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Economists See Strong Housing Recovery Going Forward

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The recovery in the housing market will continue to strengthen this year and next year, according to a group of bank economists.

They are forecasting that new home sales will be up 25% this year compared to 2012 and home prices will rise 5% to 6% in 2013 and 2014 based on the Federal Housing Finance Agency house price index.

The consensus forecast of the American Bankers Association economic advisory committee sees 15% growth in residential construction this year and in 2014.

“This strong growth demonstrates that the housing market has finally caught up with the broader economic recovery,” said Scott Anderson, chief economist at the Bank of the West.

The economists see the rate on the 30-year fixed-rate mortgage rising to 4.3% by the end of this year and 4.6% in the second quarter of 2014.

However, the mortgage market is still dependent on the Federal Reserve purchasing MBS and keeping interest rates relatively low. “A premature exit from accommodative policy by the Federal Reserve could hurt the housing recovery and the broader economy,” Anderson warned.  This is the biggest issue related to rates and the over all economic recovery, because the market is being supported by artificial stimuli, (IE: Quantitative Easing).  Once the market has to stand on it’s own two feet, will it stall or continue to grow.  In my opinion, since this is not front page news anymore, it should not effect consumer confidence, which is the primary driver.  If QE is eased gradually, we should see sustained growth.  This would in effect be the same as the fed gradually letting their foot off the gas.  If the QE stimuli stays in place we run the risk of the economy becoming over heated and going off the cliff like we saw in 2007.  We don’t need that again!

The consensus forecast calls for continued slow economic growth through the third quarter of this year due to budget cuts and fiscal drag combined with slow global growth.

But the bank economists expect economic growth will accelerate later this year to 2.8% in first half of 2014 due to the recovering housing market, resilient consumer spending as well as less fiscal drag and a pickup in the global economy.

Meanwhile, new hiring will accelerate later this year and jobs growth will hit the 200,000 per month in 2014.

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Builder Confidence Report

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Housing Market Index Shows Builders Continue To Have A Positive Outlook

For Immediate Release

Atlanta, GA

As you may have heard, SunTrust will layoff 800 people in their mortgage division as they adjust to the ebbs and flows of the industry.  This may obviously impact service levels and will certainly impact morale. But I’m still here competing with them and here for you.

However one piece of good news remains. The National Association of Homebuilders/Housing Market Index dropped two points to 55 from September’s revised reading of 57. Builder concerns over labor costs and availability and economic uncertainty related to the federal government shutdown were noted as factors contributing to the lower reading for October.

Key Points Noted In October‘s HMI included:

  • Builder confidence remains above 50, which indicates that more builders have a positive outlook on housing market conditions than those with negative sentiment.
  • The October HMI cites pent-up buyer demand in markets throughout the US as a positive influence on October’s reading.
  • A spike in mortgage rates lowered builder confidence, but the Federal Reserve’s decision not to change its quantitative easing program eased fears about rapidly rising mortgage rates.
  • The federal government shutdown, along with builder and consumer concerns about the national debt ceiling also contributed to a dip in homebuilder confidence.
  • National HMI results are comprised of homebuilder ratings of three factors. Homebuilders rated current market conditions at 58, which was two points lower than September’s reading.
  • Builder outlook for market conditions over the next six months fell by two points to October’s reading of 62. The lowest reading came in at 44 for buyer foot traffic. This reading was also two points lower than the September reading.

Regional HMI Results Mixed

Readings for regional homebuilder confidence varied for October:

Northeast: The reading for October fell three points to 38. Concerns over the government shutdown were felt here.

Midwest: Up by one point for October at 64, the Midwestern region posted the only gain for October.

South: The October reading for the Southern region was unchanged at 56.

West: The West lost one point on its HMI for October. Lack of available homes and developed land for building likely contributed to this reading.

NAHB Projects Single And Multi–Family Housing Starts

The NAHB estimated that starts for single and multi-family housing units for September will fall between 875,000 and 900,000 on a seasonally-adjusted annual basis. Single-family housing starts are expected to range between 620,000 and 630,000 for September.

NAHB produced this estimate in lieu of the US Department of Commerce report on housing starts that was delayed due to the federal government shutdown. NAHB also reported continued volatility in multi-family housing construction.   What this all mean is the builders are not looking to slow down in putting more inventory into the system.

A continuation of the government shutdown would have almost certainly create ongoing consequences for housing and mortgage lending.  Now that its over, its time to get back to business.

– Joel Miller

Economy Real Estate

What Are The Implications of the Debt Ceiling and Getting Your Deals Closed?

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The country hitting the debt ceiling would mean the government can no longer borrow money to pay bills (deficit spending).  With no money or ability to borrow more debt, the country would default on their payments or in common vernacular, be ‘late’ paying their bills.  Just like you and me, if we’re late we get dinged on our credit and our score or rating goes down.  It’s the same situation with the US government. 

How does this relate to you? Remember the hassles of getting your clients files through underwriting over the last few years.  This was because the US lost the faith and trust of the foreign investors that buy this stuff.  So when the rating agencies rated Sub-Prime loans as AAA when they were really FFF, investors lost faith and stopped buying them, which caused our system to seize up and companies began to fail (2007-2008).  To offer the relief or liquidity the Fed stepped in and started buying these securities – and here’s the key point – until faith is restored in the US secondary market. 

The tight guidelines, though annoying, produced cleaner loans with less probability of default which would allow the Fed to taper back Quantitative Easing (QE1, QE2, QE3, etc).  If the debt ceiling is hit and the US begins to default, the cycle is reversed and guidelines instead of easing revert to tightening again as the Fed would remain the primary buyer of US securities. 

So bottom line, if this happens, it may become even harder it close loans or get construction funding. Of course they always seem to work it out before it’s too late.  Let’s hope that happens again.

All The Best!

Joel Miller