Talking about what renters can expect in 2017, the Fed used a 4 letter word, housing finance and predictions about housing starts and home sales, foreclosures and more…
For this week, total U.S. weekly rail traffic was up 6.8% compared with the same week last year. Total carloads for the week ending February 18 was up 7.6% compared with the same week in 2016, while U.S. weekly intermodal volume was up 6% compared to 2016.
More newly built apartments are likely to become available in 2017 than in 2016, given the amount of building that’s been under way over the last few years. But it won’t be much easier to find an affordable apartment to rent this year in most areas.
Construction of multifamily apartment properties is at its highest level in 30 years, and will remain elevated in many areas across the country in 2017. However, demand continues to grow quickly. At the end of 2016, 36.3% of U.S. households were renters, the most in about 50 years. And positive economic conditions will lead more people to form their own households, with the majority becoming renters. As a result, vacancies will remain lower than historical averages.
That’s why our forecast is for rents to keep rising in many markets this year, although more slowly than in recent years.
Another year of increasing rents. While increasing rents may motivate some to buy a home, it may also make it harder for others to save money so they can buy a home.
Highlights from the latest FOMC Minutes (emphasis is mine):
In the U.S. economic projection prepared by the staff for this FOMC meeting, the near-term forecast was little changed from the December meeting. Real GDP growth in the fourth quarter of last year was estimated to have been a little faster than the staff had expected in December, and the pace of economic growth in the first half of this year was projected to be essentially the same as in the fourth quarter. The staff’s forecast for real GDP growth over the next several years was little changed. The staff continued to project that real GDP would expand at a modestly faster pace than potential output in 2017 through 2019. The unemployment rate was forecast to edge down gradually through the end of 2019 and to run below the staff’s estimate of its longer-run natural rate; the path for the unemployment rate was little changed from the previous projection.
The staff’s forecast for consumer price inflation was unchanged on balance. The staff continued to project that inflation would increase over the next several years, as food and energy prices, along with the prices of non-energy imports, were expected to begin steadily rising either this year or next. However, inflation was projected to be marginally below the Committee’s longer run objective of 2 percent in 2019.
In their discussion of the economic situation and the outlook, meeting participants agreed that information received over the intermeeting period indicated that the labor market had continued to strengthen and that economic activity had continued to expand at a moderate pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household spending had continued to rise moderately, while business fixed investment had remained soft. Measures of consumer and business sentiment had improved of late. Inflation had increased in recent quarters but was still below the Committee’s 2 percent longer run objective. Market-based measures of inflation compensation remained low; most survey-based measures of inflation compensation were little changed on balance.
Recent indicators of activity in the housing sector were generally positive. Starts and permits for single-family housing and sales of existing homes rose moderately in the fourth quarter, and real residential investment bounced back after two quarterly declines. A couple of participants commented that supply constraints might be holding back new homebuilding. In addition, a few participants noted that prospects for residential investment would also depend on whether household formation picked up and how housing market activity responded to the recent rise in mortgage interest rates.
Participants generally characterized their economic forecasts and their judgments about monetary policy as little changed since the December meeting. Against this backdrop, they thought it appropriate to maintain the target range for the federal funds rate at ½ to ¾ percent at this meeting.
In discussing the outlook for monetary policy over the period ahead, many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee’s maximum-employment and inflation objectives increased.
So for now, the Fed is leaving their benchmark rate unchanged. But they used a 4 letter word. And that word is “soon”…
A Glance at Housing Finance at a Glance
A few tidbits from the February 2017 Housing Finance at a Glance report from the Urban Institute:
Access to credit has become extremely tight, especially for borrowers with low FICO scores. The mean and median FICO scores on new originations have both drifted up about 33 and 35 points over the last decade. The 10th percentile of FICO scores, which represents the lower bound of creditworthiness needed to qualify for a mortgage, stood at 648 as of November 2016. Prior to the housing crisis, this threshold held steady in the low 600s. LTV levels at origination remain relatively high, averaging 87, which reflects the large number of FHA purchase originations.
