Impact of Labor Shortages on Housing Recovery

Lately, home prices have been increasing. Part of the reason for this is that there is a shortage of housing laborers. In a recent survey by the National Association of Home Builders, more than half of the builders reported that these labor shortages have lead to paying higher wages or bids in order to secure a project, thus the increase in home prices. This lack of laborers in all facets of residential construction has been impeding the housing and economic recovery.

"The survey of our members shows that since June of 2012, residential construction firms are reporting an increasing number of shortages in all aspects of the industry - from carpenters, excavators, framers, roofers and plumbers, to bricklayers, HVAC, building maintenance managers and weatherization workers. The same holds true for subcontractors," said NAHB Chief Economist David Crowe.

This lack of laborers can be attributed to the fact that many skilled residential construction workers were forced to find other types of jobs during the recession and they are no longer available now.  As a result, many current homes are experiencing delays in completion. Some projects are even being turned down and cancelled altogether because there aren't enough workers to complete the task.

"What used to be high-paying, skilled jobs vanished as builders across the nation went out of business or were forced to let workers go," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.

Other problems consist of a lack of buildable lots, and an increase in the cost for materials and labor.  To help meet the growing demand for skilled labor , the Home Builders Institute (HBI) along with NAHB, are working to provide career training and job placement opportunities in the building industry. HBI offers many pre-apprenticeship training programs in a variety of skilled trades that can hopefully help meet the needs of communities across the nation. They have a success rate of 80% of their students being placed into jobs after graduation.

"We are ramping up our efforts to train diverse populations and place them in jobs to meet the growing demand of the building sector," said HBI President and CEO John Courson.

"Even in a period of relatively high unemployment, we still need to complement our job training efforts by bringing in foreign workers to meet the needs of home builders and home buyers," added Judson.

All of this training is very important for the economy. Currently, the labor shortages are slowing down the housing recovery and hurting job and economic growth overall. However, as the economy heals and grows, the demand for housing will continue to grow. This is will also be good for the mortgage industry as more and more people will need to fund their new homes.

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Expired Payroll Tax-Cut Barely Noticed by Workers

In January, the payroll tax cut expired, meaning that paychecks are now 2% less than they were before. Many economists predicted that consumer confidence and spending would suffer as a result, but it turns out that retail sales actually rose higher than expected, and consumer confidence rebounded. In fact, Bankrate.com surveyed workers and found that 48% of respondents didn't even notice that they were being paid less. 7% said that the loss has not had an affect on their finances.

“It’s very encouraging. It means other things going on are helping,” said Mark Zandi, chief economist at Moody’s Analytics. "We are weathering the storm well, at least so far, better than I would have thought."

However, Zandi also cautioned that the impact could take longer to become evident and that the results of the survey may not be accurate since it is only based on consumer perceptions. He said that there is a "wealth effect" currently taking place because of record highs in the stock market and a rebounding real estate market. These two things themselves do not put more money into American's pockets, but people seem to be willing to save less and spend more.

“The job creation numbers were sufficient to make consumers believe that their economic situation was improving,” said Richard Curtin, director of Surveys of Consumers at the University of Michigan’s Survey Research Center, which publishes a monthly survey of consumer confidence. In February, consumer sentiment rose nearly  5% over January’s figure.  “Hours increased and employment increased, so more people had more money in their income even if taxes were higher,” Curtin said.   42 percent of the workers surveyed said that they cut their spending. These respondents were middle class with household incomes between $50,000 and $75,000.

It isn't really surprising that so many people did not notice the disappearance of the tax cut. It was created to give Americans a few more bucks on their checks in hopes that they would turn around and feed that money back into the economy without realizing it. It was a stealthy boost that consumers weren't meant to even notice.

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Most Economists Agree: Recovery Gaining Momentum

Last week, nearly every article and report in the news claimed or suggested that the pace of the U.S. economic recovery is gaining momentum. Economic Forecasters are considering reassessing their previous thoughts as we see positive statistics like a rise in Retail Sales by 1.1%, and the Consumer Price Index's increase of 0.7%.  However, some argue that these were mostly due to higher gasoline prices and building material prices.

