September Rate Increase?

August 18, 2015

ECONOMIC COMMENTARY
Just as we were enjoying another month of mixed economic news and the markets were “hoping” for a little reprieve from the Federal Reserve Board, one of the Fed Governors shocked the markets with this statement reported by the Wall Street Journal — “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead,” Federal Reserve Bank of Atlanta President Dennis Lockhart said in an interview with the Journal.

The Wall Street Journal article went on to report that Lockhart’s comments followed those of James Bullard, President of the St. Louis Fed — “we are in good shape” for a rate increase in September.These comments by Fed officials shocked the markets somewhat because long-term rates had been falling in late July and early August. Upon release, rates reversed course. The good news is that more bad economic news overseas helped mitigate the increases rather quickly, but it just tells us how jumpy the markets are with regard to the threat of the Fed raising rates in September. As we have continuously pointed out, the greatest effect of the Fed raising rates is likely to be on shorter-term rates. These short-term rates also have risen in anticipation of the Fed making a move.

Meanwhile, there is plenty of time for intervening variables to change the equation. The recent devaluation of China’s currency may put pressure on the Fed because the strong U.S. Dollar continues to hurt our exports. There is one more jobs report to be released before the Fed meets in September, as well as a revision of the measure of economic growth for the second quarter. Many are expecting second quarter growth to be revised upwards. While we progress toward September, we expect the markets to hang on every word uttered by a Fed official. This could cause increased volatility in all markets.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans were slightly higher in the past week, but they continued to be subject to sharp variations day-to-day. Freddie Mac announced that for the week ending August 13, 30-year fixed rates rose to 3.94% from 3.91%. The average for 15-year loans increased to 3.17%. Adjustables were mixed, with the average for one-year adjustables moving up to 2.62% and five-year adjustables falling to 2.93%. 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 — “The jobs report for July showed that the economy added 215,000 jobs, in line with expectations. Wage growth remains modest at 2.1 percent compared to the same time last year, and another solid if not stellar employment report leaves a potential Fed rate hike on the table for September. However, this year’s theme of overseas economic turbulence continues with the focus shifting east to China. Over the past few days the Chinese Yuan has fallen sharply. In the midst of these mixed data rates inched up, increasing 3 basis points to 3.94 percent. Headed into the fall, we’ll likely see continued interest rate tension, with dollar appreciation weighing against possible Fed rate hikes leaving the rate outlook clouded.” 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 August 14, 2015
Daily Value Monthly Value
Aug 13 July
6-month Treasury Security  0.24%  0.12%
1-year Treasury Security  0.40%  0.30%
3-year Treasury Security  1.06%  1.03%
5-year Treasury Security  1.58%  1.63%
10-year Treasury Security  2.19%  2.32%
12-month LIBOR  0.828% (July)
12-month MTA  0.198% (July)
11th District Cost of Funds  0.659% (June)
Prime Rate  3.25%

REAL ESTATE NEWS
Falling gas prices can shorten the time it takes a house to sell and can increase the selling price, according to results from an ongoing longitudinal study by Florida Atlantic University and Longwood University faculty. Using data from central Virginia and spanning over 10 years of gas price changes and housing transactions, researchers found statistical evidence to indicate that for every $1 per gallon decrease in gasoline price, average time to sell a property decreases by 25 days. In addition, for every $1 per gallon decrease in gasoline prices the average selling price rises by 2.4 percent, which amounts to roughly $4,000 per sold property in the study. The good news from the seller’s perspective does not end there. A $1 decrease is also shown to increase a seller’s chances of selling and closing by roughly 20 percent. “In the event of a forced sale, these odds are very welcome news for a seller who might already own a second property and must close,” explained Ken Johnson, Ph.D., a real estate economist and an associate dean of graduate programs and professor in FAU’s College of Business. Based on these findings, the immediate future looks bright for home sellers. Gas prices are down nearly $1 from where they were a year ago, and prices this summer are expected to be the lowest they’ve been since 2009 “due to stabilizing crude oil costs and as refineries complete seasonal maintenance,” according to the American Automobile Association (AAA). Source: PR Newswire

Fifteen Republicans are fighting for their party’s nomination for president in 2016. The Democratic seekers of the White House so far number five. All 20 of these possible presidential candidates have divergent policy positions, even within their own parties. But one area that all generally agree on is that the tax code is too complex. Another tax issue that also seems consistent across most major candidates is that a tax break for homeowners is safe. Even this election cycle’s biggest booster of the so-called flat tax, Sen. Rand Paul, R-Ky., says in his proposal that he would continue tax deductions for charitable donations and interest on home loans. The numbers make it clear why homeowners get such attention. Although Commerce Department data show that homeownership for the first quarter of this year was at its lowest level in 20 years, most of us still own the places where we live. Almost 64% of Americans own their homes. So while weakened, the American dream of a yard for the kiddies and a home loan that offers a tax break persists. Source: BankRate.com

A recent survey shows that consumers saving for a home are willing to forego modern conveniences in order to secure a down payment. That may even mean giving up phones, Internet, cable TV, or Starbucks, according to a newly released survey by the business advisory firm the Collingwood Group. Potential first-time home buyers are making such sacrifices because they want to be able to make a sizable down payment on their home purchase. Nearly two-thirds recently surveyed say they’d like to put 20 percent down or more on their home purchase. First-time home buyers are increasing their ranks lately, with their share in the housing market rising to 32 percent in May. That matches their highest share since September 2012, according to the National Association of Realtors®. A year ago, first-time buyers represented 27 percent of all buyers. The survey showed that around 62 of potential first-time buyers are making plans to purchase a home within the next two years. In addition, more than two-thirds of consumers – 68 percent – who say they’re looking to purchase their first home say they want a move-in ready home, while one-third said they’d buy a fixer-upper.Source: MReport

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