January 30, 2018
As we have mentioned previously, it has already been a busy year with major storms, wildfires that turned into mudslides, a new tax plan and the in-fighting in Washington seemingly getting worse. And that is just the first month of the year. We end the first month and start the second month with another busy week, at least on the economic front. This week we have the first meeting of the year for the Federal Reserve Board and also the first reading on jobs which contains 2018 data.
Thus far this year it seems that the economy continues to move forward, even without the anticipated effects of the tax plan. Of course, the anticipation itself has fueled much optimism which can be seen in record stock market closes. The performance of the economy is all about optimism. Since the Fed just raised their benchmark rates in mid-December, most analysts are not expecting another increase so soon. However, even if they do not raise short-term rates at this meeting, they will be discussing how much and how quickly they will be raising rates this year.
How much and how fast will depend upon the strength of the economy. And major evidence of this strength will be released a few days after they meet in the form of the January employment report. December's job gains were a bit under forecast, and thus we will be looking at not only January's numbers, but revisions to the previous months' data. A really strong report could move the Fed to raise rates at their next meeting in March. Even if they do not, one thing is certain -- unless something happens to derail the economy, their only move is up this year.
Rates on home loans moved upwards again in the past week. For the week ending January 25, Freddie Mac announced that 30-year fixed rates increased to 4.15% from 4.04% the week before. The average for 15-year loans rose to 3.62% and the average for five-year adjustables climbed to 3.52%. A year ago, 30-year fixed rates averaged 4.19%, slightly higher than today's level. Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "Rates keep climbing. The 10-year Treasury yield reached its highest point since 2014 reflecting expectations of broad-based economic growth. Rates on home loans, in turn, followed the surge in Treasury yields. The 30-year fixed rate jumped 11 basis points to 4.15 percent, its highest level since March of last year. 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 26, 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)
| Renters are feeling the financial pinch in housing. Median rent across the nation rose 2.6 percent since last December, the fastest pace of appreciation since June 2016, to a median payment of $1,439 per month -- the highest median rent Zillow has ever reported. Zillow also noted there was synergy between rent prices and incomes, with the latter increasing 2.5 percent year-over-year. "After about a two-year slowdown, rent growth is starting to pick back up across the nation," said Zillow Senior Economist Aaron Terrazas. "The slowdown in rental appreciation, combined with consistent income growth, gave renters some reprieve from worsening rental affordability over the past few years. But as rental growth begins to catch up with income growth, affordability will deteriorate, placing a squeeze on budget-constrained renters. Looking into 2018, rent is expected to continue gaining steam in growing employment centers." Source: Zillow
A vast majority of Americans are confident that they will be able to pay off their home loans and achieve other long-term financial goals, according to the results of an Investor Pulse Poll released by Morgan Stanley. The survey revealed that 91% of respondents believed that they are on track to achieve their long-term financial goals. Paying off a home loan was revealed to be a priority long-term goal for the respondents at 32%. Other top long-term goals were saving for retirement at 35% and transitioning wealth to the next generation at 33%. Slightly fewer millennials, or those between 25 and 35, were confident that they were on their way to reaching their long-term financial goals; 88% of respondents in the age group said they believed they were on track. Their long-term financial priorities were similar with those of all respondents, with 42% saying paying off a mortgage was a top goal. Other priorities were saving for retirement at 44% and paying for the education of a child or grandchild at 35%. Source: Morgan Stanley
American Enterprise Institute's Center on Housing Markets and Finance Co-director Edward Pinto gave four points he expects to see from the housing market in 2018. Many of his predictions, including low inventory and rising home prices, are shared by other housing experts. However, Pinto forecasted home prices will increase at a faster rate in 2018, while other experts expect they will slow down.
- The historically tight supply of single-family homes will tighten further in 2018 after hitting a record low in November 2017.
- The national home price boom that began in mid-2012, will continue, and given the unprecedented low levels of inventory, will even accelerate further:
- First-time buyers will face even higher home price gains for entry level homes and first-time buyers will continue to take on even more leverage in an effort to keep up with the home price gains on entry level homes. Source: HousingWire