Anticipation Meets Reality

A View from the Beach

ECONOMIC COMMENTARY
April 4, 2017 –

 

We have used some rather broad terms regarding the mood of the markets over the past few months. Words such as “confidence” and “uncertainty.” Today we would like to use another word — “anticipation.” One reason for the markets’ confidence in the past several months has been the anticipation of changes that would spur the economy. Logically, the markets knew these changes would take time, but when you have a rush of adrenaline, markets tend to get ahead of themselves.

Since the peak reached at the beginning of March, stocks have moved sideways and then turned decidedly negative in the second half of the month. Now, we do know that the market can’t go up every month and certainly stocks were due for a pause or correction. So, the question is–are stocks taking a breather, or are the markets getting antsy because of the realization that this is Washington and changes do not come quickly in Washington? Certainly, the fight over the health care bill is an example of how difficult change can be.

Stocks could roar right back — even before this commentary is published. But if stocks continue to correct or just tread water from here, it may be that the markets want to see real news of economic growth before they rise again — as opposed to the anticipation of news. Some of that news may come in the form of the jobs report to be released this week. Meanwhile, the good news about this pause is that interest rates have also fallen with the stock market. This is happening despite the fact that the Federal Reserve Board raised short-term rates this month. What we are seeing is more proof that the Fed can’t control long-term rates. Having rates fall a bit just as the Spring real estate season starts is certainly not bad news.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates moved down for the second week in a row, coinciding with a weaker stock market. For the week ending March 30, Freddie Mac announced that 30-year fixed rates fell to 4.14% from 4.23% the week before. The average for 15-year loans decreased to 3.39%, and the average for five-year adjustables moved down to 3.18%. A year ago, 30-year fixed rates averaged 3.71%. Attributed to Sean Becketti, chief economist, Freddie Mac — “The 10-year Treasury yield remained relatively flat this week. The rate on 30-year fixed loans fell 9 basis points to 4.14 percent, another significant week-over-week decline. Despite recent interest rate fluctuations, new home sales far exceeded expectations in February and jumped 6.1 percent to an annualized rate of 592,000.”  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 31, 2017

Daily Value Monthly Value
March 30 February
6-month Treasury Security  0.91%  0.65%
1-year Treasury Security  1.03%  0.82%
3-year Treasury Security  1.55%  1.47%
5-year Treasury Security  1.96%  1.90%
10-year Treasury Security  2.42%  2.42%
12-month LIBOR  1.713% (Feb)
12-month MTA  0.663% (Feb)
11th District Cost of Funds  0.616% (Jan)
Prime Rate  4.00% (Dec)

REAL ESTATE NEWS
  Adjustable-rate loans are more popular now than at any time in more than two years as interest rates start climbing. According to Mortgage Bankers Association data, the share of home loan applications taken by ARMs was the largest since October 2014. As nearly three decades of MBA data show, adjustable-rates get a lot more popular when the threat of rising rates looms. According to the MBA, the average 5/1 ARM rate was nearly a full percentage point lower that fixed rates, at 3.48%. ARMs like the 5/1 are loans with starter rates which can increase after a set period — in this case five years. The ARM would represent savings of $93 a month for homes at the national median of $228,900, according to Zillow’s online mortgage market calculator. ARMs made up a whopping 36.6% of total applications in March 2005, arguably the height of the housing frenzy, when rates were higher and the assumption was that any home loan represented a way into a home, with a refinance to follow later. That share was a more manageable 7.7% last week, and the 27-year history has the ARM share at 13.9%. Source: MarketWatch

Note: Today’s ARMs are safer than those offered in the past. If you would like to learn more about today’s adjustable choices, contact us.

Millennials and baby boomers often steal the spotlight in real estate. But Generation X says it’s time for the housing market to pay more attention to them instead. Gen Xers are the only generation to purchase more homes last year than they did the previous one, according to the National Association of Realtors®  Home Buyer and Seller Generational Trends survey. Gen Xers, aged 37 to 51, made up 26 percent of home buyers in 2015, but grew that percentage to 28 percent in 2016. “That group suffered the most” in the last recession, says Jonathan Smoke, chief economist of realtor.com®. “They were entering homeownership at the peak of the housing bubble and were also the ones most likely to suffer job losses.” During the crisis, many in the generation saw their homes go underwater as they owed more than their home was worth. But things are finally turning around for Gen Xers. The economy is stronger, housing values are up, and the job market is strengthening. Their incomes are up as well. Buyers earned a median of $106,600 a year, according to NAR’s survey. (Younger baby boomers, aged 52 to 61, earned $93,800 and millennials, aged 36 and younger, earned $82,000.) “Now, they’re actually in their prime earning years,” Smoke says. “And they’re also far more likely to have families. It makes complete sense that they’re coming back.” Generation X is the largest generation that has kids still living at home. As such, they’re moving for a better school district or finding a home that has enough bedrooms to accommodate their children, says Jessica Lautz, NAR’s managing director of survey research. Source: NAR

About 63 percent of all homeowners saw their equity increase last year. “Average home equity rose by $13,700 for U.S. homeowners during 2016,” says Frank Nothaft, chief economist for CoreLogic. “The equity build-up has been supported by home price growth and pay down of principal. Further, about one-fourth of all outstanding home loans have a term of 20 years or less, which amortize more quickly than 30-year loans and contribute to faster equity accumulation.” “Home equity gains were strongest in faster-appreciating and higher-priced home markets,” says Frank Martell, president and CEO of CoreLogic. Source: CoreLogic

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