Mortgage Business

The Best of All Worlds?

20140309-080351.jpgThe past several years have been anything but ideal with regard to the economy and lifestyle of Americans. We started with a deep recession which included a collapse of home values which were increasing at an unsustainable pace. The way out of the recession was anything but painless. It was slow and tedious at best as the recovery has felt like we were running in slow motion. However, as slow as the recovery has been, it has proceeded over all obstacles and there were plenty of obstacles from natural disasters to political issues and world conflicts. Steadily the recovery plowed ahead.

The two bright spots of the recovery have been stocks and interest rates. We have experienced record low rates for years while the stock market has continued to advance from the depths of the recession. One reason for the success of stocks has been the existence of low rates. For many investors, the returns of leaving money in cash made little sense since there was little or no rate of return with rates so low. Meanwhile, it was assumed that rates, as well as oil prices, would increase as the recovery started “heating up.” Thus far, this has not happened. Rates and oil prices have not risen in 2014 even as we have recovered from our latest natural event — the harsh winter of earlier this year.

As we move into the last phase of 2014, does this mean that we could actually enjoy better times than we thought as the economy moves to the next phase? It may be too much to ask for continued advances in the stock market while still enjoying low rates and stable oil prices — at the same time that unemployment is dropping towards normal levels. But it is possible as long as the economy does not heat up too fast. The key is economic growth. If the recovery does not roar ahead, but advances at a moderate level for the foreseeable future, perhaps inflation does not become a problem and rates will stay low. So the best of all worlds could be possible and would be a welcome break from the malaise we have experienced for the past several years. Even if only for a short period of time, that would be a nice thought.


The Markets. Fixed rates were stable in the past week, remaining near their lows for the year. Freddie Mac announced that for the week ending August 28, 30-year fixed rates remained at 4.10%. The average for 15-year loans ticked up slightly to 3.25%. Adjustables also rose a tad, with the average for one-year adjustables moving to 2.39% and five-year adjustables increasing marginally to 2.97%. A year ago 30-year fixed rates were at 4.51%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were little changed following mixed housing news. Existing home sales rose for the fourth consecutive month to an annualized pace of 5.15 million, the highest of the year. On the other hand, new home sales fell for the third consecutive month to an annualized rate of 412,000 units. Also, the S&P/Case-Shiller national home price index confirmed the slowing in national house-price appreciation that has occurred in other metrics, with the seasonally-adjusted national index down 0.1 percent in June but on a year-over-year basis up a solid 6.2 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 August 29, 2014

Daily Value Monthly Value
August 28 July
6-month Treasury Security 0.05%  0.06%
1-year Treasury Security 0.11%  0.11%
3-year Treasury Security 0.95%  0.97%
5-year Treasury Security 1.63%  1.70%
10-year Treasury Security 2.34%  2.54%
12-month LIBOR  0.556% (July)
12-month MTA  0.118% (July)
11th District Cost of Funds  0.668% (June)
Prime Rate  3.25%

  Existing-home sales increased in July to their highest annual pace of the year, and the ongoing decline in distressed sales reached an important milestone, according to the National Association of Realtors. Total existing-home sales, which are completed transactions, rose 2.4 percent to a seasonally adjusted annual rate of 5.15 million in July from a slight downwardly-revised 5.03 million in June. Sales are at the highest pace of 2014 and have risen four consecutive months, but remain 4.3 percent below the 5.38 million-unit level from last July, which was the peak of 2013. Lawrence Yun, NAR chief economist, says sales momentum is slowly building behind stronger job growth and improving inventory conditions. “The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market,” he said. “More people are buying homes compared to earlier in the year and this trend should continue with rates remaining low and apartment rents on the rise.” Yun does warn that affordability is likely to decline in upcoming years. The median existing-home price for all housing types in July was $222,900, which is 4.9 percent above July 2013. This marks the 29th consecutive month of year-over-year price gains. Distressed homes – foreclosures and short sales – accounted for nine percent of July sales, down from 15 percent a year ago and the first time they were in the single-digits since NAR started tracking the category in October 2008. Yun says the deepest housing wounds suffered during the Great Recession are beginning to fully heal. “To put it in perspective, distressed sales represented an average of 36 percent of sales during all of 2009,” he said. All-cash sales in July were 29 percent of transactions, down from 32 percent in June and representing the lowest overall share since January 2013 (28 percent). Individual investors, who account for many cash sales, purchased 16 percent of homes in July, unchanged from last month and July 2013. Sixty-nine percent of investors paid cash in July. Source: NMP Daily

