What it means for housing

The economy showed many encouraging signs after the election of now-President Donald Trump such as an increase in the stock market and a jump in consumer confidence, however Fannie Mae still holds a conservative growth projection for 2017.

Fannie Mae projected economic growth of 2%, according to the company’s Economic and Strategic Research Group’s January 2017 Economic and Housing Outlook.

“Policy changes under the new Administration – in its nature, sequencing, and magnitude – will determine the direction of economic growth in 2017,” Fannie Mae Chief Economist Doug Duncan said. “Incoming data suggest improving consumer spending, diminished labor market slack, and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year.”

Now that the inauguration of Trump is complete, and the First Family moves into the White House, changes to policy should quickly become clear.

“Thus our theme for the year: Will Policy Changes Extend the Expansion?” Duncan said. “If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”

The report explains that improved consumer spending in the third quarter drove an upwards revision from its prior forecast. It explained that a friendly labor market and rising household wealth should continue to support consumers.

Fannie Mae also pointed out that government spending and inventory investment will add to growth in 2017. Mortgage rates should rise gradually throughout the year, reaching 4.3% by the fourth quarter. However, there is still a risk that rates will rise faster and higher than the forecast, the report states. In that case, the report insists that the impact on housing could be offset by strengthened income growth.

“We expect housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners,” Duncan said. “Demographic factors, however, are positive.”

“Our research shows that older Millennials have begun to buy homes and close the homeownership attainment gap with their predecessors,” he concluded.

Slowdown in home affordability

The gross domestic product report for the fourth quarter may forecast a slowdown in this part of the housing market going into 2017.

The advanced estimate for GDP showed an increase of 1.9% in the fourth quarter, a slowdown from the third quarter’s increase of 3.5%.

One expert explained that the slowdown in income growth portrayed in the report could worsen the growing home affordability problem in the housing market, and even lock some potential homeowners out of the market.

“Going forward, it’s unlikely that housing will be much of a drag on growth, but Q4 data showed a slowdown in wage and salary growth that could certainly impact housing affordability, particularly as interest rates keep rising,” Zillow Chief Economist Svenja Gudell said. “While there were certainly bright spots in the report, economic growth was slower than expected to close out 2016.”

However, Gudell did explain there were bright spots in the report for housing.

She explained that the increase was direction related to new home sales, a trend that did not continue through the end of the year.

“Residential investment went from a drag on the economy in prior quarters to a big boost in Q4, largely because of strong new home sales in October and November,” Gudell said. “But as we saw earlier this week, new home sales did not continue this momentum in December, and it will be important to see how this data changes as more accurate data is incorporated and further estimates of growth are published.”

And Gudell isn’t the only expert that’s optimistic about the increased spending in residential construction.

“On the positive side, consumers did their part with a near 3% growth in spending and residential construction and modeling spending rose by a solid 10%,” said Lawrence Yun, National Association of Realtors chief economist. “Business spending, after being stuck near zero for a while, kicked higher by 4%.”

In fact, despite the slowdown, Yun remains optimistic about the future of the economy.

“Looking ahead, as long as the real estate sector continues to expand, the economy should avoid a recession,” he said. “Should the animal spirit revive in the business community, a stronger 3% GDP growth should be attainable.”

The mortgage business

There’s about to be a new player in the mortgage space, one that boasts it can be a true digital “one-stop shop” for homebuyers, taking them all the way from finding a real estate agent to finding a house and getting a mortgage.

And while others claim they can do the same thing, this one brings a well-known name and built-in digital experience.

That’s right; Redfin is getting into the mortgage lending business.

The company announced this week that it is launching Redfin Mortgage, adding a mortgage-lending operation into Redfin’s existing digital-focused real estate brokerage and title businesses.

The company says its “ultimate goal” is to have is an “entirely digital process, with better service, a faster closing and lower fees.”

According to Redfin, the company will start originating loans in the first half of 2017 in a select number of markets.

Initially, Redfin Mortgage will operate only in Texas, in the Austin, Dallas, Houston and San Antonio markets.

“Redfin Mortgage will put the customer first through a combination of technology and personal service,” said Redfin CEO Glenn Kelman. “This approach to mortgage is the same that has made us successful serving more than 75,000 customers buying and selling homes.”

Kelman also provided some details on how the company’s new mortgage business will work.

“We’ll meet customers through digital channels to lower customer acquisition costs,” Kelman said.

“We’ll hire our own mortgage advisers with incentives that reward service, not just sales, so customers get advice they can trust,” he continued. “We’ll track every aspect of the closing in a single system used by mortgage advisers, real estate agents, title experts and the customer so everyone works together on an on-time closing.”

In its announcement, Redfin said that it is hiring Jason Bateman, formerly the executive vice president of mortgage operations at BBVA Compass, to lead its mortgage operation.

Bateman, who brings more than 15 years of experience to the position, will run Redfin’s new mortgage business out of a new office in Dallas. Redfin’s software engineers in Seattle will also assist in the building and running of the digital portion of the mortgage business.

