Weekly Economic Update

Economic News:

2022 – The Year of the Fed?

The continuing pandemic along with the Fed’s planned actions could have a negative effect on the economy in the coming year.

The last two years have been extraordinary in many ways.?The pandemic headlines this story, but there are many parts to this tale. We had an economy stop on a dime for the first time in history.?So many adjustments were made, from millions working virtually, to wearing masks in public places.

The vaccines were supposed to lead us to the other side of the pandemic, but two obstacles arose. One was vaccine reluctance, and the other was variants of the virus. While these things have slowed the economic recovery, they have not stopped the recovery. This recovery was buoyed by record low interest rates and a red-hot housing market. Still, another significant part of the story concerns inflation.

When there is too much cash chasing too few goods, the price of those goods rise. The rise in real estate values and stock market have provided plenty of fuel for inflation which raged in 2021 amid supply shortages. Thus, the Federal Reserve has stepped in and made a statement that they are poised to remove their stimulus from the economy, while also raising interest rates in 2022.?If the Omicron variant could be a threat to the recovery, could the Fed’s actions also provide additional obstacles? The Fed will be performing a highwire balancing act in 2022, fighting inflation while keeping an eye on the real enemy -- which is highly contagious.

Treasury Plans to Cut Corruption

Title insurance companies will be required to provide more information about all-cash purchases according to new treasury department regulations.

The US Treasury Department will begin developing regulations that could expand reporting requirements for all-cash real estate purchases as part of the Administration’s efforts to cut down on global corruption, according to two senior administration officials. The new rule could force title insurance companies to turn over information about cash purchases funneled through shell companies in additional metropolitan areas, or implement new disclosures for commercial purchases in addition to residential sales, according to the officials, who requested anonymity to detail the effort before it’s formally announced. The rule-making process is an outgrowth of a new strategy to counter corruption that the administration has unveiled. Deputy Treasury Secretary Wally Adeyemo said that the new scrutiny being paid to real estate transactions was part of a broader push at the department to stop corrupt practices that intersected with the US financial system. The Treasury is also implementing a new law requiring US and foreign companies to disclose the identity of the persons who actually own and control the businesses when they are formed, registered in the US or change hands, he said in a speech at the Brookings Institution in Washington. (Source:?National Mortgage Professional)

Lender Profitability Decrease Expected

Based on Fannie Mae’s MLSS, 65% of mortgage lenders expect a decrease in profit margins while only 3% are feeling optimistic.

For the fifth consecutive quarter, a plurality of mortgage lenders expect near-term profitability to decrease, according to Fannie Mae’s Q4 2021?Mortgage Lender Sentiment Survey??(MLSS). In fact, according to the survey, 65% of mortgage lenders believe profit margins will decrease in the next three months, up from 46% in the prior quarter, while 31% believe profits will remain the same and 3% believe profits will increase. Competition from other lenders and market trend changes were once again the top reasons cited for the profitability expectations. Additionally, across all loan types, more lenders this quarter reported reduced consumer demand over the previous three months for both purchase and refinance mortgages. Looking ahead, again across all loan types, lenders on net expect purchase mortgage demand to remain largely stable, while refinance demand is expected to decrease substantially. “This quarter’s MLSS results suggest that the housing market may be poised to return to a more ‘normal’ state in the new year, following the boom experienced over the past two years due to historically low mortgage rates and pandemic-related changes in homebuyer behavior,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Mortgage lenders’ profitability outlook has significantly weakened over the past several quarters from its early pandemic run-up. However, net loan production income levels, as reported by the Mortgage Bankers Association, and the width of the current primary-secondary spread (an indicator of potential profitability) allow us to level-set. With both still slightly above pre-pandemic levels, we expect lenders to continue investing in capacity efficiency and process streamlining to maintain profitability despite the thinner-margin environment.” (Source: Fannie Mae)

Real Estate News:

Record Breaking Year!

An unusual set of circumstances led to an array of mortgage industry records being broken in 2021.

“The ongoing pandemic, including its seismic effect on the U.S. economy and the way Americans live and work, has made 2021’s housing market anything but typical,” said Redfin Chief Economist?Daryl Fairweather. “Remote work, low mortgage rates, a shortage of building materials and wealth inequality that has allowed an influx of affluent Americans to buy vacation homes, to name just a few factors, have come together to create a historic year for real estate. Buyers paid more for homes, bought sooner than they planned, searched outside their hometowns or?all of?the above. This year’s frenzied housing market has been one for the books—but it may become more balanced in 2022.”?According to Redfin, these are just some of the top records that were broken over the course of last year:?

• The typical home sold for nearly $400,000 ($386,000).
• The home supply fell to its lowest level in history.
• The typical home sold in just 15 days.
• Over 60% of the homes went off the market in two weeks.
• More than half the homes sold for over their list price.
• Mortgage rates hit a record low before rebounding.?
• Investors corralled a record percentage of the market. (Source: Redfin)