Multifamily Starts Rise 37.4% In October, Largest Increase In 2017 (West Declines 3.70% As Lonzo Ball Forgets How To Shoot)

Housing starts rose 13.7% MoM in October to 1,290K units SAAR (or 1.29 million). However, the largest share of housing starts were in the 5+ unit (multifamily) category. Multifamily units grew at a rate of 37.4% MoM.

multistarts

October was the highest growth in 5+ unit starts in 2017.

multivitamins

1-unit (detached) housing starts grew at 5.28% MoM, also the best month in 2017. You can clearly see the housing construction bubble that peaked in early 2006.

1unitstr

The biggest gainer? The Northeast US at 42.16% MoM. The South grew at only 17.17% while the West actually declined at -3.70%.

This is the Lonzo Ball Effect. This is where your starting point guard goes 1 for 9 from the floor, 0 for 6 from the 3-point line for a dismal 2 points and the opponent doesn’t even bother the foul him.  A clear sign of stagnation in the West.

lonzo

Perhaps Lonzo Ball should consider changing the name of his basketball shoe company name from Big Baller to Small Baller.

lonzo-ball-new-bbb-zo2-prime-announced-1

Advertisements

Trump/GOP Tax Plan Released (Not Large Home Friendly)

The Trump/GOP tax plan has been released. 363297702-Trump-Tax-Plan

  • Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35%; keeps tax rate for those making over $1 million at 39.6%
  • Increases the standard deduction  from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
  • Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600
  • Preserving the Child and Dependent Care Tax Credit
  • Preserves the Earned Income Tax Credit
  • Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000half the current $1,000,000
  • Continues to allow people to write off the cost of state and local property taxes up to $10,000
  • Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts
  • Repeals the Alternative Minimum Tax
  • Lowers the corporate tax rate to 20% – down from 35%
  • Reduces the tax rate on business income to no more than 25%
  • Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income
  • Allows businesses to immediately write off the full cost of new equipment
  • Retains the low-income housing tax credit
  • Proposal will call for new tax of 1.4% on endowment income at colleges and universities where the funds total more than $100k per student and will exempt small schools.

So, what are the proposed tax brackets?

brackets

If let in tact, the tax subsidy for larger/more expensive homes is reduced. It is also a tax on expensive coastal cites like New York City, San Francisco, Los Angeles and Seattle.

The reaction for homebuilding companies?

homebuilderpr

This is the start of the process. Let’s see how the Democrats react.

US Q3 GDP Grows At 3.0% Despite 2nd Consecutive Quarter of Negative Residential Investment Growth (Lowest Since 2010)

Q3 GDP was released this morning and QoQ Real GDP (annualized) grew at a 3% pace. This follows a 3.1% QoQ growth rate in Q2.

q3gsp

But Q3 represents the 2nd consecutive quarter of negative growth in Gross Private Domestic Investment: Residential. The worst growth rate since 2010.

gdpbythenumbers.png

Yes, the lowest growth rate in residential Gross Private Domestic Investment since 2010.

groossrec.png

 

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.

usphs102617

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

phstablesept17

US Housing Starts And Permits Plunge In September As Fed Raises Rates

The housing construction numbers for September were not great. 1-unit detached starts declined -4.60% while 5+ unit starts (multifamily) declined -6.23%.

consept17

Permits were off for 5+ unit (multifamily) at -17.43% while 1 unit permits rose 2.38% in September.

As a reminder, The Federal Reserve dropped their target rate as a result of the 2001 recession and 1-unit starts took off. Construction was so hot that The Fed had to raise their start rate to cool-off the construction bubble. Rather than cool-off the construction bubble, The Fed sent it into deep freeze.

1unitfed

Alas, there wasn’t a Fed Funds rate reaction during the housing bubble, but there appears to be a negative reaction to multifamily (5+ unit) starts since The Fed began jacking up their target rate.

5unitsept17

And with an 84% implied probability of a December rate hike, we should watch starts and permits carefully over the next couple of months.

wirp101817

And here is the path of future rate hikes (forward curve). As Samuel L Jackson said in Jurassic Park, “Hold on to your butts.”

exppath

The International Bubble Team in action!

MW-FT115_yellen_MG_20170825154134

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.

howntoday

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.

rentownunits

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.

jammed

 

 

 

 

1-Unit Housing Starts Struggle To Get Back To 1991 Levels (5+ Unit Start Back To Stable Levels)

The home construction numbers are out for August 2017. 1-unit starts rose 1.55% MoM while 5+ unit (multifamily) starts fell =5.83% MoM.

hstartsaug17.png

Yes, 1-unit starts are finally back to 1991 levels. The Fed’s contribution to the housing bubble can be seen by their rapid rate cuts followed by rapid rate increases as housing construction boomed and then went bust.

1unitsss

5+ unit (multifamily) starts fell MoM and are at same level of growth that existed from 1995 to 2007.

5unitauf17.png