Discussing housing starts and building permits, the Fed raises their benchmark rate again, home builder confidence, affordability, higher home prices and the economy plus more
Housing Starts Decrease
Privately owned housing units authorized by building permits in September were 0.6% below the revised August rate and 1.0% below the September 2017 rate. Single-family authorizations in September were 2.9% above the revised August level.
Privately owned housing starts in September were 5.3% below the revised August estimate but 3.7% above the September 2017 rate. Single-family housing starts in September were 0.9% below the revised August level.
Hurricane Florence is partly to blame for the decrease as construction activity in the South fell by the most in 3 years. However, most of the blame is still firmly the fault of the familiar culprits of low inventory, rising mortgage rates and higher home prices.
Check out this chart showing privately owned housing starts for 1 unit structures going all the way back to get an idea of where we are compared to the past:
As you can see, we are still low compared to time in the past when the economy was doing OK. The lack of inventory is NOT going to get better until we see more affordable homes being built.
It is strange that new home starts decreased after the strong numbers reported by the Census Bureau in their August 2018 New Residential Sales Report. Check out this chart showing the change in housing starts, completions and sales compared to last August:
The decrease this month may be just a blip since the economy is humming along nicely. If you are thinking about selling, I am sure you have heard about the lack of homes for sale. Just remember that every new home built is stiff competition that you must beat…
The Fed Raises Their Rate Again
Highlights from the latest FOMC Minutes:
In their consideration of monetary policy at this meeting, participants generally judged that the economy was evolving about as anticipated, with real economic activity rising at a strong rate, labor market conditions continuing to strengthen, and inflation near the Committee’s objective. Based on their current assessments, all participants expressed the view that it would be appropriate for the Committee to continue its gradual approach to policy firming by raising the target range for the federal funds rate 25 basis points at this meeting.
It appears that we can expect the Fed to keep gradually raising their benchmark rate. There has been criticism from Trump about the Fed lately but so far, it does not seem to be affecting their actions or plans.
The Fed does not directly set mortgage rates but what they do with their benchmark rate will influence the economy and mortgage rates. It could be that the predictions of continued increases in mortgage rates may prove to be true.
Home Builder Confidence Increases
Builder confidence in the market for newly-built single-family homes rose one point to 68 in October on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Builder confidence levels have held in the high 60s since June.
NAHB Chairman Randy Noel said:
Builders are motivated by solid housing demand, fueled by a growing economy and a generational low for unemployment. Builders are also relieved that lumber prices have declined for three straight months from elevated levels earlier this summer, but they need to manage supply-side costs to keep home prices affordable.
NAHB Chief Economist Robert Dietz said:
Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases. Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019.
Again we hear about the issue of affordability. Imagine IF we were seeing more affordable homes being built…
Affordability Better in the Country?
The nation’s worsening housing affordability challenge is, perhaps not surprisingly, largely centered in the country’s urban centers, where housing costs are high and incomes are more disparate. But those seeking respite in the nation’s stalwart, sprawling suburbs may be surprised to find little relief there, either.
Instead, it’s the country’s rural heartland that tends to offer the best housing bargains.
A renter household in an urban area earning the median U.S. household income should expect to pay 36.8 percent of their income on rent each month. In the suburbs, that falls to 31.8 percent; and in rural areas to 23.9 percent.
A home buyer looking to purchase the median-valued home in an urban area should expect to pay 26.5 percent of their income on a mortgage payment each month. In the suburbs and rural areas, that falls to 20.2 percent and 13.4 percent, respectively.
A great example of why many people are looking to places like Anderson. Every place will have it’s positive and negative BUT when you consider everything, our area beats many other places to call home.
High Home Prices and the Economy
From The Urban Institute:
House prices in the US today are higher than they were in 2006, the year the housing market started to collapse. But today’s high prices don’t make the market vulnerable to a similarly severe downturn because these prices are mostly the result of unmet demand caused by inadequate supply.
Today, we are not building the housing we need to build. In 2006, high home prices were caused by easy access to credit, which encouraged speculation, fueling demand and overinflating prices.
