Real estate housing and economic news round up for October 25 2016…
Sic’ Em: DOJ Planning to Sue Moody’s Over Crisis Era Mortgage Bond Ratings
In the fallout of the financial crisis, many argued that the credit ratings agencies’ competition for business led to ratings shopping among bond issuers and relaxed ratings standards for the ratings agencies themselves.
Last year, Standard & Poor’s reached a settlement with the Department of Justice and nearly 20 states, which required S&P to pay $1.375 billion over claims that S&P knowingly misled mortgage bond investors by issuing trumped-up ratings for pre-crisis residential mortgage-backed securities.
That same day reports emerged that the DOJ was planning to look into the mortgage bond ratings activities of Moody’s Investor Service during the run-up to the financial crisis as well.
Now those chickens appear to be coming home to roost for Moody’s, as the company disclosed Friday that it is expecting a lawsuit from the DOJ over the ratings it issued for residential mortgage-backed securities and collateralized debt obligations before the crisis.
I am sure this will lead to yet another settlement BUT no one getting to play soap on a rope in the showers with their cellmate.
And that is why we cannot expect the behavior of the banks, Wall Street or the financial firms to change.
What Happened to America?
Disturbing stuff from article I just read:
The United States is supposed to be a land of opportunity where young people can expect their quality of life will be better than their parents’. But the U.S. isn’t even in the top 20 countries when it comes to opportunities for young people.
The United States is supposed to be a land of opportunity where young people can expect their quality of life will be better than their parents’. The U.S. ranks 23 on a list of 183 countries based on 18 indicators that measure progress for youth ages 15 to 29. Eight of the top 10 countries are in Europe, plus Australia and Japan.
The U.S. doesn’t even rank in the top 20 on an index of youth development in 183 countries by the Commonwealth Secretariat.
Where did we go wrong? This did not happen overnight and sadly, there are not any quick fixes.
US Manufacturers Record Strongest Upturn in Business Conditions for 12 Months
October data signaled that U.S. manufacturers started the fourth quarter in a strong fashion, with output and new order volumes rising at markedly faster rates than in September. A rebound in business conditions contributed to greater input buying among manufacturing firms and renewed pressures on capacity. At the same time, manufacturers sought to boost their stocks of inputs, with pre-production inventories rising for the first time since November 2015.
The Important Stuff:
- Output and new order growth hit one-year peaks
- Manufacturers report fastest expansion of input buying since June 2015
- Manufacturing production has increased for five months running
Check out the chart from Markit showing Manufacturing PMI:
Awesome news. Let’s just hope it continues!
Construction Employment Rises in 35 States
The AGC just reported that 35 states added construction jobs between September 2015 and September 2016 while construction employment increased in only 21 states and the District of Columbia between August and September.
Ken Simonson, chief economist for the AGC said:
The list of states that are adding construction jobs has been shrinking, yet contractors generally report they are busy now and optimistic about the workload ahead. Therefore, the lack of employment increases in many states may reflect the difficulty contractors say they are having in finding qualified workers.
This is both good news and bad news.
It is good that construction employment increased.
It is bad that contractors are having trouble finding qualified workers. These would be good paying jobs and could lead to more homes being built OR much needed work and improvements on our infrastructure.
Fannie Improves Mortgage Underwriting
Fannie Mae just announced that it has launched the Day 1 Certainty program that is supposed to streamline its underwriting on mortgages for some borrowers. Fannie will also waive its property inspection requirement when refinancing a mortgage.
It uses electronic data instead of physical proof of their income, assets and employment. The program will shield lenders against penalties stemming from faulty appraisals as long as those evaluations pass muster under an automated tool designed by Fannie Mae to root out mistakes.
Whether or not this will translate into more people being able to get a mortgage is unknown. Only time will tell if this is good for consumers or only for the lenders…
Find out more at Day 1 Certainty
The Return of Flipping Houses Could Be a Good Thing
From Miami Herald:
The number of flipped houses is at a six-year high. But while such rapid turnover helped fuel the housing crisis a decade ago, advocates and analysts say the current wave is helping to ease a shortage of affordable housing in some parts of the country.
The resurgence of flipping, or selling a house less than a year after buying it, comes as the construction of affordable single-family houses fails to keep up with demand, as builders concentrate on multi-family housing.
Sometimes, flippers get a bad rap. But the truth is, people that flip houses are helping by taking homes that are not habitable and improving them.
Sure they make money doing it. But everyone deserves to be paid for their work.
By rehabbing or flipping homes, the community and the values of the surrounding homes is improved.
