December 5, 2017
Do We Move Closer or Further Away?
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.
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
|6-month Treasury Security
|1-year Treasury Security
|3-year Treasury Security
|5-year Treasury Security
|10-year Treasury Security
|| 1.856% (Oct)
|| 1.063% (Oct)
|11th District Cost of Funds
|| 0.729% (Sep)
|| 4.25% (June)
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