Discussing the latest new construction numbers, will rising mortgage rates hurt the housing market, consumer credit defaults and more!
Housing Start Up BUT Permits Fall
From Census Bureau and HUD:
Privately-owned housing units authorized by building permits in August were 5.7% below the revised July rate and 5.5% below the August 2017 rate. Single-family authorizations in August were 6.1% below the revised July figure.
Privately-owned housing starts in August were 9.2% above the revised July estimate and 9.4% above the August 2017 rate. Single-family housing starts in August were 1.9% above the revised July figure.
The increase in starts is great BUT the decrease in permits is very bad. Permits is looking forward to the number of homes planned to be built and any decrease at this time is bad.
Also, while the increase in starts is good, we are still below where we need to be because of the shortage of homes for sale, population growth and household formation.
Will Higher Mortgage Rates Hurt Housing?
From First American:
In August, the housing market continued to underperform its potential. The supply shortage, combined with first-time home buyer demand, has created a strong seller’s market, where many potential buyers are bidding on the same few homes, which accelerates price appreciation.
In addition to rising nominal prices, increasing mortgage rates have eroded consumer house-buying power, which is down 5 percent in June compared with a year ago. Given the focus on interest rates due to the upcoming likely change to the Federal Funds rate, we analyzed what may happen to home sales as mortgage rates rise.
Our forecast shows that potential home sales will overcome the hurdle of rising rates. The thriving economy and growing first-time home buyer demand will have a positive effect on home sales, and recent upticks in construction will bring more supply to the market, providing millennials more homes to choose from and, ultimately, driving sales growth.
There is no doubt that the housing market is not as strong as it could or should be since the economy is doing pretty good. Many people tend to forget that mortgage rates have been much much higher in the past and guess what…
People still bought homes! It does mean that home buyers will need to adjust their criteria but it does not mean the housing market will crash.
Higher mortgage rates will put the brakes on home price appreciation. I do not think home prices will fall unless the economy hits the skids.
Consumer Credit Defaults Stable
Consumer credit defaults were stable and the composite rate was one basis point higher than last month, at 0.87%. The bank card default rate dropped four basis points to 3.52%, the 4th consecutive month of decreases. The auto loan default rate increased one basis points to 0.97%. The first mortgage default rate was up two basis points from the previous month but the same as August 2017.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said:
Recent economic reports point to continued stability in consumer credit default rates. A review of economic statistics covering the consumer economy is favorable. Job creation continues at about 200,000 per month with the unemployment rate just below 4% and wage gains are approaching a 3% annual rate. While jobs and incomes advance, the spending side is showing modest retail sales growth and auto and home sales are flat to down. These trends favor stable default rates in the near term.
Good news and a sure sign that most consumers are doing OK.
Another Big Flipper Enters the Housing Market
One of the largest single-family landlords in the U.S. is betting more than $1 billion that it can use the tools it developed for buying and managing rental houses to forge a new business serving ordinary homebuyers.
Amherst Holdings LLC, which owns or manages about 20,000 single-family rentals, is launching a subsidiary to purchase, renovate and resell properties, combining the home-flipping business with new features to simplify the consumer experience of buying a home.
The extremely low number of homes for sale is creating an opportunity in many areas of the country. However, I do NOT think we will see the massive speculation that occurred before the housing market crash.
Average Wall Street Salary Rose 13% in 2017
A report from the New York State Comptroller said Monday that the average Wall Street salary rose by 13% in 2017 to $422,500, the highest compensation since 2008. Much of that boost in take-home pay came from bonuses, which rose 17% last year to $184,000 on average, which was also the highest in a decade.
The financial crisis precipitated by Lehman’s collapse has reshaped the American economy. While Wall Street banks struggled for a few years after the crisis, many workers in other industries are still feeling its stifling effects. Median household income rose 1.8% in 2017 to $61,372, or about one-seventh the average salary on Wall Street.
How many of you got a 13% increase in pay last year?