Category Archives: Mortgage Rates

The Deed is Done

A View from the Beach

ECONOMIC COMMENTARY
June 20, 2017 –

 

The Federal Reserve Board’s Open Market Committee met last week to consider raising short-term interest rates. As we approached the meeting, the consensus was that the Fed would move their Discount and Federal Funds Rate higher by one-quarter of one percent. The weaker than expected jobs report put a bit of doubt in some analysts’ minds; however, most were still expecting the increase to be approved.

Thus, no increase would have been somewhat of a surprise and an increase of more than one-quarter of a percent would have been a major surprise. Therefore, the fact that the Fed moved by one-quarter of one percent was seen as somewhat of a non-event. Just as importantly, their statement released at the conclusion of the meeting provided us clues as to what the members thought of the state of the economy. The statement lauded the progress of the economy and downgraded their forecast for inflation. They continue to espouse a gradual rise in rates and, in the fourth quarter, the Fed expects to start selling off some of the assets they have amassed in the past to help the economy.

Anytime we are focused upon actions by the Federal Reserve Board, we have to remind our readers which interest rates the Fed controls directly. The Federal Funds Rate and the Discount Rate are rates the Fed charges member banks and member banks charge each other for overnight funds to balance their sheets. Thus, when we indicated that these are short-term rates, they are very short term. In reaction, other short-term rates such as three- and six-month T-Bills are affected most directly. On the other side of the coin, long-term rates, such as home loans, can move in tandem or have a different reaction, especially if the markets feel that the Fed is staying ahead of any threat of inflation. Thus, an increase in interest rates for home loans are not guaranteed to follow suit, though certainly the Fed’s action last week does pose that possibility.

 WEEKLY INTEREST RATE OVERVIEW

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Fed Meeting Amid Shortages

A View from the Beach

ECONOMIC COMMENTARY
June 13, 2017 –

 

We have previously brought up the listing shortages which seems to be constraining the real estate market while price growth continues. This shortage of listings presents a major opportunity for builders. Of course, builders are facing several shortages as well and these are constraining their ability to keep up with demand, especially within the first-time buyer market. These shortages include a lack of skilled labor and a lack of buildable lots in many areas. Thus, there are several shortages which are constraining the growth of the real estate market.

Could these shortages be related to the labor situation? We had another jobs report recently which showed a similar pattern. The number of jobs added was disappointing again. Yet, the unemployment rate moved to lows not seen since 2001. Could it be that we are running into a labor shortage? With the overall labor participation rate low, we expected that people would be coming back into the labor force as jobs were created, but perhaps their skills do not match the types of jobs that are open. Similarly, there are plenty of buildable lots in America, but not near many cities which are growing.

If the Federal Reserve Board meets this week feeling that we are facing a labor shortage and that wages are about to rise, they are likely to raise rates. If they feel that we just need to create more jobs, then they may not raise rates. While this one question may be an over-simplification of the situation and will not be the only one they face, it will be interesting to hear their statement after the meeting.

 WEEKLY INTEREST RATE OVERVIEW

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Cat and Mouse Game

A View from the Beach

ECONOMIC COMMENTARY
June 6, 2017 –

 

For many years during and after the recession, the monthly jobs report was important to gauge the strength of the recovery. However, during the past two years, the release of the report has taken on a new meaning. Now we are not only measuring the strength of the economy, but also tying that information directly to actions by the Federal Reserve Board’s Open Market Committee. If we added 250,000 jobs in a particular month five years ago, that was good news. But we did not have to worry about the Fed raising interest rates as a result of that information. Today, a strong report can lead us to direct action by the Fed.

And so it is with the report which came out on Friday. The increase of jobs of 138,000 and the revision of last month’s data was seen as weakness. However, the unemployment rate moved to 4.1%, another post-recession low, and monthly wage growth came in at forecast. The question at this point is — are we approaching full employment, which means we are also experiencing a shortage of labor? This information, taken together with the previous month’s report, tells us that there is still a decent chance that the Fed will act when they meet next week, but slightly less of a chance than before the report was released.

