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Housing sector expands, but future growth is tenuous due to regulation, negative equity problems

U.S stock markets are closed in anticipating of Hurricane Sandy hitting the eastern seaboard. Mortgage rates are unchanged, so we will point you to our most recent update on Thursday, October 25.

With the economic news relatively quiet, we will use this opportunity to catch up on mortgage and real estate news.

We have already reported on third quarter U.S. gross domestic product (GDP), which expanded at a 2.0 percent rate. Delving into that report deeper, we find that housing continues to be a boost to the economy. According to Nick Timiraos over at the Wall Street Journal’s “Developments” real estate blog, residential fixed investment accounted for 0.33 percent of GDP growth, up from 0.19% in the third quarter and 0.03 percent year-over-year. We have seen it estimated that each new house built correlates to three new jobs, so this increase is certainly a positive.

The housing sector is growing stronger, but we (reluctantly) must point out a few problems that remain. Credit is tight, and the uncertainty surrounding regulation of the mortgage industry has made matters worse. A recent report by American Action Forum, a center-right think tank believes that the current regulatory environment could cause between 13 and 20 percent fewer loans originated over the coming three years. For specifics, head over to another Timiraos article at Developments.

Another possible problem for the housing recovery – a glut of foreclosures. Banks have cut back on REO sales drastically. According to a recent report, distressed properties made up just 38.6 percent of sales in September – a low for the recession. Short sales have been much more common. However, we are facing an obstacles that could halt this trend: the expiration of the Mortgage Forgiveness Debt Relief Act, which gives a deduction for cancelled or reduced mortgage debt. Read more HERE. Should this tax deduction drop, we expect to see foreclosure activity increase, as homeowners cut back on short sales. There remains over $1 trillion in negative equity in home mortgages. We expect this number to slowly reduce as property values rebound and principle reductions/HARP activity increases, but we still have a long ways to go.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile