How About Some Perspective?

September 15, 2015
ECONOMIC COMMENTARY
Last week we talked about how times can change from week-to-week. With regards to the somewhat “disappointing” jobs report released recently, we have to reach back almost a decade to understand how our perspective changes over time. The economy lost approximately 8.7 million jobs during the Great Recession of 2007 to 2009. Since that time, the economy has added over 11 million jobs. The unemployment rate peaked at 10.0% in October of 2009. It currently stands at 5.1%, near the 4.5% bottom it hit before the recession took place.

Keep in mind that this does not mean we have recovered completely. During this time the country has added tens of millions to our population and therefore we have not recovered all jobs lost. Why is this perspective important? Because the Federal Reserve Board will be considering long term trends when they make a decision regarding raising rates this week. Yes, the latest report is important, but not as important as where we are headed. And therein lies the problem. The Fed can’t predict where we are headed either. For that the Fed would need a crystal ball and they don’t have one of those.

Certainly, the gyrations of the stock market will be considered by the Fed. And not only our stock market, but markets all over the world and especially in China. Is our market correction due to the possibility of the Fed raising rates or the fear of an economic slowdown spreading to our shores from overseas? One trend should be noted: short-term rates have risen during the past several weeks and this tells us that the markets are expecting some action from the Fed. Though short-term rates are not as “visible” to the consumer as longer-term rates that determine the value of fixed rate home loans, short-term rates do determine adjustments for those having variable rate home loans and this trend bears watching.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans were stable in the past week. Freddie Mac announced that for the week ending September 3, 30-year fixed rates rose one tick to 3.90% from 3.89% the week before. The average for 15-year loans also increased one tick to 3.10%. Adjustables were mixed with slight changes, with the average for one-year adjustables rising one tick to 2.63% and five-year adjustables falling two ticks to 2.91%. 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 — “Following a shortened week, rates on home loans were virtually unchanged, inching up 1 basis point to 3.90 percent. The employment report released last Friday provided mixed signals, adding one more note of uncertainty prior to the Fed’s September meeting. The unemployment rate dropped to 5.1 percent in August, the lowest rate since April 2008, but only 173,000 jobs were added, well below expectations. Wages grew 2.2 percent, a neutral indication at best.” 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 September 11, 2015
Daily Value Monthly Value
Sept 10 August
6-month Treasury Security  0.25%  0.22%
1-year Treasury Security  0.39%  0.38%
3-year Treasury Security  1.06%  1.03%
5-year Treasury Security  1.55%  1.54%
10-year Treasury Security  2.23%  2.17%
12-month LIBOR  0.843% (Aug)
12-month MTA  0.221% (Aug)
11th District Cost of Funds  0.643% (July)
Prime Rate  3.25%
REAL ESTATE NEWS

Applying for a home loan and supplying supporting documents — traditionally one of the most time-consuming, paperwork-intensive and frustrating financial exercises around — increasingly is being automated. That means applicants will find the process easier, faster and, possibly, less expensive than before. Americans already have embraced online interactions for other financial products and services. They pay bills online, check credit card transactions, buy and sell stocks, adjust 401(k) balances and pull up their credit reports. The vast majority of taxpayers file their tax returns online. Five years from now, digital applications and document submission for home loans might be just as prevalent, though it isn’t quite there yet. “It’s not as widespread as you might think,” said Rick Hill, vice president of industry technology for the Mortgage Bankers Association. Many people still prefer to meet face to face with a loan officer, especially first-time home buyers. Even the mortgage-closing process, the final step before homeowners become contractually obligated to their loans, can be improved through technology, according to a report out last week by the federal Consumer Financial Protection Bureau, based on survey results from 1,200 consumers who signed off for their loans in this manner. Source: USA Today

Millennials are keen to embrace new technology in homes according to a new survey. The NPD Group Connected Intelligence Home Automation Advisory Service shows that American millennials are twice as likely as the total population to have a smart home product installed in their residence. These include network-connected security and monitoring devices, sensors, system controllers, smart lighting, power, and appliances. One-in-four millennials (23 percent) has already installed at least one of these products in their homes, compared to 12 percent of the total population. A key factor that is driving this early growth is that the smart home market is no longer just for home owners. Renters are as likely as home owners to have smart home products installed, and are three times more likely to be part of the millennial age group. Source: NPD Group

A greater share of U.S. millennials say they’re likely to buy a home this year, adding to evidence that first-time buyers are finally entering the real estate market and fueling a jump in sales. A Realtor.com survey of site visitors taken this summer showed that about 65 percent of respondents between ages 25 and 34 said they intend to buy a home within the next three months, up from 54 percent in January, according to data released recently. The share of millennials visiting Realtor.com with the goal of buying a home increased to 23 percent from 21 percent at the start of the year. Young buyers, traditionally top drivers of housing demand, are helping to bolster the U.S. housing recovery after years of being hampered by student debt and tight credit. An improving economy, surging rents and the prospect of higher rates are luring in more homebuyers, especially older millennials starting families. “We are in the midst of the millennials really seriously getting into the market, and that’s the difference on the existing-home side,” Jonathan Smoke, chief economist at Realtor.com, said. First-time buyers accounted for 32 percent of existing-home sales in May, matching the highest share since 2012, the National Association of Realtors reported. Millennials have pulled ahead of the older Generation X as the largest segment of purchasers, according to the trade group. Source: Bloomberg

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