There are many more charts and information in this report and I suggest you check it out for details about how the U.S. housing market and financing is performing.
Wells Fargo has placed the executive in charge of its Los Angeles County home-lending operation on leave amid an internal investigation of its mortgage fee practices.
Last month, ProPublica reported that Wells Fargo had improperly charged customers to extend their promised interest rate when their mortgage paperwork was delayed, according to former bank employees. The ex-employees said the delays were usually the bank’s fault but that management forced them to blame the customers. For the customer, the fees could run from $1,000 to $1,500 or more, depending on the size of the loan.
Has a scapegoat has been found? Did higher ups at Wells Fargo know about this?
President Donald Trump’s immigration policies threaten to crack a foundation of the American economy: the residential real estate market. Legal and otherwise, immigrants, long a pillar of growth in homebuying, are no longer feeling the warm welcome and optimism necessary for their biggest purchase.
Something to think about…
Builders and developers continue to report easing credit conditions for acquisition, development, and construction (AD&C) loans according to NAHB’s survey on AD&C Financing. However, the pace of easing slowed somewhat from the second quarter.
According to the NAHB survey, easing on net over the 4th quarter took place on all forms of credit with standards on single-family construction recording the greatest net percentage of easing. However, while the slowdown in the pace of easing over the quarter was evident on single-family construction loans and, to a lesser extent, land development loans, easing on net grew on land acquisition loans.
Good to hear that the lending requirements that builders and developers need so they can build much needed homes is loosening.
The Architecture Billings Index (ABI) dipped slightly into negative territory in January, after a very strong showing in December. 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 January ABI score was 49.5, down from a score of 55.6 in the previous month. This score reflects a minor decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.0, up from a reading of 57.6 the previous month.
AIA Chief Economist, Kermit Baker, Hon. AIA, PhD said:
This small decrease in activity, taking into consideration strong readings in project inquiries and new design contracts, isn’t exactly a cause for concern. The fundamentals of a sound nonresidential design and construction market persist.
While not good, also not really bad.
In the week ending February 18, the advance figure for seasonally adjusted initial claims was 244,000, an increase of 6,000 from the previous week’s revised level. The previous week’s level was revised down by 1,000 from 239,000 to 238,000. The 4-week moving average was 241,000, a decrease of 4,000 from the previous week’s revised average. This is the lowest level for this average since July 21, 1973 when it was 239,500. The previous week’s average was revised down by 250 from 245,250 to 245,000.
Remember, the 4 week moving average is the first thing to look at. So while the initial claims had a small increase, this is still a win. Not pretty but still a win.
Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.05 in January from +0.18 in December. Three of the four broad categories of indicators that make up the index decreased from December, and two of the four categories made negative contributions to the index in January.
Ouch. Not good but hopefully just a blip.
- Delinquencies improved by 3.9% from December and were down 17% from January 2016
- Prepayment speeds (historically a good indicator of refinance activity) declined by 30%
- Foreclosure starts rose 18% in January to the highest level since March 2016
Good news other than the increase in foreclosure starts. This is a national report and does not reflect what is happening in every local real estate market.
If you are thinking about buying a foreclosure because you want a great deal, remember that not every foreclosure is a great deal.
The U.S. housing market will rise steadily and contribute significantly to economic growth in the coming year, according to a majority of analysts in a Reuters poll who nearly all agreed that further stimulus was not required. Steady turnover will drive home prices to rise at almost double the current rate of expected underlying consumer inflation and wages over the next few years, according to the survey conducted Feb 16-23. The S&P/Case-Shiller composite index of prices in 20 metropolitan areas is forecast to rise 4.9 percent in 2017 and 4.0 percent next year, according to the poll of about 30 analysts.
I don’t own a crystal ball or even a Magic 8 Ball but I will predict that unless something really bad happens, U.S. home prices will continue to grow.
And mortgage rates will also continue to rise in 2017.
So if it makes sense for you to buy a home, you should get your butt in gear.
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