New Construction Costs impact housing affordability, inflation

May 10, 2021

A host of costs contribute to the price of a new single-family but regulation costs are front and center. The NAHB reports that the cost of regulations imposed by all forms of government adds a whopping $93,000 to the cost. The NAHB says that $93,870 is made up of $41,330 is attributable to regulation during development while the $52,540 comes from regulation during construction. “This study illustrates how overregulation is exacerbating the nation’s housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand,” said NAHB Chairman Chuck Fowke.

Inflation is the new buzzword on Wall Street as consumer prices push higher with most states now fully reopened. Prices for goods and services have been on the rise due in part to pent-up consumer demand. A recent survey conducted by the New York Federal Reserve showed that inflation expectations are to increase in the short-term, remain stable in the medium-term. The median year-ahead inflation expectations increased to 3.4% in April from 3.2% in March, while remaining unchanged at 3.1% at the three-year horizon. The one-year ahead measure is now at its highest level since September 2013. Fed Chair Powell has said that any rise in inflation will be transitory.

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4-9-21 Home Borrowing fell, unemployment, Fed minutes

April 09, 2021

Home borrowing costs fell for the first time in seven weeks and remain at historically low levels. Freddie Mac reports that the 30-year fixed-rate mortgage declined to 3.13% from 3.18% with 0.7 in points and fees. A year ago at this time, the rate was not much higher at 3.33%. It is up from 2.65% on January 7 of this year. Sam Khater, Freddie Mac’s Chief Economist said, “The drop in rates creates yet another opportunity for those who have not refinanced to take a look at the possibility.”

First-time unemployment claims increased in the latest week but the numbers have been on a downward slope. Weekly Initial Jobless Claims rose to 744,000 from 728,000 for the week ended April 3, 2021. To put it into perspective, the week of March 14, 2020 claims were 282,000. The week of March 21, 2020, they skyrocketed to 3.3 million as lockdowns took hold. Continuing claims, or those receiving benefits for at least two weeks straight, fell to 3.73 million from 3.75 million. With more and more states reopening their economies, many unemployed Americans should be able to go back to work.

The Fed minutes from the March Federal Open Market Committee meeting revealed what Fed Chair Powell has been saying for quite some time … rates will remain low through at least 2022 and maybe even into 2023. The Fed minutes also signaled that it is still wary of the labor market and the ongoing risks from COVID. The Fed will continue to purchase Mortgage-Backed and Treasury securities until such time that it sees significant improvement in the economy and labor markets. The short-term Fed Funds Rate, currently near zero percent, was left unchanged. Bottom line … the Fed continues its dovish tone.

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Producer Price Index, Small Business Optimism rose, Mortgage applications strong

November 14, 2017

The October Producer Price Index (PPI) rose 0.4% versus the 0.1% expected, fueled by higher costs for services. Core PPI also rose 0.4%, above the 0.2% expected. Year over year, PPI rose 2.8%, the biggest increase since February 2012, while Core PPI increased 2.4%. The PPI is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time.

The NFIB’s Small Business Optimism Index rose to 103.8 in October from 103 the previous month as more owners expect higher sales and think now is a good time to expand. Thirty-five percent of all owners reported job openings they could not fill in the current period, up 5 points, the highest reading since November 2001. “Owners became much more positive about the economic environment last month, which suggests a longer-run view,” said NFIB Chief Economist Bill Dunkelberg. “In the nearer term, they are more optimistic about real sales growth and improved business conditions through the end of the year.”

The Mortgage Bankers Association reports that its Builder Application Survey soared 23% in October after plunging 20% in September due in part to hurricanes Harvey and Irma. It was the strongest month in 2017. From a year ago, the index is up 16.1%. By product type, conventional loans made up 71.8% of loan applications while the average loan size for new homes hit a high of $339,534.


Antique store owner

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Ready to Trade-In Your Home? Perhaps You Should Remodel Instead!

February 06, 2015

By Roy Sperr, MLO
Equity Source Mortgage, Inc.

ROGERS, MN – Each year, millions of Americans move into the home of their dreams. As
time goes by, families expand, kids grow older, and suddenly that home isn’t quite so perfect anymore. Or perhaps you still love your home, but you really want a gourmet kitchen and a larger master bedroom. Should you start looking for a new house? Or would it be better to stay where you are and remodel instead?

Both options involve a significant investment of time and money, so it’s important to take your time and make an informed decision. You’ll also want to be sure to consider both the financial and the emotional sides of the equation. Let’s begin by examining the financial factors involved.

