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Friday’s jobs report could eliminate market’s recession fears
Companies seem to have done a lot of hiring in March, and if Friday’s jobs report is as strong as expected, it could go a long way towards reducing speculation that a recession is coming and that the Fed will have to cut interest rates to stop it.
Like every jobs report, this one is important, but economists say even more so, after the stunningly weak February report, with just 20,000 jobs created. That data added to growing concerns this winter that the economy could tip into a recession sometime in the next year. But economists believe that report was an anomaly, and the real pace of job growth is closer to the consensus forecast for March of 180,000 payrolls.
Economists also expect an average hourly wage increase of 0.3 percent and an unchanged unemployment rate at 3.8 percent, when the report is released at 8:30 a.m. ET Friday, according to Refinitiv.
Geographic Sorting and Spacial Inequality
How the 1 Percent Is Pulling America’s Cities and Regions Apart
The two gravest challenges facing America today, economic inequality and geographic divides, are increasingly intertwined. Economic inequality has surged with nearly all the growth being captured by the 1 percent, and the economic fortunes of coastal superstar cities and the rest of the nation have dramatically diverged.
These two trends are fundamental to a new studyby Robert Manduca, a PhD candidate in Sociology and Social Policy at Harvard University. The study uses census microdata culled from 1980 to 2013, and finds that America’s growing regional divide is largely a product of national economic inequality, in particular the outsized economic gains that have been captured by the 1 percent.
Up until now, most researchers have believed America’s rising geographic divides to be a consequence of the way people sort themselves by education, occupation, and income. In Bill Bishop’s influential book, The Big Sort, the basic idea is that more skilled, affluent, and educated Americans move to the booming parts of the country—superstar cities like New York and Los Angeles and tech hubs like San Francisco, Seattle, and Boston—leaving the rest stuck in less-advantaged parts of the country.
To some, this is simply the effect of the clustering of talent and skill. For others, it is the result of the preferences of advantaged groups for amenities and other lifestyle factors. Some also say it is the consequence of land-use restrictions, which limit the development of economically successful places, or other barriers to growth.
This growing pattern of spatial inequality can be clearly seen in the maps below. In 1980, there were only two U.S. city-regions, Washington, D.C., and the New Jersey suburbs of New York City (in dark blue on the map), where mean family income was more than 20 percent higher than the national average. Most of the rest of the map is shaded in gray (indicating mean family income ranges between 10 percent higher or lower than the national average) or light red, with some pockets of dark red.
Manduca does not deny that these kinds of geographic sorting forces are in play. Instead, he finds that the staggering growth in the economic divide helps to magnify such spatial division. The rich and the poor occupy different places to begin with, so as income inequality rises, the geographic discrepancies also rise as a consequence, with rich places getting richer and poor places falling further behind. Or as he puts it: national inequality acts like a powerful wave that “washes over an uneven landscape, leaving behind deep pools in some areas and shallow puddles in others.” The rise in economic inequality, even though not inherently spatial, does in fact have spatial consequences.
Refi window opens again
Here’s how many borrowers should refinance after the recent drop in mortgage rates
Mortgage rates fell 22 basis points last week to 4.06%, an event that will likely be a gamechanger for the refinance market.
According to the latest report from Black Knight, 4.9 million homeowners with a mortgage can now reduce their interest rate by at least 0.75% by refinancing after the recent drop in mortgage rates.
The latest rate change brings refinance incentive to 1.6 million more homeowners than before – a near 50% jump in refi incentive in a single week’s time.
This is welcome news for lenders who have seen their profitability take a hit as the refi market spiraled downward in recent months, hitting a 10-year low just four months ago.
But now, the population of refinanceable borrowers is nearing a two-year high, Black Knight said, noting that if rates hold steady, the mortgage market could see major refi activity very soon.
Pending Sales Dip
Pending sales fall in February
Pending home sales drop 1% in February, despite lower mortgage rates
Homebuyers signed 1 percent fewer contracts to buy existing homes in February compared with January, according to the National Association of Realtors’ pending home sales index.
These contracts are a harbinger of closed sales one to two months later. Pending contracts were 4.9 percent lower tha a year earlier.
“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” said Lawrence Yun, chief economist for the Realtors. “As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring.”
Yun pointed to some sales growth in the West, although the region’s current sales are well below the sales activity from 2018.
“There is a lack of inventory in the West and prices have risen too fast. Job creation in the West is solid, but there is still a desperate need for more home construction,” he added.