But even though a housing-fueled economic crisis is not imminent, high home prices do have significant impacts on the larger economy.
So what can we expect as a result of high home prices? 4 things according to the the Urban Institute:
- Increased Rent Burden
- Reduced Demand for Consumer Goods
- People Cannot Afford to Move
- Wealth Inequality Worsens
Does not sound good but there is no denying that homes have become too expensive for many. An increased burden from rents will hurt people from saving and becoming home owners.
Our economy is largely based on people buying crap so any decrease in demand for consumer goods is bad for the economy. And people being unable to move will hurt employers as well as home owners since some people will not be able to relocate for a new job.
And anything that makes wealth inequality worse may lead to more political division or even civil unrest…
Consumer Credit Default Rate Improves
The composite rate was five basis points lower than last month, at 0.82%. The bank card default rate dropped 38 basis points to 3.14%. The auto loan default rate decreased eight basis points to 0.89%. The first mortgage default rate was down two basis points, to 0.63%.
While we are mainly concerned about the default rate for mortgage, we also need to stay aware of all default rates. If people are not able to pay one bill, it wont be long until they are unable to pay their mortgage.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, said:
Consumer credit default rates for mortgages and auto loans are stable, while default rates for bank cards declined modestly in the last few months. With the low unemployment rate and some improvement on wage gains, consumers are not facing rising economic pressure. The favorable income situation combined with auto and home sales that have drifted down since late 2017 led to the current good consumer credit default pattern. Soft retail sales growth contributed to improvements in the bank card default picture.
A very good sign for the economy!
Highlights from the NY Fed’s October 2018 Economy in a Snapshot Report:
The pace of growth in real consumer spending was firm in August, but it was still somewhat below that of recent months. As was the case in July, the increase in spending for August was led by services and nondurable goods expenditures.
Housing activity indicators remained soft in August. Home price appreciation, which had remained solid in earlier in the year, slowed some in the most recent readings. These patterns suggest that higher mortgage rates have had moderate restraining effects on the housing market.
Payroll growth was below expectations in September, but was revised significantly upward for both July and August. The unemployment rate fell to its lowest level since 1969. The latest readings of various measures of labor compensation point to some firming of wage growth.
Core PCE inflation continued to run at a level roughly consistent with the FOMC’s longer-run objective.
Soft housing is not good but not surprising given rising home prices and mortgage rates combined with low inventory. Inflation running at the FOMS’s target means we should expect the Fed to keep increasing their benchmark interest rate…
Ready, Set, Tap That Equity?
A surge in home equity borrowing may soon be on the horizon. A major reason for expected growth in home equity borrowing is the fact that household home equity, currently nearing $15 trillion, has surpassed its prior “housing bubble” peak in Q1 2006 by over $1 trillion. Home equity is the difference between a home’s fair market value and the outstanding balance of all liens on the property.
Joe Mellman, senior vice president and mortgage business leader at TransUnion, said:
There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster. Increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that.
The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education. We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.
I am glad that Mellman mentions that consumers need to be educated about using the equity in their home in a sensible manner. The equity in your home is NOT an ATM to be abused!
American’s Opinion of the Economy
Americans’ evaluations of current U.S. economic conditions and the economy’s trajectory have not been more upbeat since 2000. Currently, 54% of Americans rate economic conditions as “excellent” or “good,” and just 12% as “poor.” Also, by 57% to 34%, more Americans say the economy is getting better than say it is getting worse.
Great news but will this turn into more home sales or economic growth?
Drug Testing Our Elected Officials
A new Rasmussen Reports national telephone and online survey finds that 65% of Likely U.S. Voters favor testing lawmakers in their state for illegal drugs. Twenty-six percent (26%) are opposed.
I would say that not just our lawmakers but every government employee, including government contractors, should be tested. With some people pushing to test anyone receiving government assistance, why not test anyone getting paid by the government?
Well that is all for today! If you have any questions about real estate in the Anderson area, please Contact Me!