Monitoring key national housing and economic indicators – like those from Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) – is important in identifying potential economic changes and mortgage market trends. One such change is the forecast of total home sales. Economists are looking for a bump up in total home sales in 2018 at a rate around 3%, which compares favorably to 2017’s 1.8% growth. New home sales are pegged as the driver of this increase, even as home price increases are anticipated to mirror 2017’s. Prognosticators also expect 2018 gross domestic product (GDP) to be near 2017 levels, continuing to be elevated above the 1.8% GDP the economy achieved in 2016.
Employment in February rose by 313,000, which was better than most analysts predicted, leaving the US unemployment rate unchanged at 4.1%. The unemployment rate looks to stay strong over the next few years, remaining just under 4% through 2019, based on these economists’ forecasts.
Forecasters also project consumer price increases to remain near 2% on an annual basis in 2018 and 2019, indicating inflation will continue to be held in check. The growth of the Personal Consumption Expenditures (PCE) Price Index has remained low, below 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 its 2% long-run objective. This measure could continue to influence the Fed’s monetary policy.
Mortgage rates for 30-year, fixed-rate loans have been on the move in 2018, reaching 4.4% in February, up from 4.0% at the end of 2017. Forecasts show modest increases in the 30-year, fixed-rate mortgage, with economists projecting an average rate of 4.6% in 2018 and 5.0% in 2019.
With interest rates projected to steadily rise, the expectation is a larger purchase mortgage market in 2018 and 2019 compared to 2017.
Detroit’s housing and mortgage market trends are unlike most in the country. The city not only endured the financial crisis and Great Recession that followed, but also its bankruptcy in 2013. So where does Detroit’s housing market stand today and what are its mortgage market trends? We can get a sense based on reviewing some key economic variables.
Let’s first consider the employment picture. Detroit’s unemployment rate in December 2017 was 8.7%, 4.6 percentage points above the national unemployment rate of 4.1%. While Detroit’s unemployment rate has certainly trended in the right direction over the past few years – from just over 20% in the summer of 2013 – the city still lags the US by a considerable margin. However, there is hope that the auto industry will provide additional jobs to the city as Fiat Chrysler announced in January it will invest $1 billion in a truck plant in metro Detroit.
While jobs are important, the amount of income needed for housing is also a consideration. GOBankingRates conducted a study last year of major US cities to determine income levels needed to live comfortably in each city. For Detroit, they concluded that annual income level is $42,161. The problem is the city’s median household income is just $25,764, leaving a gap of more than $16,000 to enjoy all the city offers.
High unemployment rates and low income are among the factors that contribute to low homeownership in Detroit. Based on the 2011-2015 American Community Survey 5-year estimates, Detroit’s homeownership rate is less than 50%. This also significantly lags the most recent US homeownership rate of 64%.
While these metrics certainly provide challenges for Detroit’s housing market, there may be some positive signs for the city. With the increase in home prices permeating throughout the country, for those who do purchase homes in Detroit, the cost on average is relatively low.
According to the Detroit Board of Realtors®, the average sales price in Detroit in 2017 was $50,630, much less than even the state of Michigan in aggregate at $181,763.
Finally, there are several borrower assistance mortgage programs in Detroit created to try to help bolster housing in the city. It’s apparent this important US city is putting a lot of effort into lifting the status of housing.
Other Notable Events
- The Senate banking deregulation bill explained
- Trump imposes tariffs on steel and aluminum imports
- National Mortgage News comments on the heavy purchase market: “Potential refi market falls 40% as mortgage rates keep rising”
- Here’s a link to the Fed’s latest Beige Book detailing economic information for the 12 US districts.
Please check back this summer for my next quarterly update of Mortgage Market Trends.
Tags: Economic Forecast, Housing Market, Mortgage Market Trends, Mortgage Trends