The “Shew” Continues

A View from the Beach

A View from the Beach

ECONOMIC COMMENTARY
November 8, 2016 –

 

Last week we spoke of “the really big shew” and today is the headline performance — The Presidential Election. First, let’s do a review of the preliminary acts. On Monday of last week, we had a release of the personal income and spending numbers. While they were in line with expectations, the personal spending numbers were especially strong. Taken together with a stronger than expected data on the growth of the economy for the third quarter, the numbers increase the probability of the Federal Reserve Board raising rates in December.

Indeed, when the Fed met and released their announcement on Wednesday, they indicated that they would not be raising rates this month as expected, just a few days before the election. However, the statement clearly indicated that a possible increase was on the table for December. Of course, the most important data was released on Friday after the Fed meeting. The jobs report showed an increase of 161,000 jobs in October. The report also indicated that the September numbers were revised upward by 35,000 jobs and the unemployment rate slipped down to 4.9%. Finally, wages grew at a faster pace, something the Fed is looking closely at.

Taken together with the earlier data we cited, this means that a December rate increase is definitely in the cards. While we are not expecting the results of the election to affect the chances of a rate increase in December, we are pretty certain that the election being over does increase the chances. This is especially true with the Presidential inauguration being just before the first meeting of the Fed next year. Theoretically, a new President in office should not affect the actions of the Fed, but certainly that sort of welcome would be ill-timed.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates reversed course in the last week, rising in the days heading into the meeting of the Federal Reserve Open Market Committee. For the week ending October 27, Freddie Mac announced that 30-year fixed rates rose to 3.54% from 3.47% the week before. The average for 15-year loans also increased to 2.84%, and the average for five-year adjustables moved up to 2.87%. A year ago, 30-year fixed rates were at 3.87%, still more than one-quarter of one percent higher than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac — “A jump last week in the PCE — the price index tracked most closely by the Fed — raised the prospect that inflation might not be completely dead after all. Investors reacted by driving the yield on the 10-year Treasury to its highest point since June. The rate on 30-year fixed loans jumped 7 basis points to 3.54 percent, the largest 1-week increase in over six months.” 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 November 4, 2016
Daily Value Monthly Value
Nov 3 September
6-month Treasury Security  0.52%  0.47%
1-year Treasury Security  0.64%  0.59%
3-year Treasury Security  0.98%  0.90%
5-year Treasury Security  1.26%  1.18%
10-year Treasury Security  1.82%  1.63%
12-month LIBOR  1.559% (Sep)
12-month MTA  0.542% (Sep)
11th District Cost of Funds  0.601% (Sep)
Prime Rate  3.50% (Dec)

REAL ESTATE NEWS
  We can expect a hot year for home sales in 2017, according to recent forecasts from the National Association of Realtors®, the Mortgage Bankers’ Association, Freddie Mac and Fannie Mae, and more. NAR is predicting existing-home sales to reach 6 million in 2017, higher than its 5.8 million forecast for this year. But other entities are even more bullish. MBA is predicting home sales to eclipse 6.5 million next year, while Fannie Mae and Freddie Mac are both predicting 6.2 million. A huge wave of Generation Yers, who have delayed home buying, are emerging into their key buying years. They are predicted to keep home sales and condo sales strong well into 2020, according to economists. Meanwhile, new-home construction starts likely will tick up to about 1.5 million per year to 2024, predicts Forisk Research. Home builders likely will continue to be more subdued, despite calls for more inventory. “Home builders’ behavior likely is a continuing echo of their experience during the crash,” Pantheon Macro Chief Economist Ian Shepherdson told MarketWatch. “No one wants to be caught with excess inventory during a sudden downshift in demand. In this cycle, the pursuit of market share and volumes is less important than profitability and balance sheet resistance.” Source: MarketWatch

In the pursuit of the American dream, immigrant households are gaining ground on native-born Americans in terms of homeownership rates, according to a new report issued by Trulia. In its report titled “Immigration Nation: Homeownership and Foreign-Born Residents,” Trulia noted that the 1994 homeownership rate of those born in the U.S. was 66 percent while that of the foreign born was 48.1 percent, a 17.8 percentage point difference. That disparity grew to a 20.7 percentage point difference by 2001, but in 2015 the disparity shrank to 15.4 percentage points. During that period, Trulia found the homeownership rate of native-born Americans remained mostly unchanged, with the immigrant rate fueling the gap closure. Mark Uh, a data scientist at Trulia, noted that immigrants who lived in the U.S. less than five years had a much lower homeownership rate than immigrants residing in this country for 10 or more years. “This is likely due to the fact that immigrants who lived in the U.S. less than five years do not have adequate credit history in the U.S. to obtain a home loan, which forces them to rent rather than own,” Uh said. Source: National Mortgage Professional

You may soon be selling a home inside of a mall. It’s becoming more common, as enclosed malls across the country look to reinvent themselves. What’s more, some communities are finding that living in a mall could be a boon for property values. Those massive, enclosed malls once popular in the ‘70s, ‘80s, and ‘90s are dying off. More shoppers are buying online, instead of heading to walk the mall. Foot traffic among the largest malls in the country is plummeting. Stores are closing and some entire malls are going dark. “About 200 malls have closed down in the past two years across the country,” says Ellen Dunham-Jones, an urban design professor at the Georgia Institute of Technology in Atlanta. “About 1,100 enclosed malls are left in the country,” she says. But what does a community do when it has up to 1.2 million square feet of vacant retail space in a prime area of town? “Nearly 300 former malls have – or are in the process of becoming – mixed-use developments, and 50 or so are adding in housing”, Dunham-Jones says. Closed malls are being transformed into public parks, medical complexes, and even hockey rinks. They’re being reimagined as walkable “urban developments in the suburbs,” outfitted with boutiques, restaurants, fitness centers, entertainment, and housing. Developers are eyeing shopping malls as prime real estate, particularly at a time when land has gotten scarce and pricier for new construction. At 50 to 100 acres, including parking lots, a closed mall could be a bargain, and it’s already about the size of a planned community or subdivision. Source: realtor.com®

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