Round up of real estate, housing and economic news for 4-1-2016
April Fool’s day means having to weed through the BS stories and posts that will be posted today…
Which is sad since we must remember that EVERY day is filled with BS that ranges from dubious or misinformed to outright lies and propaganda.
But here on the Ugly But Honest Real Estate blog, I share only the best and most reliable information.
Sometimes it may make you uncomfortable or be something different from your normal line of thinking.
But keep an open mind for a different point of view and maybe, just maybe you will learn something new.
Or at least gain an understanding or perspective of the other reasons why some think differently than you.
With that said, here is today’s round up of the latest real estate, housing and economic news:
Mortgages: Risky Business
AEI’s International Center on Housing Risk just released their latest data on Mortgage Risk. First let me explain what this is and what it means.
Their National Mortgage Risk Index (NMRI) measures how government guaranteed loans with a first payment date in a given month would perform if subjected to the same stress as in the financial crisis that began in 2007. The NMRI provides accurate, real-time tracking of credit-fueled cycles that, if left unchecked, could result in destructive housing boom/busts.
The NMRI is pretty comprehensive. It covers an estimated 98% of gov’t-guaranteed mortgages for home purchases (about 80%, 85%, and 93% respectively of entire market of purchase loans, primary owner-occupied (POO) purchase loans and POO purchase loans ≤ $417,000, all by count).
An NMRI value of 10%, for example, indicates that 10% of the loans in a given group would be expected to default in a severe stress event, based on the actual performance of loans with the same risk characteristics after the financial crisis. An increasing NMRI indicates looser lending standards but does NOT guarantee an increase in mortgage defaults.
Now with that out of the way, let’s look at some of the highlights:
- Credit standards for agency purchase loans have continued to loosen
- 70% of First Time Buyers had down payments of 5% or less, up from 68% a year earlier
- Real home prices up 15% since the Q22012 low point
- Credit standards at large banks have tightened
- At other banks, standards are little changed to tighter
Here are a few of the charts from the report:
It is quite an extensive report regarding mortgage risks and you can find it here
An Uncomfortable Feeling: Bloomberg CCI
The latest Bloomberg Consumer Comfort Index was just released and sadly, it hit a new low for 2016. Ratings of the national economy have fallen to a new yearly low and ratings of the buying climate hit a three-month low.
Consumer caution the past few weeks is unsurprising. While strong employment numbers and tentative signs of improvement in a weak housing market are positives, wages remain mostly stagnant and consumer spending has underperformed.
While it is unsurprising, it is in times of uncertainty that great opportunities can be realized. Sad to think that some will miss out on the opportunity to buy a home because of FUD (Fear Uncertainty Doubt).
And in case you missed my earlier post, Gallup’s most recent economic confidence survey decreased BUT the Conference Board’s Consumer Confidence Index increased.
Best Markets for Buying Single Family Rentals in 2016
RealtyTrac just released a report with what they say are the best markets for buying single family rentals in 2016.
In Anderson County, RealtyTrac said:
- 2015 to 2016 Change in 3 Bedroom Rental Amount: UP 1.2%
- 2016 3 Bedroom Monthly Rental Amount: $939
- 2016 Annual Gross Rental Yield: 10.5%
I would point out that the 2016 3 Bedroom Monthly Rental Amount from RealtyTrac does NOT indicate what is realistic or possible for many rental homes in Anderson County. If you overpay or buy the wrong property, it does NOT matter how the market is rated according to RealtyTrac or anyone else.
It is imperative that you know the market or obtain the advice of an experienced REALTOR before buying rentals.
Yellen Yelling About the Economy
Fed Chair Yellen recently spoke to the Economic Club of New York. Because the markets may react and this will affect mortgage rates, let’s look at some of the highlights of Yellen’s speech:
Only gradual increases in the federal funds rate are likely to be warranted in coming years
We continue to expect further labor market improvement and a return of inflation to our 2 percent objective over the next two or three years
Readings on the U.S. economy since the turn of the year have been somewhat mixed
Overall employment has continued to grow at a solid pace so far this year Consumer spending appears to be expanding at a moderate pace
The housing market continues its gradual recovery
Manufacturing and net exports have continued to be hard hit by slow global growth and the significant appreciation of the dollar since 2014
We have to take into account the potential fallout from recent global economic and financial developments
The Committee continues to expect moderate economic growth over the medium term accompanied by further labor market improvement
The pace of rate increases is now expected to be somewhat slower
The median of FOMC participants’ projections for the federal funds rate is now only 0.9% for the end of 2016 and 1.9% for the end of 2017
For now, it sounds like the Fed will be cautious about raising their interest rate and when they do increase it, it will be slowly. I will cover what happened with mortgage rates later this week.
