Tuesday, November 29, 2016

GDP Growth, Consumer Confidence Soar

Financial FAQs

The economy grew at the fastest pace in over two years in the third quarter, as consumers, business investment and government increased spending.

Gross domestic product expanded at a 3.2 percent annual rate in the Commerce Department’s second reading, released Tuesday. That’s the strongest pace since the second quarter of 2014. It beat the consensus estimate of a 3.1 percent growth rate among economists surveyed, reports MarketWatch.



Consumer spending rose 2.8 percent in the quarter, stronger than the original estimate of 2.1 percent and the strongest pace since 2002. Another big contribution to the economy was business investment in structures like offices and factories, which expanded at 10.1 percent, faster than the initial estimate of a 5.4 percent.



This is huge, needless to say, as corporate profits also soared 6.6 percent in the third quarter, the main reason corporations were able to increase business investment in plants and equipment, a much better performance than the 0.6 percent decline in the second.

And, consumer confidence is soaring because we are so close to full employment, which Friday’s unemployment should confirm. But rising confidence could also be due to the Trump promise of more economic stimulus, as consumer confidence rose sharply following the November 8 election, up 6.3 points to 107.1 for by far the best reading of the cycle, since July 2007. November's current conditions component is up 7.2 points to 130.3 and is led by strong gains in the assessment of business conditions and those saying jobs are plentiful.


 All-in-all, it could mean an even stronger GDP in Q4. But inflation as measured by the GDP Price Index is up just 1.4 percent, still below the Fed’s target inflation goal of 2 percent, as are all of the other inflation indexes, except the CPI.

But the Fed will still probably raise their interest rates in December, if Friday’s unemployment report continues to look strong, which means a 4.9 percent unemployment rate or better and more workers continue to enter the labor force.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Monday, November 28, 2016

Conforming Mortgage Limits Rise for 2017

Financial FAQs

The Federal Housing Finance Authority, or FHFA, just announced it is increasing the limit for conforming mortgages from $417,000 to $424,100 in most regions of the United States starting Jan. 1, 2017—the first such increase since 2006.

The approximately 1.7 percent bump in the baseline conforming loan limit follows the FHFA’s announcement that  the average U.S. home price has returned to its pre-decline peak, which it hit in the third quarter of 2007. The FHFA bases the loan cap on its quarterly Housing Price Index, which gauges average single-family home prices. The index rose 1.5 percent during the third quarter of 2016 and is up 6.1 percent over the past year, enough to push it above its previous high point.



The FHFA is the supervising entity of conforming loans guaranteed by Fannie Mae and Freddie Mac.
FHFA house price index eased slightly in September and was up 0.6 percent after increasing 0.7 percent in August. On the year, the FHFA index surged to plus 6.1 percent, down from August's gain of 6.4 percent. In the third quarter, house prices were up 1.5 percent and were 6.1 percent higher than the third quarter in 2015. 

Eight of nine census divisions posted monthly gains in September ranging from plus 1.3 percent in the in the Pacific with the Northeast declining 0.2 percent. On the year, the Pacific region was up 8.1 percent with New England in the rear at 2.9 percent.

Conforming loan limits are significant because they apply to home loans that meet the underwriting guidelines of Fannie Mae or Freddie Mac, the government-sponsored entities that acquire mortgages from lenders and ensure a steady flow of money to the mortgage market.
Interest rates for nonconforming, or jumbo mortgages, are generally higher than rates for loans that fall under the cap, and these types of mortgages can be more difficult to obtain.
“Today’s conforming loan limit increase is a much-needed recognition of rising home prices in high-cost markets, and a help to first-time and lower-income borrowers looking to utilize an FHA mortgage,” said NAR President William E. Brown. “Credit remains tight, but this decision will help more qualified buyers address the hurdles and high costs standing between them and the dream of homeownership.”
Conforming loan limits are higher than the baseline cap in parts of the country where home prices are especially high, but cannot be more than 150 percent of the baseline limit—$636,150 for 2017—for the contiguous U.S. Exceptions are established for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where loan limits in specific locations may exceed that amount.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Friday, November 25, 2016

Conforming Mortgage Limits Rise for 2017

Financial FAQs

The Federal Housing Finance Authority, or FHFA, just announced it is increasing the limit for conforming mortgages from $417,000 to $424,100 in most regions of the United States starting Jan. 1, 2017—the first such increase since 2006.

