Mortgage Business

A Crucial Employment Report

March 31, 2015
Every month the employment report is very, very important. The creation of jobs not only tells us how the economy is performing, the report also tells us how the economy will be performing in the future. When we create a significant number of jobs, we know that these jobs will create more jobs because those who have become employed will spend more money on a variety of goods.

This week, we feel that the March employment report is even more important than usual. Why? For one, after the creation of almost 300,000 jobs per month over the past six months, we know that the Federal Reserve Board is getting closer to raising short-term interest rates. Any number close to 300,000 this month may move the Fed to a tipping point. In their most recent meeting the Fed removed the word patience from their guidance but at the same time, indicated that they will not be “impatient.”

Secondly, we are looking at another number besides the number of jobs created. We are looking at those who have removed themselves from the labor force as a result of the recession. If some of these folks start coming back into the labor force, the unemployment rate could increase or at least stay the same even with a significant number of jobs created. If the economy produces a plethora of jobs and the unemployment number stays steady or rises, this would actually be good news. It means that our economic recovery is finally starting to reach mainstream America. The low labor force participation rate is one reason the Fed has been able to hold off raising rates for so long into the recovery. It is also one reason that wages have not risen as jobs have been created. Hopefully, this will soon change.

Weekly Interest Rates Overview


The Markets.  Rates on home loans moved down again in the past week, as the markets continued to react positively to a more dovish message from the Federal Reserve Board. Freddie Mac announced that for the week ending March 26, 30-year fixed rates decreased to 3.69% from 3.78% the week before. The average for 15-year loans fell to 2.97%. Adjustables were mixed, with the average for one-year adjustables remaining at 2.46% and five-year adjustables decreasing to 2.93%. A year ago, 30-year fixed rates were at 4.40%, which continues to be more than 0.50% higher than today’s levels. Attributed to Len Kiefer, deputy chief economist, Freddie Mac — “The average 30-year fixed-rate loan fell to 3.69 percent this week following a decline in 10-year Treasury yields. Low rates on home loans are a welcome sign for those in the market to buy a home this spring season and will help to support homebuyer affordability. Existing home sales in February increased slightly, but less than expected, to a seasonally adjusted annual rate of 4.88 million units. Meanwhile, new home sales outperformed expectations and surged 7.8 percent to an annual pace of 539,000 units.” 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 March 27, 2015
Daily Value Monthly Value
March 26 February
6-month Treasury Security  0.13%  0.07%
1-year Treasury Security  0.28%  0.22%
3-year Treasury Security  0.98%  0.99%
5-year Treasury Security  1.47%  1.47%
10-year Treasury Security  2.01%  1.98%
12-month LIBOR  0.660% (Feb)
12-month MTA  0.136% (Feb)
11th District Cost of Funds  0.698% (Jan)
Prime Rate  3.25%

It may seem like rates on home loans have been vacillating in a tight range, brushing up against four percent on the 30-year fixed and then falling back. Rates, however, are still considerably lower than they were a year ago. That translates into far more buying power for the average consumer, heading into the busiest housing season of the year. But how much more? John Burns Real Estate Consulting looked at the typical American family, earning $60,000 a year. They can afford about $1,800 a month for their housing payment, given a normal amount of other debt. For a 30-year fixed-rate loan, back in 2000, when rates were eight percent, that would have qualified them for a $245,000 loan. At 4 percent, which is where rates are headed today, they can qualify for a $377,000 loan. “In other words, each one percent drop in interest rates in the last 15 years has allowed home sellers to raise price 12 percent,” according to the firm. Rates at this time last year were at about 4.5 percent, so that allows for eight percent price appreciation on homes. Favorable interest rates are supporting buyer traffic, according to a February survey of real estate agents by Credit Suisse, but low supply is still a sticking point in most markets. Source: CNBC

Energy efficiency is highly important to a growing number of households — so much so that the Demand Institute found that on a list of 52 housing and community concerns that more than 10,000 households were asked to rank in importance, households said energy efficiency had great importance even though only a fraction said they had actually improved it in their home. Energy efficiency was the biggest satisfaction gap, defined by what people say they want but don’t have, the survey found. Seventy-one percent of the households polled said energy efficiency was “highly important” to them, but only 35 percent of households said they felt their homes were very efficient with low monthly utility costs. Energy efficiency was the housing concern with the largest gap between the rate of importance and satisfaction – even topping other needs and desires like updated kitchens, storage space, safe neighborhoods, affordability, landlord responsiveness, and other issues, according to the survey. “Utilities are as significant and regular part of households’ budgets, and spending on utilities has risen more quickly than overall consumer spending – 56 percent versus 38 percent growth since 2000,” says Louise Kelly, president of the Demand Institute. Source: The Demand Institute

With home-price gains slowing in most parts of the country, sellers will be looking for ways to get top dollar for their listing. Cleaning and staging make a big difference. But for some sellers — such as investors seeking to bring a property up to neighborhood standards before the sale — remodeling work may be the ticket. As the 2015 Remodeling Cost vs. Value Report makes clear, large-scale jobs aren’t likely to return sellers their full cost. But there are improvements worth doing in anticipation of an upcoming sale. Some will return almost 100 percent of their cost. Others may not have as great a payback, but they can improve the market position of the property in relation to the competition. Think about the impact of beautiful kitchen photos on online home shoppers. In addition, several pricier projects can provide owners with a few years of enjoyment while still offering a decent payback down the road. Source: The National Association of Realtors Click Here to find out what projects will give you the most bang for the buck.

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