Moving: A good local real estate agent should be able to assist you with estimates on these  numbers.
How much will it cost to purchase a home that will meet your needs?
How much could you sell your existing home for? Don’t forget to subtract the agent’s
commission from this total.
What will it cost to move? According to real estate consultant and best-selling author of
Remodel or Move, Dan Fritschen, a typical move costs 10% of the value of your home.
How much will your property taxes increase as a result of the move?

What projects do you want to have done and how much will they cost? An architect or
general contractor will be able to assist you with these figures.
How much will the improvements add to the value of your home, also known as the
“payback”? A local real estate agent can assist with this as well.
If the decision about whether to renovate or move were purely a financial one, then it would  be quite easy to look at the numbers and come to the right conclusion. However, there are  also emotional factors that come into play, and they have a value as well. Let’s consider some  examples.

Reasons you may want to move:
 If you relocate to a new neighborhood, your children could attend superior schools.
 You would like to reduce your commute or have better access to local amenities, such as
restaurants and shopping.
 You’re not particularly fond of your current neighborhood.
 Your yard is too small, and you cannot expand it.

Reasons you may want to stay and remodel:
 You’re happy with your location. It’s convenient, you love your neighbors, and the
schools are either excellent or are not a factor.
 You love the layout of your home.
 All you need is a little more space, and your home will be perfect.

Of course only you know what is truly important for your happiness, so try to use these
questions as a starting point. Create a list of the pros and cons of each scenario and leave it
someplace accessible, so that you and your spouse can add to it as you think of additional
factors. You may also want to consider attending open houses and visiting new housing
developments to see what is available and how your home compares.

Once you’ve completed your list and your financial assessment, it’s time to draw some
conclusions. Are the numbers and the emotional factors pointing you in a clear direction? If  you’re still feeling unsure and would like some additional assistance, you may want to read  Dan Fritschen’s book, Remodel or Move, or visit his website at

Both contain a calculator that will assist you with the difficult task of quantifying the
ramifications of your decision. In addition, you can learn tips to assist you with the next step,  after you’ve determined what it will be.

If you choose to remodel, then you’ll need to have a clear idea of what you want to accomplish before finalizing any details with the contractor or architect. One of the most expensive things you can do is change the project midstream.

If you decide to move, then there are low-cost improvements you can make to your existing home that will help it to sell more quickly. The kitchen and the bathrooms provide the biggest return on investment in this area.

Whether you decide to remodel or buy a new home, it’s important to ensure that you have proper financing in place prior to moving forward. If you decide to purchase a home, a mortgage originator will help you to determine how much you can afford, as well as which loan package works best with your overall financial plan. In the case of remodeling, you should meet with a mortgage professional before any construction takes place. Otherwise you may severely limit the type of financing options available to you.

Additional Resources:
Remodel or Move?: Make the Right Decision, by Dan Fritschen

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March 20, 2014

A surprise from Fed Chair Yellen (see below) caused a large decline in MBS prices this afternoon. No economic data was released today. The Dow is down 110 points. Tomorrow, Jobless Claims, Existing Home Sales, Leading Indicators, and Philly Fed will be released.

As widely expected, the Fed scaled back its bond purchases by $10 billion to $55 billion per month. Fed officials have long maintained that they expect that the fed funds rate will remain near zero for a “considerable period” of time following the end of the Fed’s bond purchases. The big surprise today came during Janet Yellen’s first press conference as Fed Chair, when she defined the meaning of a “considerable period” as about six months. According to Yellen, if the Fed’s economic outlook does not change significantly, the bond purchases are expected to end in the fall of this year. This would place the first fed funds rate hike in the spring of next year. Before today’s comments, the market consensus was for the first rate hike to take place during the fall of next year. The Fed statement also removed the 6.5% Unemployment Rate threshold as a potential trigger for raising the fed funds rate. Instead, the Fed will use a wide range of labor market and inflation indicators to  determine when to begin to raise rates. Basically, the Fed’s targets are 2.0% core inflation and “full employment”. With the February Core Consumer Price Index (CPI) at an annual rate of just 1.6%, inflation is well below the Fed’s target, and most signs suggest that considerable slack remains in the labor market. Still, Fed officials expect increases in the fed funds rate to take place sooner than previously expected.

 Information provided by “Larry Baer and Market Alert, Inc” via Lynette Conley, Account Executive, Premier Lending

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