Category Archives: Real Estate News

The Wild Ride

A View from the Beach

ECONOMIC COMMENTARY
February 20, 2018 –

 

Several weeks ago, we spoke about the negative effects of economic growth. The two factors we cited were higher interest rates and higher oil prices. Now we are starting to see the markets react to this new reality. Many are blaming rising interest rates for causing what we can now call a stock market correction. A correction which we have not seen for some time. Why would higher rates cause stocks to falter? Abnormally low rates have propped up the markets for years. Why keep your money in the bank earning 1.0% interest when you can earn 10% or more in the stock market? That is an over-simplification, but certainly higher rates are taking some of this extra stimulus out of the equation.

Not that rising rates are the only explanation with regard to the trepidation in stocks. As we also explained several weeks ago, the tax plan was great news for stocks because it immediately made companies more profitable by lowering their tax rates significantly. Stocks have been rallying for nine years, comprising the second longest bull market in history, but the rally intensified in anticipation of the tax plan. We surmised that all the good tax news was already built into stocks, but the rally continued anyway — until rates started rising.

The question now is whether this is just a healthy and long-overdue correction which may reverse quickly, or is it the beginning of the end for the bull run? As always, we will stay away from predictions. Rates could ease back down or stabilize — and the market could climb back. Right now, the economy is healthy and rates have not risen far enough to cause the economy to pause. Actually, if the growth eased a bit, this could cause the Federal Reserve Board to be less concerned with inflationary pressures and perhaps permit them to take their foot off the pedal. For now, we have a pretty wild ride going on.

 WEEKLY INTEREST RATE OVERVIEW

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Double Feature

A View from the Beach

ECONOMIC COMMENTARY
January 30, 2018 –

 

As we have mentioned previously, it has already been a busy year with major storms, wildfires that turned into mudslides, a new tax plan and the in-fighting in Washington seemingly getting worse. And that is just the first month of the year. We end the first month and start the second month with another busy week, at least on the economic front. This week we have the first meeting of the year for the Federal Reserve Board and also the first reading on jobs which contains 2018 data.

Thus far this year it seems that the economy continues to move forward, even without the anticipated effects of the tax plan. Of course, the anticipation itself has fueled much optimism which can be seen in record stock market closes. The performance of the economy is all about optimism. Since the Fed just raised their benchmark rates in mid-December, most analysts are not expecting another increase so soon. However, even if they do not raise short-term rates at this meeting, they will be discussing how much and how quickly they will be raising rates this year.

How much and how fast will depend upon the strength of the economy. And major evidence of this strength will be released a few days after they meet in the form of the January employment report. December’s job gains were a bit under forecast, and thus we will be looking at not only January’s numbers, but revisions to the previous months’ data. A really strong report could move the Fed to raise rates at their next meeting in March. Even if they do not, one thing is certain — unless something happens to derail the economy, their only move is up this year.

 WEEKLY INTEREST RATE OVERVIEW

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The Downside is the Upside

A View from the Beach

ECONOMIC COMMENTARY
January 23, 2018 –

 

The stock market is setting records. We have a new tax plan which lowers taxes significantly for companies and moderately for individuals. We just had a decent retail holiday season with higher home sales closing out the year. In other words–everything is looking up for the economy. Most economists are cautiously optimistic that the good times will continue through at least 2018.

Unfortunately, with the economy gaining momentum, some of the movements upwards are actually turning out to be downers. More specifically, we are referring to interest rates and oil prices. The price of oil is now over $60 per barrel after oscillating above and below the $50 level for more than a year. Certainly, higher oil prices is the price we have to pay for having a better economy that increases oil demand. However, oil prices could still fall if the news on the supply side becomes more optimistic. There have been plenty of forecasts showing at least the potential of this occurring.

Not so with interest rates. You can’t pump money out of the ground. The better economy has caused the Federal Reserve Board to raise short-term interest rates five times over the past two years. Long-term rates have also been trending upward as the economy has improved. Most are not expecting another increase by the Fed when they meet at the end of this month. But that does not mean that long-term rates won’t keep rising if we get the news that the economy is still rolling. As a matter of fact, the threat of higher interest rates is one reason that real estate is so hot. Most want to purchase before rates go up further. Will rates keep moving up? That depends upon whether the economy stays strong in 2018.

