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2019 Economic Outlook

2019 Economic Outlook

Barry is back! Each January, Barry Habib, Founder and CEO of MBS Highway and mortgage & real estate market expert shares his economic outlook for the year ahead.

Barry’s 2019 economic outlook explains what dynamics are in place for this year, where the stock and bond markets are headed and the future direction of interest rates and housing.

2018 In Review

Prediction: Stocks will be toppy and vulnerable and there will be a significant stock market pullback in 2018.
Actual: Stocks were toppy and they did pull back significantly at the end of the year.

Prediction: Inflation will be tame in 2018 and the fed will tighten by hiking rates 1-2 times and reduce their balance sheet.
Actual: Inflation did remain tame and the Fed stopped reinvestments and reduced the balance sheet. They hiked rates 4 times.

Prediction: The 10-year-2year yield curve will flatten in 2018.
Actual: The yield curve flattened from 0.51 to 0.11. This is important looking forward as an inverted curve in 2019 may become a self fulfilling prophecy where fears and concerns could hurt stocks and help bonds.

Prediction: The 10-year will trade between 2.65% and 3.04% most of the year and mortgage rates would be 0.375% to 0.5% higher on average.
Actual: The 10-year did trade between 2.65% and 3.04% for 10 months of the year and mortgage rates did rise for most of the year within our predicted range.

Prediction: Our forecast for appreciation was for housing to be up to 4.5% to 5.5%.
Actual: For most of the year, housing was up greater than that – to over 7% at times –  but as the year came to an end home prices had risen nationally between 4.7% to 5.5% year over year.

2019 Economic Outlook Dynamics

  • China – Could there be a trade war?
  • US Economy – Is it slowing?
  • The Stock Market Pullback – How much and what will the impact be?
  • Rates Set to Rise – The Fed is indicating two rate hikes and is scheduled to further unwind its balance sheet. How much and what will the impact be?
  • Housing – Housing appears to be slowing. Is this a bad thing or will it regain its footing?
  • Inflation Rising with Oil Prices – We saw wages start to rise at the end of 2018 while oil prices took a big dip, helping inflation stay low overall. If they move back to more normal levels, will that pressure inflation?

Key Areas To Consider In 2019

1. Stocks

The 2019 economic outlook starts with a more normal market. With the Fed no longer artificially adding liquidity through the purchase of mortgage bonds and treasuries, we expect stocks to be choppy and volatile. The Feds are not the only ones draining liquidity – the European Central Bank is as well. This gives stocks a head wind at the start of 2019.

Although stocks will likely decline early in the year, they’ll find their footing with valuations coming down to realistic and sustainable levels. Barry thinks the stock market will reverse course after a very difficult 2018.

Barry’s Prediction: Stocks will end 2018 up 5% to 8%.

2. The Federal Reserve

Different this year, there will be a press conference at every Fed meeting. In the past, only every other meeting had press conference. Since the Fed historically has only changed interest rates where there was a press conference, this could add to increased speculation and volatility with the media covering every single detail and speculating what may or may not happen.

The 2019 Fed dot plot shows is showing that they are planning 2 hikes in the year ahead. The Fed will be concerned about rising inflation due to a combination of higher oil prices and wage pressures. These factors may influence the Fed to push interest rates higher unless we see a slowdown in the economy.

Barry’s Prediction: The Fed will hike 1 time to get the Fed Funds Rate (FFR) to 2.75% although they would love to get the FFR to 3%. The Fed stays on course to reduce the balance sheet.

3. Interest Rates

As we know, inflation is the main driver of rates, and inflation will likely tick higher with oil prices rebounding and increasing wages as 20 states are increasing their minimum wage in 2019. We think theses causes an uptick on the rate on inflation, Because of this, that pressures inflation a bit more – this is the enemy of interest rates.

Also pressuring the interest rate environment is the unwinding for the Fed’s balance sheet by $50 billion per month at the same time that our government has more borrowing needs due to the deficit. As our government puts out more paper (more supply) with less buying, bond prices will worsen which means an increase in interest rates.

