– National Home Prices Up 7% in September 2017
– Home Prices Projected to Increase 4.7% by September 2018
– West Virginia Was the Only State That Lost Ground, Down 0.3%
CoreLogic released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ for September 2017, which shows home prices are up strongly both year over year and month over month. Home prices nationally increased year over year by 7% from September 2016 to September 2017, and on a month-over-month basis, home prices increased by 0.9% in September 2017 compared with August 2017, according to the CoreLogic HPI. Looking ahead, the CoreLogic HPI Forecast indicates that home prices will increase by 4.7% on a year-over-year basis from September 2017 to September 2018, and on a month-over-month basis home prices are expected to decrease by 0.1% from September 2017 to October 2017. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state. “Heading into the fall, home price growth continues to grow at a brisk pace,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This appreciation reflects the low for-sale inventory that is holding back sales and pushing up prices. The CoreLogic Single-Family Rent Index rose about 3% over the last year, less than half the rise in the national Home Price Index.”
According to CoreLogic Market Condition Indicators (MCI) data, an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, 36% of cities have an overvalued housing stock as of September 2017. The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income. Also, as of September, 28% of the top 100 metropolitan areas were undervalued and 36% were at value. When looking at only the top 50 markets based on housing stock, 48% were overvalued, 16% were undervalued and 36% were at value. The MCI analysis defines an overvalued housing market as one in which home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10% below the sustainable level. “A strengthening economy, healthy consumer balance sheets and low mortgage interest rates are supporting the continued strong demand for residential real estate,” said Frank Martell, president and CEO of CoreLogic. “While demand and home price growth is in a sweet spot, a third of metropolitan markets are overvalued and this will become more of an issue if prices continue to rise next year as we anticipate.“
1Q will be ‘make or break’ period
Oil prices have finally started to gain a foothold with prices stretching to a two-year high on Monday, supported by geopolitical tensions in the Middle East. While fundamental market changes could mean higher prices are here to stay, the first quarter could prove a “make or break” period. This oil rally is to a certain extent, “very fundamentally based,” Andrew Lebow of Commodities Research Group, told FOX Business. Oil‘s recent crash was caused by a massive market oversupply, but now production cuts have finally started to impact the market’s balance. According to Mr. Lebow, since June there has been a visible draw in oil inventories. He added that: “we are still in a surplus – but things are improving.” This week, in its annual World Oil Outlook, the Organization of the Petroleum Exporting Countries (OPEC) noted the improving market fundamentals, adding that the oil market is finally rebalancing after a period of instability since 2014. Geopolitical price support is fickle, but the fundamental change to the oil market could mean higher prices will be longer term. FOX Business asked Mr. Lebow if oil could hold onto its gains, and he said “it very well could” but cautioned that even though the oil oversupply is abating, we are still in a surplus with inventories above the normal five-year average. Lebow added that a rally in oil prices into Thanksgiving is normal, but oil stocks can build in the first quarter, putting pressure on prices. A potential positive for oil prices in the first quarter would be a cold winter, which would increase demand.
NAHB – house passes joint employer bill, providing certainty for small businesses
The National Association of Home Builders (NAHB) today commended the House for passing the bipartisan Save Local Business Act, legislation that would amend the National Labor Relations Act and Fair Labor Standards Act to restore a common sense joint employer standard for home building firms and other small businesses. “Under current law, it is possible for a home builder to be considered a joint employer through such a basic business act as setting the work schedule of their subcontractor,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “This bill would reinstate the sensible criteria that has worked for the American business community for more than 30 years and provide legal certainty for all business owners.” In 2015, the National Labor Relations Board (NLRB) overturned decades of precedence in the case of Browning-Ferris Industries of California Inc. by affirming that a company could be considered a joint employer if it has indirect control or the potential to determine the key terms of an employee’s employment, including hiring and firing, supervision, scheduling and the means and method of employment.
The question of what can be deemed indirect control and just how much of it could legally constitute joint employment was left open-ended by the NLRB, causing confusion and uncertainty for the housing and small business community. “Since the indirect test is so vague and non-specific, the NLRB has not excluded the possibility that a home building firm could be found to be joint employers of its subcontractors if it merely asked for additional subcontractors to complete a job that is running behind schedule,” said MacDonald. This is especially problematic for the housing industry, given that most home building companies employ fewer than 10 workers and rely on an average of 22 subcontractors to complete a home. The Save Local Business Act offers a common-sense solution to the uncertainty generated since the NLRB’s ruling by proclaiming that a company may be considered a joint employer of a worker only if it ‘directly, actually, and immediately’ exercises significant control over the primary elements of employment. “By codifying this definition, the legislation eliminates the uncertainty that has threatened to upend the residential construction sector and provides employers with a clear standard for joint employment,” said MacDonald. “We urge the Senate to promptly introduce similar legislation.”
