Looking at Freddie Mac’s Housing Outlook for March, mortgage rates, affordability, pending home sales and more…
How Affordability Affects Housing’s Spring Season
From Freddie Mac’s latest Outlook (emphasis mine):
Recent indications of stronger growth convinced the Federal Reserve to raise the Federal funds rate this month and to signal further increases later this year. These Fed actions are unlikely to derail the moderate improvements in growth and employment, but rising interest rates will reduce mortgage originations and put a cap on home sales in 2017.
Rising mortgage rates will reduce affordability in 2017. Standard measures of affordability are composed of three ingredients: home prices, interest rates and income. Increased home prices and mortgage rates will decrease affordability and projected income growth will not keep pace.
Ouch! Check out more of their predictions in this chart:
As you can see, Freddie is predicting that both home prices and mortgage rates will keep climbing. Anyone thinking about buying a house may find that delaying will prove to be costly.
You may have noticed that I share stories about robots taking jobs. It isn’t that I am thinking that Skynet from the Terminator movies will actually happen. It is just that I am willing to accept that not all technological progress will be good for society.
But do I have any reason to feel this way? A new study from the National Bureau of Economic Research seems to confirm my fears:
As robots and other computer-assisted technologies take over tasks previously performed by labor, there is increasing concern about the future of jobs and wages. We analyze the effect of the increase in industrial robot usage between 1990 and 2007 on US local labor markets. Using a model in which robots compete against human labor in the production of different tasks, we show that robots may reduce employment and wages, and that the local labor market effects of robots can be estimated by regressing the change in employment and wages on the exposure to robots in each local labor market—defined from the national penetration of robots into each industry and the local distribution of employment across industries.
Using this approach, we estimate large and robust negative effects of robots on employment and wages across commuting zones. We bolster this evidence by showing that the commuting zones most exposed to robots in the post-1990 era do not exhibit any differential trends before 1990. The impact of robots is distinct from the impact of imports from China and Mexico, the decline of routine jobs, offshoring, other types of IT capital, and the total capital stock (in fact, exposure to robots is only weakly correlated with these other variables). According to our estimates, one more robot per thousand workers reduces the employment to population ratio by about 0.18-0.34 percentage points and wages by 0.25-0.5 percent.
The emphasis is mine. I wonder if Secretary of the Treasury Mnuchin has read this since he isn’t concerned about the effect of robots on jobs and wages.
Mortgage applications decreased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 24, 2017.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.33 percent from 4.46 percent, with points increasing to 0.43 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) decreased to 4.26 percent from 4.40 percent, with points decreasing to 0.26 from 0.37 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.57 percent from 3.68 percent, with points increasing to 0.43 from 0.37 (including the origination fee) for 80 percent LTV loans.
This does not follow the predictions of rising mortgage rates we keep hearing. However, with so much money on the line and with limited inventory, serious home buyers will not drag their feet.
From RealtyTrac/ATTOM Data Solutions:
One in every four county housing markets analyzed for the report were less affordable than their historic affordability averages in the first quarter of 2017.
A total of 95 counties out of 379 counties analyzed for the report (25 percent) posted an affordability index below 100 in Q1 2017 — the highest share of markets below the normal affordability index of 100 since Q4 2009. An affordability index below 100 means that the share of averages wages needed to buy a median-priced home is above the historic average for a given market (see full methodology below).
This shows why the decrease in mortgage rates I just shared means less than many may think!
Daren Blomquist, senior vice president at ATTOM Data Solutions said:
Home affordability continued to worsen in the first quarter, not surprising given the continued strong growth in home prices combined with the recent rise in mortgage rates. Stronger wage growth is the silver lining in this report, outpacing home price growth in more than half of the markets for the first time since Q1 2012, when median home prices were still falling nationwide. If that pattern continues, it will help turn the tide in the eroding home affordability trend.
Again, my advice is that if buying a home makes sense for you, then do not delay getting started. I am not saying to panic or to rush your decisions. However, you also should not pussy foot around.
Wells Fargo has failed once again! First they were creating accounts without customers knowledge and now they have the OCC dropping their CRA rating from “Outstanding” to “Needs to Improve.” The Office of the Comptroller of the Currency hit the bank with a bad report that said it failed to meet its requirements under the Community Reinvestment Act.
The OCC said:
The bank’s overall CRA Performance Evaluation rating was lowered from “Outstanding” to “Needs to Improve” as a result of the extent and egregious nature of the evidence of discriminatory and illegal credit practices…
Ouch! I think it is long past time for some heads to roll at Wells Fargo…
U.S. Pending Home Sales Leap 5.5% in February
NAR just reported that Pending home sales increased in February to the highest level in nearly a year and second-highest level in over a decade. The Pending Home Sales Index in February increased 5.5 percent from the level in January. This is 2.6 percent above a year ago and is the highest since last April. This is also the second highest level for Pending Home Sales since May 2006.