Barry’s Prediction: The 10-year treasury note will trade between 2.75% and 3.25% for most of the year, with a high tick for the 10-Year at 3.5 percent.  30-year fixed mortgage rates will be in the 5% to 5.5% range for most of the year. This is slightly more than where we’re at now, but shouldn’t get out of hand.

4. Housing Market

The housing market has taken a beating in the media for a long time. It will have a rocky beginning with some areas doing well and some areas will do poorly. Overall we’ll see a slow start, but as the spring market starts to come around and stocks stabilize, folks will feel the wealth effect and be more confident about buying. Demographics are also favorable as there is more demand than supply. This points to a good housing market ahead.

Barry’s Prediction: Home appreciation in 2019 will fall in the 3.5% – 4% range. While less than last year, it will still create significant wealth.

We wish you and your families all the best for 2019. We wish you happiness, we wish you health and we wish you prosperity!

The information contained herein is general in nature and based on authorities that are subject to change. Churchill Mortgage guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Churchill Mortgage assumes no obligation to inform the reader of any changes that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or any other advice, and readers should consult their advisors concerning the application of tax laws to their particular situations.

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Buying a Home? 7 Things To Know About Your Purchase Contract

With all the exciting steps involved in buying a home, questions often come up about the purchase contract itself. The purchase contract is so important in the process, yet it might contain terms that seem like another language – until you understand how all the parts work together perfectly.

Today we’re walking you through 7 things you’ll need to know about your purchase contract – and what’s most likely to happen in the unlikely event you decide not to proceed with buying the home, after all.

The Earnest Money Deposit

Earnest money deposit is the cash you’ll need to come up with immediately. It’s a way to commit to the sale and demonstrate to the sellers that you’re seriously interested in this home. The exact amount of your earnest money will typically run between 1% and 2% of the purchase price.

When your offer is accepted, this money is held in an escrow account by the seller’s broker or a title company and is a credit towards the final negotiated purchase price. (Never give your earnest money directly to the seller.)

Purchase Contract Contingencies

A contingency means there’s something the buyer has to make happen before the process can proceed, like selling the home they already own. Contingencies in the purchase contract let you back out of the sale if something goes wrong without losing your earnest money.

Every contingency will come with a deadline that must be met to keep things moving. Here are three common contingencies included in the purchase contract.

1. Loan Commitment Deadline

This is the date by which your home loan must be approved by the lender and the commitment letter is issued.

Complications sometimes arise when a loan commitment isn’t “clean,” meaning there are still outstanding issues to be cleared up or documents to be presented to the sellers. If these problems arise after the mortgage commitment date, the buyer’s deposits may be lost.

2. Appraisal Objection Deadline

On or before the appraisal objection deadline, the buyer must give the seller notice if the appraisal has come in under the purchase price of the home. If this happens, the parties have a couple options; the seller can come down in price to match the appraised value, the buyer can bring the difference in cash to closing or they can terminate the contract.

3. Inspection Objection Deadline

Typically, home inspection contingencies are part of the purchase contract. This is to protect the buyer in the event that a defect is found during in the inspection. Based on the results of a home inspection, the homebuyer can try to negotiate any necessary repairs or ask for a reduced purchase price to compensate for the cost of the repairs.

If the inspection uncovers significant defects, you may consider cancelling the sale. Any of these items require action on behalf of the buyer prior to the inspection objection deadline.

Settlement or Closing Date

The buyers and sellers usually negotiate a closing (settlement) date, for all involved parties meet to make the sale of the home official. It’s best to choose a date that gives you plenty of time to take care of your loan approval, home inspection, appraisal, and any other contingencies.

New Home Possession Date

New homeowners typically take possession of their new property on the date of closing. Although that doesn’t mean this is always the case. Keep in mind that the possession date is negotiable, and can affect the strength of your offer.

If the seller needs extra time to find a new place to live, offering a possession date that’s further out could make your bid more attractive. On the other hand, sellers sometimes allow buyers to move in before settlement if the house is already empty.

What If You Want Out Of The Purchase Contract?

Before you sign any legal documents ask how you can cancel if things don’t work out the way you hope or if you change your mind. Read through the contract and ask your agent to point out to you the cancellation clauses. There are a number of contingencies that allow you to back of the purchase contract without losing your earnest money.