Despite mostly positive claims, it appears as though the economy has felt the effects of the expiration of the 2% Social Security tax holiday, sequestration, and higher gas prices. These issues have fallen squarely on the shoulders of middle- and lower-income households who already have a limited amount of ways to cut spending in the short term.

Aside from these particular struggles, the overall opinion is that the recent economic data has indeed been strong. The most significant data includes housing reports such as Housing Starts & Building Permits, and Existing Home Sales.  Investors are interested in how the Fed will react to it and they wonder whether it will have an affect on monetary policy.

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The Importance of the FHA

Here at Quest Loans, we specialize in FHA Loans. Many people don't realize that the Federal Housing Administration (FHA) has a very important role in the mortgage industry. When the private mortgage market collapsed, the FHA stepped up to help make mortgage insurance available to millions of qualified home buyers across the nation. 80 years ago, Congress actually designed the mortgage insurance fund to do just that.

To prove how crucial the FHA is, the National Association of Realtors put together a testimony before the Senate Banking Committee praising the administration. According to NAR President Gary Thomas, without the FHA the housing downturn and economic recession would most likely have been far worse for the nation.

“FHA continues to play a significant role in the housing market and recovery. We applaud them for their leadership and strength during the housing crisis, and for continuing to serve the needs of hardworking American families who wish to purchase a home,” said Thomas, who is also the broker-owner of Evergreen Realty, in Villa Park, Calif.

He also noted that the FHA has always provided access to mortgage financing and it has never offered risky mortgage products, used predatory lending practices, or engaged in exotic underwriting. However, the FHA incurred great financial losses as a result of overall market conditions that led to increased foreclosures.

Despite this, Thomas said that the NAR is confident that the FHA is moving closer to helping to stabilize the mortgage insurance fund, and they've also made many administrative changes to minimize risk. Those changes include five increases to mortgage insurance premiums since 2009, implementing credit score floors, hiring a credit risk officer, requiring higher down-payments for those who have lower credit scores, and putting a series of measures in place to increase their lender responsibility and enforcement.

“FHA currently has one of the strongest books on record and the quality of borrowers has skyrocketed; continued market improvements and rising home prices will also help improve the fund’s future financial condition,” said Thomas. “Had FHA not stepped in to fill the market gap, many families would have been unable to purchase homes, current homeowners would have experienced far greater drops in equity and their home’s value, and our nation’s economy would be much further from a recovery.”

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Overview of Housing 2012

The housing market had a good 2012! We saw great improvements in housing construction, so much so that home building is once again aiding the economy. Housing starts jumped 21.1%. This increase coincides with the higher levels of builder confidence over the past few months. However, there was a pause in the rise of builder confidence in January which is most likely caused by the fiscal cliff debate and all of the huge, impending decisions that face the housing and mortgage industries in 2013. Despite the improvements for housing, there has not been a huge increase in employment for residential construction. Job openings for construction are elevated which shows a demand for construction workers and suggests future growth potential. On a positive note, home prices have jumped to their highest annual increase levels in over six years. All of the pending index statistics suggest that home prices will remain strong in 2013.

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The Breakdown of the Fiscal Cliff

Source: cfr.org

Was the Mayan Apocalypse predicting the “Fiscal Cliff” all along? Either way, there’s been a lot of head scratching these past few days since the latest buzz word on the street has emerged as something that we should be worried about.

But what exactly is this “fiscal cliff” and why is everyone talking about it?

A definition found on cfr.org put it this way: "The "fiscal cliff" is a term used to describe a bundle of momentous U.S. federal tax increases and spending cuts that are due to take effect at the end of 2012 and early 2013. In total, the measures are set to automatically slash the federal budget deficit by $503 billion." 

The problem is that such an abrupt change to the budget in this fragile economy may bring about a second recession and cause unemployment to rise in 2013. So "going over the cliff" refers to falling back into recession, double-dipping if you will.

President Obama and House of Representatives Speaker John Boehner have been in talks to come to an agreement on how to deal with this issue. Their efforts are designed to stop the steep tax hikes and across-the-board spending cuts from going into effect at the end of December. Does this mean no tax return for 2012?

Well, the two sides are now significantly closer to agreeing on critical issues such as cuts to Social Security benefits and tax hikes for the wealthy. Obama has managed to reduce the original tax rates that President George W. Bush had in place. Both Obama and Boehner have agreed to keep the rates low for everyone except the wealthy, but they cannot agree who qualifies as "wealthy". Obama's definition included taxpayers making more than $250,000 per year, but he's compromised up to $400,000 since Boehner was thinking of a figure closer to the $1 million mark. It is speculated that he may lower that to $500,000.

Obama has also offered a "fast track" process for major tax and spending reforms that would make permanent changes in the tax code as early as January 2013, and some not until 2014. However, a cliff-avoiding agreement would no doubt bring about more targeted spending cuts in other areas. There are potential plans floating around that may cut spending for Medicare and Medicaid, but it has yet to be discussed.

We will have to wait to see what kind of deal is reached regarding the fiscal cliff. Apparently most of America has no idea what it is, but now you do! While we wait for more news from Washington, enjoy this funny video from "Jimmy Kimmel Live" about the Fiscal Cliff.

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Rate Update: Near Record Lows

According to Freddie Mac's latest Primary Mortgage Market Survey (PMMS), the mortgage rates remain "little changed and near record lows this week amid indicators of stronger economic growth and signs of tame inflation," said Frank Nothaft, vice president of Freddie Mac.

The 30-year fixed-rate mortgage averaged at 3.34% for the week ending December 6, 2012. Because the mortgage rates have remained steady, the economy is getting a chance to recover.  There has been growth in fixed residential investment, residential construction, and pending home sales. "The housing market is aiding in this recovery," said Nothaft.

If you are interested in buying a house or refinancing your home, the near record-low mortgage rates are still attractive! Home affordability is high and it is a good time to buy! Call Quest Loans to get started with your new loan or refinancing! We also specialize in FHA loans and HARP loans. 888-883-5252.

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Home Data Index Market Report Summary

According to Clear Capital's Home Data Index Market Report from September 2012, the uncertainty of the fiscal cliff is threatening to slow the rate at which the housing market has been recovering. (The fiscal cliff is a term describing the issues the U.S. Government will face at the end of 2012 when the Budget Control Act of 2011 takes effect.)

The report also states that the national yearly price of homes has increased by 3.6% and it is predicted that it will increase another 2.2% over the next six months. If we can avoid the fiscal cliff, there is still a risk that confidences will be damaged which is essential for the recovery. Overall, though, most markets are improving rather than declining and it looks good that recovery will survive the winter. It is possible that the fear of a potential fiscal cliff could sway consumer confidence and discourage home buyers, but we are optimistic that everything will be fine.

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Further Proof of Economic Recovery

For the first time since November 2007, home equity installment balances rose 0.3%. This may indicate a new chapter for the mortgage industry. According to Equifax's latest National Consumer Credit Trends Report the total number of loans fell by 43% over the past four years and home equity installment balances fell by 49%. However, residential real estate is beginning to stabilize and mortgage debts and delinquencies are declining in number. Mortgage rates themselves are setting new record lows nearly every week! All of these individual pieces are combining to create a new and improved economy; one that is working hard to recover.

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Economic Improvement

Quest Loans is feeling pretty optimistic about the current status of the housing market. Sure, there is always room for improvement, but most things are pointing in the right direction. For instance, the price of single-family homes has risen once again in July for the sixth straight month. It was not a huge increase, but more economists would agree that the market is definitely heading down the road of recovery. As of August, home resales and new home construction has been improving as well. Because of all this good data, the stock market has even seen some gain. Quest Loans would like to help you take advantage of this progress. If you are looking for a great lending company, look no further! We would love to help you get started on your home loan today! 888-883-5252.

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New Act to Protect Taxpayers?

