Discussing some very impressive home price growth, tax reform and the possible negative impact on housing, rising rents and much more!
U.S. House Prices Rise 6.5%
U.S. house prices rose 1.4 percent in the third quarter of 2017 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 6.5 percent from the third quarter of 2016 to the third quarter of 2017. FHFA’s seasonally adjusted monthly index for September was up 0.3 percent from August.
Andrew Leventis, Deputy Chief Economist at FHFA:
With relatively favorable economic conditions and a continued shortage of housing supply, price increases in the third quarter were generally robust and widespread. At some point, declining housing affordability should temper appreciation rates in some of the nation’s fastest appreciating markets, but our third quarter results show few signs of that.
Quite impressive increase! This is talking about the entire US and does not tell you what is happening in every market.
In South Carolina, FHFA reported that home prices are up 7.17% annually. Since Q1 1991, they said that home prices in South Carolina have risen 133.37%!
As impressive as that is, it does not tell you what is possible or realistic with every home in South Carolina…
Tax Reform Could Hurt Housing Inventory and Increase Buyer Costs
Both tax reform proposals double the standard tax deduction, which may, in many cases, provide a greater benefit to renters than to homeowners. It may also reduce the tax incentive to purchase a home and generally make the MID less valuable to borrowers.
We’ve observed in the past that positive tax incentives can certainly impact home buying decisions – the Black Knight Home Price Index showed clear evidence of this as a result of 2008’s first-time homebuyer tax credit. However, limited data is available to examine the effects of removing an existing tax incentive on borrowers’ purchase behavior.
One thing that seems clear is that a reduction of the MID could further constrain available housing inventory, which itself has helped to push home prices even higher in many places. Almost 3 million active first-lien mortgages — current mortgage holders — have original balances exceeding $500K — the cap proposed in the House version of the tax bill. These borrowers would be exempt from the limit.
We’ve already seen signs of ‘interest rate lock’ on the market, as homeowners with low interest rate mortgages have a disincentive to sell in a rising rate environment. The question now becomes whether the proposed tax reform adds another layer of ‘tax deduction lock’ on the market. Do these homeowners now also have a disincentive to sell their home in order to keep their current interest rate deduction of up to $1 million? If so, this would potentially add new supply constraints.
We do not know what may happen if the Mortgage Interest Deduction is changed or eliminated. However, most of the experts seem to think it will bad for the housing market…
House Tax Bill Threatens to Make Housing Even Less Affordable for Poor
The House measure would eliminate a form of tax-exempt debt called private-activity bonds — and, consequently, tax credits generated by the securities — after Dec. 31, wiping out a key tool used to finance more than half of the affordable units built each year.
While the Senate’s plan doesn’t eliminate private activity bonds, or PABs, the subsidy could still be pulled when negotiators iron out the differences between the two bills. That possibility is alarming developers, housing advocates and city officials who are lobbying Republicans to keep the provision out of the final legislation.
PABs are issued by state and local governments and other public authorities to allow developers to borrow in the municipal market, where interest rates are lower because bondholders don’t have to pay taxes on the income. They’re also used by hospitals, universities and other non-profit groups, as well as by airlines and power companies.
The impact of the abolition of PABs on affordable housing is compounded because developers that finance more than 50 percent of their projects with the debt can receive income-tax credits, which they sell to investors in exchange for equity financing.
I hate that the rush to enact tax reform could lead to hurting affordable housing. While tax reform is much needed, we need to understand all of the possible negative implications to housing…
Strengthening U.S. Economy Should Empower Landlords to Raise Rents
For single-family rental home investors, a healthy local economy bodes well for the prospect of rent hikes. Buyers looking to get into the real estate investment market can still acquire properties at attractive yields. Freddie Mac’s weekly survey has shown average 30-year rates below the 4 percent threshold since mid-July. Although investors generally pay 50 to75 basis points above the owner-occupied rate, investors can secure agency loans before the Fed raises rates in December and again in early 2018. We expect three rate hikes next year, and appointed Chairman Powell sent a clear signal that rates will rise in the mid-December meeting. High equity prices and a potential bond bubble will encourage investors to consider long-term real estate acquisitions as a portfolio diversification play well into the New Year.
If you think the time for buying investment rental properties has passed, it has not. Every real estate market is different and it is imperative that you have someone on your team that understands the local market…
Such as an experienced local Realtor!