The drop came despite buyers having the benefit of lower mortgage rates. The average rate on the 30-year fixed was just over 5 percent in November but began falling in December. They started January just above 4.6 percent but fell at the start of February to around 4.5 percent, according to Mortgage News Daily. Rates then sat there throughout the month, when these sales contracts would have been signed.
Want to sell your home? Hurry up and list it next week
Timing is everything, especially in a housing market that has been less than dependable lately. So if you want to get the best price for your home in the shortest amount of time, you’d better list it next week, at least according to realtor.com.
Homes listed in the first week of April get 14 percent more online views on average and are likely to sell six days faster than the average during the rest of the year.
Homes sold in April are also priced 6 percent higher than those in January. According to the most recent pricing data, that could mean an additional $17,000 for sellers listing the typical home prices around $306,000. One caveat is that realtor.com is looking at average prices and does not take into account the type of homes for sale at different times of year. Larger, more expensive homes tend to be listed in the spring because families like to move over the summer, during school vacations.
“Given the time it takes from listing to close, putting a home on the market in early April positions sellers to attract buyers seeking to close and move before the beginning of school year,” said Danielle Hale, chief economist for realtor.com.
The number of buyers jumps dramatically in April, but the number of listings doesn’t peak until a little later, so there is less seller competition. The average list price in June is higher than April, again as larger family homes are being listed during school vacations, but there are fewer buyers, which increases the chance for a price reduction, although not by much. Homes listed in June are 1 percent more likely to see a price reduction and garner 2 percent fewer online views on average than the rest of the year.
If next week was already a great week to list, the steep drop in mortgage rates that started last week is only making it better. Buyers now have a little bit more purchasing power. The average rate on the 30-year fixed mortgage has fallen more than a quarter of a percentage point in the last week and is nearly a full point lower than the recent peak last November. Every quarter-point drop knocks about $50 off the monthly payment on a $300,000 mortgage.
FHA getting a bit too risky
FHA says as many as 50,000 mortgages will be affected by new lending rules
Two weeks ago, the Federal Housing Administration took steps to mitigate risks to its single-family portfolio, announcing updates to its TOTAL Mortgage Scorecard that will flag some loans for manual underwriting.
The move upset a number of lenders who feared that some of their borrowers would be shut out of FHA financing and that borrowers who began the process but no longer qualified under new guidelines would be angry.
Turns out, their fears have some merit.
An FHA official told The Wall Street Journal that approximately 40,000 to 50,000 loans a year will likely be affected, which amounts to about 4-5% to all the mortgages the FHA insures on an annual basis.
“We have continued to endorse loans with more and more credit risk,” said FHA’s Chief Risk Officer Keith Becker. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.”
The WSJ points out that the move is a complete reversal of the agency’s 2016 decision to loosen underwriting standards, nixing an old rule that required manual underwriting for loans with credit scores below 620 and a debt-to-income ratio above 43%.
But the agency’s annual report to Congress released in November revealed risk trends that threatened to drain the program, among them a significant increase in cash-out refinances, a drop in average borrower credit score, and a jump in borrowers with high DTIs.
Requiring manual underwriting for riskier loans is intended to curb these risks, and there’s a good chance a number of borrowers will no longer qualify.
According to Becker, it’s likely that many of the loans flagged for manual underwriting won’t end up passing muster.
Where do the rich live?
These Are the Wealthiest Towns in the U.S.
Home sales … skyrocket?
Home sales make record jump, proving how sensitive buyers are to mortgage rates
Sales of existing homes skyrocketed a whopping 11.8 percent in February compared with January, according to the National Association of Realtors. That is the largest monthly jump ever, with the exception of a change in mortgage policy in 2015 that temporarily skewed the data.
Realtors pointed squarely to dropping mortgage rates and home prices for the increase in demand.
“Consumers are very sensitive to mortgage rates, at least that’s what we are finding out. So as mortgage rate began to drop, there was evidently a strong pent-up demand,” said Lawrence Yun, chief economist for the Realtors.
At the start of last year, housing demand was robust and rates relatively low, with the average rate on the popular 30-year fixed right around 4 percent, according to Mortgage News Daily. That caused a frenzy in buying through the spring. But with supply remaining tight, prices overheated.
By summer, those prices were moving out of reach, especially as interest rates began rising. By November, the average rate on the 30-year fixed had spiked over 5 percent, and home sales plummeted.
