{"id":705,"date":"2015-02-02T10:21:18","date_gmt":"2015-02-02T10:21:18","guid":{"rendered":"http:\/\/team.simplyfreedom.ws\/?p=705"},"modified":"2016-05-05T07:55:42","modified_gmt":"2016-05-05T07:55:42","slug":"remodeling-market-looking-up","status":"publish","type":"post","link":"http:\/\/team.simplyfreedom.ws\/index.php\/remodeling-market-looking-up\/","title":{"rendered":"Remodeling market looking up"},"content":{"rendered":"

Published on: Feb 2, 2015 @ 10:21<\/b><\/span> am<\/p>\n

According to a report released by the Harvard
\nUniversity Joint Center for Housing Studies,<\/h3>\n

spending
\nin the US remodeling market will grow by 4% to 5% this
\nyear to at least $330 billion, spanning work on both
\nowned homes and rentals. That\u2019s a slower growth rate
\nthan in previous years of the recovery, but it would be
\nenough to make 2015 the richest year for remodeling
\nspending of the past 15, surpassing the previous high
\npoint of $324 billion in 2007.\u00a0 The main reason: A
\nsimilar easing of home-price appreciation. The median
\nresale price of existing homes last month of $209,500
\nmarked a 6% increase from a year earlier. In
\ncomparison, the increase in 2013 was nearly 10%.
\nHomeowners are less likely to push ahead with an
\nambitious, pricey renovation if their home equity
\nisn\u2019t growing as rapidly anymore.\u00a0 Another factor
\nsapping a bit of momentum from the robust remodeling
\nmarket is that homeowners don\u2019t have as much
\nmotivation now as they did in previous years to install
\nenergy-efficient windows, doors and other features in
\ntheir house. Part of that is because federal tax
\ncredits for such improvements have waned. An additional
\ninfluence is that energy costs, particularly for gas
\nfor heating homes, have declined markedly in recent
\nmonths.\u00a0 Meanwhile, the remodeling market has listed in
\nrecent years toward bigger-ticket, discretionary jobs,
\nincluding kitchen and bathroom upgrades. The share of
\noverall remodeling spending attributable to such
\ndiscretionary projects accounted for 30% of remodeling
\nspending on owned homes in 2013, up by roughly a
\npercentage point from 2011, Mr. Baker said. He
\nanticipates that share will continue to grow this year,
\nthough he hasn\u2019t forecast a specific percentage.<\/p>\n

WSJ – US consumer spending down 0.3% in December<\/p>\n

US consumer spending fell in December, a sign of
\ncaution among American households despite lower
\ngasoline prices and steady hiring.\u00a0 Personal spending,
\nwhich measures outlays for everything from hardware to
\nhealthcare, decreased a seasonally adjusted 0.3% from
\nthe prior month, the Commerce Department said Monday,
\nthe first such fall since last January. November
\nspending was revised down to a 0.5% gain from the
\ninitially estimated 0.6% advance.\u00a0 Personal income,
\nreflecting money collected from wages, investments and
\ngovernment aid, increased 0.3%. Real disposable income,
\nwhich accounts for taxes and inflation, rose 0.5% in
\nDecember.\u00a0 Economists surveyed by The Wall Street
\nJournal had forecast a 0.3% decline in household
\noutlays and a 0.2% rise in personal income.\u00a0 Consumer
\nspending accounts for about 70% of economic activity in
\nthe US and is a key driver of growth. Separate figures
\nout Friday indicated US households boosted spending by
\nthe most in nearly nine years during the final three
\nmonths of 2014, a bright spot in an otherwise mixed
\nreport showing gross domestic product advanced at a
\n2.6% pace in the fourth quarter.<\/p>\n

