Category Archives: Mortgage Rates

Do We Move Closer or Further Away?

A View from the Beach

ECONOMIC COMMENTARY
December 5, 2017 –

 

This week we will see the release of the November employment numbers. The key question we will be watching is whether we will be moving closer to a rate increase or further away with respect to the Federal Reserve Board’s meeting next week. According to the minutes of the last meeting, the Fed’s members had a healthy debate about the threat of inflation. Inflation “hawks” were worried that the tight labor market carries a risk that rising wages will quickly increase inflationary pressures.

On the other hand, the “doves” feel that the absence of large wage increases could mean that if the Fed raised short-term interest rates, it could cause inflation to stay too far below the Fed’s target of 2.0% for a prolonged period of time. Thus, we will not only be looking at the number of jobs created, but also looking for any sign that wage inflation is starting to take off. Judging by the economic reports we have seen in the past month, market analysts are still counting on a rate increase.

Speaking of higher costs, the Federal Housing Agency raised the limits for conforming mortgage loans for 2018. This affects the size of loans allowed under Fannie Mae and Freddie Mac mortgage programs. The new limits are $453,100 for 1-unit properties, with a maximum of $679,650 in high cost areas. While we have talked about higher housing prices making purchasing less affordable, the higher loan limits are one of the benefits of higher housing prices. Owners of homes gain more equity when prices go up. And these higher conforming limits will allow first time home buyers to purchase more home with a smaller down payment.

 WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates were down slightly for the second straight week, but trended upward as the survey was being released. For the week ending November 30, Freddie Mac announced that 30-year fixed rates fell to 3.90% from 3.92% the week before. The average for 15-year loans decreased to 3.30%. The average for five-year adjustables increased to 3.32%. A year ago, 30-year fixed rates averaged 4.08%, higher than today. Attributed to Sean Becketti, chief economist, Freddie Mac — “Rates on 30-year fixed loans fell two basis points to 3.9 percent in this week’s survey, but we closed our survey prior to a surge in long-term interest rates following an upward revision to third quarter economic growth and comments by Federal Reserve Chair Yellen touting a broad-based economic expansion.” 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
December 1, 2017

Daily Value Monthly Value
Nov 30 October
6-month Treasury Security  1.44%  1.25%
1-year Treasury Security  1.62%  1.40%
3-year Treasury Security  1.90%  1.68%
5-year Treasury Security  2.14%  1.98%
10-year Treasury Security  2.42%  2.36%
12-month LIBOR  1.856% (Oct)
12-month MTA  1.063% (Oct)
11th District Cost of Funds  0.729% (Sep)
Prime Rate  4.25% (June)

REAL ESTATE NEWS
 The Federal Housing Finance Agency (FHFA) announced the maximum conforming loan limits for home loans to be acquired by Fannie Mae and Freddie Mac in 2018. In most of the U.S., the 2018 maximum conforming loan limit for one-unit properties will be $453,100, an increase from $424,100 in 2017. The Housing and Economic Recovery Act (HERA) requires that the baseline conforming loan limit be adjusted each year for Fannie Mae and Freddie Mac to reflect the change in the average U.S. home price. According to FHFA’s seasonally adjusted, expanded-data HPI, house prices increased 6.8 percent, on average, between the third quarters of 2016 and 2017. Therefore, the baseline maximum conforming loan limit in 2018 will increase by the same percentage. In addition, the new maximum loan limit for one-unit properties in high-cost areas will be $679,650 — or 150 percent of $453,100. Areas which exist between the base limits and maximum high-cost areas may have increased as well. For a list of the 2018 maximum loan limits for all counties and county-equivalent areas in the U.S. click here. It is expected that FHA and VA will follow suit with increased loan limits. Source: FHFA

About 60 percent of first-time home buyers put down 6 percent or less on a home purchase in September. The median down payment has dropped from 6 percent to 5 percent for first-time buyers, according to the National Association of Realtors®’ 2017 Profile of Home Buyers and Sellers. But there are still many potential buyers who may be under the impression they need a bigger down payment before they can buy. NAR conducted a survey of non-homeowners earlier this year and found that most consumers believe you need a down payment of 10 percent or 20 percent to buy a home. “They may not be aware that these programs are available, and they may not be taking advantage of them,” Jessica Lautz, NAR’s managing director of survey research and communications, said in the latest Down Payment Report, published by the Down Payment Resource. Thirty-two percent of first-time buyers said they saved for more than two years in order to be able to have enough to buy a home. Student loan debt was the most often cited obstacle to saving. The second most cited barrier for saving was credit card debt. Source: The Down Payment Report

