- Retail sales continue to make good, steady gains. The economy is clearly entering into a virtuous cycle of more jobs leading to more consumer spending. More retail sales in turn are leading to more job hiring by companies that produce things for consumers.
- In August, retail sales rose 5.0 percent from one year ago. That is the strongest gain in over a year. Spending related to the home is rising at a faster pace. Stores that sell building materials and garden equipment saw sales rise by 7 percent. Retail sales of furniture and appliances rose by a hefty 9 percent. Even so, the spending in this area is still in a recovery mode (not expansion mode) and still below the prior peak set during the housing bubble years.
- Past retail activity was also revised up a bit, translating into faster GDP growth. The second quarter GDP growth after revisions may be as high at 4.5 percent while the third quarter GDP growth is tracking to grow by 3.5 percent. Such solid GDP growth rate assures about 2.5 million net new jobs a year.
- When retail sales rise there should be a rise in demand for commercial retail spaces. Interestingly, the demand for retail commercial spaces has not been rising commensurately with the rise in retail sales. A big reason is that some sales are occurring through the internet. The demand for warehouse spaces has therefore been strengthening at a faster pace than for retail spaces.
- NAR projects the vacancy rate on industrial/warehouse space to decline from 8.9 percent a year ago to 8.4 percent by the year end. Meanwhile, the vacancy rate on retail space will barely budge from 9.8 percent to 9.6 percent.
- Most of the increase in retail sales appears to be driven from job creation and new income. But sales are also partly driven by an uptick in consumer debt, which has been on the rise recently. Debt in some cases makes good sense and provides nice returns. But in other cases it can cause unhappiness. Charles Dickens noted: “An annual income of 20 pounds and spending of 19 pounds results in happiness, while an annual income of 40 pounds and spending 41 pounds results in misery.”
Every month NAR produces existing home sales, median sales price and inventory figures. The reporting of this data is based on homes sold the previous month and the data is explained in comparison to the same month a year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, and comment on the potential direction of the housing market.
The data below shows what our current month data looks like in comparison to the last ten Julys and how that might compare to the “ten year July average”, which is an average of the data from the past ten Julys.
- Regionally, one of the first things that sticks out is that 2005 seems to be the best year of sales and 2010 seems to be the lowest point of sales activity. The South has been the strongest region in terms of transactions and the Northeast has had the least amount of sales. The difference in sales is largely a function of population differences in the regions.
- The median price year-over-year percentage change shows the West region went through the largest fluctuation, having the highest and the lowest price growth at different points in the ten year cycle. The West experienced its worst price percentage decline in 2009 and its best price increase in 2012.
- Inventory of homes for sale in the U.S. peaked in 2007, with its lowest point seen just last year. In 2010 the U.S. had the slowest pace of homes sold relative to inventory, with months supply at 11.9. The ten year July average months supply is 7.2. In July 2014 we stand at 5.5 months supply, somewhat below a typical July.
- July’s median price is higher than the ten year July average median price for the U.S. and all four regions. Regionally, while the Northeast and the West have recently experienced lower than the ten year average sales, the Midwest and the South both showed modestly higher sales. Total homes sold in the US for July 2014 is slightly higher than the ten year average, which is a good sign for housing recovery.
View the full PPT slidedeck: July 2014 EHS Vs Ten Year Average
A recent REALTORS® Land Institute Survey provides information on the type of buyer in land sale transactions. Investors accounted for 17 percent of land purchases nationwide in the 12 months ending June 2014.
- Investors bought various land types, with the top types of land purchases being timber (20 percent), development (17 percent), commercial (14 percent), and non-irrigated agriculture land (13 percent).
- Close to two-thirds of the purchases were for land in RLI Region 3 (KY, TN, NC, SC, GA, AL, MS, FL) and RLI Region 4 (KS, MO, AR, LA, OK, TX).
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- Consumers are feeling much better and more confident in recent months: the consumer confidence index in August rose to the highest mark in nearly seven years. Such a trend could lead to improvement in home sales and boost demand for retail commercial spaces.
- Numerically, the index hit 92.4. The last time it was that high was right before the financial market crisis in October 2007 when the unemployment rate was very low at 4.7 percent (versus today’s unemployment rate of 6.1 percent). The index, however, is still shy of 100, where at least half of Americans would be saying that the economy is generally moving in the right direction.
