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INDUSTRY INSIDERS - RECESSION IS REAL
Economists are not the only ones warning of the possibility of a looming recession. The Chief Economist, Mike Frantantoni, of the Mortgage Bankers Association believes we will could see a recession on or before Q2 of next year.
“We could absolutely get a recession in the first half of next year is what makes sense for when it would happen,” Frantantoni stated at a recent conference.
“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook. These lower rates will, in turn, support both purchase and refinance origination volume in 2020,” Fratantoni said. “Lower-than-expected mortgage rates gave the refinance market a significant boost this year, resulting in it being the strongest year of volume since 2016. Given the capacity constraints in the industry, some of this refinance activity will spill into the first half of next year.”
A mild recession could simply reset the economy and pull back housing to more affordable levels. A slowing economy should also drive long term rates lower, further improving home affordability and fueling a refinance boom, which is already underway. If unemployment numbers spike upward, a recession would be nearly unavoidable and could lead to a surge in credit defaults, in all categories. Mortgage defaults are currently extremely low, but the economy has been strong for a decade, and credit has not been tested for some time.
TRUMP STRONG-ARMS FED, AGAIN
President Donald Trump tweeted at 10:20 a.m. on Thursday (10/24): “The Federal Reserve is derelict in its duties if it doesn’t lower the Rate and even, ideally, stimulate. Take a look around the World at our competitors. Germany and others are actually GETTING PAID to borrow money.” – housingwire.com
Trump has been an outspoken critic of the Federal Reserve, going as far as demeaning board members, calling them in tweets “boneheads” and “clueless,” in an attempt to sway monetary policy. The market had been anticipating that the Fed will cut the Fed Funds rate another 25 basis points at their next meeting; but Trump is calling for a rate of 0; which means a 200-basis point cut.
On October 30th, the Fed did cut short term rates by another 25 basis points; far less than what the President has been demanding.
“After cuts at the last three meetings, we feel that policy is well-position to support the outlook that I described,” he said. “We’re going to be watching all factors and if developments emerge that cause a material reassessment with that outlook, we would respond accordingly, but that’s what it would take: a material reassessment of our outlook.” - Fed Chairman Jerome Powell
Cutting rates too fast could create a financial disaster if the country enters a much-anticipated recession, and the Fed is out of options for a fiscal stimulus. Trump’s aggressive approach to slash rates to zero is to prevent an economic slowdown ahead of the election, as a recession could spell doom for a re-election.
The last President to try to press the Fed for political gain was Richard Nixon.
BREAKING POINT FOR STUDENT DEBT
Student debt is now at a suffocating all time high, as it hits $1.5 trillion.
“$1.5 trillion is enough to buy every single home on the market in the U.S. twice.” – housingwire.com
“Student debt has ballooned to an all-time high as the price of education continues to outpace wage growth, and this is holding back many potential buyers from being able to purchase a home,” realtor.com Senior Economist George Ratiu said. “Student debt is already impacting borrowers’ ability to buy a home and education debt is expected to hamper consumers’ financial decisions for many years down the road.”
Student debt is now outpacing wage growth 4 to 1. Many students are digging holes they may never get out of, slowing their purchasing power.
“The important implication of rising debt is that young generations are delaying major life decisions,” Ratiu said. “On the real estate front, the affordability crisis in major cities is driving young families to more affordable midwestern and southern markets, where savings for a down payment stretch much further and can turn owning a home from a future dream into today’s reality.”
Today student debt, consumer debt, and mortgage debt sit at all time historic highs. The U.S. appears to be at the end of a ten-year economic growth cycle. What happens to all that debt in a recession, that appears to be imminent?
HOUSING MARKET SCREAMS RECESSION
Employment has been exceptionally strong, but wages are not keeping pace with the cost of housing. Year over year income showed a 1.3% increase in wages, where housing posted a 4.7% gain. – National Association of Realtors This gap is long past unsustainable.
The housing market is signaling there will be an economic recession by the 2020 election, according to Benn Steil, director of international economics at theCouncil on Foreign Relations.
