Discussing home prices versus construction costs, housing credit availability decreases, Ellie Mae on mortgages, economically distressed communities and more!
Where Have Home Values Detached From Construction Costs?
In the expensive U.S. coastal metros, home prices have detached from construction costs and can be almost four times as high as the cost of rebuilding existing structures. However, absent restrictions on housing supply, competition among developers tends to maintain average metropolitan home prices tethered to the cost of construction.
The disparity between the appearance of homes and their price tags is more than a home buyer’s gripe: it is a telltale indication of restricted housing supply. Such restrictions – rules governing land use, installed by incumbent residents or their predecessors – are exclusionary by nature and amount to the gating of access to opportunity.
Prices, including home prices, should follow the normal economic rule of supply and demand. High demand combined with the decrease in construction after the housing market crash have caused homes to become hard for many to afford in some areas.
Lack of affordable housing limits economic growth. Plus, it can have negative consequences on the quality of life for many.
We must work to ensure that regulations do not cause unnecessary cost increases to home building while still protecting the environment. Common sense must be our guiding principle when it comes to regulations.
Housing Credit Availability Decreases
From Urban Institute:
The Housing Finance Policy Center’s latest credit availability index (HCAI) shows that mortgage credit availability declined to 5.1 in the second quarter of 2017 (Q2 2017), after reaching a recent peak of 5.4 in Q1 2017. This decline was mostly driven by a shift in market composition, with the government channel losing market share to the portfolio channel, where lending standards are tighter. In the meantime, credit continued to expand within the GSE and government channels, thanks to higher interest rates and lower refinance volumes.
The HCAI measures the share of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.
Do not let this discourage you from talking to a lender about buying a home. This is just a small change due to more buyers using mortgages other than government loans such as FHA.
Plusr, I have more data for you to consider…
Ellie Mae on Mortgages in September 2017
From Ellie Mae:
Closing time for all loans increased to 43 days in September, up from 42 in August. Time to close a refinance decreased to 40 days, and time to close a purchase loan increased to 44 days.
The average 30-year rate for all loans decreased to 4.210 in September, the lowest rate in 2017.
Closing rates for all loans decreased slightly to 71.6 percent, closing rates on refinances increased to 64.8 percent, and closing rates on purchases decreased to 76.4 percent in September.
69 percent of all closed loans had FICO scores over 700. 70 percent of purchase loans had FICO scores over 700. 67 percent of refinances had FICO scores over 700.
The average FICO score on all closed loans remained steady for the fourth straight month at 724 in September.
The average FHA purchase FICO score decreased to 682 in September. FHA refinance FICO scores remained steady at 649. Conventional refinance FICO scores increased to 731, and purchase FICO scores remained steady at 752.
Remember these statistics are averages and may not reflect what is possible or realistic for you. You need to speak with the lender of your choice to find out what your mortgage options are.
Architecture Billings Index Decreases
After seven months of steady growth in the demand for design services, the Architecture Billings Index (ABI) paused in September. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the September ABI score was 49.1, down from a score of 53.7 in the previous month. This score reflects a slight decrease in design services provided by U.S. architecture firms (any score above 50 indicates an increase in billings).
Kermit Baker, AIA Chief Economist, said:
We’ve seen unexpectedly strong numbers in design activity for most of 2017, so the pause in September should be viewed in that context. Project inquiries and new design contracts remain healthy, and the continued strength in most sectors and regions indicates stability industry-wide.
I agree with Baker that this is only 1 month and that we have seen strong numbers in 2017.
You may have read the term “distressed properties” at some point. That refers to properties that are either foreclosed or delinquent on their mortgage or a short sale property. It varies but anyway…
Distressed communities refers to the vitality of a community and the Economic Innovation Group has just released their latest Distressed Communities Index. This report looks at the American economic experience in different areas around the country.
The disconnect between national trends and local realities for so many Americans underscores the need for policymakers to grapple with the profound effect of place on an individual’s life outcomes and access to opportunity. Years into a steady economic expansion, it is all too easy to look at a low unemployment rate or record stock market gains and conclude that the tide is rising everywhere. As we will see, hidden beneath the national numbers is a deeply fragmented landscape of economic well-being—one in which far too many communities are being left behind.
Let’s look at a few of the findings:
The Economic Well-Being of American Communities
The South contains more than half of the country’s population living in distressed zip codes:
As someone born, raised and living in the South, this is unacceptable. Check out these maps showing how various communities across the U.S. are doing:
The Deepening of Geographic Disparities
The Physical and Social Costs of Economic Distress
As you can see, many communities need improvements. The costs of not caring is too great.
While there will always be those that cannot be helped, we need to ensure that any American willing to work to improve their life has the tools and resources to help themselves. For those that are tragically unable to improve their lives, we need to ensure they are not forgotten.
This is something our elected officials need to be working on!
