Friday, January 31, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/31/14


Please click here to see the edition of BuilderBytes for 1/31/14 on the Web.


In this issue of the MetroIntelligence Economic Update, I covered the following indicators:
  • Pending home sales fell by 8.7 percent in December due partly to bad weather
  • 4Q GDP rose by 3.2 percent in first estimate
  • Initial unemployment claims rise by 19,000 in latest report
  • FOMC votes to taper bond purchases more as economy continues to improve
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Thursday, January 30, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/30/14

Please click here to see the edition of BuilderBytes for 1/30/14 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:
  • Case-Shiller indices dipped in November but still up nearly 14 percent year over year
  • Consumer confidence rises again in January
  • December durable goods orders dropped by 4.3 percent in December after November's 2.6 percent rise
  • Overall mortgage applications remained mostly flat in latest survey
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Tuesday, January 28, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/28/14

Please click here to see the edition of BuilderBytes for 1/28/14 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:
  • New home sales dipped in December but 2013 total 16.5 percent above 2012 levels
  • Mortgage applications rose by 4.75 percent in latest survey, largely due to refinances
  • Initial unemployment claims rose by 1,000 in latest report
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Monday, January 27, 2014

January column for Builder & Developer magazine now online


My column for the January 2014 issue of Builder & Developer magazine is now posted online.
For this issue, entitled "2014 Forecast:  Positive signs in the economy indicate strong economic growth," I discussed the robust GDP growth of 4.1 percent during the third quarter of 2013 and what that might mean for the general economy and the housing market in 2014.  An excerpt:
Looking forward to 2014, the U.S. economy seems poised to grow at the fastest rate since the dawn of “The Great Recession,” with GDP growth averaging 3.0 percent versus the plodding 2.0 percent rate with which we’ve been saddled over the past 4.5 years. In turn, this projected rate of growth could push up monthly job growth to 250,000 versus 190,000 over the past years. 

Should that occur, then the country would actually regain all of the jobs lost by the end of 2014, thereby pushing the unemployment rate closer to 6.0 percent or even 5.5 percent...
To read the entire column, click here.

To read the entire January 2014 issue in digital format, click here.

Friday, January 24, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/24/14


Please click here to see the edition of BuilderBytes for 1/24/14 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:
  • Philadelphia Fed's Business Outlook Survey positive in January
  • January Empire State Manufacturing Survey rises to highest level in more than a year
  • Both purchase loans and refinances rise in latest survey
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Tuesday, January 21, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/21/14

Please click here to see the edition of BuilderBytes for 1/21/14 on the Web.  Please note that BuilderBytes will now be published on Tuesdays, Thursdays and Fridays.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

  • December housing starts up by 1.6 percent year over year
  • December building permits up by 4.6 percent year over year
  • Consumer sentiment slips in January, especially for lower- and middle-income families
  • Industrial production rose in December for fifth consecutive month
  • Job openings unchanged in November
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Saturday, January 18, 2014

The (Slow) Housing Recovery: Tighter mortgage financing is to blame

I’ll never forget the time I was visiting a new home sales office near Los Angeles in the height of the boom years.  The agent was attempting to explain to the potential buyer how an Option ARM could help them qualify for a higher loan balance that could easily be refinanced into a standard 30-year fixed rate program down the road.  As the alarm bells started going off in my head, I decided to re-visit the first model rather than risk challenging the agent’s presumptuous thinking.  It was at that point that I was pretty sure our industry was firmly in bubble territory.

Fast forward to 2014, and we now have the opposite problem of not enough credit due to often overly stringent underwriters who prefer to approve only the best candidates with near-perfect credit scores and reliable W-2 income.  In fact, the problem has become acute enough that the Mortgage Bankers Association recently revised their 2014 forecast downwards due to “a combination of rising rates and regulatory implementation, specifically the new Qualified Mortgage Rule.”  The new forecast predicts annual refinancings this year to be down 60 percent from 2013 (largely due to higher interest rates) but purchase originations to still rise by 3.8 percent.  During the fourth quarter of 2013, the mortgage businesses for Wells Fargo and JPMorgan Chase were reportedly down by 60 and 55 percent from a year ago, respectively.

As noted in my column last month, the reasons for the tighter credit are two-fold:  an incomplete Dodd-Frank Act which means regulations are unclear, and new Qualified Mortgage Rules which went into effect on January 10th.  Qualified mortgages are those which are no longer than 30 years, charge fees and points no more than three percent of the loan amount and don’t include any negative amortization or interest-only programs.  For adjustable rate loans, underwriters now must take into consideration the potential maximum rate and payment amount over the life of the loan instead of approving based on the teaser rate alone.  This would seem to disproportionately impact younger buyers who were previously willing to take a gamble that their paychecks would improve along with their careers, thus making higher monthly payments in the future feasible.

Also now largely shut out of the mortgage market are the newly self-employed, as evidenced by nationally syndicated housing columnist Lew Sichelman’s disappointing experience to refinance a rental property despite a credit score of 760 and an LTV of 70 percent.  With less than two years of history of 1099 income, Lew’s equity in several other properties simply wasn’t relevant under today’s underwriting criteria.

There may, however, be a signs of a thaw in this somewhat frozen market.  Many eyes are now on former congressman Melvin L. Watt as director of the Federal Housing Finance Agency, which oversees both Fannie Mae and Freddie Mac.  As opposed to Edward DeMarco, the agency’s acting director for the past four years, Mr. Watt has already indicated a clear shift in direction which includes delaying a series of higher loan fees announced in December and putting access to mortgage credit front and center ahead of other goals, especially that of scaling back the federal government’s role in propping up the residential mortgage market.

