The Inauguration

A View from the Beach

A View from the Beach

ECONOMIC COMMENTARY
January 24, 2017 –

 

We now have a new President to go along with a new Congress. During the past year or so, we have endured what can only be described as an excruciatingly long election season mired in controversy and then even more controversy leading up to this time. With all this has come an endless amount of speculation as to the changes that will come about and what the effects will be on our economy.

Some of the questions center around trade agreements, regulations, foreign policy, health care and more. It has always been our policy to avoid political discussions and also not to get into speculation. This will not change. We don’t know what exactly will take place and certainly don’t know what effects these changes will have on the economy. Thus, we will discuss changes in policies which can affect the economy, real estate and jobs — but we have no better crystal ball than we have previously carried.

We do want to wish President Trump well, along with his administration and Congress. They certainly have a daunting task head of them, as does every new government. As an example, President Obama came in facing the deepest recession we had seen since the Great Depression — quite a challenge. Though there is a new direction, the economy and life will go on. For example, the Federal Reserve Board’s Open Market Committee meets next week for the first time since they raised rates in December. Most are not expecting another increase so quickly, and the change in administrations should not alter those expectations.

Note: Speaking of changes, we do know that upon the administration transition, the previously announced reduction in FHA Mortgage Insurance Premiums was suspended indefinitely by HUD. These changes were to take place January 27. HUD did not give a date by which they would revisit the policy. 

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates were lower for the third week in a row to open the year, however the numbers did not reflect the increase which occurred at the end of the survey period in reaction to comments made by the Chairperson of the Federal Reserve regarding full employment and inflation. For the week ending January 19, Freddie Mac announced that 30-year fixed rates fell to 4.09% from 4.12% the week before. The average for 15-year loans decreased to 3.34%, and the average for five-year adjustables moved down to 3.21%. A year ago, 30-year fixed rates were at 3.81%, 0.30% lower than today. Attributed to Sean Becketti, Chief Economist, Freddie Mac. — “After trending down for most of the week, the 10-year Treasury yield rose following the release of the CPI report. In contrast, the rate on 30-year fixed loans fell three basis points to 4.09 percent, the third straight week of declines.” 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 January 20, 2017

Daily Value Monthly Value
January 18 December
6-month Treasury Security  0.63%  0.64%
1-year Treasury Security  0.82%  0.87%
3-year Treasury Security  1.51%  1.49%
5-year Treasury Security  1.93%  1.96%
10-year Treasury Security  2.42%  2.49%
12-month LIBOR  1.686% (Dec)
12-month MTA  0.614% (Dec)
11th District Cost of Funds  0.603% (Nov)
Prime Rate  3.750% (Dec)

REAL ESTATE NEWS
  Will Congress reinstate deductions for MI premiums as part of its overhaul of the federal tax code? Depending on your situation as a buyer or owner, it could mean thousands of dollars in tax write-offs. M.I. premiums are charged by lenders when borrowers make less than a 20 percent down payment. During the past year, 43 percent of all home purchases were made with down payments of 5 percent or less, according to analytics firm CoreLogic Inc., often by millennials, first-timers and minority buyers. Under current law, these premium charges can be deducted on eligible borrowers’ income tax filings, along with home loan interest — including insurance charged by FHA. During 2014, the most recent year for which the Internal Revenue Service has statistics, MI premium deductions were claimed by 4.2 million homeowners. Since the right to take full premium write-offs is restricted by law to borrowers with incomes of $109,000 or lower, the benefit is targeted at non-wealthy families and is off-limits to everybody else. Roughly 40 percent of all taxpayers who filed for the deduction in the latest year had incomes of less than $75,000. But here’s the problem: The current statutory authorization for this benefit to middle income owners expired December 31. It will not be available for borrowers during 2017 and beyond unless reauthorized or given permanent authorization through congressional action. There’s a possibility this could happen if — as expected — Congress responds to President’s Trump call for a major tax reform bill to be passed as early as possible in the new year. Trump did not specifically address M.I. premium deductions during his campaign, but they clearly support one of his key priorities: greater recognition of the financial needs of blue collar and middle income families. Source: Mortgage Daily

The total value of the U.S. housing stock grew to a record-high $29.6 trillion in 2016, according to a new Zillow® analysis. The housing market saw a strong year of appreciation, growing 5.7 percent in value, or $1.6 trillion. The U.S. housing market has regained all the value lost during the housing crisis. The cumulative value of all homes in the U.S. declined by $6.4 trillion between 2006 and 2012 as the housing market collapsed. A home is typically the biggest part of an individual or family’s wealth, and the cumulative value of the U.S. residential housing stock is similarly significant to the national economy. The U.S. GDP is an estimated $18.7 trillion, nearly $10 trillion less than the value of all homes in the country. “Housing is incredibly important to us personally and to the economy as a whole,” said Zillow Chief Economist Dr. Svenja Gudell. “The U.S. housing stock is worth more than ever, which is a sign of the ongoing housing recovery. As buying a home gets more expensive, affordability remains a concern for many, and these numbers highlight just how much people are spending on housing. The total value of the housing stock grew nearly 6 percent this year, a pace that will likely mean some American families are priced out of homeownership.” Renters this year paid $478.5 billion, a $17.7 billion increase from 2015. About 635,000 new renter households formed in 2016, contributing to the amount of rent spent even as rent appreciation slowed. Source: Zillow

Rental apartments continue to face little competition from for-sale condominiums, but that can’t last, according to market experts. “We expect homeownership to return to favor, likely in the form of entry-level condos that offer the same amenities many urban apartment dwellers prefer,” says John Affleck, research strategist with CoStar. Currently, demand for rental apartments is high. Nearly all of the new units of multifamily housing—92 percent of multifamily housing starts in the third quarter—were being built as rental apartments, according to the National Association of Home Builders (NAHB). “I expect additional growth in the condo market,” says NAHB chief economist Robert Dietz. Condominium (and cooperative) completions in the second quarter of 2016 totaled 2,800, essentially unchanged from the second quarter of 2015 (when there were 2,700 completions). However, the condominium absorption rate picked up slightly, going from 63 percent in the second quarter of 2015 to 66 percent in the second quarter of 2016, according to NAHB. “The for-sale market and the single-family rental space will start posing more of a challenge to apartment operators as we move forward,” says Jay Denton, senior vice president of analytics for Axiometrics. Source: The National Real Estate Investor

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