UMichigan House Buying Conditions Continues Downward Trend (Interest Rate Fears)

The University of Michigan Consumer Survey was released this morning … and it wasn’t good news for housing.  Their index for housing buying condtions declined.

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One of causes of confidence loss? The fear that The Fed will raise rates and unwind too quickly.

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Not to worry with The Fed only unwinding $300 last week.

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Instead of “Give Me Three Steps,” The Fed is singing “Give Me One Itsy-Bitsy Step” to raise rates.

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Home Price Growth Gains Momentum, Over 2X Wage Growth (Seattle Fastest, Washington DC Slowest)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.1% annual gain in August, up from 5.9% in the previous month. The 10-City Composite annual increase came in at 5.3%, up from 5.2% the previous month. The 20-City Composite posted a 5.9% year-over-year gain, up from 5.8% the previous month.

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Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In August, Seattle led the way with a 13.2% year-over-year price increase, followed by Las Vegas with an 8.6% increase, and San Diego with a 7.8% increase. Nine cities reported greater price increases in the year ending August 2017 versus the year ending July 2017.

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And yes, Washington DC is once again the slowest growing metropolitan area in the USA in terms of home price growth.

Just like during the infamous housing bubble of the late 1990s and 2000s, home price growth (6.07% YoY) is over 2X wage growth (2.41% YoY).

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The rapid rise in home prices relative to wage growth followed a flurry of banking deregulation starting in 1992 and the Presidency of William Jefferson Clinton.

  • Housing and Community Development Act of 1992 (P.L. 102-550, 106 STAT. 3672).Established regulatory structure for government-sponsored enterprises (GSEs), combated money laundering, and provided regulatory relief to financial institutions.
  • RTC Completion Act (P.L. 103-204, 107 STAT. 2369).Required the RTC to adopt a series of management reforms and to implement provisions designed to improve the agency’s record in providing business opportunities to minorities and women when issuing RTC contracts or selling assets. Expands the existing affordable housing programs of the RTC and the FDIC by broadening the potential affordable housing stock of the two agencies.

    Increased the statute of limitations on RTC civil lawsuits from three years to five, or to the period provided in state law, whichever is longer. Provided final funding for the RTC and established a transition plan for transfer of RTC resources to the FDIC. The RTC’s sunset date is set at Dec. 31, 1995, at which time the FDIC assumed its conservatorship and receivership functions.

  • Riegle Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325, 108 STAT. 2160).Established a Community Development Financial Institutions Fund, a wholly owned government corporation that would provide financial and technical assistance to CDFIs.

    Contains several provisions aimed at curbing the practice of “reverse redlining” in which non-bank lenders target low and moderate income homeowners, minorities and the elderly for home equity loans on abusive terms. Requires the Treasury Department to develop ways to substantially reduce the number of currency transactions filed by financial institutions. Contains provisions aimed at shoring up the National Flood Insurance Program.

  • Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (P.L. 103-328, 108 STAT. 2338).Permits adequately capitalized and managed bank holding companies to acquire banks in any state one year after enactment. Concentration limits apply and CRA evaluations by the Federal Reserve are required before acquisitions are approved. Beginning June 1, 1997, allowed interstate mergers between adequately capitalized and managed banks, subject to concentration limits, state laws and CRA evaluations. Extends the statute of limitations to permit the FDIC and RTC to revive lawsuits that had expired under state statutes of limitations.
  • Gramm-Leach-Bliley Act of 1999 (P.L. 106-102, 113 STAT 1338).
  • Repeals last vestiges of the Glass Steagall Act of 1933. Modifies portions of the Bank Holding Company Act to allow affiliations between banks and insurance underwriters. While preserving authority of states to regulate insurance, the Act prohibits state actions that have the effect of preventing bank-affiliated firms from selling insurance on an equal basis with other insurance agents. Law creates a new financial holding company under section 4 of the BHCA, authorized to engage in: underwriting and selling insurance and securities, conducting both commercial and merchant banking, investing in and developing real estate and other “complimentary activities.” There are limits on the kinds of non-financial activities these new entities may engage in.

 

US Pending Home Sales Fall -5.4% YoY In September (Mostly In Hurricane Damaged South) – Lowest Since Jan ’15

Hurricane Irma really did a number on the South, particularly Florida and Georgia.

Pending home sales were lower than anticipated, clocking  in at -5.4% YoY for September.

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The US was positive in terms of pending home sales, except for the South at -2.4% MoM.