This has to help home sales, as conforming fixed rates guaranteed by Fannie Mae and Freddie Mac are the lowest fixed rates, so raising the conforming limit for that rate will allow more home buyers to afford a home.


And this is while total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.0 percent to a seasonally adjusted annual rate of 5.60 million in October from an upwardly revised 5.49 million in September. October's sales pace is 5.9 percent above a year ago (5.29 million) and surpasses June's pace (5.57 million) as the highest since February 2007 (5.79 million).    

The approximately 1.7 percent bump in the baseline conforming loan limit follows the FHFA’s announcement that  the average U.S. home price has returned to its pre-decline peak, which it hit in the third quarter of 2007. The FHFA bases the loan cap on its quarterly Housing Price Index, which gauges average single-family home prices. The index rose 1.5 percent during the third quarter of 2016 and is up 6.1 percent over the past year, enough to push it above its previous high point.



The FHFA is the supervising entity of conforming loans guaranteed by Fannie Mae and Freddie Mac.
FHFA house price index eased slightly in September and was up 0.6 percent after increasing 0.7 percent in August. On the year, the FHFA index surged to plus 6.1 percent, down from August's gain of 6.4 percent. In the third quarter, house prices were up 1.5 percent and were 6.1 percent higher than the third quarter in 2015. 

Eight of nine census divisions posted monthly gains in September ranging from plus 1.3 percent in the in the Pacific with the Northeast declining 0.2 percent. On the year, the Pacific region was up 8.1 percent with New England in the rear at 2.9 percent.

Conforming loan limits are significant because they apply to home loans that meet the underwriting guidelines of Fannie Mae or Freddie Mac, the government-sponsored entities that acquire mortgages from lenders and ensure a steady flow of money to the mortgage market.

Interest rates for nonconforming, or jumbo mortgages, are generally higher than rates for loans that fall under the cap, and these types of mortgages can be more difficult to obtain.
“Today’s conforming loan limit increase is a much-needed recognition of rising home prices in high-cost markets, and a help to first-time and lower-income borrowers looking to utilize an FHA mortgage,” said NAR President William E. Brown. “Credit remains tight, but this decision will help more qualified buyers address the hurdles and high costs standing between them and the dream of homeownership.”
Conforming loan limits are higher than the baseline cap in parts of the country where home prices are especially high, but cannot be more than 150 percent of the baseline limit—$636,150 for 2017—for the contiguous U.S. Exceptions are established for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where loan limits in specific locations may exceed that amount.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Wednesday, November 23, 2016

The Real Donald Trump—Part II

Popular Economics Weekly

President-elect Donald Trump is about to move into the White House. This is the man who has become a case-study and text book model of Narcissism for Psychotherapists. Narcissistic personality disorder (NPD) as defined by Wikipedia, ‘is a long-term pattern of abnormal behavior characterized by exaggerated feelings of self-importance, an excessive need for admiration, and a lack of understanding of others' feelings.”


 Or, a Narcissist can also be defined as one who has to believe he cannot do wrong, cannot admit he has ever been wrong or apologized for any of his failings. So it could be helpful to understand President-elect Trump’s failings, in order to understand and perhaps influence (as President Obama says he wants to attempt), just how he might behave as ‘our’ next President.
In fact, that is why Trump doubles down on any who would question him, accusing the accuser of the same misdeeds. Maria Konnikova implied that Trump was a classic Con Artist in her now famous New Yorker article: “A grifter takes advantage of a person’s confidence for his own specific ends—ends that are often unknowable to the victim and unrelated to the business at hand. He willfully deceives a mark into handing over his trust under false pretenses. He has a plan.”
That has to be why Trump maintained during the campaign that he would convene a special prosecutor to prosecute and jail Hillary Clinton for her “crimes”, when in fact Trump himself has been prosecuted for outright criminal behavior, such as the three Trump University lawsuits that he had to settle. Whereas, Hillary was cleared of all criminal charges for use of a private email server by FBI Director Comey.  We need need not compare their Trusts, as the Trump Family Foundation has just admitted to the IRS that it was ‘self-serving”, meaning it it broke IRS regulations that govern a foundation.