“Looking back at the years preceding the 2008 financial crisis, a critical warning sign was the surging gap between the growth in home prices and household income,” Steil wrote in a blog post with former CFR analyst Benjamin Della Rocca on the think tank’s website. “Today, a parallel dynamic is playing out.”
“The trend-line in existing-home sales growth has also been down since 2015, tipping into negative territory at the start of last year,” the post said. “Similar drops have preceded nearly every recession since 1970,” it said.
“When income fails to keep pace with home prices, the latter must fall back,” the post said. “Falling home prices, in turn, drive down household spending by way of the so-called wealth effect – that is, consumers cut spending when their assets fall in value.”
“If these trends continue, we should expect broad falls in home prices beginning by mid-2020, which will, in turn, drag down household spending against a darkening economic backdrop,” the post said. “Growth has been slowing, with Trump’s tariff war hitting exports. Manufacturing is contracting. Retail sales, excluding autos, have stalled. Consumer confidence is falling.” – housingwire.com
MANHATTAN – CANARY IN THE COAL MINE
In the last 12 months, home prices in Manhattan have tanked 17%. The average home price now just shy of a $1MM for the first time since 2015.
“Market prices have gone from what was once described as the kindest, gentlest correction to a near free-fall,” said Garrett Derderian, CORE’s managing director of market analysis. “The last time conditions were described in such a way was in the height of the recession.” – housingwire.com
QE OVER – NOT SO FAST
The Federal Reserve aggressively started buying short term Treasury debt in 2008 in an aggressive attempt to ease the recession and prevent a depression. This policy was coined QE, or quantitative easing. This policy was to come to an end this year with the economic recovery at a ten-year high. – Wall Street Journal
In October, it appears that the Fed has started that easing once again, with the purchase of $60 billion a month. The Fed is denying that QE has begun again. Keep in mind that the Fed does not have a history of telling full truths, as not to cause panic in the financial markets. Time will tell if the $60 billion per month gets expanded, and QE gains steam; a clear move to stall an economic slide.
CONSTITUTIONALITY OF THE CFPB TO BE HEARD BY THE SUPREME COURT
The Consumer Financial Protection Bureau (CFPB), the agency created to protect consumer interest and prevent another financial crisis that lead to the Great Recession, is under attack again. When the CFPB was created, is was created with protections from the President of the United States. In 2017, this protection was challenged in a case between PHH, a mortgage company, and the CFPB. PHH lost that fight.
Since the PHH case, the makeup of the Supreme Court now looks very different with the appointment of two new, conservative, Supreme Court justices. This new Court is now set to take on the constitutionality of the agency created to protect consumers. The not so partisan Court is believed by industry leaders to likely vote against the CFPB, ruling that the agency is in fact unconstitutional. Such a vote would allow the President to fire, at will, the Director of the CFPB.
Today, even the current Director of the CFPB, Kathy Kraninger, is supportive of a ruling making her own agency unconstitutional. The future of consumer protection looks to be coming to an end.
WARNING TO AGENCY SHAREHOLDERS
“If the circumstances present themselves where we have to wipe out the shareholders, we will.” - Mark Calabria, director of the Federal Housing Finance Agency (FHFA)
In 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government. The government received senior preferred stock making up the 80% of the total Agencys stock. The stock, which was traded at $60 a share, plummeted to a value just north of zero. Stockholders got hammered, and hedge funds jumped in to purchase stock at a deep discount.
Now as Fannie and Freddie are destined to come out of conservatorship, the fate of current shareholders seems to be dire. The current Director of FHFA, the agency with direct oversight of Fannie and Freddie, has been crystal clear on his intentions to end conservatorship, even if terminal for shareholders.
RATE WATCH – FLAT (treading lower)
Interest rates as of 10/31/2019. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $484,350. Loan to value not to exceed 80%. 740+ credit score. Owner-occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote.
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Kids are they’re parent’s entire world, so it’s no surprise that when choosing a home to buy, parents sacrifice their own wants and needs for the greater good of the family.
