July 11, 2017
Jobs and The Cost of Housing
Last week we counted our blessings with regard to the shape of the economy. This week we will talk about the release of the June jobs numbers which give us another reading regarding the health of the economy. Overall this reading was stronger than forecasts. Thus far this year, job growth has been solid, with just over one million jobs created in the first half of the year. This compares to 2.2 million jobs created in 2016, which puts the economy on track to match last year's numbers. Despite strong jobs growth for the month, the unemployment rate rose to 4.4% last month, but that is not necessarily a bad thing, as it typically means that more long-term unemployed are re-entering the workforce.
Just as important as the jobs created, wages increased by 0.2% last month and 2.5% over the last year, which was slightly lower than economists expected. Higher wages are important, because they positively influence consumer spending for big ticket items. For example, if wages do not go up as fast as the cost of housing, this provides a burden on renters and discourages home buying as well. Recently, home price data for April, as measured by the S&P CoreLogic Case-Shiller National Home Price Index, showed another record high -- the fifth consecutive month of new peaks. Does that mean that housing will become unaffordable?
We caution you against reaching that conclusion. The First American Real Home Price Index currently shows that housing prices are still around 33% below their peak. To calculate the "real" cost of housing under the Real Home Price Index, incomes and mortgage rates are used to inflate or deflate house prices which are unadjusted for inflation in order to better reflect consumers' purchasing power and capture the true cost of housing. It should be noted that lower interest rates do not directly benefit renters. The message? As long as rates stay low, housing is still more affordable today than it was when peak prices were achieved a decade ago.
Rates moved off their lows for the year for the first time in several weeks. For the week ending July 6, Freddie Mac announced that 30-year fixed rates rose to 3.96% from 3.88% the week before. The average for 15-year loans increased to 3.22%, and the average for five-year adjustables moved up to 3.21%. A year ago, 30-year fixed rates averaged 3.41%. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Global interest rates turned up sharply over the last week. The 10-year Treasury yield was no exception, increasing 10 basis points in a holiday-shortened week. The rate on 30-year fixed loans followed suit, rising 8 basis points to 3.96 percent." 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
July 7, 2017
|6-month Treasury Security
|1-year Treasury Security
|3-year Treasury Security
|5-year Treasury Security
|10-year Treasury Security
|| 1.738% (June)
|| 0.830% (June)
|11th District Cost of Funds
|| 0.648% (May)
|| 4.25% (June)
| Twenty-six percent of millennial college students say they plan to move back home as soon as they earn their degree in order to pay off some of their student loans, according to TD Ameritrade's Young Money Survey of about 2,000 young adults. Thirty-two percent of millennials between the ages of 20 and 26 say they owe between $10,000 and $50,000 in student loans. The average student loan balance was $10,205. That is prompting more graduates to move back home with their parents to curb costs. Nearly half of the post-college millennials surveyed say they had "moved back to my parents' home after college." About one-fourth of those who are still in college say they expect to move back with their parents following graduation. "Today's college grads are clearly under financial strain due to escalating tuition and stagnant wages," says JJ Kinahan, chief strategist at TD Ameritrade. "Moving back in with mom and dad is a short-term sacrifice that could pay off in the long run. But that's only if the 'boomerang' young adults are saving and wisely investing the thousands of dollars they would've spent on rent and other living expenses, and paying down their student debt." Survey respondents ages 20 to 26 say they think it would be "embarrassing" to still be living with their parents by age 28. However, nearly 30 percent of respondents say they wouldn't start to feel embarrassed until they were between the ages of 30 and 34. Eleven percent say they would not feel embarrassed about living with their parents beyond the age of 35. Source: USA Today
Homeowners may be reluctant to sell, but they still want to see a piece of that equity in their homes now. They’re cashing out in levels that have not been seen since the financial crisis, Freddie Mac reports. Nearly half of borrowers who refinanced their homes during the first quarter did a cash-out option, the highest level since the fourth quarter of 2008, according to Freddie Mac. Still, the number of borrowers doing a cash-out refi remains well below the nearly 90 percent peak reached prior to the housing crash. But it is up significantly from the post-crisis 12 percent in the second quarter of 2012. Rising home prices have helped increase the number of homeowners who now have equity in their homes. As such, more owners are finding they can refinance to get a lower rate and also take out some cash for other uses. In hot markets in which home prices have surged by some of the highest amounts in the country, more than half of refinancers opted to refinance for cash last year, according to Freddie Mac. Source: The Wall Street Journal
Renters made up a large share of those shopping for a home loan in the first quarter of 2017, which could put landlords under pressure. A new TransUnion analysis found that among the 55% of non-homeowners looking for a home loan, 3 in 10 were millennials. That share is up slightly from 2016 and continues the upward trend of recent years. The figures reveal that 34 million renters aged 25-44, a prime age for home purchase, were credit eligible for a home loan with two thirds of under 44’s having a VantageScore 3.0 credit score of 580 or above. While the report is good news for many in the housing market, landlords could be facing a slowdown following a period of growth. “The rental market has seen sustained growth for the last several years, but occupancy rates have flattened from their peak in the second quarter of 2016,” said Mike Doherty, senior vice president of TransUnion’s rental screening solutions group. Source: TransUnion