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35 » VISIT US ONLINE @ DSNEWS.COM strong labor market. However, inventory will remain a challenge. I believe we will see buyers continue to work hard to give themselves an edge in the marketplace by ensuring they have financing in place when they house hunt. We have a metric that tracks such activity and have found that more borrowers look for loans before looking for a house in cities that have the tightest inventory and the biggest price increases. At what point would rising mortgage rates start to significantly dampen buyer demand? e Survey of Professional Forecasters, released quarterly by the Fed, includes expectations for 10-year Treasury rates. ese were too high for 14 of the past 17 years. I say this not to disparage the forecast, but as someone once said, "prediction is hard, especially about the future." is year may be the year for higher rates, but certain factors mitigate the potential rate rise. Global rates matter—and they are still low. U.S. Treasury rates are not only influenced by the domestic economy but also by those in other developed markets. e U.S. recovery from the financial crisis has been stronger and faster than the other major developed markets, which are still working to keep rates low. Global investors view European and Japanese bonds as comparable safe haven assets to U.S. Treasurys; thus, their low interest rates influence U.S. Treasury rates, which influence mortgage rates. Rates are also quite low in historical terms, and even a 100-bps increase would leave them below the average rates of the housing bubble. at said, should rates rise it's a pretty linear path to lower affordability and buying power. Reflecting on 2017, what housing trends do you think were the most notable? Home prices finally recovered the losses from the financial crisis. However, the aggregate numbers mask the dispersion when you look at more granular measures. e gains are concentrated on the coasts in the larger cities. Much of the middle of the country has not regained equity. is is a divergence evident in many other economic indicators reflective of the general increase in inequality in the country. Another change that I think went under the radar is the reduction in the ratio of mortgage interest payments to income. e Fed releases the financial obligations ratio. e mortgage debt service as a percent of disposable income fell to 4.44 percent in Q2, the lowest since 1980. So households are in good shape and are well placed to meet their mortgage obligations. Housing inventory, or lack thereof, has been continuous in the housing market. What do you foresee in the next year for the inventory narrative? More of the same, perhaps with a slight improvement. e tax bill could further dampen the propensity to move at the high end as the reduction in the mortgage interest deduction limit would grandfather outstanding loans. us, moving would entail incurring a new tax expense for some borrowers at the top end. However, that is a sector well-served by the homebuilding industry. In the broader market, new inventory should increase but is a fraction of existing inventory and not growing fast enough. e tax bill could be beneficial here as it will likely improve builders' margins. Wider margins could be particularly beneficial for inducing supply for lower priced homes where potential buyers face the most acute supply constraints. Optimism amongst builders is at very high levels; all that remains is for the 'hard data' of actual activity to follow this 'soft data.' ere is a significant obstacle to the convergence of builder activity with sentiment. Although construction employment is trending upwards, it appears productivity is far lower. Residential construction payrolls are at the same level as 2002, yet we have 500,000 less housing starts. e same number of employees are seemingly producing far less homes. Could productivity really have declined this precipitously? is could be a measurement issue related to undocumented workers. e Pew Center estimates that the construction industry has the third highest rate of undocumented workers at 13 percent. e regulatory environment could be making it more difficult to recruit these workers. "Buyer sentiment is quite high amid a strong labor market. However, inventory will remain a challenge. I believe we will see buyers continue to work hard to give themselves an edge in the marketplace by ensuring they have financing in place when they house hunt." www.assero24.com/defense The best defense for a better neighborhood Real People, Real Results

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