- For home buying, it is not only about financial capacity and mortgage rates. Confidence also matters. People need to feel they will be better off in the future in order to make a major expenditure. The index that captures only the future expectations was 90.9, also nearing the crucial 100 marker.
- The very strong, high stock market has driven total household net worth to an all-time high. However, only about 10 percent of Americans have meaningful exposure to the stock market. Therefore the stock market is not the best gauge of economic sentiments of the middle class. In contrast, the consumer confidence index covers a whole swath of people across all income spectrums and therefore this index is much better in assessing the mood of normal Americans.
- Confidence can change the world. In fact, when the Portuguese first circumnavigated the lower tip of Africa on their way to Asia for spices, the very stormy area with constant violent sea waves near the tip was given the scary name of Cape of Bad Storms. The King of Portugal immediately changed the name to Cape of Good Hope in order to encourage more sailors to make the trip. Portugal and subsequently Spain rose in economic power while the old trade route cities of Venice and Genoa lost economic power.
- In the past 15 years, the net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter.
- Homeowner equity is a substantial component of homeowner wealth. The Federal Reserve’s Survey of Consumer Finances, conducted once every three years, provides a snapshot of family income and net worth along with basic demographic details and more detailed information on where families keep the wealth they have accumulated.
- The most recent survey, conducted in 2013, offers a picture of the situation as home and equity prices normalized for most household balance sheets.
- Data shows that median homeowners had nearly $200,000 in net worth or 36 times that of the median renter who had just over $5,000. The median value of owners’ homes was $170,000.
- Many households own a primary residence (65.2 percent). It is the most commonly held non-financial assets after vehicles (86.3 percent).
About 59 percent of REALTORS® reported that a sample of buyers in July had FICO credit scores of 740 and above. In the 2001-04 time frame approximately, 40 percent of residential loans acquired by the Fannie Mae and Freddie Mac went to applicants with credit scores above 740. REALTORS® continued to report that obtaining a mortgage remains “difficult”, “long” and “complicated”, even for borrowers with “strong ” credit scores. Only 2 percent of REALTORS® reported a purchase by a buyer with a credit score of less than 620.
- The National Association of REALTORS® estimates that one job is generated or supported for every two home sales.
- This estimate is based on a comparison of the economic impact of an existing home sale to various measures of income.
- In 2013, the economic impact of a single home sale was estimated to be more than $68,000. In the same year, GDP per worker was $123,400. Thus, two home sales would generate more in economic impact than the total GDP per 1 worker.
- Comparisons against other types of income measures would show an even higher home sales impact on jobs.
For more detailed information, view the full PDF: The Jobs Impact of an Existing Home Purchase 2013.
A recent REALTORS® Land Institute Survey provides information on the type of buyer in land sale transactions. Individuals/families accounted for 58 percent of the most recent land purchases in the 12 month period ending June 2014.
- The main type of land purchased by Individuals/families was recreation (31 percent), ranch (17 percent), and non-irrigated agriculture (16 percent).
- Over half of the purchases (55 percent) were for land in RLI Regions 3 (KY, TN, NC SC, GA, AL, MS, FL) and RLI Region 4 (KS, MO, AR, LA, OK, TX).
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- Data from the Bureau of Labor Statistics (BLS) showed the surprise of only 142,000 jobs added to the economy in August, ending the six-month streak of net job growth above 200,000. Mixed revisions to June and July data subtracted 28,000 previously reported jobs, but the 12 month average jobs added remains over 200,000 through August. The unemployment rate dropped, as expected, from 6.2 to 6.1 percent—tying June for the lowest level since September 2008.
- In August, job growth occurred in both the government (+8,000) and private sectors (+134,000), but the drop off in the pace of private sector job creation was notable. The biggest job gains were in service industries such as the professional and business services (+47,000), education and health services (+37,000), and leisure and hospitality (+15,000). Goods-producing industries such as construction and mining added a total of 22,000 jobs with 20,000 of these coming from the construction industry. Industries faring less well this month include Retail trade (-8,400), Information (-3,000), and manufacturing (0).
