by 6 percent. Our analysis suggests FHA borrowers increased the value of the housing they purchased by 2.5 percentage points relative to a control group of borrowers in areas with minimal FHA presence. The rise in spending reflected an increase in constant-quality home prices, with no significant change in the quality of housing purchased by FHA buyers. We also estimate that the premium cut induced approximately 17,000 households to become first-time homebuyers in the initial year after the cut, an increase that fell far short of the FHA’s projection. Because the rise in constant-quality house prices affected both FHA and other buyers in areas with substantial FHA lending, non-FHA first-time buyers as a group incurred a cost of $180,000 for each of the 17,000 new first-time FHA buyers.
I have often said we want a healthy sustainable level of home ownership. The benefits to society and to the home owners is well known and well documented.
Is using government policy to the best way to a healthy sustainable level of home ownership?
And once again, I must ask what is a healthy sustainable level of home ownership?
Deep thoughts from a must read thought provoking study!
A Bullish New Year for New-Home Building
According to Mark Zandi, chief economist for Moody’s Analytics, prospects are good for the U.S. economy in 2018. Economic expansion celebrated its eighth year in November, making it the third longest in American history. Zandi expects this expansion could become the longest in history, possibly surpassing the tech-driven boom of the 1990s, which lasted 10 years.
Economists from many facets of the industry, including Metrostudy, the NAHB, and the National Association of Realtors (NAR), all project positive economic growth in 2018, with one caveat. The significant wild card for the economic outlook in the next two to three years surrounds the fiscal policy decisions of the Trump administration, including the tax bill, which was expected to be signed into law at the end of December. The legislation could reduce ownership benefits, which would lead to fewer sales, lower prices, and dropping home values. However, despite the uncertainty from the nation’s capital, most indicators point to a good year for U.S. builders.
Other than the wild cards, it does appear that 2018 could be a very good year for the economy and housing market.
Mortgage Rates This Week
Before we jump into what the MBA and Freddie reported this week, let’s look at some highlights from the December 2017 LendingTree Mortgage Offers Report:
December’s best offers for borrowers with the best profiles had an average APR of 3.80% for conforming 30-year fixed purchase loans, up from 3.75% in November. Mortgage rates vary dependent upon parameters including credit score, loan-to-value, income and property type.
For the average borrower, purchase APRs for conforming 30-yr fixed loans offered on LendingTree’s platform were up 12 bps to 4.42%, the highest since July 2016.
Consumers with the highest credit scores (760+) saw offered APRs of 4.26% in December, vs 4.56% for consumers with scores of 680-719.
I am glad to see LendingTree drive home that your credit score makes a big difference in the mortgage rate you will get. The difference in mortgage rates due to your credit score will hit you directly in the wallet…
Nearly $15,000 in additional costs for borrowers with lower credit scores over 30-years for the average purchase loan amount of $233,586. The additional costs are due to higher interest rates, larger fees or a combination of the two.
$15,000 is a substantial amount and should motivate anyone thinking about buying a home to check their credit before they start the home buying process.
Speaking of credit, Ellie Mae recently reported that the average FICO® Score on all closed loans dropped to 722 which is its lowest mark since April. The average includes all approved refinance and purchase loans.
This may discourage some people but Ellie Mae had some good news in their Millennial Tracker. They said that buyers who bought a home in December using a FHA mortgage had an average down payment of 4% and a FICO® Score of only 684.
Since these are the average down payment and FICO score, it is possible that some people that could NOT buy a home in the past can buy a home NOW!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 3.99% with an average 0.5 point
- This is up from last week when it averaged 3.95%
- Last year at this time, 30-year fixed-rate mortgages averaged 4.12%
- 15-year fixed-rate mortgages averaged 3.44% with an average 0.5 point
- This is up from last week when it averaged 3.38%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.37%
Len Kiefer, Deputy Chief Economist at Freddie said:
After dipping slightly last week, Treasury yields surged this week amidst sell-offs in the bond market. The 10-year Treasury yield, for instance, reached its highest point since March of last year. Mortgage rates followed Treasury yields and ticked up modestly across the board. The 30-year fixed-rate mortgage averaged 3.99 percent, up 4 basis points from a week ago.
Check out the chart:
You can see an upwards trend for the past 4-5 months…
The MBA reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.23% from 4.22%, with points decreasing to 0.35 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) increased to 4.16% from 4.14%, with points increasing to 0.23 from 0.22 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 3.66% from 3.64%, with points increasing to 0.42 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
While both the MBA and Freddie reported increasing mortgage rates, remember these are the average rates. As the report from LendingTree demonstrates, your credit score has a huge impact on what is possible for you.
US Has Worst Rate of Child Mortality Among 20 Rich Nations
Infants in America are 76 percent more likely to die before age 1 than counterparts in other wealthy countries.
And despite overall improvement in the child mortality rate in the U.S. and those 19 other countries, the U.S. has persistently outpaced those nations in that grim metric for decades, the Health Affairs report said.
What the heck!
Small Business Optimism Decreases
The Optimism Index for last month came in at 104.9, slightly lower than the near-record November report but still a historically exceptional performance. That makes 2017 the strongest year ever in the history of the survey. The average monthly Index for 2017 was 104.8. The previous record was 104.6, set in 2004.
NFIB President and CEO Juanita Duggan said:
2017 was the most remarkable year in the 45-year history of the NFIB Optimism Index. With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans.
Let’s hope this optimism translates into a robust economy in 2018!
That is all I have time for today but check back tomorrow! As always, I have more real estate, housing and economic news to discuss!