Weekly Economic Update

Economic News

Good News for Buyers

Home price growth is slowing down and that could spell good news for buyers who were previously priced out of the market. According to CoreLogic's Home Price Index (HPI) and HPI Forecast for December 2018, though home prices increased by 4.7 percent year-over-year, they're projected to grow at a slightly lower rate of 4.6 percent year-over-year through December 2019. Comparing the annual average HPI and HPI forecast for 2018 and 2019, price growth is forecasted to slow from 5.8 percent to 3.4 percent, the report indicated. Prices are expected to decrease by 1.0 percent on a month-over-month basis between December 2018 and January 2019. 

These trends are likely to represent good news for potential homeowners. In 2018, CoreLogic together with RTi Research of Norwalk, Connecticut, conducted a survey measuring consumer-housing sentiment, assessing attitudes toward homeownership and the driving force behind the decision to buy or rent a home. According to this survey, when renters were asked how interested they were in owning a home or residence, 36 percent felt homeownership would allow them to fulfill a dream and provide a place to raise a family. On the other hand, 45 percent of those surveyed claimed they could not afford to buy or take on the responsibility of ownership at this time. However, the latest HPI report indicated that as home-price growth cooled and incomes rose, buyer affordability was likely to improve and help "home sales to pick up." Source: MReport

Seniors Staying Put

Seniors who were born after 1931 are less likely to sell their homes than were previous generations—and it’s a significant cause of the housing shortage, according to the “February Insight” report from Freddie Mac. The result is around 1.6 million houses were not for sale through 2018, representing about one year’s supply of new construction, or more than 50 percent of the shortfall of 2.5 million housing units—that the market faces. The scarcity factor serves to increase housing prices and make renting more attractive to younger generations. However, a shortfall of new construction increases house prices and rental rates. “We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting,” said Sam Khater, chief economist at Freddie Mac. “This further highlights the importance of addressing barriers to the production of new housing supply to help accommodate long-term housing demand.” Improved health and higher levels of education are causes of the trend. And it’s likely to increase over time as improvements in health care and technology make aging in place easier. For example, the capability to Skype with a doctor. Source: The Mortgage Leader

Real Estate News

Breaking: The Fed is Looking at the Data

This doesn’t always happen, but Friday's job report came just in time for the Federal Reserve Board to analyze the data and act on it during their next meeting which starts March 19. Before the data was released, most analysts were predicting no action to be taken at this meeting. As a matter of fact, most predictions are ranging from no rate increases this year to perhaps one rate increase towards the end of the year. 

Friday's job report certainly supports this thinking. For the month, the economy created 20,000 jobs, which was much less than expected, even considering the large gain in January and snowy weather in February. We have been subject to significant revisions of the previous months of job data recently and this time there was not much of an adjustment, as the numbers from the last two months were revised upward by only 12,000 jobs. The headline number is the unemployment rate, and this came in at 3.8%, reversing the increase of the previous month. For Fed watchers, the headline number typically is wage growth. Wages grew 3.4% from the previous year -- higher than forecasted. 

What does this all mean for next week? Certainly, the jobs report will be seen as weak, but as we pointed out the reports have been volatile lately. One thing we can say is that, no matter what the Fed does, spring will still be coming next week, and it will also be St. Patrick's Day. For those of us who don't like winter weather, we will be celebrating regardless of the Fed. Some nice language concerning how they like low interest rates could also be a cause for celebration as the spring real estate market should be heating up as well.

Adjustable Rate Mortgages are Still an Option

The size of the national average fixed-rate residential loan recently was $280,900. The size of the average adjustable-rate loan was $688,400 – two and a half times as big. That data point, courtesy of the Mortgage Bankers Association, is a reminder that the industry still offers products that make it affordable to get people in the door, with the intention of refinancing later. Experts aren’t really surprised. ARMs have always carried larger balances, the MBA’s chief economist, Mike Fratantoni, pointed out, in order to help those struggling to afford costly homes, “but there are times when we see them move even higher.” 

But even though it’s not a surprise, the reasons behind the trend can feel unsettling. “I think there is still a desire to use the product which is going to get you into the home and then maybe there may be an opportunity to refinance into a fixed-rate later,” Fratantoni told MarketWatch. Fratantoni also notes that higher-income borrowers may be more tolerant of a little interest-rate risk, whereas those in the lower tiers of the market and first-time buyers generally “value the stable payment that a fixed-rate loan provides.” Fratantoni stresses that the ARMs of today aren’t those of a decade ago. Underwriters must now make sure borrowers can afford any monthly payment during the life of the loan, even if the rate resets, because of changes introduced by the Dodd-Frank bank reform law. Source: Market Watch