A Lot Has Happened

August 4, 2015
ECONOMIC COMMENTARY
This week is employment data week, which is a very important week for the markets. Since last month’s report a lot has happened. A lot of the focus has been on the international side with the default crisis in Greece, nuclear talks with Iran and the stock market fallback in China. These international events are very important, especially in light of the fact that the markets are anticipating an increase in rates from the Federal Reserve Board, possibly as soon as next month.

If the jobs report is strong, the speculation regarding a rate increase will grow. However, all these intervening variables are being watched by the Fed. We also had an avalanche of earnings reports last month and if the stock market is under pressure because of lower earnings, this is another economic issue the Fed needs to factor into a decision as higher rates can also make stocks less attractive. The preliminary number for economic growth in the second quarter came in at 2.3%, which is a solid but not spectacular number that will be factored into the Fed’s decision. This number will be revised before the Fed meets again in September.

Real estate seems to be the one area of the economy that appears to be weathering the international news and upward pressure on rates. Last month we saw another month of rising existing home sales, though new home sales were weaker. Even these numbers can be affected by rates as consumers rush to beat future rate increases. For now, the real estate sector is contributing positively to the economy which is why the Fed is watching the real estate markets very closely as well.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans continued to decrease last week, with average 30-year rates moving below 4.00%. Freddie Mac announced that for the week ending July 30, 30-year fixed rates fell to 3.98% from 4.04% the previous week. The average for 15-year loans decreased to 3.17%. Adjustables were also lower, with the average for one-year adjustables moving to 2.52% and five-year adjustables falling to 2.95%. 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 — “Monday’s 8 percent decline in Chinese stock prices triggered similar — though smaller — sell-offs in global equity markets. The associated flight to quality drove U.S. Treasury yields down nearly 5 basis points. Accordingly, 30-year fixed-rate loans fell. The rate has bounced between 3.98 and 4.09 percent since the first full week of June, falling a bit when events overseas take a turn for the worse and rising when the clouds appear ready to part. With no clear direction coming from the Fed last week, we expect more of the same in coming weeks. Recent housing data exhibited the same good news/bad news pattern as overseas developments. Coming into this week, existing home sales for June and the latest FHFA house price measures both suggested a stronger tone in the housing market. However this week brought weaker-than-expected news. New homes sales and pending home sales both weakened and the Case-Shiller house price indices, while positive, fell below the lower end of expectations.” 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 31, 2015
Daily Value Monthly Value
July 30 June
6-month Treasury Security  0.15%  0.09%
1-year Treasury Security  0.36%  0.28%
3-year Treasury Security  1.07%  1.07%
5-year Treasury Security  1.62%  1.68%
10-year Treasury Security  2.28%  2.36%
12-month LIBOR  0.770% (June)
12-month MTA  0.183% (June)
11th District Cost of Funds  0.687% (May)
Prime Rate  3.25%

REAL ESTATE NEWS
 The rise in buyer demand, combined with a limited number of homes for sale, pushed the national median sales price above its 2006 peak and to a record high, according to the National Association of Realtors®. The median existing-home price for all housing types reached $236,400 in June – 6.5 percent above year ago levels and surpassing the peak median sales price set in July 2006 at $230,400. Along with a boost in home prices last month, existing-home sales also reached the highest pace in more than eight years. Lawrence Yun, NAR’s chief economist, calls this year’s spring buying season the strongest since the downturn. “Buyers have come back in force, leading to the strongest past two months in sales since early 2007,” Yun says. “This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.” Yun says that June’s sales also likely got a boost by the spring’s initial phase of rising interest rates. That “usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher,” Yun says. Total sales of completed single-family, townhome, condo, and co-op transactions ticked up 3.2 percent last month to a seasonally adjusted annual rate of 5.49 million and are nearly 10 percent above year ago levels. Sales also are the highest pace since February 2007. Source: National Association of Realtors®

About 6.5 million borrowers could likely qualify for and benefit from a traditional refinancing or the HARP program, according to a new report released from the Black Knight Financial Services Inc. About 3 million borrowers alone could save at least $200 a month via traditional refinances. About 500,000 borrowers stand to save $500 or more per month, the report shows. “By looking at current interest rates on existing 30-year home loans and applying broad-based underwriting criteria, we found that approximately 6.1 million borrowers make good candidates for traditional refinancing,” says Ben Graboske, senior vice president of Black Knight’s data and analytics. “An additional 450,000 meet HARP-eligibility guidelines. All told, in the aggregate we’re looking at about $1.5 billion that American home owners could be saving every month through a traditional refinance. Add in the 450,000 HARP-eligible borrowers and that figure swells to about $1.66 billion in savings every month — almost $20 billion a year.” But refinancing is very rate-sensitive. If rates rise just half a percentage point, 2.6 million borrowers fall out of that population where refinancing would be beneficial, Graboske notes. Source: Black Knight Financial Services  Note: Contact us if you think you or someone you know would benefit from a refinance.  We can help you find out whether a refinance would be cost-effective for you and whether you qualify for the HARP program. 

More Americans believe that now is a good time to buy a home and the sentiment has pushed a key indicator to a record high. Fannie Mae’s National Housing Survey for last month sees the index move higher than 50 for the first time as optimism increased 3 percentage points. The 52 percent score for the index reflects better housing supply together with more favorable data on employment and the economy as a whole. Fannie’s survey of rent expectations has also hit a new high of 59 percent expecting rents to rise in the next 12 months. Doug Duncan, senior vice president and chief economist at Fannie Mae noted: “Together, these results point to a healthier home purchase market, with more renters likely to find owning to be more cost-effective than renting and more sellers likely to put their homes on the market.” Half of respondents believe that interest rates will increase over the next 12 months, a slightly higher percentage than the previously month. Source: Fannie Mae

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