Looking at the latest housing starts and building permits numbers, foreclosure and mortgage delinquencies, household debt and credit scores of home buyers, home owner opinion of value compared to the appraised value, the increase in first time home buyers, home builder confidence, incomes in 2019 and the tax reform plus more…
July 2018 Housing Starts and Building Permits
Building Permits: Privately owned housing units authorized by building permits in July were 1.5% above the revised June rate and is 4.2% above the July 2017 rate. Single-family authorizations in July were 1.9% above the revised June figure.
Housing Starts: Privately owned housing starts in July were 0.9% above the revised June estimate but is 1.4% below the July 2017 rate. Single-family housing starts in July were 0.9% above the revised June figure and up 2.7% YoY.
Housing Completions: Privately owned housing completions in July were 1.7% below the revised June estimate and 0.8% below the July 2017 rate. Single-family housing completions in July were 5.2% below the revised June rate.
Total housing starts were well below expectations and housing starts are down for the 2nd consecutive month. We are still way below where we need to be:
Which makes me wonder why we are not seeing more homes being built since demand is so strong…
Great News About Foreclosures and Mortgage Delinquencies
Overall U.S. mortgage delinquency and foreclosure rates at the lowest level for the month of May in 12 years according to CoreLogic:
Nationally, 4.2 percent of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in May 2018, representing a 0.3 percentage point decline in the overall delinquency rate compared with May 2017, when it was 4.5 percent.
As of May 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.5 percent, down 0.2 percentage points from 0.7 percent in May 2017. The May 2018 foreclosure inventory rate was the lowest for any month since September 2006, when it was also 0.5 percent, and it was the lowest for May since 2006.
This is a national report but the number of foreclosures in the Anderson area is much better than just a few years ago. But they point out that thing such as natural disasters can cause extreme spikes such as what has been seen in Florida and Texas due to hurricanes.
But we never know what the future holds. We can only hope for the best and plan for the worst…
Household Debt Increases for 16th Consecutive Quarter
Interesting stuff from the NY Fed’s Q2 2018 Report on Household Debt and Credit:
Total household debt increased by $82 billion (0.6%) to $13.29 trillion in the second quarter of 2018. It was the 16th consecutive quarter with an increase, and the total is now $618 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008. Further, overall household debt is now 19.2% above the post-financial-crisis trough reached during the second quarter of 2013.
Mortgage balances—the largest component of household debt—rose by $60 billion during the second quarter, to $9.00 trillion. Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $4 billion, to $432 billion.
The median credit score of newly originating mortgage borrowers was roughly unchanged, at 760.
Check out the chart showing how credit scores are still much higher than they were before the housing market crash:
Checking your credit score and improving it at the beginning of the home buying process can save you thousands of dollars!
Home Owner Opinion of Value Approaches Reality
From Quicken Loans:
Homeowners are less likely to be surprised when they see their appraisal report with the gap between the appraisers’ and owners’ opinions of value narrowing. Appraisals were 0.28 percent lower than expected in July. This is nearly the same as in June when they were 0.25 percent lower, but vastly improved from the previous July when appraisals were 1.55 percent lower than what the owner estimated.
Bill Banfield, Executive Vice President of Capital Markets at Quicken Loans, said:
The story the HPPI is currently telling is one of an ever-strengthening housing market. With more appraisals meeting, or even reaching beyond, the level homeowners were expecting it’s clear home values in the majority of areas have recovered to the point where the owners’ personal view is finally lining up with the appraisers’ expert view.
It is always good to see that home owners being realistic about the value of their home, especially when it comes time to sell a home! Quicken also reported that US home values increased 4.86% YoY but decreased 0.6% from the previous month.
While it is great news that home values are still increasing, do not let this trick you into overpricing your home when you list it! One of the most important things about selling a home is selecting the correct initial list price.
First Time Home Buyers Dominate Housing Market
From Urban Institute:
First-time homebuyers face a difficult housing market: high prices, low supply, tight credit, and renting costs that make it difficult to save for a down payment. But compared with repeat buyers, first-timers have dominated the mortgage market for the past 10 years, and their share today is still high. We don’t see this changing anytime soon.
Combining the FHA and the GSEs, the total share of first-timers taking out purchase mortgages in 2017 was about 60 percent, about 20 percentage points higher than the 40 percent pre-crisis average.
They said that the reason for the increase of first time home buyers is that the percentage of repeat buyers has decreased. While most home owners have regained their lost equity since the housing crash, most also have lower mortgage rates than the current prevailing rates.
The lack of home owners selling so they can “trade up” means that the shortage of affordable or starter homes is even more of a problem. This illustrates why we desperately need more starter or affordable homes in many areas of the country.
With the extremely tight inventory levels, my advice to all home buyers is to find a local experienced Realtor to work with as their buyers agent. We do have a decent selection of new affordable homes in the Anderson area today but buyers must be prepared for stiff competition from other buyers.