CoreLogic – ability-to-leverage drives foreclosure
\nrisk<\/h2>\n

Leverage is known to play an important role in loan
\ndefault, but while theoretical research on leverage
\nexists; to our knowledge there has been virtually no
\nlong-term data driven empirical analysis on the impact
\nof leverage on residential foreclosure. We assembled
\ndata from various sources to fill that void and examine
\nthe role leverage plays in mortgage foreclosures over
\nthe last five decades. This is an especially timely
\ntopic given that policy makers have recently attempted
\nto thaw the tight lending environment by reducing the
\nprice and expanding the quantity of low down payment
\nreal estate credit.\u00a0 CoreLogic research highlights four
\nkey findings. First, while homeownership rates today
\nare the same level as five decades ago, foreclosure
\nrisk is two to three times higher. Second, the primary
\ndriver of default risk over this period has been
\nleverage. Leverage has played such a strong role that
\nhas rendered changes in income and savings as
\ninsignificant drivers of default from a long-term macro
\nperspective. Third, the stabilization in foreclosure
\nrates in the 1970s and 1980s was driven by high
\ninflation rates, which propelled nominal home prices
\nand reduced aggregate LTV, thus lowering default risk
\n\u2013 a reminder of real estate\u2019s role as a hedge
\nagainst inflation. Fourth, the centerpiece of
\ngovernment regulations to help make the mortgage market
\nsafer for consumers was an income based ability-to-pay
\nrule manages delinquency risk, but is less aimed at the
\nmarket\u2019s foreclosure risk. Therefore, leverage as the
\nmost important driver of foreclosure performance over
\nthe last five decades remains unaddressed for the
\nmarket. In the future, policy makers may need to
\nconsider exploring their ability to manage the leverage
\ncycle to promote residential financial stability.<\/p>\n

The Longview of Homeownership, Leverage and
\nForeclosures<\/h2>\n

In the 1930s, the creation of Federal Housing
\nAdministration (FHA) and Fannie Mae dramatically
\nexpanded access to mortgage credit. As a result, the US
\nhomeownership rates significantly increased from 44% in
\n1940 to 62% by 1960. Between the early 1960s and early
\n1990s homeownership rates stabilized in a narrow range
\nbetween 62% and 65%. In the mid-1990s pro-homeownership
\npolicies led to an expansion in mortgage credit and the
\nhomeownership rate peaked in 2004 at 69%. Since then
\nhomeownership rates declined through the recession and
\nstood at 64% as of Q4 2014. While the homeownership
\nrate today is similar to the early 1960s, foreclosure
\nrates have significantly increased. Between 1960 and
\n1965 the conventional foreclosure rate averaged 0.6%
\nand the FHA foreclosure rate averaged 1.4%. In 2014,
\nthe conventional foreclosure rate was 1.5% and the FHA
\nforeclosure rate was 2.6%. Despite the fact that
\nhomeownership was the same last year as for the early
\n1960s, conventional foreclosure rates were about 2.5
\ntimes higher and FHA foreclosure rates were nearly two
\ntimes higher. These much higher foreclosure rates are
\nnot a function of the fact that the market is still
\nhealing from the Great Recession because even as of
\n2004, well before foreclosure rates spiked, the level
\nof risk for both conventional and FHA mortgage was
\nthree times higher than during the 1960s.<\/p>\n