The meeting will also be accompanied by the release of economic projections which will give us a gauge of where the Fed thinks that the economy is heading in the next several months. Keep in mind that the Fed will be considering other information which measure the strength of the economy. For example, on Tuesday last week, measures of personal income and spending for April came in with moderate strength following weak readings in March. Until the Fed meets next week, we can’t say exactly how they will react, but certainly the data we saw last week give us some important clues.
 WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates were stable last week, remaining at their lowest level of the year. For the week ending June 1, Freddie Mac announced that 30-year fixed rates fell one tick to 3.94% from 3.95% the week before. The average for 15-year loans remained at 3.19%, and the average for five-year adjustables moved up to 3.11%. A year ago, 30-year fixed rates averaged 3.66%. Attributed to Sean Becketti, chief economist, Freddie Mac — “In a short week following Memorial Day, the 10-year Treasury yield fell 4 basis points. The rate on 30-year fixed loans remained relatively flat, falling 1 basis point to 3.94 percent and once again hitting a new 2017 low.” 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
June 2, 2017
Daily Value Monthly Value
June 1 April
6-month Treasury Security  1.07%  0.95%
1-year Treasury Security  1.16%  1.04%
3-year Treasury Security  1.45%  1.44%
5-year Treasury Security  1.76%  1.82%
10-year Treasury Security  2.21%  2.30%
12-month LIBOR  1.780% (Apr)
12-month MTA  0.732% (Apr)
11th District Cost of Funds  0.645% (Apr)
Prime Rate  4.00% (Apr)
REAL ESTATE NEWS
  The pace of young adults leaving their parents’ homes is accelerating significantly, Fannie Mae’s Economic and Strategic Research Group notes in a new analysis. Young adults in their mid- to late 20s or early 30s living with their parents fell between 2013 and 2015—a period known as the economic recovery—much more so than between 2010 and 2012, when the economy and housing market were still recovering from the Great Recession, researchers note. Young adults aged 24 to 25 in 2013 and 26 to 27 in 2015 residing with their parents dropped by 7.6 percentage points. On the other hand, those who passed through that same age range between 2010 and 2012 saw a decline of only 5.4 percentage points, researchers note. “Stronger income growth and an accelerated rate of marriage are likely two primary reasons why millennials are starting to leave their parents’ homes at a faster pace,” researchers note. Millennials in their 20s or early 30s saw their income, adjusted for inflation, grow by at least 23 percent between 2013 and 2015 when compared to 2010 and 2012. Also, millennials in their late 20s and early 30s between 2013 and 2015 were getting married at a markedly faster rate than their predecessors did in that same age range during the recession and the recovery thereafter, Fannie Mae’s report notes. “Millennials’ accelerated rate of departure from their parents’ homes bodes well for housing demand,” Fannie Mae’s Economic and Strategic Research Group notes in the report. “Cohort analysis shows that the increased pace of leaving home has been accompanied by accelerated young-adult household formation.” Source: Fannie Mae Housing Insights

 

Almost half of young American home buyers are opting to live in suburbs compared to 33 per cent choosing an urban lifestyle and 20 per cent living in rural areas. Research from Zillow shows that millennials made up 42 per cent of homebuyers in 2016, making them the single largest generational group, and most of them were first time buyers. They are also loyal to their city with 64 per cent remaining in the same city when they move; just 7 per cent moved state in 2016. Starter homes are less attractive for today’s young buyers; they want similar homes to those that older generations buy and will pay a median $217,000 for a 1,800 square foot house. “Millennials have delayed home buying more than earlier generations, but don’t underestimate their impact on the housing market now that they’re buying,” said Jeremy Wacksman, Zillow Group chief marketing officer. “As members of this huge generation start moving into the next stage of life, expect the homeownership rate to tick up and suburbs to change to suit their urban tastes.” Source: Zillow

There was a 12% increase in business activity in 2016 among members of the National Association of Realtors® but there is disparity in their finances. The association’s latest Member Profile report shows that a typical member saw gross income increase, with a median 8% rise. They also saw the highest number of transactions in recent years. Transactions hit an average 12 per agent despite the pressure of tight inventories; that’s the highest since 2014 when the average per agent was 11. Sales volume grew to a median $1.9 million, up $100,000 from the previous year and median income was up to $42,500 in 2016 from $39,200 in 2015. Gross income for 2016 was a median $111,400, up from $98,300 in 2015. However, the figures show that 24% of NAR members made less than $10k while another 24% made more than $100,000. “The return of pre-recession market levels and rising home sales and prices have led to increased business activity among Realtors. It is a highly entrepreneurial business, with some members earning six-figure incomes while others were barely scratching out less than $10,000,” said NAR chief economist Lawrence Yun. Experience makes a big difference for typical real estate agents. The NAR data shows that those who make the most (median $78,850 in 2016) had been in business for at least 16 years. Those who made the least ($8,930 median) had been in business for less than 2 years. There continues to be a steady stream of new entrants to the industry with those with less than 2 years making up 28% of NAR members in 2016 while 20% of members had less than 1 year of experience. Meanwhile, those aged 60 or over made up 30% of NAR members and the median age of a Realtor was 53. “It has become evident over the last few years that individuals are realizing the many benefits and business opportunities that working in real estate provides,” said NAR President William E. Brown. Source: NAR

 

 

Summer is Here

A View from the Beach

ECONOMIC COMMENTARY
May 30, 2017 –

 

It is hard to believe that we have already celebrated Memorial Day in 2017. Doesn’t it seem that this year is going particularly fast? On Memorial Day, we remembered those who died in service to our country, a tradition that goes back as far as the Civil War and was originally known as Decoration Day. While there are ceremonies and parades going on across our country, the average American is also participating in Memorial Day picnics because good weather has finally arrived throughout the country.

