HOUSINGNEWS REPORT
RECESSION FEARS RISING: HOW HOUSING WILL HOLD UP
FIRST-HALF U.S. FORECLOSURE ACTIVITY BY YEAR
“Second quarter growth likely to be the high point for the rest of the expansion. ... we do not expect the robust growth to be sustainable, and our forecast points to a slowdown in the second half of the year. We project that full-year 2018 growth will reach 2.8 percent, one-tenth higher than in our prior forecast, before slowing to 2.2 percent in 2019 as fiscal impacts fade.”
JANUARY-TO-JUNE FORECLOSURE ACTIVITY (PROPERTIES WITH FORECLOSURE FILINGS)
FANNIE MAE IN ITS JULY 2018 ECONOMIC SUMMARY
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Wage gains have ranged from minimal to actual reversals. For example, “from June 2017 to June 2018, real average hourly earnings decreased 0.2 percent, seasonally adjusted,” according to the Bureau of Labor Statistics. This is not what one would expect. With labor in demand, with 4 percent unemployment, why are wage gains not significantly higher? For much of the past decade substantial affordability worries have been offset by mortgage rates at or near historic lows. Now mortgage rates are rising. The Mortgage Bankers Association (MBA) expects rates to top 5 percent in 2019, low by historic standards but enough to flush out marginal borrowers and the potential sales they represent. For its part, the Federal Reserve seems intent on raising the federal fund rate. While the Fed does not directly control or set mortgage rates, its ability to raise or lower bank rates impacts mortgage pricing.
In its semi-annual Monetary Policy Report to Congress, the Fed projects that the federal funds rate will go from 2.4 percent in 2018 with two additional hikes this year to as much as 3.1 percent in 2019 and 3.4 percent in 2020. This forecast suggests two additional rate hikes this year and three or four in 2019. One big question is whether the Fed is adopting policies based on the “right” information, whatever information that might be. The Bureau of Economic Analysis reported on July 27 that “real gross domestic product increased at an annual rate of 4.1 percent in the second quarter of 2018.” On July 20 the Federal Reserve Bank of New York Nowcast estimated that the annual GDP growth was 2.69 percent. The Federal Reserve Bank of Atlanta said that its “GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 3.8 percent on July 26, down from 4.5 percent on July 18.” (parenthesis theirs)
Do we raise or lower the federal funds rate based on real GDP growth of 2.69 percent, 3.8 percent, 4.1 percent or 4.5 percent — differing estimates of national economic expansion published in the course of less than 10 days? Should we mention that the current expansion is propelled in large measure by massive deficit spending and a one-time tax cut? Former Fed Chairman Ben Bernanke told Bloomberg that by 2020 the economy will “go off the cliff” because of $1.5 trillion in lost revenue as a result of tax reform and $300 billion in increased federal spending. Fed hikes. The current fed funds rate target range is 1.75 percent to 2.00 percent. That’s up a max of 2 percent since 2008. During the same period mortgage rates – which reflect marketplace supply and demand – declined from 6.03 percent in 2008 to 4.54 percent at the end of July. One fortunate reality is that mortgage rates do not move in lock-step with
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AUG 2018 | ATTOM DATA SOLUTIONS
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