July 18, 2017
The Brexit Adjustment
Sometimes it is hard to explain why certain things happen in the markets. Much of the time the markets seem to have a mind of their own, and market analysts are reaching for explanations as to what happened after the markets moved in one direction or another. Of course, usually there are several factors affecting the markets at once and it is typically impossible to determine which is the dominant factor.
For example, let's discuss the recent movement in interest rates. The Federal Reserve Board has raised rates three times in the past six months or so. To the public, this would indicate higher rates to borrow money to purchase homes or cars. But as we have indicated previously, the Fed controls short-term rates and they have an indirect influence on long-term rates. Indeed, the Fed has raised short-term rates by 1.0% overall, but as of a few weeks ago, long-term rates for home loans had barely moved half of that amount.
One reason long-term rates have not moved is the fact that the economy is not overheating and there is no sign of inflation. Job growth continues to be solid, but the economy grew by less than 2.0% in the first quarter. Then why did long-term rates start rising more recently? Remember Brexit and how the markets were worried that slow growth in Europe would affect our economy? Well, apparently Europe has shaken off the Brexit worries and growth is stronger than expected overseas. Like here, there are no signs of the European economies overheating. Thus, while rates remain low, the fact that Europe appears to be awakening from their slumber has put some pressure on the bond markets, and thus our long-term rates.
Rates moved up for the second week in a row. For the week ending July 13, Freddie Mac announced that 30-year fixed rates rose to 4.03% from 3.96% the week before. The average for 15-year loans increased to 3.29%, and the average for five-year adjustables moved up to 3.28%. A year ago, 30-year fixed rates averaged 3.42%. Attributed to Sean Becketti, chief economist, Freddie Mac -- "After fully absorbing the sharp increases in Treasury yields over the past couple of weeks, the rate on 30-year fixed loans has cleared the psychologically important 4 percent mark for the first time since May. Today's survey rate stands at 4.03 percent, up 7 basis points from last week." 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 14, 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)
| While the majority of prospective homebuyers do their research on home loans online, they prefer to handle their applications in the presence of a loan officer. According to a new survey of nearly 2,000 adults conducted on behalf of the American Bankers Association, 60 percent of Americans stated that, while they use the Internet to research their home loans, they would rather apply for a home loan in person. In comparison, 17 percent of respondents preferred to apply for a home loan online, while the remaining 23 percent said they were unsure. The survey’s respondents also complained about overcoming obstacles to homeownership. Twenty-one percent of respondents said student debt prevented them from purchasing a home—among the 18-29 year-olds surveyed, that number was 39 percent. Furthermore, only 34 percent considered their knowledge about the process to be above average or excellent. “Organizations invest billions of dollars to offer their customers the latest technology,” said Bob Davis, ABA Executive Vice President of Mortgage Markets, Financial Management and Public Policy. “But at the end of the day, nothing compares to sitting across the table, face-to-face with a lender when you’re making the single most important investment of your life.” Source: National Mortgage Professional
First-time home buyers are showing a strong desire for taking on remodeling projects. First-time buyer renovators in 2016 spent $33,800, on average, on their projects. That marks a 22 percent increase over 2015, according to the sixth annual Houzz & Home Survey of more than 100,000 respondents in the U.S. “Younger and cash-constrained first-time buyers are responding to the low inventory of affordable homes by purchasing properties that require more than just cosmetic upgrades,” says Nino Sitchinava, Houzz principal economist. “Not surprisingly, we are seeing their spending on home renovations increasing significantly in 2016 and expect this trend to continue through 2017.” Both first-time and repeat buyers are taking on larger scope projects, such as remodeling up to four rooms at the same time, the Houzz survey shows. Kitchen and bathrooms continue to be the most popular rooms in the house to renovate. And while “recent home buyers drive a significant share of home renovations today, repeat buyers are investing twice as much in their home as first-time home buyers,” Sitchinava notes. Overall, homeowners spent $60,400 in 2016 on home renovation projects, up from a $59,800 average in 2015. Source: Houzz
More than 10 percent of new single-family homes that began construction in 2016 were part of a teardown project, according to new data from the National Association of Home Builders. That’s up from 7.7 percent in 2015. NAHB defines a teardown as a home that is built on a site where a previous structure existed. Nationwide, there were 79,300 single-family teardowns started in 2016, up from 55,200 in 2015, NAHB estimates. Builders continue to cite lot shortages as a major setback to new-home construction. Home shoppers and builders are now eyeing teardowns because many of the properties are in prime locations. Source: NAHB