Discussing construction spending, home prices, what could happen if mortgage rates and prices keep increasing, manufacturing activity increases and much more!
Construction Spending Increases
From the Census Bureau:
Construction spending during March 2018 was 1.7% below the revised February estimate. The March figure is 3.6% above the March 2017 estimate. During the first three months of this year, construction spending was 5.5% above the level of spending for the same period in 2017.
Good news for both the economy and the housing market. But private residential spending is still to low because of the shortage of homes for sale in many areas if the US.
US Home Prices Increase 7%
Home prices increased nationally by 7 percent year over year from March 2017 to March 2018, while on a month-over-month basis, prices increased by 1.4 percent in March 2018 – compared with February 2018 – according to the CoreLogic HPI.
Looking ahead, the CoreLogic HPI Forecast indicates that the national home-price index is projected to continue to increase by 5.2 percent on a year-over-year basis from March 2018 to March 2019. On a month-over-month basis, home prices are expected to rise 0.1 percent in April 2018.
Dr. Frank Nothaft, chief economist for CoreLogic, said:
Home prices grew briskly in the first quarter of 2018. High demand and limited supply have pushed home prices above where they were in early 2006. New construction still lags historically normal levels, keeping upward pressure on prices.
Frank Martell, president and CEO of CoreLogic, said:
The dream of homeownership continues to fade away for the average prospective buyer. Lower-priced homes are appreciating much faster than higher-priced properties, making the affordability crisis progressively worse. CoreLogic’s Market Condition Indicators now indicate that half of the top 50 markets in the country are overvalued because home prices in those areas have risen so much faster than incomes. This is clearly an unsustainable condition that can only be remedied by aggressive and coordinated public/private sector actions.
Incredible but you have to start wondering how much longer US house prices can continue to increase like this? If home prices are increasing faster than incomes, it will eventually affect sales and prices.
Remember this is a national report and does not reflect what is happening in every local market.
If we look at WUAR data for house prices in Anderson County SC during March 2018, we see the median price increased 1.04% compared to March 2017 and 7.33% compared to the previous month. While this much more local data than the report from CoreLogic, it is talking about all of Anderson County and all types of homes.
What If Home Prices and Mortgage Rates Keep Increasing
You just read CoreLogic’s president and CEO saying that home prices rising faster than incomes is unsustainable.
Last month, Arch Mortgage Insurance released a report about how an increase in mortgage rates and/or home prices would affect monthly mortgage payments:
- A 5% increase in home prices increases payments by roughly 5%
- A 1% rise in interest rates increases payments by roughly 13% or 14%
I have shared many predictions about both home prices and mortgage rates increasing this year. According to Arch, monthly mortgage payments on a new home purchase could increase 10–15% if we see rates and prices increase as projected.
This would make you think that we might see home prices decrease. Arch also reported their estimates for the probability of home prices being lower in two years.
Check out this map showing what they think could happen (the darker the blue, the lower the probability of a price decrease):
I would agree that we probably won’t see home prices fall unless something drastic happens. Arch said:
Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.
We cannot ignore the possibility that a trade war or some other unseen natural or man made disaster could occur. While we never know what the future holds, we cannot live in fear either.
We must make decisions on the facts and do what is best for us. We do know that home prices and mortgage rates have been increasing and are projected to continue to increase.
Economic Activity in Manufacturing Sector Expanded in April
Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Good news for the economy and hopefully this will help increase incomes for average Americans.
Bathrooms Beat Kitchens as Most Popular Remodeling Project
From NAHB Now:
The kitchen is king among the spaces with the most impact on a home’s identity. But having a beautiful bathroom is just as, if not, more important for many home owners. In fact, bathrooms overtook kitchens as the most popular remodeling project, according to a new NAHB survey.
NAHB Remodelers Chair Joanne Theunissen said:
Small-scale renovations are slowly becoming just as popular as large-scale projects, as seen with bathroom remodeling becoming more common than kitchens. Home owners are finding cost-effective and shorter-timeframe upgrades can also add comfort and value to their homes.
This shows that you do not have to spend a ton of money to improve your home. You do need to consider how any changes will affect the value of your home and how much of the money you spend will be recouped if you sell.
How Smaller Mortgages Could Help More Americans
From Urban Institute:
Across the country, it’s hard for families to find affordable housing. Millions of new households will form over the next two decades, which will continue to create demand for more housing than we are currently supplying. And while we’ve heard a lot about the acute affordable housing crises in high-cost places like New York City and San Francisco, it’s a serious problem almost everywhere in the US.
The affordable housing crisis is often associated with (1) high rents that create serious cost burdens and (2) a limited inventory of available housing (both existing and newly constructed housing at lower end of the market is too slow). We cannot ramp up construction enough to fully fill the gap, so we must make existing homes more available to potential new homebuyers. Our latest research offers insight into the market for existing low-cost single-family homes and the lack of traditional mortgage financing available to purchase these homes with a small-dollar loan.
The existing supply of low-cost properties could be part of the solution to the current affordable housing crisis, but first-time homebuyers and households with limited cash who cannot buy these properties outright need access to the housing finance system. We must look for ways to make more robust, fairly priced, consumer-friendly mortgage lending available to help more households become homeowners.
It is frustrating how hard it is for some people to get a mortgage for a less expensive home. They said that most homes in the lower price range were being sold for cash and this is very true in our area.
While increasing the mortgage options for lower priced homes sounds great, it must be done in a way that is sustainable and doesn’t repeat the mistakes of the past.
The Problem with HUD Chief Ben Carson’s HUD Changes
Last week, Housing and Urban Development (HUD) Secretary Ben Carson proposed legislation to make affordable housing “work” by making it stingier. The bill would force low-income households to pay more of their scarce earnings in rent, tripling the rent for the poorest. Carson claims the changes would “provide an incentive [for renters] to increase their earnings.” That flies in the face of research showing that making housing more affordable helps to improve economic self-sufficiency and increases children’s future earnings.
The time has come for policymakers to ensure that every American has access to decent affordable housing. As with education and healthcare, such access should be considered a basic right — one that underpins not just our social safety net, but our economic dynamism.
I am not sure how hurting these people will help them? If someone is abusing these programs, then they should be held accountable and prosecuted to the fullest extent of the law.
I am pretty sure that most people would increase their earnings if they could. It isn’t a matter of lacking motivation for most people as much as lacking a realistic way to increase their income.
I would say that cutting out spending on frivolous stuff may be the best way for some to see an improvement in their financial situation. Maybe raising the rent will help to motivate some to stop spending money on things they don’t need.
Or it might cause people to feel more frustrated and hopeless about the future. I do know that the part of Carson’s proposal to raise the rents of the elderly and the disabled does not sound right to me.
Well that is all I have time for today. Please hit the share buttons and if you enjoyed this article, you probably want to subscribe so you never miss another post!