As we have discussed, the Federal Reserve Board is moving closer to raising interest rates. We have mentioned several times that the Fed controls short-term rates directly and influences, but does not control, longer-term rates. This topic is important to understand as we watch the economy this year. The Fed sets the “Discount Rate” which the Fed charges member banks to borrow funds in the short run when they are short of reserves. The Fed also sets a target for the “Federal Funds Rate” which is the rate banks charge each other for short-term borrowing.

Without getting into too much technical detail, these are very short-term rates. Thus, when the Fed moved both rates to near zero as a reaction to the recession, rates on short-term instruments, such as six month treasuries, moved close to zero as well. Long-term rates moved down as well in reaction to the same forces that caused the Fed to lower short-term rates. Why is this important? This is important because the Fed is likely to increase short-term rates shortly.

And many are thinking that long-term rates, such as rates on home loans, will move up automatically. Well, rates on home loans have already moved up from their low levels of this winter in anticipation of this move. Therefore, when the Fed moves rates up, if the markets feel that this is the only move coming for the foreseeable future, long-term rates may not move at all. On the other hand, if the economy keeps getting stronger, long term rates will continue to move up regardless of what the Fed does. As a matter of fact, if the markets feel the Fed is not moving quickly enough, rates could move up even faster because nothing spooks the markets more than the specter of inflation.

	Daily Value	Monthly Value
	June 25	May
6-month Treasury Security	0.07%	0.08%
1-year Treasury Security	0.29%	0.24%
3-year Treasury Security	1.06%	0.98%
5-year Treasury Security	1.70%	1.54%
10-year Treasury Security	2.40%	2.20%
12-month LIBOR		0.734% (May)
12-month MTA		0.168% (May)
11th District Cost of Funds		0.680% (Apr)
Prime Rate		3.25%

 A new survey finds that house hunters who know their credit scores feel significantly more prepared to buy a home. Yet, just half of recent buyers say they have checked their credit as soon as they considered purchasing a home, according to the survey, commissioned by Experian, of 250 recent and 250 future home buyers. “No one likes to go into a lender’s office, whether buying or refinancing, and not know the state of their credit; it makes them feel helpless,” says Becky Frost, senior manager of consumer education at Experian Consumer Services. “Our survey shows when people interact with their credit by tracking it and learning more about the factors that affect it, they feel more confident about their purchase power.” Still, more than two in five future home buyers are concerned that they will not qualify for the best home loan rate and have even delayed purchasing to improve their credit, the survey found. Fifty-eight percent of buyers surveyed say they are working to improve their credit to qualify for a better home loan rate, but 35 percent of future buyers say they are not sure what steps to take to qualify for a larger loan. For those who are working to improve their credit, the top actions respondents said they’ve taken are paying off their debt, paying bills on time, keeping balances low on credit cards, protecting credit card information from fraud or identity theft, and not applying for or opening new credit accounts. Source: Experian Home Buying and Credit: Survey Report 2015Permits for future home construction climbed to a near eight-year high in May, which sets the stage for greater inventories from homebuilders in the months ahead. Building permits surged 11.8 percent to a seasonally adjusted annual pace of 1.28 million units, the highest since August 2007, The Commerce Department reported. This marks the second consecutive month of increases in housing permits, which have been above a 1 million-unit pace since July. “Residential construction has been the laggard in this [housing] recovery and the moon shot surge in new permits today means the final piece of the recovery puzzle is now falling into place,” Chris Rupkey, chief financial economist at MUFG Union Bank in New York, told Reuters. While the future signs look bright, groundbreaking on new homes posted a drop in May, plunging 11.1 percent to a 1.04 million-unit rate. However, that follows a strong April, where housing starts were at a revised rate of 1.17 million, the highest since November 2007, The Commerce Department reported. Jonathan Smoke, chief economist at realtor.com®, blames the rain for the slowdown last month in homebuilding. May’s record rainfall across the country made it difficult to begin construction on new homes, Smoke notes. Source: Reuters

The number of trees on a lot can be a powerful influencer for home buyers. Eighteen percent of repeat buyers and 25 percent of buyers purchasing a new home said that being on a wooded lot or on a lot with many trees was very important to them, according to National Association of Realtors®’ home buyer and seller surveys. Home buyers in the South and in rural areas stressed the importance of having trees on their property. Twenty percent of home buyers in the South and 30 percent in rural areas thought that having a wooded lot or many trees was very important. If buyers can’t live with a wooded lot, they certainly at least want one nearby. Twenty-three percent of recent buyers surveyed felt that convenience to parks or recreational facilities was an influencing factor for their neighborhood choice. Living close to parks and recreational facilities was the most important to recent buyers aged 34 and younger as well as recent buyers aged 35 to 49. Home buyers may not only want trees for beauty but also for savings. At least three trees strategically placed on a lot can save an average household between $100 and $250 in annual energy bills, according to the U.S. Department of Energy. Source: National Association of Realtors®