Discussing housing starts and building permits, how low inventory affects the housing market, new home purchase mortgage applications, the NY Fed and Fannie Mae on the economy and housing market, home ownership and wealth, climate change and the housing market, home builder confidence plus more!
Housing Starts and Building Permits Increase YoY
From HUD and Census Bureau:
Privately owned housing units authorized by building permits in May 2018 were 4.6% below the revised April 2018 rate but 8.0% above the May 2017 rate. Single-family authorizations in May were 2.2% below the revised April figure.
Privately owned housing starts in May were 5.0% above the revised April estimate and is 20.3% above the May 2017. Single-family housing starts in May were 3.9% above the revised April figure.
While this is a national report, it is good news! Check out the charts:
You can see that while this was a good report compared to where we were at this time last year, we still are not where we need to be. Especially with the limited inventory issue in many areas of the country!
How Low Inventory Affects the Housing Market
Despite very strong demand from home buyers, we are still plagued by too few homes for sale. Limited supply and strong demand means we should see home prices to continue increasing.
Increasing home prices and increasing mortgage rates could mean fewer home sales nationally. But that is just my opinion so lets look at what some experts think!
Lawrence Yun, NAR Chief Economist said:
The worsening inventory crunch through the first three months of the year inflicted even more upward pressure on home prices in a majority of markets. Following the same trend over the last couple of years, a strengthening job market and income gains are not being met by meaningful sales gains because of unrelenting supply and affordability headwinds.
Sam Khater, Freddie Mac’s Chief Economist said:
As we head into late spring, the demand for purchase credit remains rock solid, which should set us up for another robust summer home sales season. While this year’s high rates – up 50 basic points from a year ago – have put pressure on the budgets of some home shoppers, weak inventory levels are what’s keeping the housing market from a stronger sales pace.
Javier Vivas, Director of Economic Research for Realtor.com said:
The dynamics of increased competition and buyer frustration are unlikely to change…In fact, the direction of the trend is pointing to a growing mismatch between the pool of prospective buyers and existing inventory.
The number of new homes being built has increased compared to the same time last year BUT we still do not have enough homes for sale in many areas.
If you have been thinking about selling your home, there is less competition, strong demand and higher prices than just a few years ago. This makes it a good time to sell a home!
New Home Purchase Mortgage Applications Decrease
From the Mortgage Bankers Association:
The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for May 2018 shows mortgage applications for new home purchases decreased 0.5 percent compared to May 2017. Compared to April 2018, applications decreased by 4 percent. This change does not include any adjustment for typical seasonal patterns.
Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting, said:
Despite strong demand, builders have not been able to ramp up the supply of new homes, as they face rising costs from key inputs such as lumber and having to raise wages to fill open positions. Additionally, our estimate of new home sales declined in May, reaching its lowest level since December 2017.
Not good news! There is no doubt that the booming economy is creating strong demand. Home builders seems to be unable to capitalize on it due to tariffs on lumber and difficulty in finding qualified workers.
The Future of the GSEs
From Capital View:
Since the moment Fannie Mae and Freddie Mac were put into conservatorship, a debate has raged over their future. The debate is complex, highly charged and at times, frankly nasty.
Part of the reason for the tone of the debate is that various groups representing the interests of shareholders of the two companies have chosen to wage a bare-knuckles campaign to get the two companies re-privatized. If they were re-privatized the increase in value of these stocks, currently trading below $2 per share, could produce a massive profit to their investors. Thus, a hodge-podge of players acting on behalf of shareholders has put significant capital behind a coordinated effort to increase the odds of their re-privatization, including contributing to sympathetic non-profits and other stakeholders who could be persuaded to share their views, hiring PR firms to plant beneficial op-eds and other stories in the press, and creating organizations intended to give the impression of grass roots support.
While it seems like we will never see anything one about the GSEs, I must agree that we must do what is best for America.
The future of the GSEs should be about doing what is best for ALL Americans and ensuring a healthy housing market. It should not be about helping Wall Street and the big banks but we all know who controls the politicians…
NY Fed on the Economy
Highlights from the latest US Economy in a Snapshot Report:
Real consumer spending in April increased robustly for the second consecutive month. Both goods and services expenditures grew at a solid pace.
Housing indicators point to continued gradual improvement in this sector. Tight housing supply and a strong labor market have the potential to provide continuing support to the housing sector.
