Discussing consumer attitudes about buying or selling a home, income growth, mortgage rates, business conditions in the Carolinas and much more!
Sorry I am a day late with this post as there was a must see soccer game with one the rug rats yesterday!
Despite Falling Home Sales, 77% Think It Is Good Time to Buy a Home
In the third quarter of 2017, 77% of people believe that now is a good time to buy a home. Only 23% of people believe that now is not a good time to buy a home.
78% of people believe that now is a good time to sell a home. 22% believe that now is not a good time to sell a home.
53% think home prices will increase in the next 12 months, 41% think prices will stay the same and 6% think prices will decrease.
I find the positive attitudes about buying and selling strange since home sales are so low. I know that inventory is tight BUT if 78% think that now is a good time to sell, why aren’t more homes on the market?
Lawrence Yun, NAR chief economist said:
The housing market has been in a funk since early spring because of the ongoing scarcity of new and existing homes for sale. The pace of new home construction has not meaningfully broken out this year, and not enough homeowners at this point have followed through with their belief that now is a good time to sell. As a result, home shoppers have seen limited options, stiff competition and weakening affordability conditions.
Buyer demand is robust this fall, but the disappointing reality is that sales will continue to undershoot their full potential until supply levels significantly improve.
There is no doubt that anyone wanting or needing to sell their home could find now is a great time to sell.
Freddie Mac Serious Delinquency Rate at Lowest Point Since 2008
Freddie Mac ‘s Single-Family serious delinquency rate in August 2017 was 0.84%. This is down from 0.85% in the previous month and the 1.03% reported for August 2016.
Freddie Mac ‘s serious delinquency rate peaked back in February 2010 at 4.20%. This is the lowest serious delinquency rate since April 2008.
It has taken a long time to get back to a healthy level of delinquencies.
Incomes Getting More Out of Whack
From the Federal Reserve:
The distribution of income and wealth has grown increasingly unequal in recent years. The top 1% now control 38% of the wealth in the U.S.
The share of income received by the top 1% was 20.3% in 2013 and rose to 23.8% in 2016. The share of wealth held by the bottom 90% has been falling for 25 years.
I think the chart says it all. What can or should be done?
What will the declining income share of the bottom 90% mean for the home ownership level? After all, owning a home is a great way to build wealth and could be key to equalizing growing inequality.
Real gross domestic product (GDP) increased at an annual rate of 3.1 percent in the second quarter of 2017, according to the “third” estimate released by the Bureau of Economic Analysis.
This is faster than the previous estimate and the fastest rate of growth in 2 years.
Weekly Unemployment Claims Increase
In the week ending September 23, the advance figure for seasonally adjusted initial claims was 272,000, an increase of 12,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 259,000 to 260,000. The 4-week moving average was 277,750, an increase of 9,000 from the previous week’s unrevised average of 268,750. This is the highest level for this average since February 6, 2016 when it was 277,750.
They said the increase in claims was due to the hurricanes. Remember, it is the 4 week moving average to keep an eye on as it is “less noisy”.
Let’s look at the latest on mortgage rates! First up, the MBA:
Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 22, 2017.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) increased to 4.11% from 4.04%, with points remaining constant at 0.40 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) increased to 4.06% from 3.99%, with points increasing to 0.26 from 0.23 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 3.38% from 3.35%, with points decreasing to 0.40 from 0.44 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
Ruh Roh! Not huge increases and the decrease may be due to the hurricanes.
Now let’s look at the latest from Freddie Mac:
- 30-year fixed-rate mortgages averaged 3.83% with an average 0.6 point
- This is the same as last week.
- Last year at this time, 30-year fixed-rate mortgages averaged 3.42%
- 15-year fixed-rate mortgages averaged 3.13% with an average 0.5 point
- This also the same as last week
- Last year at this time, 15-year fixed-rate mortgages averaged 2.72%
Not much change, which is better than the increases reported by the MBA. Remember these are the average rates and may not reflect what is realistic or possible for every home buyer!
So what could happen if you decided to wait a year and mortgage rates and home prices keep increasing?
This is based on Freddie Mac’ projections and no one knows what the future holds. For those willing to gamble, it could cost you a boatload of money…
Commercial Real Estate Prices Decline for 5th Month
The commercial real estate sector continued its slump in September, with nationwide commercial pricing edging down by 0.1 percent — the fifth consecutive month of contraction for the index.
Ten-X Chief Economist Peter Muoio said:
The nowcast’s fifth consecutive monthly decline in September indicates the market has again failed to shake off its malaise, as a murky business cycle prognosis and tightening monetary policy continue to take their toll. The nowcast’s annual growth rate is at its lowest level since we introduced the index, and several CRE sectors are in similar slowdowns. While there is something of a varied picture across the five CRE segments, there is no denying the overall softening of commercial real estate pricing.
September data confirms the commercial real estate market remains in a turbulent state, especially as it can no longer rely on breakneck growth in the apartment sector to buoy pricing. Until one or more segment of the industry can sustain consistent growth or investors align on the where the overall market is heading, it is likely that pricing will continue to drift.
Ouch. Not a good sign for the economy…
Improved Business Conditions in the Carolinas
From the Richmond Fed:
Reports from firms in North Carolina and South Carolina improved in September after softening in August, according to the latest survey by the Federal Reserve Bank of Richmond. Particularly notable were increases in the general business conditions index and the sales index, which rose from 11 to 20 and 10 to 23, respectively.
Labor market activity was a little more mixed in September, as a smaller share of firms reported employment growth, but measures of both the average work week and wages were up. On the other hand, spending indexes were down for business services, capital, and equipment/software. In addition, price growth moderated slightly for both inputs and outputs.
Most of the indexes for firm expectations over the next six months softened somewhat in September, with the exception of the index for expected wages, which jumped from 23 to 41, and the expected average workweek index, which inched up from 9 to 10. Firms in the Carolinas also expected higher growth in both input and output prices in the coming months.
And the charts:
While not specifically talking only about South Carolina or Anderson County, it is more local than many economic reports we will see in the news.
The End of the Mortgage Interest Deduction?
Currently, a little less than a third (29 percent) of all U.S. homes are valuable enough to make taking the Mortgage Interest Deduction (MID) worthwhile for tax filers. Under recently proposed tax changes, that number would fall to just 5 percent.
Tax reform proposals currently being circulated by the Trump Administration and Congressional leaders maintain MID, a relatively popular deduction utilized by 22 percent of all U.S. taxpayers in 2015, according to the most recent data published by the Internal Revenue Service. The proposals also include provisions to double the standard deduction and to eliminate the deductibility of state and local taxes, which includes local property taxes.
But a doubling of the standard deduction would likely mean fewer American taxpayers would choose to itemize their deductions and opt to take advantage of MID.
I know this won’t be popular with the Trump fans but it needs to be said. The fact that it will NOT affect the rich is what really irks me…
Just normal that the rich get the favored treatment by our elected officials…
But will this affect the number of houses being bought or home prices? White House National Economic Council Director Gary Cohn does not think so:
People don’t buy homes because of the mortgage deduction. The No. 1 reason why people buy homes is they’re excited and optimistic about the economy. They have a job today, they feel confident they’re going to have a job tomorrow, and their kids are going to get a job and their spouse has a job.
While this is true in some ways, it does affect the financial aspects quite a bit. You may fall in love with a home or the idea of owning a home, but the numbers MUST work.
I have never heard someone say they wanted to buy a home because of the mortgage interest deduction. It is only after you have bought a home that you realize just how nice this deduction is…
That’s it for today! Still plenty to discuss and just not enough hours in the day. Check back or subscribe so you never miss another post!