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Market Minute - Dec. 8, 2017

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Housing/Real Estate Market

US home price growth remains strong at 7 percent:
CoreLogic reports a second consecutive month of 7 percent year-over-year growth in home prices. CoreLogic's HPI Forecast also predicts prices will increase 4.2 percent from 2017 to 2018. Price growth reflects both lack of new supply and a strong economy.

Homeowner Equity Increased $871 Billion in Q3 2017: CoreLogic' shows that U.S. homeowners with mortgages have collectively seen their equity increase 11.8 percent year-over-year gaining of $870.6 billion. California homeowners gained around $37,000 in home equity ($14,888 for US homeowner) between Q3 2016 and Q3 2017.

Non-residential construction / commercial real estate index up 21 percent. A strong jump rise in the November Dodge Momentum Index indicates healthy growth in non-residential and Commercial Real Estate (CRE) investment.

Macro Economy

The Department of Labor reports claims decreased 2,000 from previous weeks to 238,000
. Claims remain low. Meanwhile, BLS reports that total payroll employment increased 228,000 in November. The unemployment rate remains flat at 4.1 percent (6.6 million people). Similarly, ADP reports that private sector employment also increased 190,000  from last month.

Consumer sentiment finally stumbles: After surging to the highest levels since the dot.com bubble, consumer sentiment dipped in the most recent University of Michigan survey. Overall, consumers are still very optimistic, but that bullishness has abated modestly. This owes to a decline in expectations about the future, though current conditions remain positive. Authors of the report attribute this to uncertainty over tax reform, but current levels are high by historical standards so reductions aren’t totally unexpected.

Consumer credit growing unabated: The growth in consumer credit appears to be gaining momentum. After rising to an all-time high of $2.5 trillion in non-revolving debt (cars, homes, etc.) earlier this year, it rose again to $2.8 trillion in October. Low rates have made new car loans in particular very attractive, and that underlies much of the strength in these numbers. However, growth in outstanding debt is far outstripping income growth. That doesn’t pose an imminent threat, but if a macroeconomic shock upsets employment and incomes, these figures will become more worrisome rapidly.

Household net worth increased in Q3 2017  reaching $96.9 trillion: The Federal Reserve Flow of Funds reports that the value of corporate equities increased $1.1 trillion and the value of real estate increased $0.4 trillion. Household real estate increased to $24.2 trillion in Q3.

Non-manufacturing sector growth continues: The Institute for Supply Management (ISM) non-manufacturing index for November was 57.4%, down 2.7% from October, still strong but indicating slightly slower growth from last month.

Factory orders suggest faster growth: The manufacturing sector saw a 3.7 percent increase in new orders in October. That is down slightly from the prior two months, but suggests that the factory sector is poised for ongoing growth in the 4th quarter, which should provide a boost to the economy and thus, demand for housing in the nation.

Q4 2017 Fed GDP Forecasts are very strong
: Altanta Fed's  GDPNow  predicts 3.5 percent growth,  while the NYFed Nowcasting Report  predicts 3.9%: both very high rates of growth for the past decade. With growth expected to remain robust regardless, California’s lack of supply is expected to continue to abut rising demand to push prices higher.

Trade deficit widens as imports increase: With a rising economy and more workers employed in our economy, so too has demand for oil increased. Crude imports were behind much of the increase in imports in October, and explain a significant portion of the increased trade deficit. This will cut against rising production and business investment to temper GDP growth in the final quarter of 2017.

Real Estate Finance

Mortgage applications increased 4.7% in latest MBA Weekly Survey:
The Mortgage Bankers Association report indicates that applications are up 4.7. The 30 year fixed average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained decreased to 4.19 percent from 4.20 last week.

Mortgage rates finally start to rise:
The average rate on a 30-year fixed-rate mortgage ticked up by 4 basis points last week to 3.94%. However, expectations are for longer-term rates to begin to rise later this month. The Federal Reserve is likely to raise short-term rates, jobs figures are robust, and core inflation is essentially in the target range. 10-year treasury rates have already increased to 2.4%, and mortgage rates will likely begin to follow suit gradually.

Delinquencies up slightly from last year:
Black Knight reports that 4.44% of mortgages were delinquent in October, up from 4.35% last year. 0.68% of mortgages were in the foreclosure process, down from 0.99% a year ago. The report also has a note warning of a coming lock-in effect from removing the MID, while exempting older mortgages may create a disincentive to sell in a rising rate environment further constraining available housing inventory.

Previous Updates
December 1, 2017 - National Home Sales, Gross Domestic Product, Mortgage Delinquency
November 17, 2017- Housing Starts, Consumer Expectations, Mortgage Rates
November 10, 2017 - Builder confidence, Job Growth, Mortgage Applications
November 3, 2017 - Homeownership, Unemployement, Mortgage Delinquency
September 15, 2017 - Home Prices, Consumer Credit, Mortgage Rates


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