Discussing the number of flipped homes, Fannie Mae’s economic forecast gets downgraded, GSE reform talk and controversy, regulations hurting mortgage lending, and a Zestimate lawsuit gets dismissed…
Flipping Hits Post-Crash High
At a national level, the ratio of flipped properties to sales reached 6.2 percent in the first quarter of 2018, which matches the post-crash high in the first quarter of 2013. The first time it reached this level after the housing crash, home prices had just started to recover, and there were still a considerable number of distressed properties on the market.
The big change according to CoreLogic is that the share of distressed properties (foreclosures and short sales) has declined substantially. Because of the lower number of distressed properties, investors are having to pay more now than they were after the market crashed.
It appears they are willing to pay more due to the high demand and limited inventory of homes for sale. If an investor understands what the hot property type and price range is, they can still make a profit IF home prices continue to hold steady or rise.
And the high number of flipped properties makes it appear that investors are pretty sure that home prices will continue to grow.
For this analysis, CoreLogic defines a “flipped property” as a property that was bought and sold within 12 months. Sadly this article does not say what the average time was between the initial purchase and the sale to the next buyer.
Fannie Downgrades Economic Forecast for 2019
From Fannie Mae:
The forecast for 2018 full-year growth remains unchanged at 2.7 percent, according to the Fannie Mae Economic and Strategic Research Group’s May 2018 Economic and Housing Outlook. However, 2019 economic growth was downgraded to 2.3 percent due to the expectation of fading fiscal stimulus and a tightening labor market.
Fannie Mae Chief Economist Doug Duncan said:
We remain confident that, despite a first quarter hiccup, economic growth will pick up through the rest of 2018. There are signs that consumer spending is poised to strengthen in the months ahead, and we believe recent fiscal policy actions are likely to contribute to growth this year.
Come 2019, however, we expect the fiscal boost to fade, and we adjusted our forecast lower accordingly. We also note mounting downside risks to our projections, including growth-constraining protectionist trade policies and rising oil prices, among others. Meanwhile, housing’s upward grind should continue, despite a lackluster first quarter.
We expect home sales to post modest gains both this year and next, as prices rise and affordability declines amid low for-sale inventory.
Rising oil prices pose a downside risk to the economic outlook, as they may negate some of the increase in disposable income from the recent tax cuts while also putting upward pressure on headline inflation.
What else did they say? Here are some highlights:
- Single family housing starts projected to increase 7.9% YoY in 2018 and 5.4% YoY in 2019
- New single family homes are projected to increase 11.8% YoY in 2018 and only 3.8% YoY in 2019
- Existing home sales are projected to increase 1.5% YoY in 2018 and 1.2% in 2019
- They think 30-year fixed rate mortgage will hit 4.5% in 2018 and 4.7% in 2019
Remember these are predictions for the entire US and probably do not reflect what is realistic or possible for every local market. As always, the best bet to find out what is happening locally is to consult with a local Realtor!
It Would Be a Mistake to Unwind Bank Reforms
It certainly is interesting that Federal Reserve Bank of Cleveland President Loretta Mester warns against rolling back some of the changes made after the economy crashed.
Check out this quote from her speech at the ECB Macroprudential Policy and Research Conference:
Higher levels and quality of capital, liquidity standards, stress tests, living wills, and effective resolution methods for systemically important bank and nonbank financial institutions are all important tools for improving resilience. In my view, we should set standards for the structural resilience tools somewhat higher than they would be if we had more experience with and confidence in the countercyclical tools. I support efforts to better align regulation and supervisory oversight with where the potential system risks lie, including proposals to make regulation less burdensome on community banks in the U.S. However, I think it would be a mistake to unwind the steps taken since the financial crisis that have led to a more resilient financial system. I would like to see how the new settings perform throughout the cycle before making major changes.
Tweaking may be better than just tossing all the regulations out the window. Remember, government regulations and laws are like hot sauce: too much or too little isn’t good but the right amount makes things great.