The Role of Leverage in Default Risk<\/h2>\n

Given that homeownership rates today are at similar
\nlevels as the early 1960s, what has driven the higher
\nforeclosure rates? To better understand the drivers of
\nthe higher foreclosure rates, we modeled foreclosure
\nrates as a function of savings, unemployment,
\ninflation, aggregate current LTV for all mortgage loans
\noutstanding and real median household income. The model
\nrevealed only two primary factors and one very
\nsecondary factor that noticeably influenced foreclosure
\nrates. The LTV ratio and unemployment rate stood out as
\nthe most important variables, with the LTV ratio by far
\nbeing the most important variable.\u00a0 The model\u2019s
\nfindings are consistent with the dual trigger theory of
\nforeclosures that lack of equity and economic shocks
\n(typically unemployment) that tip a household into
\nforeclosure. When homeowners have insufficient equity
\nand their LTV is above 100%, they become vulnerable to
\nadverse economic shocks. For example, if a borrower
\nloses their job and have insufficient income to pay the
\nmortgage, they will typically try to sell their home.
\nHowever, if the value of the property is below the
\ncurrent unpaid principal balance, they will be unable
\nto sell the home and pay back their mortgage, which may
\ntip them into foreclosure.\u00a0 The model\u2019s finding is
\nalso consistent with emerging theoretical literature
\nover the last decade that indicates leverage cycles are
\nan underappreciated driver of default. Mortgage
\nleverage increased in the early 1950s as down payment
\nrequirements fell, which helped drive homeownership
\nhigher, but also drove foreclosure rates higher.
\nBetween the early-to-mid 1960s and mid-1980s, leverage
\nstabilized, which led to stable foreclosure rates. The
\nstabilization in leverage occurred because high
\ninflation rates led to rapid increases in nominal home
\nvalues, otherwise leverage would have continued to
\nincrease. Moreover, the rise in inflation caused an
\nincrease in nominal incomes which made the pre-existing
\nfixed monthly mortgage payment easier to meet.<\/p>\n

Leverage Drives Foreclosure Rates<\/h3>\n

During the early to mid-1990s, leverage began to
\nincrease again due to the emphasis to support
\nhomeownership via lower down payment lending. During
\nthe early 2000s, leverage rose even faster due to cash
\nout refinances and home equity lending which rapidly
\nincreased. When home prices crashed, leverage spiked
\nand along with the increase in unemployment rates
\ncaused foreclosures to soar. Over the past four years
\nthat process reversed and leverage has declined. Since
\nthe trough in home prices in March 2011, prices have
\nincreased 29% through November 2014, which reduced
\naggregate LTV from 61% in 2011 to 46% in 2014.\u00a0 To
\nillustrate the impact of the home price recovery on
\nforeclosure rates, the model was used to break down how
\nmuch of the recent decline was due to price increases
\nversus all other variables combined. Between 2011 and
\n2014, foreclosure rates fell by 1.5 percentage points
\nand the rise in prices has accounted for 1.4 percentage
\npoints of the decline. In other words, 91% of the drop
\nin the foreclosure rate is due to the drop in leverage
\nvia higher home prices. Unemployment and the remaining
\nvariables accounted for the small remaining portion of
\nthe decline.<\/p>\n

Conclusion and Policy Implication<\/h3>\n

CoreLogic findings illustrate how important leverage
\nhas been both historically and in today\u2019s recovery.
\nWhile leverage is the dominant driver of foreclosure
\ntrends, the unemployment rate captures the impact of
\nshort-term economic cyclical fluctuations. A less
\nimportant but still influential factor has been periods
\nof accelerating inflation, which ease the burden of the
\nmonthly mortgage payment and masked the rise in
\nleverage via higher nominal home prices. Interestingly,
\nthe savings rate and household income were not at all
\nimportant, which was a surprise given that traditional
\nunderwriting focuses on affordability. Over the next
\nyear the continuing improvement in prices should help
\nfurther reduce leverage, but the renewed emphasis on
\nlow down payment lending may in the future beyond 2015
\nlead to an increase in leverage.\u00a0 While the Federal
\nReserve utilized traditional monetary policy and
\nunconventional tools to guide the economy through the
\nrecession and the recovery, one lever that is not
\nutilized in federal regulatory policy is a leverage
\ntarget, which has been used by over 20 countries with
\nsuccess. The Qualified Mortgage (QM) rule focused on
\nthe borrower\u2019s ability to repay and it will lead to
\nbetter performing mortgages; however the QM lacked a
\nleverage standard. While the QM rule will help improve
\nmortgage performance, it is aimed squarely at
\ndelinquency risk and less at foreclosure risk. That
\nmeans that the most important driver of mortgage
\nperformance over the last five decades has remained
\nunaddressed for the market and will likely need to be
\naddressed in the future.<\/p>\n