About Student Debt and Home Ownership
Interesting study finds that a 10 percent increase in student loan debt causes a 1 to 2 percentage point drop in the home ownership rate for student loan borrowers during the first 5 years after exiting school.
There is no doubt that the amount of debt due to student loans has risen dramatically in the past few years. This study found that a 10% increase in student loan debt decreases the home ownership rate by one to two percentage points 24 months out of school.
Check out one of the charts from the study:
The study looks at the impact of an increase in student debt, not the impact of student’s access to education loans on owning a home. Debt, even student loans, is not always a negative IF you are credit wise and do not become overburdened.
Solar Panels and Home Values
I have always loved the idea of no power bills due to having solar panels on my home. But the cost of installing solar panels and whether or not I would get a good return on my investment has stopped me from shelling out the dough.
Which is why a recent study that shows that homes that use solar panels sell for more money. However, this is a study with a very limited amount of homes and there are so many factors to consider.
So while this is encouraging, I still suggest you do much more research BEFORE installing solar panels. Also the cost of solar is coming down and the panels keep getting more efficient. It may be a good idea to wait and see…
Location and Transportation Costs When Buying a Home
Buyers need to understand there is NO perfect home. Too many different things to consider and often one of the most important things is the location. Paying more in gas and spending more time driving to work or to the store can make a home less attractive.
According to the Consumer Expenditure Survey, housing plus transportation costs consumed 43% of US household incomes in 2011. While gas may be cheaper today than just a few years ago, can you put a price on your time?
South Carolina Economic Outlook
I write all the time about the US economy but now it is time to shift gears to something more local: the economy in South Carolina! Let’s look at some of the highlights from the latest SC Commerce Department Economic Outlook:
Look at the long range trend since 2009…
Over all this is good report but remember this is for ALL of South Carolina. For information about the real estate market in the Anderson SC area, you can read the Weekly Market Reports
Fannie and Freddie Serious Delinquency Rate February 2016
Both Fannie and Freddie recently reported their Serious Delinquency rates.
Freddie Mac said that their Single-Family Serious Delinquency Rate decreased to 1.25% in February 2016. Their Multifamily Serious Delinquency Rate remained flat at 0.04% in February 2016.
Fannie Mae said that their Single-Family Serious Delinquency Rate decreased to 1.52% in February 2016. Their Multifamily Serious Delinquency Rate decreased to 0.07% in February 2016.
Initial Jobless Claims Rise More Than Expected
While we are waiting on the BIG March Job report, let’s consider the latest initial claims report from the Department of Labor.
Seasonally adjusted initial claims increased from the previous week. The 4-week moving average also increased from the previous week.
The silver lining to this gray cloud is that this is the 56 consecutive week of initial claims below 300,000. That is the longest streak since 1973.
Freddie Says Housing Market Holding Steady
More news from Freddie this week was that their Multi-Indicator Market Index shows many of the nation’s housing markets are getting back to normal!
Freddie Mac Deputy Chief Economist Len Kiefer:
Despite a stronger jobs market and declining unemployment, wage gains have not kept pace with house prices putting a pinch on homebuyer affordability.
Wow. Who has been saying we need good paying jobs for a healthy housing market for years? Now if we could just get the morons in DC to work for the best interests of the average American…
Housing Costs For Low-Income Renters Up 50% Since the 90s
Speaking of giving the morons in DC something to work on, how about affordable housing for our brothers and sisters that are struggling each and everyday?
This is why a recent study from Pew Trusts is so very important.
Some of the key findings:
Overall median household expenditures grew by about 25 percent between 1996 and 2014, returning to pre-recession levels.
Although expenditures recovered from the downturn, income did not. By 2014, median income had fallen by 13% from 2004 levels, while expenditures had increased by nearly 14%.
Low-income families spent a far greater share of their income on core needs, such as housing, transportation, and food, than did upper-income families. Households in the lower third spent 40% of their income on housing, while renters in that third spent nearly half of their income on housing, as of 2014.
About two-thirds of families’ spending goes to core needs: housing, food, and transportation. In 2014, housing obligations accounted for the largest share of household pretax income, about 25%. Over the 19-year study period, aggregate median housing expenditures absorbed 21% of families’ pretax income.
I am sure it makes you want to talk about rising rents and how someone should buy a house now. But if someone is barely getting by, do you really think they are able to save money to buy a home?
Once again I will point to good paying jobs as the solution. Of course, some people will blow their money no matter how much they make. And others can’t or won’t work.
We can only help those that are willing to help themselves. And a good paying job is all the help that many need to live the American Dream.