Just What is Normal in Housing Anymore?
Consider this quote from Mel Watt FHFA Director:
Over the almost three years since I became the Director of FHFA, I’ve spent a lot of time wondering whether we’ll ever get to a “new normal” in the housing market and, if so, what the “new normal” will look like going forward. I don’t think anyone would dispute that the financial crisis changed lots of things in the housing market.
These changes are real, and they have been felt by everyone in the housing sector – realtors, brokers, appraisers, lenders, servicers, insurers, borrowers and renters, and, of course, Fannie Mae and Freddie Mac. Some of these changes have been obvious, and some have been subtle. But all of them have culminated in a very different landscape compared to what was ‘normal’ pre-crisis.
There is no doubt that things are much different than they were before the housing market crashed.
I am not wanting to repeat some the mistakes of the past but it does concern me that the number of home owners has decreased since the bust.
Watt went on in his speech to talk about how FHFA is going to work on improving some of the problem areas in housing. When the government says they are going to help, 3 things can happen:
- They improve the situation
- They make thing worse
- They waste craploads of tax payer money
Does Student Loan Debt Have a Silver Lining?
As college costs have skyrocketed, students and their families have taken on debt to make up the difference. Many studies have pointed out that the increasing student debt has created a financial burden on millennials and postponed their homebuying decisions. Few addressed the effect of student loan debt on millennials’ creditworthiness.
Renters with student loan debt have higher average credit scores than those without; and those with higher debt amounts have higher average credit scores than those with lower student loan debt amounts.
Despite the fact that student loan debt has grown into the nation’s second largest consumer debt, following mortgage, and has created a significant financial burden for millennials, it does not appear to prevent millennials from accessing credit.
Yes, it is possible that some (many?) will be forced to delay buying a home.
But getting an education, making more money and having higher credit scores could be a silver lining.
Delayed Fines for Mortgage Misdeeds?
From Sky News:
Sky News has learnt that Department of Justice (DoJ) representatives have signalled in recent days that the imposition of penalties on Barclays, Credit Suisse and Deutsche Bank may not be concluded until closer to the arrival of the new US administration in January.
So why delay the fines until after the election?
The article doesn’t say and makes me wonder if the fines will be nothing but another light slap on the wrist for the big banks.
Foreclosure Rate Falls to 9 Year Low
From Black Knight:
Awesome news. I know some buyers think they can only get a good deal if they buy a foreclosure but this simply is not true.
The key to getting the best deal is having an experienced Buyers Agent in your corner!
Gallup Economic Confidence Index Still Low
Americans’ confidence in the economy remained steady last week, as it has for the past three months.
Americans remain relatively pessimistic about the U.S. economy, with Gallup’s U.S. Economic Confidence Index at -12 for the week ending Oct. 23. This score is essentially the same as its previous reading of -10.
The Gallup Economic Confidence Index has been stuck in low gear for almost a year now.
The Conference Board Consumer Confidence Index Decreased
From The Conference Board:
The Conference Board Consumer Confidence Index, which had increased in September, declined in October. The Index now stands at 98.6, down from 103.5 in September. The Present Situation Index decreased from 127.9 to 120.6, while the Expectations Index declined from 87.2 last month to 83.9.
Lynn Franco, Director of Economic Indicators at The Conference Board said:
Consumer confidence retreated in October, after back-to-back monthly gains. Consumers’ assessment of current business and employment conditions softened, while optimism regarding the short-term outlook retreated somewhat. However, consumers’ expectations regarding their income prospects in the coming months were relatively unchanged. Overall, sentiment is that the economy will continue to expand in the near-term, but at a moderate pace.
With both Gallup and The Conference Board reporting low confidence, I wonder how much of this is due to upcoming election?
Will the upcoming Holiday season lift people’s spirits once the political circus is over?
Will the new year ring in with more confidence?
I hope so as it will mean more economic activity and that should translate into a healthier real estate market.
Case-Shiller Reports Home Prices Still Increasing
From S&P Dow Jones:
- The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a 5.3% annual gain in August
- The 10-City Composite posted a 4.3% annual increase
- The 20-City Composite reported a year-over-year gain of 5.1%
Remember this is NOT the local real estate market information that buyers and sellers need to make informed decisions.
FHFA House Price Index Increases
U.S. house prices rose 0.7% in August 2016 on a seasonally adjusted basis from the previous month. From August 2015 to August 2016, house prices were up 6.4%.
Check out the chart:
Again, this is national not local home prices. Still, both of these reports are good news.
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