Will uncertainty surrounding the Trump administration’s economic policies put a damper on home sales and purchase origination in 2017?
Considering the momentum that the housing and mortgage markets have right now (existing-home sales are up, and purchase volume is up, year over year), it would be a shame if that were the case. Personally, I am worried that the uncertainty surrounding some of the administration’s proposals could end up having a negative effect on consumer sentiment – which, in turn, could have a negative effect on home sales.
I say this because the refinance market has dried up, and purchases will mean everything this year. I also say this because there are a lot of signs that the economy is improving – and yet, for whatever reason, the forecasts for home sales and purchase originations aren’t all that hot.
Just as we were putting this issue of Secondary Marketing Executive to bed, it was announced that the Trump administration’s proposed fiscal budget calls for slashing the U.S. Department of Housing and Urban Development’s (HUD) operating budget by about 14% – or about $6 billion. Although the proposed cut, if approved “as is” (which is very unlikely), would probably mostly impact the construction and maintenance of affordable housing projects and HUD programs and not Federal Housing Administration lending, I still worry that such announcements, particularly as they are presented in the mainstream media, could negatively affect the psyches of those consumers who are considering the leap into homeownership.
I also worry that the administration’s stance on regulatory rollback, in general, could negatively impact consumer sentiment. Why? Well, I think it’s possible that a certain sliver of consumers will end up deciding against a home purchase out of fear that deregulation has put them at greater risk of predatory lending. In this age of over-sensitivity, any bit of negative news about housing and housing finance could potentially have a negative effect on consumer sentiment.
According to Fannie Mae, existing-home sales increased 3.8% in 2016 compared with 2015. However, Fannie is forecasting that existing-home sales will increase only 1.6% this year and only 1.7% in 2018. Meanwhile, purchase originations, which reached $1.013 trillion in 2016, are forecast to increase to $1.056 trillion in 2017 and to $1.146 trillion in 2018, according to the most recently available data. Although these are healthy increases, they aren’t exactly impressive when looked at in the context of overall economic growth.
As Peter Miller points out in a recent blog post on MortgageOrb, the economy is gaining steam right now – job growth is solid, the unemployment rate continues to decrease, family gross incomes are rising, and, hey, the stock market surpassed 21,000 points. The Fed wouldn’t be considering raising interest rates if the macroeconomic indicators weren’t looking generally positive. So why aren’t the forecasts for purchase volume stronger?
In a word: uncertainty. And uncertainty breeds fear. And fear is the last thing the mortgage market needs now.
Despite this mounting uncertainty, though, consumer sentiment toward housing appears to be fairly healthy – for now. In fact, it has been on the up and up pretty much since the November election, according to Fannie Mae’s Home Purchase Sentiment Index, which increased by 5.6 percentage points in February to reach an index score of 88.3, a new all-time high.
The share of Americans who reported that now is a good time to buy a house rose 11 percentage points, while the share of Americans who believe that now is a good time to sell rose seven percentage points. Consumers also expressed greater confidence about not losing their jobs, with the net share rising nine percentage points. The share reporting that their household incomes were significantly higher than they were 12 months earlier increased four percentage points.
“The latest post-election surge in optimism puts the [index] at its highest level since its starting point in 2011,” says Doug Duncan, senior vice president and chief economist at Fannie Mae. “Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time home buyers.”
So, things are looking good right now. That’s why the last thing the industry needs is for the undertow of uncertainty to keep those millennials and first-time home buyers on the sidelines. I’m hoping that the uncertainty of today will give way to greater clarity soon – like, tomorrow – but rolling back regulation is going to take time, and a lot of questions are going to be raised as the mainstream media closely scrutinizes the administration’s every move.
Perhaps the only thing the mortgage industry has to fear is fear itself.