In the first quarter of 2017, refinances fell 45% from the fourth quarter, however the second and third quarters could see a turnaround in refi activity, according to a first look at Black Knight’s soon to be released Mortgage Monitor.
This chart shows refinance activity each week from October through June as refinance candidates fell from 8.6 million to 4.4 million.
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(Source: Black Knight)
Since interest rates fell below 4%, the financeable population rose to its highest point for 2017. While the current 4.4 million borrowers is down significantly from October, it is an increase of 56% or 1.6 million borrowers from mid-March’s low.
Borrowers who refinanced in the first quarter of 2017 cut their monthly mortgage payments by an average of $109 per month, or a total aggregate savings of $36.5 million per month. This marks the lowest total monthly savings since 2008 and a decrease from the fourth quarter’s $59 million.
But since the first quarter, savings have increased once again to a total of $1.1 billion or $260 per borrower each month.
This chart shows the total monthly savings borrowers saw each month.
It is cooler than the air in the summer and warmer in the winter. The earth’s subsurface is an enormous heat sink — a solar battery — and it takes a large amount of energy to keep it in equilibrium. This heat energy comes in great part from the sun, a renewable and inexhaustible source of energy. In lesser amounts, it also comes from the center of the earth that we now know is a heat generator. The inner core of the earth is primarily made of a solid sphere of iron within a larger sphere of molten iron. Calculations show that the earth, originating from a molten state many billions of years ago, would have cooled and become completely solid without an energy input. It is now believed that the ultimate source of this energy is radioactive decay within the earth that continues to this day; the decay produces gradually diminishing temperatures from the earth’s center to the surface. This does not mean that dangerous radioactivity is a hazard to us. We can tap into all of this heat energy, transfer it into our home for heating and return that energy back to the earth during cooling: thus we are really borrowing heat from the earth.
Geothermal units use the same 100-year-old technology found in your refrigerator. They are both devices that move heat energy. It is worth noting that the refrigerator is the most reliable, longest-life appliance in your home. As the diagram in the slideshow explains, a refrigerator removes heat energy from food and moves it into your kitchen. A geothermal system removes heat energy from the earth to heat your home and in the summer removes heat energy from inside your home back to the earth.
Heat naturally flows “downhill” from the warmest medium to the coolest medium. A heat pump is a machine that causes heat energy to flow in the direction opposite from its natural tendency, or “uphill” in terms of temperature. Because work must be done (energy must be applied) to accomplish this, the name heat “pump” is used to describe the device.
A refrigerator and a heat pump are about the same physical size, are quiet appliances usually contained within a single enclosure, have similar components (compressor, evaporator, etc.), and both transfer heat energy. And they each require a refrigerant, a material used in a refrigeration cycle which undergoes a phase change from a gas to a liquid, and back again.
The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) dropped 4 points to 53 from the previous quarter, but remained above the breakeven point of 50, which indicates that more remodelers report activity is higher (compared to the prior quarter) than report activity is lower. Although the RMI declined, it is consistent with levels seen in the first half of 2016. The RMI has been at or above 50 for 15 consecutive quarters (Figure 1).
The overall RMI is an average of two main sub-indices, one that tracks current market conditions and another tracking future market conditions. In the fourth quarter, the current market conditions index dropped 3 points to 53, but is still consistent with readings from earlier this year (Figure 2). Among its components, major additions and alterations dropped one point to 53, demand for smaller remodeling projects decreased four points to 52, and the home maintenance and repair component declined by five points to 54.
The future market indicators decreased six points to 52, which also marks a return to levels seen earlier this year (Figure 3). Among its four components, calls for bids and appointments for proposals fell to 49 and 54, respectively, the backlog of remodeling jobs dropped three points to 55, and the amount of work committed declined five points to 50.
The RMI level is in line with the NAHB’s remodeling forecast, which predicts that remodeling activity will grow at a moderate pace of 1 to 2% annually over the next two years. For more information about remodeling, including detail tables of this quarter’s results, visit nahb.org/rmi.
The President-elect’s ambitious proposal relies on private financing, but the plan has its critics.
According to President-elect Donald Trump, the answer is yes. You can get $1 trillion in infrastructure using a “revenue neutral” model of private financing that won’t burden government budgets.