If your reasons for halting the sale fall outside those contingencies, however, the sellers will usually get to keep the earnest money and could be awarded damages from profits they lost after ultimately selling the property at a lower price.

Knowledge Is Power!

The homebuying process is often full of exciting milestones as well as disappointing bumps in the road. Being familiar with your purchase contract and the process itself will help you in making the best decisions. Happy house hunting!

*Disclaimer: Churchill Mortgage Corporation does not provide real estate services or any other service apart from lending. You should always consult with your legal, tax and financial advisors to determine which strategy is the most suitable for your specific circumstances.

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Technology To Include In Your House Hunting Toolkit

Savvy buyers are using technology to learn about the homebuying process, mortgage options and to locate listings they’d like to view in person. These tools allow them to whittle away the details when purchasing a home before ever calling an agent (even though 88% of buyers purchase their home through a real estate professional).

There are so many apps and websites available, choosing which technology to use can be a challenge. That’s why we’ve done the research for you. Here are some great tools that can help you on your house-hunting expedition.

Find The Right Home For You

1. Home Scouting Report 
Home Scouting Report allows you to hunt for homes like a real estate agent. This app shows 100% of the MLS listings in our market. With its GPS technology you can search properties for sale wherever you are. View photos, detailed property information and school district info.

You can save your favorite properties and get instant status changes on those properties. Want a mortgage quote or to see the inside of the property? The LO or Agent is just a tap away. Download the mobile app for iOS or Android to receive notification on new listings and save your favorite homes.

2. Realtor.com
This site allows you to search for homes by school, district and neighborhood; see how many homes are for sale in the area; and see how many sold recently to gauge the activity in the market. You can also search around your desired neighborhood to learn about crime rates, the quality of the school district and more. Available for both iOS or Android.

3. Doorsteps Swipe
Doorsteps Swipe™ is an iOS app powered by Realtor.com. The app allows you to swipe right or left on photos of listings based on the criteria you’ve set. Swipe right if you like a home and swipe left if you don’t. The app may help you minimize or rethink your list of must haves for your ideal home.

Websites & Social Media

Your real estate professional’s website, blog and social media pages may provide a wealth of information about the agent and the homebuying process. If you don’t have a real estate agent you trust, we can connect you with agents in our network.

Social media pages of a neighborhood, school district or town in which you’re looking for a home can provide a wealth of information. Review the posts to get a feel for the community and its citizens to help you narrow down where you’d like to live.

Use Technology To Stay Organized

1. Evernote
Evernote is a note taking app that allows you to type and save notes, as well as clip images, to the review later. It also allows you to save emails, share notes and stay organized throughout your home search. The basic version of Evernote is free and compatible with iOS, Android and the web.

2. Simplenote
Simplenote is another free note-taking app available of iOS, Android, Linux and the web that syncs across all devices. Take notes and find them easily with tags you create yourself. Simplenote also makes it easy to find an earlier version of a note.

Plan Your Home Décor

1. Houzz & Pinterest
Houzz and Pinterest are popular web and mobile applications that provide inspiration for home projects large and small. If you’re just starting your home search, browsing Houzz can help you identify must-have features and offer ideas on the feasibility of home projects.

2. ColorSnap
Sherwin-Williams ColorSnap apps are free apps that will help you plan the overall color scheme of your new home. Preview paint colors, find coordinating shades and create custom colors for every room of the home you plan to purchase.

3. iHandy Carpenter
iHandy Carpenter is an app available on iOS and Android that features five measuring tools, including a ruler, bubble level, surface level, plumb bob and protractor to help you measure different parts of the home. The app costs $1.99.

Top 3 Gadgets To Add To Your Home Search

1. Digital Tape Measure
Measure the square footage of rooms, hallways and cupboards while on your search to ensure it fits your space requirements.

2. Digital Stud Finder
Whether you’re planning to renovate after you move or just want to add shelves, a digital stud finder located the framing studs for you.

