Bipartisanship was the theme throughout President Donald Trump’s State of the Union address on Tuesday. Touching upon some of the key factors that have propelled the U.S. economy such as a tight jobs market, low unemployment rates, and a fast GDP growth, all of which have also impacted the housing industry, Trump declared that the “State of our Union is strong.” However, he said that “victory is not winning for our party, victory is winning for our country.”
The border wall, trade talks, and the recent government shutdown were some of the prominent topics that he touched upon during his State of the Union speech that lasted more than an hour. Stressing that it was time to redefine the American middle-class Trump said that it was time for both parties to come together to make “our communities safer, families stronger and our middle-class bigger and more prosperous than ever before.”
Commenting on President Trump's address, HUD Secretary Dr. Ben Carson said that the address offered a strong vision of unity that put the country before politics and that both parties in Congress work together to fix the broken immigration system. "There is no challenge we cannot overcome if we embrace the bipartisan, common-sense approach our President outlined tonight," he said.
The next big priority he said was the “great rebuilding of America’s crumbling infrastructure.” Trump said that he was ready to work with Congress to pass an infrastructure bill to that effect.
Applauding this commitment, National Association of Realtors President John Smaby said that voters throughout the country had made clear their desire to see lawmakers secure bipartisan infrastructure reform. “The National Association of Realtors®, together with our 1.3 million members, understands the critical role infrastructure improvements play in maintaining property values, creating livable neighborhoods and developing communities in which businesses can succeed,” Smaby said.
The State of the Union address was also a good time to take a look at the state of the housing industry, which saw three factors defining it in 2018—inventory, rising mortgage rates, and a cooling down of home price growth. The industry also saw some key legislation passed during the year to strengthen housing as well as appointments to leadership positions across the Federal Housing Finance Agency (FHFA), Consumer Financial Protection Bureau (CFPB), and the Federal Housing Administration (FHA).
The Big Picture
The housing market is seeing some stability after getting a late boost at the end of 2018 as mortgage rates declined and home price growth started showing signs of slowing down. According to Freddie Mac’s latest forecast, 30-year fixed-rate mortgages began to let up at the end of the year, after climbing for several months, averaging 4.6 percent in 2018 and dropping to a nine-month low of 4.45 percent in early January.
“Despite the weakening of the housing market in 2018, early 2019 data signals a possible turnaround for the year to come,” said Sam Khater, Chief Economist, Freddie Mac. “This recent uptick in activity proves that homebuyers are very sensitive to changing interest rates and will likely respond positively if mortgage rates remain below five percent.”
“Home prices are still rising, but more slowly than in recent months,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. He indicated that the pace of prices is “being dampened by declining sales of existing homes and weaker affordability.”
On a year-over-year, the S&P CoreLogic Case-Shiller Index covering all nine U.S. census divisions, revealed a 5.2 percent annual gain in November, down from 5.3 percent in the previous month. The 10-city composite annual increase is at 4.3 percent, dropping from 4.7 percent in the previous month. On the other hand, the 20-city composite reflected a 4.7 percent year-over-year gain, a decline from 5 percent in October 2018.
According to Fannie Mae, home affordability continues to be a challenge across the country with rising interest rates and continued home price appreciation discouraging both first-time and move-up homebuyers. As a result, through its quarterly lender sentiment survey, Fannie Mae asked senior mortgage executives their views on improving housing affordability for low- and moderate-income homebuyers.
Increasing the supply of housing stock is the key to making housing affordable to a larger population of homebuyers, according to the lenders who responded to Fannie Mae's Mortgage Lender Sentiment Survey for the fourth quarter of 2018. Some of the other ideas put forth by them included offering consumer subsidies as well as more loan choices such as mortgages involving low down payments or loans including renovation costs.
"In the face of the perceived impacts of non-mortgage supply constraints, it appears that further easing of consumer credit standards would be more likely to contribute to stronger home price appreciation than expanding sustainable homeownership," said Mark Palim, VP and Deputy Chief Economist at Fannie Mae in his Perspectives blog.
Housing Finance Reform in the Cards?
With the overall housing market expected to remain stable during the year, housing finance reform, is likely to be a key focus area for the Senate Banking Committee. The committee’s Chairman, Sen. Mike Crapo, recently introduced an outline for housing finance legislation, which, according to a statement by Crapo, incorporates elements of the various "plans and principles for housing finance reform that have been previously discussed by legislators, analysts, stakeholders, and thought leaders."
"Protecting American taxpayers by ensuring the safety and stability of the United States housing finance system is a priority for the Treasury Department," said Treasury Secretary Steven Mnuchin, in response to the outline released by Crapo. "The outline for housing reform legislation released by Chairman Crapo is a productive first step toward that goal, and I applaud him for his efforts."
This legislation outline comes close on the heels of the White House's statement that it would announce a framework for "the development of a policy for comprehensive housing finance reform shortly," and that it had not yet made a decision on any housing finance reform plan. The announcement was made within weeks of FHFA Acting Director, Joseph Otting's remarks to staffers that the agency would be announcing plans to remove the GSEs from conservatorship soon.
Otting is one of the many appointees who was nominated by the Trump administration to key positions in the housing industry last year.
Legislation and Appointments
New appointments to key positions within regulatory bodies like the FHA and the CFPB along with nominations to head the FHFA were followed closely during the year.
Brian Montgomery, who had been nominated by the President for the position of Assistant Secretary for Housing-Federal Housing Commissioner, U.S. Department of Housing and Urban Development in November 2017, was approved by the Senate by a vote of 74-33 in May 2018. “I’m honored to have the opportunity to serve with Secretary Carson and the team at HUD to further equal access to affordable rental housing and homeownership opportunities and seek solutions to restore vitality to the housing market,” Montgomery said in a statement.
In November, Kathleen Kraninger succeeded Acting Director Mick Mulvaney to become the Director of the CFPB after a Senate vote confirmed her nomination. "As Congress continues its efforts to reform the Bureau into a law enforcement agency that truly protects consumers and is accountable to the people, I am confident that with her experience and knowledge of budget management, Kathy will excel as Director of the Bureau,” said Jeb Hensarling, then the Chairman of the House Financial Services Committee. “I look forward to working with her, the Trump Administration and House and Senate Democrats to put real reforms in place that protects consumers.”
With the Democrats taking over the House Financial Services Committee after the mid-term elections, Rep. Maxine Waters (D-Cal) succeeded Hensarling as the Chair of the House Financial Committee Chairwoman.
In December, the Trump administration announced the nomination of Dr. Mark Calabria, who is currently the Chief Economist to Vice President Mike Pence, to lead the Federal Housing Finance Agency for five years after the term of the current FHFA Director, Mel Watt expires in January.
If confirmed, Calabria would have significant influence over the housing finance market at the FHFA.