As more builders face labor shortages, they’re starting to look for new and faster ways to train more workers. For example, the Colorado Homebuilding Academy, a nonprofit organization, opened this year to offer a free eight-week “boot camp” to help increase the builder labor force. The course is founded and funded by Oakwood Homes, a homebuilder based in Denver that is owned by Berkshire Hathaway. “Every single year, the labor situation has basically gotten worse,” Patrick Hamill, CEO of Oakwood, told CNBC. “People retire, and there’s nobody to replace them, and as an industry, ultimately we’ve just done a lousy job marketing our opportunities to young people.” The construction labor shortage is worsening nationwide and it’s causing the new-home sector to be unable to keep up with buyer demand. Homebuilders blame growing costs and a shortage of labor as the two biggest challenges confronting them this year, according to surveys conducted by the National Association of Home Builders. During the housing crash, many builders left the industry and have never returned. Also, an aging workforce approaching retirement age and a lack of young people drawn to the building industry are making the situation worse, builders say. Only 3 percent of young adults ages 18 to 25 recently surveyed by NAHB said they wanted to go into the construction trades when they start their career. Source: CNBC

Busy December on Tap

A View from the Beach

ECONOMIC COMMENTARY
November 28, 2017 –

 

As we approach December, we can see that we are in for a busy month with regard to the economy. With the recovery continuing from the Hurricanes, the Federal Reserve Board’s Open Market Committee will also be meeting with the consensus pointing to another increase in short-term interest rates. Outside of major shocks, the only factor which seems like it has the potential to change the Fed’s mind would be a very weak employment report. This report is due out in early December.

Meanwhile, all eyes will be on Congress as they continue to hash out details of the tax reform proposals. There is an overwhelming amount of media stories streaming from this effort and for good reason. This effort to enact such a radical change will have a profound affect upon businesses and consumers. No industry seems to be more in the cross-hairs than real estate — one of the last remaining tax havens.

Just to make things more interesting, the markets will be watching reports from on-line and bricks and mortar retailers. Traditionally, Black Friday kicks off the buying frenzy for the holiday season. Sales made during this season will tell us much about the state of the economy moving into 2018. From there we will see speculation about how many times the Fed intends to raise rates in the coming year. They keep using the word “gradual,” but that word is too nebulous and won’t keep market analysts from speculating.

WEEKLY INTEREST RATE OVERVIEW

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Happy Thanksgiving

A View from the Beach

ECONOMIC COMMENTARY
November 21, 2017 – 

 

Every year it seems like the months go by more quickly than before. Here we are wishing everyone a happy Thanksgiving already. Where did the summer go? Though the year passed quickly, there is plenty for us to give thanks for. This has been another year of economic growth and another year of positive stock growth. We have witnessed over eight years without a recession, and even though growth has not been robust, the total results of economic, stock price and house price growth has been impressive.

Speaking of which, many are starting to ask this question — how long can housing prices keep rising before they become unaffordable? One factor propping up house prices for the past eight years has been incredibly low interest rates. But these rates can’t last forever — or might they? Five years ago, the median home price in the U.S. was around $210,000. Now median prices are closer to $250,000. At what point does this increase affect housing demand?

Besides interest rates, affordability is influenced by increased growth in wages. If wages double, then everyone can afford more. Though wage growth is a positive factor for workers, a large increase in salaries would contribute to inflationary pressure and this would put upward pressure on interest rates. The last jobs report showed tame wage growth and therefore, until wage growth accelerates, the pressure for higher interest rates has not appeared. The best of all worlds would be a very gradual increase in home prices, wage growth and interest rates. That is a future we would be thankful for.

WEEKLY INTEREST RATE OVERVIEW

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Long Road to Travel

A View from the Beach

ECONOMIC COMMENTARY
November 14, 2017 – 

 

The tax reform proposal is now in print. For a year we have been hearing about the concept of tax reform. But now that there is ink on paper — Can we still use that expression today? — the stark reality has hit. When talking about changing the tax system, it is not a zero-sum game. There will be winners and losers in the end. And if you look at the reaction of industry groups such as the National Associations of Realtors® and Home Builders, as well as the Mortgage Bankers Association, they certainly feel that the initial proposals will make real estate less attractive.

Certainly, further limiting the mortgage interest and state/local tax deductions, as well as increasing the standard deduction, are proposals in the package which have these industry associations concerned. And as always, we are not here to predict the future with regard to what final impact these proposals would have upon homeownership in the United States. Our purpose today is to say that the process still has a long distance to travel still.  Adding the Senate alternatives to the mix is just one extra step.

Right now, these associations and thousands of additional lobbyists have descended upon Washington, and they will represent their special interests. The proposal is likely to undergo several reiterations before it is finished. The finished product may or may not resemble what is being proposed initially. And even after these changes are made, the final proposal may or may not pass. Thus, while we don’t like trying to predict the future, we are certain about one result — the lobbyists in Washington will be making a lot of money this holiday season.

WEEKLY INTEREST RATE OVERVIEW

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Weathering the Storms

A View from the Beach

ECONOMIC COMMENTARY
November 7, 2017 –

 

The storms are over. The regions hit by the storms are recovering to various degrees. We all thought that the third quarter would see a pause because of the storms’ devastation. However, with a preliminary reading of 3.0% economic growth, a lot of forecasters were surprised. What this number tells us is one of two things. First, the national economy could be a lot stronger than we were thinking and should sprint in the fourth quarter. Or, since the hurricanes hit during the second half of the quarter, we may see a downward revision of this preliminary number.

We do know that the storms negatively affected the jobs numbers for September. We felt that October’s numbers would give us a better reading of the storms’ damage — with the revision of September’s numbers just as telling as the October results. It is hard to accomplish accurate surveys when people are in shelters and the power is out. So, how did the report come out? Indeed, the numbers for October were as expected, with an upward revision to September’s dismal numbers and a bounce back for October.

Looking at the two months together, we had approximately 140,000 jobs added each month, which is about 50,000 less than the previous year’s average. Wage growth for the month was dismal but the unemployment rate dropped one more time. Again, we expect additional recovery as the year ends, which is important because the latest meeting of the Federal Reserve indicated that they are still on track to raise rates one more time this year, and that means December, which is the only remaining meeting date. Add that to a new Fed Chairman nomination and haggling over the tax plan — especially the mortgage interest deduction — and it should be a very, very busy end of the year.

WEEKLY INTEREST RATE OVERVIEW

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Trick or Treat

A View from the Beach

ECONOMIC COMMENTARY
October 31, 2017 – 

We rarely get to publish on Halloween (technically once every seven years) and thus we could not resist the headline. There are many theories about the origins of Halloween and evidence of somewhat similar practices go back as far as the Middle Ages. Like other holidays in the United States, Halloween has evolved and grown and become a big commercial — or dare we say “sweet” — success. For some it is the real start of the holiday season in which our economy has grown so dependent upon.

Like every jobs report, every holiday season is a very important indicator of the direction of our economy. Consumer spending makes up about 70 percent of gross domestic product, and a solid chunk of it takes place in November and December, mainly in the form of gift purchases. A fifth of all retail sales occur in the year’s last two months, according to the National Retail Federation. Thus, these holidays are very, very important to our economy.

Speaking of the jobs report, the time has come for another reading. Last month the numbers were skewed as expected because of two major hurricanes. During this month’s statistical period we added another major hurricane and also devastating wildfires in Northern California. Thus, we are expecting major volatility in the numbers. This volatility may not only apply to the October numbers, but also to the revision of the September numbers already released. It will be hard for the markets to interpret these numbers, and therefore reactions may be muted as well.

WEEKLY INTEREST RATE OVERVIEW

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The Market’s Passion

A View from the Beach

ECONOMIC COMMENTARY
October 24, 2017 –

 

Sure, the stock market has risen for over eight years. But the run which started in October of 2016 is quite extraordinary, to say the least. Usually when bull markets get older, they fluctuate and run out of steam, but this one seems to have gotten quite a second wind. The question is — where is the excitement coming from?

When you look at the economy as a whole, the economy has gotten slightly stronger as the year goes on. Though, we should keep in mind that we may see a pause in this quarter with the natural disasters that have hit our country. Slightly stronger does not explain the jubilance the market seems to be experiencing. We believe that the passion is coming from not today’s performance, but is a response to hope for a major corporate tax cut. It is simple math. If a corporation’s tax liability goes down by 10 to 30 percent, their profits will go up barring other unforeseen circumstances. Higher profits make companies more valuable.

We caution that tax reform has not been enacted yet, and even if it is, we don’t know the final result. Regardless of what “side” you were on, the health care debate reminded us of how tough it is to implement changes in Washington — even when everyone knows something needs to be done. If our theory about tax reform is true, then any failure to enact significant tax reforms could be seen as a negative by the markets. Even if reforms are enacted, the markets might correct initially because the good news was built into the prices of stocks. We are not trying to predict the future, but when the markets have moved this far, it always is a good idea to be ready for at least a correction.

WEEKLY INTEREST RATE OVERVIEW

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