Discussing home flipping decreasing, what states help your money goes further, Fannie and Freddie still need fixing, CMBS delinquencies and unemployment claims decrease, private sector employment increased, and a plan to stop the Bozos!
Home Flipping Decreases to Almost 4 Year Low
From Attom Data Solutions:
The percentage of homes being flipped is down during Q2 2018 was down from the previous quarter and the same time period during 2017. 5.2% of all home sales in q2 2018 were flips.
Homes flipped in Q2 2018 yielded an average gross return on investment of 44.3%, down from 47.8% in the previous quarter and down from 50.0% in Q2 2017.
With the extreme lack of inventory, it is getting harder for investors to find properties to flip. The number of foreclosed homes is much lower than just a few years ago.
Also, Attom says that more investors are using financing to flip homes than in the past. Higher home prices and the additional costs of using financing is making flipping tougher.
Where Does Your Money Buy You More?
The Tax Foundation recently compared each state to find out how far $100 goes when compared to the national average. Check out the map:
It isn’t just the costs of homes that you have to consider. You need to think about the cost of living and how far your money will go when you buy stuff like groceries!
Fannie and Freddie STILL Need Fixing
Despite it being 10 years since the economy hit the kids and the GSEs were put into conservatorship, we still have not seen any progress on reforming Fannie and Freddie.
Consider this snippet from a recent Washington Post article:
Fannie and Freddie, the government-sponsored enterprises that purchase mortgage loans from lenders and package them into securities that they guarantee, are among the nation’s most important financial institutions. They guarantee almost half of all the mortgage debt outstanding. When they faltered during the dark days of 2008, the government had little choice but to push them into conservatorship because their toppling would have wiped out the critical housing market, pushing a nation already in recession into an economic depression.
Yet their stay in conservatorship, intended as a “timeout” to stabilize the housing finance system as Congress decided what to do with the behemoths, has turned into a decade-long limbo. Policymakers have repeatedly failed to muster the political will to make the difficult decisions required for revision.
There is no doubt that Fannie and Freddie ( the GSEs ) are very important to the housing market. So what can or should be be done?
There are 2 options according to the article:
We have two choices. The first is to expand the number of privately owned institutions that do what Fannie and Freddie do so that any one of them could be allowed to fail without excessive market disruption. This move to multiple guarantors would remove the toxic incentives at the heart of the duopoly and increase competition among those that package and guarantee mortgages.
The second is to combine Fannie and Freddie into a single utility. This would remove the incentives that make market concentration problematic and maximize competition among mortgage lenders, allowing smaller lenders to access global capital markets without going through privately owned gatekeepers such as Fannie and Freddie.
More competition would be great IF it is done correctly. We certainly do not want to repeat the mistake of the past and have too lenient mortgage lending standards.
Just because this is a very complicated problem does NOT mean it is OK for our elected officials and policy makers in Washington to continue to kick the can down the road!
Unemployment Claims Decrease to Almost 49 Year Low
From DOL (emphasis is mine):
In the week ending September 1, the advance figure for seasonally adjusted initial claims was 203,000, a decrease of 10,000 from the previous week’s unrevised level of 213,000. This is the lowest level for initial claims since December 6, 1969 when it was 202,000. The 4-week moving average was 209,500, a decrease of 2,750 from the previous week’s unrevised average of 212,250. This is the lowest level for this average since December 6, 1969 when it was 204,500.
Incredibly good news BUT remember that this just gives the Federal Reserve more justification for increasing their benchmark interest rate. While this does not always mean that mortgage rates will rise, it increases the possibility that they will increase.
Private Sector Employment Increased
Private sector employment increased by 163,000 jobs from July to August according to the August 2018 ADP National Employment Report. Combining this with the report from the DOL and we really should expect the Fed to increase interest rates at their next meeting.
Mark Zandi, chief economist of Moody’s Analytics, said:
The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.
If we are seeing a hot labor market, it should mean we will see more robust wage growth. Which I have been saying we must have for a truly healthy economy for years!
CMBS Delinquency Rate Decreases
A trusted combination pulled the Trepp CMBS Delinquency Rate sharply lower once again in August: continued resolutions of distressed legacy debt and the crisp pace of new loan securitizations. The overall delinquency rate for US commercial real estate loans in CMBS is now 3.64%, a decrease of 17 basis points from the July level. Delinquency rates for all major property types fell last month.
Awesome news! While this is talking about commercial real estate loans, it does indicate a healthy economy.
And like I always say, we must have a healthy economy to have a healthy housing market!
Stop the Bozos! Or Bezos?
You may have missed yesterday’s post that included a bit about how some of the companies that get the juiciest government contracts also pay their CEO more than 100 times as much as their median worker.
Which is why it is a strange coincidence that Sen. Bernie Sanders just introduced a bill that would require large employers to pay the government for food stamps, public housing, Medicaid and other federal assistance received by their workers.
Sanders has been having a feud with Amazon’s CEO Bezos so the bill was named the Stop Bezos Act as a not too subtle dig. Some of Sanders’ ideas seem far fetched or not in touch with economic reality but at least he is thinking about the average American…
If employers in this country simply paid workers a living wage, taxpayers would save about $150 billion a year in federal assistance programs, and millions of workers would live in dignity and security.
Stopping Bozos that underpay their employees sounds good to me. But could this work or would it just backfire and hurt those it is intended to help?
I am not 100% convinced this would work or that it wouldn’t hurt the economy/labor market.
Plus, it stands a snowball’s chance in hell of becoming a law anyway…