Discussing construction spending, mortgage rates, rising rates do not mean home prices will fall and much more
Construction Spending Up
From Census Bureau:
Construction spending during January 2018 was nearly the same as the revised December 2017 estimate. The January figure is 3.2% above the January 2017 estimate.
Spending on private construction during January 2018 was 0.5% below the revised December 2017 estimate. Residential construction in January 2018 was 0.3% above the revised December estimate and 4.2% above the January 2017 level.
While we still are not where we need to be, we are seeing seeing slow steady improvement. Sadly, the slow and steady improvement appears to be too slow to keep up with the demand for homes!
Time to check the latest reports on mortgage rates!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 4.43% with an average 0.5 point
- This is up from last week when it averaged 4.40%
- Last year at this time, 30-year fixed-rate mortgages averaged 4.10%
- 15-year fixed-rate mortgages averaged 3.90% with an average 0.5 point
- This is up from last week when it averaged 3.85%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.32%
Len Kiefer, Deputy Chief Economist, said:
Optimistic testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell sent Treasury yields higher as Powell stated his outlook for the economy has strengthened since December. Following Treasurys, the 30-year fixed mortgage rate jumped 3 basis points to reach 4.43 percent in this week’s survey. The 30-year rate has been on a tear in 2018, climbing 48 basis points since the start of the year and increasing for 8 consecutive weeks.
As we documented, historically when mortgage rates surge, housing swoons. But we think strength in the economy and pent up housing demand should allow U.S. housing markets to post modest growth this year even with higher mortgage rates. We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust to these rate increases. The MBA reported in their latest weekly applications survey that home purchase mortgage originations were up 3 percent from a year ago.
Good news from the MBA! Speaking of the MBA…
The Mortgage Bankers Association reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) remained unchanged from last week at 4.64%, with points increasing to 0.63 from 0.61 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) decreased to 4.57% from 4.62%, with points increasing to 0.51 from 0.50 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since April 2011, 4.07%, from 4.02%, with points decreasing to 0.59 from 0.66 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
We should look at Fed chief Powell’s remarks to Congress since they could give us some insight into what to expect regarding interest rates in 2018.
Here are some highlights from Powell’s remarks to the US House Committee on Financial Services:
After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation. Indeed, the economic outlook remains strong. The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC’s 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely.
In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory. Despite the recent volatility, financial conditions remain accommodative. At the same time, inflation remains below our 2 percent longer-run objective. In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives.
It appears we will see at least 3 hikes from the Fed if Powell has his way. Of course, there are no guarantees and the Fed will be watching lots of different economic indicators before they do anything.
While the Fed does not set mortgage rates directly, it does have a pretty strong influence on rates. So if the Fed raises their benchmark rate, it stands to reason that mortgage rates will increase.
Something to think about if you are looking to buy a home!
Will Rising Mortgage Rates Cause Home Prices to Decrease?
Lot of people think that increasing mortgage rates will cause home prices to fall. This seems logical since higher mortgage rates will cause fewer homes to be sold which would cause prices to drop..
But when the economy is good like it is now, it appears that rising rates are accompanied by rising home prices. Look at this chart showing the last 4 times that mortgage rates increased and what happened to home prices:
This is pretty mind blowing. We do not know for sure that mortgage rates will increase as predicted this year. But if they do, it does not look like we can assume that home prices will fall.
Rick Palacios Jr., Director of Research at John Burns Real Estate Consulting said:
Mortgage rates have risen 1% or more ten times in the last 43 years, with little impact on home sales and prices when the economy was also strong…Historically, rising confidence, solid job growth, and higher wages have more than offset reduced demand for housing resulting from higher mortgage rates.
It appears that when it comes to rising mortgage rates and home prices, history DOES repeat! Waiting on home prices to fall because mortgage rates are rising could prove to be futile!
Weekly Jobless Claims Drop
In the week ending February 24, the advance figure for seasonally adjusted initial claims was 210,000, a decrease of 10,000 from the previous week’s revised level. This is the lowest level for initial claims since December 6, 1969 when it was 202,000. The previous week’s level was revised down by 2,000 from 222,000 to 220,000. The 4-week moving average was 220,500, a decrease of 5,000 from the previous week’s revised average. This is the lowest level for this average since December 27, 1969 when it was 219,750.
Wow! Good news about employment could give the Fed even more incentive to raise rates….
More Properties Were Sold At or Above List Price in January 2018
According to a survey of REALTORS® who responded to the January 2018 REALTORS® Confidence Index Survey, 34 percent of properties that closed in January 2018 sold at or above the list price. One year ago, 31 percent sold at or above the list price, and during the months of January in 2012 through 2015, about one in four sold at or above the list price. Buyer demand continues to outpace supply of homes being listed for sale in the market, sustaining the upward pressure on home prices.
If you missed yesterday’s post, the number of homes going under contract across the country decreased from the previous month and compared to same time period last year. Much of the decrease is being blamed on the low level of homes for sale.
Buyers can expect stiff competition and anyone thinking about selling a home can expect good results.
For this week, total U.S. weekly rail traffic was up 2.8 percent compared with the same week last year. Total carloads for the week was down 1.3 percent compared with the same week in 2017, while U.S. weekly intermodal volume was up 6.7 percent compared to 2017.
Somewhat mixed signals but remain calm…
Manufacturing Expands Again
Economic activity in the manufacturing sector expanded in February, and the overall economy grew for the 106th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Good news and this is the fastest rate of expansion since 2004. Hopefully nothing will cause manufacturing to slow…
Consumer Comfort Still At High Level
Americans’ sentiment remained close to a 17-year high on rosier views of personal finances and the buying climate, as workers enjoy more take-home pay after the recent tax-cut legislation, according to the weekly Bloomberg Consumer Comfort Index released Thursday.
This is excellent news as a large part of the economy is driven by consumer spending. And as I often say, we need a strong economy for a strong housing market.
Rising Wage Inequality
Wages have finally recovered from the blow of the Great Recession but are still growing too slowly and unequally. Rising wage inequality has been a defining feature of the American economy for nearly four decades. In 2017, with an improving economy, all deciles in the overall wage distribution have improved, meaning most workers finally have higher hourly wages now than in 2007, the labor market peak before the Great Recession hit. However, large gaps by gender, race, and wage level remain, and some of these gaps are increasing.
Rising inequality means that although we are seeing broad-based wage growth, ordinary workers are just making up lost ground rather than getting ahead. The bottom seven deciles have seen annual growth of hourly wages of 0.5 percent or less since 2000. The way rising inequality has directly affected most Americans is through sluggish hourly wage growth in recent decades, despite an expanding and increasingly productive economy. For example, had all workers’ wages risen in line with productivity, as they did in the three decades following World War II, an American earning around $40,000 today would instead be making close to $61,000.
Imagine how many more people would be trying to buy homes if incomes had increased at the same pace across the board…
There is lots of interesting data in this report. With the rapid changes in the workplace, it may be that we are going to see even more of a gap in wages in the future.
Well that is it for today! Please share this article if you enjoyed it and subscribe so you never miss another post!