Discussing increasing commercial lending, home ownership and wealth building, home equity, income inequality, real estate is booming and much more!
Commercial/Multifamily Borrowing Up 21 Percent Year-over-Year
From the Mortgage Bankers Association:
According to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, third quarter 2017 commercial and multifamily mortgage loan originations were 21 percent higher than during the same period last year and 8 percent higher than the second quarter of 2017.
Good news despite the number of sales transactions decreased according to Jamie Woodwell, MBA Vice President of Commercial Real Estate Research.
1 in 5 Households Have Zero or Negative Wealth
Interesting snippets from a report from the Institute for Policy Studies:
Over recent decades, an incredibly disproportionate share of America’s income and wealth gains has flowed to the top of our economic spectrum. Americans at the other end of our economic spectrum, meanwhile, watch their wages stagnate and savings dwindle.
The three wealthiest people in the United States — Bill Gates, Jeff Bezos, and Warren Buffett — now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households.
America’s top 25 billionaires — a group the size of a major league baseball team’s active roster — together hold $1 trillion in wealth. These 25 have as much wealth as 56 percent of the population, a total 178 million people or 70 million households.
The billionaires who make up the full Forbes 400 list now own more wealth than the bottom 64 percent of the U.S. population, an estimated 80 million households or 204 million people.
One in five U.S households, over 19 percent, have zero or negative net worth. “Underwater households” make up an even higher share of households of color. Over 30 percent of black households and 27 percent of Latino households have zero or negative net worth to fall back on.
They go on to point out that whether or not someone owns a home makes a dramatic difference in their wealth. The study authors seem to think the Mortgage Interest Deduction causes much of the difference between home owners and renters.
Since lots of home owners don’t use the Mortgage Interest Deduction, I doubt this to be the cause. Home ownership simply helps people to build wealth, regardless of whether or not they take advantage of all the tax deductions.
Home Equity Wealth at New High
The latest flow-of-funds data from the Federal Reserve confirmed that home-equity wealth reached a new nominal high this year: $13.9 trillion at mid-2017, $0.5 trillion above the 2006 peak and more than double the $6.0 trillion amount at the trough of the Great Recession. While several factors will affect aggregate home equity, it’s clear that much of the recovery in home-equity wealth is due to the rebound in home values: The S&P CoreLogic Case-Shiller Index for the U.S. was up 40 percent (seasonally adjusted) through June from its February 2012 nadir.
Much of the increase in equity wealth is due to the increases in home prices. Owning a home is a smart move for many reasons…
Why Owning a Home Is Financially Smart
I am glad to report that the number of home owners has increased from the low level after the housing market crashed. Let’s look at some of the reasons that owning a home is a financially smart move:
Owning a home forces you to save money. Paying your mortgage each month allows you to build equity in your home and create wealth. Whether you rent or own, you are paying someone’s mortgage.
You might as well be paying your mortgage instead of making your landlord rich. When you rent, your landlord is the person building wealth!
When you own a home, your monthly housing cost is fixed. When you use a fixed-rate mortgage, you freeze your regular monthly housing expense. The value of your property will keep increasing with inflation, but your monthly housing expense stays the same.
You cannot say this if you are renting since your rent will increase every time you renew your lease!
Based on the latest report from Trulia, purchasing a house is less expensive than renting! It is 37.4% cheaper to buy a home than to rent in the US.
No other investment lets you live in it! You can invest in gold or the stock market, but you’ll still have to live somewhere. When you invest in the stock market, you have to constantly wonder about your investment suddenly disappearing.
When you own your home, you can sleep soundly knowing your investment is increasing in value while giving you a place to live!
How the American Dream Turned Into Greed and Inequality
From the World Economic Forum:
Social mobility has declined over the past decades, median wages have stagnated and today’s young generation is the first in modern history expected to be poorer than their parents. The lottery of life – the postcode where you were born – can account for up to two thirds of the wealth an individual generates. It is a symptom of policy negligence, where for decades, credit and monetary stimulus shortcuts too easily substituted for structural reform, investment and economic strategy.
There are two ways we think the world may exit this loop of rising inequality, political polarisation and short-sighted politics. One is to make the poor richer through education and investment. The other is to make the rich poorer.
We need a new American dream based on equality and sustainable growth. The cost of sharing opportunity and wealth may be high for today’s elites, but the alternative is far worse.
Doing something to correct the inequality issue may prove to be very hard. There is such a huge problem with the political environment in America that making any changes is very difficult.
Especially changes that benefit the average American instead of the ultra wealthy…
The ugly but honest truth is it is up to you to improve your life if you are unhappy about it. We cannot rely on the government to solve all of our problems.
I just discussed the way that owning a home help to create wealth. Which is something to consider if you are not happy about your personal financial situation…
10 Years After the Recession, Boom Times Are Back in Real Estate
As anniversaries go, it’s a nerve-racking but inescapable one: It’s been 10 long years since the widespread real estate crash that precipitated the Great Recession, and all the misery that followed in its wake. So it seems like the perfect time to take a giant step back, peruse and analyze all of the data, and assess what has really happened to the American housing market in the decade since.
Danielle Hale, chief economist for realtor.com said:
As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash. It was rising prices stoked by subprime and low-documentation mortgages, as well as people looking for short-term gains—versus today’s truer market vitality—that created the environment for the crash.
Thank goodness we are not repeating the mistakes of the past with crazy loose lending standards! Realtor.com went on to say:
Today’s housing market is characterized by a significant mismatch between significant job and household growth (the factors that spur people to buy homes) and much tighter lending standards and historically low for-sale inventory (the factors that make it difficult for people to buy new homes). The result: extremely high home prices and a lot of frustrated buyers.
I will admit that we do have a shortage of inventory in some price ranges in the Anderson area. Having a pre-approval letter and working with an experienced Realtor is the key for success when buying a home!
You may be discouraged by the stories of the tighter lending standards but actually, you have nothing to lose and everything to gain by talking to a lender. Plus, many of the changes in mortgages were made to protect consumers so you can feel assured you are not being screwed.
Consumers Optimistic About Their Financial Situation
From the NY Fed’s latest Survey of Consumer Expectations:
- Median inflation increased slightly at the one-year horizon to 2.6%
- Median home price change expectations were unchanged at 3.0%
- Median one-year ahead earnings growth expectations decreased to 2.1%
- 40.9% of respondents expecting to be better off financially in a year
Nothing too outrageous or unrealistic. Of course, we still do not know what tax changes ( if any) will be made and how that will affect the economy.
That is it for today! Please share and subscribe!