The Bright Side of Weak Stocks

2015 Best of Coastal Style WinnerECONOMIC COMMENTARY
February 9, 2016 – 

We are not saying that the stock market is not going to recover quickly from the correction it has undergone during the past several weeks. Nor are we rooting for stocks to languish this year. However, we always find that when there is bad news, there is most likely counter-balancing news somewhere else. In the case of a weak stock market, we have seen some of these effects.

For one, interest rates are lower than anyone expected at the start of this year. As we pointed out previously, the weak stock market has made many observers predict that the Federal Reserve Board will be more reticent to raise rates again any time soon. And this is not just because of the stock market, but the factors which are causing stocks to be weak, such as oil prices and weakness overseas.

Another sector which could benefit from under-performing stocks would be the real estate sector. If investors can’t get returns in equities, they are going to look for returns in other sectors. Institutional investors helped prop-up real estate by purchasing massive amounts of foreclosures during the aftermath of the recession. Individual investors have returned to real estate slowly but surely, by purchasing homes and investment properties. Continued malaise in the stock market could hasten this process.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans continued to fall this past week; however, this data was released before the jobs report on Friday. Freddie Mac announced that, for the week ending February 4, 30-year fixed rates fell to 3.72% from 3.79% the week before. The average for 15-year loans decreased to 3.01%. The average for five-year adjustables also decreased to 2.85%. A year ago, 30-year fixed rates were at 3.59%, slightly lower than today’s levels. “Market volatility — and the associated flight to quality — continued unabated this week. The yield on the 10-year Treasury dropped another 15 basis points, and the 30-year rate fell 7 basis points as well, to 3.72 percent. Both the Treasury yield and rates on home loans now are in the neighborhood of early-2015 lows. These declines are not what the market anticipated when the Fed raised the Federal funds rate in December. For now, though, sub-4-percent rates are providing a longer-than-expected opportunity for homeowners to refinance.” 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 February 5, 2016

Daily Value Monthly Value
Feb 4 January
6-month Treasury Security  0.43%  0.43%
1-year Treasury Security  0.52%  0.54%
3-year Treasury Security  0.90%  1.14%
5-year Treasury Security  1.25%  1.52%
10-year Treasury Security  1.87%  2.09%
12-month LIBOR  1.153% (Jan)
12-month MTA  0.350% (Jan)
11th District Cost of Funds  0.655% (Dec)
Prime Rate  3.50% (Dec)

REAL ESTATE NEWSClosing glitches can be fairly common. The three biggest causes for a closing delay are buyer financing setbacks, home inspection issues and appraisals that are different from the agreed-upon contracted sales price That’s according to a survey conducted last month by the National Association of Realtors® of more than 2,600 real estate professionals who were reflecting on their sales and purchases for the previous three months. The survey found that 32 percent – or nearly one-third – of all real estate transactions encounter some type of delay to closing. Of those real estate professionals who say they’ve faced delays, 46 percent say it was caused by “financing issues,” up from 40 percent during the first half of 2015, according to NAR’s survey. Appraisal problems prompted 21 percent of the delays, and issues that arose from home inspections triggered 14 percent of the postponements to closing, the survey found. For about 6 percent of the deals, the buyer and seller eventually never made it to closing and the deal fell through completely. Home inspection issues and financing problems were cited as the primary reasons why. Source: The Washington Post– Note: Interested in limiting financing delays? Ask about our fully underwritten pre-approval service designed to help you move from contract to closing seamlessly.

 

U.S. home sales ended 2015 with a 22.5 percent month-over-month spike, according to the latest RE/MAX National Housing Report. On a year-over-year measurement, December saw a 6.1 percent increase in sales. The average number of days on the market for all homes sold last month was 67, up two days from the average in November but six days lower than the previous year’s average. As for inventory, the number of homes for sale in December was 12.5 percent below the November level and 14.2 percent below the December 2014 level. “It’s possible that the TRID closing rule implementation caused November transactions to dip lower than normal, but now we see December bouncing back much stronger than the seasonal average,” said Dave Liniger, RE/MAX CEO and founder. “Perhaps many closings were simply pushed forward a month. But it’s nice to see the year end on an upbeat note, with sales significantly greater than the previous year. Overall, 2015 goes into the record books as a very good year for residential real estate.” Source: National Mortgage Professional

Apartment rents increased faster last year than at any time since 2007, a boon for landlords but one that has stoked concerns about housing affordability for renters. Average effective rents nationwide rose 4.6% in 2015, the biggest gain since before the recession, according to a report by real-estate researcher Reis Inc. The average apartment rent now stands at nearly $1,180, up from about $1,125 a year ago. Another report from Axiometrics Inc., a Dallas-based apartment research company, showed that rents increased 4.7% in the fourth quarter compared with the same quarter a year earlier, the strongest year-end performance since 2005. The fourth quarter “wrapped up an incredible year for the apartment market, probably the strongest we’ve ever seen,” said Jay Denton, senior vice president of analytics at Axiometrics. Unlike home prices, which crashed during the recession and have taken years to recover, rents scarcely dipped during the downturn. Since then annual increases have accelerated from 2.3% in 2010 to about 4% in each of the last two years. Over the last 15 years, rents have increased by an average of 2.7% annually, according to Reis. Source: The Wall Street Journal

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