Talking about the economy recovering and inflation, housing starts and permits, why you should buy a home this summer and much more…
The U.S. economic expansion continues unfettered, according to a new report by TD Economics. TD Bank’s Chief Economist, Beata Caranci said:
Despite a significant amount of volatility in quarterly growth rates in the first half of the year, on the whole, the U.S. economy is progressing largely as expected. Growth is on track to reach its cruising altitude this year of 2.2%, and maintain a similar outcome in 2018.
An increasingly tight labor market is expected to make its presence known on wage pressures, and inflation. The Fed yesterday cast a vote of confidence in that process by raising rates another quarter point.
Financial markets remain skeptical of further Fed hikes. Who can blame them? After five years of underperforming the Fed’s 2% inflation target, markets are taking an ‘I’ll believe it when I see it’ approach to inflation.
I am also in the “I’ll believe it when I see it” camp. I hope you did not miss my article earlier this week when I discussed the effects of inflation on the housing market.
HUD and the Census Bureau reported this week that home building fell for the 3rd straight month. This is the lowest level in eight months and construction activity declined broadly. Let’s look at the details:
Privately owned housing units authorized by building permits in May were 4.9% below the revised April 2017 level and 0.8% below the May 2016 level. Single-family authorizations in May were 1.9% below the revised April 2017 figure.
Privately owned housing starts in May were 5.5% below the revised April 2017 estimate and 2.4% below the May 2016 rate. Single-family housing starts in May were 3.9% below the revised April level.
Privately owned housing completions in May were 5.6% above the revised April 2017 estimate and 14.6% above the May 2016. Single-family housing completions in May were 4.9% above the revised April 2017 rate.
Strange that despite the limited inventory we are not seeing more activity. But you may remember that earlier this week I posted that home builder confidence had decreased slightly. And once again, we heard that builders are having a tough time finding buildable lots and skilled works.
Are these 2 reasons why we are seeing weak home building activity?
The lack of home building will only lead to more upward pressure on home prices and rents. If you are truly serious about buying a home, waiting could prove to be costly…
Why You Should Buy a Home This Summer
Whether or not to buy a home is a very serious decision but here are a few reasons you should to buy this summer:
Home Prices Keep Increasing
CoreLogic’s most recent Home Price Index states that house prices have increased 7.1% over the last year. CoreLogic is also predicted that home prices will keep increasing at a rate of 4.9% over the next 12 months!
The bottom is behind us. Home prices should continue to increase in the coming years for years. This means that waiting simply doesn’t make sense.
Mortgage Rates Predicted to Rise
I know is sounds like a broken record but we are still hearing predictions that mortgage rates are going to increase. But right now, mortgage rates are still VERY low!
Freddie Mac’s Primary Mortgage Market Survey reveals that 30-year mortgage rates have continued to hover around 4%. Many experts anticipate they will start to climb in the coming 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are ALL predicting that mortgage rates will increase by this time next year.
In case you missed it from my earlier post, check out this chart showing where they think mortgage rates are headed:
Obviously, an increase in rates will affect YOUR monthly house payment. If you wait, you may be forced to pay more!
You Are Paying a Mortgage No Matter What
Maybe you aren’t comfortable taking on the obligation of a mortgage. Like I said, it is a very serious decision! But unless you are living rent-free, you are paying a mortgage – either yours or your landlord’s.
As a home owner, your house payment can be a form of ‘forced savings’ that enables you to have equity in your house that you could use later. As a renter, you guarantee your landlord is the person with that equity.
Plus, once your mortgage is paid off, you won’t have a monthly housing expense. Do you think your land lord will let you stop paying rent after 15 or 30 years?
Buying a Home is a Good Investment
A recent study by Trulia showed that “buying is cheaper than renting in 100 of the largest metro areas by an average of 33.1%.” Which should give many renters a valid reason to consider buying instead of renewing their lease. But does buying a house make financial sense?
Ralph McLaughlin, Trulia’s Chief Economist said:
Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.
The article lists several reasons why owning a home makes financial sense:
- Mortgage payments can be fixed while rents increase
- Equity in your home can be used later
- A mortgage is as a “forced savings” account
- Homeowners have more wealth than renters
I strongly suggest that you consider the benefits of home ownership. It isn’t always the right decision for every one but there is no denying the financial advantages.
Some highlights from a must read report from the Joint Center for Housing Studies at Harvard University:
US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier.
In inflation-adjusted terms, however, national home prices remained nearly 15 percent below their previous high.
The rebound in home prices also differs sharply across neighborhoods by income. Based on Zillow data for over 9,000 ZIP codes, home prices in low-income areas (with median incomes under 80 percent of statewide median) were still 13.7 percent below their pre-recession peaks on average in 2016. By comparison, prices were 6.5 percent below peak in moderate-income neighborhoods and only 3.3 percent below peak in high-income neighborhoods (with median incomes over 120 percent of statewide median).
New residential construction in 2016 was well below the 1.4–1.5 million unit annual rates averaged in the 1980s and 1990s. In fact, coming on the heels of the most prolonged and pronounced downturn since the Great Depression, housing completions in the past 10 years totaled just 9.0 million units—more than 4.0 million units less than in the next-worst 10-year period going back to the late 1970s. Together with steady increases in demand, the low rate of new construction has kept the overall market tight, leaving the gross vacancy rate at its lowest point since 2000.
In 2016, the typical new home for sale was on the market for 3.3 months, well below the 5.1 months averaged since record keeping began in 1988.
Conditions are particularly tight at the lower end of the market, likely reflecting both the slower price recovery in this segment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly 500,000 units to only 136,000. Similarly, the number of townhouses started in 2016 (98,000) was less than half the number started in 2005.
The Consumer Price Index for rent on primary residences was up 3.8 percent last year.
After 12 years of decline, there are signs that the national homeownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by 280,000 in 2016, the strongest showing since 2006.
Now that foreclosures are ebbing and incomes are rebounding, the national homeownership rate may level off. But the ongoing tightness of mortgage credit and the limited supply of lower-cost housing are still serious constraints for potential homebuyers.
By many metrics, the housing market has overcome the worst effects of the housing bust. Nominal house prices have regained previous peaks, construction volumes are nearing their long-term averages, and household growth is becoming more balanced between the owner and renter markets. And with inventories of both for-sale and for-rent homes extremely tight, the need for additional housing supply should be an important stimulus for economic growth.
A growing body of social science research has documented the long-term damage to the health and well-being of individuals living in high-poverty neighborhoods. Recent increases in segregation by income in the United States are therefore highly troubling. Between 2000 and 2015, the share of the poor population living in high-poverty neighborhoods rose from 43 percent to 54 percent. Meanwhile, the number of high-poverty neighborhoods rose from 13,400 to more than 21,300. Although most high-poverty neighborhoods are still concentrated in high-density urban cores, their recent growth has been fastest in low-density areas at the metropolitan fringe and in rural communities.
As you can see, this is a must read. While there is plenty of good news, we still have areas that could be improved.
Well that’s it for today! Please hit the share buttons