Payroll growth was robust in May after more moderate rises in March and April. The unemployment rate declined, the employment-to-population ratio rose slightly and the labor force participation rate ticked down in the month. The latest readings of various measures of labor compensation continued to point to modest firming of wage growth.
Core PCE inflation continued to run at a level roughly consistent with the FOMC’s longer-run objective.
Good report but the really interesting part is their look at home ownership and housing wealth. According to the NY Fed, housing wealth has recovered and surpassed the previous nominal peak.
Check out this chart showing the amount of equity has increased to a new high:
A big part of the wealth building effect of owning a home is the equity in the home. The equity is the difference between what is owed for the property and what the property is worth.
Tappable equity is when the equity in a home exceeds 20% of the home’s value. The NY Fed said that the amount of tappable equity has hit a new all time high!
The NY Fed said that home equity has shifted towards older, more credit worthy mortgage holders. Check out this chart showing who has the most tappable equity:
The increase in equity is great news as it shows how home prices have recovered in many areas. But painful lessons were learned from the housing market bust, including how using a home’s equity as an ATM can be a BIG mistake!
38% Satisfied With the Direction of the Country
Thirty-eight percent of Americans are satisfied with the way things are going in the United States today, similar to last month’s 37% satisfaction rate but marking the numerical high since a 39% reading in September 2005.
Satisfaction with the nation is now back to the historical average of 37% for this trend, which was first measured in 1979, but is far below the majority levels reached in the economic boom times of the mid-1980s and late 1990s.
The majority of this increase is mainly due to the 68% of Republicans that are satisfied with the direction of the country. Only 13% of Democrats and 36% of Independents are happy about the direction of the country.
We all must be careful to not let our political beliefs influence us too much. Being overly pessimistic or optimistic because of your political beliefs could cost you…
Climate Change and the Housing Market
Between 2007 and 2017, average home prices in areas facing the lowest risk of flooding, hurricanes and wildfires have far outpaced those with the greatest risk, according to figures compiled for Bloomberg News by Attom Data Solutions, a curator of national property data. Homes in areas most exposed to flood and hurricane risk were worth less last year, on average, than a decade earlier.
I know that some are still in denial about climate change but there are coastal areas that will become very damp in the future…
Home Builder Confidence Decreases
Builder confidence in the market for newly-built single-family homes fell two points to 68 in June on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The decline was due in large part to sharply elevated lumber prices, although sentiment remains on solid footing.
NAHB Chairman Randy Noel said:
Builders are optimistic about housing market conditions as consumer demand continues to grow. However, builders are increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability. Record-high lumber prices have added nearly $9,000 to the price of a new single-family home since January 2017.
As I said before, the additional costs of tariffs will be paid by consumers. In the case of tariffs on lumber, it will be new home buyers that will be paying more…
The decrease in new home purchase mortgages and this report do not give me a warm fuzzy feeling. But we did see building permits and housing starts increase.
While home builder confidence did decrease, it is still in the positive. Which isn’t surprising since demand is strong!
Fannie Mae’s Economic and Housing Forecast
From Fannie Mae:
Despite a slowdown in the first quarter, economic growth is forecasted to pick up through the remainder of 2018, resulting in full-year real GDP growth of 2.7 percent, according to the Fannie Mae Economic and Strategic Research Group’s June 2018 Economic and Housing Outlook. This year’s growth projection, as well as the ESR Group’s projection of 2.3 percent growth in 2019, remain unchanged from last month and continue to rely heavily on the timing effects of fiscal stimulus, which are expected to fade beginning late next year.
This sounds pretty good BUT Fannie’s chief economist Doug Duncan mentioned the Fed raising rates and the negative implications of more tariffs and a trade war on the economy.
We just saw that home builders are concerned about higher costs due tariffs. Still, Fannie Mae is forecasting a 8% YoY increase in single -family housing starts.
Fannie is also predicting a 0.8% YoY increase in existing home sales and a 1.9% YoY increase in total home sales. Fannie thinks that home prices will increase 5.8% YoY.
If mortgage rates increase as predicted AND home prices increase 5.8% then it is not surprising to see home sales increase only 1.9% YoY.
But this is Fannie making predictions for the entire country. While interesting, this does NOT reflect what is happening in every local market.
As always, working with a Realtor in your area is the best way to ensure success when buying or selling real estate.