Mortgage rates then began falling in December and moved decidedly lower in January to around 4.5 percent, causing the renewed interest in buyer demand. More consumers now believe it is a good time to buy a home and more believe the economy is improving, according to a sentiment survey by the Realtors in the first quarter of this year.
In favor of which buyers?
Housing market is tipping in favor of buyers, real-estate agents say
It’s been a long winter in the housing market. Economic unease, uncertainty about taxes, fluctuating mortgage rates, and rain and snow have kept buyers and sellers on the sidelines throughout much of the country.
Those insights – and more detailed observations – come from investment bank Credit Suisse, which polls real estate agents around the country every month. Its February edition, released a few days ago, paints a more uniform picture of housing conditions around the country, though some distinctly local matters, like the impact of the government shutdown on Washington, D.C., or the “red tide” in Gulf Coast Florida, stand out.
Expect the worst
Trump Tax Reform Hits Home in Wealthy New York Suburbs
Nick Boniakowski’s clients bought a home in Northern New Jersey in 2016. Now they want to move again.
They found a house they liked. It wasn’t the charm of new construction, an upgrade in location, better schools or a swimming pool that attracted them.
It was the lower property taxes.
Like many of Boniakowski’s clients at Redfin Corp.’s Hoboken office, these two are looking at their returns for the first time since President Donald Trump’s tax changes took effect and, despite more than a year of lead time, experienced a mild freakout. Maybe buying a new house –- the rare financial ordeal that’s more maddening than the annual April 15 ritual –- could be the solution.
The Tax Cut and Jobs Act promised to, well, cut taxes. For many, it does. But a new limit on the amount of state and local levies that can be deducted has costly and confounding implications for some, especially in high-income-tax, high-property-tax places like the New York City area.
Nearly 11 million taxpayers will be affected by the new cap on so-called SALT deductions on the taxes they file this year, and could lose out on a cumulative $323 billion, according to a February estimate from the U.S. Treasury Inspector General for Tax Administration.
For those people, the April 15 deadline carries a greater sense of dread than usual. New rules include a higher standard deduction and changes to the Alternate Minimum Tax, and it can be hard to say, even for experts, how they’ll affect individuals until they file.
The situation wasn’t made any simpler by state lawmakers, who argued that the cap on the SALT deduction was intended to hurt states that tend to elect Democrats, and concocted a series of elaborate workarounds that were shot down by the Internal Revenue Service.
People with more money and thus more complicated tax returns tend to file later in the season, meaning that the triggering has just begun.
“A lot of my clients are very surprised by what’s happening,” said Ann Callari, tax partner at RotenbergMeril, an accounting firm in Saddle Brook, New Jersey. “That’s the nature of taxes. People hope for the best and don’t pay attention. They don’t notice until it affects them.”
In the meantime, plenty of taxpayers are expecting the worst.
Facebook attempts to stop discrimination, after supporting it, and profiting from it, for years.
Facebook making massive changes to ad platform after being accused of enabling housing discrimination
Facebook is making significant changes to its advertising platform after the social media monolith was accused of enabling discrimination in housing, employment, and lending.
The changes come after years of scrutiny into Facebook’s ad practices, which appeared to allow advertisers to purposefully exclude certain people from seeing housing, employment, or lending ads.
Last year, the Department of Housing and Urban Development filed a complaint against Facebook, claiming that the social media giant’s advertising platform enabled property owners to discriminate against prospective renters and buyers based on their race, color, religion, sex, familial status, national origin, disability, or other factors.
HUD’s investigation began in response to a ProPublica article in October 2016, which said Facebook gave advertisers the ability to exclude certain ethnic groups from seeing the ads.
Fair housing groups later filed a lawsuit against Facebook in March 2018, saying its ads still discriminate against protected groups under the Fair Housing Act, including women, veterans with disabilities and single mothers.
After HUD filed its complaint against Facebook, the site announced that it was removing more than 5,000 ad target options to “help prevent misuse.” The site claimed that the removed options include “limiting the ability for advertisers to exclude audiences that relate to attributes such as ethnicity or religion.”
But Facebook announced Tuesday that it is undertaking a massive overhaul of its advertising platform that goes well beyond any of the previously announced changes.
According to Facebook, it will no longer allow anyone or any company to target housing, employment, or credit ads by age, gender or zip code.
A new tax for property owners
From the Star Ledger:
The controversial ’rain tax’ bill designed for N.J. flood defense has been signed into law
Local authorities in New Jersey now have a new tool to manage stormwaters and flooding.
Gov. Phil Murphy on Monday signed into law the Clean Stormwater and Flood Reduction Act, which authorizes municipalities, counties and certain authorities in the state to establish stormwater utilities.
