Looking at housing starts and building permits in June, Fannie Mae’s outlook for the economy and housing market, is today’s booming housing market too much of a good thing, is the FHFA unconstitutional, rents are too high for some Americans, consumer credit defaults decrease again and more!
Housing Starts and Building Permits
From the Census Bureau and HUD:
Privately-owned housing units authorized by building permits in June were 2.2% below the revised May rate and 3.0% below the June 2017. Single-family authorizations in June were 0.8% above the revised May figure.
Privately-owned housing starts in June were 12.3% below the revised May estimate and 4.2% below the June 2017 rate. Single-family housing starts in June were 9.1% below the revised May figure but up 0.2% YoY.
Check out the charts:
This is the 3rd consecutive month of decreasing building permits. If demand is strong, why are we not seeing more plans for home building in the coming months?
Both charts above are showing back 20 years and you can see we are still much lower than before the Great Recession. This is a national report and in some areas, such as around Anderson, you can find a decent amount of new homes for sale.
Fannie’s Outlook for the Economy and Housing
From Fannie Mae:
Economic growth is estimated to have picked up strongly in the second quarter despite rising trade tensions, ultimately resulting in full-year real GDP growth of 2.8 percent, a slight upgrade from last month’s forecast. The ESR Group believes the second quarter’s estimated 4.2 percent annualized growth pace is unsustainable for the balance of the year, as the contribution from trade was likely temporary. As impacts of fiscal policy begin to fade in the second half of 2019, the Group expects full-year 2019 growth to moderate to 2.2 percent.
Fannie Mae Chief Economist Doug Duncan said:
As we celebrate the ninth anniversary of the economic expansion with what’s likely to be a robust second quarter, we’re also examining whether last quarter’s headline growth will mark a high point for the remainder of the cycle. Along with ongoing tightening of monetary policy, we expect fiscal stimulus, which has supported consumer, business, and government spending, to weaken as we move into 2019.
And while trade provided a meaningful lift last quarter – owing in part to overseas firms pulling forward their imports from the U.S. ahead of the announced tariffs – we expect trade will likely once again be a drag on growth moving forward. On housing, the same inventory constraints continue to haunt affordability and sales, with demand outstripping supply and home prices continuing to rise at a fast clip as a result.
Fannie is predicting:
- Single-family housing starts up 8.3% YoY in 2018
- New single-family home sales up 10.1% YoY in 2018
- New and existing home sales up 0.7% YoY in 2018
- FHFA Home Price Index to increase 5.3% YoY in 2018
- Mortgage rates to average 4.5% in 2018 and hit a high of 4.6% in Q4 2018
It appears that Fannie is not expecting mortgage rates too much BUT they are seeing home prices to continue increasing. Which still hits home buyer wallets in about the same way…
Duncan mentions the shortage of homes for sale causing problems. You would think that we would see more homes being built if demand is stronger than supply…
Is Today’s Housing Market Setting Us Up For Another Crash?
From The Hill:
We are currently in the midst of a six-year boom in home prices. Aided by a growing economy, favorable demographic trends, monetary accommodation, lax government housing agency underwriting policies, and consumer expectations of continuing home price appreciation, the demand for housing is booming. If the past is prologue, prices will correct when demand flattens as the economy cools or credit conditions tighten.
The housing market today has too much highly leveraged demand from investors and buyers chasing available supply. As a result, real home prices have increased 25 percent since the early 2012 low, a pattern mirroring the early years of the last price boom. So long as this price boom continues, the risk of a serious correction increases. Tightening government housing agency underwriting policies today is the best way to reduce the potential for large home price declines in the future.
A must read BUT I am not sure I agree. Especially that underwriting is lax since it is much tighter than it was before the economy/housing market hit the skids.
If there is one good thing that came out of the housing market crash, it is that lenders are not giving mortgages to anyone that “fog a mirror” anymore. Lending standards could be much tighter or way too loose compared to what they are today.
Today the U.S. Court of Appeals for the Fifth Circuit issued its opinion in Collins v. Mnuchin, in which a divided panel, in a per curiam opinion, concluded that the Federal Housing Finance Agency (FHFA) is unconstitutional.
This ruling is due to how the Executive Branch cannot control the FHFA or hold it accountable. I am sure there will be appeals and more court cases so we must wait to see how this plays out.
Could Congress be forced to do something about the GSEs and the FHFA because of a court decision?
The Rent Is Too High For Blacks and Hispanics
In 2017, just 41.9 percent of rental listings that appeared on Zillow were “affordable” for the typical U.S. household, meaning they would have required 30 percent or less of median monthly income.
