Mortgage Business

Beyond The Numbers

20140309-080351.jpgWe have received some good news over the past few months regarding employment growth. The creation of jobs is the most important function of the economy. When people can find jobs, this creates confidence. When people are secure in their jobs they tend to spend more. This includes large purchases such as houses and cars. Of course, the real estate sector is another huge factor within our economy. So, the next question is–how good are the job numbers? Here is the good news, May represented the fourth consecutive month of jobs gains over 200,000 and that is the first time that has happened since 1999.

On the negative side, the labor participation rate was 62.8%, which was unchanged from April. This is the lowest rate in decades. We do understand that this number is affected by the number of people retiring and with baby boomers aging there are record numbers retiring. But it is also affected by the fact that the population has been growing. A few weeks ago, we pointed out that the population growth of our country may be poised to present us with a housing shortage in the future. Well, it also means that we must create more jobs than ever before and that has not happened yet.

We lost 8.7 million jobs during the recession. Again, the good news is as of May these jobs have been recovered over the past four years. That is a rate of approximately 180,000 jobs per month. We are now creating jobs at over 200,000 per month. If we can create jobs at a rate of 200,000 to 250,000 per month this would appear to help us catch up with population growth in a few years and lower the unemployment rate further. We believe as more people obtain gainful employment, they will spend more money and this will spur housing and other sectors of the economy which will create more jobs. That is what a virtuous cycle is all about and that is why this “200,000” number is so important. When the Fed meets starting today, you can be sure that these employment numbers will get a lot of attention from the members of the Federal Open Market Committee.

Weekly Interest Rates OverviewThe Markets. Rates rose again in the past week, with better economic news making the markets concerned about what the Federal Reserve Board will do when they meet this week. Freddie Mac announced that for the week ending June 12, 30-year fixed rates increased to 4.20% from 4.14% the week before. The average for 15-year loans rose to 3.31%. Adjustables were mixed in the past week with the average for one-year adjustables unchanged at 2.40% and five-year adjustables increasing to 3.05%. A year ago 30-year fixed rates were at 3.98%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans continued to climb for the second week in a row following the increase in 10-year Treasury yields. Also, the economy added 217,000 jobs in May, following a 282,000 surge in April and a 203,000 increase in March. Meanwhile, the unemployment rate in May held steady at 6.3 percent.” 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 Updated June 13, 2014

Daily Value Monthly Value
June 12 May
6-month Treasury Security 0.07%  0.05%
1-year Treasury Security 0.10%  0.10%
3-year Treasury Security 0.88%  0.83%
5-year Treasury Security 1.66%  1.59%
10-year Treasury Security 2.58%  2.56%
12-month LIBOR  0.538% (May)
12-month MTA  0.122% (May)
11th District Cost of Funds  0.682% (Apr)
Prime Rate  3.25%

20140309-080538.jpgDeclines in home values experienced during the recession have already been, or are close to being, erased in almost 20 percent of metro housing markets nationwide as values continue to rise, according to the first quarter Zillow Real Estate Market Reports. You can checkout home in the Bethany Beach, DE area here:  ZILLOW BETHANY BEACH REPORT U.S. home values climbed 5.7 percent year-over year in the first quarter, to a Zillow Home Value Index of $169,800. Home values nationwide rose 0.5 percent from the fourth quarter of 2013, the ninth straight quarter of increasing home values. U.S. home values are expected to rise another 3.3 percent through the first quarter of 2015, according to the Zillow Home Value Forecast. Nationally, home values remain 13.5 percent below their 2007 peak, after falling 22.6 percent during the recession before bottoming in 2011. But the housing recession is almost entirely in the rearview mirror in 1,080 of the more than 8,700 cities and towns covered by Zillow, with home values already at or expected to reach pre-recession levels in the next year, including in many hard-hit areas. Among 6,781 cities and towns that experienced home value declines of 10 percent or more during the recession, values in 527 have either fully recovered or are expected to recover fully by the first quarter of 2015. “The lows of the housing recession are becoming an increasingly distant memory as home values reach new highs and homes become more expensive than ever in many areas. This is a remarkable milestone coming only two and a half years after the end of the worst housing recession since the Great Depression, and is a testament to just how robust this housing recovery has been,” said Zillow Chief Economist Dr. Stan Humphries. “So far, this steady appreciation has not created affordability issues in the majority of places. But there are a handful of markets where affordability is again a challenge, even with interest rates incredibly low.” Source: Zillow

Americans have renewed confidence in real estate as a great investment. In fact, Americans believe real estate is the “best” long-term investment, followed by gold, stocks, mutual funds, savings accounts/CDs, and bonds, according to a new Gallup Poll of about 1,000 adults who were asked to choose the best option for long-term investments. Bonds were the least favorite investment among the options Gallup surveyed. In 2011, Americans surveyed said the most popular long-term investment was gold. That also marked a time when gold was at its highest price and real estate and stock values were lower than today, Gallup notes. “With housing prices improving across the country, Americans are regaining faith that real estate is the best choice for long-term investments,” according to Gallup. “Home ownership is also associated with views of real estate as an attractive investment opportunity.” Americans with higher incomes are the most likely to say real estate and stocks are the best investments – “possibly because of their experience with these type of investments,” according to the Gallup poll. Higher income Americans are most likely to say they own their home (at 87 percent), followed by middle-income earners (at 66 percent) and lower-income earners (36 percent) Home owners are slightly more likely than renters to say real estate is the best choice for long-term investments – 33 percent versus 24 percent, respectively, according to the Gallup poll. Source: The Gallup Organization

There was a time during the Great Recession when it looked like Americans were rethinking our mega-homes, reining in our budgets and ambitions and love of the three-car garage. Clearly, that moment has passed. Census data released recently on the characteristics of new single-family housing construction confirms that the median size of a new pad in America is bigger than it’s ever been. In 2013, the median size of a new single-family home completed in the United States was 2,384 square feet. That median is above the pre-crash peak of 2,277 square feet in 2007, and it dwarfs the size of homes we were building back in 1973 (median size then: 1,525 square feet). Historically, this trend actually runs counter to another demographic pattern: Our homes have been getting larger as our households have actually been shrinking. So the long-running American appetite for ever bigger homes can’t be explained by the need to fit more people into them. What, then, do we want all of this room for? What’s particularly striking in the Census Bureau’s historic data on new housing characteristics is the growth of what would be luxuries for many households: fourth bedrooms, third bathrooms, three-car garages. Notably, demand for all three dipped during the recession in parallel to the trend line above. These numbers are not a reflection of all U.S. housing stock. Rather, they reflect only trends in new construction, and only new construction among single-family homes. Right now, high-end homes are driving new single-family construction. And so perhaps these numbers will scale back some as the housing market continues to recover for families who can only offer smaller down payments and have dreams of more modest homes. Source: The Washington Post

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