Speaking of too much regulations…
Regulations Restricting Mortgage Lending
From the ABA:
Seventy-seven percent of respondents to the American Bankers Association’s 25th annual Real Estate Lending Survey described mortgage regulation as having a negative impact on business production and consumer credit availability.
In the survey released today, nearly 3 in 4 bankers said that Qualified Mortgage (QM) rules – which impose stringent rules that exceed “ability to repay” standards for borrowers – have reduced credit availability.
We do not want to go back to the days of giving a mortgage to anyone that can fog a mirror but mortgage regulations are a problem. We just have to make sure we do not let the mistakes of the past be repeated!
Lawsuit Against Zillow’s Zestimate Dismissed
A federal judge in Illinois tossed a lawsuit against Zillow Group claiming that its controversial Zestimate tool represents an unfair business practice and makes it harder for people to sell their homes.
U.S. District Court Judge Amy J. St. Eve shot down the home-sellers’ arguments that Zillow’s practices violated Illinois laws against deceptive trade practices and consumer fraud. In her opinion last week, she wrote that Zillow is very clear about the fact that Zestimate is a starting point not a valid appraisal. St. Eve ruled that the the defendents hadn’t provided proof that Zestimate kept them from selling their homes at market value, nor did they show that Zillow’s business practices hurt consumers, in this case home-buyers.
If someone is buying or selling a home, they MUST understand the problems with relying on Zestimates. I would call a Zestimate more of a conversation starter than a starting point…
And the conversation that it starts should be when a buyer or seller is consulting with a local Realtor about the TRUE market value of a property!
More Housing Finance Reform Talk Without Action
Recently, Bloomberg posted an article about how Brian Brooks, Fannie Mae’s general counsel has been meeting with people about the future of Fannie Mae and Freddie Mac. Brooks is supposed to be trying to get people to favor releasing the GSEs from government control.
It has been a long time since the housing market crashed and so far, Congress has been unable to get anything done about GSE reform. According to the article, Brooks has ties to Treasury Secretary Mnuchin and they want this done without any involvement from Congress.
The inability of Congress to do anything might sound like a pretty good reason to try to get something done without their “help”. Would any possible changes without Congress being involved mean the best interests of ALL Americans will be represented and protected?
House Financial Services Committee Chairman Jeb Hensarling has this to say about this Bloomberg article:
When Fannie Mae went broke, it came begging taxpayers for what has turned out to be $120.836 billion in federal bailouts so far. As a condition of receiving those funds, Fannie Mae was explicitly prohibited from engaging in “all political activities—including all lobbying,” a prohibition which it is now being reported Fannie has deliberately violated.
If true, this violation is more than an outrage, it is a direct affront on taxpayers and the current structure of the federally-back conservatorship that has allowed Fannie Mae to operate for the last decade. It is a slap in the face of taxpayers that Fannie Mae thinks it can take their money and blatantly ignore the rules that came with it. The American people deserve better. That’s why the Committee will be launching a full investigation into these allegations to identify those responsible and hold them accountable to taxpayers.
But we can’t stop there. In order to truly solve the problem of the broken GSE hybrid finance model, Congress must enact sustainable housing finance reform as soon as possible and once and for all get rid of any backdoor attempts to resurrect the old, failed ways of the past.
Interesting but how long has Hensarling and the rest of Congress had to accomplish this very important task? I do not have much faith in Congress to do anything but my trust level of Mnuchin is pretty low to reform the GSEs in way that helps ALL Americans and not just Wall Street and the big banks is pretty low.
Was it wrong of Brooks to talk to people about the future of the GSEs? I don’t know about that but it is possible.
I DO know that reforming the GSEs should have happened long long ago…
Well that is all I have time for today! Please share on Facebook, Twitter of Google and as always, if you have any questions about buying or selling real estate in Anderson County SC, please Contact Me!