One small bit of good news is that Lender Capital Is Pouring into Affordable Housing
Another bit of good news is that US home rental cost growth is slowing
Speaking of Good Paying Jobs
I keep mentioning the need for good paying jobs. But the rapid changes due to technology and the expanding use of robots is going to put many more people out of work.
Some of these people will still have a job but it will pay less…
Maybe you think this will never happen to you.
45% of work activities representing $2 trillion in wages can already by automated based on proven technology that currently exists. A further 13% of work activities in the U.S. economy could be automated if the technologies used to understand and process human language were brought up to the median human level of competence.
Read more here
Where Home Buyers Are Living When they Purchase
Here are 2 interesting charts from NAR:
NAR pointed out that 38% of recent home buyers were renters. Think about that while you look at the 2nd chart. Then add the previous stories about how many Americans are paying a huge percentage of their income on housing.
Eventually, we will reach a point that home buying demand will decrease simply because so few people can afford to buy. That does not sound good to me.
Does it sound good to you?
Deja Moo: 14 Familiar Names
Over and over again, we keep hearing about the same type of dirty dealing from the big banks and financial firms:
Companies and investors use ISDAfix to price swaps transactions, commercial real estate mortgages and structured debt securities. Banks were accused of rigging ISDAfix for their own gain by executing rapid trades just before the rate was set each day, called “banging the close”; and causing ICAP to delay trades until they moved ISDAfix where they wanted, and post rates that did not reflect market activity.
Dirty Dealing in South Carolina
For a change of pace, how about some fraud that was not committed by a big bank or financial firm:
One of the perpetrators in an elaborate coastal mortgage fraud that grew out the pre-recession real estate boom was sentenced to 30 months in federal prison Wednesday.
Talking About My Generation and Real Estate
I get sick of hearing about millennials. So let’s heat about Gen X:
It’s fashionable to talk about how the housing crisis hurt millennials. True, millennials have been shut out of the housing market through a combination of rising rents and high student debt, which keep them from saving enough for a down payment. Gen Xers, on the other hand, were mostly in their 30s and early 40s when the housing crisis hit — just old enough to have bought a house.
BofA Economist on Home Prices
Scary words from BofA’s chief economist Michelle Meyer:
In order to gauge the ‘fair value” of home prices, we typically compare prices to the trend in income. The logic is simple – the more income one earns, the more housing he/she can access. However, prices will occasionally diverge from income, as we are experiencing now and clearly did during the early 2000s. As we have been arguing, home prices are currently overvalued – by our estimates 14% on a national level.
I would say this is not true in our area. Read the article at U.S. Home Prices Are 14% Overvalued According To Bank of America
Why Buying a Home Correctly Matters
So what exactly do I mean when I say Buying a Home Correctly?
Well a small part of buying a home correctly is NOT overpaying. Which often means thinking in a an unemotional business like manner:
Year-over year median investment home prices increased at a greater rate – 5.1% – than owner-occupied home prices, which rose only 1.1%.
Everyone buying a home should think like an investor. Buying a home is an investment in your future. You MUST hope for the best while planning for the worst.
Train Train Take Me On Out of This Town
Not good news from AAR:
- Total U.S. weekly rail traffic down 16.5% compared with the same week last year
- Total carloads down 18.5% compared with the same week in 2015
- U.S. weekly intermodal volume down 14.5% compared to 2015
Read more at Total U.S. weekly rail traffic down 16.5% compared with the same week last year
What’s Causing the New Housing Crisis
I have never had a crisis. Or a problem. I have situations…
That being said, check out what Stuart Miller, CEO of Lennar said:
Land and labor shortages will continue to constrain supply and constrain the ability to quickly respond to growing demand while the mortgage market will continue to constrain purchaser’s access to mortgages
I am not sure how hard it is for home builders in our area to find good workers.I DO know it is easy to find reasonably priced lots and acreage in Anderson County.
You Can Haz Cheeseburger
Obscure yet good indicator for the economy from the National Restaurant Association is that their Restaurant Performance Index (RPI) rose sharply in February. The RPI is up 1.5% from January’s level.
For the first time in four months, a majority of restaurant operators reported positive same-store sales. 71% of restaurant operators reported a same-store sales gain between February 2015 and February 2016.
February also represented the first time in seven months that a majority of restaurant operators reported positive customer traffic levels.
Restaurant operators’ expectations for sales growth improved for the second consecutive month. 46% of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up from 39% last month and the highest level in nine months.
Commercial Property Sales and Prices Continue Slowdown
Commercial real estate prices and investment volume declined for the second consecutive month in February, despite robust leasing that bolstered net absorption and CRE fundamentals in the first quarter of 2016
Good grief this ran on and on. Lots to talk about and I hope it gives you much to think about.
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