The declining state of America’s infrastructure has long been a major issue for both Democrats and Republicans, but the parties have disagreed about how to pay for what the American Society of Civil Engineers (ASCE) has identified as a $3.6 trillion investment gap.
Trump’s senior policy advisers say they have an answer. In late October, Wilbur Ross, a private equity investor, and Peter Navarro, a University at California, Irvine business professor, released a detailed plan for Trump’s vision on infrastructure, which calls for investment in transportation, clean water, the electricity grid, telecommunications, security infrastructure, and “other pressing domestic needs.” Trump’s vision relies heavily on private companies to make American infrastructure great again.
To finance $1 trillion dollars worth of new infrastructure, the Trump plan would entice private companies to invest $167 billion of their own equity into projects. In return, these companies would get a tax incentive equal to 82% of that equity investment, or roughly $137 million in government tax breaks. Companies could then leverage their initial equity investment and tax credit financing to borrow more money on private financial markets, where interest rates are at historic lows. “With interest rates so low, this has got to be the best time from a break-even point of view, from a societal point of view,” Ross told Yahoo! Finance.
In addition, companies would be allowed to receive revenue—in the form of tolls or fees from users of this infrastructure—in order to offset their costs and generate profits.
The Trump plan hopes to pay for the financial burden of those government tax credits in two ways: First, through the increased tax revenue that would come from the wage income of construction workers and others building the projects; and second, from the taxes that would be paid on the increased revenues of the companies contracted to do the work. In other words, the income tax of workers and the profits made from fees collected from users of the infrastructure would offset the lost tax revenue from government tax credits.
Creating a deficit-neutral infrastructure plan is nothing new. In 2015, Sen. Bernie Sanders (I-VT) championed a bill calling for a $478 billion investment over six years without increasing the deficit. Funding relied on closing corporate tax breaks that allow corporations to stash money overseas. That bill was blocked by the Republican Senate.
Public-private partnerships are common in complex infrastructure projects, but what’s unusual about Trump’s plan is the extent to which private companies would take over the entirety of projects. Private entities, which are beholden to corporate revenue requirements, would be put in charge of public sphere entities. Navarro, responding to that potential criticism, said in an interviewwith Yahoo! Finance that Trump’s “form of financing doesn’t rule out the government managing the whole thing after it’s built. This is not like the prison thing.” (Stock prices of for-profit prison companies, meanwhile, are on the rise with Trump’s win.)
How important is it to close the infrastructure investment gap? The ASCE’s 2013 Report Card for America’s Infrastructure gave the country a D+ grade. The next report card is being prepped for release in March 2017. “From ACSE’s perspective, clearly there’s a role for the private sector in infrastructure development, and it’s already been involved for a long time,” says Brian T. Pallasch, managing director of Government Relations and Infrastructure Initiatives at the society. “We still have a bit of uncertainty as to what [private investment] means in the Trump administration’s proposed perspective. They clearly want private investment in infrastructure. When you get the private sector involved in infrastructure, there is going to need to be a rate of return for them to make money. Historically, municipal infrastructure hasn’t had private investors because there hasn’t been a rate of return. How does that solve itself?”
How, for example, might you make the business case for a profit-driven private company to invest in the municipal water supply in Flint, Mich.? The answer may lie in increased fees for users of that service. “We feel very strongly that users of infrastructure should pay for it. That principal is one we support,” Pallasch says. That said, he notes the need to be realistic about the financial burden certain fees could cause. “The idea of raising water rates is a struggle for many municipalities where you have low-income households. We’ve been talking to colleagues in the water world about how do you set up programs where you raise rates and it allows subsidization of lower income residents?”
As for water, the Trump plan suggests tripling funding for state revolving loan fund programs, which supply low cost financing to municipalities, but it does not identify where those increased funds would come from.
Critics of revenue-neutral plans such as these say that what would be saved on the front end will get paid for on the back end in the form of tolls and increased fees for users. In general, “revenue neutral tax proposals by definition create winners and losers,” economist Thomas L. Hungerford wrote last year in an op-ed. “The winners would pay less in taxes and the losers would pay more in taxes. The losers tend to be highly concentrated in certain income groups and business sectors, essentially becoming special interests.”
