The Fed Has Spoken

A View from the Beach

A View from the Beach

ECONOMIC COMMENTARY
March 29, 2016 –

In an apparent example of reverse psychology, the markets seemed to have liked what the Federal Reserve Board said after their last meeting. What the Fed said was that they are concerned that the economy is suffering because of economic concerns — “Since the turn of the year, concerns about global economic prospects have led to increased market volatility and tighter financial conditions in the United States,” Chairwoman Janet Yellen stated. Thus, the Fed dialed down their economic growth forecast for the year, as well as the number of rate hikes they expect this year.

The stock market rallied after the statement was released, and long-term interest rates fell somewhat. Thus, we are seeing that for now, the stock market likes bad news. Why would that be? Last week we spoke about stocks liking higher oil prices — for now. Of course, a slower economy means low interest rates, and low rates also represent good news for stocks. Low rates also favor real estate and other sectors of the economy. A word of caution about all of these connections. The markets and the economy can turn quickly and the Fed also said that their plans are subject to change if that happens.

In other words, if the economy gets stronger, the Fed statement goes out the window. The economic news released in March did not seem to show a weakening of the economy and this week another jobs report is released on the first day of April. If the economy is still producing a significant amount of jobs, this news will be hard for the Fed to ignore. On the other hand, if wage growth continues to stagnate, then the Fed will have more time to see where the economy is headed before they make their next move. And just to complicate matters, the latest terror attack in Europe is another reminder of how quickly things can move  in a completely different direction.

WEEKLY INTEREST RATE OVERVIEW


The Markets.

Rates on home loans moved lower in reaction to the Fed announcement. Freddie Mac announced that, for the week ending March 24, 30-year fixed rates fell slightly to 3.71% from 3.73% the week before. The average for 15-year loans was also slightly lower at 2.96%. The average for five-year adjustables decreased to 2.89%. A year ago, 30-year fixed rates were at 3.69%, virtually the same as today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The Federal Reserve’s decision last week to maintain the current level of the Federal funds rate, combined with the reduction in their forecast for growth, triggered a 3-basis point drop in the 10-year Treasury yield. As a consequence, the 30-year fixed rate declined 2 basis points to 3.71 percent. However, comments this week by several members of the Fed, including the presidents of the Richmond, San Francisco, and Atlanta banks, indicated that a June rate hike is still on the table.”  Note: 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 March 25, 2016
Daily Value Monthly Value
March 24 February
6-month Treasury Security  0.46%  0.45%
1-year Treasury Security  0.63%  0.53%
3-year Treasury Security  1.05%  0.90%
5-year Treasury Security  1.39%  1.22%
10-year Treasury Security  1.91%  1.78%
12-month LIBOR  1.179% (Feb)
12-month MTA  0.377% (Feb)
11th District Cost of Funds  0.664% (Jan)
Prime Rate  3.50% (Dec)
REAL ESTATE NEWS

 Rates on home loans have been historically low for several years, but a surprising number of borrowers are still not taking advantage even though rates fell again at the start of this year. How many? Close to 7 million. After the Federal Reserve raised its target interest rate in early December, the common expectation was that rates on home loans would rise. “Global economic shocks then sent investors looking for the safety of U.S. Treasurys, driving down yields on benchmark 10-year bonds. Rates began to fall in defiance of prevailing wisdom, and the refinanceable population grew by 30 percent in the first six weeks of 2016,” said Ben Graboske, Black Knight Data & Analytics senior vice president. By the end of February, 6.7 million borrowers could have saved an average of $3,000 per year, representing a total of $20 billion in potential annual savings, according to an analysis by Black Knight. These borrowers have enough equity in their homes and high enough credit scores to qualify for refinances. “It’s lack of awareness of the opportunity, and how to act on it,” added Graboske. How much does that translate into on a monthly payment? More than 3 million borrowers could save $200 a month or more; nearly 1 million could save $400 a month or more. Though refinance applications have increased in the past two months, millions of borrowers are still sitting on the sidelines, perhaps unaware of the savings. Source: CNBC  Think you or someone else you know can benefit from these low rates?  Contact us for a free home loan check-up. 

Millennials are leaving the city. While many millennials choose to live in urban areas as renters, when they’re ready to buy, they’re increasingly seeking single-family homes outside of urban areas, according to the 2016 National Association of Realtors® Home Buyer and Seller Generational Trends study. “The median age of a millennial home buyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family,” says Lawrence Yun, NAR’s chief economist. “Even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is for the most part pushing their search further out. Furthermore, limited inventory in millennials’ price range, minimal entry-level condo construction, and affordability pressures make buying in the city extremely difficult for most young households.” The percentage of millennials purchasing a home in an urban or central city area fell to 17 percent in this year’s survey – down from 21 percent the year prior. Also, 10 percent of millennials purchased a multifamily home, down from 15 percent a year ago. Millennials comprise the largest group of recent home buyers – 35 percent which trumps the 31 percent of baby boomers, 26 percent of Gen X buyers, and 9 percent from the Silent Generation, NAR’s survey showed. When it comes to neighborhood choice, millennials were most influenced by the quality of the neighborhood (63 percent) and convenience to jobs (60 percent). Gen X buyers were most swayed by convenience to schools. Source: RIS Media

Homebuilders across the country say that delays they face receiving building permits from their local governments are stalling projects. City governments are working with smaller staffs, after many reduced staff levels during the recession. That shortage could explain some of the long wait times builders are facing to get permits and other approvals. Single-family developers reported a median delay of seven months in 2015, up from four months in 2011, according to the National Association of Home Builders. In markets heating up, permits are taking six to eight months, compared to the typical two to three months they once took, says Bradley Gaskins, chairman of the Codes and Standards Committee of the American Institute of Architects. Those delays come as inventory levels are tight in many markets heading into the spring buying season. Source: The Wall Street Journal

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