Good news as we are heading into Spring. While this is a national, big picture type of report, I can tell you that activity in our area is strong in certain price ranges/areas.
The commercial real estate market is showing cracks and will peak this year according to Morgan Stanley analysts forecast. They said 2017 will be the end of the bull cycle for US CRE.
Does not sound good! Especially when combined with some of the negative reports about retailers such as Sears. Or the reports about malls facing tough times.
Fannie Mae announced that New Jersey Community Capital, a non-profit community development financial institution, is the winning bidder of the company’s sixth Community Impact Pool of non-performing loans. The transaction is expected to close on May 23, 2017, and includes 158 loans secured by properties located in the New York and New Jersey area with an unpaid principal balance (UPB) of approximately $26 million.
You are probably wondering why I talking about properties way up North. This is actually interesting because most of these auctions have been going to big banks and hedge funds.
Why the change? Was it the properties or the location? Did this non-profit over pay? And will this non-profit be able to help get these loans back on track?
It’s possible to still be broke in some U.S. cities with $500,000 per year in income.
A recent analysis from Sam Dogen at his personal finance website Financial Samurai showed how difficult it is for high earners to escape the rat race in New York City, one of the priciest places to live in the world. He analyzed a mock budget for an imaginary family of four in which the two 35-year-old breadwinners each make $250,000 a year. After factoring in taxes, 401(k)contributions, home and child care costs, the family was left with just $7,300 for the year — as if they were living “paycheck to paycheck.”
Inexorably? The cost of living in New York compared to other places makes me wonder how anyone but the super rich can live there. Always think about the cost of living before relocating.
Sometimes the grass is greener on the other side of the fence…
Train Train: Rail Traffic
The Association of American Railroads (AAR) reported that for the week ending March 25, 2017, total U.S. weekly rail traffic was 526,471 carloads and intermodal units, up 12 percent compared with the same week last year.
Total carloads for the week ending March 25 were 260,897 carloads, up 12.4 percent compared with the same week in 2016, while U.S. weekly intermodal volume was 265,574 containers and trailers, up 11.6 percent compared to 2016.
Another positive YoY report on rail traffic!
In the week ending March 25, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 3,000 from the previous week’s unrevised level of 261,000. The 4-week moving average was 254,250, an increase of 7,750 from the previous week’s unrevised average of 246,500.
It appears that the labor market continues to tighten. Initial unemployment claims have now been below 300,000 for 108 straight weeks. That is the longest stretch since 1970. All we need now is good wage growth…
U.S. Economic Growth Revised Higher
Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of 2016, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter of 2016, real GDP increased 3.5 percent.
The increase in real GDP reflected an increase in consumer spending, private inventory investment, residential investment, business investment, and state and local government spending. These contributions were partly offset by declines in exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
This is an improvement over the previous reports. Most of the improvement was due to consumer spending. Hopefully we will see good growth in 2017 but the Atlanta Fed is predicting only 1.0% growth in Q1 2017.
Urbanists often lament that developers no longer erect the small apartment buildings that were once a staple of city neighborhoods. Instead, they construct single family homes or large apartment buildings.
There are good reasons to revive this “missing middle,” however: Small buildings are a good way to add density without compromising the character of quiet, single-family districts. They also provide a convenient way for older homeowners to downsize without leaving their neighborhoods.
But the best reason is that smaller apartment buildings are often cheaper for renters.
The rents may be cheaper (sometimes) but the costs for developers for small apartment buildings are not feasible. Plus, I doubt many home owners want an apartment building in their neighborhood. Even if it is a small one…
A bipartisan group of senators told Mel Watt, the regulator who oversees Fannie Mae and Freddie Mac, that he shouldn’t allow the companies to recapitalize without congressional approval.
Letting the U.S.-controlled mortgage giants build capital buffers would hurt legislative efforts to overhaul the housing-finance system, the senators said in a letter Wednesday.
Oooh scary scary! A letter! Considering the progress that our elected officials make in a year on any serious issue, it could be another 10 years before we see anything happen to the GSEs.
And when or if we do see changes to Fannie and Freddie, I am betting it will not be good for the average American. Why? Read the next story…
Congress just voted to reverse a landmark FCC privacy rule that opens the door for ISPs to sell customer data. Lawmakers provided no credible reason for this being in the interest of Americans, except for vague platitudes about “consumer choice” and “free markets,” as if consumers at the mercy of their local internet monopoly are craving to have their web history quietly sold to marketers and any other third party willing to pay.
The only people who seem to want this are the people who are going to make lots of money from it. (Hint: they work for companies like Comcast, Verizon, and AT&T.) Incidentally, these people and their companies routinely give lots of money to members of Congress.
I am sure that the politicians will twist this somehow into being good. But it ain’t.