3. Landscaping Software
Create the perfect landscape to enjoy year-round and boost curb appeal.

Technology can’t replace the knowledge and experience of a real estate professional. While an app may help you narrow down your list of potential homes, an agent will help you negotiate a great deal.

Related Articles

Making An Offer? Use Our Home Buyer Checklist First

*Disclaimer: This article is intended for educational purposes only. Citywide Home Loans does not provide any other service apart from lending. You should always consult with your legal, tax and financial advisors to determine which strategy is the most suitable for your specific circumstances.

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2018 US Economic Outlook

He’s back! Each January, Barry Habib, Founder and CEO of MBS Highway and mortgage & real estate market expert returns to unveil his economic outlook for the year.

Barry’s newest economic outlook explains what dynamics are in place for 2018, where the stock and bond markets are headed, the future direction of interest rates and housing, and how the new composition of the Fed will affect the markets.

2018 Economic Outlook Dynamics

  • Possible stock market pullback – How would this effect housing and rates? Housing will have a bit of a headwind. If people start to see their stocks investments dwindle some they’re less like to make big investments.
  • The new look of the Fed – Fed officials have expressed a range of views about the frequency of rate hikes in 2018 – with opinions ranging from 2-4 hikes. They are also scheduled to further unwind their balance sheet. How will this impact mortgage rates?
  • Rates are set to rise in year ahead – How much and what will the impact be?
  • Housing & Tax Reform – Can housing continues its impressive run and will tax reform be a drag?

Key Areas To Consider This Year

1. Stocks

Stocks appear toppy and a bit vulnerable. We’re entering 2018 with extremely high investor optimism, in fact the US is at a 30-year high in optimism. This is often a dangerous sign.

We’re in the most expensive stock market on a price of a stock to sales on the S&P ratio ever. The last time we saw a run this high was in 2000. While he’s not saying we’ll will experience the same type of downturn we did then, it’s something to be concerned about and we could see a cooling off period.

As we begin the new year, we have seen over a 100-month consecutive expansion without a recession. The current market cycle, started back in early 2009, is the 3rd longest expansionary stretch in history. The current market cycle started back in early 2009 and has been chugging along for over 8 years. (the first was 120 months ending in early 2000’s), so we may begin to see a slowing in this cycle.

Barry’s Prediction: There will be a significant stock market pullback during 2018 after such a big 2017.

2. The Fed: Changing Of The Guard

With a new sheriff in town and all the appointments that need to be made, this will be a very different Fed than we saw in 2017. Jerome Powell will succeed Janet Yellen as the new Fed Chairman when she steps down on February 3rd. Powell, viewed as a centralist, is expected to follow Yellen’s cautious approach to interest rates.

Trump may need to appoint up to 4 Fed Governors in 2018, including replacing Vice Chairman Stanley Fischer and NY Fed President, William Dudley. Also out are two of the monetary doves Neel Kashkari and Charles Evans.

The bigger impact to rates, however, will come from the unwinding of the Fed’s balance sheet. Last October they began to reduce their reinvestment of mortgage bonds by $4 billion/month. (Prior to that they were buying back $25 billion in mortgage bonds, and even more than that in treasuries.) They’ve been very active in bond market to keep yields lows. This month they’re doubling their curtailment to $8 billion, buying back $17 billion in bonds. Each quarter will see another $4 billion reduction – ending the year at a $5 billion buy back.

Without the Fed in the market to keep up that buying could make for an interesting 2018. The purchase of mortgage bonds needs to replaced somewhere, the question is, how much do rates need to move up to entice that? That’s the biggest reasons Barry thinks rates will move up slightly in 2018.

Barry’s Prediction: If we see a stock market pullback we expect 1-2 hikes. Probably with the first in March and the second in September. There may be another one in December, but unless Trump appoints a very hawkish Fed, we probably won’t see it.

3. Rates

The main driver of rates, inflation, should remain tame as the Fed won’t be as active. Rates will move higher, but not by too much.

As we discussed in the last section, the Fed reinvesting less in mortgage bonds less will be the main reason for an increase in rates.

On the opposite side, since both stocks and bonds compete for the same investment dollar, a pullback in the stock market could help rates.