- On net, private industries have increased payrolls by 2.1 percent from one year ago. Construction employment is up 4.0 percent from a year ago with the subsector of residential construction up 9.1 percent. Temporary help services continue to show strong but waning growth up 8.0 percent in the year. Perhaps another sign of a still strong labor market, child day care services employment rose by 2.4 percent for the year. By contrast, federal government employment fell 1.2 percent over the year while state and local government employment grew slightly, by less than 0.5 percent each.
- The earnings picture was good. As hours held steady, hourly and weekly earnings rose 2.1 percent in the past year.
- Digging deeper in to the household survey shows more mixed news. The drop in unemployment rate was caused by an increase in employed persons but also by discouraged workers leaving the labor force. The number of discouraged workers not in the labor force is down 91,000 from a year ago but has been rising since a June low.
- While there was a decrease of nearly 200,000 in the long-term unemployed (27 weeks and more), the number of unemployed persons out of work for shorter durations increased by more than half that amount.
- While the labor force participation rate is back to its 36-year low, the employment to population ratio has held steady after months of improving.
- If one were searching for a more positive data point in this report, one could note that the number of workers with part-time jobs for economic reasons was down by 234,000 for the month, but this subset of data is quite noisy. Just two months ago, this figure was up by 275,000. From one year ago, the number of persons with part-time jobs for economic reasons is down by 621,000, on the whole a good sign.
- What does this mean for markets? The Fed has moved away from a threshold unemployment rate as an indicator for considering rate increases, and the August employment report was surprisingly mixed after unambiguously strong reports earlier in the summer. Inflation expectations seem to be well anchored and inflation is, for now, just near the 2 percent target, but there is some potential for higher inflation if the recent monthly pace of increase is sustained. It’s widely expected that the FOMC will taper the bulk of asset purchases before increasing rates, suggesting that the first rate increase is still at least 2 to 3 meetings away—roughly at the end of 2014 or early 2015. However, stronger or weaker than expected economic performance could alter that timeline.
In speaking with REALTOR® members, I often hear a complaint that the government’s inflation statistics do not reflect reality. Recent data show that the inflation rate for consumer prices has increased about 2 percent above a year ago, but many members disagree with that assessment. In this article we’ll see how it’s possible that both members making this observation and the government data are correct.
Inflation – What are we measuring?
Anytime you are using a measurement tool, you have to know what the tool is measuring. Real estate agents educate clients regularly on this aspect of measurement. What if a client questions your suggested list or offer price noting that prices are rising or falling 10 percent based on a national news story they heard recently? How do you respond? In all likelihood you point out the differences between national and local market conditions. For example, while the national job market may be humming along, your job market may be searing hot as a result of several new tech start-ups and that will be reflected in local home prices that will be rising faster than national prices.
What does the Consumer Price Index measure?
The Consumer Price Index (CPI) measures prices for the spending of all urban consumers. There are other indexes for different subgroups, but this is the measure you will hear about in the news most often. The Bureau of Labor Statistics (BLS) surveys households asking them to list the things they buy on a regular basis and gathers this information into a market basket reflective of the typical or average household consumer. The BLS tracks changes in prices of this “market basket” of goods and services. This is a very good approximation of the overall change in prices, but it is unlikely to reflect the pattern of increase faced by any individual. Let’s look at the market basket to see why.
What does the typical consumer buy?
Below is a pie chart of the relative importance of spending categories in the CPI which is roughly akin to the share of spending. How closely does the market basket of goods reflect your spending habits?
Breaking this chart down to a table showing a few more detailed categories may illustrate the point.
The table above shows that the market basket weights rent of primary residence at just less than 7 percent of spending while owners’ equivalent rent of primary residences is weighted at about 22 percent. From this illustration you can see that as the market basket tries to capture the spending habits of all urban consumers it cannot be an exact match for every individual’s spending because most people either own OR rent their primary residence.
How does the market basket of goods reflect your spending habits? How does it reflect the spending of your potential clients? Are there particular commodities or services that make up more of your budget? What is happening to the prices of goods and services you actually consume? Have you looked for a personal inflation rate calculator to see what your inflation rate might be?
- Two pieces of job-related data released today for the month of August indicate that the job market continues to improve solidly: the normal level of unemployment insurance claims and solid creation in payroll jobs.
