Discussing tariffs and housing, how incomes don’t determine when people buy homes, consumer sentiment plus much more!
Firms in the Carolinas Reported Strong Growth in February
From Richmond Fed:
According to the latest survey by the Federal Reserve Bank of Richmond, firms in the Carolinas saw strengthening business conditions in February. The general business conditions index rose from 19 to 27, and Carolinas firms reported expecting to see both business conditions and sales continue to improve in the coming months.
While Carolina firms saw continued growth in employment in February, they reported more difficulty finding required skills. Despite rising wages, the availability of skills index dropped from 0 to −9, indicating tightening labor supply. Firms expect to continue to struggle to find necessary skills in the next six months even as they plan to add workers.
Expenditures indicators remained positive but were lower than their January values, although firms expect expenditures to rise again. Meanwhile, they saw faster growth in prices paid while the growth rate of prices received dropped to a four-month low. However, firms expect to see accelerated growth in both prices paid and prices received in the next six months.
Positive report and we once again heard that companies are having a hard time finding qualified workers. How much of the difficulty is due to our public schools not being able to properly prepare young Americans to succeed?
Is the cost of having the best public education system actually cheaper when you compare it to the boost to the economy from adequate numbers of qualified workers? And what about the cost to society if there is a segment that is unemployable due to a lack of education and skills?
Deloitte & Touche Agrees to Pay $149.5 Million for Crappy Audits
From Department of Justice:
The Justice Department announced today that Deloitte & Touche LLP has agreed to pay the United States $149.5 million to resolve potential False Claims Act liability arising from Deloitte’s role as the independent outside auditor of Taylor, Bean & Whitaker Mortgage Corp. (TBW), a failed originator of mortgage loans insured by the Federal Housing Administration (FHA) in the Department of Housing and Urban Development (HUD).
Acting Assistant Attorney General Chad A. Readler for the Justice Department’s Civil Division said:
With taxpayer dollars at stake, auditors must take their obligations seriously when auditing companies that participate in government programs. When auditors fail to exercise their professional judgment, and make false statements that allow bad actors to remain in government programs and submit false claims to the government, there will be consequences.
I remember when I first heard about the troubles at Taylor Bean & Whitaker. This is one of the few examples of executives getting jail time for activities prior to fuel the housing bust.
Income Doesn’t Determine Whether People Buy Homes
From Zillow Research:
People will continue to break into the market when and how they can by buying cheaper homes, homes farther out, smaller homes—whatever is feasible. The rub is that as U.S. housing markets continue to burn hot, the feasible options become harder to find for more of us.
There is much conversation in the media and around the water cooler about the impact of the recently enacted tax reform on housing markets. The doubling of the standard deduction, the limits on state and local tax deductions, and the cap on mortgage interest deductions all reduce the financial incentive for homeownership.
What’s important to remember is that while money is important, the decision to buy has more to do with a household’s stage of life. It’s never just about the dollars and cents – although the hot housing market has made income a bigger factor, when it comes to down payments, than it used to be.
Interesting research article that shows that it isn’t always a questions of finances when it comes to whether or not you should buy a home. It has to do with where you are in your life and what your goals are.
While you must be financially ready and able, it is probably more important that you are ready for the mindset of a home owner. Owning a home truly is putting down roots and building a life.
The wealth building financial advantages of owning a home cannot be denied. Until owning makes sense for you in every way, then it does not make sense.
There is nothing wrong with renting until owning a home is right for you. Well nothing wrong other than the way that rents have been increasing according to the latest data from the Census Bureau:
As the chart indicates, rents have steadily increased and don’t appear to be slowing down. One solution to rising rents is to freeze your monthly housing payment by buying a home.
If buying a home makes sense for you, I suggest reaching out to a mortgage lender to investigate your options and to get Pre-Approved. If you have any questions about buying a home in the Anderson SC area, you can Contact Me!
Consumer Sentiment At Second Highest Level Since 2004
Consumer sentiment remained quite favorable in February, at its second highest level since 2004. Consumers based their optimism on favorable assessments of jobs, wages, and higher after-tax pay.
The highest proportion of households since 1998 reported that their finances had improved compared with a year ago and anticipated continued gains during the year ahead. Economic news heard by consumers continued to be dominated by the tax reform legislation and net job gains, which was untarnished by the consensus view that interest rates would increase and stock prices would remain volatile.
Although rising interest rates was seen as a reason to temper their longer term outlook for the overall economy, only a modest moderation in the pace of economic growth was anticipated. Although consumers expected the unemployment rate to dip below 4% in 2018, only modest wage growth was anticipated, and inflation expectations have remained unchanged.
Interest rates, even when pushed higher in the weeks and months ahead, will not cause postponement of discretionary purchases as long as income continues to rise near its present pace. Personal tax cuts are crucial to spur additional spending, but unlike prior cuts that had an immediate positive impact, this tax cut has not generated universal support across partisan lines.
Overall, the data signal an expected gain of 2.9% in real personal consumption expenditures during 2018.
Awesome new! Let’s just hope there isn’t anything that could derail the economy…
Tariffs, the Economy and Real Estate
There has been lots of talk about tariffs since POTUS Trump announced new tariffs on imports of steel and aluminum on Thursday. Trump said the new restrictions will be a broad 25% tariff on steel and a 10% tariff on aluminum.
