End of the Quarter

July 7, 2015
ECONOMIC COMMENTARY
The quarter just ended and it was a very important quarter for the American economy. Especially considering the fact that last quarter was weak due to our long and harsh winter and international economies are slowing. Economists will be looking for a bounce back from the first quarter in which the economy actually contracted. And the first important statistic wrapping up the quarter was reported this past week — the jobs report. The employment numbers give us a clue as to how we did in the second quarter. Certainly at lowest unemployment rate in seven years is an indication of good news.

Because the numbers were moderately strong, this means that the quarter is likely to have been strong as well. The question is, does that puts us closer to an increase in rates courtesy of the Federal Reserve Board? As we have previously indicated, the Fed is also watching for increases in wages and wage inflation continues to be muted. While higher wages are great for the economy, they also would represent the first spark in inflation. Strong jobs and a rebounding real estate market are hallmarks of the better economy the Fed is looking for. There is no doubt that the real estate markets are getting stronger.

The end of the quarter also means that we are going to see a slew of earnings reports. The stock market often reacts to these reports and if corporate earnings falter, many are expecting to see the stock market correction that we have avoided for quite some time. Mix in international influences and the situation can get very cloudy. Just this past week we have seen how the Greek crisis affected movements in the stock market as well as interest rates. This is why predicting the future is so difficult — for us and the Fed..

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans rose in the last week, however these numbers did not reflect the decrease experienced after the release of the jobs report on Thursday of last week. Freddie Mac announced that for the week ending July 2, 30-year fixed rates rose to 4.08% from 4.02% the previous week. The average for 15-year loans increased to 3.24%. Adjustables were up slightly, with the average for one-year adjustables rising to 2.52% and five-year adjustables increasing to 2.99%. A year ago, 30-year fixed rates were at 4.12%, close, but still higher than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac — “Overseas events are generating significant day-to-day volatility in interest rates. Nonetheless, the week-to-week impact on most rates was modest — the 30-year fixed rate increased just 6 bps, to 4.08 percent. The MBA composite index of applications fell 4.7 percent in response to what is now three consecutive weeks of rates over 4 percent. Other measures, however, confirmed continued strength in housing — pending home sales rose 0.9 percent, exceeding expectations, and the Case-Shiller house price index recorded another solid increase.”  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.  

Current Indices For Adjustable Rate Mortgages
Updated July 2, 2015
Daily Value Monthly Value
July 1 May
6-month Treasury Security  0.13%  0.08%
1-year Treasury Security  0.28%  0.24%
3-year Treasury Security  1.08%  0.98%
5-year Treasury Security  1.70%  1.54%
10-year Treasury Security  2.43%  2.20%
12-month LIBOR  0.734% (May)
12-month MTA  0.168% (May)
11th District Cost of Funds  0.687% (May)
Prime Rate  3.25%

REAL ESTATE NEWS
 A lot of people are operating under the mistaken impression that getting a home loan has become impossibly strict, and that people with good credit scores are being denied loans. They mistakenly think you have to have 20 percent down, or that you have to have absolutely perfect credit, or that having student loans means you won’t qualify. That’s just not the case. The fact is that it has definitely gotten easier to qualify for a loan than it was right after the financial meltdown in 2008; standards are now relaxed back to where they were in the 1990s. You can’t get a loan just because you say you’re a nice person who makes a lot of money. But you most definitely do not have to have a 20 percent down payment saved. With FHA financing you only need 3.5 percent. Fannie Mae and Freddie Mac both offer 3 percent down loans but with some requirements, while the VA has zero percent down. When you apply for a loan, you’re going to have to jump through a fair number of required hoops by providing pay stubs, tax returns and bank statements. What can you do as a borrower to make the process smoother? Provide whatever documentation they’re asking for, as soon as they ask for it. The mortgage industry isn’t setting people up for failure. They’re in the business of making loans. They want to make loans. It’s important to remember that if you’re going to get to the finish line you just have to cooperate fully. As a borrower, you are an active participant in the process. If you do your part as best as you can, you’ll have the smoothest transaction possible. And it’s useful to familiarize yourself with the standards that loan processors follow. When a loan processor says they need two months of bank statements, if you don’t give them every single page of the statement, even the seemingly meaningless ones with boilerplate language on them, they can’t check off that they have received your bank statements. Source: The Washington Post

The renter population is expected to only get bigger in the next 15 years and will likely exceed new home owners by millions, according to a newly released report by the Urban Institute, “Headship and Homeownership: What Does the Future Hold?” Between 2010 and 2030 – the year millennials are to reach peak homebuying age – new renters will exceed new home owners by 4 million, according to the report. Broken out, the report estimates 13 million renters to 9 million home owners by 2030. “The rapid growth of the renter population will create significant demand for new rental housing construction and encourage a shift of owner-occupied dwellings to rentals,” according to the report. “In the next 15 years, many more rental households will form because of the size and ethnic composition of the millennial generation. Rental housing vacancy rates are already low, and rents are rising. Single-family homes are shifting to renter occupancy throughout the nation, and this trend is likely to continue.” Still, the total number of home owners are expected to see growth in the next 15 years due to net household formation, the report notes. In particular, the rate of Hispanics in home ownership is expected to make gains, from 47.3 percent in 2010 to 48.2 percent by 2030. Household formations are mostly expected to be driven among nonwhite populations from 2010 to 2020 with 77 percent of new households expected to be nonwhite, according to the report. Source: The Urban Institute

New-home sales surged to the highest rate since February 2008, as the new-construction market continues to gain ground this year. Sales of newly built single-family homes increased 2.2 percent, reaching a seasonally adjusted annual rate of 546,000 units in May, according to a report from the Commerce Department. “Our builders are seeing motivated buyers and the release of pent-up housing demand,” says Tom Woods, chairman of the National Association of Home Builders. “However, builders are facing supply-chain challenges, which is affecting the inventory of new homes.” Sales are nearly 20 percent higher than the pace in May 2014. New-home inventories remain tight at 206,000, a 4.5-month supply at the current sales pace. That’s pushed the average sales price of a new home sold in May to $337,000. “This month’s new-home sales report is consistent with other government data and rising builder confidence that indicate a continual recovery of the housing market,” says David Crowe, NAHB’s chief economist. Source: Forbes

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