U.S. Single-Family Rents Increase 2.9 Percent Year Over Year
National single-family rent prices climbed steadily between 2010 and 2017, as measured by the CoreLogic Single-Family Rent Index (SFRI). However, the Index shows year-over-year rent growth has decelerated slowly since it peaked early last year. In September 2017, single-family rents increased 2.9 percent year over year, a 1.5-percentage point decline since the growth rate hit a high of 4.4 percent in February 2016.
Wow! Of course, home owners with a fixed rate mortgage are enjoying having the same monthly housing payment every year…
Stuck Living With Their Parents Due to Housing Shortage
From Business Insider:
In 2017, the share of millennials ages 18 to 24 living with their parents fell to a six-year low. But older millennials, ages 25 to 34, are moving out of home at a slower rate. That’s likely because more people in this group would rather buy than rent, but are increasingly unable to find affordable houses on sale.
The lack of affordable homes for sale is an issue and has been for quite some time. If you want to buy a home, you should not be discouraged.
The best thing for today’s home buyers to do is work with an experienced local buyers agent. This ensures you will know about all the homes that fit your budget BEFORE they are snatched up by another buyer.
What the Future of Work Will Mean for Jobs, Skills, and Wages
From McKinsey & Company:
The technology-driven world in which we live is a world filled with promise but also challenges. Cars that drive themselves, machines that read X-rays, and algorithms that respond to customer-service inquiries are all manifestations of powerful new forms of automation. Yet even as these technologies increase productivity and improve our lives, their use will substitute for some work activities humans currently perform—a development that has sparked much public concern.
They estimate that about 30% of work could be automated by 2030. This will mean between 400 and 800 million people will be displaced by automation and need to find new new jobs by 2030.
You need to prepare now for these dramatic shifts in the workplace and plan accordingly. As I always say, hope for the best but plan for the worst!
Moderate GDP Growth Through 2018 with Small Boost From Tax Reform
From NABE Vice President, Kevin Swift, CBE, chief economist, American Chemistry Council:
Results from the NABE December 2017 Outlook Survey show that panelists’ expectations are only slightly revised from those in the September 2017 Outlook Survey. The panel’s median forecast for average annual real gross domestic product (GDP) growth in 2017 is 2.2%, unchanged from the September survey, and is 2.5% for 2018, slightly higher than the previous forecast.
Most of the panelists expect both individual tax cuts and corporate tax reform will be enacted by the end of 2018. However, only one-third of panelists expects an infrastructure spending plan will be enacted by then. The median estimate of the impact on real GDP growth from fiscal policy changes is an increase of 0.2 percentage point in 2018.
The outlook for inflation has softened somewhat. Panelists expect that inflation, as measured by the personal consumption expenditures (PCE) price index, will increase by 1.6% from the fourth quarter of 2016 to the fourth quarter of 2017 (Q4/Q4), just below the September forecast. The Q4/Q4 median inflation forecast for 2018 has also edged downward slightly, from 1.9% in September to 1.8%.
Panelists continue to believe that a recession is unlikely in 2018. Only 7% of respondents believe the peak of the current business cycle will occur by the end of next year. The survey panel is more optimistic about the risks to the economy than it was in September. Sixty percent of panelists believe the balance of risks to the economy through 2018 is weighted to the upside, while 33% believe the risks are weighted to the downside.
Nice encouraging prediction for the economy. If GDP and inflation follow this prediction, it will be interesting to see what the Fed will do with their benchmark rate…
Politicians Side With Loan Sharks Over Consumers
A congressional resolution introduced in the House aims to repeal the CFPB’s rule on payday lending. It’s not the first CFPB rule to come under attack.
A congressional resolution introduced Friday in the House would kill the CFPB’s new rule aimed at making sure borrowers of so-called payday loans can afford to repay their debt. The House measure’s cosponsors (three Democrats and three Republicans) and the rule’s critics say it will block consumers’ access to payday loans, which are short-term, small-cash loans consumers often use when they are coming up short until their next paycheck.
The payday loan rule, not scheduled to take effect until mid-2019, would require lenders to make sure the borrower can afford to pay off the loan and still meet their daily expenses and obligations. It also would limit the number of such loans that could be made back-to-back to three per borrower.
Supporters of this change say that people that need a loan fast are being hurt by not having the ability to screw themselves with 300% interest loans. Just another example of who Washington works for…
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