As
the U.S. economy has slowly, steadily lumbered out of the Great
Recession, the biggest drag on recovery has been housing. Existing home
sales have never recovered their 2007 levels, despite several
government stimulus efforts. Meanwhile, newly-constructed single family
home sales have been hovering near levels that represented the bottom
of previous recessions. In the latest statistics, groundbreakings on
new homes actually fell by 2.8% in October compared with September.
Depressed home sales-both
new and used-have a negative effect on many sectors of the economy, from
the materials to make the houses, appliance sales-plus, of course, the
income of many thousands of construction workers, appraisers and
realtors. During healthy times, home construction and sales make up 9%
of all economic activity, compared with just under 6% today. It's
remarkable that the American economy has been able to show continued
growth while dragging housing activity like a ball and chain behind it.
But things may be looking up
in the housing sector. In recent weeks, Fannie Mae and Freddie Mac,
the two government-backed mortgage companies that provide loan
guarantees to lending institutions, have quietly adjusted their loan
guarantee guidelines in ways that will make it easier for borrowers to
secure loans. Under the new rules, any loans with no missed payments
for 36 consecutive months after they were first issued will be backed by
the Freddie or Fannie should they default. In the past, the agencies
kept their policies unclear, and maintained that they could force
lenders to buy back nonperforming loans without explanation. The new
policy will make loans less risky for lenders to extend to consumers.
Perhaps more importantly,
new guidelines were issued that will make it easier for Gen Y buyers to
come into the market. Since 2008, lenders have been requiring home
buyers to have near-perfect credit, and even then to pay 20% down on
their home purchase. Now, going forward, Freddie and Fannie will start
backing loans where the borrower puts down just 3%-a huge relief for
first-time homebuyers. Look for these simple shifts in policy to
accomplish more stimulus to the housing market-and to the U.S.
economy-than any of the emergency measures passed in the wake of the
economic downturn. And, sometime in the first quarter of next year, you
might see articles talking about an unexpected housing recovery and
windfall GDP growth that has economists scratching their heads.
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Sources:
http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm
http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm http://www.forbes.com/sites/erincarlyle/2014/11/26/new-home-sales-sluggish-in-october-0-7-increase-reflects-new-normal/ http://money.cnn.com/2014/12/09/real_estate/mortgage-lending/index.html?iid=SF_PF_River |
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Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
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