Weekly Economic Update

Economic News

Measuring Potential Homeownership

The First American Homeownership Progress Index (HPRI) measures how a variety of lifestyle, societal, and economic factors influence homeownership rates over time at national, state and market levels. Nationally, potential homeownership demand represented by the HPRI increased 1.1 percent in 2017 compared with 2016, based on changes in the underlying lifestyle, societal and economic data. Factors that increased potential homeownership demand included income growth (+0.30 percent) and rising educational attainment (+0.13 percent), which reflects the influence of millennial behavior on homeownership. The declining unemployment rate also contributed to the rise in homeownership demand (+0.70 percent). 

Potential homeownership demand increased from 2016 to 2017 in 46 of the 50 metropolitan areas tracked by First American, as demographic and economic trends in these cities raised the likelihood of homeownership. "Millennials' lifestyle and economic decisions are some of the main reasons we currently have a lower homeownership rate than expected, based on our HPRI," said Mark Fleming, chief economist at First American. "Yet, it is reasonable to expect homeownership rates to grow as millennials continue to make important decisions, including attaining an education and, later in life, getting married and buying a home." Source: First American

What Could Stop The Machine

The economy is humming and there is a certain optimism from analysts that the economy will continue to grow from here. Even the Federal Reserve Board in their brief recent statement used the word "strong" to characterize the economy. Though it seems to be "all systems go," the question for this week is what could stop or slow down the present rate of growth.

For one thing, higher interest rates are the result of a stronger economy and they are designed to make sure that the economy does not run out of control. We could refer to this as an automatic braking system which would only be engaged in an emergency. Certainly, we have had higher rates this year. The strong job market could also keep a lid on economic growth if we actually run out of skilled workers to fill positions. We are seeing this somewhat in the real estate sector as there are not enough skilled workers to build homes.

Speaking of real estate -- the shortage of inventory, the resulting higher prices, and also higher rates seem to be slowing things down. Real estate and construction in general account for a big chunk of economic growth and any long-term slowdown could definitely affect the economy in general. Another wild card when it comes to economic growth, is the threat of a trade war. Making imports more expensive may help some industries, but hurt others and likewise for exports. We could add more variables such as the uncertain long-term effects of the tax plan, but we think you can see the picture. There are plenty of factors the economy must overcome to continue its present level of growth. We are not saying that this growth won't continue, but it also makes sense to understand that growth is never a given, nor is any other future prediction. 

Real Estate News

Breaking: The Federal National Mortgage Association is making it easier for a borrower to cancel MI through valuation alternatives and looser loan-to-value ratios. Fannie Mae has updated its requirements for the process of evaluating borrower-initiated requests for MI termination. According to the Washington-based firm, the new requirements will lead to a better customer experience for both servicers and borrowers. The secondary lender described the updates in Lender Letter LL-2018-03. On requests for termination based on the original property value, Fannie will allow the use of its Automated Property Service to verify the current value. As a result, servicers will no longer need to warrant property value. If the request is based on the current value, the government-controlled enterprise will allow broker-price opinions through its Valuation Management System. When the current value is based on property improvements, the LTV threshold is being raised to 80 percent from 75 percent. Examples of substantial improvements are being provided. Fannie will allow a borrower-initiated termination to be evaluated based on a written or verbal request. "Servicers are encouraged to implement these policy changes as early as APS and VMS become available on Jan. 1, 2019, the letter stated. "However, servicers are required to implement these changes by March 1, 2019, unless otherwise noted in this lender letter." Source: Mortgage Daily 

FICO and its competitor, VantageScore, have been held in suspense to see which credit scoring model, if any, the Federal Housing Finance Agency will choose to use going forward. Back in December, the agency requested input from interested parties on a possible change to its scoring models. This search first began nearly four years ago. But now, the FHFA announced it is postponing its decision and will instead be shifting its focus to implementing the Economic Growth, Regulatory Relief and Consumer Protection Act, which passed into law in May. The act requires FHFA to define, through rulemaking, the standards and criteria the government-sponsored enterprises will use to validate score models. Previously, the FHFA had announced it would make its final decision on scoring models in 2018, however now, that decision could be delayed as far out as 2020. While the act does not give a clear deadline for approving a new model, they can use the current model until November 20, 2020, the FHFA told HousingWire. “After careful evaluation, we have determined that proceeding with efforts to reach a decision based on our Conservatorship Scorecard Initiative process and timetable would be duplicative of, and in some respects inconsistent with, the work we are mandated to do under Section 310 of the Act,” FHFA Director Melvin Watt said. “In light of that, we are communicating to Congress that we are transferring our full efforts to working with the enterprises to implement the steps required under Section 310.” Source: HousingWire