Or, he accused President Obama of not being born in the US for six years, in the face of overwhelming evidence to the contrary. Was Trump being stupid? No, he was currying favor with the birther movement to gain their support; mainly white male, racist Tea Partiers still fighting the Civil War who wanted to cast doubt on Obama’s legitimacy as the first African American President.
“What ultimately sets con artists apart is their intent,” says Konnikova. “To figure out if someone is a con artist, one needs to ask two questions. First, is their deception knowing, malicious, and directed, ultimately, toward their own personal gain? Second, is the con a means to an end unrelated to the substance of the scheme itself?”
It is the classic definition of a con game. Distract from the actual behavior by misdirecting our attention elsewhere—preferably to something even more sensational. Mitt Romney, Senators Marco Rubio, Ted Cruz and many others have called him a classic con-man.

But no one seems to be asking why he has had to perpetuate so many cons, broken so many contracts, filed multiple bankruptcies, and been involved in so many lawsuits—some 4,000 at last count—on his way to become the celebrity billionaire? The toll on supporters—even his family—must be devastating to maintain that image of success with overwhelming evidence to the contrary.
A major reason has to be his very short attention span. Tony Schwartz, ghost writer of Trump’s “The Art of The Deal”, has described him best: “Trump has been written about a thousand ways from Sunday, but this fundamental aspect of who he is doesn’t seem to be fully understood,” Schwartz told Jane Mayer, author of a New Yorker article. “It’s implicit in a lot of what people write, but it’s never explicit—or, at least, I haven’t seen it. And that is that it’s impossible to keep him focussed on any topic, other than his own self-aggrandizement, for more than a few minutes, and even then . . . If he had to be briefed on a crisis in the Situation Room, it’s impossible to imagine him paying attention over a long period of time,” said Schwartz
Trump in fact may only be able to focus on what is in front of him at the moment, hence his need for advisors more capable than he to pay attention, to analyze and make intelligent decisions. It has to be why he has lost so much money in his various ventures (such as the Trump Casinos), stiffed so many investors, walked away from so many debts, so that all the major banks now shun him.

We can now know the reason for his admiration of Vladimir Putin, for instance, who Trump has been trying to cultivate since his 1980 Miss Universe contest held in Moscow. It was really an attempt to buy a Moscow hotel. He has had to turn to Russian oligarchs and Mafia figures in order to fund many of his real estate ventures. How’s that for a classic conflict-of-interest as President?

So the question: if once a con-artist, always a con-artist? He’s 70 years old, and one doesn’t change their behavior at that age. But can he use such talents for the good of US, as he has promised; or once again, for his own self-aggrandizement and wealth?

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Tuesday, November 22, 2016

Housing Starts, Home Sales 'Yuge'

The Mortgage Corner

Housing starts surged 25.5 percent in October to a 1.323 million annualized rate. This is the best rate of the cycle since August 2007 with the monthly percentage gain the strongest since 1982, says Econoday. It and other recent good news, such as much higher retail sales, could mean something like a 4 percent GDP growth rate in Q4 this year.

But we still have a housing shortage. The jump reflects a 10.7 percent rise to an 869,000 rate for the report's key component, single-family homes which follows an 8.4 percent surge in September. And multi-family homes snapped back from September's odd 39 percent decline, rising 69 percent in October to a 454,000 rate, which should mitigate surging rental prices.


Actual sales of new homes have also been trending higher all year and would be higher still if not for the lack of supply. The surge in mortgage rates which jumped 18 basis points in the November 11 week to 3.95 percent (for conforming loans $417,500 or less) could begin to restrict sales, however. New home sales for October, which will not have been affected by November's jump in mortgage rates, will be one of the coming week's highlights (released Wednesday, November 23).


This is while October existing home sales jumped 2.0 percent to an annualized rate of 5.6 million. September's sales were revised slightly higher to an annualized rate of 5.490 million from 5.470 million. On the year, sales were up 5.9 percent from the same month a year ago. October sales were the highest since February 2007, which could be due to buyers rushing in ahead of a well-publicized, possible Federal Reserve decision to raise short-term rates in December.

