Discussing the supply of homes and affordability, the cost of owning a home versus the price of homes, housing still considered a good investment and much more!
Housing Supply and Affordability
At the national level, housing affordability is down from a year ago and fewer households can afford the active inventory of homes currently for sale on the market based on their income. That is according to joint research from the National Association of Realtors® and realtor.com®.
Using data on mortgages, state and metro area-level income and listings on realtor.com®, the Realtors® Affordability Distribution Curve and Score is designed to examine affordability conditions at different income levels for all active inventory on the market. A score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income distribution.
The Realtors Affordability Distribution Score for South Carolina and for the Greenville-Anderson-Mauldin MSA was 0.82 in March 2018. I would encourage anyone interested in buying a home to speak to a Realtor because market conditions and prices vary greatly both across the state and a MSA.
It other words, there ARE affordable homes available in the Anderson SC area!
Lawrence Yun, NAR chief economist, said:
The survey confirms that the lack of entry-level supply is putting affordability pressures on too many buyers – especially those at the lower end of the market, where demand is the strongest. This is why first-time buyers continue to struggle finding affordable properties to buy and are making up less than a third of home sales so far this year.
Wages are growing, which is welcome news for prospective buyers, but prices are increasing at a faster rate, up almost 6 percent in the first two months of 2018. Solutions to improve these conditions include more homeowners selling, investors releasing their portfolio of single-family homes back onto the market and more single-family housing construction.
I do not think there is good possibility that any of the solutions suggest by Yun will happen. The lack of affordable homes is a serious problem and sadly, there are not any simple or easy solutions.
DON’T LET THIS DISCOURAGE YOU!
We all know that home prices are higher now than any time in the past. But, if we consider the cost of a home, it is less expensive today than it has been in the past.
There is a difference between the price of a home and the cost of a home! Let me explain the difference…
The price of a home is how much you paid for the home.
The cost of a home is how much you pay for your mortgage payment.
To get a better idea about the cost of owning a homes, we have to consider house prices, mortgage rates, and income today compared to the past. Home prices may have been lower in the past, but incomes were lower and mortgage rates were a lot higher!
Lots of people forget just how high mortgage rates were in the past. For example, the average mortgage interest rate in 1988 was 10.34%!
To get a better idea of the cost of a home, we should evaluate what portion of your income is required to buy a home. This will include the price of the home, mortgage rates and your income to help you determine how the cost of a home today compares to the past.
Zillow recently did just this AND they also looked at the the cost if mortgage rates keep increasing as predicted. Check out this chart based on their data:
Mortgage rates would have to increase to 7% to cause the share of income to be be higher than the historically normal level. Zillow computed this assuming that buyers would put down 20%, use a 30-year conforming mortgage, earn the median income and buy the median priced home.
This probably does not describe most people since many buyers put down less than 20% and either buy a differently priced home or earn more or less.
However, this shows that right NOW, the cost of owning a home is less than in the past!
Wells Fargo Hit With $1 BILLION Penalty
The Office of the Comptroller of the Currency (OCC) today assessed a $500 million civil money penalty against Wells Fargo Bank, N.A., and ordered the bank to make restitution to customers harmed by its unsafe or unsound practices, and develop and implement an effective enterprise-wide compliance risk management program.
The OCC’s action was closely coordinated with an action by the Bureau of Consumer Financial Protection and made possible through the collaborative approach taken by the bureau. Separately, the bureau assessed a $1 billion penalty against the bank and credited the amount collected by the OCC toward the satisfaction of its fine.
It appears that the rumors about a settlement that I wrote about earlier this week were true. This is the biggest fine levied by Mulvaney since he took over the CFPB.
I was concerned that the CFPB would become a friend of big business and forget about the average American. This is a good sign but only time will tell if this is going to be normal behavior for the CFPB under Mulvaney.
The Big Lie About Corporations and Taxes
For decades, profitable Fortune 500 companies in a range of economic sectors have manipulated the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits—and the major tax cut recently enacted by Congress likely will allow this tax avoidance to continue. This ITEP report examines a diverse group of 15 corporations’ federal income tax disclosures for tax year 2017, the last year before the recently enacted tax law took effect, to shed light on the widespread nature of corporate tax avoidance. As a group, these companies paid no federal income tax on $24 billion in profits in 2017, and they paid almost no federal income tax on $120 billion in profits over the past five years. All but one received federal tax rebates in 2017, and almost all paid exceedingly low rates over five years.
Pretty disgusting stuff. Check out the corporations that have made big bucks while paying very little taxes:
This seems wrong to me but some will say this must be done in order for businesses to thrive. But with the huge deficit, I think we need to look more closely at how some corporations are not paying their fair share of taxes.
I have no problem with paying my fair share of taxes and think it is only right that corporations do the same thing.
Architecture Billings Increased for 6th Consecutive Month
The American Institute of Architects (AIA) today reported that architecture firm billings rose for the sixth consecutive month in March, although the pace of growth slowed modestly from February.
Overall, the AIA’s Architecture Billings Index (ABI) score for March was 51.0 (any score over 50 indicates billings growth), which still reflects a healthy business environment. While business conditions softened somewhat at firms located in the Northeast region, billings remained strong at firms located in the South and West regions.
AIA Chief Economist Kermit Baker said:
New project activity coming into architecture firms continues to grow at a solid pace. As a result, project backlogs—in excess of six months at present— are at their highest post-recession level. Business remains strong in the South and West, and firms with a residential specialization continue to set the pace.
