Discussing where the home ownership level is headed, the Conference Board Leading Economic Index increases, mortgage rates, HARP and the future of home prices…
Will We See Fewer Home Owners in the Coming Years?
We are all well aware that the number of home owners has decreased since the housing market crashed.Check out the chart below showing the level of home ownership in the US since 1980:
But can we expect the number of home owners to increase? Maybe we can according to First American:
We’ve posted the annual First American Homeownership Progress Index (HPRI), which measures how a variety of lifestyle, societal and economic factors influence homeownership rates over time at national, state and market levels. The HPRI declined 0.4 percent year-over-year, and is down 6 percent from the pre-recession peak. Potential homeownership demand is at the same level it was in 1990.
I am not a big fan of measuring potential anything. That being said, I am a big fan of home ownership and the positive benefits it has on society and it’s wealth building capability.
The Federal Reserve performs their Survey of Consumer Finances every 3 years that gathers information spanning every economic and social class. Their latest study, which covers 2010-2013, revealed that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).
So obviously, owning a home has a dramatic effect on an individuals wealth…
But what is a sustainable level of home ownership?
Where do we draw the line between a healthy level of home ownership and a dangerously manipulated level that could lead to economic woes?
The Conference Board Leading Economic Index for the U.S. Increased
From The Conference Board:
Very encouraging news came from the Conference Board as they reported that the Conference Board Leading Economic Index for the U.S. increased 0.3% in July. You may remember it increased 0.6% in June and 0.3% in May.
Third times a charm?
Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board said:
The U.S. LEI improved in July, suggesting the U.S. economy may experience further improvements in economic activity in the second half of the year. The large negative contribution from housing permits, a reversal from June, was more than offset by gains in the financial indicators, new orders and sentiment.
Let’s hope this trend continues and leads to more income growth for the average American and an increase in the number of affordable homes being built.
Mortgage Rates Drop Again
From Freddie Mac:
- 30-year fixed-rate mortgages averaged 3.89% with an average 0.4 point
- This is down from last week when it averaged 3.90%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.43%
- 15-year fixed-rate mortgages averaged 3.16% with an average 0.5 point
- This is down from last week when it averaged 3.18%
- A year ago at this time, 15-year fixed-rate mortgages averaged 2.74%
Sean Becketti, chief economist, Freddie Mac said:
Following a mild decline last week, the 10-year Treasury yield rose 1 basis point this week. The 30-year mortgage rate similarly remained relatively flat, falling just 1 basis point to 3.89 percent. Mortgage rates are continuing to hold at low levels amidst ongoing economic uncertainty.
Economic uncertainty? Not very surprising considering the news is full of plenty things to cause uncertainty…
Fear, Uncertainty and Doubt
Fear uncertainty and doubt, or FUD, stop many people from doing what is best or taking chances or making changes in their lives.
Right now, mortgage rates are super low. Do not let FUD stop you from making the right decision about buying a home!
Mortgage Applications Increase and 30 Year Rates Decrease
Since we heard from Freddie about mortgage rates, let’s check out what the MBA had to say:
Mortgage applications increased 0.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 11, 2017.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to its lowest level since November 2016, 4.12%, from 4.14%, with points remaining unchanged at 0.38 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) decreased to 4.04% from 4.07%, with points increasing to 0.27 from 0.26 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.41%, with points decreasing to 0.35 from 0.41 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
More encouraging news for home buyers. Remember, these are the average mortgage rates and do not reflect what is realistic or possible for everyone.
HARP Extended Until 2018
The FHFA’s Home Affordable Refinance Program, or HARP, was supposed to end in September. But the FHFA just announced they are extending it until 2018.
They also said they are changing the streamlined refinance program for borrowers with high loan-to-value (LTV) ratios. Last year, the FHFA announced that Fannie Mae and Freddie Mac would implement a High LTV Streamlined Refinance program to help borrowers who are current on their mortgage but are unable to refinance because their loans have LTV ratios that exceed the GSE’s maximum limits.
For more information, visit HARP
Looking in the Crystal Ball
From Fannie Mae:
Looming geopolitical tensions and the growing potential for a U.S. government shutdown as well as a technical default pose risks to the economy but are not expected to derail full-year growth of 2.0 percent. The economy grew 1.9 percent on an annualized basis during the first half of the year, slower than the expected 2.1 percent in the prior forecast.
However, the second-half outlook is slightly stronger, with consumer spending and business investment helping to support growth. After subtracting sizably from growth last quarter, residential investment also will likely be a modest contributor during the second half of the year.
But what does Fannie see in the future for housing?
- Single family housing starts to increase 6.8% YoY in 2017
- Single family housing starts to increase 13.3% YoY in 2018
- Total home sales to increase 3.2% YoY in 2017
- Total home sales to increase 2.4% YoY in 2018
- Home prices and mortgage rates to continue increasing through 2018
This is, of course, talking about the entire US and just an educated guess about what the future holds.
Only hindsight is 20/20 but we do not the future.
Nothing ventured, nothing gained.
The predictions of Fannie Mae differ greatly from those of some home owners when it comes to home prices. 58% of home owners believe there’ll be a “housing bubble and price correction” in the next 2 years based on results from the latest Modern Homebuyer Survey from ValueInsured.
While home prices have been steadily increasing, it does NOT appear we are experiencing the same conditions that lead to the housing market crash.
There were 2 main cause of the housing market crash:
- Too many homes for sale because builders were building at a pace that exceeded historical norms
- Banks giving mortgages to anyone that could fog a mirror
Obviously things are much different today. You have no doubt heard about the extremely low levels of homes for sale. Right now, the inventory of homes for sale in the US is at a 20 year low!
Plus, lenders are no longer giving mortgages to people without making sure the buyers can make the payments. Getting a mortgage isn’t like it used to be but it is NOT impossible to get a mortgage.
So if you think we are going to see home prices decrease, then you need to think about the results of the latest Home Price Expectation Survey.
4 times a year, Pulsenomics surveys over 100 experts about what house prices will do for the next 5 years. In the most recent survey, they said that houses would keep increasing through 2021. That being said, the rate that home prices are going to increase will be lower than the last 5 years.
The key thing to remember is they are not predicting that home prices will decrease!
While there are no guarantees about anything in life, I wouldn’t let FUD stop you from buying a home.