Discussing the latest economic report from the NY Fed, housing bubbles, foreclosure help in South Carolina, economic confidence, Fannie Mae’s outlook for the economy and much more…
The NY Fed just released their monthly US Economy in a Snapshot for June 2017. Here are a few of the highlights:
- Real consumer spending rose in April and there was a notable upward revision to the pace of growth in March.
- Capital spending indicators point to some tapering in the near-term momentum for business equipment spending.
- Indicators suggest that the gradual recovery in housing is being maintained, while surveys generally signal continued expansion in the manufacturing and services sectors.
- Payroll growth slowed in May, but still points to improving labor market conditions. The unemployment rate, the employment-to-population ratio and the labor force participation rate all declined.
- Credit standards have loosened only moderately since 2012 and remain tight compared to levels in the early 2000’s
- Single family starts remain at a relatively low level but continue to trend higher
Mostly good but just like chocolate, we could always use more…
Are US Home Prices in a Bubble?
With US house prices still increasing, some people are wondering if we could be in another housing bubble. Zillow recently said in a post that:
National home values have surpassed the peak hit during the housing bubble and are at their highest value in more than a decade.
While I may knock Zillow for their crappy Zestimates and in general having inaccurate info on their websites, some of their reports are decent. So while that quote is accurate, it does NOT mean we in a housing bubble.
I try to look at a variety of US home price reports from a variety of sources. Let’s look at US median home prices from the National Association of Realtors:
You can see that home prices increased dramatically during the early 2000s and then they fell after the housing market crashed. And then home prices started increasing again in 2013.
But what IF there wasn’t a housing bubble and crash?
What if house prices increased at the normal pace of 3.6% annually during the last 10 years?
Check out this chart that shows actual price appreciation (tan bars) with what prices would have been with normal appreciation (blue bars).
Looking at this chart, you can see if there had NOT been a boom and bust, US house prices would be about where they are today. Of course, every local market is different and you cannot judge a local market by reading national reports…
Around the world, the number of millionaires and billionaires is surging right along with the value of their holdings. Even as economic growth has slowed, the rich have managed to gain a larger slice of the world’s wealth.
Globally, almost 18 million households control more than $1 million in wealth, according to a new report from the Boston Consulting Group. These rich folk represent just 1 percent of the world’s population, but they hold 45 percent of the world’s $166.5 trillion in wealth. They will control more than half the world’s wealth by 2021, BCG said.
Rising inequality is of course no surprise. Reams of data have shown that in recent decades the rich have been taking ever-larger shares of wealth and income—especially in the U.S., where corporate profits are nearing records while wages for the workforce remain stagnant.
While we want corporate profits to be good so we have a healthy economy, we also want everyone to enjoy a good life. What can be done?
Well, there are not any easy overnight solutions. I would advise against doing stuff we already tried that did not seem to work…
Improving and repairing our aging infrastructure is good place to start. And improving our public education system so ALL students graduate ready to earn a decent living.
But neither are overnight and one thing I would avoid is silly wasteful government spending to simply say we are trying to do something. And sadly, some people you can’t help no matter what…
The cost to society of letting income equality get worse may prove to be very high…
The attack on Republican members of Congress in the United States this week is a product of America’s increasingly toxic political climate. Democracy is at stake in a country where two, deeply divided sides are no longer capable of reasonable debate.
A political battle is raging in the United States in which the competing camps are no longer engaging in debate. Instead, each side is denying the other’s right to participate in the democratic process. Both sides are raising the specter of treason as a way of justifying violence. The rage against elites has become impossible to contain, with ring leaders on the right speaking of “war” and those on the left of “resistance.” The two sides are united by the thirst for confrontation and by the occasional repudiation of their opponents’ humanity.
Interesting to see the perspective of someone outside the US regarding our current political situation. It really saddens me to see people incapable of debating anything and acting like spoiled little children by hurling insults at each other.
If you cannot say something nice, don’t say anything at all…
I also suggest reading I’m OK — You’re Pure Evil
South Carolina Foreclosure Prevention Program Helps 12,000 Keep Homes
A South Carolina agency says it has helped more than 12,000 homeowners statewide keep their residences out of foreclosure. A program launched six years ago to help South Carolinians keep their homes in the wake of the real estate bust that helped to trigger the last recession has now helped more than 12,000 households.
The S.C. Homeownership and Employment Lending Program, a foreclosure-prevention measure commonly known as SC HELP, started in 2011 to help eligible homeowners from losing their homes. The agency reported recently that through April 30, more than 98 percent of those assisted have continued to avoid foreclosure.