Most would agree that purchasing a home is one of the biggest if not the biggest financial decisions of our lives, so when it comes to buying a home whether you have actual kids or dogs/cat/etc you call your kids. They become first priority when choosing which home to buy.
For parents with kids, 50% of them chose a home based on its location and school district. I know this first hand because when I was younger, the home we lived in was located in an area that my parents didn’t want my brother and I to go to school in so my mom used our babysitters address to ensure we were within the zone for school she wanted us to go to.
As a soon to be parent I can definitely see my wife and I doing this to better our daughter’s education.
On the other hand, those without kids but have pets. Their home decisions aren’t focused so much on location, but geared more towards features for their pets. For example, having a bigger yard for their dog to run and play in or a nearby park within walking distance.
Back when I was looking at homes in 2009 my dog was 4 years old and full of energy. He’s now 14 with the same craziness as when he was young when meeting new people or seeing other dogs. Ask anyone who’s met him for the first time. HE’S A PSYCHO for the first 5-10 mins then calms down and is your best friend.
I looked at a few condos on the 2nd/3rd floors and looking back I am so thankful I didn’t get one of those places because it would’ve been such a pain every time he needed to go out, going up and down those stairs. Not to mention any time we encountered someone and/or their pet he’d be going crazy!
I was a perfect example of both these home buying decisions and didn’t even realize it at the time. Looking back I am extremely happy of the decisions that were made and I’m sure there are plenty of others out there looking to buy a home that may or may not consciously take these things into consideration.
Contact me today to get qualified to buy the perfect home for you, your family, and pets!
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Homeownership is slightly down from Q1 to Q2 this year. It's no surprise that the senior population still had the highest rate at 78% for Americans 65 and older. Which came down from 78.5%. But the younger generation are the ones making the largest movement going from 35.4% to 36.4% from Q1 to Q2, which is the largest increase of any age group.
Zillow's data suggests that the decline is due mainly to affordability and many homeowners not able to save up enough for a down payment.
Earlier this year Realtor.com published a report that showed Millenials surpassed Generation X as the group most responsible for the new mortgages in 2018. Since then, Millenials' share of the mortgage market has continued to rise.
By the end of 2018 Millenials represented 45% of all new mortgages, compared to 36% for Generation X, and 17% of Baby Boomers.
In Nov 2018, Millenials finally overtook Generation X as having the largest share of new loans by dollar volume, with a share of 42% in December, compared to a share of 40% for Gen X and 17% for Baby Boomers.
The big takeaway is that Millenials are willing to take on larger mortgages than any other generation to fulfill their dreams of homeownership.
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On Knowledge Bank in May there has been a significant rise in the number of brokers searching for lenders that would accept self-employed borrowers and borrowers looking for loans in later life.
The criteria-based sourcing system’s criteria index has found both categories feature in almost every monthly list and the search for loans for self-employed borrowers has been in the top two for 10 out of the past 12 months.
Stretching borrowing limits is one area that has remained constant through the past 12 months and searches on maximum loan-to-value appear in almost every top five list.
Nicola Firth, chief executive of Knowledge Bank, said: “Every single month in every single product category the list of the most searched for criteria has changed.
“This is remarkable and puts into perspective the challenge that brokers face in finding a home for their client’s borrowing needs.
“For too long now the expectation has been that clients have access to published products but this is simply not the case. Brokers are becoming increasingly aware that it’s no longer about the borrower choosing the lender but the lender choosing the borrower.”
For residential cases, the most searched term was maximum age at end of term, followed by self-employed and maximum age at application, while for buy-to-let the top searches were lending to limited companies, first-time landlord and the requirement to be a homeowner.
For second charges brokers searched for maximum age at end of term the most, followed by mortgage or secured loan in arrears or defaults and maximum LTV.
For equity release it was maximum LTV and affordable housing, while for self-build the most searched terms were first-time buyers and custom build, interest-only during the build.
