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.
Rates fell back in the past week. For the week ending January 4, Freddie Mac announced that 30-year fixed rates decreased to 3.95% from 3.99% the week before. The average for 15-year loans decreased to 3.38% and the average for five-year adjustables fell to 3.45%. A year ago, 30-year fixed rates averaged 4.20%, approximately 0.25% higher than today. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Treasury yields fell from a week ago, helping to drive rates on home loans down to start the year. Rates on 30-year fixed-rate loans fell 4 basis points from a week ago to 3.95% in the year's first survey. Despite increases in short-term interest rates, long-term interest rates remain subdued. The 30-year rate is down a quarter of a percentage point from where it was a year ago and the spread between the 30-year fixed and 5/1 adjustable rate loans is the lowest since 2009. With the FOMC minutes showing continued support for gradual increases in rates and inflation rates remaining low, there isn't much upward pressure on long-term rates at the moment. Whether that changes due to a tighter labor market and the economic impact of tax reform remains to be seen." 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
January 5, 2018
|6-month Treasury Security
|1-year Treasury Security
|3-year Treasury Security
|5-year Treasury Security
|10-year Treasury Security
|| 2.107% (Dec)
|| 1.201% (Dec)
|11th District Cost of Funds
|| 0.746% (Nov)
|| 4.50% (Dec)
| Despite the efforts of housing counselors, real estate agents, lenders and the Consumer Financial Protection Bureau (CFPB), many Americans lack basic knowledge of home loans and the home-buying process. A recent survey by FreeandClear.com, a site that provides mortgage education, found that 20 percent of borrowers think it is impossible to buy a home with a down payment of less than 5 percent. Yet the FHA loan program requires just 3.5 percent, VA loans have no down payment requirement and conventional loans are available with 3 percent down payment options. The primary source of information about home loans, as with most subjects today, is the Internet, with 24 percent of borrowers researching on various sites. However, just 2 percent of borrowers said they learned about home financing from the CFPB. The survey found that 30 percent chose to work with their existing bank and 29 percent chose a lender based on their real estate agent’s referral. Borrowers appear to err on the side of caution when borrowing. When asked what percentage of a buyer’s gross income should be spent on housing costs and all other debt repayment, half answered 34 percent, which is lower than the maximum allowance of 43 percent for most loans. Source: The Washington Post
We've heard the dire predictions about the suburbs: they're "boring" and "unimaginative." Shopping malls are dying. Millennials would rather live in cities. Not so fast, says Zillow Inc., Seattle. The company predicted a shift toward suburban living next year as low inventory and rising construction costs reach a tipping point, forcing builders and buyers to consider new options--even "old" options such as suburban living. Next year, Zillow said, current homeowners will look to remodel their homes rather than sell, further limiting inventory, and with limited space to add new homes in city centers, suburban sprawl will make a return. Newly built homes will be designed with both millennials and aging adults in mind, as both generations are looking for similar features. "We're on the other side of the housing recovery, and the real estate market looks quite different than it did 15 or even five years ago," said Zillow Chief Economist Svenja Gudell. "We have a huge generation entering the market. They really want to be homeowners, and they're faced with an inventory crisis that leaves them with few options." Gudell said home builders can't ignore this "hungry" market. "We'll start to see a rise in new construction at the more affordable end, instead of all the luxury buildings we've seen lately," she said. "However, builders are also facing high costs, so instead of adding density in cities where zoning laws and land costs often preclude affordable building, we'll see the suburbs grow and expand outward." Source: Zillow
The rental market's decade-long boom may soon reach its finale, as fewer new renter households are forming, rental vacancies are rising, and rent increases are slowing, according to the 2017 America’s Rental Housing report, released by the Joint Center for Housing Studies of Harvard University. Still, rents remain high and continue to take a significant chunk out of households’ monthly incomes—more than what most experts consider “affordable.” “This year’s report paints a complicated picture of the rental market,” says Christopher Herbert, managing director of the Joint Center. “We’re finally seeing the record growth in renters slow down, but while the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes. Addressing these challenges will require bold leadership and hard choices from both the public and private sector.” While renters tend to skew younger and have lower incomes, a growing share are older and more financially stable, the report shows. The number of renter households earning more than $100,000 per year rose from 3.3 million in 2006 to 6.1 million in 2016. And more rental inventory is catering to the high end of the market. The share of new units renting for $1,500 or more rose from 15 percent in 2001 to 40 percent in 2016, according to the report. Meanwhile, the share of new units renting for less than $850 per month dropped from 42 percent to 18 percent. Source: Joint Center for Housing Studies of Harvard University