These tariffs are essentially taxes on imported metal. This will cause the price of steel and aluminum to increase which will cause the cost for goods made with steel or aluminum to increase.
So while I have long thought that tariffs could be a good way to help American industries and workers, it appears that is not true.
Check out one of the findings from when GW Bush tried tariffs from a study by The Trade Partnership:
The tariffs would increase U.S. iron and steel employment and non-ferrous metals (primarily aluminum) employment by 33,464 jobs, but cost 179,334 jobs throughout the rest of the economy, for a net loss of nearly 146,000 jobs
I am not real familiar with The Trade Partnership so it could be that they have an ulterior motive in criticizing tariffs on steel and aluminum. We always have to wonder if criticisms of any politicians are based on political beliefs and not facts.
But Obama also tried tariffs according to the LA Times:
In September 2009, Obama, in response to a union complaint, approved safeguard tariffs of 25% to 35% on imported Chinese car and light-truck tires for three years.
It seemed to work at first blush. Total Chinese imports of new radial tires for cars dropped 28% in 2010 from the prior year, to $899 million.
But other trading partners rushed to fill the void. Shipments from South Korea, Thailand and Indonesia doubled in value, more than offsetting the decline in Chinese-made tires.
We can see that tariffs have a negative effect when it is enacted by either a Democrat or a Republican. These tariffs could have a negative effect on the housing market!
Randy Noel, chairman of the National Association of Home Builders, said:
It is unfortunate that President Trump has decided to impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports. These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders.
Given that home builders are already grappling with 20 percent tariffs on Canadian softwood lumber and that the price of lumber and other key building materials are near record highs, this announcement by the president could not have come at a worse time.
Tariffs hurt consumers and harm housing affordability. We hope the administration will work quickly to resolve these trade disputes regarding lumber and steel so that businesses and consumers have access to an adequate supply at a fair market price.
Lawrence Yun, NAR’s chief economist, said:
Tariffs could measurably raise the cost of building materials and hinder home construction of affordable homes. But more importantly, tariffs and restrictions to international trade will hold back economic growth and job creations. A better way to raise GDP growth is to produce more homes. Job growth and additional housing inventory will greatly help American workers and American consumers.
Rick Schumacher, editor and publisher of the LBM Journal, said:
It hurts home buyers. It creates uncertainty … and any uncertainty is bad.
There is no doubt that the tariffs on lumber has caused problems for home buyers and builders. It appears that was just the start if we add the increased cost of steel and aluminum to the worsening lumber supply issue that is helping home prices to increase:
As we’ve repeatedly pointed out, home prices in the US have been climbing at a blistering pace (and, more importantly, much faster than wages) thanks to a shortage of supply. But builders trying to alleviate that shortage are struggling under some of the most adverse market conditions in more than a decade: To wit, a lumber shortage has pushed prices to their highest levels since the financial crisis as wildfires and a blossoming trade spat between the US and Canada have choked off some supplies.
As a result, homebuilders are being forced to pass on thousands of dollars in additional costs to the buyers, perhaps one reason why new- and pending- home sales have fallen recently…
Lumber prices started climbing last year thanks to wildfires destroying prime forest land along the Pacific Northwest, as well as a worsening trade spat over softwood lumber that dates back to the Obama administration. While US media was preoccupied with the California wildfires, Canada’s Pacific coast saw its worst wildfires on record, too. Furthermore, Trump last year slapped tariffs on most types of lumber, with the highest rate at 24%, one of several protectionist moves against its northern neighbor.
I said that I used to think that tariffs could be useful but I am not so sure anymore. There may be good intentions behind tariffs BUT we all know the road to hell is paved with good intentions…
CMBS Delinquency Rate Decreases for Eighth Consecutive Drop
The Trepp CMBS Delinquency Rate fell sharply in February as the rate has now dropped in eight straight months. The delinquency rate for US commercial real estate loans in CMBS is now 4.51%, a decrease of 32 basis points from the January level. It is now possible that the rate could break the post-crisis low from February 2016 over the next few months, which is a prediction we feel comfortable making.
Excellent news for the economy that help to sustain the current economic strength.
Service Sector Continues to Grow
Economic activity in the non-manufacturing sector grew in February for the 97th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
Great news and a good indicator for 2018.
Wall Street Regulations to be Rolled Back?
From Washington Post:
The Senate is preparing to scale back the sweeping banking regulations passed after the 2008 financial crisis, with more than a dozen Democrats ready to give Republicans the votes they need to weaken one of President Barack Obama’s largest legislative achievements.
Congress’s appetite for pulling back bank regulations shows the renewed clout of the financial sector in Washington, not just in the GOP but also among Democrats. Eight years after nearly every Senate Democrat backed a sweeping set of new rules for financial firms large and small, the party is now split, with moderates, several of them facing tough midterm election contests, working with the opposing party.
This bill will weaken oversight of financial firms by changing the capital ratio through the exclusion of certain assets from consideration and eliminates annual stress testing.
One reason for this bill is that smaller banks are negatively affected by these strict regulations according to some. However, according to an article in American Banker:
None of these enhanced measures apply at all to about 95 percent of banks, the category commonly described as community banks, those under $10 billion in assets — some 6,000 banks in communities all across the country.
If the economy is growing and doing OK, why in the heck would we want to do this? I would say the real reason is that some of these financial firms are getting ready to make campaign contributions…
That is all for today! Please hit those share buttons and subscribe so you never miss another post!