The Federal Reserve’s Open Market Committee met at the end of July. While they did not give a date to raise interest rates, they sounded optimistic that things were improving — “The labor market continued to improve, with solid job gains and declining unemployment,” the Fed statement said. And they are getting the markets ready with statements such as these: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market.”
Thus the importance of last Friday’s employment data. There are only two reporting months for jobs between now and the next meeting of the Fed. Friday was one of these dates. What did it show? A solid gain of 215,000 jobs and a steady unemployment rate of 5.3%. Meanwhile, the labor participation rate remains stuck at a 62.6%, the lowest since the 1970’s, and wages grew 0.2% last month, consistent with the growth of the past year.
This data definitely tells us that, while we are creating jobs, we still have a long way to go with regard to wage growth and job market participation. The report brings the Fed closer to raising rates, but does not make an increase in rates in September a certainty. We must emphasize again that the Fed raising short-term interest rates does not necessarily mean that rates will skyrocket tomorrow. On the other hand, it will tell us that our era of record low rates is likely over and those who are looking for a better time to finance a major purchase such as a car or a home had better get moving.
The Markets. Rates on home loans were lower in the past week, but they were subject to sharp variations day-to-day in a week of important economic releases leading up to the jobs report. Freddie Mac announced that for the week ending August 6, 30-year fixed rates fell to 3.91% from 3.98%. The average for 15-year loans decreased to 3.13%. Adjustables were mixed, with the average for one-year adjustables moving up to 2.54% and five-year adjustables unchanged at 2.95%. A year ago, 30-year fixed rates were at 4.14%, close, but still higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “All eyes are on the upcoming July employment report, as the Fed has made it clear developments in the labor market will affect the timing of any potential rate hike. Early signals indicated that Friday’s employment report would not look so good. The employment cost index rose 0.2 percent in the second quarter, the lowest quarterly increase in its 33-year history and ADP’s Private Employment Report missed expectations for private jobs in July. Uncertainty about the economy helped drive down Treasury yields early in the week, and thus 30-year fixed rates fell 7 basis points to 3.91 percent, the lowest level since June 4th.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Updated August 7, 2015
|Daily Value||Monthly Value|
|6-month Treasury Security||0.20%||0.12%|
|1-year Treasury Security||0.35%||0.30%|
|3-year Treasury Security||1.08%||1.03%|
|5-year Treasury Security||1.62%||1.63%|
|10-year Treasury Security||2.23%||2.32%|
|12-month LIBOR||0.828% (July)|
|12-month MTA||0.198% (July)|
|11th District Cost of Funds||0.659% (June)|
Jumbo mortgages for single-family residences exceed $417,000 in most parts of the country and $625,500 in high-price markets. But with home prices climbing back to prerecession peaks in some markets, baseline jumbo thresholds may be raised for the first time in a decade. The agency that sets these limits, the Federal Housing Finance Agency (FHFA), in May requested public input on its house price index. This index includes sale-price information on government-backed mortgages as well as real-estate sales compiled by research firm CoreLogic from hundreds of U.S. counties. Distressed sales are included but not appraisal values from refinances. The deadline for input was July 27, and the FHFA will decide this fall whether to change the baseline limit starting Jan. 1. In the early 1970s, the baseline limit for conventional loans was just $33,000. That was the maximum amount a homeowner could borrow to qualify for a “conforming” loan —one financed through Fannie Mae or Freddie Mac guidelines. The $33,000 limit rose steadily over the years to keep up with home prices. The Housing and Economic Recovery Act of 2008 established the current formula, which is based on median home-sale prices reported in a monthly FHFA survey. However, there is some wiggle room in high-cost areas, where conforming loans can exceed the baseline by up to 150%. To keep up with rapidly rising home prices, FHFA in January raised its conforming-loan cap in 46 counties nationwide—the largest number since 2012. Typically, it’s easier to qualify for a conforming loan than a jumbo loan. Fannie Mae and Freddie Mac allow down payments as low as 3% and may require fewer cash reserves. Source: The Wall Street Journal
Due to the number of households belonging to older adults rising, and an aging housing stock, home remodeling is likely to see a dramatic uptick in the coming years, according to a recent blog post at Harvard University’s Joint Center for Housing Studies’ Housing Perspectives. As the baby boomer generation ages, many home owners likely will choose to “age in place” and will require remodeling to better suit their changing needs. “Since much of the housing stock is currently ill-equipped with even basic accessibility features, older home owners aging in place will need to invest in retrofitting their homes in order to age comfortably and safely,” writes Abbe Will, researcher analyst for JCHS. Older home owners have already been having a “significant influence” on the home remodeling market due, a recent analysis by JCHS finds. “Since 2007, the share of total market spending for home improvements by owners age 55 and over has increased considerably, from less than a third to nearly a half by 2013,” according to JCHS. Of the more than 25 million households age 65 and over, 44 percent have some need for home accessibility features due to a disability or difficulty using components of a home, such as kitchen or bathroom facilities. “Yet the current housing stock is not especially equipped to meet the accessibility needs of an aging nation, as not even a third of homes have what could be considered basic accessibility features, such as a no-step entry and bedroom and full bathroom on the entry level,” JCHS’s analysis notes. Source: Harvard University’s Joint Center for Housing Studies’ Housing Perspectives Blog
Fewer international buyers are flocking to the U.S. to purchase real estate, but those who are, tend to spend more on their home purchases. The total sales dollar volume from international home buyers climbed 13 percent this year compared to last year – at a time when the total unit sales from international home buyers decreased, according to the National Association of Realtors®’ 2015 Profile of Home Buying Activity of International Clients. From April 2014 through March 2015, total international sales were estimated at $104 billion, trumping last year’s $92.2 billion. This represents an eight percent of the total existing-home sales dollar volume, according to NAR’s report. “In 2014, sales transaction to buyers outside of the U.S. dropped 10 percent, possibly due to the strengthening of the U.S. dollar in relation to international currencies and weakening foreign economies,” says NAR Chief Economist Lawrence Yun. “However, the amount of money spent has increased; this means international purchasers in the U.S. have become an upscale group of buyers, spending more money on fewer homes.” Last year, five countries alone accounted for 51 percent of all purchases by international buyers: China, Canada, Mexico, India, and the United Kingdom. Source: Realtor.com