October 24, 2017
The Market's Passion
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.
Rates ticked down in the past week, but trended higher towards the end of the survey period. For the week ending October 19, Freddie Mac announced that 30-year fixed rates fell to 3.88% from 3.91% the week before. The average for 15-year loans decreased as well, to 3.19%. The average for five-year adjustables moved up one tick to 3.17%, bucking the trend. A year ago, 30-year fixed rates averaged 3.52%. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Rates came down slightly this week, ending a brief, two-week streak of increases. The 10-year Treasury yield dipped 6 basis points, while 30-year fixed rates fell 3 basis points to 3.88 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
October 20, 2017
|6-month Treasury Security
|1-year Treasury Security
|3-year Treasury Security
|5-year Treasury Security
|10-year Treasury Security
|| 1.798% (Sept)
|| 1.002% (Sept)
|11th District Cost of Funds
|| 0.732% (Aug)
|| 4.25% (June)
| The spring homebuying season may be long gone but that doesn’t mean first-time buyers should wait months to start looking. A report from Trulia looked at the supply of starter, trade-up and premium homes across the 100 largest metros and found that starter homes inventory will increase typically around 7% in the fall; while prices decline 4.8% in the winter compared to the spring. The strongest season for starter homes in 70 of the 100 largest metros is between October and December. Seven of the top 10 metros will see this swing in inventory and prices. "Starter homebuyers should begin looking now. The fall season provides a great opportunity for finding the right home and neighborhood thanks to a bump in homes for sale on the market, followed by lower winter prices," said Trulia senior economist Cheryl Young. Source: Trulia
The impact immigrants have on U.S. real estate is growing, as 13 percent of the nation’s population—about 42 million people—hails from foreign countries, according to the National Conference of State Legislatures. “Immigrants are a big driving force for housing markets across the nation,” Kusum Mundra, an economics professor at Rutgers University in Newark, N.J., told realtor.com®. “Most want the American dream, which is to own a home.” But the road to homeownership for immigrants can be challenging. It takes an average of five to 10 years for immigrants to be able to purchase a home after arriving in the U.S., says Gary Painter, director of social policy at the University of Southern California’s Sol Price Center for Social Innovation. In 2016, about 40.7 percent of immigrants were homeowners compared to 66.1 percent of native-born Americans, according to a realtor.com® analysis. “Just like those born in the U.S., [immigrants] view home buying as putting down roots in the community,” Painter says. “On average, where immigrants are settling, property values have gone up.” Source: realtor.com®
Americans are still buying homes in areas with high risk of natural hazards and the homes in those cities continue to appreciate in value far faster than homes in low natural hazard locales. The 2017 U.S. Natural Hazard Housing Risk Index by the property analytics firm ATTOM Data Solutions found that median home prices in U.S. cities in the top 20 percent of highest risk for natural hazards have increased more than twice as fast over the past five years and over the past 10 years than median home prices in U.S. cities in the bottom 20 percent with lowest risk. For the report, ATTOM indexed natural hazard risk in more than 3,000 counties and more than 22,000 U.S. cities based on the risk of six natural disasters: earthquakes, floods, hail, hurricane storm surge, tornadoes, and wildfires. ATTOM also analyzed housing trends in 3,441 cities and 735 counties — containing more than 71 million single family homes and condos — broken into five equal quintiles of natural hazard housing risk. Median home prices in cities in the top 20 percent (Very High) for natural hazard risk have appreciated 65 percent on average over the past five years and 9 percent on average over the past 10 years, while median home prices cities in the bottom 20 percent (Very Low) for natural hazard risk have appreciated 32 percent on average over the past five years and 3 percent on average over the past 10 years. “Strong demand for homes in high-risk natural hazard areas has helped to accelerate price appreciation in those areas over the past decade despite the potential for devastating damage to homes that can be caused by a natural disaster — as evidenced by the recent hurricanes that made landfall in Texas and Florida,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “That strong demand is driven largely by economic fundamentals, primarily the presence of good-paying jobs, although the natural beauty that often comes hand-in-hand with high natural hazard risk in these areas is also attractive to many homebuyers.” Source: The Insurance Journal