The Speculation Will End

A View from the Beach

A View from the Beach

ECONOMIC COMMENTARY
December 13, 2016 –

 

The speculation will end. Almost. While most everybody is expecting an increase in short-term rates by the Federal Reserve Board’s Open Market Committee, there are two questions that remain. First, by how much will the Fed raise rates? If you have asked this question just a month ago, the prevalent answer would have been 0.25%. But with rates going up sharply since the election, the question should be asked whether the Fed will make a move of 0.5%. While the current evidence of inflation does not seem to warrant such an increase, the reaction of the markets to the election leaves the door open for a larger move without shocking the markets.

The second question is–where does the Fed lead us from here? While a rate increase will not come as a shock, the Fed can still roil the markets with incendiary language attached to their post meeting announcement. Or they can calm the markets down with assuring verbiage instead. That calm statement could help rates ease a bit. As we have said many times, the words of the organization can be much more important than their actions, especially when the actions are expected.

Keep in mind that the Fed is reacting to economic numbers, not an election. As Janet Yellen reminded everyone after the election, though the chairperson is appointed by the President, she cannot be removed by the President and she is intending to serve out her full four-year term. Therefore, the jobs numbers released earlier this month should theoretically carry more weight than the rate spike since the election. One should remember that the rate spike is more a function of speculation as to what the new Administration will do, not what has already taken place. Of course, it is not unusual for markets to react to speculation.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates continued their post-election climb last week to hit a new high for 2016. For the week ending December 8, Freddie Mac announced that 30-year fixed rates rose to 4.13% from 4.08% the week before. The average for 15-year loans increased to 3.36%, and the average for five-year adjustables moved up to 3.17%. A year ago, 30-year fixed rates were at 3.95%, more than 1/8% lower than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac — “The 10-year Treasury yield dipped this week following the release of the Job Openings and Labor Turnover Survey. The rate on 30-year fixed loans rose another 5 basis points to 4.13 percent, starting the month 18 basis points higher than this time last year. As rates continue to climb and the year comes to a close, next week’s FOMC meeting will be the talk of the town with the markets 94 percent certain of a quarter-point-rate hike.” 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 December 9, 2016
Daily Value Monthly Value
Dec 8 November
6-month Treasury Security  0.62%  0.58%
1-year Treasury Security  0.84%  0.74%
3-year Treasury Security  1.40%  1.22%
5-year Treasury Security  1.83%  1.60%
10-year Treasury Security  2.40%  2.14%
12-month LIBOR  1.643% (Nov)
12-month MTA  0.596% (Nov)
11th District Cost of Funds  0.598% (Oct)
Prime Rate  3.50% (Dec)

REAL ESTATE NEWS
  Never a generation to shy away from the norm, Baby Boomers are changing what it means to be an older homeowner in the U.S., according to a recent study. “Baby Boomers—like Peter Pan—refuse to grow older,” says a new Freddie Mac report titled Fun After Fifty. “Instead of moving to seniors-oriented communities, they ‘age-in-place’ or, even better, move into the heart of a walkable city.” The age 55 and older population represents a little over a quarter of the U.S. population, but they control roughly two-thirds of the equity in single-family homes, according to U.S. Census Bureau data. What this generation plans to do with their own housing, the impact of these decisions reverberates throughout the U.S. housing market and has an effect on younger homebuyers. “Their numbers and their housing wealth guarantee that the housing decisions of older homeowners will play an outsized role in shaping the housing opportunities available to the generations that follow them—Gen X and the massive Millennial generation,” states the Freddie Mac report. To gauge the influence of the 55+ population on U.S. housing, Freddie Mac commissioned market research firm GfK to survey a nationally-representative sample of the 55+ population in early 2016 on their attitudes towards their current and future housing options. One of the most common opinions expressed by adults aged 55 and older was that they want to age in place. When thinking about their preference to relocate, 63% said they want to remain stay in their current residence, while 37% said they would like to move at least one more time. Source: Reverse Mortgage Daily

Did you know that you can actually live in your real estate investment property? Owning a rental property and living in it can be an excellent way to reduce your monthly payment outlay, while building home equity for your future. And, you can even do it as a first-time home buyer, if you plan ahead. The key is to purchase a home with 2-units, 3-units, or 4-units. Homes with 2-4 units can be financed as home loans, which means you get access to “regular” rates, as opposed to rental rates. You also may get access to larger loan sizes because loan limits for multi-unit homes are higher than for 1-unit properties. When you purchase a 2-unit, 3-unit, or 4-unit home, it’s your right as a homeowner to live in any of the home’s available units. For many homeowners, living in a multi-unit rental building is a way to defray, reduce, or eliminate the monthly cash outlay to their lender. Rents collected from the home’s other units offset the payment due on the primary one. Owning and living in a rental building is allowed by residential lenders and, according to lending guidelines, when you live in a building you rent out, the entire property can be classified as your primary residence, which gives access to lower rates and potentially larger monthly profits. In addition, renting out a building in which you live grants you access to a wider range of financing products as opposed to properties you don’t live in. Source: The Mortgage Reports

More renters claim they are concerned about high utility costs than about rising rent prices, according to a new survey from Freddie Mac. The only thing rising faster than home prices may just be rent prices. Home prices are rising across the nation to levels not seen since before the housing crisis and yet, it’s still cheaper to buy than rent, according to a study by online real estate listing service Trulia. This is the first time that Freddie Mac’s survey included questions about utility costs. The survey showed that 70% of renters are greatly to moderately concerned about higher utility costs, compared to 63% who are concerned about rent increases. Renters agreed that multifamily properties with green energy and water saving features would help reduce utility bills, and 84% of renters said these would be better places to live. In fact, renters are so concerned with their utilities that 47% said they would even pay more in rent in order to live in an environmentally-friendly rental, if it would help lower monthly costs. Source: HousingWire

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