US factory activity falls to lowest level in 12 months<\/h2>\n

US factory activity continued to decelerate in January,
\nregistering its slowest growth in a year, according to
\na survey released Monday by the Institute for Supply
\nManagement.\u00a0 The ISM\u2019s manufacturing purchasing
\nmanagers index fell to a seasonally adjusted 53.5 in
\nJanuary from 55.1 in December. Fourteen of the 18
\nindustries in the survey reported growth, but
\nJanuary\u2019s reading was the index\u2019s lowest reading
\nsince January 2014.\u00a0 Economists surveyed by The Wall
\nStreet Journal had expected the PMI would slow to 54.3.
\nA reading over 50 indicates expansion, while a reading
\nbelow 50 signals contraction.\u00a0 \u201cThe tone of this
\nreport was disappointing, as it points to some further
\nleakage in growth momentum after the surge late last
\nyear and it is an indication that the economy may be
\noff to a slow start this quarter,\u201d TD Securities
\neconomist Millan Mulraine said in a note to clients.
\nThe ISM\u2019s gauge slowed in the final months of 2014,
\nfrom 57.9 in October to 57.6 in November and 55.1 in
\nDecember. Still, the index has remained at or above 50
\ncontinuously since December 2012.\u00a0 In January, the
\nindex\u2019s decline was broad based. The new-orders index
\nwas 52.9 compared with 57.8 in December. The production
\nindex was 56.5 versus 57.7 in December. The employment
\nindex was 54.1 in January compared with 56.0 in
\nDecember. The prices index was 35 last month, compared
\nwith 38.5 in December. The exports index was 49.5 in
\nJanuary compared with 52.0 in December.<\/p>\n

Pinto: we\u2019re building toward another mortgage
\nmeltdown<\/p>\n

Ed Pinto, one of the smartest minds looking at housing,
\nand the resident fellow and co-director of the American
\nEnterprise Institute’s International Center on Housing
\nRisk, writes in the Wall Street Journal that the White
\nHouse is steering housing back into the dangerous
\nwaters it’s just coming out of.\u00a0 The Obama
\nadministration\u2019s troubling flirtation with another
\nmortgage meltdown took an unsettling turn on Tuesday
\nwith Federal Housing Finance Agency Director Mel
\nWatt\u2019s testimony before the House Financial Services
\nCommittee.\u00a0 Mr. Watt told the committee that, having
\nreceived \u201cfeedback from stakeholders,\u201d he expects
\nto release by the end of March new guidance on the
\n\u201cguarantee fee\u201d charged by Fannie Mae and Freddie
\nMac to cover the credit risk on loans the federal
\nmortgage agencies guarantee.\u00a0 Here we go again. In the
\nObama administration, new guidance on housing policy
\ninvariably means lowering standards to get mortgages
\ninto the hands of people who may not be able to afford
\nthem.\u00a0 Earlier this month, President Obama announced
\nthat the Federal Housing Administration (FHA) will
\nbegin lowering annual mortgage-insurance premiums \u201cto
\nmake mortgages more affordable and accessible.\u201d While
\nthat sounds good in the abstract, the decision is a bad
\none with serious consequences for the housing market.<\/p>\n","protected":false},"excerpt":{"rendered":"

Published on: Feb 2, 2015 @ 10:21 am According to a report released by the Harvard University Joint Center for Housing Studies, spending in the US remodeling market will grow by 4% to 5% this year to at least $330 billion, spanning work on both owned homes and rentals. That\u2019s a slower growth rate than […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[39],"tags":[92,91,69,90,88,104,103,53,102,97,84,93,106,87,100,42,85,96,101,98,105,94,99,86,107,95,89],"_links":{"self":[{"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/posts\/705"}],"collection":[{"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/comments?post=705"}],"version-history":[{"count":2,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/posts\/705\/revisions"}],"predecessor-version":[{"id":803,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/posts\/705\/revisions\/803"}],"wp:attachment":[{"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/media?parent=705"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/categories?post=705"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/team.simplyfreedom.ws\/index.php\/wp-json\/wp\/v2\/tags?post=705"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}