- First, initial claims for unemployment insurance filed under the regular state programs averaged 302,000 in August, a slight increase from the July level (296,000) but still within the benchmark of 300,000 that most analysts consider as an indicator of normal economic activity. Fewer claims for unemployment insurance means greater job stability for workers, an important consideration for securing a mortgage.
- Second, a major payroll processing company (ADP) reported that non-farm private employment increased in August by 204,000. The official employment data will be released tomorrow, but the ADP report presages that the official tally for job gains in August will continue to be above the 200,000 benchmark that analysts see as necessary for bringing down unemployment on a sustained basis.
- Overall, jobs are expanding on a sustained level which can support 5 million existing home sales in 2014.
- Very fast growth in multifamily activity has been pushing up overall construction spending. Jobs in the construction sector have yet to match the rise in spending dollars, however. Given the general lagging impact on jobs, construction job growth looks to perk up in upcoming months.
- Numerically, overall construction spending climbed in July and is now higher by 8.2 percent from one year ago. Spending for multifamily construction (apartments and condominiums) increased by a whopping 41 percent, to the point of closing in on a cyclical high. Spending for single-family construction, however, has been uninspiring, rising by 9 percent, well below the recent peak.
- Spending for commercial real estate (classified as nonresidential) rose by 14 percent and has been making steady progress.
- From the recent lows in 2010, overall construction spending has risen by 22 percent. But construction jobs have increased by only 10 percent. Put differently, each construction worker accounted for about $14,000 to construction spending few years ago. Now, the figure has risen to over $16,000. Evidently, some of the underutilized construction workers are being asked to do more with the pick-up in the economy. Inevitably though, job growth will have to catch up with spending.
- Spending for roads and highways are vital for healthy interstate commerce. But the highway trust fund is running out. Congress will need to reauthorize a special funding in a few months. This issue in itself should be non-controversial since highways are what economists call a “public good” where everyone could potentially free ride. That is, irrespective of who pays, non-payers can still use the highway. Therefore, a minor tax collection from all that helps with the cost is a sound policy. (Just as in the case of fixing potholes within neighborhood roads with homeowner association fees). Unfortunately, the trust in government has fallen so low that taxpayers simply do not believe that the money will be wisely spent by Washington bureaucrats.
A recent survey of REALTORS® Land Institute members found that the median price increase for land in the U.S. was 4 percent for the 12 months ended June 2014.
Approximately half of recent land sales were in the heartland of the U.S.: RLI Region 3 (KY, TN, NC SC, GA, AL, MS, FL; 30 percent of reported land sales), and RLI Region 4 (KS, MO, AR, LA, OK, TX; 26 percent of reported land sales). Approximately three-fourths of recent land sales were for Recreational (21 percent), Timber/Ranch (25 percent) and Agricultural (27 percent) uses.
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- The manufacturing industry is expanding at the fastest pace in 3 years, according to a survey of supply managers. The associated measure known as the ISM index hit 59.0 in August, implying more and more managers are seeing increased activity. (A reading of near 60 implies very good conditions while a reading below 50 implies contraction in the industry).
- Moreover, the number of managers indicating an expansion in employees was 25 percent, while the percentage of managers reporting job cuts was only 12 percent.
- Separate data on industrial production also has been showing solid gains recently.
- A gain in manufacturing activity generally helps the Midwestern states more than others. Michigan, Wisconsin, Indiana, Illinois are typical beneficiaries. They will also help the southeastern states of Alabama, Georgia, South Carolina, and Tennessee as they have steadily captured a shift of manufacturing plant relocations from the Midwest to the Southeast.
- One component of note in industrial production is the rapid growth in computer and electronic components. The production of massive servers to store information in the cloud (such as iclouds) would be included in this category.
- Recent headlines state the obvious of taking prudence when putting things on the web. Nothing is ever safe. Even data clouds can be broken into. It used to be that the fearsome spy agencies of the CIA, KGB, MI6, and the Mossad collected secret photos by having agents hanging around strip clubs. They were not there to enjoy the attractions but rather to snap secret photos of the clientele. They knew that blackmail lasts forever, as can personal information leaks – so be careful with what you put on the web.
- The economy is growing, jobs are being created, and interest rates are still unimaginably low. Naturally, home sales are expected to rise. But the typical business activity of a REALTOR® will be falling as the autumn approaches.