So how can we mitigate the shortage of available workers and land that is holding back home sales? NAR chief economist Lawrence Yun mused in a recent Forbes article how the Donald Trump Presidency might affect housing over the next 4 years..
“There could be less regulatory land-use and zoning burden for home construction, and thereby lower the cost of building,” says Dr. Yun. “In recent years, newly constructed home prices have been much higher than existing home prices. Homebuilders say that is due to all the extra cost of regulation and not necessarily from higher input cost of lumber, cement, and worker wages.”
And, mortgage standards are too strict, which is restricting first-time homebuyers, in particular that used to be 40 percent of existing-home sales. So Fannie Mae and Freddie Mac, the main guarantors for conventional mortgages, should continue to be supported in some way.
“Washington’s instinct is to eliminate Fannie and Freddie because of their past sins from past managers,” says Yun, “then mortgages will be much more expensive with 30-year fixed rate products disappearing from the market place. We should view supporting Fannie and Freddie in the same way as we view supporting FDIC deposit government guarantee at banks – to help smooth the financial market.”
“Multifamily production bounced back after an unusually weak reading last month while single-family starts exhibited unusually strong growth as well,” said NAHB Chief Economist Robert Dietz. “Though October’s single- and multifamily production rates are clearly unsustainable, we expect continued growth in the housing sector in the months ahead.”
But home supply was down 0.5 percent to 2.02 million or a 4.3 month’s supply in October. We are still not building enough homes, in other words, which is why housing prices continue to rise faster than inflation, and there are fewer affordable, entry-level homes.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Friday, November 18, 2016

Record Retail Sales, Higher Growth Ahead?

Financial FAQs

It looks like Q4 GDP could be higher than the Third Quarter’s initial estimate of 2.9 percent growth. That’s because retail sales and wholesale inventories, both major contributors to growth, are surging.
Retail sales jumped 0.8 percent in October with September revised 4 tenths higher to plus 1.0 percent. The consumer started the fourth-quarter better than expected and finished the third-quarter even stronger than that, according to BEA’s revision.



The data show wide gains for both months led by the most important component of all, autos which rose 1.1 percent in October on top of September's 1.9 percent surge. Building materials & garden equipment are also very strong, up 1.1 percent following September's 1.8 percent gain with both pointing to strength for residential investment. Non-store retailers are also a standout and reflect strength in e-commerce, up 1.5 percent and up 0.9 percent in the two months.



And manufacturing activity was also strong, Year-on-year, all vehicle production is up a very solid 5.0 percent and eclipsed only by the 6.7 percent gain for the selected hi-tech component which rose 1.0 percent in October to extend its run of impressive gains, according to Econoday. Another positive is a 0.2 percent gain for business equipment which has otherwise been weak most of the year.

Midwest manufacturing is also doing better. Kansas City Federal Reserve manufacturing activity report said, “This was the second consecutive month of rising factory activity in the Tenth District, the first time that has happened in nearly two years,” according to Kansas Fed chief economist Chad Wilkerson.

But what will happen with rising interest rates and a stronger dollar? Long term bond rates have jumped almost 1 percent since P-Elect Trump announced his very ambitious infrastructure upgrades, but which Fed Chair Yellen threw some cold water on yesterday in congressional testimony. She asked, Where will the workers come from to build it when we are already at full employment?

Another economic indicator reported the U.S. is growing at a moderate pace and is likely to do so through early 2017, according to the Conference Board’s Index of Leading Economic Indicators (LEI). The LEI is an index that measures the nation’s future economic health. It rose 0.1 percent in November after a 0.2 percent gain in the prior month, the Conference Board said Friday.

“Although its six-month growth rate has moderated, the index still suggests that the economy will continue expanding into early 2017,” said Ataman Ozyildirim, economist at the board. Its measure of current economic conditions rose 0.1 percent, the “lagging” index of past activity increased 0.2 percent, meaning current activity has slowed.

We therefore believe that Q4 will shape up to have perhaps 3 percent plus GDP growth. Will this extend into next year? It depends on how extensive and expensive will be the Trump infrastructure plans, because it will certainly boost long term rates and inflation.

But rising interest rates and higher inflation are actually signs of higher economic growth.  Fed Chair Yellen seemed to remain cautious about the need to boost Federal Reserve short term rates in her latest congressional testimony, even though higher inflation and growth seem inevitable.

