Citadel NYC Archives

What’s Ahead For Housing And The Economy?

The housing market and economy are tied together in many ways. After all, without a strong economy and consistent job growth, people generally don’t feel good enough about their financial prospects to consider buying a house. But though one affects the other, they aren’t always moving in the same direction at the same time. Take Fannie Mae’s most recent Economic and Housing Outlook from their Economic & Strategic Research Group. The group’s monthly forecast takes a look at how the economy and housing market are doing and what prospects look like for the future. According to their most recent release, the economy is performing better than expected and has caused them to increase their forecast for economic growth this year. But though that’s definitely good news, it is dampened by the fact that – while Americans are feeling economically confident – too few homes for sale have caused the housing market to soften. Doug Duncan, Fannie Mae’s chief economist, says there are a number of issues holding housing back. “Housing still remains a drag on the economy, as shortages of labor and available lots, coupled with rising building material prices, further complicate existing inventory, affordability, and sales challenges.” More here.

How Buying A Home Can Help Save You Money

The argument for or against buying a home usually rests, to some extent, on wealth creation. Conventional wisdom says homeowners – through equity and price appreciation – are building wealth, while renters are throwing their money away each month. Of course, there are some notable instances where that basic argument seemed discredited. Take the most recent financial crisis and housing crash, for example. Following the crash, many people began to question the typical arguments in favor of homeownership, as homeowners saw their home values plummet. Now, a new study from Florida Atlantic University, Florida International University, and the University of Wyoming says homeownership offers no financial advantage when compared to renting and investing in a portfolio of stocks and bonds. However, the study’s findings are based on an assumption that renters will use any extra money, not on consumption, but on investing for the future. According to the results, “The analysis showed that households that are likely to not reinvest buy-rent cash differentials should mostly own rather than rent their primary residence as ownership forces them to save.” In other words, you can create wealth while renting, if you’re disciplined and invest wisely. If not, buying is a better deal. More here.

Builder Confidence Nears Record High

The National Association of Home Builders’ Housing Market Index measures how confident home builders are in the current and future market for new homes. The survey – which has been conducted for 30 years – is considered a good barometer of the housing market’s health, as it can be used to forecast the likelihood that builders will increase the number of homes they build. Scored on a scale where any number above 50 indicates more builders feel the market is in good condition rather than poor, the index is conducted monthly and concentrates on buyer traffic, sales conditions, and expectations for the next six months. In November, the HMI rose to 70, which is the highest score since March of this year and the second highest level since July 2005. Robert Dietz, NAHB’s chief economist, says it’s a sign that the market will continue to grow. “Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory,” Dietz said. “With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.”

Loan Demand For New Homes Spikes In October

These days, the thing driving home prices upward is a lack of homes for sale. Where there are more interested home buyers than available homes to buy, prices rise. Of course, the quickest solution to this problem is building more homes. Prices will begin to moderate when more new homes are being built and buyers have more choices. That’s why there’s been so much attention paid lately to builder confidence, new home sales, and housing construction numbers. In short, the new home market is important to home buyers and sellers regardless of whether they are buying a brand new home or an older one. One recent measure of the new home market is the Mortgage Bankers Association’s Builder Application Survey – which measures mortgage application demand for new home purchases. The survey’s most recent results show a 16.1 percent year-over-year improvement from October 2016 and a 23 percent increase over September’s results. The improvement indicates there’s been a surge in demand to buy new homes, which is good news for the market. Lynn Fisher, MBA’s vice president of research and economics, says the increase is the strongest this year, though some of that is due to the recent hurricanes. “October registered the strongest growth rate in applications so far this year, following September’s hurricane related decrease,” Fisher said.

Renters Need Better Credit Than Buyers In Some Markets

Traditionally, the argument for homeownership over renting had more to do with the long-term financial benefits of owning a home and establishing roots in the community. Renting was easier and cheaper but had few of the added perks that homeowners enjoyed. These days, however, renting doesn’t necessarily mean you’ll have less of a financial burden. In fact, in some markets, you’ll even need a higher credit score to rent than you would to qualify for a mortgage. New research shows that the average credit score needed to rent an apartment nationally was 650 but, in some markets, the required score reached well over 700. And while the required credit score varies greatly depending on the type of property and the particular market, it is further evidence that the debate over whether to rent or buy isn’t that clear cut. In other words, potential home buyers who feel they may not be able to afford homeownership should explore their options first, as they may find that buying a home is both a better deal in the short and long term. More here.