- Every year as the school year begins homes sales invariably decline in September from August. In the past 15 years, the average decline has been 16.4 percent. In October, home sales generally hold on. Then in November, home sales dip again, by 8 percent generally. December figures tend to match the low November figures. Because of the dark, cold weather spanning most of the country, January is not pretty for home sales, with an average plunge of 27 percent. Sunlight then flickers in February with a small rise. Much stronger activity then arises in March and April and into the summer months.
- Despite the weaker business opportunities in the upcoming autumn and winter months, media headlines on home sales are likely to show an upturn and possible strengthening conditions based on NAR home sales releases. What gives?
- An example of jobs in a beach town provides an easy comprehension. In Myrtle Beach, there tend to be about 15,000 more jobs in the summer months compared to the rest of the year. If during one summer the jobs grew by say only 6,000 then one would not say Myrtle Beach is doing well. Rather one will say there is a problem.
- Most headline economic data, therefore, including GDP and unemployment rate, are stated as seasonally adjusted figures. The reason for the seasonal adjustments in the data is to better gauge an underlying economic trend of slight weakening or slight strengthening. For example, if a normal decline in raw home sales count in September is 16.4 percent, but this year September’s decline was say, 8 percent, then the housing market is somehow doing better. The seasonally adjusted home sales figure will then say as such. (Further the figure is multiplied by 12-months to get an annualized rate.) Again, all economic data essentially undergoes this process. And this seasonally adjusted data will get reported in the media and is what consumers will hear.
- What this means is that your clients need to be reminded of these seasonal patterns. The media just may be reporting improving home sales throughout the upcoming autumn and winter. This does not mean a home-seller should be raising the listing price. Invariably, there are fewer home-buyers in autumn and winter.
REALTORS® expect home prices to increase modestly in the next 12 months, with the median expected price increase at 3.4 percent . The expected price change is modest compared to the strong price growth in 2012-2013. Local conditions vary, but concerns about how borrowers are finding it difficult to obtain a mortgage and weak job recovery appear to be underpinning the modest price expectation.
The map below shows the median expected price change in the next 12 months by state of REALTOR® respondents in the May – July 2014 surveys.
 The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state.
- Red-hot job market conditions exist in North Dakota, Texas, Utah, Nevada, and Delaware. Job growth rates in these states are running roughly twice as fast as the national average.
- At the other end of the spectrum, Alaska, New Mexico, Nebraska, Connecticut, and Illinois are adding jobs at a slow pace. Note: these states are not shedding jobs, but rather adding jobs at a slow pace.
- Good news: the job market is strengthening in most states. 41 states improved with faster job creation in the latest month compared to the month prior, while 9 states experienced slower job gains.
- Among large metro markets, the standouts are Houston (+4.0%), Dallas-Ft. Worth (+3.9%), and Austin (+3.8%).
- Among smaller metro markets, Muncie (+10.4%), Lawrence (+7.4%), and College Station (+7.0%) are far ahead of the rest.
- Real estate is affected by many variables. Interest rates and stock market conditions generally impact all states near equally. But local variations occur due to the strength of local job market conditions. Needless to say, REALTORS® are busier in areas with robust job creation.
- The economy popped out nicely in the second quarter. The measurement of everything Americans produced increased by 4.2 percent. Such a growth rate, if it can be sustained, means measurably higher future income and about 3 million net new jobs a year.
- Looking at the subcomponents, consumer spending rose by 2.5 percent, while business spending increased by 8 percent. Exports rose 10 percent but that gain was more than wiped away by the 11 percent gain in imports. Federal government spending fell slightly from the residuals of sequestrations. Spending by state and local governments rose modestly.
- Due to a recovery in housing starts, home sales, and remodeling spending, the housing sector now comprises $2.71 trillion out of the total GDP of $17.3 trillion. Specifically, spending for Housing and Utilities amounted to $2.16 trillion and Residential Investment totaled $550 billion. That is, the housing market now comprises 16 percent of GDP.
- The long-term historical GDP growth rate is 3 percent each year. Even though the latest quarterly data of 4 percent growth is highly welcoming, it is in the aftermath of a decline in the first quarter. GDP growth has not been consistent. In fact, GDP growth has been subpar, growing under historical normal 3 percent on an annual basis for the past nine consecutive years.