Harlan Green © 2016
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, November 17, 2016

Will Prez-Elect Trump Now Settle His Federal Racketeering Charges?

Popular Economics Weekly

Donald Trump, among his many court battles, has three civil lawsuits that accuse him, his eponymous school, the university’s former president, and an LLC behind the venture of fraud, breach of contract, false advertising and racketeering, a pattern of illegal activity — specifically mail and wire fraud — designed to defraud the public.

Judge Gonzalo Curiel, the U.S. judge overseeing two of the lawsuits against President-elect Donald Trump and his Trump University told both sides they would be wise to settle the case "given all else that's involved," reports Reuters.

Given that he is now President-elect, some are wondering why he doesn’t settle before the November 28 trial, which would reveal in detail that Trump University was a shell game—literally. It was a university in name only that didn’t confer degrees, for example, and Donald Trump is accused of running a criminal organization under RICO, The Federal Racketeer Influenced and Corrupt Organizations Act.

The latest development from a source familiar with the discussions says the White House-bound mogul’s legal team wants a global settlement that would end all three complaints, including a lawsuit brought by New York Attorney General Eric Schneiderman, according to the New York Daily News.

But “We are not going to settle this case out cheaply,” Patrick Coughlin, an attorney for the plaintiffs, told reporters last Thursday. So Trump’s allegedly fraudulent behavior could seriously damage his pocketbook, as well as he reputation.

The Trump University fraud trials have a 6-year history. Lawyers for the president-elect are squaring off against students who claim they were lured by false promises to pay up to $35,000 to learn Trump's real estate investing "secrets" from his "hand-picked" instructors. 

Instead, they were lured into maximizing their credit cards in what was characterized as a classic Bait and Switch scheme. Instead of professional courses in real estate investing that were personally supervised by Donald Trump, they were handed materials copied from other courses, and taught by instructors with no record of success, or any other qualifications.

And Donald Trump walked away with $millions. The underlying civil lawsuit names Trump as a defendant and claims his now-defunct Trump University defrauded students out of $40 million in course fees. The case was first filed in 2010 and covers a class of some 7,600 students in New York, Florida and California–that included veterans, retired police officers and teachers–but Trump personally received approximately $5 million of it, despite his claim, repeated in the Time Magazine interview, “that he started Trump University as a charitable venture.”

So Trump has good reason to fear the lawsuits over Trump University: They put a lie to a central plank of his campaign. The disappointed students suing him argue that Trump is not a wildly successful entrepreneur or a canny dealmaker but rather a fraudster who made promises he couldn't keep, said Time Magazine. The legal proceedings have already revealed the details of the Trump University scam. Thanks to an order from Curiel, they could also reveal a closely guarded secret: Trump's net worth.


And now President-elect Trump is asking for Top-Secret clearances for his two sons and son-in-law Jared Kushner, who are being tasked to run his more than 200 business connections. No conflict of interest there? And when President, he will be in a position to appoint the next IRS Director, while his tax returns are being audited.

USA TODAY reports the overall ugly picture of his business practices that emerges goes far beyond Trump’s use of bankruptcy court, where debts can be forgiven or restructured depending on their category and type of federal bankruptcy filing. What’s most provocative about USA Today’s reporting, is how Trump has a longstanding pattern of ignoring his bills and walking away from debts owed contractors and employees.
“At least 60 lawsuits, along with hundreds of liens, judgments and other government filings reviewed by the USA Today Network, document people who have accused Trump and his businesses of failing to pay them for their work,” the newspaper wrote recently. “Among them: a dishwasher in Florida. A glass company in New Jersey. A carpet company. A plumber. Painters. Forty-eight waiters. Dozens of bartenders and other hourly workers at his resorts and clubs, coast to coast. Real estate brokers who sold his properties. And, ironically, several law firms that once represented him in these suits and others.”
It’s almost two weeks before his trial on the RICO charges is scheduled to begin on November 28. Trump probably will attempt to stall it into his Presidency, though Judge Curiel has said he is not inclined to do so. So we will get to see in more detail the sordid portrait of this man that some 60 million have elected to be our next President, or we may not, if he agrees to a settlement before then.
Either way, we hope it provides some justice to the 7,600 plaintiffs—many of whom lost valuable life savings—in chasing his con game.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen