Welcome to Year 17 of My Newsletter

Wow!  Where has the time gone?  My goal has always been to help educate people about real estate and finance.  My goal was a little self-serving.  I’ve always believed that the better my client’s knowledge of the process, the smoother the transaction I’d have with them.  That simple goal has turned into helping write the Hawaii State exam for mortgage professionals, being asked to testify at the legislature, being an expert witness in court cases, and guest lecturing at UH’s business school.

 

Today, the feedback I get from you, the readers, is by far the greatest motivation to publish weekly.  I received the following email recently:

 

Aloha Alan,

 

Once again, I must express how much I appreciate reading your newsletters.

First, they are succinct but comprehensive enough to support key points made.  Most busy business professionals do not have time to research and verify what we hear and read daily.  We need reliable sources that provide executive level summaries or one-pagers of key points.  Staying informed is one of the keys to prudent decision making.

Second, elaborating on your key points — they may read as an editorial sometimes, but you ALWAYS support your points with verifiable evidence and data.  They never read as political viewpoints or biased messaging. 

There’s more, and Third, your information comes from a place of (1) expertise/experience — self-explanatory; (2) integrity — you’re licensed, therefore adhere to professional standards; and (3) trust/reliability — I have always benefited from the information you published, and I have made many relevant and related informed decisions that have benefited me and my family.

Okay, one more — you continue to publish these newsletters without charge.  That says a lot to me.

In closing, a mere Thank You does not seem sufficient.  But thank you, Alan.  Your newsletters continue to save me a lot of time reading each week, and it has become my regular go-to source.

 

Best regards and Mahalo.

 

If there ever was a motivating factor to keep me going, notes like this are surely it.  I want to thank Tommy, and all those that have sent notes of appreciation.

 

I promise to continue my original goal of educating the public.  And not just topics such as tips for a smooth refinance, but articles when our politicians do things that will impact home ownership.  This is especially true as we see the glacial speed of Lahaina’s recovery.  These next 12 months will have lots for us to talk about.  The Fed’s imminent rate cuts, the Presidential election, and an economy teetering on recession.

 

Again, thank you for all the wonderful notes and feedback.  You can always reach me through my personal email address:  alan@hawaiimortgage.net.

 

 

Do We Need Government Incentives to Sell More Homes?

In 2009 after the housing market collapsed, President Obama signed into law an $8,000 tax credit to first time home buyers.  The goal was to help the ailing housing market that had a glut of homes available, but no one was buying them.

 

To give you a quick recap of what things were like just after the crash; there were approximately 4.3 million new homes available for sale, banks were tight on the money they could lend, qualifications for lending were tightened, home values had dropped an average of 25% (50% in some areas), and people were fearful buying in a time of uncertainty.  The housing market was in free-fall.

 

The program was available for roughly a two-year period until the housing market stabilized.  The goal was to get more people into homes and stabilize the housing market.  Was the program a success?  I don’t believe it was, but don’t take my word alone.  The University of Illinois Chicago’s John Marshall Law Review did a deep dive into whether the program was successful or not.  I have no idea what political leanings this review has, but here is what they concluded:

 

In 2008, faced with a looming real estate crisis, Congress hastily acted to stabilize the economy by offering a first-time home buyer credit.  This tax credit was trumpeted as a solution to the excess inventory of homes for sale and to stop the free-fall in home values.  The credit, however, failed to deliver on its promises.  By analyzing the first-time home buyer credit, its creation, its implementation and its economic impact, this Article concludes that, when compared to alternative policy solutions, Congress erred in using the tax code to implement a first-time home buyer credit.

In evaluating possible alternatives, Congress should have forgone the first-time home buyer credit and instead funded the administration of a subprime mortgage modification program.  If Congress had designated an independent administrator of the $300 billion for subprime loan modification under the HERA Act, many foreclosures could perhaps have been avoided.  Rather than relying on banks and private lenders to modify their own loans, such a program would have created an independent and more effective loan modification weapon.  Given the high cost of foreclosures, their avoidance would have been a better long-term recovery policy.

 

If you’d like to read the full report, here’s the link:

 

https://repository.law.uic.edu/cgi/viewcontent.cgi?article=1025&context=lawreview

 

 

 

Why am I sharing history with you this weekend?  Because one of the candidates running for President in 2024 is promising a $25,000 grant for first time home buyers.

 

While our housing market is in trouble, it is very different from 2009.  Today, we have approximately 700,000 new homes for sale, and less than 150,000 are completed and ready to close.  Unlike 2009, home prices continue to rise.  Why?  Because of the laws of supply and demand.  There are too few homes available with too many people chasing them.  That’s forcing values to rise.  Not only are builders slow in building new homes, but the usual supply of homes from those selling to trade up or down, is also severely diminished.

 

Do we need to add more buyers to a market already out of balance?  Many economists have warned that this incentive will only drive home prices higher.  A great example of this is student financial aid.  In a Sept. 1^st Forbes article that was actually in favor of Vice President Harris’ $25,000 proposal, they also drew a comparison to college financial aid, and what that program has done to fuel the rise in college tuition.  They concluded:

 

In theory, the concern [of Harris’ proposal] isn’t completely off-base.  In 2015, according to a Federal Reserve Bank of New York study, schools heavily dependent on students who benefited from the effects of increases in federal aid caps raised tuition by about 65 cents for each additional dollar in financial aid that Congress made available to students.

 

I’m not advocating you vote one way or another.  I’m just calling balls and strikes honestly.  The $25,000 grant is a gimmick and will only exacerbate an already unhealthy housing market.  Not until rates drop further will home builders build more homes, and those wishing to sell will list their home for sale.  Those actions will increase inventories of homes available for sale.  We need to increase supply, not demand.  So long as there’s more buyers than sellers, home prices will continue to rise.

 

 

And now the week’s economic news…….

 

Job Gains Fall Short

The highly anticipated labor market data released this week was weaker than expected overall, while the other major economic reports were mixed.   As a result, mortgage rates declined a little to the lowest levels of the year.

 

The economy added just 142,000 jobs in August, below the consensus forecast of 160,000, and the results for prior months were revised lower by 86,000.  The largest gains were seen in the healthcare, construction, and social assistance sectors.  The unemployment rate fell from 4.3% to 4.2%, as expected.  Average hourly earnings were 3.8% higher than a year ago, slightly above the consensus forecast.

 

The JOLTS (job openings and labor turnover rates) data released Wednesday also suggested looser conditions in the labor market.  At the end of July, there were 7.7 million job openings, far below the consensus forecast of 8.1 million and the lowest level since January 2021.  This equates to less than 1.1 openings for each available worker, down from a peak of over 2.0 in early 2022, and in line with the levels seen prior to the pandemic.  A lower number of openings suggests that companies face less pressure to raise wages to hire enough workers, which was favorable news for mortgage rates.

 

Two other significant economic reports released this week by the Institute of Supply Management revealed mixed results.  The ISM national services sector index rose to 51.4, while the national manufacturing index was just 47.2.  Since readings above 50 indicate an expansion in the sector and below 50 a contraction, these reports demonstrate that service companies have continued to outperform manufacturers over the last couple of years.

 

 

 

Next Week

Investors will continue to look for Fed officials to elaborate on their plans for future monetary policy.  For economic reports, the main event will be CPI on Wednesday.  The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.  The Producer Price Index (PPI), another inflation indicator, will come out on Thursday.  The next European Central Bank Meeting also will take place on Thursday.  The next US Fed meeting will be on September 18.

 

 

 

Until next week….