A year after the election, small businesses are at near-record optimism
Optimism among America’s small businesses have soared, but a year after President Donald Trump’s election victory, Main Street advocacy groups are giving mixed reviews on his performance. The overall tone of the administration has been one of deregulation, with the president signing an executive order to curb new regulations and repeal older ones in his first month of office. The moves and continued message have sent the stock market and small business optimism to record highs over the past year. However, key campaign promises, such as Trump’s promise to repeal and replace the Affordable Care Act, have stalled. “Small businesses are upbeat and positive about the economy. In general, they think the country is headed in the right direction,” said Todd McCracken, president of the National Small Business Association, a nonpartisan advocacy group. “But in terms of accomplishments, I think they’d also say they had higher hopes on the policy front. They had wanted more pro-growth legislation, and more of the president and Congress working together on things.” Optimism is still near record highs. Wells Fargo/Gallup’s Small Business Index saw its largest increase in a decade in recent months and is holding steady. The National Federation of Independent Business’ monthly read on sentiment peaked postelection to 105.8 in December and 105.9 in January but has since pared back, hitting 103 in September, still well above the historical average of 98. Despite the drop, the conservative lobbying group said its membership is “generally very pleased” with Trump’s performance thus far. “Small business is especially supportive of the president’s actions on regulatory issues,” said NFIB communications director Jack Mozloom. “The Federal Register is nearly empty now, thanks to his efforts to curb regulations. … The cost of regulations is disproportionately heavy for small businesses. They have to spend more than their corporate cousins to comply, so this is a very big deal. Small-business owners supported his efforts to repeal and replace ObamaCare as well. And, they continue to expect substantial tax relief.”
The nonpartisan Small Business & Entrepreneurship Council noted a positive shift deregulation. The council’s president and CEO, Karen Kerrigan, said the shift has enabled small companies to “plan with confidence as a variety of uncertainties have been lifted.” But movement on key issues like taxes and health-care costs will be needed to bolster confidence in the administration, she added. “Small-business owners understand that everything takes longer in Washington, but they did have high expectations for President Trump getting more things done at a faster clip,” Kerrigan said. “That is what he said he would do. They are expecting a signed tax reform bill. With the failure of health-care reform, they are now looking at his executive orders on health coverage to bear some fruit.” McCracken echoed that point, adding that a key focus for 2018 for his group will be health-care reform. “We are hoping we can get the tax bill to where we want it to be, and the highest priority will be getting back to health-care costs to reduce them,” he said. “The piece that can really come back to strangle us is health-care and its costs, so we need to get a handle on that.”
ATTOM – which local housing markets would be most impacted by the GOP tax plan?
The Republican tax proposal unveiled last week includes two changes to the income tax structure that could potentially have significant impacts on homeowners, and by extension the housing market. The first proposed change involves the mortgage interest rate deduction, often touted by many in the industry as an icing-on-the-cake advantage of homeownership. The proposal calls for a reduction in the amount of mortgage interest that can be claimed as a deduction for federal income taxes. Now, homeowners can deduct interest paid on up to $1 million worth of home loans, but under the GOP proposal, homeowners would only be able to deduct interest paid on up to $500,000 worth of home loans. Among 2,294 counties included in this analysis, those with the highest share of loan originations above $500,000 were Teton County (Jackson Hole), Wyoming (49.2%); District of Columbia (35.1%); Falls Church City, Virginia (34.6%); Arlington County, Virginia (29.6%); and Nantucket County (Martha’s Vineyard), Massachusetts (29.2%). Among those same counties, those with the highest volume of loan originations above $500,000 so far in 2017 were Los Angeles County, California (28,523); Orange County, California (15,527); San Diego County, California (12,739); Santa Clara County, California (11,322); and King County (Brooklyn), New York (11,110).
The second proposed change in the GOP proposed income tax plan that impacts homeowners is a new cap on how much homeowners can deduct for property taxes. Under the proposal, homeowners can only deduct up to $10,000 in property taxes from their federal income taxes. Among the 1,731 counties analyzed, those with the highest share of homes with property taxes above $10,000 were Westchester County, New York (73.4%); Luna County, New Mexico (68.7%); Rockland County, New York (60.0%); Mathews County, Virginia (54.4%); and New York County (Manhattan), New York (52.5%). Among those same counties those with the highest volume of homes with property taxes above $10,000 were Nassau County (Long Island), New York (176,946); Los Angeles County, California (165,078); Suffolk County (Long Island), New York (155,592); Bergen County, New Jersey (126,096); and Harris County (Houston), Texas (125,792).
CoreLogic – homebuyers’ “typical mortgage payment” up 10% year over year
While home prices have risen about 6% over the past year, the mortgage payments that recent homebuyers have committed to have risen closer to 10% because of the increase in mortgage rates over the past year. One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use something we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s US median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20% down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for in order to get a mortgage to buy the median-priced US home. When adjusted for inflation, the typical mortgage payment also puts current payments in the proper historical context. The change in the typical mortgage payment over the past year illustrates how it can be misleading to simply focus on the rise in home prices when assessing affordability. For example, in August this year the median sale price was up 6.3% from a year earlier in nominal terms, but the typical mortgage payment was up 10.1% because mortgage rates had increased nearly 0.5 percentage points over that 12-month period.
The inflation-adjusted typical mortgage payment has trended higher in recent years, in August 2017 it remained 34.7% below the all-time high payment of $1,250 in June 2006. That’s because the average mortgage rate back in June 2006 was about 6.7%, compared with 3.9% this August, and the inflation-adjusted median sale price in June 2006 was $242,723 (or $199,900 in 2006 dollars), compared with a median of $216,811 in August 2017. Forecasts from IHS Markit call for inflation and income to rise gradually over the next year, while a consensus forecast suggests mortgage rates will gradually ratchet up about 70 basis points between August 2017 and August 2018. The CoreLogic Home Price Index forecast suggests the median sale price will rise about 3.0% in real terms over the same period. Based on these projections, the inflation-adjusted typical mortgage payment would rise from $816 this August to $908 by August 2018, an 11.3% year-over-year gain (Figure 2). Real disposable income is projected to rise about 3.6% over the same period, meaning next year’s homebuyers would see a larger chunk of their incomes devoted to mortgage payments.