Bateman said that the abilty to have all aspects of the home-buying operation under one roof will make it much easier for all parties involved.

Drop in home sales is business as usual

December’s new home sales came in a full 10% lower than November, however, experts aren’t worried.

One expert who served as the CEO for Fannie Mae for more than 20 years explained that it’s not unusual to see volatility in winter months.

“Home sales are often volatile in the winter months, as weather matters a lot, and December’s decline is probably mostly a result of this volatility rather than a drop in the underlying fundamentals for housing demand, despite the rise in mortgage rates,” Nationwide Chief Economist David Berson said.

As another expert puts it, taking the long view is a more accurate picture of where the market is.

“New home sales is a notoriously volatile number, so don’t read too much into it,” Brent Nyitray, iServe Residential Lending director of capital markets, said in an email to clients. “The three-month moving average has been pretty steady for the past six months.”

In fact, many experts were more focused on the year as a whole, which showed a 12% increase in new home sales over 2015.

“New home sales in 2016 were the best in nine years, reflecting a combination of solid demand from homebuyers and new homebuilding that has reached post-recession highs,” Trulia Chief Economist Ralph McLaughlin said.

OwnAmerica Founder and CEO Greg Rand explained that month-over-month sales are irrelevant, and that what really matters is the annual comparisons.

Rand explained in an interview with HousingWire that the 12% increase is a positive sign for the industry. “That’s of course what I see in the field, and I think it’s really good news.”

What about the year ahead? Experts explain all signs point to another year of increases.

“We expect 2017 to bring both headwinds and tailwinds for new home sales,” McLaughlin said. “Homebuyers are facing headwinds from higher mortgage rates and uncertainty about tax policy, but low existing inventory, near full employment, and rising wages are tailwinds that will continue to push new home sales higher in the year ahead.”

Buying and find house tips

Housing inventory shortages already plagued 2016, and given that houses don’t crop up overnight, it’s not likely 2017 will be much better, as a new report from Pro Teck shows exactly how dry the housing market is.

To get a pulse of the market, Pro Teck tracks the Months of Remaining Inventory in communities it follows. Months of Remaining Inventory is defined as the current number of active listings divided by the monthly sales rate, combining both supply and demand into one number.

As an added note, a balanced market would have an MRI of around 6 months.

However, looking at the chart, communities with an MRI under 3 have jumped from 12.7% to 20.63% in a year, marking a 62.44% increase.

And on top of this, in December, 2014, this number was 9.17% — meaning there’s been a 125% increase in communities with a dramatic shortage of homes for sale in a two-year period.

Allen agreed that while the high home prices might be beginning to price first-time homebuyers out of the market, Dallas is still seeing a healthy expansion.

“Builders are going to start countering by building some more first-time homebuyer, maybe something at a lower price point, which’ll balance that equation out,” he said.

In fact, the entire state is seeing expansion with new highs in its housing market. San Antonio, Texas saw a record-setting year for its housing market in 2016.

“Between the economy and the state laws, it’s been very good for the housing market,” Allen said. “The Dallas market is just blowing up in general.”

“The relocation and number of people moving from across the united states, either to join a company or even relocate their entire company, has just been phenomenal,” he said.

The latest hotbed for housing

Housing is heating up all around the country as affordability decreases and inventory of homes for sale sink to their lowest level ever.

This year, Dallas appeared consistently in top-10 lists talking about high home prices and hottest markets such as this, this, and this. In fact, home prices in Texas are projected to increase 31% by 2020, according to an article by Samantha Sarf for Forbes.

“Texas in general is a hotbed for business,” Movement Mortgage Market Leader Dana Allen said in an interview with HousingWire. “Many mortgage companies are trying to come in and capture some of that.”

Allen, who leads the Dallas and East Texas market, said that Movement Mortgage saw a solid year in 2016, and looks to expand even further in the years to come. Coming from a company whose goal is to hold 10% of all purchases by 2025 and is expanding significantly, perhaps more expansion isn’t shocking, however it isn’t the only company that sees a boom coming in Texas.

This Dallas private equity firm even bet on a home building boom. In fact, the economy in Texas is so great that the U.S. Department of Transportation even chose Texas as its testing ground for autos.

“With five of the nation’s 15 fastest-growing cities in Texas and our population expected to potentially double by the year 2050, Texas must be a leader in new technology that addresses transportation challenges,” said Marc Williams, Texas Department of Transportation deputy executive director.

Allen agreed that builders could bring a building boom to Dallas, adding that the soaring prices are causing first-time homebuyers to struggle.

“I think that the good part is we have plenty of room for expansion and the builders notice that, so they’ll adjust accordingly,” he said. “First time homebuyers I think do struggle a bit to find a property.”

The market is so hot, in fact, that some even starting throwing around the dreaded B-word (bubble, that is) when referencing the city’s market.

Earlier this year, a study from Nationwide Mutual Insurance Company ranked Dallas-Plano-Irving, Texas in its bottom 10 unhealthy markets, in terms of housing affordability.