Excellent news but I must remind you that this tracks nonresidential construction spending activity.
Will a Trade War Wreck Economic Momentum?
The world economy continues to show broad‑based momentum. Against that positive backdrop, the prospect of a similarly broad‑based conflict over trade presents a jarring picture.
Three months ago, we updated our global growth forecast for this year and next substantially, to 3.9 percent in both years. That forecast is being borne out by continuing strong performance in the euro area, in Japan, in China, and in the United States, all of which grew above expectations last year. We also project near‑term improvements for several other emerging markets and developing economies, including some recovery in commodity exporters. Continuing to power the world economy’s upswing are accelerations in investment and, notably, in trade.
Looking at the largest economies, our 2018 growth projections, compared with our earlier October 2017 projections, are 2.4 percent for the euro area, and that is up by 0.5 percentage point from October; 1.2 percent for Japan, and that is up by 0.5 percentage point from October; 6.6 percent for China, that is up by 0.1 percentage point; and 2.9 percent for the United States, which is up by 0.6 percentage point. U.S. growth will be boosted in part by a largely temporary fiscal stimulus, which explains over one‑third of our upgrade over last October for 2018 global growth.
That major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical, especially when the expansion is so reliant on investment and trade. Particularly in the advanced economies, however, public optimism about the benefits of economic integration has been eroded over time by longstanding trends of job and wage polarization, coupled with persistent subpar growth in median wages. Many households have seen little or no benefit from growth.
This not the only report warning about the possible negative of a trade war. We have already seen how the tariffs against Canadian lumber has hurt home builders, which in turn will lead to higher costs for home buyers.
The economy, both in the US and globally, is doing so much better than just a few years ago. It would be a shame to see it hurt by a trade war that hurts more than it helps.
Households Continue to View Housing as a Good Investment
From NY Federal Reserve:
The Federal Reserve Bank of New York today released results from its February 2018 SCE Housing Survey, which provides information on consumers’ housing-related experiences and expectations. The survey, which is part of the broader Survey of Consumer Expectations (SCE), shows that home price growth expectations remained stable relative to last year. The majority of households continue to view housing as a good financial investment, though with some differences across regions. Homeowners view themselves as more likely to make investments in their homes, and renters’ perceived access to mortgage credit has tightened somewhat.
Those surveyed think that home prices will increase4.65% in 2018 and an average of 3% per year for the next 5 years. I think this may be overly optimistic but this depends on the price range/area of homes we are talking about.
65% of all respondents think that buying property in their zip code is a “very good” or “somewhat good” investment, compared to 60% in 2016. The proven track record of owning real estate as a wealth builder cannot be denied.
67.5% of renters think it would be “somewhat difficult” or “very difficult” to get a mortgage. 67.3% of renters would prefer or strongly prefer to own instead of rent. I would strongly encourage anyone that is currently renting to talk to a mortgage lender.
This is the best way to KNOW if you can buy a home instead of THINKING you cannot. It would be a shame to find out that you could have bought a home and did not because you didn’t talk to a lender.
Time to Prepare for the Next Economic Cycle
The global economic expansion has already entered its 10th year. With bumpy and brittle growth having given way to a robust and globally synchronized conjuncture, an aging cycle has suddenly become much more cyclical.
To be sure, there is nothing in the economic data or financial indicators to suggest that a global recession is imminent. Unlike in the past few cycles, consumers have been relatively thrifty, house prices do not look excessive and the corporate sector has not overinvested in fixed capital – if anything, the opposite has occurred. Also, financial conditions remain favorable despite recently higher equity market volatility, and fiscal policy is expansionary, especially in the U.S.
Against this backdrop, barring a big geopolitical event or a full-blown trade war, the global economic expansion appears to have room to run for another year, or maybe two. However, the risk of a recession soon thereafter is high and rising.
Forewarned is forearmed! As always, hope for the best but plan for the worst!
The economy runs in cycles and we could be seeing a shift in the next couple of years. It is better to plan accordingly now instead of wondering what you are going to after things take a turn for the worse.
I do not think we will see another dramatic downturn in the housing market but a slowdown in the pace of price increases. Sales will remain low due to the low level of affordable homes for sale in some areas of the country.
Is Help on the Way for the Low Inventory Problem?
From First American:
Two important trends signal that some modest relief for the housing supply shortage is on the way – the continued year-over-year growth in completions means more homes on the market in the short-term and the dramatic rise in construction employment this month indicates housing construction is likely to increase in the months ahead.
Very encouraging but only time will tell. Of course, this is talking about the entire US. The best way for buyers and sellers to know what is happening locally is by working with an experienced local Realtor!
Should Rental History Be Considered When Giving Mortgages?
From Urban Institute:
Access to mortgage credit remains overly tight in part because we are not measuring the credit risk of renters appropriately. For many renters, the most significant financial commitment is paying monthly rent, yet traditional credit scoring does not account for borrowers who meet their commitment month after month.
Missed rent payments are picked up by the credit bureaus, but on-time payments generally are not reported. Adding rental pay history, via bank statements, to the qualification process would make assessing renters’ credit risk easier and expand access to homeownership among a significant portion of the nation’s population.
I would agree that we need to look at more ways to ensure that creditworthy people can buy homes. I am not saying to lower the lending standards to the level that helped to cause the housing market to crash.
We just need to find new ways to help increase home ownership in a sustainable way. This will help decrease economic inequality and spur economic growth in a manner that helps average Americans.