First Data of 2015

 February 3, 2015This week we will see the first release of economic performance in 2015. Not only is it the first data release, but also the most important release of all. It is the jobs report for January. There will be a series of releases on the employment situation this week, but the most significant number is Friday’s jobs report. Why do jobs represent the most important data?

The creation of jobs fuels the economy. People with jobs spend more money. The money they spend creates other jobs. For example, if they purchase a car, it creates manufacturing jobs. If they purchase a new home, it creates constructions jobs. That does not even count jobs for real estate agents, loan officers, appliance manufacturers and several other sectors connected with the housing industry. As a matter of fact, the real estate industry is the best example of the effects of job creation.

The National Association of Home Builders has stated that the construction of 1,000 homes creates approximately 3,000 jobs. When people buy homes, it creates jobs and then these people can also purchase homes. Thus, if you want to see how real estate will do this year, watch the jobs report. Last year was the best year for job creation in over a decade. Let’s hope the good news continues in this regard.

The Markets.  Fixed rates on home loans ticked up a bit in the past week. Freddie Mac announced that for the week ending January 29, 30-year fixed rates increased to 3.66% from 3.63% the week before. The average for 15-year loans rose to 2.98%. Adjustables were also higher, with the average for one-year adjustables up slightly to 2.38% and five-year adjustables rising to 2.86%. A year ago, 30-year fixed rates were at 4.32%, which continues to be more than 0.50% higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans ticked up this week for the first time in 2015 following positive home sales reports. New home sales surged 11.6 percent in December beating market expectations. Likewise, existing home sales rose 2.4 percent to an annual rate of 5.04 million homes in December.”  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 January 30, 2015
Daily Value Monthly Value
January 29 December
6-month Treasury Security  0.07%  0.11%
1-year Treasury Security  0.17%  0.21%
3-year Treasury Security  0.84%  1.06%
5-year Treasury Security  1.28%  1.64%
10-year Treasury Security  1.77%  2.21%
12-month LIBOR  0.602% (Dec)
12-month MTA  0.121% (Dec)
11th District Cost of Funds  0.686% (Nov)
Prime Rate  3.25%

In cities across the United States, millions of people will be kicked out of their homes this year. Some can’t afford their soaring rent, others are getting evicted over minor violations by landlords eager to get higher paying tenants in place. Rents have risen 7% in the past year, while incomes have inched just 1.8% higher — making it that much harder for people to afford their housing payments. In fact, the average renter now spends 30% of their income on rent, up from a longtime average of about 25%, according to Zillow. One big emergency or unexpected expense and it can mean a missed payment — and an eviction notice. The Neighborhood Law Clinic at the University of Wisconsin Law School estimates that several million families a year face evictions nationwide. Even for the solidly middle class, evictions can force families out of familiar neighborhoods and make it harder to rent new homes. Many of the eviction cases have been for minor violations, often for behavior that was formerly tolerated, like keeping a canary when there is a “no pet” policy or storing a bicycle in the hall, said Deepa Varma, a litigator with the Eviction Defense Collaborative (EDC).Source: CNN/Money Note: Owners are not evicted for having a canary or any other pet!

The strengthening of the economy and the labor sector is prompting more young professionals to gradually return to the real estate market. Since the housing turnaround started in 2012, many first-time home buyers have been shut out, with a poor labor market and low wages forcing many young professionals to move back with their parents or to rent. “Credit tightness has been an issue for the housing market but demand weakness has been a bigger one,” says Douglas Duncan, chief economist at Fannie Mae. “The improving economy is going to put renters in a better place to buy.” Growing confidence in the job market is the strongest indicator that home sales will improve, Duncan says. With added jobs, more consumers see their wages growing too. Overall, consumers expect a 1.7 percent rise in their incomes this year, the highest increase since 2008, according to the Thomson Reuters/University of Michigan consumer sentiment poll. Americans under the age of 45 years old are expecting the largest gains in incomes at 4.7 percent. “Young renters have wanted to keep their living situations flexible because they didn’t know if they were going to have to move for a job,” Duncan says. “More of them are going to be willing to put down roots if they feel more confident in the labor market.” Household formation is a key measure of real estate demand. Household formation is expected to increase to 1.1 million this year, the highest in three years, according to IHS Global Insight Inc. forecasts. Source: Bloomberg News

Cash sales made up 35.5% of total home sales in October 2014, down from 38.7% in October 2013, according to CoreLogic. At the current rate of decline, cash sales share should reach pre-crisis levels by 2017. The year-over-year share has fallen each month since January 2013, making October the 22nd consecutive month of declines. Month over month, the cash sales share ticked up by half of a percentage point, as is typical for the fall and winter months, according to CoreLogic. Cash sales peaked in January 2011 when cash transactions made up 46.4% of total home sales. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%. At the current rate of year-over-year decrease, the cash sales share should be back to pre-crisis levels in 2017. Source: MPA

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