Yes, the timing of Memorial Day is also the unofficial start of the summer. The kids are heading into their last weeks of school, vacations are starting and many people are moving because of the homes they have purchased during the spring homebuying season. This means that Americans are also meeting their new neighbors and becoming part of different communities — a very joyous occasion.

While we all enjoy the picnics and new homes, we should not forget the meaning of Memorial Day and its roots which came from a time when our Nation was literally torn apart. We mention this because today again our country is divided, and while differences of opinions are part of what makes our Democracy great, we hope that our divides heal over time because the more energy we expend focused upon conflicts, the less we can focus upon progress. Speaking of progress, we may take off for Memorial Day weekend, but the economy does not. We have another reading on our employment situation coming up this week — always an interesting time for the markets.

WEEKLY INTEREST RATE OVERVIEW

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The Pendulum Moves

A View from the Beach

ECONOMIC COMMENTARY
May 23, 2017 –

 

Our economic growth is very cyclical. And the last few cycles we have experienced have been some of the most severe we have seen in history. In the early 2000’s we had a very strong economic boom fueled by an explosion in real estate values. From late 2007 to the middle of 2009, we were subjected to a very severe recession, led by the collapse of the financial and real estate markets. Our latest cycle has been much less severe, as we have witnessed a very gradual recovery. But the length of the recovery has been extraordinary and is now approaching the longest recoveries in history, which have ranged from 80 to 120 months.

There are other types of cycles that typically occur concurrently with these economic cycles. For example, during the real estate boom, just about anyone could qualify to purchase a home. During the recession, credit standards tightened tremendously, and at that time only those with pristine credit could qualify for a home loan. Now, during the recovery, we have seen a gradual swing of the credit pendulum on the other side. No, we are not approaching the days in which anyone who breathed could get a loan.

However, if you look at many aspects of qualification, we have come a long way over time, just as the economy has. For example, FICO score minimums have come down. There are also more programs which require lower down payments. Though verification of income is almost universally required, there is more flexibility with regard to income qualification. As rates have moved up, lenders have become more adventurous regarding qualifying more prospects. Again, we don’t believe we are moving back to the cowboy days of the real estate boom. But we do believe that many who don’t believe they could qualify to purchase a home, now might very well be able to do so.

WEEKLY INTEREST RATE OVERVIEW

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The Listing Shortage

A View from the Beach

ECONOMIC COMMENTARY
May 16, 2017 –

 

We have had a decent recovery for the real estate market over the past decade. The recovery has been slow, but steady. While slow and steady may be frustrating for some, it is actually a good thing when you compare it to the real estate boom of 2001 to 2005, which created a housing “bubble” because of rapidly escalating housing prices. A steady increase is more sustainable in the long run.

However, there is no doubt that the market recovery is being held back by a listing shortage, especially in the lower price ranges. The Millennials are coming of age and are ready to buy. However, the Baby Boomers are working longer than ever and are not quite ready to give up their homes. If a Baby Boomer has not paid off their home as of yet, they are likely to have exceptionally low interest rates through refinancing and thus living in their home is typically cheaper than renting. The question is–how will this “stalemate” be broken?

The answer is — gradually. Builders continue to slowly increase their production and this new inventory is sorely needed in most areas of the country. Again, a slow increase is more orderly than a building boom, even though we are not building enough to satisfy present demand. And the Baby Boomers will gradually retire and have to leave their properties as they age. Some of these homes will be handed down to heirs and others will hit the markets. In the long run, the listing shortage will be resolved. In the short run, purchasing a home in the lower-to-moderate price ranges is a very competitive game for those entering the market for the first time.

WEEKLY INTEREST RATE OVERVIEW

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They Are Back

A View from the Beach

ECONOMIC COMMENTARY
 April 25, 2017 – 

 

Congress is back in session. Not that we are 100% sure that anyone missed them, but certainly there is some unfinished business on the table. For the past few weeks, international news has dominated the markets. Syria, Afghanistan, North Korea and Russia have led this domination, and certainly these world conflicts have influenced the markets — including stocks, bonds, energy prices and the price of gold.

This is not to say that domestic issues have fallen off the map, but when Congress is not in town, there will not be news of legislative progress or failures in the headlines. Now that Congress is back, there will be issues that need to be addressed on the domestic side, in addition to Congressional activity on international issues. One domestic issue hits this very week. This Friday, the stopgap funding bill for the operation of the Federal Government expires. Could we see a government shutdown?

Most political analysts predict that a shutdown will not take place. However, it is normal for the agreement to come at the last possible hour. And international issues may complicate the agreement with budget requests in place to increase defense spending with a lack of immediate corresponding cuts in domestic programs. While these issues are usually resolved before the government is shut down for anything but a minimal length of time, there is the potential for fireworks and saber-rattling. And if the government does shut down for a few days, could next week’s meeting of the Federal Reserve Board’s Open Market Committee be delayed? Always an interesting time in Washington.

WEEKLY INTEREST RATE OVERVIEW

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