Wednesday, July 28, 2021

Why Morgan Stanley is convinced the housing market isn’t in a bubble


Written by: Ethan Wolff-Mann   Yahoo Finance- Senior Writer

Why Morgan Stanley is convinced the housing market isn’t in a bubble

High demand for housing combined with low inventory has heated up the market – boosting property values and leading some to wonder if we’re in bubble territory.

But Morgan Stanley analysts say no.

“We have strong conviction that we are not experiencing a bubble in US housing,” Morgan Stanley strategist Vishwanath Tirupattur wrote in a note to clients this week.

Tirupattur and the Morgan Stanley team admit that the “US housing is on a hot streak,” pointing out that prices have increased 12.2% over the past year based on the S&P Case-Shiller index.

"That amounts to an increase of $35,000 in the median selling price for homes from just a year ago and marks the fastest pace of increase since 2006," Tirupattur wrote.

The hot real estate market and hot stock market may be evoking memories of bubbles for some. Even Treasury Secretary Janet Yellen said this week that interest rates might have to rise from the current near zero level to prevent overheating. And even uttering “2006,” Tirapattur writes, carries a lot of baggage when it comes to housing, as that was the trigger that imploded the economy 15 years ago.

But Tirapattur says it’s not a bubble and not really like 2006 at all, and there’s a good reason to think so based on the data. This time is different, the bank says.

Today’s  hot market s based off of one key thing after all – big demand and little supply – which puts the sector on “a sustainably sturdy foundation,” in Morgan Stanley’s view. “We are not at all suggesting that home price appreciation will maintain its current torrid pace. Home prices will continue to rise, but more gradually.”

Two different types of risk

According to Tirapattur, there's a misunderstanding about the cause of the financial crisis, and that it wasn't just about lending to people with low credit scores. "We think it was more about the type of credit they had access to,” he wrote.

There are two types of risk, borrower risk and product risk; borrower risk is based on a consumer’s creditworthiness – using metrics like credit score and debt to income ratio. Product risk, on the other hand, is more about providing mortgages with higher risks of default, "even controlling for those borrower characteristics."

Some of the mortgages that have product risk are ones structured in ways that can make payments vary significantly, like mortgages with introductory periods, teaser rates, and balloon payments – which have a higher risk of default. “Product risk increased significantly more than borrower risk during the pre-GFC housing boom,” the analysts write.

“The affordability products were inherently risky because they effectively required home prices to keep rising and lending standards to remain accommodative so that homeowners could refinance before their monthly payment became unaffordable,” Tirapattur explains. “When home prices stopped climbing, these mortgages reset to payments that borrowers could not make, leading to delinquency and foreclosure. As foreclosures and the subsequent distressed sales piled up, home prices fell further, creating a vicious cycle.”

Back in the lead-up to the Global Financial Crisis, product risk was rising far more than borrower risk, Morgan Stanley analysts say, with affordability products comprising around 40% of the mortgage market between 2004 and 2006. "Today their share is down to 2%,” Tirapattur notes.

On top of that, other metrics like credit requirements and leverage are improved. Before the crisis, the US housing market value was around $26 trillion in 2006 with mortgages equalling around $11 trillion. Today, the mortgage debt is only $1 trillion more and the value of the market has jumped to $33 trillion. For Morgan Stanley, "these changes give us confidence that the current system of housing finance is healthy and on a sustainable footing."


Posted by:

Betty Rauch – Loan Originator –  NMLS #390883

Florida State Mortgage Group, Inc. – NMLS #393326   954.410.1960


Thursday, July 15, 2021

Smart Kitchens, Smart Faucets

So-called “smart” devices are increasingly popular, adding new features and functionality to just about every room in your home. One room that you might not consider for a smart upgrade is the kitchen, but you should. There are a number of sensors and connected devices that can transform your kitchen into something special. One great option that’s often overlooked is the addition of a smart faucet to your sink. 

While smart faucets aren’t as well known (yet) as other smart home add-ons such as smart lighting and smart thermostats, they can have a significant impact on how you use your kitchen. Not only can you turn the faucets on and off in different ways, but you can also have your smart faucets automatically save you money on your water bill. If you’re wondering whether a smart faucet might be a good addition to your home, read on for more info on just how these faucets can help you. 

Smart Faucet Controls 
One big advantage to smart faucets is that there are multiple ways to control the flow of water. In addition to standard handles or levers, many smart faucets contain features such as touch panels and motion sensors that allow you to turn the water on and off with little to no contact with the faucet itself. This adds convenience to using the sink in general, and can help keep your kitchen area clean if your hands are dirty or covered with batter or other substances that you wouldn’t want to clean off of everything later. 

Depending on the model, some smart faucets can also be controlled remotely using apps or voice controls. In most cases, you can even pair the apps on your smartphone with digital assistants such as Alexa and the Google Assistant. This lets you control the faucet using Amazon Echo and Google Home devices, turning the water on and off as needed while doing prep work or otherwise getting things ready for the water.

Smart Water Usage
Another big benefit of smart faucets is the way that they help to control your water usage. The water-saving features of smart faucets help prevent wasted water by cutting off the flow when you aren’t actually using the sink. This keeps you from accidentally leaving the water running when you’re doing something that takes too long and can also help prevent drips and other problems that might occur when you don’t close a valve all the way.

Some smart faucets also let you track your water usage over time via their connected apps. This can make you more aware of how much water you’re using in the kitchen and may help you to ratchet back on your usage over time. Eliminating unnecessary water use will save you money and help the environment as well, and the awareness of how much water you’re using is a big part of cutting back on that unnecessary use. 

Installing Your Smart Faucet 
For the most part, installing a smart faucet is a lot like installing any other faucet. Depending on the faucet model, its smart features will be powered either by batteries or a nearby outlet; if the faucet is outlet powered, you’ll need to make sure that there’s a source of power close enough to hook the faucet up for it to work properly. Once installed, some smart features may require additional setup, especially if you plan to use the faucet with external devices such as an Echo or Google Home. 


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