Rail Traffic Increases
The AAR just reported that for the week ending October 14th, total U.S. weekly rail traffic was up 3.1% compared with the same week last year. Total carloads for the week were up 0.5% compared with the same week in 2016, while U.S. weekly intermodal volume was up 5.5% compared to 2016.
Highlights from the Fed’s Latest Beige Book
From the Federal Reserve:
Reports from all 12 Federal Reserve Districts indicated that economic activity increased in September through early October, with the pace of growth split between modest and moderate. The Richmond, Atlanta, and Dallas Districts reported major disruptions from Hurricanes Harvey and Irma in some areas and sectors, including transportation, energy, and agriculture. Manufacturing activity and nonfinancial services expanded modestly to moderately in most Districts. Retail spending rose slowly, while vehicle sales and tourism increased in most Districts. Residential construction continued to increase, and growth in commercial construction was up slightly on balance. Low home inventory levels continued to constrain residential sales in many areas, while nonresidential real estate activity increased slightly overall.
Employment growth was modest on balance, with most Districts reporting flat to moderate increases. Labor markets were widely described as tight. Many Districts noted that employers were having difficulty finding qualified workers, particularly in construction, transportation, skilled manufacturing, and some health care and service positions. These shortages were also restraining business growth. Despite widespread labor tightness, the majority of Districts reported only modest to moderate wage pressures.
Nothing really ground breaking or unexpected. The lack of strong wage growth still concerns me as we need healthy incomes for ALL Americans to have a robust housing market and economy.
Tax Reform, the Mortgage Interest Deduction and Housing
Steve Mnuchin, Treasury Secretary just said in Politico:
There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done. To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.
Mnuchin also said that Trump will sign a tax bill by the end of the year. We will have to wait and worry about what changes will be made.
Especially since attacks on the Mortgage Interest Deduction are once again rearing their ugly head…
We have been hearing about tax reform for quite some time now. Exactly what it turns out to be or what tax reform means varies on who you ask. Some will want to cut the taxes of the wealthy so we can try trickle down BS once again. Others want to cut taxes for everyone because they must know about a forest of trees that have dollar bills instead of leaves…
As a Realtor and home owner with a mortgage, I am concerned about the Mortgage Interest Deduction. Today, homeowners are allowed a deduction for the interest that is paid on a mortgage. Most Americans use the standard deduction so whether or not the elimination of the Mortgage Interest Deduction actually hurts home owners remains to be seen.
NAR has said that since home owners pay 80 to 90 percent of all federal income taxes, it would be unfair to increase the tax burden on them. They also said that home owners with incomes from $50,000 to $200,000 would see their average tax increase of $815 but non-homeowners in the same income range would have their average annual tax decrease of $516.
Obviously, punishing home owners is not good or fair. Some would say that non-homeowners pay increased taxes indirectly through their rent.
The social benefits of home ownership to America is well known. It helps community stability, community involvement and improves the quality of life for home owners. Plus the wealth building effect of owning a home cannot be denied.
Tax reform is important but we need to make sure it does not cause any harm to the housing market. I am not sure that if the Mortgage Interest Deduction is eliminated it will mean fewer people will buy homes or that home values will decrease. NAR says so but I am not 100% sold on this…
Owning a home is a part of the American Dream and we need to be careful that tax reform does not change this.
Mortgage Delinquencies Increase for First Time in 7 Years
Mortgage delinquencies increased for the first time in 7 years according to Black Knight’s latest First Look Mortgage Report. Much of this increase is more fallout from the hurricanes according to Black Knight.
The good news is that foreclosure starts are at the lowest level in 17 years!
Check out the chart:
Remember these statistics are talking about the entire U.S. and not just Anderson County SC!
Jobless Claims Decrease to Lowest Level in 44 Years
From the Department of Labor:
In the week ending October 14, the advance figure for seasonally adjusted initial claims was 222,000, a decrease of 22,000 from the previous week’s revised level. This is the lowest level for initial claims since March 31, 1973 when it was 222,000. The previous week’s level was revised up by 1,000 from 243,000 to 244,000. The 4-week moving average was 248,250, a decrease of 9,500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 257,500 to 257,750.
Great news but the numbers may be off because people are unable to make claims in areas that were affected by the hurricanes.
Check out the chart showing the 4 week moving average:
So much better than where we were but we still need stronger income growth…
The Conference Board Leading Economic Index Decreased
From the Conference Board:
The Conference Board Leading Economic Index® (LEI)for the U.S. declined 0.2 percent in September to 128.6 (2010 = 100), following a 0.4 percent increase in August, and a 0.3 percent increase in July.
Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board said:
The US LEI declined slightly in September for the first time in the last twelve months, partly a result of the temporary impact of the recent hurricanes. The source of weakness was concentrated in labor markets and residential construction, while the majority of the LEI components continued to contribute positively. Despite September’s decline, the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year.
Yet another report that was affected by the hurricanes. Which drives home that we must always hope for the best but plan for the worst. We never know when a man made or natural disaster will muck up the economy…
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