The goal of the move is to help local authorities prevent future flooding, and manage sources of runoff pollution. But opponents of the measure have long derided the effort as little more than a “rain tax.”
If a town decides to create a stormwater utility, that utility would bill property owners based on the amount of impermeable surfaces like roofs and parking lots on their land. The goal of that fee system is to ensure that property owners are being charged proportionally based on their contribution to stormwater runoff. But it’s because of the potential for new utility fees that opponents of the new law, mostly Republicans, have labeled the measure a “rain tax.”
“This law adds yet another tax on our already overburdened residents and businesses, though there is no language to define how much people will be charged, how the funds will be collected or how the funds generated by it will actually address stormwater issues,” said Ray Cantor, the vice president of government affairs for the New Jersey Business and Industry Association.
It is unclear how much these new utilities, if created, would cost for property owners.
NJ a bit more unequal
From the Star Ledger:
The gap between rich and poor in N.J. keeps getting bigger. See how bad it is in your town.
New Jersey is becoming a more unequal place to live.
Over the past five years, the gap between the rich and the poor has widened, according to new U.S. Census data. The state now ranks in the top ten in the nation for income inequality.
Edmond Berisha, an assistant professor of economics at Montclair State University, said this was because middle class families weren’t making enough to keep up with inflation, while the richest 10 percent were actually bringing in more money than a decade ago.
About half of all income in the state was going to that richest 10 percent, he said, and an improving stock market only widened that divide.
While Essex ranks as the most unequal county in New Jersey, there are high concentrations of wealth across the state.
In the map below, the darker areas are the more economically segregated. Click on an area to see whether it has become more or less equal over the past decade.
Blame it on the parents
Here’s how many millennials got money from their parents to buy their homes
Millennials aren’t buying homes like their parents and grandparents did. That’s largely because it’s harder to afford a house these days: high real estate prices, stagnant wages and student loans hold young people back.
And a good chunk of those who have been able to purchase a home haven’t done so on their own. New data from financial services company Legal & General finds that 43 percent of homeowners age 34 and younger got money from family or friends.
Likewise, just over half of prospective homeowners 34 and under expect to benefit from financial assistance when they do take the plunge, L&G finds.
“House price growth in the U.S. has outstripped wage growth in 2018, meaning that on average across the U.S.A., houses are becoming more unaffordable,” the survey says. “This suggests the need for assistance [from family or friends] with a home purchase is on the rise. ”
One reason so many millennials aren’t able to afford homes is because of the rising cost of college. Between 1988 and 2018, the average price of tuition at a public four-year institution rose by more than 200 percent.
The L&G survey found that 35 percent of college graduates who are carrying debt and don’t already own say their student loans have made it “much more difficult” to save up to buy a home.
As a result, “many millennials have effectively given up on owning their own home — at least in the near term,” the survey says. “Of those under 35 who don’t already own, 43 percent say they don’t expect that to change in the next five years — most often (40 percent) because it’s simply not feasible to save for a down payment in that time frame.”
Apart from real estate, many millennials also routinely get help from their families to cover education costs, bills and child care expenses, reports Hannah Seligson for the The New York Times.
And many parents are willing to step in. Around 90 percent say they would give their adult children money to pay off debt if they asked for it, for example, a 2018 survey from CreditCards.com found. More than 50 percent of parents said they’d be willing to give their kids $1,000 or more.
Crisis officially over?
Delinquency rates fall to pre-housing crisis levels: CoreLogic
The number of homeowners failing to make mortgage payments has dipped to levels unseen since before the 2008 housing crisis.
Nationwide, only 4.1 percent of homeowners were delinquent on their mortgage in December, according to CoreLogic’s latest Loan Performance Insights report released Tuesday. Down from 5.3 percent in December 2017, the latest rate is the lowest since January 2000.
Yearlong delinquency rates, which have been falling steadily since the start of 2018, have not been this low since early 2006 – just before the housing and financial crisis of 2008-2009.
Foreclosures, in which property is seized due to an owner’s inability to pay, fell to 0.4 percent from 0.6 percent the year before.
“Our latest home equity report found that the average homeowner saw a $9,700 increase in their equity during 2018,” said Dr. Frank Nothaft, chief economist for CoreLogic, in a prepared statement. “With additional ‘skin in the game,’ rising equity reduces the chances of a foreclosure, helping to push the foreclosure rate down to its lowest level since at least 2000.”
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