The Oil Factor

2015 Best of Coastal Style Winner
ECONOMIC COMMENTARY
January 26, 2016 –  

We have addressed the price of oil several times in the past year or so. Thus, we should have had most of the issues on the table. However, each time we speak about the price, a few months later, the price of oil goes down again. First, we must say, that we don’t feel that the price of oil will go down forever. While we are not trying to predict the bottom, it is likely to come sometime this year, if we have not seen it already.

In the short run, the low price of oil helps many consumers and therefore helps the economy through increased spending in other areas. At the same time, companies in the energy sector will suffer layoffs. Also, some regions of our country will suffer, as well as many countries that depend upon oil revenue for their economies. If oil prices rebound, the effects will be short-lived. But if oil stays low, the effects will become long lasting, including the affects upon consumer behavior.

For example, the type of cars people purchase. Especially now that cars have become more fuel efficient, expect to see more SUVs and larger cars on the road in times that gas prices are low. In the long run, if the price of gas stays low, it may also affect home buying habits. With prices rising to unaffordable levels in many central cities, it is predicted that many will again look to the suburbs for lower cost housing. And lower gas prices may very well facilitate this trend in the long run. It is expected that if millennials move to the suburbs, they will be looking for developments that resemble conveniences of cites, such as town centers. Thus, the price of oil bears watching for many reasons.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans fell sharply this past week to their lowest levels in three months. Freddie Mac announced that, for the week ending January 21, 30-year fixed rates fell to 3.81% from 3.92% the week before. The average for 15-year loans decreased to 3.10%. The average for five-year adjustables also decreased to 2.91%. A year ago, 30-year fixed rates were at 3.63%, lower than today’s levels. “The Freddie Mac rate survey had difficulty keeping up with market events this week. The 30-year rate dropped 11 basis points to 3.81 percent, the lowest in three months. This drop reflected weak inflation — 0.7 percent CPI inflation for all of 2015 — and nonstop financial market turbulence that is driving investors to the safe haven of Treasuries. However, the survey was largely complete prior to Wednesday’s Treasury rally that drove the yield on the 10-year Treasury below 2 percent, down 29 basis points since the end of 2015.” Note: As of January 1, Freddie Mac is no longer providing survey data for 1-year adjustables. 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 January 22, 2016

Daily Value Monthly Value
Jan 20 December
6-month Treasury Security  0.35%  0.50%
1-year Treasury Security  0.43%  0.65%
3-year Treasury Security  1.06%  1.28%
5-year Treasury Security  1.44%  1.70%
10-year Treasury Security  2.01%  2.24%
12-month LIBOR  0.981% (Dec)
12-month MTA  0.322% (Dec)
11th District Cost of Funds  0.644% (Nov)
Prime Rate  3.50% (Dec)
REAL ESTATE NEWS

 The real estate market is always changing, and the growing reliance on technology in our industry makes it move even faster. Buyers and sellers search for homes and communicate differently than they did just two decades ago. On top of that, they also have more access to data and information than ever before. What are some trends that will have an impact on real estate in 2016?

  • Buying costs less than renting. In most areas, it’s cheaper to buy instead of rent. According to Trulia, nationally, it’s 35 percent cheaper to buy instead of rent, and CNN Money reports that for millennials, it’s 23 percent cheaper.
  • The Internet is king. The Internet continues to be the first stop for buyers and sellers looking for information. In fact, 43 percent of all buyers looked for properties online before contacting an agent or looking for information about the homebuying process. This percentage is even higher for younger buyers or millennials. It only makes sense. After all, younger buyers are more likely to have grown up with computers in their homes and access to the Web from an early age.
  • Agents are still necessary. According to the National Association of Realtors Profile of Home Buyers and Sellers, 88 percent of buyers would use their agent again or refer him or her to others. Despite having incredible access to information, buyers and sellers still rely on agents to guide them through the real estate process. Buyers want their agents to help them find the right home, negotiate a great deal and help them with all the paperwork. Sellers, on the other hand, want their agents to market their home to potential buyers, sell it within a particular period and price it to sell. Technology hasn’t made agents obsolete — it’s made them more valuable. Source: Inman News

The total value of America’s residential real estate hit $28.5 trillion at the end of 2015 according to analysis by Zillow. The housing market added $1.1 trillion in value, a 4.1 per cent increase on 2014. Although the growth was lower than in 2014 (6 per cent) some markets have outperformed the national average. “Total home value growth slowed this year, but there was still a significant increase in overall value, and many markets are more valuable than they’ve ever been. At the same time, more renter households and rising rents combined to set new records in rental spending in 2015. Americans are spending a lot of money on housing, and that will make affordability an important issue next year,” said Dr Svenja Gudell, Zillow’s chief economist. Americans shelled out nearly $20 billion more in rent in 2015 than in 2014 as people around the country set up 1.8 million new renter households and median monthly rents rose at a record pace. Source: Mortgage Professional America

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