MIA: New Homes
A great follow up to today’s report on new home construction is this interesting tidbit from Zillow:
Between 1985 and 2000, there were 3.9 permits issued for single-family homes per 1,000 residents. Since 2008, that mark stands at just 1.9 permits per 1,000 people. If that historic rate had continued over the past decade, there would be about 6.3 million more single-family homes in the housing stock.
It would take about five years of building at the current pace of 1.3 million homes per year just to add those “missing” homes. Although construction rates have been steadily rising – with June new home sales up 2.4 percent from a year ago – the U.S. is still building fewer single-family homes on a per capita basis than it did historically.
Home building contributes a lot to the economy. IF we saw more new single-family homes being built, the already good economy would be even better!
I have said that home building is too low compared if we consider household formation and population growth. Part of the reason for the way that home prices have been increasing is the high demand but limited supply.
Zillow Senior Economist Aaron Terrazas, said:
Building activity came to a near-standstill when the housing market collapsed, and now a decade later, years of underbuilding have left a gap of millions of homes missing from the American housing stock. In nearly every major market today, single-family homes are being permitted at a lower rate than they were historically as builders face a number of challenges in adding new homes, including land and labor costs.
What this means for buyers is a smaller supply of homes on the market, leading to increased competition and higher home prices. Historically, population growth has been met with new construction and new construction was a critical contributor to new inventory. Without a sustained pickup in permitting and construction activity, first-time buyers will struggle to gain a foothold on homeownership.
Terrazas is correct BUT it is not impossible for first time home buyers to find a property today. Hard but NOT impossible…
Home Builder Confidence Decreases
Builder confidence in the market for newly-built single-family homes edged down one point to a solid 67 reading in August on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
The NAHB report says that home builders are still reporting strong demand but are concerned about affordability decreasing and rising building materials costs due to the tariffs.
Plus builders are still having a hard time finding skilled employees and buildable lots. They do not mention the high regulatory burden that home builders must also contend with but that certainly has not changed in most areas.
Bad News About Incomes in 2019
Despite a corporate tax cut, record low unemployment, and an accelerating economy, employers aren’t planning big increases to their salary budgets for next year, a new survey from Willis Towers Watson finds.
In a survey of 814 organizations, the consulting firm found that, on average, employers plan on giving out 3.1 percent pay raises in 2019. That’s an increase of about 0.1 percent from previous years. Before the recession, employers gave out 3.8 percent increases—since then, despite the improving economy, raises have hovered around 3 percent.
The economic recovery has yet to hit workers’ wallets. Unemployment continues to fall, and demand for labor is increasing, but employers are still not raising wages. In fact, American workers effectively got a pay cut this year: U.S. average hourly earnings adjusted for inflation fell 0.2 percent in July from a year earlier.
We MUST see incomes for ALL Americans to grow if for a truly healthy economy. I know that may expected or said that incomes would grow because of tax reform but has not worked out for everyone…
From the NY Times:
The most notable outcome of the tax law is one that few Republicans talked about: Companies are buying back their own stock — a lot of it. Stock buybacks are expected to reach a record $1 trillion this year. After Congress reduced the top federal corporate tax rate from 35 percent to 21 percent, businesses are flush with cash. Lawmakers also let companies repatriate foreign earnings that they have been amassing at a rate of 15.5 percent for cash and 8 percent for other assets.
By spending a big chunk of their tax windfall on buying back shares, businesses are boosting demand for and, thus, the price of their stock. It is no wonder then that the S&P 500 stock index is trading near its high.
Share buybacks have an understandable appeal to executives, many of whom are compensated with stock themselves, and to investors. But buybacks do little for workers, most of whom own little or no stock. It is not even clear that it is in the best long-term interest of companies when they could be using that money to expand or invest in technology that would make them more productive and profitable in the future.
While stock buybacks is not helping most workers, let’s not look a gift horse in the mouth. There is some good stuff in the tax reform but sadly, it isn’t enough…
Not to mention the growing deficit and federal debt…
Bankers Joked About Destroying the Housing Market
From Business Insider:
Royal Bank of Scotland (RBS) bankers joked about destroying the US housing market and senior staff described the loans they were trading as “total f***** garbage,” according to transcripts released by the US Department of Justice.
When the contagion in the housing market became clear, the head trader at RBS got a call from a friend who said: “[I’m] sure your parents never imagine[d] they’d raise a son who [would] destroy the housing market in the richest nation on the planet.”
“I take exception to the word ‘destroy.’ I am more comfortable with ‘severely damage,'” he replied.
Absolutely disgusting! Think about how many big bank executives have gone to jail and then ask yourself why…
Well that is all for today! As always, if you have any questions about real estate in the Anderson SC area, email me!