Happy New Year -- A Look Back

Another Seinfeld question -- When in the year do we stop wishing people "Happy New Year"? In this case we will stretch it out for one more week as we take a look at what happened in 2019. With regard to data, we close the year out on jobs this week with the employment report for December. Though we will have a couple of revisions of this report in the coming months.

This report will be looked at very closely as the most important data release thus far this year. The question is--are we continuing to gain momentum going into the new year, or is the economic slowdown continuing? As we look back, mid-2019, there were a bevy of economists predicting a recession this year. But lower rates and easing trade tensions took the focus off of recession as the year progressed.

Consumer spending and real estate continued to prop up the economy even as other sectors of the economy languished. Nothing spurs consumers more than good paying jobs. Thus, the employment numbers could tell a very important story. If the report is too strong, we could see the end of the trend of lower rates, as rates have already begun to come off their lows. A weak report could keep rates near these very attractive levels. The end of this week should be interesting.

  

The Markets. Rates were slightly lower over the holidays. For the week ending January 2, Freddie Mac announced that 30-year fixed rates moved down to 3.72% from 3.74% the week before. The average for 15-year loans decreased to 3.16% and the average for five-year ARMs moved up slightly to 3.46%. A year ago, 30-year fixed rates averaged 4.51%, more than .75% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac --"The combination of improved economic data and market sentiment has led to stability in interest rates, which have hovered around 3.7 percent for nearly the last two months. The stability is welcome news after the interest rate turbulence of the last year, which caused a slowdown in the housing market and other interest rate sensitive sectors. The low rate environment combined with the red-hot labor market is setting the stage for a continued rise in home sales and home prices." 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. 

	Daily Value	Monthly Value
	Jan 2	November
6-month Treasury Security	1.57%	1.59%
1-year Treasury Security	1.56%	1.57%
3-year Treasury Security	1.59%	1.61%
5-year Treasury Security	1.67%	1.64%
10-year Treasury Security	1.88%	1.81%
12-month LIBOR		1.950% (Nov)
12-month MTA		2.146% (Nov)
11th District Cost of Funds		1.100% (Oct)
Prime Rate		4.75% (Oct)

 Last year was a busy one for residential finance changes. On the positive side of the ledger, loan limits were raised. Conforming loan limits increased from $484,350 to $726,525 (high-cost) to $510,400 to $765,600 (high-cost). FHA loan limits increased from $314,827 to $726,525 (high-cost) to $331,760 to $765,600 (high-cost). VA loan limits caps were eliminated, except for those with a partial guarantee. Though, keep in mind that lenders may have restrictions. On the negative side, VA funding fees went up to 2.30 from 2.15 (first-time use) and to 3.60 from 3.30 for subsequent use. Reservists and National Guardsman no longer have to pay a higher fee. In addition, FHA introduced procedures for getting individual condo units approved in complexes which are not FHA approved (spot condo approvals). FHA cash-out LTV’s were lowered to 80% from 85% and VA cash-out LTV’s were lowered to 90% from 100%. Fannie Mae and Freddie Mac lowered their maximum income requirements on low-to moderate income programs to 80% of the median income (AMI) from 100%.

U.S. renters spent a cumulative $4.5 trillion on rent during the 2010s, according to a new Zillow® analysis. That's more than the GDP of Germany or the combined market values of Apple, Microsoft, Amazon and Alphabet. In 2019 alone, renters spent more than $512 billion on housing – the most of any year in this decade. Altogether, renters spent 2.9% more on rent this year than they did in 2018 and 46.5% more than in 2009 ($349.8 billion). The current median rent is $1,600 per month, up 2.3% from a year ago. Rent prices have been on the rise since 2012, creating an affordability crunch that has led many renters to make sacrifices in order to pay their rent, including living with roommates longer, or reducing their savings for a down payment. Nationally, rent prices grew the fastest in June 2015, when the U.S. median rent rose 6.5% annually. Source: Zillow

First-time homebuyers are making a comeback as they made up 39% of all buyers in the single-family housing market during the third quarter, according to the third quarter First-Time Homebuyer Market Report from Genworth Financial. First-time homebuyers also made up 55% of all financed purchases. This is significantly higher than their historical average, which, since 1994, has averaged 35% of all homebuyers and 46% of borrowers financing their purchases. In the third quarter this year, 591,000 single-family homes were purchased by first-time homebuyers, an increase of 1% from last year. Home sales to first-time homebuyers increased by 9% from the second quarter to a seasonally adjusted annual rate of 2.14 million units in the third quarter. And 32 states reported more first-time homebuyers this quarter, compared to just 10 states in the second quarter. This increase in first-time homebuyers is made possible by an improvement in affordability. Lower interest rates and slower growth in home prices helped improve housing affordability in the third quarter. Source: HousingWire