The U.S. economy is chugging along at a moderate pace. Monitoring near-term forecasts of key national housing and economic indicators such as those from Fannie Mae, Freddie Mac, and the Mortgage Bankers Association (MBA) is important in identifying potential changes in the economy and mortgage market trends. One such change is the most recent estimate of the annual rate of GDP for second quarter 2017, which was 3.0%, outpacing the 1.2% increase in GDP for the first quarter.

According to the U.S. Department of Commerce Bureau of Economic Analysis, positive contributions to GDP came from personal consumption expenditures, nonresidential fixed investment, exports, federal government spending and private inventory investment. Negative contributions came from residential fixed investment and state and local government spending. Many forecasters are expecting GDP to be near 2% in both 2017 and 2018, just above the 1.8% mark set in 2016.

Employment in August rose by 156,000 to push the unemployment rate up slightly to 4.4%. The unemployment rate looks to stay strong through 2018, based on these economists’ forecasts, dropping to the mid-to-low 4% range.

Forecasters also project consumer price increases to remain near 2% on an annual basis over the next couple years, indicating inflation will continue to be held in check. The Personal Consumption Expenditures Price Index has remained low, not hitting the Federal Reserve Board’s 2% annual target in recent years. The Fed has said it will continue to monitor inflation, hoping for stabilization around their 2% long run objective. This measure could influence when they decide to raise rates.

Mortgage rates for 30-year, fixed-rate loans have been drifting lower since hitting their highs in mid-March of this year. The forecasts show modest increases in the 30-year, fixed-rate mortgage with economists averaging a 4.0% rate in 2017 and a 4.4% rate in 2018. With interest rates projected to steadily rise, the expectation is a larger purchase market in 2017 and 2018 compared to 2016, while overall 1- to 4-family mortgage originations look to be around $1.7 trillion in 2017 and $1.6 trillion in 2018.

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Mortgage Market Trends Q3Click here to see the full Mortgage Market Trends Report

California Housing

The US has seen a prolonged period of rising house prices since the Great Recession, and California certainly has seen its share of rising prices. This has led to affordability concerns in the state, which has received much attention recently in the press. How far have prices risen in California? One measurement of house prices,  the Federal Housing Finance Agency’s (“FHFA”) House Price Index (“HPI”), is a repeat-sales index that measures average price changes in repeat sales or refinancing on the same properties. This index can be used to measure the direction toward which single-family home prices are trending.

In looking at the FHFA’s seasonally adjusted HPI1, California held an index value of 155 in the first quarter of 2012. (The base quarter for the index is first quarter 1991, assigned a value of 100.) This index has risen all the way to 263 as of second quarter 2017.

An open question under debate is how much of this increase is due to low rates and an improving economy versus a lack of housing supply in many California markets?

So how does this run-up in house price translate in actual dollars? The New York Times estimates the median cost of a home in California is now around $500,000, twice the national cost2. For example, The Mercury News, published in San Jose, Cal., cites that in the 9-county Bay Area, homes are in such short supply that the median price for a single-family home has topped $800,0003.

While other factors, such as interest rates and income, can impact housing affordability, home price increases have not escaped state lawmakers’ attention. Recent bills to help housing remain affordable include the Building Homes and Jobs Act, the Veterans and Affordable Housing Bond Act of 2018 and SB-35 planning and zoning: affordable housing: streamlined approval process.

These bills address such things as imposing fees on real estate transactions and creating statewide housing bonds to provide sources for affordable housing funding. Other goals in these bills include addressing the supply side of housing. The ultimate status of these bills and their implementation could shape the housing market in California.

Other Notable Events: Hurricanes Harvey and Irma

Hurricanes Harvey and Irma will each have an effect on the US economy as a whole and on the respective regions where they made landfall. While it’s still early to ascertain the full extent of all the damage caused by the powerful storms, there are some industry estimates already posted:

Please check back later this year for my next quarterly update of Mortgage Market Trends.

 

1. [The FHFA’s Purchase-Only Index Quarterly Data]
2. [The Cost of a Hot Economy in California: A Severe Housing Crisis, The New York Times, July 17, 2017, by Adam Nagourney and Conor Dougherty]
3. [Affordable housing crisis: Can Sacramento get it under control? Mercury News, Sept. 6, 2017, by Katy Murphy]


Leighton Hunley

Leighton Hunley - MGIC Product Development: Analytics Manager

Leighton Hunley joined MGIC in 2015 and is responsible for informing senior management and the sales team of mortgage insurance activity. Focusing on the front-end of the mortgage insurance business, Leighton leads a team of analysts to provide reporting on an array of metrics including volume trends and business segmentations, market share, mortgage insurance growth opportunities, special deals, and other competitor and market intelligence. Leighton previously served as a Financial Consultant at Milliman, Inc. for 13 years providing services to lenders, insurance companies, investment banks, and start-up finance companies.

Leighton holds an MBA from the University of Wisconsin – Milwaukee with a focus on Financial Strategy and a BBA from the University of Wisconsin – Madison.

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