Talking about the GSEs running out of money, the South is better for first time home buyers, the fox watching the hen house, home builder confidence and more…
Mel Watt, director of the Federal Housing Finance Agency, which has oversight over the enterprises, told the Senate Banking Committee that reform is “urgently” needed. “These conservatorships are not sustainable and they need to end as soon as Congress can chart the way forward on housing finance reform,” he said.
The current state of affairs has less to do with the 2008 crisis-era legislation than with a 2012 amendment to the earlier agreement. It directed the companies to send their quarterly profits to the U.S. Treasury and progressively reduce capital buffers down to zero by 2018.
Fannie and Freddie’s zero-capital target was a self-created ultimatum. In a way, it was meant to replicate Congress’s own self-imposed sequester, in which lawmakers set a hard cap on government spending while moving toward a more comprehensive budget agreement.
With no capital, there’s little margin for error. One bad earnings period—whether due to credit losses or accounting vagaries—could send Fannie or Freddie back to the government for another bailout. That’s the last thing anyone in Congress wanted just a few short years after the crisis.
I still do not understand why the GSE’s are being weakened by sending their profits to the Treasury? How does this benefit the housing market? Or the average American?
Markets with a good balance of affordable homes, low competition and strong growth will be most attractive to budget-conscious, first-time home buyers.
First-time home buyers looking for friendly market conditions would do well to avoid the busy, headline-making markets in the West and the Northeast, and focus their search instead on homes in slower-moving, more sedate Southern and Midwestern metros.
Trump appointed Craig S. Phillips, who contributed to the 2008 financial crisis at Morgan Stanley, to take care of FannieMae and FreddieMac.
Craig Phillips’s claims to fame at Morgan Stanley were selling the toxic mortgage derivatives. In one case, they decided to dump a massive package on a Chinese bank, which sued them for the fraud, but what’s fun about that one is that we have the emails of the group that was putting together the deal, and they were competing for a description of the deal. Some of the terms are sufficiently obscene that I won’t read them, but, basically, every single one of them made clear that they knew they were selling toxic wastes, and they knew, of course, that they were lying about the toxic waste. Who signed the securities prospectus on that? Well, that would be Craig Phillips.
Just a taste of a must read article. The sad thing is that some will ignore this because it criticizes Trump and other will blindly repeat it because it criticizes Trump.
If it is possible for you to think, ask yourself why someone with this background would be given this job…
In a further sign that the housing market continues to strengthen, builder confidence in the market for newly-built single-family homes rose two points in May to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the second highest HMI reading since the downturn.
NAHB Chief Economist Robert Dietz said:
The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market. Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.
Interesting that Dietz says we can expect increased demand but does not say he expects an increase in construction.
The strongest quarterly sales pace in exactly a decade put significant downward pressure on inventory levels and caused price growth to further accelerate during the first three months of 2017, according to the latest quarterly report by the National Association of Realtors®. Metro home prices have now accelerated for three consecutive quarters.
Lawrence Yun, NAR chief economist, said:
Prospective buyers poured into the market to start the year, and while their increased presence led to a boost in sales, new listings failed to keep up and hovered around record lows all quarter. Those able to successfully buy most likely had to outbid others – especially for those in the starter-home market – which in turn quickened price growth to the fastest quarterly pace in almost two years.
There is no doubt that home prices are still heating up. Even if mortgage rates are not increasing as many have predicted, waiting is only going to cost home buyers more money.
While I am not suggesting rushing your decisions, I do suggest that you realize that waiting will cost you. Also you may have heard we are in another housing bubble.
However this is not true!
With home prices increasing at a pace that surpasses historical norms, some people are saying we are in another housing bubble. Let me dispel that by reminding you about the causes of the housing bubble a decade ago.
Back then, home sales increased because mortgage lending standards were way too lax. Folks that were not qualified to buy a home could get a mortgage. This caused home prices to increase dramatically. The increase in prices and demand caused homebuilders in some markets to build too many houses.
Eventually, the lack of appropriate lending standards and various sorts of complex financial hanky panky by the banks and Wall Street led to the housing crash. And the housing crash and reaction to it cause lending standards to tighten…
If you take a look at lending requirements based on the Mortgage Credit Availability Index by the MBA, you can see that lending standards have become more sensible during the last couple of years. However, they are nothing like they were before the housing market crashed.
And despite the upward trend in home builder confidence, we can see that new construction is still low. Average annual housing starts in the first quarter of 2017 were below the level of housing starts going all the way back to 1980.
And despite the way home prices have been increasing, most areas still haven’t returned to where they were before the market crashed. Consider this snippet from a recent report from Trulia:
When it comes to the value of individual homes, the U.S. housing market has yet to recover. In fact, just 34.2% of homes nationally have seen their value surpass their pre-recession peak.
As you can see, there is not a housing bubble today. Mortgage lending standards not too loose and new construction is below historical norms and home prices in many areas are still below the pre-crash level.
Real consumer spending rose in March after falling in the previous two months, but the pace of growth in 2017Q1 slowed significantly from that in 2016Q4. Some of the weakness in Q1 consumer spending appeared to be related to unseasonably warm weather and the delay in tax refund disbursements.
Business equipment spending showed solid growth in Q1, but recent data point to a more modest pace over the near term.
Housing indicators suggest the gradual recovery in this sector is being maintained, while surveys signal some slowing in the improvement in manufacturing conditions.
Payroll growth was solid in April. The unemployment rate fell to its lowest reading since May 2007, the employment-population ratio rose, and the labor force participation rate fell slightly.
Headline inflation is running slightly below the FOMC’s longer-run objective, while core inflation remains at a somewhat more subdued level.
GDP is still below it’s potential which should make the Fed think long and hard about raising their benchmark rate.
While housing starts have improved we are still extremely low levels of construction for single family homes being. As I mentioned before, if demand is so strong, why aren’t we seeing more single family homes being built?
Please remember I am talking about the statistics for the entire US and not our area. There are plenty of new homes being built in the Anderson SC area.
As you can see, US home sales are still below the peak. Since this talking about the entire US, I suggest you consult with an experienced local REALTOR to find out what is happening in your market.
Well that is it for today!