Talking about affordability, buying versus renting, Fannie Mae predicts economic growth, economic confidence, housing starts and building permits and more…
At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.43 percent this February, up compared to 4.04 a year ago.
When affordability decreases, it means fewer people can buy a home and for those that do, their buying power is decreased.
The U.S. real estate market continues to shift further towards buying based on the latest Hardin & Johnson Buy vs. Rent (BH&J) Index. Combine this with the fact that affordability has decreased and you can see that buying a house sooner rather than later would be a wise decision for many.
The Hardin & Johnson Buy vs. Rent (BH&J) Index can be described as quarterly report that tries to help answer the question:
In today’s real estate market, would it be advisable to buy or rent a house?
They look at all of the U.S. real estate market and after that they look closet at 23 metro areas for comparison. The study measures the relationship between purchasing property and building wealth through a buildup in equity versus renting a comparable property and investing in a portfolio of stocks and bonds.
Most of the U.S. is firmly in buy territory. Purchasing a house is smart socially and financially, because housing costs are forecast to increase significantly in the coming years. The good news (for now) is that mortgage rates have slightly decreased recently. Still, this is something to consider for anyone on the fence about buying a home.
The 2017 growth forecast remains at a modest 2.0 percent as policy changes that could result in meaningful economic growth appear unlikely this year, according to the Fannie Mae Economic & Strategic Research (ESR) Group’s April 2017 Economic and Housing Outlook. Additionally, near-term risk of a potential government shutdown could weigh on consumer and business confidence. While nearly all measures of confidence remain strong, some hard economic data—including consumer spending and auto sales—are now trending lower.
Fannie is also predicting that both mortgage rates and home prices will continue to increase through 2018.
Combine this with the news from NAR and the Hardin & Johnson Buy vs. Rent (BH&J) Index above to draw your own conclusions on what is best for you…
Americans’ confidence in the U.S. economy remains slightly positive, but it has not recovered from the dip it took after peaking in March. Gallup’s U.S. Economic Confidence Index was at +4 for the week ending April 16, showing no improvement from the +5 and +6 scores recorded in the past three weeks.
Though the index is at its lowest point in five months, it remains well above most of the negative scores it received from January 2008 to November 2016.
While not great news, at least confidence isn’t as low as it was just a few years ago.
New residential construction dropped more than expected in March, according to HUD and the Commerce Department.
Housing starts fell by 6.8% from the previous month but is up 9.2% compared to the same time last year.
Single-family home building, which has the largest share of the market, dropped by 6.2%. This is disturbing since we all know about the tight inventory issue in many areas.
The good news is that building permits increased by 3.6% from the previous month and is 17% higher than a year ago. This should mean that construction is going to increase.
This weak report could also lower the chances that the Fed will increase interest rates in June.
The financial industry wants the rule weakened because they profit handsomely from being able to legally fleece retirement savers. Acting on a directive from President Trump, DOL has delayed implementing the rule for 60 days—a move that will cost retirement savers $3.7 billion over the next 30 years—and is now considering whether to weaken the rule.
I really do not understand why a rule that requires that financial professionals to act in the best interest of their clients is NOT a good idea.
I have to act in the best interests of my clients. So why shouldn’t a financial advisor?
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.5 percent on April 18, unchanged from April 14. The forecast for first-quarter real residential investment growth inched up from 12.0 percent to 12.4 percent after this morning’s new residential construction report from the U.S. Census Bureau.
Seriously weak but let’s hope their prediction is low.
U.S. GDP will grow by 2.3 percent in 2017 and 2.6 percent in 2018, increases of 20 and 60 basis points (bps), respectively, since the last forecast. Forecasts for both years are at or above the 20-year average of 2.3 percent, with growth moderating to 2 percent in 2019.
Rent growth is forecast to be modest over the next three years. Industrial rent growth is forecast to average 3.8 percent, followed by office (2.3 percent), hotels (2.3 percent revenue per available room [RevPAR] growth), retail (2.2 percent), and apartments (2 percent). Industrial and retail rent forecasts have increased since the last Consensus Forecast, while the other property types are flat or down.
These are just a few tidbits from this must read from the ULI. Check it out here
According to the Mortgage Bankers Association’s Annual Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks in the U.S. made an average profit of $1,346 on each loan they originated in 2016, up from $1,189 per loan in 2015.
The purchase share of total originations, by dollar volume, decreased slightly to 62 percent in 2016, from 64 percent in 2015. For the mortgage industry as whole, MBA estimates the purchase share also decreased slightly to 52 percent in 2016, from 54 percent in 2015.
The average loan balance for first mortgages reached a study-high of $244,945 in 2016, from $242,480 in 2015. This is the 7th consecutive year of rising loan balances on first mortgages.
It is good that profits increased but I am not happy that the percentage of purchases decreased. And we see yet another example of how home prices are increasing.
Data through March 2017, released today by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults, shows the composite rate unchanged from last month at 0.94% in March. The bank card default rate recorded a 3.31% default rate, up nine basis points from February. Auto loan defaults came in at 1.00%, down five basis points from the previous month. The first mortgage default rate came in at 0.75%, up one basis point from February and reaching a one-year high.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said:
The continuing low consumer credit default rate reflects recent strong job growth and a favorable economy. The economy is also supporting consumers’ positive outlook and strong sentiment about the economy and their financial condition. Data from the Federal Reserve shows that consumer credit continues to expand at more than 6% per year, the highest pace since 2007-2008. Other Federal Reserve data indicate that household net worth in 2015 and 2016 rose 2.3% each year.
The first mortgage default rate increase is not good BUT I would not panic. Check out the change compared to last March in the chart below:
Well that is all I have time for today. Check back tomorrow for another post as I ran out of time but not things to talk about!