Talking about construction spending rising, low inventory, how hot sauce and debt are similar, mixed manufacturing signals and much more…
From the Census Bureau:
Construction spending during February 2017 was estimated at a seasonally adjusted annual rate of $1,192.8 billion, 0.8 percent above the revised January estimate of $1,183.8 billion. The February figure is 3.0 percent above the February 2016 estimate of $1,157.7 billion. During the first 2 months of this year, construction spending amounted to $163.3 billion, 3.0 percent above the $158.5 billion for the same period in 2016.
Spending on private construction was at a seasonally adjusted annual rate of $917.3 billion, 0.8 percent above the revised January estimate of $910.0 billion. Residential construction was at a seasonally adjusted annual rate of $484.7 billion in February, 1.8 percent above the revised January estimate of $476.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $432.7 billion in February, 0.3 percent below the revised January estimate of $433.8 billion.
This is the highest level of U.S. construction spending in almost 11-years and hopefully will help with the low number of homes for sale in many areas!
It is so nice to finally be able to say that we are putting the housing crisis behind us. While the real estate market is not back to where it should be, it is a heck of a lot better than it was! House prices and sales volume are both up. Distressed home sales (short sales and foreclosed homes) have decreased significantly. It appears that 2017 could be the year that the real estate market finally gets back to normal.
But, there’s something that will make the real estate market keep limping along: the low number of homes for sale.
Buyer demand is predicted to be strong in 2017 despite the inventory of homes for sale being low.
Let’s look at what some real estate experts have to say about inventory:
National Association of Realtors
Total housing inventory at the end of December dropped 10.8%…which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace.
More than two-thirds of the markets are seeing less inventory now compared to a year ago.
The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most. As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41% cumulative rise in existing home prices since 2011.
The lack of affordable supply is really driving up home prices.
Tight housing inventory remains a constraining factor limiting stronger sales growth. We expect further price growth to entice more homeowners to list their homes, particularly as existing homeowners have greater equity.
For anybody who is thinking about selling their home, now is the time! The limited inventory means the demand from buyers is going to be good. If mortgage rates remain at the historically low levels they are right now, we could see tremendous home sales in 2017.
Please do not think that the low inventory means you can over price your home…
Economic activity in the manufacturing sector expanded in March, and the overall economy grew for the 94th consecutive month according to the latest Manufacturing ISM® Report On Business®.
Manufacturing expanded in March as the PMI® registered 57.2 percent, a decrease of 0.5 percentage point from the February reading of 57.7 percent, indicating growth in manufacturing for the seventh consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Very nice! However, Markit reported something different…
Chris Williamson, Chief Business Economist at IHS Markit said:
The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam. Output growth slowed to a six-month low in March, optimism about the outlook has waned and hiring has slowed accordingly.
Key findings from the latest Markit Manufacturing PMI:
- Headline PMI eases to 53.3, down from 54.2 in February
- New orders rise at weakest pace since October 2016
- Input cost inflation hits two-and-a-half year high
Well now I feel confused. Is Markit or ISM correct?
From Black Knight Data & Analytics Executive Vice President Ben Graboske:
December 2016 marked 56 consecutive months of annual home price appreciation. That served to not only lift an additional one million formerly underwater homeowners back into positive equity throughout the year, but also increased the amount of tappable equity available to U.S. mortgage holders by an additional $568 billion.
There are now 39.5 million homeowners with tappable equity, meaning they have current combined loan-to-value (CLTV) ratios of less than 80 percent. Cash-out refinance data suggests that they have been increasingly tapping that equity, though perhaps more conservatively than homeowners had in the past.
In Q4 2016, $31 billion in equity was extracted from the market via first lien refinances. While that was the most equity drawn in over eight years, borrowers are still tapping equity at less than a third of the rate they were back in 2005, and they’re doing so more prudently. In fact, the resulting post-cash-out loan-to-value-ratio was 65.6 percent, the lowest on record.
However, it’s important to remember that we’ve also seen prepayment speeds – which are historically a good indicator of refinance activity – decline by nearly 40 percent since the start of 2017 in the face of today’s higher interest rate environment. Given the fact that nearly 70 percent of tappable equity belongs to borrowers with current interest rates below today’s prevailing 30-year interest rate, the incentive for many of these borrowers is shifting away from tapping equity via a first lien refinance and instead to home equity lines of credit.
The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent, but rate-term refinances decline by 75 percent. Based on past behavior, we may see a decline in first lien cash-out refinance volume, but it’s still likely that cash-out refinances – and purchase loans – will drive the lion’s share of prepayment activity over the coming year in any case.
