January 23, 2018
The Downside is the Upside
The stock market is setting records. We have a new tax plan which lowers taxes significantly for companies and moderately for individuals. We just had a decent retail holiday season with higher home sales closing out the year. In other words--everything is looking up for the economy. Most economists are cautiously optimistic that the good times will continue through at least 2018.
Unfortunately, with the economy gaining momentum, some of the movements upwards are actually turning out to be downers. More specifically, we are referring to interest rates and oil prices. The price of oil is now over $60 per barrel after oscillating above and below the $50 level for more than a year. Certainly, higher oil prices is the price we have to pay for having a better economy that increases oil demand. However, oil prices could still fall if the news on the supply side becomes more optimistic. There have been plenty of forecasts showing at least the potential of this occurring.
Not so with interest rates. You can't pump money out of the ground. The better economy has caused the Federal Reserve Board to raise short-term interest rates five times over the past two years. Long-term rates have also been trending upward as the economy has improved. Most are not expecting another increase by the Fed when they meet at the end of this month. But that does not mean that long-term rates won't keep rising if we get the news that the economy is still rolling. As a matter of fact, the threat of higher interest rates is one reason that real estate is so hot. Most want to purchase before rates go up further. Will rates keep moving up? That depends upon whether the economy stays strong in 2018.
Rates on home loans continued to follow long-term rates higher. For the week ending January 18, Freddie Mac announced that 30-year fixed rates increased to 4.04% from 3.99% the week before. The average for 15-year loans rose to 3.49% and the average for five-year adjustables was unchanged at 3.46%. A year ago, 30-year fixed rates averaged 4.09%, slightly higher than today's level. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Some may be wondering if this is the last time we'll see a three handle on 30-year fixed rates. Never say never, but inflation is firming, and the Federal Reserve's Beige Book indicates broad-based economic growth and labor markets are tightening. This means upward pressure on long-term rates, like the 30-year fixed-rate, is building." 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 19, 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)
| Suburban and urban areas are combining to create a new kind of living style known as the “surban.” Many in the real estate industry are predicting it to be one of the hottest housing trends to watch. A surban offers greater walkability to retail and restaurants from a home or apartment, but in a suburban area. It’s a blend of both suburbia and city life. Previously, urban planners dubbed these areas “mixed-use.” These spots tend to be anchored by highly rated schools, low crime rates, and shopping areas within walking distance. Surbans are dominated by several housing options, such as single-family residences, condos, and townhomes, explains Len Elder, an instructor at McKissock Learning and Superior School of Real Estate, in a recent article at RISMedia. The Urban Land Institute estimates that surban areas will draw at least 80 percent of new households and attract the most families over the next decade. Suburban downtowns are already growing nationwide. Surban developments may replace shopping centers, and more retail stores within walking distances of housing likely will morph into selling more experiences rather than merely just goods, Elder writes. “For the most part, housing areas have historically been categorized based on single-family residences, townhomes, condominiums or multifamily buildings,” Elder notes. “The development and advancement of surban living have already begun blending housing options in a selected area. It will not be uncommon to find townhomes and condos mixed in with single-family residences. Ownership and rentals will exist in closer proximity to widen the retail base of the homes and provide an array of options for millennials.” Source: RIS Media
As 2017 came to a close, Zillow has estimated the total value of all U.S. homes is now $31.8 trillion. This 6.5 percent value increase is the fasted annual growth in four years. As for the nation’s renters, they spent a record $485.6 billion in 2017, an increase of $4.9 billion from 2016. “This was a record year for home values as the national housing stock reached record heights in 2017,” said Zillow Senior Economist Aaron Terrazas. “Strong demand from buyers and the ongoing inventory shortage keep pushing values higher, especially in some of the nation's booming coastal markets. Renters spent more than ever on rent this year, but the amount they spent grew at the slowest pace in recent years as more renters transitioned into homeownership and new rental supply slowed rent growth across the country. Despite recent changes to federal tax laws that have historically made homeownership financially attractive, the long-term dynamics pushing up home values and rents are unlikely to change significantly in 2018.” Source: National Mortgage Professional
An analysis of 21 million first-time homebuyers over a 24-year period shows that demand in the third quarter of 2017 was the highest since the millennium. Genworth Mortgage Insurance says that 601,000 homes were bought by first-timers in the three months to the end of September 2017, up from 567,000 a year earlier, a 6% rise. This was contrary to the wider housing market with repeat buyers in the quarter down 5% year-over-year (888,000) as affordability issues for movers is exacerbated by low supply. First-time buyers accounted for 40% of all homes bought. "First-time homebuyers bought the most homes in a quarter since the third quarter of 2000, buoying the broader housing market that had slowed during this period (-1% growth compared to Q3 of 2016). The surge in first-time homebuyer demand, and the decline in overall purchases, was driven by supply-demand imbalances in today's housing market,” said Genworth chief economist Tian Liu. Source: Mortgage Professional America