 WEEKLY INTEREST RATE OVERVIEW

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Mid-January Report

A View from the Beach

ECONOMIC COMMENTARY
January 16, 2018 – 

 

Believe it or not, we are halfway through the first month of the year. While a few weeks passing may not seem like much, these are very exciting times. Americans are reacting to a new tax plan, stocks have already broken records and we have had the first natural disaster of the year — a bomb-cyclone. A few weeks ago, most of us had never heard of a bomb-cyclone. And even though we did not know, since we are publishing from the east coast, we certainly felt the cold. When it snows in Florida, it is definitely a weather event.

The question is–what have we learned since the beginning of the year? We have learned that the stock market’s surge in anticipation of the adoption of the tax plan is not over now that the plan has come to fruition. There was some concern that all the gains were built into the pricing of stocks, but the New Year has brought more good news in this regard. Of course, this does not mean that the gains will last all year — but it was a good start.

In addition, stocks are not the only items that are going up in price. Oil prices have topped $60 per barrel for the first time since 2015. Interest rates have also risen, though the move has been more pronounced with regard to shorter-term rates. Again, this does not mean that oil prices and rates are moving up all year. On the other hand, if the economy does continue to expand and this expansion accelerates because of lower tax rates, it makes sense that rates and commodity prices will move up. Yes, it is hard to get a feel for a year based upon two weeks of activity, but we already have some interesting news to reflect upon this year.

 WEEKLY INTEREST RATE OVERVIEW

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Amazing Consistently

A View from the Beach

ECONOMIC COMMENTARY
January 9, 2018 –

 

After a deep recession in which we lost approximately eight million jobs, America’s economy has been quite consistent with regard to the creation of jobs during the past several years. For example, during the period of 2013 to 2017, just over 10 million jobs were created. That comes to just over 200,000 jobs per month. Though the numbers are still preliminary, the December jobs report indicates that we have added 2.1 million jobs in 2017, which is slightly below, but very close to what we have created in the past four years.

This is why our country’s unemployment rate has fallen from 10% to December’s reading of 4.1%, a number most economists consider close to full employment. This is quite a dramatic drop, and the next question is — where do we go from here? Does full employment mean that we can’t improve? There are two numbers which indicate that there is still room for improvement. The labor participation rate of 62.7% is close to long-term lows and attracting the long-term unemployed back into the economy is still an important goal.

We can also improve upon the types of jobs created. Wage growth of only 2.5% over the past year tells us that we are not creating enough high-paying jobs. Thus, we have come a very long-way. The economy is in much better shape than it was during our recession of a decade ago. But there is still room to add more jobs and better paying jobs — without the economy being beset by inflation. Inflation is a concern because with inflation comes higher interest rates and low rates have buoyed our recovery.

 WEEKLY INTEREST RATE OVERVIEW

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Tax Law Makes Projections Even Harder

A View from the Beach

ECONOMIC COMMENTARY
January 2, 2018 –

 

It is the first of the year and we have been inundated with projections regarding the economy, interest rates, real estate and more. It is always hard to predict the future and this year is going to be even harder to predict because of a new variable — the tax law. As we have mentioned previously, the lowering of tax rates is likely to stimulate an already strengthening economy. This should be good news for jobs, retailers and more. The question remains how strong will the economy get and what will the effects be on interest rates, oil prices — and ultimately inflation. We have already seen rates and oil prices creeping up in anticipation of the action.

When we move to real estate, the prediction game gets even harder. Economists were already predicting continued inventory shortages, more new homes coming on-line and moderating price increases. But the change in the standard and mortgage deductions will certainly have to be factored into the equation. The doubling of the standard deduction means that those purchasing on the lower end of the scale are more likely to not take advantage of the deduction of interest on home loans. Likewise, those who own higher priced homes are less likely to make a move because they would lose part of their present deduction.

Here is the good news. There are four solid economic reasons to own a home and the tax deduction is only one of these four. The home will still serve as a leveraged investment, a forced savings plan and protection against inflation. As a matter of fact, we feel the tax law’s effect upon interest rates may be a more important factor in determining the direction of the real estate markets than the tweaks made in the deductions. In this regard, those who feel that rates will ultimately rise because of the economic effects of the law may very well be inclined to purchase now rather than later.

 WEEKLY INTEREST RATE OVERVIEW

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New Conforming Loan Limits for 2018

Jeff Baxter
Fairway Independent Mortgage
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Higher Loan Limits Nationwide

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: The FHFA