Thanks to the Post and Courier for sharing this since it could help some of our neighbors keep their homes. If you are facing foreclosure, please visit SCHelp.gov
Americans retained the same modest level of confidence in the economy last week as they have since early May. Confidence in the economy remains considerably higher than it was before last year’s presidential election, but it has weakened since the first quarter of this year.
Stable is better than declining! And we aren’t just doing better since the election, we are much better than the dark days after the economy went in the crapper.
Let’s hope the economy and Americans confidence in the economy continues to improve!
Some of the highlights (emphasis is mine):
The current economic expansion, now entering its ninth year, is forecast to continue, with full-year growth at 2.0 percent for 2017, according to the Fannie Mae Economic & Strategic Research Group’s June 2017 Economic and Housing Outlook. Incoming data suggest second quarter economic growth will rebound to 2.9 percent annualized from 1.2 percent last quarter. Additionally, despite mixed consumer fundamentals, consumer spending growth is expected to pick up to 3.1 percent this quarter from 0.6 percent in the prior quarter, resuming its traditional role as the biggest contributor to economic growth. Although moderate growth is expected to continue next year, uncertainty surrounding fiscal and monetary policy is clouding the forecast.
That last sentence is a pretty way of saying they really are not sure what to expect…
Fannie Mae Chief Economist Doug Duncan said:
The narrative for the housing market hasn’t changed over the past year. A labor shortage continues to restrain homebuilding, and tight inventory is constraining sales and boosting home prices. Although we expect mortgage rates to remain supportive for home buyers, our near-term outlook for existing home sales remains cautious. We expect total home sales to rise 3.2 percent this year and total single-family mortgage originations to drop about 21 percent to $1.62 trillion.
Some of their other predictions include 30 year mortgage rates and home prices to keep increasing. Which isn’t really too surprising…
From the Associated General Contractors:
Forty-two states added construction jobs between May 2016 and May 2017 amid growing demand for construction services, while 25 states and the District of Columbia lost construction jobs between April and May as firms struggle to find enough workers, according to an analysis by the Associated General Contractors of America of Labor Department data released today. Association officials said workforce shortages appear to be impacting construction employment in parts of the country.
Ken Simonson, chief economist for the association said:
There is still plenty of private-sector demand for construction projects, so it is likely that some states with monthly employment declines have a shortage of workers rather than a slowdown in work. Given the low unemployment rate in most states, it is hard for contractors to find new construction workers, let alone experienced ones.
Again we are hearing about how it is hard to find qualified construction workers. Remember me saying high school graduates should be able to earn a decent living? Construction jobs usually pay a decent wage…
One of the US’s largest banks made a subtle, but important change last month that could have big implications for entry-level homebuyers. That bank raised the cost of mortgages on lower priced homes significantly. If this change is adopted system wide, it could create headwinds for first-time buyers.
In early May, Wells Fargo changed its adds-on fees, known in housing finance as an “overlays”, for loans guaranteed by the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Rural Housing Service (RHS). These fees are in addition to those charged by the FHA, VA, and RHS. The changes include new fees for those borrowing less than $140,000 and a split between borrowers with credit scores below 700 and those over 740.
There must be some reason for Well Fargo to make this change. Curious minds want to know…
Ten-X just released its latest Commercial Real Estate Capital Trends report, which reveals that investment activity decreased during Q1 2017, taking a step backward after two consecutive quarters of growth. Overall transaction volume fell 32 percent from the prior quarter to $90.9 billion, according to Real Capital Analytics – an 18 percent drop from Q1 2016 and 43 percent lower than its late 2015 peak. The decline was not unexpected, as investors have pulled back sharply since the November election due to higher financing rates and uncertainty surrounding future exit cap rates. As a result, total deal volume has now fallen below $100 billion for the first time since early 2014.
Well that does not sound good. Still, the previous 2 quarters had growth so maybe this is just a blip?
Loans Originated in the Q1 2017 Exhibit Slightly Higher Credit Risk
Loans originated in Q1 2017 have slightly higher credit risk than loans originated last year. However, the credit risk is about the same compared to early 2000s, according to the latest CoreLogic Housing Credit Index (HCI).
The slight increase in the overall HCI from the first quarter of 2016 to the first quarter of 2017 has been primarily caused by increased riskiness of home-purchase loan attributes and the larger share of home-purchase loans in the first quarter of 2017. Shift to a higher percentage of home-purchase loans increased overall credit-risk metrics, as home-purchase loans have higher risk attributes than refinance loans.
I do not think we have to worry about credit being too loose as this appears to be due to the increase in home purchases. An increase in home purchases is a good thing after all…
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