Barry’s Prediction: The 10-year Treasury Note Yield will trade between 2.18% and 2.64% for most of the year. Mortgage rates will move .375% higher on average.

4. Housing

We closed out 2017 with incredible numbers both on new construction and existing and this is a market has an incredible amount of momentum and strength going forward. Some of the drivers are:

  • Low Inventory
  • Rents rising at 4% per year
  • A modest move higher in rates won’t derail housing market
  • Demand remains strong

Although tax reform did reduce the deductibility of a mortgage from $1 million to $750,000, that will hurt more on the high end. Since the standard deduction has been doubled, there’s a bit less of an inventing to buy to get the deduction, which makes renting more attractive from a tax perspective.

Barry’s Prediction: 4.5% – 5.5% Appreciation (U.S. Average)

 

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Thinking About Downsizing Your Home? Consider These 6 Factors

It’s only natural to think moving up in life also means buying a bigger home. But it’s not always the case! In reality there are plenty of amazing benefits to downsizing and moving to a smaller home. The majority of American families have lots of room to downsize their home without selling themselves short.

Let’s take a look at the numbers: according to National Association of Realtors, the average new single-family home is about 2,300 square feet. In 1950, however, most new homes were under was 1,000 square feet—and most families were larger in those days!

There are several upsides to downsizing. Today we’ll be your guide as you think about whether downsizing is the right move for you.

Reduce Debt

As you approach retirement, it becomes more and more important to pay off your debts. You can reduce your debt load and have more fun instead of being limited by your house.

Ideally, your debt-to-asset ratio would be at zero as retirement looms. The goal is to eliminate debt and have your mortgage paid off. It’s all about minimizing your monthly obligations, and downsizing to a smaller home is a great way to do just that.

Reduce Your Maintenance

Downsizing to a smaller house means less maintenance and upkeep for many homeowners. Take a look around your home and note all the money and time you spend on maintenance alone. What are your electricity costs like? Which parts of your home need repairs or upgrades in order to run most efficiently? How long does it take to mow your lawn (or how much do you pay to have someone else cut it)?

Many of these expenses can be reduced or eliminated by downsizing your home.

Invest The Proceeds

Another possibility is to purchase a smaller home with the sale proceeds of your current home, eliminate debt, and then put the leftover funds into an investment account.

Or, you might take your sale proceeds and put them toward a renovation of your new home.

Whatever plan you devise should take into consideration what’s most important to you. It’s perfectly okay to create a strategy that makes the most sense for you and your family.

Increase Your Income

Downsizing can feel like you just got a raise! Your reduced expenses will free up income to help pay property taxes, insurance, upkeep, and utility bills. Living off the additional cash flow can even help you put off using Social Security benefits as a source of your income.

Let’s say you sell your current home and make a profit of $500,000. If you then downsize and purchase a $300,000 home with the cash and you’re mortgage-free. Don’t forget you’ll still have property taxes and insurance to plan for, as long as you own the home.

Prioritize Your Goals

When you have the extra cash in hand from selling your home, it’s not the time to be impulsive! Instead, be sure to identify your financial goals, set priorities – and stick to them. When you have a solid plan in place you’ll be more likely to make good decisions along the way.

Don’t Forget About The Capital-Gains Tax

Particularly if you’ve lived in your home for a significant amount of time in a high-cost housing market, a large portion of your equity could go to federal and state capital-gains taxes.

Remember that you can exclude up to $500,000 of profit from the sale of your home if you’re married filing jointly, or $250,000 if you’re single. Your profit is the sale price of your home minus selling expenses and its tax basis. In other words, it’s what you paid for your home originally plus the cost of any improvements you made. If you estimate that you’ll have more than $500,000 in profit, consult your records of home improvements.

Downsizing Might Be The Best Option For You

Although downsizing your home might not make sense in every situation, it’s always worth looking into if saving money and simplifying life are valuable to you. If you’re not sure where to start, ask an experienced real estate agent to help you figure out what your current home is worth and explain your options for reducing costs. The right real estate agent will be familiar with what it takes to get a great price for your current home and negotiate the very best deal on your new one.

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