We reported about the possibility of the government doing an eminent domain procedure regarding underwater mortgages. Now, California Representative John Campbell has announced "The Defending American Taxpayers from Abusive Government Takings Act". This Act is meant to stop the local governments from using federal tax dollars to seize underwater homes, and turn that money toward profiteering schemes. This act is meant to uphold the law and protect taxpayers.  We can all agree that underwater mortgages are slowing down the recovery of the housing market, but there has to be a better solution than eminent domain.

It is supposedly going to protect taxpayers' investments, defend retirement savings, and preserve the rule of law. What do you think about this new Act?

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Builder Confidence Continues to Rise!

At Quest Loans, we love to report good news in the housing market! Once again, Builder Confidence has risen for the 5th month straight! Newly built, single-family homes are selling well and this helps move the housing market in a positive direction. Current sales conditions are making builders around the country smile! Future sales prospects and the amount of traffic they are getting in the model homes has increased tremendously. However, the cost of building materials is rising which could potentially cause an issue for builders in this fragile economy. If they can afford to purchase these materials and put together crews for work, jobs can be made and the economy can keep improving.

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4.5% Drop in Mortgage Applications

According to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending August 10, 2012, the number of mortgage applications has dropped by 4.5% just since the week before. Many lenders have been left puzzled over the sudden drop. According to the Market Composite Index which measures mortgage loan application volume, this decrease was based on seasonally adjusted figures. Had it been unadjusted, the decrease would have actually been closer to 4.7%. In this slowly re-stabilizing economy, we cannot afford to see statistical drops like this. Hopefully the number of loan applications submitted will rise again soon, which would indicate an improvement for the U.S. housing market.

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80 Metros Show Economic Improvement

According to the National Association of Home Builders and the First American Improving Markets Index (IMI) for August, there have been vast improvements in the housing markets of 80 metropolitan areas. Statistics are taken in these cities across 32 states plus the District of Columbia. The index identifies metropolitan areas that improved in areas such as housing permits, employment, and housing prices for at least six consecutive months. 75 of the metros remained in their respective places on the list from the previous report. There were five new ones that were added and nine that fell from the list because of changes in housing prices. Keep in mind that all of these different metro areas have different characteristics in terms of the condition of their economy and their employment situations. The one thing that most of the markets have in common, though, is the newly enforced strict lending practices that is slightly hindering both builders and buyers. The IMI tracks the markets by measuring employment growth, house price appreciation and housing permit growth. They use the latest available data and measure it on three different occasions to get an accurate overview. In order for a metropolitan area to show improvement, all three of those measurements must improve statistically for at least six months. The index has confirmed that metros are growing increasingly stronger and the economy is stabilizing.

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Vote in Greece buys Eurozone More Time

The Greek vote has been cast. However, the most that it has done is buy more time for the eurozone to figure out what to do next in their 2-year long financial struggle. The Greeks also agreed to remain under Berlin's harsh terms in order to continue collecting bailout money. For now, Greece will stay attached to the eurozone in hopes of sparking economic growth. There is hope that Athens will form a government that will negotiate with Berlin over the financial situation. Berlin and its allies are what is keeping Greece from hitting rock bottom into economic chaos and leaving the euro behind. Many agree that leaving the euro would only bring financial collapse at an accelerated rate. As part of the deal, Berlin has forced austerity measures upon the Greek citizens that has lowered their standard of living and require harsh sacrifices.

Right now, Germany has the largest and most prosperous economy. They are having to deal with the financial burden of their weaker neighbors. The Greek vote was important because, while it helps their weak economy, it also has an affect on Germany by involving them more into this crisis.

This vote has only provided temporary relief. The banks in the weak economies of Greece, Italy and Spain took a beating last week when investors pulled out due to worries about a government default. Spain is currently in the midst of recovering from a painful housing bust, forcing them to monitor their home mortgage policies.

