Mar172017
Homebuilders euphoric over Donald Trump and prospects for 2017
Homebuilders believe less regulation and a stronger economy are in store thanks to the election of Donald Trump.
Despite being in California where an overwhelming majority of people are Democrats, homebuilders are mostly Republican in California and across the nation. Homebuilding is an entrepreneurial business that chafes at regulation, so it shouldn’t be terribly surprising to see so many Republican homebuilders. Since Donald Trump won the election, it’s also reasonable to expect homebuilder confidence would rise.
If Hillary Clinton had won, I don’t believe homebuilders would have been despondent, but they would have expected more of the same — increasing regulations and slow economic growth. When Trump surprised everyone and won the election, homebuilders were thrilled at the idea of a real estate entrepreneur running the country.
Since the election, everyone in the industry noticed changes in attitude and action among homebuilders. Most noticeable is the change in attitude among small homebuilders. Many were cautious about the future, but now full of hope, they are closing on deals and preparing to ramp up construction in 2017. Though correlation is not causation, in this instance, Trump winning the election made a difference.
Builders’ confidence in the future soared after the election, and despite the headwinds, builders are more confident than any time since the housing mania.
Builder Confidence Hits 12-Year High
March 15, 2017
Builder confidence in the market for newly-built single-family homes jumped six points to a level of 71 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since June 2005.
“Builders are buoyed by President Trump’s actions on regulatory reform, particularly his recent executive order to rescind or revise the waters of the U.S. rule that impacts permitting,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas.
While Trump’s order excited homebuilders, it accomplished nothing. When the reality of how little Trump can actually change things sets in, I expect homebuilder confidence to wane.
“While builders are clearly confident, we expect some moderation in the index moving forward,” said NAHB Chief Economist Robert Dietz. “Builders continue to face a number of challenges, including rising material prices, higher mortgage rates, and shortages of lots and labor.”
Rising mortgage rates will price out marginal buyers in 2017. For every 1% mortgage interest rates rise, it raises the cost of ownership by 11%, and as ownership costs rise faster than incomes, marginal buyers get priced out of the housing market and sales suffer.
Homebuilders are a surprisingly optimistic lot. Perhaps as entrepreneurs taking huge risks, they need optimism to remain sane and calm.
Why homebuilders like Donald Trump
First, Trump’s tax plan will shift housing demand from move-ups to entry-level. An increase in the personal exemption is a major tax cut for low-income and middle-income Americans because it reduces their taxable incomes by $18,400 per year. Increased disposable income will increase demand for low-end housing.
Second, Trump will lobby the Federal Reserve to allow the economy to run hot. Household income is a fundamental determinant of house prices. If more people find jobs, and if people earn more money, real estate should respond favorably both in volume and in price, which is particularly good news for homebuilding.
Third, Trump is one of them. Trump made his name and fortune in real estate. Builders and developers feel a kinship with him. Prior to his predilection for bombastic bullshit, Trump was widely admired by most in the industry. Whether he succeeds or not, most builders and developers believe Trump will try to work for them — much like the rest of his supporters.
Schwarzenegger for Senate?
SAN FRANCISCO — Former California Gov. Arnold Schwarzenegger — the “Terminator” action hero who made “I’ll be back” one of filmdom’s most iconic phrases — may be mulling a political comeback, according to several GOP political insiders in California.
The prospect of Schwarzenegger’s return to elected politics in a 2018 U.S. Senate run — possibly as an independent — is generating increasing buzz in state Republican circles, fueled by the former governor’s seeming ability to get under the skin of President Donald Trump on social media.
The president’s caustic tweets about Schwarzenegger, the recent host of “Celebrity Apprentice,” and their running feud has sparked talk that the intensely competitive Schwarzenegger — a seven-time Mr. Olympia world bodybuilding champ — may be interested in more than merely a verbal posedown with Trump.
His entry into the 2018 Senate race — when Democratic Sen. Dianne Feinstein would be 85 years old and up for reelection — “would give Arnold the stage to jam Trump for the next 16 months,’’ according to one veteran GOP strategist who spoke on condition of anonymity.
It would also enable Schwarzenegger to draw a contrast with the president on key issues, including climate change, political reform and even immigration.
Schwarzenegger spokesman Daniel Ketchell did not rule out a possible Senate run when asked to respond to the speculation.
He should just run as a Democrat because it would nab him votes, and combined with his celebrity, should make him a top-two vote-getter in the primary. Then in the general election many Republicans would vote for him anyway because he would be the more conservative of the two presumable Democrats in the general election.
Yes, that would be a much better strategy for him. Also, if he should happen to win the Democratic primary, he would face a much weaker opponent than if he faced a Democrat in California.
Existing, single-family home sales fell 4.7 percent from January
Existing, single-family home sales totaled 400,500 in February on a seasonally adjusted annualized rate, down 4.7 percent from January.
– February’s statewide median home price was $478,790, down 2.2 percent from January.
– San Francisco Bay Area market sales declined 2.7 percent from a year ago.
LOS ANGELES (March 15) – California home sales and median price backpedaled on a monthly basis in February the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.
