Veterans Day

20140309-080351.jpgThe election is over. The October employment report has been released. But these important events should not obscure the real importance of this week. Today is Veterans Day, the day we give homage to those who have served our country by defending our freedom throughout our history. We only need to look at what is happening in the Middle East to be reminded as to how important those who have served are to each and every one of us. Many don’t realize how extensive the population of veterans is in this country. There are well over 20 million veterans and active military, comprising approximately 10% of the adult population of the United States.

For those in business, this makes veterans a very important demographic. For example, did you know that over 15% of the new home sales in the United States are being financed through the Department of Veterans Affairs VA Loan Program? Veterans also own around 10% of all U.S. businesses and have an income which is approximately $10,000 higher than the average American. So, we should not only thank veterans for serving, but also as veterans come back from overseas, helping them assimilate into society is not only the right thing to do, it makes great business sense.

Of course, we could not completely ignore the events of last week. As for the election, the results are important because we will no longer have a “divided” Congress; however, this does not mean that all gridlock will be removed. The employment report was also newsworthy, as this report followed our strongest month of job creation in quite some time. The numbers released Friday were slightly below forecast, but were still strong and included an upward revision of the job gains for the previous month. Plus, the unemployment rate moved down to 5.8% while the labor force participation rate increased slightly as well. All in all, a report that shows the jobs recovery continues to be on track.


The Markets. In the past week, rates continued to rebound from their recent lows of the year. Freddie Mac announced that for the week ending November 6, 30-year fixed rates rose to 4.02% from 3.98% the week before. The average for 15-year loans increased to 3.21%. Adjustables were also higher, with the average for one-year adjustables moving to 2.45% and five-year adjustables increasing to 2.97%. A year ago, 30-year fixed rates were at 4.16%, higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans continued to rise this week with the 30-year fixed-rate eclipsing the 4.0 percent mark. The rate increases coincide with real GDP beating consensus expectations of 3.0 percent growth by growing at an annualized rate of 3.5 percent in the third quarter. The ISM Manufacturing Index also beat expectations registering 59 in October, up from September’s reading of 56.6.” 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 November 7, 2014

Daily Value Monthly Value
Nov 6 October
6-month Treasury Security 0.06%  0.05%
1-year Treasury Security 0.12%  0.10%
3-year Treasury Security 1.01%  0.88%
5-year Treasury Security 1.67%  1.55%
10-year Treasury Security 2.39%  2.30%
12-month LIBOR  0.552% (Oct)
12-month MTA  0.113% (Oct)
11th District Cost of Funds  0.663% (Sept)
Prime Rate  3.25%

  The Department of Veterans Affairs’ VA home-loan program has gained significant market share compared with competing private and government options. The VA’s home-purchase financing program is now at record levels. New loans to buy houses have more than doubled since 2007. Since 2011, when VA-backed home loans represented about 3 percent of total home-purchase finance activity, they’ve soared to roughly a 7 percent share, according to the Mortgage Bankers Association. For sales of newly built homes, the VA share is larger: 14.5 percent compared with a 16.7 percent share for the other major federal housing finance program, FHA. So VA loans are housing’s hot product, but why? Lots of reasons:

  • VA-guaranteed loans come with terms that few other financing sources can match: zero down payment; flexible and generous credit underwriting that emphasizes the individual applicant rather than the algorithm-driven computer programs that dominate conventional lending. Also, VA interest rates are competitive and maximum loan amounts are the jumbo range in some areas.
  • VA’s default rates are as good as or better than “prime” conventional loans and far superior to FHA’s. VA’s low rates of serious default are attributable in part to its intensive, hands-on servicing of home loans. At the earliest hints that a borrower may be facing financial strains, VA servicers get in touch to begin finding ways of solving whatever problem may exist.
  • Demand is booming. There are now an estimated 22 million veterans in this country, many of them with eligibility for VA loan benefits. In an era of extremely tight credit in the marketplace, the VA program looks like an extended hand for creditworthy vets who don’t have large amounts of money to put down on a home purchase or are transitioning into regular employment in the mainstream economy. Source: Ken Harney, The Nation’s Housing

Marriage and real estate often go hand-in-hand. But a drastic decline in the number of married young adults is emerging as “one of the biggest game changers in the housing industry,” according to John Burns Real Estate Consulting. The share of 25 to 29 year olds who are married has plunged by nearly 48 percent for men and 43 percent for women since 1970. “The housing market is unquestionably fueled by life stage changes, particularly the change of marital status and the addition (and subtraction) of children,” John Burns Real Estate Consulting notes. “These changes significantly affect where consumers want to live and what kind of home and community they will choose.” For example, according to the firm’s research, singles are more likely to rent and live in more urban locations, near entertainment and employment. Also, though cohabitation is on the rise, unmarried couples are choosing to live together at much lower rates than married couples. Marriage usually prompts a desire to own a home and the addition of children makes owning a home nearly a necessity, given education and space needs, writes Mollie Carmichael, a principal for John Burns Real Estate. Source: John Burns Real Estate Consulting 

Areas on the outskirts of cities—known as the exurbs—were among some of the hardest hit during the housing crisis, but these areas are gradually recovering years ahead of when many economists had predicted. It all comes down to the decrease in home affordability — home buyers in search of lower prices are taking their searches further afield. In general, home prices have risen by about 23 percent since 2009. But home prices in the outskirts of towns have remained relatively low. Buyers facing skyrocketing rents and higher home prices near city centers are starting to consider the exurbs more seriously. Many economists believed that a recovery in the exurbs was unlikely for several years. Exurbs are usually overwhelmingly residential in nature, which means residents often face long commutes. Agriculture or open land often makes up a big part of exurban borders. Exurbs lost their appeal during the housing crisis due to job losses and high gasoline prices that brought home sales and construction mostly to a halt, as more people started to look closer in to city centers. But as buyers look to exurbs again, so are builders, particularly since land prices tend to be much lower in the exurbs than city centers. “I’m definitely seeing a trend toward these areas,” Bob Bennett, division president for home builder Ryland in Charlotte, N.C., told The Wall Street Journal. “People are starting to consider driving a bit further to get the home they want at a better price.” Source: The Wall Street Journal

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