Some economists believe the Trump plan to use tax revenues to offset costs is overly ambitious. It assumes that the income tax revenue generated from construction and other contract workers on these projects will be in addition to existing tax revenue. As Alan Cole, an economist at the independent Tax Foundation, told the Washington Post, the plan overinflates the potential revenue because it assumes workers on these projects were previously unemployed or not already contributing to income tax revenue. (This plan also means that income tax revenue would be diverted from other funding needs to underwrite infrastructure.)
Cole noted, too, that Americans would ultimately foot the bill for these new projects, not only in user fees. “Maintenance and new construction would only occur in communities where it is urgently needed if private investors were convinced users could afford to pay,” he told The Washington Post. And if, as Navarro proposed in his Yahoo! Finance interview, the government takes over the projects once built, then the government would be on the hook for long-term care and maintenance.
Indeed, having so much private investment could weight projects to wealthier demographics. “Under Trump’s plan, poorer communities that need the new projects and repairs the most would get the least attention,” writes Jeff Spross, business and economic correspondent for The Week.
There’s also concern that Trump’s infrastructure plan doesn’t work in tandem with his other proposed policy changes, such as tax cuts for the wealthy. “He’s right that borrowing to invest in infrastructure makes sense in times like these when interest rates are low,” the editors of The New York Timeswrite. “But combined with his other plans, Mr. Trump’s proposed borrowing would do severe fiscal damage.”
Overall, the current Trump plan strongly focuses on traditional “horizontal” infrastructure needs—surface roads, pipelines, water distribution. Besides a call to modernize America’s airports, the infrastructure of buildings and other public spaces isn’t explicitly mentioned. The ACSE, meanwhile, categorizes schools, public parks, and recreation among the critical infrastructure needs in its report card.
The American Institute of Architects (AIA) has consistently lobbied the government to expand its view of infrastructure. “One of the things that we’ve communicated to presidential transition teams in the past, and will continue to do, is to remember that infrastructure is more than roads and bridges; it’s also schools and libraries and buildings,” says Andrew Goldberg, Assoc. AIA, the Institute’s managing director of government relations and advocacy. “It’s not just the infrastructure that moves people and things, it’s also what happens once you get there. Infrastructure was the first policy related item that Trump mentioned in his victory speech, and I think that there is a strong opportunity coming into next year for some serious work. It will be important to speak to the importance of the built environment and the community assets in addition to ‘traditional’ infrastructure.”
The lonely $250,000 S-Class coupe at Mercedes-Benz of Greenwich says it all. For six months, it’s been sitting in the showroom, shimmering in vain while models priced at only $70,000 fly out the door.
“We haven’t had anyone come in and look at it,” says Joey Licari, a sales consultant at the dealership, looking over his shoulder at the silver beauty. “I feel like normally they would, maybe a few years ago.”
Such is the state of affairs in Greenwich, the leafy Connecticut town famous for its cluster of hedge funds and the titans of Wall Street who occupy many a gated mansion. The rich are being maddeningly frugal, as Barry Sternlicht complained when he assailed his former hometown as possibly the country’s worst housing market. “You can’t give away a house in Greenwich,” the head of Starwood Capital Group said, causing something of a ruckus.
The reality is that places like Sternlicht’s, a nearly 6-acre estate priced at $5.95 million before he gave up, aren’t moving. No such problem if it’s $2 million or less. That Benz is going nowhere, but sales are up at Cadillac of Greenwich, where $50,000 is pretty much the basement. Ten-carat diamonds that can cost in the six figures collect dust in stores on the main drag. On the other hand, a husband will still drop $10,000 on jewelry for a 10th anniversary.
The new Greenwich is like that. “We aren’t getting caviar and champagne,” says Edward Tricomi, co-owner of Warren Tricomi Salon on Greenwich Avenue, “but we’re still eating steak.”
The town was hit hard by the 2008 financial crisis, and never fully recovered: The median sales price for homes in the second quarter was $1.56 million, 17 percent below the peak back in 2006, according to data compiled by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Now, with the hedge-fund business struggling and investment-banker incentive pay in a slump, bonus-fueled purchases are cooling again. These days, in fact, not losing money can be cause for swagger.