Hopefully, most people learned from the housing crash that the equity in your home should not be used as an ATM. This is good news for home owners as it means that more homes have increased in value.
This is also good news for buyers because owners that were upside down can sell their homes now. Which could help with the low inventory problem…
Thirty-five percent (35%) of Likely U.S. Voters think the country is heading in the right direction, according to a new Rasmussen Reports national telephone and online survey for the week ending March 30.
That’s down three points from the previous week and is the lowest weekly finding since President Trump took office on January 20. This number has been dropping steadily from the mid-40s for the last four weeks. It ran in the mid- to upper 20s for much of 2016.
Wow that is low considering how far we have come from just a few short years ago. Obviously, the Russians are to blame…
Evidence overwhelmingly shows that the average earnings premium to having a college education is high and has risen over the past several decades, in part because of a decline in real average earnings for those without a college degree.
Homeownership is positively associated with educational attainment—in terms of both degrees pursued and degrees completed. This finding underscores the critical importance of making college financially accessible. While going to college without debt is ideal, doing so is often a financial impossibility. Given a rising reliance on student debt for financing and gaining access to higher education, our findings highlight the increased importance of federal grant and loan programs.
In addition, our analysis shows that for any given level of educational attainment, those with student debt are less likely to own a home in their early thirties than those who completed their education without taking on as much—or any—debt. To the extent that the statistical associations we uncovered reflect a causal impact of debt on homeownership, they have important implications for the housing market and future spending behavior. Homeownership represents an important means of wealth accumulation, with housing equity being the principal form of wealth for most households. So, changes in the way we finance higher education, with an increased reliance on student debt, may have important implications for the housing market and the distribution of wealth.
Interesting stuff from the NY Fed (emphasis is mine). I have heard time and time again that student debt is a problem for many people that want to buy a home. Locally, the smart thing to do is attend Tri-County for your first 2 years and then transfer to a 4 year college. You will be able to live at home and not run up as much debt.
The New York Federal Reserve announced Monday that in 2017 total household debt will reach its previous peak of $12.68 trillion, which it reached in the third quarter of 2008. It’s already close: Total household debt in the fourth quarter of 2016 was nearly as high, at $12.58 trillion.
While the debt level is similar to 2008, the things Americans are in debt for have changed, as household incomes have increased in recent years, and housing and stock prices have improved.
Compared with 2008, fewer borrowers have housing-related debt — including their first mortgages, or home equity lines of credit — and instead more have taken on auto and student loans.This is backed up by previous research: Student loans have made it harder for younger consumers to buy homes; plus, lower housing prices are also tied to higher student loan default rates.)
I think it should go without saying that debt is like hot sauce: a little is good but more ain’t always better…
Although the Fed’s recent interest rate hike signals renewed confidence in our economy and job market, many homeowners and home equity line of credit (HELOC) borrowers are questioning how this increase will impact their loans. According to recent research from TD Bank, both current and potential borrowers put interest rates at the top of their lists as a deciding factor when it comes to taking out a loan.
Among the roughly 1,350 homeowners surveyed nationally in early March for TD Bank’s second annual Home Equity Sentiment Index, nearly half (46 percent) of respondents said interest rates were the most influential factor in taking out a HELOC. This is in comparison to all other options, including fees, loan amount, draw period length and even trust in their lender.
Not surprising really. But one interesting tidbit is that more Millennials (39 percent) are HELOC users compared to Gen-Xers (31 percent) and Baby Boomers (31 percent).
Remember that debt is like hot sauce. A little can be awesome. But too much of either one will burn you!
Homeownership is arguably key to fostering wealth and stabilizing neighborhoods and communities. Helping creditworthy, low- and middle-income first-time homebuyers by providing them access to better mortgage terms and by increasing temporary monetary incentives has been a key U.S. policy for decades. So does a typical first-time homebuyer pay more than her more experienced counterparts do?
First-time homebuyers are inexperienced house hunters and are more likely to be marginal borrowers. The challenge for policy makers is to help them gain access to sufficient credit while controlling their default risk. However, first-time homebuyers may experience handicaps before credit even comes into the picture. In this paper, we present a robust result that first-time homebuyers are overpaying for their houses —possibly a result of their inexperience.
Very interesting paper but I feel they are pointing fingers at appraisers too much. If the first time home buyer is represented by a Realtor, then I feel the Realtor should be the one making sure they do not over pay.
But then I think about the conversation with my Broker-in-Charge I had yesterday about how many times I told a seller they better take an offer.
And they did not listen to me.
And it bit them in the butt…