What this means in the short run is that those buyers without perfect credit and large down payments will not face higher upfront loan fees charged by Fannie and Freddie.  In the long run, there remains a larger policy disagreement on the role of private capital in our nation’s mortgage market, one that would be completely separate without any connection to government.  And yet in a lending environment of mortgage rates below five percent, private capital has stayed on the sidelines because there are too many other competing options which offer higher yields.  Add in the considerable interest rate risk that an investor takes with a traditional 30-year fixed-rate loan and it’s not surprising that lenders continue to be picky.  Eventually, however, lenders which rode the now-declining refinancing wave of 2013 will have to make up that lost business with new loan originations.

To spur lending, three things should happen.  Firstly, Fannie and Freddie will have to expand the range of mortgages they guarantee without lowering standards.  Secondly, the re-emergence of private capital should occur before government fees are raised.  And thirdly, Mr. Watt should ensure that the 30-year fixed-rate loan remains a bedrock of housing finance given its historic role as the best way for homeowners to slowly build wealth without worrying about future interest rate shocks.  

Friday, January 17, 2014

BuilderBytes' MetroIntelligence Economic Update for 1/17/14


Please click here to see the edition of BuilderBytes for 1/17/14 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:
  • January builder confidence dips slightly from December's level
  • CPI rose rose 0.3 percent in December and 1.5 percent throughout 2013
  • Producer prices rose 0.4 percent in December and 1.2 percent for 2013
  • Mortgage applications rise by nearly 12 percent in latest survey
  • Initial unemployment claims fall by 2,000 in latest report
Want to advertise in the newsletter and reach over 130,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

Thursday, January 2, 2014

2014 Forecast: Positive Signs Indicate Strong Economic Growth

Recently, the Bureau of Economic Analysis announced that their third estimate of GDP growth in the third quarter of 2013 – which includes more complete source data than in the first two estimates – leaped to 4.1 percent, which is great news for an economy in which 3.0 percent is considered fairly robust.  Still, much of this increase was due to private companies re-stocking inventories or investing in future production, so GDP growth in the fourth quarter will likely be more constrained.

Looking forward to 2014, however, the U.S. economy seems poised to grow at the fastest rate since the dawn of “The Great Recession,” with GDP growth averaging 3.0 percent versus the plodding 2.0 percent rate with which we’ve been saddled over the past 4.5 years.  In turn, this projected rate of growth could push up monthly job growth to 250,000 versus 190,000 over the past years.

Should that occur, then the country would actually regain all of the jobs lost by the end of 2014, thereby pushing the unemployment rate closer to 6.0 percent or even 5.5 percent.  For those with a bachelor’s degree or higher, the rate is now down below 4 percent, which has helped to improve household incomes for the first time since 2007.  Employment gains are also starting to trickle down to lesser-skilled jobs, with the unemployment rate for workers without a high school degree falling two percentage points over the last year.

Even problems outside the U.S. seem to be getting slowly fixed, with most European economies improving and positive GDP growth for the European Union.  In addition, better growth in China and Japan should help bolster U.S. exports, especially since a dollar which is 25 percent cheaper than a decade ago makes our products even more globally competitive.

Still, for the housing market there remain a host of mixed signals.  One reason for the still-subdued pace of homebuilding is due to continued regulatory uncertainty in the banking sector due to the Dodd-Frank Act being incomplete, thus leaving many lenders in limbo and less willing to lend versus previous economic recoveries.

On January 10th, new mortgage rules set forth by the Consumer Financial Protection Bureau will certainly impact the ability of some potential homeowners to obtain the type of ‘qualified mortgages’ (no longer than 30 years, fees and points no more than 3 percent of the loan amount, no negative amortization or interest-only programs) eligible for purchase by Fannie Mae and Freddie Mac. 

While the actual impact on lending is difficult to predict, the Mortgage Bankers Association has reported that many loan programs which allow for more than a 95 loan-to-value ratio and low- to mid-range FICO scores have either been discontinued or had the requirements adjusted accordingly. The data company Corelogic has also estimated that up to 12.8 percent of new mortgages made in 2012 would not meet the new “qualified mortgage” standard.

Particularly vulnerable are young people hoping to afford their mortgages by betting on future raises, since it will soon be harder to obtain an adjustable-rate loan because the new rules require lenders to estimate how high the rate and payment may rise over the life of loan instead of simply underwriting on the teaser rate alone.

Still, if the last few years have been the domain of the housing investor, next year is likely to be the year of the repeat home buyer, fueled in large part by existing owners who have finally regained enough equity to consider moving up to larger quarters.  Nonetheless, the combination of more supply listed for sale, higher mortgage rates and fewer investors in the marketplace will likely mean a more subdued rate of price appreciation (i.e., close to five percent in 2014 versus over 10 percent in 2013).

According to NAR Economist Lawrence Yun, higher mortgage rates – which could approach 5.5 percent by the end of the year -- will cause refinancings to decline sharply in 2014, forcing banks to increase their originations to make up for the shortfall.   NAR is projecting existing home sales to closely mimic the 5.12 million estimated for 2013, while limited inventory will continue to push up prices.

For new homes, the NAHB is projecting a 30 percent rise over 2013 levels to over 840,000 single-family starts, with a lesser increase of about six percent in multi-family starts to nearly 320,000 units.  Finally, the remodeling industry will also continue to grow in 2014, albeit much more slowly than for new construction, projected at 1.7 percent versus 2.4 percent in 2013.

In other words, Happy New Year!