Furthermore, for bridging the most searched term was maximum LTV, followed by regulated bridging and maximum term of the bridge, while for commercial it was semi-commercial properties, commercial investment properties and maximum LTV for commercial investment properties.
The most searched team for overseas cases was age gap between applicants, expatriates and maximum LTV.
Firth added: “When we’re out and about talking to brokers about Knowledge Bank we very often have conversations with advisers who have started an application for a product only to later find out that their client falls outside of a criteria condition.
“This is hugely frustrating for both broker and client as the search process has to start again, which means delays and disgruntled clients. I believe that it is now imperative that brokers perform a criteria search prior to product sourcing so that the borrower knows the products they actually qualify for.
“Additionally, with ever increasing, and ever-changing regulation it is crucial that brokers can defend their product selection when it is based on criteria restrictions and not price.
“Thankfully this is one problem that has a simple and straightforward solution with the use of a criteria search system like Knowledge Bank.”
Written by Michael Lloyd via mortgageintroducer.com
June 13, 2019
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Despite the stresses and uncertainties around self-employment and the gig economy, research by INSEAD suggests the self-employed have notably better mental health, happiness and energy than the rest of the workforce.
Researchers from the French-headquartered global business school compared the experiences of self-employed Britons compared with the wider UK population. It found that on virtually every measure, self-employed people performed higher than the general population.
Presenting their findings in the paper The Effects of Self and Temporary Employment on Mental Health: The role of the Gig Economy in the UK, they found that people working as part of the gig economy consistently had better concentration, were more confident, had higher feelings of self-worth. They also tended to drink less alcohol, and performed better on mental health measures.
“We recorded a consistent pattern of improvements across drivers of mental health,” the report’s co-author, Mark Stabile, said.
“Self and temporary employment support the ability to concentrate, not being constantly under strain, confidence, belief in self-worth and happiness.”
According to Professor Stabile, a professor of economics at INSEAD and academic director at the Stone Centre for Wealth Inequality, the researchers used a mental health score called GHQ to compare individuals, using a scale from 0 to 36.
Being self-employed delivered a 33 per cent higher mental score than the wider workforce, or 8 points difference on the scale.
Temporary workers score lower
The report cautioned, however, that some precarious jobs, such as temporary roles, likely offer less control and satisfaction, and as such may be detrimental to mental health.
“Self-employment is positively and significantly associated with mental health and with physical activity. It is also positively associated with alcohol spending,” the report stated.
“In contrast, temporary employment is negatively associated with health: indeed, temporary jobs are negatively associated with the GHQ... and positively associated with the uptake of sleeping pills.
“Combining these two groups [still] yields a positive and significant coefficient on mental health (although smaller than self-employed alone).”
Implications for the workforce
The research, Professor Stabile said, gives individuals, employers and regulators “food for thought” about how to provide work in ways which positively influence mental health.
“This paper offers food for thought for employers, full-time employees and unemployed worldwide. The more people feel they have flexibility and control in the job, the bigger the chance you will see improvements in mental health,” he said.
“We need to help workers shape the way they earn a living everywhere.”
Surveys, businesses share similar findings
INSEAD’s findings match the results of other surveys into the effects self-employment has on health and well-being.
A poll of 1,000 Australians last year found that self-employed people were more than twice as likely to rate their career satisfaction at nine out of 10 or greater than employees — despite them spending more hours working each week than employees.
Earlier this year, several Australian SMEs and family-owned businesses revealed their approach to boosting sense of purpose and satisfaction among their respective employees, and how doing so has and is achieving results for their bottom line.
Meanwhile, a CGU Insurance poll of 2,000 people found that the greatest barrier to becoming self-employed in Australia relates to a perceived negative culture around ambition and so-called “tall poppy syndrome”.
Not always the caseHowever, Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, told My Business last year that the stresses associated with running a business combined with a culture of “just suck it up” can work to reverse this trend.
She added that a reluctance on the part of business owners to seek help and support when they need it most is also a common problem.
Written by Adam Zuchetti via mybusiness.com.au
June 14th, 2019