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Trump’s Tax Proposal And Housing: Did The Middle Class Just Get Jammed? (Largest Plunge in Renter Occupied Housing YoY Since 2003)

The Trump/Republican tax proposal sketch is out. 360061522-Republican-Tax-Plan

While the hope is that lowering marginal tax rates will stimulate the economy (creating more jobs and tax revenue for Uncle Sam), the impact on housing and the mortgage market is ambiguous at best.

Let’s run through the numbers, that we know about.

Currently, the standard deduction for an individual is $6,350 and $12,700 for a couple. So, the first $12,700 of mortgage interest and property taxes is essentially thrown away. On top of the standard  deduction, however, a of four can also claim personal exemptions of $4,050 per person for a total of $16,200. That puts that break point at $28,700 for a family of four. Below that point, the family of four would prefer to rent since they would literally be throwing away their mortgage interest and property tax deductions (assuming that the mortgage interest deduction is $8,000 and the property tax deduction is $4,000 for illustrative purposes). So, $12,000 in mortgage interest and property tax deductions is below the standard deduction for a couple for $12,700.

Under the proposed tax reform plan, the standard deduction would be raised to $12,000 for individuals and $24,000 for a couple. At the same time personal exemptions and property tax deductions would be eliminated. This will lead to more households renting rather than owning, holding all else constant.

But President Trump’s tax reform framework calls for collapsing the current seven tax brackets into three, with marginal tax rates of 12 percent, 25 percent and 35 percent. A decline in the marginal tax bracket lowers the value of the mortgage interest deduction resulting in fewer households having an incentive to buy home.

Depending on how the marginal tax brackets are finally decided, renters (generally in the lowest marginal tax bracket) could actually see a lower tax bill (say, tax savings of $500). It becomes muddled for the middle class since the loss of itemized deductions (other than mortgage interest deductions) could actually overwhelm the lowest marginal tax rate resulting in HIGHER taxes for the middle class (say, +$500-$1,000).

There are lots of moving parts on the mortgage side, including future interest rate hikes and housing finance reform. So I hope that Congress carefully weights its options in determing the slashing of deductions in exchange for low marginal tax brackets.

Remember, the US homeownership rate has fallen back to level where it began with President Clinton’s National Homeownership Strategy from 1995.

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But here is some food for thought. The inventory of renter occupied housing units as of Q2 2017 experienced the largest YoY plunge since the mid-2000s while owner-occupied inventory experienced the largest YoY gain since the mid-2000s.

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I am just hoping that the passable version of tax reform doesn’t result in a Jeremy Jamm moment for middle-class homeowners and taxpayers.

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New York, New York! New Foreclosures in NYC Up 79% in Q3 2017 (As Home Prices Only Back To Fed’s QE Start)

Both New York City and Washington DC have been the slowest growing cities in terms of home prices of the Case-Shiller 20 metro index. In fact, New York City home prices are only back to where they were when The Fed started their quantitative easing (QE) program and crammed their target rate down to 0.25% in 2008.

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And first-time foreclosures in The Big Apple are up 79%, according to real estate service Property Shark. The number of first-time foreclosures in NYC surged 79% year-over-year in Q3 2017 – 859 homes were scheduled, compared to 481 in Q3 2016.

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WHERE are the Q3 foreclosures? Mostly around Jamaica Bay to the south and The Bronx/Pelham/East River to the north.

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True, Q3 foreclosures are lower than Q2 foreclosures, but the increase relative to 2014 is striking.

New York is a judicial foreclosure state, like New Jersey, and has the second highest foreclosure inventory in the US (after New Jersey).

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And the average time (days) to foreclosure in New York is still over 1,000 days (as of Q3 2016).

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While the rest of the country saw a decline in foreclosures, New York saw a big jump.

As Frank Sinatra once sang,

Start spreading the news
You’re leaving today 
I DON’T want to be a part of it (foreclosures), New York, New York

 

August Pending Home Sales Stall Despite Fed Accomodation (Low Inventory of 2000)

Pending home sales for August fell -2.6% MoM (-3.1% YoY) to its lowest SAAR since January 2016. This is the second YoY decline in pending sales in a row, with SAAR tumbling to its lowest since Jan 2016.

Lawrence Yun, NAR chief economist, says this summer’s terribly low supply levels have officially drained all of the housing market’s momentum over the past year. “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”

Yun is absolutely right, inventories for sale are back to the low levels seen in 2000.

The Federal Reserve’s massive accomodations haven’t resulted in an increase in inventory.

The Realtors have downgraded their forecast of 2017 home sales.

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Here are Janet Yellen and The Federal Reserve Board of Governors in front of The Federal Reserve Building at 20th Street and Constitution Avenue, N.W., in Washington, D.C.