Discussing consumers expecting more inflation and increasing home prices, the percentage of renters that want to own a home, the first step of buying a home, listening to your heart about buying a home, home builder confidence, foreclosure activity decreases and much more
Consumers Expect More Inflation and Rising Home Prices
Highlights from NY Fed’s April 2018 Survey of Consumers:
Median inflation expectations increased to 3.0% at both the one-year and three-year horizon, increasing by 0.2% and 0.1% respectively since March. Both measures have been trending upwards since August of last year.
Median home price change expectations increased from 3.5% in March to 3.7% in April, its highest reading since November 2014 and well above its trailing 12-month average of 3.3%.
Median one-year ahead earnings growth expectations increased slightly from 2.6% in March to 2.7% in April, remaining within a narrow 2.6%-2.7% range since November 2017.
Median expected household income growth remained unchanged at 2.9% in April, 0.1% above its trailing 12-month average.
Median household spending growth expectations increased for the third month in a row from 3.1% in March to 3.3% in April, well above its trailing 12-month average of 2.9%.
Perceptions of the household’s financial situation compared to a year ago deteriorated slightly, while one-year-ahead expectations of changes in the household’s financial situation remained unchanged.
Interesting but will we see inflation and home prices increase as much as the survey results indicate? It does appear that if things continue as they have been going, we will.
One interesting tidbit from the housing section of the survey is how many renters under 50 would like to own rather than rent:
You can see only 52.6% of those over 50 would like to own. But for the renters under 50, 66.4% think they will eventually own a home. Check out the data:
It appears that many renters under 50 still want to own a home. This is very different from many articles reporting that younger Americans prefer renting to owning.
If you are currently renting and want to own a home someday, my first piece of advice is…
Checking Your Credit Is The First Step of Buying a Home
A borrower with a “fair” credit score could pay 7 percent more over the life of a 30-year mortgage for the same home as an otherwise identical borrower with an “excellent” score.
I often suggest that anyone thinking about buying a home needs to check their credit and work to improve it. Zillow’s research just confirms that you will save a boatload of money!
Should You Listen to Your Heart About Buying a Home?
From University of Florida:
The advice to use your head, not your heart, might not be helpful after all
We make tough decisions all the time, but choices relating to money send many of us running in the other direction. The science of decision-making offers some explanations for why we do this: We’re befuddled by too many choices, content to defer to our partner, or think we don’t have the expertise to do a good job.
Consumer behavior expert Aner Sela thought there was more to the story. His research points to another reason, driven by our stereotypes about money matters.
“There’s something that feels very cold and unemotional about financial decisions,” explained Sela, a marketing professor at the University of Florida’s Warrington College of Business. “The more we see ourselves as emotional decision-makers, the more we see financial decisions as something that’s just not for us.”
The financial decision about buying a home is nothing to take lightly or to solely on an emotional level. You will still need to make sure the numbers work and that you are financially ready for home ownership.
If you can frame the decision as doing what is best for living the life you desire, it appears that you may be less likely to avoid making a decision. Try thinking about how your lifestyle will improve as a home owner.
Home Builder Confidence Increases
Builder confidence in the market for newly-built single-family homes rose two points to a level of 70 in May after a downwardly revised April reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the fourth time the HMI has reached 70 or higher this year.
NAHB Chairman Randy Noel said:
The solid May report shows that builders are buoyed by growing consumer demand for single-family homes. However, the record-high cost of lumber is hurting builders’ bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market.
NAHB Chief Economist Robert Dietz said:
Tight housing inventory, employment gains and demographic tailwinds should continue to boost demand for newly-built single-family homes. With these fundamentals in place, the housing market should improve at a steady, gradual pace in the months ahead.
Encouraging news but does this mean we will see an improvement in the number of new homes being built? We can only hope…
Foreclosure Activity Decreases for 31st Consecutive Month
From Attom Data Solutions:
Nationally there were a total of 64,183 U.S. properties with foreclosure filings in April 2018, down 14 percent from the previous month and down 17 percent from a year ago — the 31st consecutive month with a year-over-year decrease in foreclosure activity and a foreclosure rate of one in every 2,089 U.S. housing units with a foreclosure filing.
A total of 33,900 U.S. properties started the foreclosure process in April 2018, up 5 percent from the previous month but still down 1 percent from April 2017 — the 34th consecutive month with a year-over-year decrease in foreclosure starts.
Lenders repossessed 14,233 U.S. properties via foreclosure (REO) in April 2018, down 45 percent from the previous month and down 45 percent from a year ago — the 15th consecutive month with a year-over-year decrease in REOs.
While this is a national report, it is still great news. The number of foreclosures in our area is much lower than it was during the dark days after the economy and housing market crashed.
Instead of focusing only on foreclosed homes, I suggest looking for the best deals. Just because a home is a foreclosure does not always mean it is a good deal!
Can More Housing Solve the Affordability Problem?
While it seems that more supply would help to alleviate the way that rents are increasing, lets look at some recent research from the Federal Reserve:
Housing rents have appreciated significantly in recent years. Rising rents and stagnant incomes across much of the income distribution have contributed to what has been called an “affordability crisis”, where the share of households spending greater than 30 percent of their income on housing is near an all-time high.
The increasing expenditure share on housing does not appear to be driven by households consuming housing units of higher physical quality, or by rising construction costs. Rather, quality-adjusted prices are increasing even as the cost of producing a home has stayed more or less the same. These facts have prompted many to suggest that constraints on the supply of housing, such as land use regulations or labor shortages, are at the heart of the affordability crisis. Relaxing such constraints is widely proposed as a solution to the affordability crisis.
Our results suggest that the rent elasticity is likely to be low, and thus marginal reductions in supply constraints alone are unlikely to meaningfully reduce rental burdens. An important reason for the low rent elasticity in the model is that we estimate a relatively low amount of preference heterogeneity across households. We also present evidence to suggest that improving amenities in low-priced neighborhoods is a more cost effective way to reduce prices in high-priced neighborhoods, via a substitution effect, than directly building additional housing units in high-priced areas.
Interesting study but as they point out, there is not “any direct estimates of the rent elasticity with respect to new housing supply in the literature”.
I still think that more affordable rentals should help those burdened with paying too much rent. This will improve the quality of life for theses renters and hopefully help some to save money to become a home owner in the future.
First Mortgage Defaults Decline
S&P Dow Jones Indices and Experian released today data through April 2018 for the S&P/Experian Consumer Credit Default Indices. The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate decreased four basis points to 0.92%. The bank card default rate rose eight basis points to 3.86%. The auto loan default rate fell six basis points from last month to 0.99%. The first mortgage default rate declined by four basis points, to a level of 0.68%.
This goes hand in had with the report from Attom that foreclosure activity is decreasing. Fewer first mortgage defaults should mean even fewer foreclosures.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, said:
The overall economic picture is positive, with continued moderate growth, a further decline in unemployment to below 4%, and quite strong consumer sentiment. Inflation remains at or below 2%, a level where most consumers tend to ignore small or periodic price increases. Among a wide range of economic indicators, there are two that hint of possible future concerns for some consumers. First, wage gains have not accelerated as the economy has improved. Average hourly earnings are rising at a 2.6% annual rate, only slightly faster than inflation. Second, home prices are increasing by 6% annually with some regions are seeing even larger gains. Neither of these has affected consumer credit defaults so far.
Blitzer points out that home prices are increasing at a much faster pace than average hourly earnings. This is not good and long time readers know I have said we need more income growth for average Americans for a long long time!
Well that is all I have time for today! Be sure to check back ASAP as I still have plenty to discuss!