Closed escrow sales of existing, single-family detached homes in California remained above the 400,000 benchmark for the 11th consecutive month and totaled a seasonally adjusted annualized rate of 400,500 units in February, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide sales figure represents what would be the total number of homes sold during 2017 if sales maintained the February pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
The February figure was down 4.7 percent from the 420,100 level in January and up 4.9 percent compared with home sales in February 2016 of a revised 381,770, which was the weakest sales level in 2016.
“While it’s encouraging to kick off the year with back-to-back yearly sales increases, moving forward, California’s housing market could lose steam in the long term as the Fed begins to adjust the federal funds rate,” said C.A.R. President Geoff McIntosh. “In the short term, however, the specter of higher interest rates may push buyers off the fence to purchase a home before mortgage rates move even higher.”
Trump’s HUD budget cuts 42-year-old community assistance program
Republicans and Democrats alike have cut ribbons at community centers, neighborhood rehabilitation projects and affordable housing developments — and for the past 42 years those initiatives have been supported by the Community Development Block Grant Program.
Now, President Donald Trump wants to wipe out the program, according to the budget proposal released Thursday by the Office of Management and Budget. The program’s current year funding is $3 billion.
“The Federal Government has spent over $150 billion on this block grant since its inception in 1974, but the program is not well-targeted to the poorest populations and has not demonstrated results,” the budget proposal says. “The Budget devolves community and economic development activities to the State and local level, and redirects Federal resources to other activities.”
The cut is part of a $6 billion, or 13 percent, reduction in the fiscal 2018 budget for the Department of Housing and Urban Development. The budget also includes $35 billion for HUD’s rental assistance programs and proposes reforms to that program. HUD Secretary Ben Carson has been highly critical of public assistance, suggesting that too many Americans have become dependent upon it.
“The president said he was going to go after wasteful and duplicative programs, programs that simply don’t work. A lot of those are in HUD,” OMB Director Mick Mulvaney told reporters. “We’ve spent a lot of money on Housing and Urban Development over the last decade without a lot to show for it. Certainly, there are some successes but there are a lot of programs that simply cannot justify their existence and that’s where we zeroed in.”
Trump has induced a media panic because nobody has ever gone in and actually cut government spending before.
Despite the criticism from Republicans, Obama reduced the growth in Federal spending. The growth in spending was far less under him than under Bush. Whether Trump can actually succeed in cutting spending remains to be seen.
Reducing growth is not cutting spending no matter how many politicians spin in that way.
Mortgage Rates Move Higher
MCLEAN, VA–(Marketwired – Mar 16, 2017) – Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates rising for the second consecutive week.
News Facts
30-year fixed-rate mortgage (FRM) averaged 4.30 percent with an average 0.5 point for the week ending March 16, 2017, up from last week when it averaged 4.21 percent. A year ago at this time, the 30-year FRM averaged 3.73 percent.
15-year FRM this week averaged 3.50 percent with an average 0.5 point, up from last week when it averaged 3.42 percent. A year ago at this time, the 15-year FRM averaged 2.99 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.28 percent this week with an average 0.4 point, up from last week when it averaged 3.23 percent. A year ago, the 5-year ARM averaged 2.93 percent.
This could impact the Southern California housing market.
China’s Continuing Credit Boom
Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005. The country’s share of total global credit is nearly 25 percent, up from 5 percent ten years ago. By some measures (as documented below), China’s credit boom has reached the point where countries typically encounter financial stress, which could spill over to international markets given the size of the Chinese economy. To better understand the associated risks, it is important to examine the drivers of China’s expansion in credit, the increasing complexity of its financial system, and evidence that its supply of credit may be growing more rapidly than reported. Note, however, that there are several features of China’s financial system that reduce the threat of a financial disruption.
Nonfinancial debt in China has increased from roughly $3 trillion at the end of 2005 to nearly $22 trillion, while banking system assets have increased sixfold over the same period to over 300 percent of GDP. In 2016 alone, credit outstanding increased by more than $3 trillion, with the pace of growth still roughly twice that of nominal GDP. As a result, the “credit-to-GDP gap”—the difference between the debt-to-GDP ratio and its long-run trend—has reached almost 30 percentage points. The international experience suggests that such a rapid buildup is often followed by stress in domestic banking systems. Roughly one-third of boom cases end up in financial crises and another third precede extended periods of below-trend economic growth.
I’ll bite. How could it impact the housing market in California?
If the Chinese economy goes to crap, the outflow of money out of China into Southern California real estate could stop or even reverse.
China is also projected to have a declining population in coming decades due to the one-child policy. That policy has been removed but people still have small families out of habit. How long until their debt overhang combined with a shrinking economy leads to a decades long Japanese-style deflation?
Between this and the shut down of Measure S, make me think that the tide is turning against NIMBYs.
http://www.ocregister.com/articles/irvine-746747-city-apartments.html
I hope you are right. I think the anger among priced-out renters is palpable, and if they become a voting block, the political situation could shift quickly, particularly if a popular ballot initiative opened up the floodgates for more construction.
Planet Realty says Mar 3 2017
Actually the choice of not playing housing has been quite costly and a clear loss.
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Total rubbish!
http://ei.marketwatch.com//Multimedia/2017/03/10/Photos/NS/MW-FH786_bull_m_20170310120802_NS.jpg?uuid=1e807b52-05b4-11e7-8ab8-001cc448aede
Cheers!