Homebuyers cautious despite strong economy

 Real Estate Market  Comments Off on Homebuyers cautious despite strong economy
May 232019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Homebuyers remain somewhat cautious about the housing market according the most recent Fannie Mae National Housing Survey. After last month’s blip higher, the share of respondents saying it’s a good time to buy a home resumed the downward trend that started over 5 years ago. Even so, a 14% majority of respondents still thinks it’s a good-time-to-buy.

That decline in buying sentiment largely was responsible for the 1.5 point decline in the overall survey index. It now stands almost 3 and a half points lower than at the same time last year.

The decline was a little surprising given the positive change to two of the other survey components. The net share of respondents who thinks home prices will continue rising fell 2 points, and while a 36% majority still thinks prices will rise, this share is 13 points lower than last year. A large majority, 40%, still thinks mortgage rates will rise in the next year, but that share has fallen 12 points in the last two months.

Among the other survey components, those related to personal finances remain bullish. Consumers overwhelming are unconcerned about job security and by a 22% margin say their income this year is significantly higher than it was 12 months ago.

In addition, a strong majority of respondents, 43%, still thinks it’s a good time to sell a home. That share hasn’t changed much since peaking a year ago.

Here is a link to the full report.

Rate update: The trade war blues

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The trade war blues
May 212019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates have moved very little this month, and it still seems like their next move is tied to the trade war. The announcement of new tariffs on Chinese goods created a nice little rally that brought rates down close to their lows for the year. But lately, it seems like every negative headline has been met with a conciliatory one, which has kept rates stable.

There is other news out there, and absent the trade headlines, it might move rates. Probably the most significant is the action in the Middle East. A new fighting war would roil markets everywhere and lead to lower rates.

Europe also has current crises of note. Great Britain still has a Brexit problem – deciding how it’s going to leave the European Union. Italy, on the other hand, just thumbed its nose at European Union austerity rules, and pundits once again are talking about the survivability of the EU.

In the US, we’re watching for economic data that indicates something other than a steady as she goes economy. The next big reports aren’t due for a couple weeks, culminating in the May jobs report due on Jun 7th. Analysts aren’t predicting any surprises based on recent economic activity.

And that brings us back to the trade war. Barring something extraordinary happening elsewhere in the world, I think the fate of interest rates depends on the success or failure of trade talks. Resolution would remove the biggest uncertainty for the economy and almost certainly would lead to higher rates.

3 reasons the next recession won’t lead to a housing collapse

 Real Estate Market  Comments Off on 3 reasons the next recession won’t lead to a housing collapse
May 132019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Some pundits have suggested we’re staring at the beginnings of a new recession fueled by the housing market. Not so, says Ralph DeFranco, Global Chief Economist for Arch Capital Services. He says current housing trends bare no resemblance to conditions that existed prior to the Great Recession.

A recession is inevitable at some point in the future, but DeFranco says it should be less severe for the housing market than the 2008 recession due to three factors:

  • He estimates the current market is underbuilt by 1 million homes;
  • Homebuyers are more cautious; and
  • The quality of loans originated since the Great Recession is much higher.

Conditions were exactly opposite before the Great Recession.

DeFranco also noted that big price drops during recessions are the exception rather than the norm. In the five recessions since 1975, home values have declined only once. Moreover, the current housing inventory shortage likely would soften the effects of a recession on the housing market.

Renters twice as cost burdened as homeowners

 Residential Mortgage  Comments Off on Renters twice as cost burdened as homeowners
May 082019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

With all the ink spent on affordability in the last year, I found a recent study by Corelogic provided some novel insights. It found that housing costs in Austin for renters rose almost twice as fast as those for homeowners.

The study period was Dec 2005 to Dec 2018, so it roughly covers one full economic cycle. Corelogic compared its rental index, which analyzes the same rental properties over time, to a “typical mortgage payment,” which it calculates assuming a 30-year fixed mortgage with a 20% down payment.

In Austin, the rental index rose more than 60% over the study period while the typical mortgage payment rose about 35%. The difference between the two in Dallas and Houston wasn’t as large, but the rental index still rose faster. A part of this difference is attributable to the fact that mortgage rates in 2005 were a point and a half higher than they were last Dec.

And this reinforces another interesting point highlighted by Corelogic. Renters are almost twice as likely to be “cost burdened,” meaning 30% or more of their income goes towards housing expenses. Forty-six percent of renters were cost-burdened in 2017 as opposed to about 27% of homeowners. Moreover, the share is down 10 points for homeowners in the last 10 years whereas it’s held steady for renters. This highlights the fact that homeowners can leverage the market through refinancing to lower their housing costs whereas renters’ only recourse is to move to a less expensive (and probably lower quality) rental.

Here is a link to the study results.

Rate update: Trade war is our headliner again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Trade war is our headliner again
May 072019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last week’s two big ticket items, the Federal Reserve meeting and the jobs report, lived up to their billing. The Fed didn’t change policy, nor did the post-meeting announcement really make any waves. It was Fed head Powell, at his post-meeting press conference, who got things moving. He acknowledged that foreign economies look a little stronger than earlier in the year and was equivocal when asked whether the next rate move would be a cut or a hike. (Investors have been hoping for a cut.) Interest rates quickly bounced higher.

Then, we got the jobs report on Fri. The headline numbers were great: a solid beat on jobs created and the lowest unemployment rate in 50 years. However, wage growth was tepid, reinforcing concerns about falling inflation (which tends to depress rates). On top of that, the services sector report missed expectations. Interest rates edged down again, and it looked like we’d be riding the range a while longer.

This week set up to be rather quiet until Friday’s inflation report – until the Chinese pulled away from trade negotiations. Markets have been hopeful for a trade deal, so the president’s threat to impose new tariffs created waves of uncertainty. Investors responded to that by buying bonds, which pushed rates down.

So, where do we go from here? Given that multiple recent economic reports have agreed about receding inflation, it’s unlikely Friday’s Consumer Price Index is going to have much effect on rates. If the index surprisingly doesn’t agree with the other reports, rates may tick up a bit.

However, I suspect rates will rise or fall based on the trade talks. A further breakdown is bound to make investors nervous about a full blown trade war, leading to lower rates.