However one of HousingWire’s readers, Matt Maison, Arbor Commercial Mortgage director of research and analysis, insisted that there was a significant difference between Dallas, and the city used for comparison, San Francisco.

Economic views show highest division

Consumers are now more confident in the economy than they have been in the previous 12 years.

The Index of Consumer Sentiment increased 0.3% from December to 98.5 in January, according to the Survey of Consumers conducted by the University of Michigan. This marks an increase of 7.1% from January of last year.

“Consumers expressed a higher level of confidence January than any other time in the last dozen years,” Surveys of Consumers Chief Economist Richard Curtin said. “The post-election surge in confidence was driven by a more optimistic outlook for the economy and job growth during the year ahead as well as more favorable economic prospects over the next five years.”

This is a turnaround from the decrease at the start of the month, when the index slipped down to 98.1.

The Current Economic Conditions slipped 0.5% from December, but was still up 4.6% from last year.

“Consumers also reported much more positive assessments of their current financial situation due to gains in both incomes and household wealth, and anticipated the most positive outlook for their personal finances in more than a decade,” Curtin said.

“Consumers have become more convinced that the stronger economy would finally prompt the Fed to increase interest rates at a quicker pace, which caused one-in-five consumers to favor borrowing-in-advance of anticipated increases in mortgage rates, the highest level in more than twenty years,” he said.

The Index of Consumer Expectations also increased by 0.9% from last month’s 89.5 and up 9.2% from 82.7 last year to 90.3 in January.

An article by Jill Mislinski for Advisor Perspectives explains what this means historically:

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.

“Overall, the post-election surge in consumer confidence was based on political promises, and not, as yet, on economic outcomes,” Curtin said. “Moreover, over the past half century the surveys have never recorded as dominant an impact of partisanship on economic expectations.”

Sales transactions increase for the year

The total value of homes sold up North in 2016 increased significantly, according to a report from the Northwest Multiple Listing Service.

Closed sales increased to 95,500 during 2016, an increase of 8.1% from the previous year’s 88,331 closed sales, according to the report, which covers 23 counties in and around Washington state.

Not only were more homes sold, they were sold at a higher price. Total sales in 2016 came in at a value of $40.3 billion, an increase of 18.2% from the previous year.

That is due, in part, to the median sales price increase of 8.9% to $337,500, up from $310,000 last year. However, home prices varied across counties from $102,500 in Ferry County to $489,000 in King County.

All counties, with the exception of Ferry County, showed year-over-year gains in home prices in 2016.

The largest share of homes sold was in the range of $150,000 to $300,000 at 34% of total home sales. Another third of home sales fell in the range of $300,000 to $500,000 and the smallest share was 7% for homes valued under $150,000.

However, new homes are not coming on to the market to replace those sold. Inventory shortages continued to plague the area in 2016, averaging only 1.86 months’ inventory. This is down from the previous year’s average of 2.4 months. In fact, November saw a new low for home inventory in the Northwest.

In general, industry analysts claim a range of four to six month is an indicator of a balanced market, favoring neither buyers nor sellers.

High-end sales surged in 2016 to 3,251 sales of single-family homes priced at $1 million or more. It is up at least 21% from 2015’s 2,676 luxury sales.

Keep crosshairs trained on financial reforms

It’s been a busy first week in office for President Donald Trump, with executive orders on immigration, energy, trade, health care, and more being handed down daily.

But executive orders are just the preamble to the big initiatives that Trump and the Republican majority in Congress are expected to push for shortly.

Chief among those is the “dismantling” of the Dodd-Frank Wall Street Reform Act.

During the presidential transition, Trump’s transition team stated that dismantling Dodd-Frank would be one of the president’s main priorities.

And on Thursday, the American public got a reminder that the president and his party plan to keep that promise.

Speaking before the Congressional Republican Retreat, Vice President Mike Pence said that dismantling Dodd-Frank and its “overbearing mandates” remains a top priority for the Trump administration, a statement that was greeted by applause from the collected Republicans.

(To see Pence’s speech in full, click here. To see the Dodd-Frank section of the speech, fast-forward to the 18:01 mark.)

After Trump and Pence spoke to the GOP retreat, House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, issued a statement saying that he intends to continue pushing for the replacement of Dodd-Frank with a new financial reform package.

Last year, Hensarling introduced the Financial Choice Act, a Republican-crafted Dodd-Frank replacement that would “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.”

On Thursday, Hensarling said that he will advance the Financial CHOICE Act in the new Congress.

“No bureaucrat in Washington should be able to tell hardworking Americans what kind of credit card, bank account, mortgage or retirement advice they can have, but that’s exactly what Dodd-Frank does,” Hensarling said.

“As the president and vice president have said, Dodd-Frank makes it harder for people to get loans to buy a home or start a small business. Consumers are paying more in fees and are losing benefits and access to services they want and need,” Hensarling continued.

“Instead of ending ‘too big to fail,’ Dodd-Frank institutionalizes bailouts for big banks. Dodd-Frank’s regulations give Wall Street a competitive advantage over community banks and credit unions,” Hensarling added.