Weekly Economic Update

Economic News

House of Representatives Passes Mortgage Insurance Bill

The House of Representatives passed a bill that slashes the cost of upfront mortgage insurance for first-time homebuyers using mortgages backed by the Federal Housing Administration. The Housing Financial Literacy Act of 2019, or H.R. 2162, stipulates that first-time homebuyers who complete a housing counseling program to learn about sustaining homeownership can get a 25-basis-point discount (0.25%) on their upfront MIP for an FHA loan. The Mortgage Bankers Association applauded the bill’s passage. "MBA has long advocated for increased access to housing counseling as a means to provide a more positive experience for first-time homebuyers unfamiliar with the homeownership process, as well as for other underserved communities," the MBA said in a statement. But the association also warned that adjustments to insurance premiums should be made carefully at HUD’s discretion so as to not negatively impact the FHA’s insurance fund. Rep. Joyce Beatty, D-OH, who presented the bill alongside Rep. Steve Stivers, R-OH, said enhanced financial literacy has proven to be effective. The bill will now move on to the Senate for a vote. Source: HousingWire

Here Comes the Fed and Jobs

What is happening with the job market? That is a question we have not had to answer for several years because job growth has been consistently positive. And though the job market continues to be strong in 2019, we can no longer use the word consistent from month-to-month. Since January we have had a month in which we have added over 300,000 jobs, which is in the spectacular range. We have also had two months barely above 50,000 jobs added -- which is in the poor range. 

The overall average for the year is down from last year, which is not unexpected because last year we had the positive influence of the tax plan. This week, the Federal Reserve Board is meeting amid calls for lower short-term interest rates. The inconsistency of both the jobs report and other economic data will only make this decision harder. Still, most analysts are predicting a 0.25% decrease, with some even forecasting a 0.50% cut. We would guess that the Fed would love to see this week's jobs report before they make a decision.

In the absence of this data, they will be relying upon other indicators. One very important indicator was released last week. The Commerce Department's first measure of economic growth for the second quarter showed an increase of 2.1%, slightly higher than the expectations of slowing growth compared to the first quarter. This number is preliminary and will be subject to more than one revision. One thing to keep in mind, if the Fed does cut rates, it does not mean that rates on home loans will also fall by the same amount, as these rates have already moved lower in anticipation of the economy slowing.

CFPB Qualified Mortgage “Patch” to End

The Consumer Financial Protection Bureau issued an Advance Notice of Proposed Rulemaking that would end the temporary Qualified Mortgage "Patch" applicable to certain mortgage loans eligible for purchase or guarantee by Fannie Mae and Freddie Mac. The ANPR refers to the Bureau's Ability to Repay/Qualified Mortgage rule, also known as the QM "Patch," which is slated to expire no later than Jan. 10, 2021. The ANPR states that the Bureau currently plans to allow the QM Patch to expire in January 2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition. The ANPR solicits comments on possible amendments to the ATR/QM Rule, including whether to revise Regulation Z's definition of a QM in light of the QM Patch's scheduled expiration. The ANPR seeks information and comment on whether the definition of QM should retain a direct measure of a consumer's personal finances (for example, debt-to-income ratio), and whether the definition should include an alternative method for assessing financial capacity. The Dodd-Frank Act amended the Truth in Lending Act to establish ability-to-repay requirements for most residential loans. TILA identifies factors a creditor must consider in making a reasonable and good faith assessment of a consumer's ATR. TILA also defines a category of loans called QM for which creditors may presume compliance with the ATR requirements. The Mortgage Bankers Association has long-advocated for improvements to the QM Patch. At the MBA National Secondary Market Conference in New York recently, MBA President and CEO Robert Broeksmit, CMB, said such improvements would put private capital on a more level playing field with Fannie Mae and Freddie Mac. Source: Mortgage Bankers Association

Real Estate News

Breaking: Home Values Near Record High

There has been a 14-month trend of slowing growth for US house prices on a year-over-year basis; but that changed in May. The latest CoreLogic Home Price Index gained 3.6% year-over-year in May and a month-over-month increase of 0.9%. And the firm’s HPI Forecast suggests growth in price rises will continue. “Interest rates on fixed-rate home loans fell by nearly one percentage point between November 2018 and this May,” said Dr. Frank Nothaft, chief economist at CoreLogic. “This has been a shot-in-the-arm for home sales. Sales gained momentum in May and annual home-price growth accelerated for the first time since March 2018.” Although the month-over-month rise for June is expected to be 0.8%, slightly down from the previous month, it will mark a new all-time high for single-family home prices. Over the year, CoreLogic is forecasting a 5.6% gain for home prices. Source: Mortgage Professional America

Homeowners and Renters Both Hit by Affordability Issues

Homeowners and renters alike are facing affordability issues, according to a survey from Freddie Mac, with renters hit particularly hard. The GSE’s “Profile of Today’s Renter and Owner” study showed that over half of Americans are making spending or housing changes to afford their monthly housing payment. Additionally, 44% of renters and 35% of owners who had trouble affording their housing payment over the last two years reported having to move to afford housing costs. Still, the majority of both renters and homeowners believe their current situation is the most affordable option for them. 

Renters are the most likely to be cost-burdened. According to the survey, 34% of renters spend more than one-third of their income on rent, while only 25% of homeowners spend that much on their housing payment. The biggest obstacle preventing many renters from becoming homeowners, specifically low-income renters, is the down payment and closing costs. Around 88% of low-income renters said the down payment and closing costs would be their biggest hurdle, compared to 72% of middle-income renters. Many Americans have had to cut costs to afford housing, including 62% of renters and 47% of homeowners. Over half of renters, 55%, reduced spending on non-essential items such as entertainment, compared to 52% of owners. Source: Freddie Mac