With the “unwintery” weather enjoyed by most of the country–up until this week of course–the home sales reports, both new and existing homes–for February could give us a first look at the spring market. Hopefully they will provide the good news headlines next week.
Another notable item for the week. The Mortgage Bankers Association said the number of applications for purchase mortgages last week was the highest since June which bodes well for the coming year.
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And speaking of rates, they dropped again, down another 3 basis points for a total decline of 23 basis points since New Year’s Eve. The spring market is looking to be a great one.
That wasn’t the only notch taken out of housing costs this week, but the second might only apply to those who act fast. Freddie Mac announced a second consecutive decline in interest rates. As we said last week, one drop in rates does not a trend make, and neither does a second one. Still, rates that ended the year at 4.32% are now down 20 basis points. It is interesting that so far rates are following the same pattern they did last year, peaking at the year’s high in the last weeks of 2015 and starting what that time turned into a long-term decline the first week of 2016. We aren’t predicting or even optimistic about a repeat, but wouldn’t it be nice.
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The American people have spoken and they have elected Donald J. Trump as the 45th president of the United States. Change was clearly demanded, and change is what we will have.
The election was a shock for many, especially on the West Coast where we have not been overly affected by the long-term loss in US manufacturing or stagnant wage growth of the past decade. But the votes are in and a new era is ahead of us. So, what does this mean for the housing market?
First and foremost I would say that we should all take a deep breath. In a similar fashion to the UK’s “Brexit”, there will be a “whiplash” effect, as was seen in overnight trading across the globe. However, at least in the US, equity markets have calmed as they start to take a closer look at what a Trump presidency will mean.
On a macro level, I would start by stating that political rhetoric and hyperbole do not necessarily translate into policy. That is the most important message that I want to get across. I consider it highly unlikely that many of the statements regarding trade protectionism will actually go into effect. It will be very important for President Trump to tone down his platform on renegotiating trade agreements and imposing tariffs on China. I also deem it highly unlikely that a 1,000-mile wall will actually get built.
It is crucial that some of the more inflammatory statements that President-Elect Trump has made be toned down or markets will react negatively. However, what is of greater concern to me is that neither candidate really approached questions regarding housing with any granularity. There was little-to-no-discussion regarding housing finance reform, so I will be watching this topic very closely over the coming months.
As far as the housing market is concerned, it is really too early to make any definitive comment. That said, Trump ran on a platform of deregulation and this could actually bode well for real estate. It might allow banks the freedom to lend more, which in turn, could further energize the market as more buyers may qualify for home loans.
Concerns over rising interest rates may also be overstated. As history tells us, during times of uncertainty we tend to put more money into bonds. If this holds true, then we may see a longer-than-expected period of below-average rates. Today’s uptick in bond yields is likely just temporary.
Proposed infrastructure spending could boost employment and wages, which again, would be a positive for housing markets. Furthermore, easing land use regulations has the potential to begin addressing the problem of housing affordability across many of our nation’s housing markets – specifically on the West Coast.
Economies do not like uncertainty. In the near-term we may see a temporary lull in the US economy, as well as the housing market, as we analyze what a Trump presidency really means. But at the present time, I do not see any substantive cause for panic in the housing sector.
We are a resilient nation, and as long as we continue to have checks-and balances, I have confidence that we will endure any period of uncertainty and come out stronger.
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