There was a time, not long ago, when home renovations slowed to a trickle, with homeowners wary about making anything but the most essential fixes. Now, they are not only willing to spend, but to spend big. The growing economy, rising home values, and low interest rates are giving homeowners the confidence and cash they need to raze walls, add rooms, renovate kitchens, build decks, paint siding, and spend on other projects to spruce up their homes. Business for contractors and home improvement companies across Massachusetts and the country is on the upswing as the remodeling industry, crippled in the last recession, rebounds. Spending on home remodeling, which peaked at about $145 billion in 2006, is on track to surpass that high by the end of the year, according to figures compiled by the Joint Center for Housing Studies at Harvard University. This growth has also meant more jobs for carpenters, painters, plumbers, electricians, and other construction workers. In Massachusetts, the increase in remodeling activity has contributed to a recovery in overall construction employment, which has gained about 18,000 jobs over the past four years, about half the number lost in the recession. Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies, said rising home values are contributing to the home improvement boom by giving owners confidence that investing in their homes today will pay off when they sell. During the downturn, when property values plunged and unemployment soared, consumers limited their spending to projects that could not be delayed, such as leaky roofs. “People think house prices are not going to go down again anytime soon,” Baker said, “and they’re therefore more comfortable doing projects they were nervous about doing four or five years ago.” Source: The Boston Globe

The Millennials, who for years have been holed-up in their childhood homes while the economy imploded, now seem poised to move out of their parents’ basements in a big way. According to a report released by Harvard’s Joint Center for Housing Studies, as the economy shows signs of improvement, by 2025 Millennials could form 24 million new households and spur a huge comeback in the U.S. real estate market. The report also found that, traditionally, the number of young people who buy homes increases as their incomes grow. Recently, hiring of Millennials has improved as the economy heals. If the trend continues, parents of Millennials could soon become empty-nesters. Weak job prospects, tight lending standards and student debt, have left the 86 million members of the Millennial generation — defined by the study as those born between 1985 and 2004 — with few options for achieving independence. Nonetheless, like previous generations, Millennials crave it and this pent-up demand will give a big boost to the housing sector, the report’s authors said. “We really have not seen any cultural shift yet in anyone’s desire to be independent,” said JCHS Research Director Christopher Herbert in a panel discussion that followed the release. “When the job market recovers and their income recovers, they are going make their mark on this housing market.” Nearly 22 million people ages 18 to 31 lived in the home of a parent in 2012, according to Pew Research. The homeownership rate for those under age 35 was 36.2% in the first quarter of 2014, down from a historical high of 43.1% at the end of 2005, according to the Census. Getting those rates back up will require the economy to keep improving, but if it does, those new households could mean a virtuous cycle. Booming demand for starter homes (as well as apartments) would stoke the housing sector, which accounts for about 18% of GDP, according to the National Association of Home Builders. It would also get a sluggish market moving by providing trade-up opportunities. “If somebody wants to move up from a starter house to a larger house, they need someone to sell the starter house to,” Mike Calhoun, the president of the Center for Responsible Lending, said on the panel. Calhoun estimated U.S. building activity of about 1 million building permits issued per year could easily increase by two-thirds to meet demand without risking an unsustainable boom. Source: CNN/Money 

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