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Obama Adminstration's May Housing Scorecard

The May Housing Scorecard has been released, courtesy of HUD, the Department of the Treasury and the Obama Administration. It is a comprehensive report on the status of the nation's housing market. All indicators point to signs of stability. There's been an overall increase in the sale of existing homes across the nation. The inventory of newly constructed homes has also increased. The only slight hindrance right now comes in the form of delinquencies and underwater mortgages. However, the economy is continuing to recover. More than 180,000 borrowers have taken advantage of the Home Affordable Refinance Program to secure mortgage relief. This has helped foreclosure starts to decline.

The Obama Administration has many programs in place to aid homeowners with the woes of the housing market. So far, these programs have established some critical standards and accountability for mortgage servicers. These have forced the industry to provide struggling homeowners with more effective assistance than ever before. Millions of American homeowners have received relief from these foreclosure programs, and the Administration hopes to continue providing it. It is very important that the nation's housing market crisis can recover.

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U.S. Job Market Staggers

The U.S. economic recovery has had a bit of a slowdown in May. According to the Labor Department's Job Report for May, only 69,000 jobs were created. This is a much lower number than experts had expected for the month. With that said, the unemployment rate has also climbed up to 8.2%, which is the first time it has increased in the past 11 months. This all comes at a time when Americans are worried about the European crisis, higher gas prices and the constant problems that the housing market faces. It is important, therefore, that the U.S. economy continues to grow, especially since Europe is declining. If the U.S. has frequent slowdowns like the one in May, it could bring about a global slowdown. It had enough of an impact on the economy for the Obama administration to comment that this jobs data was unacceptable and that Congress needs to do something to strengthen the nation. Time will tell if they take action to make a difference in the lives of Americans or not.

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Existing-Home Sales Prices Increased 3.4%

According to the National Association of Realtors, existing-home sales have increased in the month of April, and home prices are continuing to climb. These sales rose 3.4% compared to March throughout the country. This is a good indication that the housing market is finally recovering. It is not just the investors who are buying these homes anymore, we are seeing an increase in homes being sold to actual occupants again. This is helping home sales of all prices, causing the market to become more balanced. Housing inventory rose 9.5% at the end of April, totaling out at 2.54 million existing homes that are for sale. The national median price for an existing home is $177,400, which is up 10.1% from last April. It is expected that 2013 will bring further increase in sale prices.

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New Record Low Rates

New Record Low Rates! The average fixed mortgage rate found new record lows, as the 30-year fixed rate mortgage averaged 3.84 percent, down from last week when it averaged 3.88 percent. Last year at this time, the 30-year fixed rate averaged 4.71 percent. The 15-year fixed rate mortgage this week averaged 3.07 percent, down from last week when it averaged 3.12 percent. A year ago around this time, the 15 year fixed rate mortgage averaged 3.89 percent.

"Signs of slowing economic growth and inflation remaining subdued allowed yields on Treasury bonds to ease somewhat and brought most mortgage rates to new all-time record lows this week," said Frank Nothaft, the vice president and chief economist of Freddie Mac. "Real Gross Domestic Product rose at an annualized rate of 2.2 percent in the first quarter of this year, down from the previous quarter of 3.0 percent and below the market consensus forecast of 2.5 percent. In addition, the 12-month growth in the core price index of personal consumption expenditures was 2.0 percent in March which matches the Federal Reserve's implied inflation target."

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Banks Tighten Lending Standards

We have been reporting about the economic recovery of the nation. Things are continuing to look up as time goes on. However, the banks are being very strict and cautious about their lending practices. They are not giving out loans to just anyone anymore. Overall, the banks have been tightening their lending standards for residential mortgages for prime borrowers. These borrowers are those with very good credit history, high credit scores and a low debt-to-income ratio. This tightening happened mostly between January and March, putting a strain on the housing market.

These days, getting a loan is much more difficult than it used to be. Banks are demanding higher credit scores and larger downpayments. However, many people are taking advantage of various mortgage options such as the FHA's 3.5% downpayment program.

Despite all of this, banks are still eager to lend money to those who qualify. Now is still a good time to buy a new home or to refinance one if you are in the market for it. Give us a call at 1-888-883-5252 for more information or for assistance in getting started with your loan today!

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