February 12, 2019

New Insights on the Economy Prove Valuable for Lenders


Home prices and sales are sluggish, but the consumer is doing just fine due to a strong employment picture. For lenders, now may be a good time to get out of long-term low-interest rate assets such as mortgages, and invest in shorter duration, higher-yielding assets. 


Recent economic reports suggest a tale of two markets. In the real estate market, home prices and sales are sluggish, reflecting some slackening of confidence among both businesses and consumers. But in the employment market, hiring continues to be robust.

Home prices and pending sales are softening nationwide, according to recent reports.

Home Prices and Sales Slackening…

Home prices and sales seem to be softening around the country, according to recent reports. 

The S&P CoreLogic Case-Shiller composite index, which reflects housing prices in 20 areas of the country, climbed just 4.7% in November 2018 over November 2017 levels. That’s down from the 5% gain registered in October, and the smallest increase since January 2015. 

A moderate price increase can be good for the housing market, particularly overheated ones, as it may ultimately make home prices more affordable.

The National Association of Realtors (NAR) recently indicated that its index of pending home sales fell 2.2% to hit 99.0, the lowest figure since April 2014. The index reflects housing contracts signed in the past month. 

Economists, on the other hand, were expecting pending home sales to climb by 0.5%. From the year-ago period, pending home sales have now declined by 9.8%. The most recent decline marked the twelfth consecutive month of falling sales.

The NAR report occurs on the heels of demonstrated softening in existing home sales, which sank to a three-year low in December 2018. 

The New York Times noted that housing data seem to reflect dropping consumer confidence indicated by January reports. Slowing manufacturing in the fourth quarter of 2018 and January seems to reflect some business unease as well.

Economists currently believe that gross domestic product (GDP) may have eased in the fourth quarter from the third’s quarter’s impressive 3.4%, but GDP reports were delayed due to the government shutdown.

The unemployment rate is still low, however, which means consumers continue to be in good shape.

…But the Employment Market Remains Robust

But the employment market is as strong as ever, according to the ADP National Employment Report. Payrolls rose 213,000 in January, after a very strong December, when they rose by 263,000. The January figure was far ahead of estimates, which predicted an additional 178,000 jobs.

The unemployment rate, at 3.9%, was unchanged month over month, and continues to be at a historically low rate.

How a Whole Loan Broker Can Help

Home prices and sales may be softening, but the outlook for the U.S. consumer is strong due to a good employment picture. Given that the U.S. Federal Reserve indicated no change in interest rates at its most recent meeting, lenders may find it advantageous to transition out of long-term low-interest rate assets like mortgages, and invest in shorter duration, higher-yielding assets. 

Garnet Capital can help facilitate those transactions. Sign up for our newsletter to learn more.