“We talk to a lot of guys from hedge funds, and they’re like, ‘Look at our numbers, we haven’t gone down, we’re staying level,’” says Brad Walker, who moved from Boston two years ago to open a branch of his family’s shop, Shreve, Crump & Low. A newcomer, he finds it perplexing. “I don’t run a hedge fund, I work in a jewelry store, but I think you’d want to do a little bit better.”
Flat probably isn’t so bad, though, if you’re already in the neighborhood of the .001 percent. Anyway, many factors are at play in the scaling back. Tastes are changing. And with income inequality a talking point across America, and the finance industry the target of criticism and scrutiny in recent years, some might just want to keep low-spending profiles.
“The things being bought are less trophy items and, more likely, carefully bought quality,” says Terry Betteridge, who owns Betteridge, a jewelry store. “One doesn’t want to become the next episode of ‘Billions.’”
Just 35 miles from Manhattan in the heart of Connecticut’s famed Gold Coast, with about 60,000 residents and 32 miles of shoreline, Greenwich is among the most prosperous communities in America. One out of every $10 in hedge funds in the country is managed here, according to data compiled by Bloomberg, by firms such as Viking Global Investors and AQR Capital Management. It’s home to finance heavyweights including Steven Cohen of Point72 Asset Management and Dick Fuld. The median annual household income is $135,000 — compared with $56,516 nationally. Residents paid more state income taxes in 2014, the last year for which data are available, than in any other municipality in Connecticut.
The tax rate, by the way, is a sore point, and possible reason behind the departure of the likes of Paul Tudor Jones and Thomas Peterffy, who switched their permanent residences to Florida. The state income tax there is zero.
In 2015, Connecticut boosted the income tax for individuals making more than $500,000 and couples above $1 million to 6.99 percent from 6.7 percent. Levies on luxury goods rose to 7.75 percent from 7 percent on cars over $50,000, jewelry over $5,000 and clothing or footwear over $1,000.
Sternlicht said at a conference two weeks ago that this was why he relocated to the sunshine state. “We used to have no taxes,” he said wistfully, recalling Connecticut before it enacted its income tax in 1991.
Many continue to try to sell their real estate holdings. As of Sept. 14, there were 46 homes at $10 million or more on the market, some that have been lingering since 2014, according to data from Miller Samuel and Douglas Elliman.
Among them: an 80-acre estate on Lower Cross Road for $49 million that until last month was asking $65 million, and a 19,773-square-foot manse once owned by Republican presidential candidate Donald Trump that has been looking for a buyer for nearly two years. It’s on the market now for $45 million, down from $54 million.
No takers yet for a seven-bedroom affair with a 3,000-bottle chilled wine cellar, a tennis court that converts to a hockey rink and a globe-shaped observatory with a retractable roof and high-powered telescope. That one recently returned to the market at $8.495 million, after an earlier effort at $8.95 million. Former Citigroup Chief Executive Officer Sandy Weill is trying to offload his 16,460-square-foot home at $9.9 million, down from $14 million more than two years ago.
One problem is that risk levels have gone through the wringer. Members of the younger Wall Street crowd are quite conservative, says Robin Kencel, a broker with Douglas Elliman. “They used to say Oh, I’ll stretch.’ Now they’re more practical. They’ll ask ‘What are the utility bills? Oh, wait — I don’t want it.’”
That could explain why, this year through Sept. 22, pending sales of homes priced up to $999,999 jumped 29 percent from the same period in 2015, according to brokerage Houlihan Lawrence, and those between $1 million and $1.99 million were up 69 percent. Contracts for homes between $5 million and $5.99 million, meanwhile, fell 80 percent.
September would ordinarily be the end of the high season for residential real estate, with schools back in session across the U.S. and families reluctant to uproot. But hold on—this is no ordinary year, and a preliminary review of the month’s data on realtor.com®shows that September is shaping up to be the hottest fall in a decade.
Homes for sale in September are moving 4% more quickly than last year, and that’s even as prices hit record highs. The median home price maintained August’s level of $250,000, which is 9% higher than one year ago. That’s a new high for September.
“The fundamental trends we have been seeing all year remain solidly in place as we enter the slower time of the year,” says realtor.com’s chief economist, Jonathan Smoke. That means short supply and high demand, which results in high prices.
Granted, September saw a bit of the typical seasonal slowdown, with properties spending five more days on market (77) than last month—but that’s still three days faster than last year at this time. At the same time, fewer homes are coming on the market, further diminishing supply. Total inventory remains considerably lower than one year ago, leaving buyers with fewer options in a market that has already been pretty tight.
In gauging which real estate markets were seeing the most activity, our economic data team took into account the number of days that homes spend on the market (a measure of supply) and the number of views that listings on our site get (a measure of demand). The result is a list of the nation’s hottest real estate markets, where inventory moves 23 to 43 days more quickly than the national average, and listings get 1.4 to 3.7 more views than the national average.
New to the top 20 this month is Grand Rapids, MI. Like other cities on the list, “Grand Rapids” includes the greater metropolitan area, which in this case takes in Wyoming, MI. Similarly, our No. 1 market, “San Francisco,” also includes nearby Oakland and Hayward.
Sales of new single-family houses in the United States fell 7.6 percent to a seasonally adjusted annual rate of 609,000 in August of 2016, better than market expectations of an 8.8 percent decline. Figures for the previous month were revised up by 5,000 to 659,000, the highest since 2007. New Home Sales in the United States averaged 652.45 Thousand from 1963 until 2016, reaching an all time high of 1389 Thousand in July of 2005 and a record low of 270 Thousand in February of 2011. New Home Sales in the United States is reported by the U.S. Census Bureau.
Housing Starts in the United States is expected to be 1163.61 Thousand by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Housing Starts in the United States to stand at 1193.24 in 12 months time. In the long-term, the United States Housing Starts is projected to trend around 1213.00 Thousand in 2020, according to our econometric models.
United States Housing Starts Forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using our analysts expectations. We model the past behaviour of United States Housing Starts using vast amounts of historical data and we adjust the coefficients of the econometric model by taking into account our analysts assessments and future expectations. The forecast for – United States Housing Starts – was last predicted on Friday, June 17, 2016.
United States S&P Case-Shiller Home Price Index Forecast 2016-2020
Case Shiller Home Price Index in the United States is expected to be 182.91 Index Points by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Case Shiller Home Price Index in the United States to stand at 179.90 in 12 months time. In the long-term, the United States S&P Case-Shiller Home Price Index is projected to trend around 160.18 Index Points in 2020, according to our econometric models.
Case Shiller Home Price Index
United States S&P Case-Shiller Home Price Index Forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using our analysts expectations. We model the past behaviour of United States S&P Case-Shiller Home Price Index using vast amounts of historical data and we adjust the coefficients of the econometric model by taking into account our analysts assessments and future expectations. The forecast for – United States S&P Case-Shiller Home Price Index – was last predicted on Tuesday, January 26, 2016.
With the December report on housing starts and permits, preliminary totals for 2015 are now available. Total housing starts at 1.11 million were up 10.8% in 2015 compared to 2014. Single-family starts were up 10.4% to 715,300 and multifamily starts were up 11.4% to 396,000. All four census regions also experienced increases in single-family starts for 2015. The monthly change for December starts was down 2.5% to 1.15 million and December single-family starts were down 3.3% to 768,000.
Housing permits were up for the year by 12% to 1.18 million with increases in both single-family (up 7.9%) and multifamily (11.4%). December single-family permits were also up from November by 1.8% to 740,000. Total permits, however were down from November to December by 3.9% to 1.232 million.
The number of unused permits rose 4.9% suggesting builders were unable to start more homes than they planned. More than three-quarters of builders responding to an NAHB survey reported labor availability as their greatest concern looking forward into 2016. While inventories of new homes for sale have been increasing, builders are constrained in their ability to add stock because of the labor shortages as well as lot shortages in some markets.
The final numbers for 2015 will see one more revision as the previous month is revised in each new report, but year totals are not likely to change significantly since the first 11 months will remain the same. The improvement in 2015 over 2014 should accelerate slightly in 2016 as mortgage rates remain near historic lows, the overall economy improves and pent-up demand is released.