Nearly 60% Of Homes Within Reach of Typical Buyer

Not surprisingly, affordability ranks high among home buyers’ concerns. Rising prices and rumors of future mortgage rate increases have some prospective buyers questioning whether or not they can handle the financial obligations that come along with homeownership. However, new data from the National Association of Home Builders says, in most markets, they can. That’s because, the NAHB’s quarterly measure of affordability found 58.3 percent of new and existing homes sold between the beginning of July and the end of September were affordable to families earning the median income of $68,000. That’s encouraging news for hopeful home shoppers. And, according to Robert Dietz, NAHB’s chief economist, there are a rising number of them hoping to take advantage of conditions while they’re still favorable. “Solid economic growth, along with ongoing quarterly job gains and rising household formations, are fueling housing demand,” Dietz said. “Tight inventories and a forecast of rising mortgage interest rates through 2018 will keep home prices on a gradual upward path and slowly lessen housing affordability in the quarters ahead.” More here.

Figuring Out The Best Down Payment Strategy

Coming up with a down payment strategy can be difficult for some buyers – especially first-time home buyers who don’t have the benefit of a home to sell. In fact, among first-time home buyers, nearly 60 percent put less than 20 percent down on their house. And while that can be a good option for some buyers, it does have downsides. For one, smaller down payments typically mean you’ll have to pay mortgage insurance. It also means you may be edged out when making an offer on a home. Data from Zillow shows that buyers with larger down payments are more likely to get their offer accepted. On the other hand, waiting to save a larger down payment means risking an increase in home prices that makes it so you can’t afford next year what you could afford right now. What is the best move for today’s buyer? Well that depends a lot on their personal financial situation and how much they already have saved. But, according to Zillow, the median home will be worth just over $6,000 more next year at this time – which means you’ll have to save an additional $105 per month to cover the rise in prices. More here.

Rate Drop Shows Buyers Have Other Concerns

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates fell last week for just the second time since September. But, despite lower rates, demand for mortgage applications was unchanged from the week before. In fact, refinance activity – which is typically more sensitive to rate fluctuations – was down 1 percent and demand for loans to buy homes was up an equal amount. Joel Kan, an MBA economist, told CNBC rates are responding to several economic factors. “Treasury yields weakened last week following the release of more details around the administration’s tax reform plan and the announcement of a new Fed chair,” Kan said. But with rates down, why wasn’t there a corresponding spike in demand for loan applications? Well one reason could be that rates have been hovering within a narrow range for several months and may not be the factor influencing most home buyers this fall. With rates relatively steady, buyers may be more concerned with a lack of available homes for sale or higher prices in their market. The MBA’s weekly survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. More here.

Housing Sentiment Cools Heading Into Fall

There are many reasons autumn is a good time to buy a house. But, because spring and summer are traditionally seen as the best seasons for home shoppers, the housing market often cools in the months following its busiest season. Evidence of this can be found in Fannie Mae’s most recent Home Purchase Sentiment Index. The index – which asks Americans for their feelings about buying and selling homes, mortgage rates, home prices, etc. – reached an all-time high in September but saw a decline in October. In short, fewer Americans feel now is a good time to buy or sell a house. But that’s normal, according to Fannie Mae’s chief economist, Doug Duncan. “The modest decrease in October’s Home Purchase Sentiment Index is driven in large part by decreases in favorable views of the current home-buying and home-selling climates, a shift we expect at this time of year moving out of the summer home-buying season,” Duncan said. “Indicators of broader economic and personal financial sentiment remain relatively steady.” In other words, because Americans generally feel better about their economic security, the dip in sentiment is likely to be temporary. More here.

Builders Optimistic About 55+ New Home Market

First-time home buyers get a lot of attention, and for good reason. Historically speaking, they make up around 40 percent of all home sales. And though the share has been lower in recent years, the trend among younger buyers is an important indicator for the real estate market and, therefore, gets a lot of press. But older Americans buy homes too, of course. For that reason, the National Association of Home Builders takes a quarterly measure of the market for new homes among buyers 55 and older. According to the most recent results, builders are optimistic about sales among older buyers, though there was a decline from the previous quarter. Robert Dietz, NAHB’s chief economist, says the dip was due to recent natural disasters rather than decreasing confidence. “The decline in the 55+ Single-Family Housing Market Index is consistent with slight softening of other measures of single-family construction seen recently, driven by the effect of the natural disasters on top of ongoing issues with the supply of labor, lots and some building materials.” Dietz said. “However, market conditions on balance remain favorable, and we expect gradual continued growth in the 55+ housing sector.” More here.