Financially Stretched

Despite gains in employment, the Conference Board Consumer Confidence Index indicates that consumer confidence has fallen in the fourth quarter, as the index dropped from 99.1 in October to 90.4 in November. The Conference Board cited less favorable views of the job market and declining positivity regarding business conditions as reasons for the fall.

“It comes down to personal economy,” Guzmán said. “If folks feel like they have the sustainability in their personal economy to move forward with this major purchase, they’re going to do it regardless of what’s happening outside. Seventy percent or 75 percent of the public believes that buying a home is still part of their American dream and a goal that they want to achieve.”

Many Americans continue to suffer from the aftershocks of the 2007-2009 recession. The Pew Charitable Trust recently surveyed nearly 8,000 people and found that earnings have remained mostly stagnant, while the rate of savings is very low. Pew found that 1 out of 3 families reports having no savings at all, including one in 10 individuals with annual incomes of more than $100,000.

According to the Confidence Board’s Nov. 2015 Consumer Confidence Survey, consumers aren’t particularly optimistic heading into 2016: the number of respondents expecting business conditions to improve in the next six months fell from 18.1 percent the previous month to 14.8 percent, and the number of respondents expecting fewer jobs to be available over the next six months increased from 16.6 percent to 18.7 percent.

Introducing TRID

More than three months have passed since the TILA-RESPA Integrated Disclosure (TRID) guidelines were implemented, and so far fallout appears to be minimal. Mortgage applications have held fairly steady through December, with slight increases and decreases from week to week, according to the Mortgage Bankers Association. Applications decreased 1.1 percent in the week ending Dec. 11, after gaining 1.4 percent for the week ending Dec. 4.

“The good thing about TRID is we had such good information before it went into effect, that I haven’t experienced any delays or repercussions from it yet in the market,” Alonzo said. “I don’t know what’s going to happen in the spring market, when it gets a little busier, but right now most lenders were prepared for the change and had the systems in place for it. The agents were educated on how it would work, so they understand the time factors now.”

Lenders have eased credit standards in the fourth quarter, continuing a trend from earlier in the year and with the expectation that easing will carry over into 2016, according to Fannie Mae’s fourth quarter Mortgage Lender Sentiment Survey. Conducted in November, the survey found that 14 percent of lending partners expect to ease credit standards for government-sponsored enterprise loans and 9 percent think standards will ease for government loans over the next three months. The percentage of lenders reporting higher purchase demand expectations has fallen since the beginning of the fourth quarter, while remaining higher than at the end of 2014. They had also decreased by 3.2 percent for the week ending Nov. 20 after increasing 6.2 percent the previous week.

The 0.25 percent bump in the federal funds rate announced Dec. 16, 2015 may spur more activity on the market as the long period of nearly 0 percent interest on borrowing that began in Dec. 2008 comes to an end. While rate increases could keep some marginal buyers out of the market, it should have a positive effect by making people realize that 0 percent interest rates won’t last forever, as Guzmán pointed out.

“Generally, what happens historically is it goes up and people realize they need to make a decision and get into the market,” Guzmán said. “People start losing purchasing power, anywhere between 7.5 to 10 percent for every 1 percent increase in the rate.”
Geoff Smith, executive director of the Institute for Housing Studies at DePaul, agreed, though he cautioned that rapid rate hikes could damage the market.

“If you have interest rates for new purchases go up too quickly, the people who have these really great interest rates and really low mortgage payments – if they sell and buy a new home and they have to get a mortgage for that new home – are looking at having to get a higher interest mortgage and having a higher payment,” Smith said. “If interest rates go up quickly, you might see people delaying the decision to buy a new home because they don’t want to take on those new housing costs.”