Discussing NAR’s latest report on affordability, mortgage defaults, changes in housing demand and the benefits of owning a home and much more…
At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.01 percent this May, up compared to 3.83 percent a year ago.
This index is talking about how affordable homes are nationally. You must decide what is a comfortable and affordable monthly housing payment that fits your budget and lifestyle.
Consumer Credit Default Rates Drop
S&P Dow Jones Indices and Experian just released the S&P/Experian Consumer Credit Default Indices for June 2017. The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate dropped four basis points from last month to 0.82%. The first mortgage default rate dropped four basis points from May to 0.60%.
David M. Blitzer, Managing Director & Chairman of the Index Committee at S&P Dow Jones Indices said:
The economic expansion started in June 2009 and just passed its eighth anniversary. For most of those eight years, the consumers, politicians and business people expected bubbles, rampant inflation and budget crises. None of these fears were realized. Inflation is one to two percent, debt service levels are close to record lows. Disposable income is growing and supporting spending growth .
Based on national averages, consumers are in good financial shape. Consumer credit defaults across mortgages, bank cards and auto loans are at levels similar to those before the financial crisis. The continuing decline in the unemployment rate and rising employment have not created any upward pressure on wages and salaries. Wage growth is about 2%-3% annually, barely enough to stay ahead of inflation.
It is great that defaults decreased, especially first mortgage defaults. But as Blitzer points out, wage growth is NOT growing fast enough. If we do see inflation take off, it will put a serious financial strain on many…
6 Trends Poised to Reshape Housing Demand
First American just released a must read study about trends that will affect housing in the coming years:
Homeownership continues to be a critical driver of economic mobility, delivering financial and social advantages to entire communities, so understanding the forces that influence homeownership demand deserves attention. We’ve examined the key factors that influence the likelihood someone is a homeowner – educational attainment, income level, economic conditions, marital status and more. But, unlike typical homeownership rate studies, we’ve isolated each factor while holding the other factors equal, so we’re able to provide a clearer picture of the true impact that each of these economic and demographic factors have on homeownership demand.
So what are these 6 trends? Well, instead of cheating them out of their hard work, you will have to follow the link to find out. Instead I will share some stuff from the report that I find very interesting:
- A typical home owner’s net worth is $195,400 compared to only $5,400 for a renter
- The share of married households has fallen from 72% in 1960 to 50% today
- Home ownership increases as household real incomes increase
- A growing economy and rising income levels play a role in increasing the likelihood of home ownership
- Substantial unexplained gaps in home ownership rates between ethnicities remain
As I said, this is a must read for anyone in real estate or housing. It does raise as many questions as it answers. Considering the positive impact of home ownership on society, we need to be asking these questions…
Not too long ago, NAR released a study titled Social Benefits of Homeownership and Stable Housing. Consider this snippet from the study:
Homeownership does create social capital and provide residents with a platform from which to connect and interact with neighbors…Owning a home means owning part of a neighborhood, and a homeowner’s feelings of commitment to the home can arouse feelings of commitment to the neighborhood, which, in turn, can produce interactions with neighbors.
The study goes into great detail about the benefits to society from home ownership. But there are also some tax advantages from owning a home!
As reported by the Tax Policy Center’s Briefing Book there are a few tax advantages of home ownership such as the Mortgage Interest Deduction and the Property Tax Deduction. While we don’t know that these deductions will always be around, as of today, home owners can benefit from these additional deductions!
Another benefit of owning a home is when you buy using a fixed rate mortgage, your monthly payment stays the same. On the flip side, the cost of rent will continue to increase. Your monthly housing cost is a lot more constant if you own rather than rent.
So while the demand for housing will change because of these trends, some of the benefits for owning a home will still be true. If you do not own, I strongly suggest you consider these benefits!
Home Builder Confidence Slips
Builder confidence in the market for newly built single-family homes slipped two points in July to 64 from a downwardly revised June reading on the NAHB/Wells Fargo Housing Market Index (HMI). It is the lowest reading since November 2016.
NAHB Chairman Granger MacDonald said:
Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber. This is hurting housing affordability even as consumer interest in the new home market remains strong.
NAHB Chief Economist Robert Dietz said:
The HMI measure of current sales conditions has been at 70 or higher for eight straight months, indicating strong demand for new homes. However, builders will need to manage some increasing supply-side costs to keep home prices competitive.
The increased costs could mean that despite the demand and need for affordable homes, builders will be forced to focus on homes in the higher price range. You may remember that Trump slapped a tariff on Canadian lumber. The increased costs will be a burden that eventually is paid by home buyers…
The Differing Impact of the Boom and Bust on Millennial, Gen X and Older Homeowners
From Zillow Research:
Homeowners from different generations have benefited unequally from the past half-decade of national home value growth. While this period of uninterrupted home value growth has enabled millennial homeowners to fairly rapidly accumulate equity in more recently purchased homes, their older siblings in Generation X are in many cases only recouping losses in equity incurred during the Great Recession.
The median-mortgaged homeowner still owes the bank 62 percent of their home’s value. Gen X homeowners with a mortgage owe a median of 70 percent of their home’s value. Only 1.3 percent of mortgaged Gen X homeowners are close to owning their homes outright.
A big factor in this is when many Gen X home owners bought. Every local market is different so contact an experienced local Realtor to determine what is going on locally and the current market value of your home.
Satellite Snafu Masked True Sea Level Rise for Decades
The numbers didn’t add up. Even as Earth grew warmer and glaciers and ice sheets thawed, decades of satellite data seemed to show that the rate of sea-level rise was holding steady — or even declining.
Now, after puzzling over this discrepancy for years, scientists have identified its source: a problem with the calibration of a sensor on the first of several satellites launched to measure the height of the sea surface using radar. Adjusting the data to remove that error suggests that sea levels are indeed rising at faster rates each year.
I am betting Russian hackers were behind this sensor calibration problem…
Well that is it for today! Plenty of stuff already lined up for tomorrow including the latest on housing starts and much more. Please check back!