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The United States has once again entered a seller's market, with homeownership on the rise. While we haven't seen numbers that rival pre-recession levels, young adults are increasingly fueling this housing market as the economy improves. Homeownership rates among Millennials is now at 36 percent, which is the largest gain within any demographic group in 2017. Lenders must be ready to meet the needs of these young adults as they look to purchase their first homes.

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Millennial Homeowners Are Coming of Age

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The total household debt in the United States advanced 1.5% in the last quarter of 2017. Total household debt climbed $193 billion to reach $13.15 trillion, a new record. The figure closed 2017 as the fifth consecutive annual increase in debt growth.

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A rise was seen across almost all loan types. Mortgages rose a significant $139 billion quarter over quarter, even as the median credit score shown by new applicants dropped. Auto loan and student loan balances also increased. Auto loan balances have now gone up steadily for the sixth consecutive year.

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President Donald J. Trump recently announced a plan to impose tariffs on imported steel and aluminum. The announcement was big news simply as a major policy initiative by the administration. In terms of the financial industry, though, it’s important to look at the potentially significant effect on the U.S. housing industry and the American consumer.

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Loan payments of all types fare very differently during periods of economic growth than they do during periods of recession. The reason is simple. Businesses or consumers make loan payments, and because of a strong economy, they are more likely to make them without difficulty.

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Banks and other lending institutions are affected by changes in the business cycle, simply because lending during growth periods is very different than lending during recessions. A recession can lead to a tightening of the purse strings, while a positive business environment can result in an increase in lending.

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To see clearly where we are and where we might be headed economically in the near future, it’s a good idea to look back at the economic cycle.

The Four Phases of a Business Cycle: Expansion, Crisis, Recession, Recovery

Business cycles, in general, have four main phases.

The first phase is expansion...

Expansion is characterized by an increase in the gross domestic product (GDP), business production and prices, and by low interest rates.

The United States Federal Open Market Committee (FOMC), which is charged with the level and direction of interest rates, uses interest rates as a tool in business cycles. They are kept low so that the borrowing cost to business is relatively low, and businesses can expand. GDP rises as a result.

Businesse...

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After the 2008 financial crisis, the United States entered the Great Recession, with unemployment rates as high as 10 percent and GDP growth contracting at -2.8 percent in 2009. The country entered the expansion business phase in the third quarter of 2009 when the GDP growth rate was once again positive at 1.3 percent.

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A significant new tax bill was recently signed into law. The changes are broad, and are likely to have long-term effects. This post provides an overview of how the new tax changes will affect existing borrowers.

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Mortgage Holders

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Any businessperson, banker, and even consumer can tell you that the economy goes through cycles. At times, interest rates are through the roof and take home pay doesn't seem to stretch far enough. During other periods, the stock market is booming, there's a new car in every driveway, and businesses are expanding.

What we're describing in loose terms is an economy's business cycle. During various periods of this cycle, certain business sectors may perform better than others. We will also experience varying rates of economic growth and loan performance.

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What is the Business Cycle?

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In November and December 2017, Congress passed a sweeping tax bill. The new tax code it creates will have multiple effects. Consumer behavior will be affected by the perceived benefits and drawbacks of the plan across the board.

Will new originations be affected? While many factors affect origination rates, it’s possible to itemize the elements of the new tax changes that might cause increases or decrease in new originations for mortgages and student loans.

Mortgage Originations

Mortgage originations are likely to be affected by several provisions in the new tax bill. Historically, homeowners have been allowed to deduct both mortgage interest and property taxes. These provisions can make home ownership more affordable and more attract...

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