- The forecast is for 1.8 percent GDP growth in all of 2014. It then rises to 2.5 to 3 percent next year. That will translate into about 5 million net new jobs cumulatively over the next two years. Jobs will be ever more important to offset the impact of what appears to be a rising interest rate environment going into 2015.
- GDP growth determines nations’ economic muscular power. In recent times, among the wealthy countries (excluding China), English speaking countries have fared better. Canada, Australia, and Singapore have consistently expanded nicely. Britain and Ireland have also outpaced the rest of Europe.
- Speaking of English-speaking countries: one of the greatest military upsets in history was that of the American colonials defeating the mighty redcoats from Britain. The win might not have occurred without French help at Yorktown. At the peace treaty a Frenchman predicted the likelihood of America becoming the greatest economic power in future. A bitter British diplomat shot back quickly: “Yes sir! And they will all speak English.”
- Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
- FHFA releases monthly data at the Census division level and quarterly state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
- At the regional level: the most robust home price gains from a year ago were still in the West in spite of the fact that this region has seen the biggest drop in the growth rate. NAR reported price change of 6.4% and 6.5% from a year earlier in both June and July in the West. According to FHFA year over year prices in June 2014 rose 9.4 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 7.3 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
- While NAR data showed the smallest price growth from a year ago in the Northeast (0.6% for the year ending in June and 2.7% for the year ending in July), FHFA showed the smallest gains of 1.9 percent in the East South Central Census division which includes the states of Mississippi, Alabama, Tennessee, and Kentucky.
- State by state data showed that Western states top the list. Nevada and California each saw house prices rise in the double-digits, 14.8 and 11.4 percent, respectively. North Dakota is ranked 4th in a list that includes DC in the rankings at number 3. At the other end, only Mississippi saw a loss in home prices from one year ago. Connecticut and Alaska each saw home price gains of less than 1 percent.
- Among cities, Case-Shiller reported the biggest year over year gains in Las Vegas and San Francisco. Each had more than 12% year over year gains—high, but a marked slowdown. Miami, Los Angeles, Detroit, and San Diego were next on the list, each showing year over year gains of more than 10 percent from a year ago. The smallest gains in Case Shiller’s cities were Cleveland at 0.8 percent, Charlotte at 3.8 percent and New York at 4.3 percent. However, the data provided evidence that the longer trend may be shifting. San Francisco had the smallest month to month price gain whereas New York had the largest.
- For a more detailed, interactive look at home prices in more than 150 metro areas, see NAR’s quarterly metro area median info graphic.
- More people filed applications to take out a mortgage in the past week. Applications for buying a home rose 3 percent from the prior week. They are still down 11 percent from one year before.
- Refinance activity also got a boost by 3 percent as the mortgage rates touched down to the lowest of the year. From a year ago, however, refinances are down by 25 percent.
- Mortgage applications do not always directly correlate with home sales. First, applications do not mean approval. Second, cash-sales can pump up home sales when mortgage activity remains flat, for example. Third, there are always sampling errors from measurement techniques. With these factors in mind, home sales this year have been running below last year’s figure by only about 5 percent. The declines occurring in mortgage purchase applications have been much larger, at 15 to 20 percent.
- In the most recent months, there has been a slight decline in cash-sales as real estate investors have slowly begun to step out of the market.
- It has been a tough year for mortgage brokers. The latest week’s modest upturn is therefore welcomed. However, mortgage brokers should not expect consistent increases. Refinances will soon collapse again when interest rates inevitably turn for the worse. Mortgages taken out for buying a home will likely rise because of job creations, but only slowly and not enough to compensate for the declines in the refinance business.
- New mortgage regulations, such as the Qualified Mortgage Rule, could be hindering more loans from getting approved. Also FHA has greatly increased premiums, thereby punishing current borrowers for the sins of past borrowers, just when the default rates of current borrowers have significantly fallen. On top of this the large banks are getting hit with fresh lawsuits from the U.S. Department of Justice running in the billions of dollars. The big banks are quickly forking over the money without admitting guilt in order to shoo-away the government. That means a large cash reserve is being set aside for legal risk and not being recycled back to consumers. A strange world we live in where banks are flushed with cash, yet banks are unwilling to do the business for which they were set up to do.