Discussing the latest report on home prices, an interesting housing and economic forecast, shrinking yards, the Fed unwinding QE, consumer spending and more!
US Home Prices Hit New Peak
Black Knight just reported that according to their latest Home Price Index, U.S. home prices hit another peak. They said that home prices increased 0.24% in August and increased 6.24% Year-over-Year.
They also said that the pace of home price increases slowed. This is the five consecutive months of slowing home price growth.
Remember this is talking about the entire country. You can read more about market conditions in Anderson County SC
MBA Mortgage Purchase Originations Forecast
The Mortgage Bankers Association just announced that it expects to see $1.2 trillion in purchase mortgage originations during 2018, a 7.3 percent increase from 2017. In contrast, MBA anticipates refinance originations will decrease by 28.3 percent from 2017, to approximately $430 billion. In total, mortgage originations will decrease to $1.60 trillion in 2018 from $1.69 trillion in 2017.
Michael Fratantoni, MBA’s Chief Economist and Senior VP for Research and Industry Technology said:
We are projecting that home purchase originations will increase at a faster clip in 2018, nearly double the rate that they increased in 2017. The housing market has been hamstrung by insufficient supply, with inventories of homes remarkably low given the home price growth we have experienced. The job market remains strong, demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers, and home prices should continue to rise. All the pieces are in place for stronger growth in 2018 and beyond.
Our projection for overall economic growth is 2.0 percent for 2018, slowing slightly to 1.9 percent in 2019 and 1.8 percent in 2020. We still expect long run growth potential in the US to be somewhat lower, as productivity gains have been persistently slow.
Although inflation remains low, a tight job market is likely to increase inflationary pressures in the near term. We expect the Fed will raise rates in December 2017, 3 times in 2018, and twice in 2019. The Federal Reserve has begun reducing the its holdings of Treasury securities and mortgage backed securities, and this will put additional, modest upward pressure on mortgage rates. We expect that the 10-Year Treasury rate will stay below three percent through the end of 2018, and 30-year mortgage rates will stay below 5 percent.
We forecast that monthly job growth will average 125,000 per month in 2018, down from about 150,000 per month in 2017, and that the unemployment rate will decrease to 4.0 percent by the end of 2018.
It is nice to see the percentage of purchase originations increase but the decrease in total originations is bad.
That being said, this is a pretty encouraging forecast. Let’s hope they are correct about the good and wrong about the bad.
Is Less Grass to Cut a Good Thing?
America’s homes are getting bigger, but more space comes at a price: the backyard. New single family homes are using land relative to home size at near-record levels, even after considering the number of stories homes have.
It’s a trend that has been taking shape for much of the past three decades as lot sizes continue to shrink and home square footage continues to grow. Homes built since 2015 occupy 25% of the land on which they sit, while homes built in 1975 occupy just 13.9%.
How much of this trend is due to a shift in what consumers want versus the rising costs of lots and the limited number of available lots?
Would you sacrifice lot size for a larger home? Or would you be happy buying a home on a smaller lot than what you think is ideal IF everything else is right?
Buying a home is finding the best possible home for your budget. You have to weigh all the variables and decide what is best for you.
Federal Reserve Hesitates on QE Unwind / Balance Sheet Reduction
From The Great Recession Blog:
Is the Federal Reserve’s Great Unwind already coming unwound? I thought it would be good to check up on Federal Reserve balance sheet reduction since the Fed is supposed to be up and running on the move out of quantitative easing this month. It should be fascinating to see what progress the Fed is making as it happily applauds its own successful recovery.
So, here we are, and so far there is no reduction. It is now three years since the Fed “ended quantitative easing,” and its balance sheet is still holding around the $4.5 trillion mark where QE was supposed to end. Now that’s gradual! It’s taken three years just for the Fed to say it is going to start reducing the balance; so, let’s see how that balance sheet reduction is going for them now that it has supposedly started:
Oops. Instead of reducing its balance sheet (unwinding quantitative easing) by $10 billion this month, The Federal Reserve actually increased it by $10 billion! Yikes! Did they find they needed to start QE back up as soon as they unwound $o.001 trillion?
What will happen will happen when the Fed does start to actually reduce their holdings? As the article points out, the Fed is moving very slowly because they realize they are in uncharted territory.
With Trump about to name a new head for the Fed, we need someone that understands the gravity of situation. They have painted themselves into a corner…
U.S. Regulator Wants to Loosen Leash on Wells Fargo
A leading U.S. regulator wants to make it easier for Wells Fargo to pay employees when they leave, loosening a restriction in place since a phony accounts scandal hit the bank last year, according to people familiar with the matter.
Wells Fargo reached a $190 million settlement in September 2016 after admitting that its sales staff opened as many as 2.1 million accounts without customers’ consent. Since then the estimate has climbed to as many as 3.5 million.
As part of the deal with regulators, incoming Wells Fargo executives can face a vetting from the OCC while severance payouts must be cleared by the OCC and a sister agency, the Federal Deposit Insurance Corporation.
I say no. I realize this may punish innocent people. We need to ensure that those guilty of wrong doing receive what they deserve and do not get what they do not deserve…
Consumer Spending Increases at Fastest Pace Since 2009
Personal income increased $66.9 billion (0.4 percent) in September according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $53.0 billion (0.4 percent) and personal consumption expenditures (PCE) increased $136.0 billion (1.0 percent).
Real DPI decreased less than 0.1 percent in September and Real PCE increased 0.6 percent. The PCE price index increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
The bad news is that consumer saving dropped to the lowest level since 2008. Spending more than you may is never a good idea…
Treasury Plans to Weaken Capital Rules Has Real Economic Costs
From American Banker:
In the wake of the financial crisis, new regulations on bank capital and stress tests strengthened the ability of the major U.S. financial institutions to withstand shocks. The Trump administration’s plans to weaken capital requirements threaten to undo these gains. If they go forward, the financial system could again be dangerously vulnerable.
I know some will discount this simply because it is critical of something the Trump administration is working on.
And others will agree with this article for the same reason…
But for those that can think about this article with an open mind that is unencumbered by political brainwashing, please read it.
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