But rents and incomes aren’t equal across metros or racial and ethnic groups. Those earning the median black and Hispanic household incomes could afford far fewer rental homes on the market across the U.S. in 2017—just 16.2 percent and 27.3 percent, respectively. By contrast, white and Asian households could afford 49.7 percent and 67.4 percent, respectively, of all rental listings without spending more than 30 percent of their income on rent.
Forgive me for using an old meme but there is no doubt that unaffordable rents will hurt the ability of renters to become home owners. I wish I had an easy solution for this problem but sadly, I do not.
Zillow Senior Economist Aaron Terrazas said:
Perhaps more so than any other factor, income determines where and how we live in the United States today. Income disparities across racial and ethnic groups in the United States have remained stubbornly persistent, and as a result, Black and Hispanic families encounter far fewer affordable rental options than white and Asian families. With fewer affordable options, these households are likely to have to make sacrifices elsewhere, whether that means putting a higher share of their income toward rent and cutting back on saving, cutting costs elsewhere in their budgets, moving further away or living with more people. The desire to own a home is similar across all races, but the difference in homeownership rates between races is wide – a lasting legacy of the historical income gap.
We cannot stick our heads in the sand and ignore these problems. Because they are not going away on their own…
Consumer Defaults Continue to Decline
From S&P Dow Jones Indices:
S&P Dow Jones Indices and Experian released today data through June 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 three basis points from last month to 0.86%. The bank card default rate dropped 13 basis points to 3.71%. The auto loan default rate was unchanged at 0.93%. The first mortgage default rate declined by three basis points, to 0.63%.
This is the second consecutive month where default rates for all loan types dropped or remained the same; however, each of the rates is still higher than they were 12 months ago.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said (emphasis is mine):
The favorable economic conditions consumers enjoyed in the last few years are confirmed by more than the current low levels of consumer credit default rates. Unemployment was falling to 4% or lower , inflation barely crept up after touching zero in 2015, and real (inflation adjusted) earnings rose as wages outpaced inflation. The ratio of household debt service to disposable income stayed close to the lowest levels in three decades.
The Federal Reserve’s reaction to the low unemployment rate was to raise interest rates to deter any increase in inflation. In the last month, the year-over-year rise in the consumer price index moved clearly above 2% and the Fed again raised its benchmark rate, the Fed funds rate, by a quarter percentage point. Oil prices are rising and may push inflation higher. Weekly unemployment claims continue to drop, pointing to a further decline in the unemployment rate. These trends explain why the markets are expecting further rate increases from the Fed. Today’s favorable consumer economy may be slowly shifting towards higher interest and inflation rates.
While this is good news, we must be aware that every party eventually comes to an end. As I am writing this, I am listening to Peter Schiff on Joe Rogan’s podcast talk about how he thinks we will see a huge recession in the next 2 years.
This is not the first prediction that the economy is going to hit a down turn that I have read in the past month or so. No one has a crystal ball so my advice is to always plan for darker days…
Industrial Production and Capacity Utilization Increased
From The Federal Reserve:
Industrial production rose 0.6 percent in June after declining 0.5 percent in May. For the second quarter as a whole, industrial production advanced at an annual rate of 6.0 percent, its third consecutive quarterly increase. At 107.7 percent of its 2012 average, total industrial production was 3.8 percent higher in June than it was a year earlier. Capacity utilization for the industrial sector increased 0.3 percentage point in June to 78.0 percent, a rate that is 1.8 percentage points below its long-run (1972–2017) average.
Check out the charts:
Despite the uncertainty about tariffs and trade wars, this is a very positive sign for the economy!
Survival of the Richest
From Future Human:
Last year, I got invited to a super-deluxe private resort to deliver a keynote speech to what I assumed would be a hundred or so investment bankers. It was by far the largest fee I had ever been offered for a talk — about half my annual professor’s salary — all to deliver some insight on the subject of “the future of technology.”
After I arrived, I was ushered into what I thought was the green room. But instead of being wired with a microphone or taken to a stage, I just sat there at a plain round table as my audience was brought to me: five super-wealthy guys — yes, all men — from the upper echelon of the hedge fund world. After a bit of small talk, I realized they had no interest in the information I had prepared about the future of technology. They had come with questions of their own.
They started out innocuously enough. Ethereum or bitcoin? Is quantum computing a real thing? Slowly but surely, however, they edged into their real topics of concern.
The Event. That was their euphemism for the environmental collapse, social unrest, nuclear explosion, unstoppable virus, or Mr. Robot hack that takes everything down.
If the super rich are planning for a worse case scenario, do you think that maybe you should as well? If I have said it once I have said it a million times: Hope for the best but plan for the worst.
Once again I have run out of time before I ran out of interesting things to discuss! Be sure to subscribe so you are notified of new posts by email!