For months the markets have been totally focused upon how many jobs are added each month and how this might bring us closer to increases in rates. It is obvious that every month of more than 200,000 jobs added gets us closer and closer. But employment is not the only variable affecting the Federal Reserve Board’s thinking. This month when China devalued their currency in a move they said would let market forces set the value, one of these variables was front and center. This variable is the value of the U.S. dollar. Why do we care about the value of the dollar?
In the past year, the value of the dollar has gotten considerably stronger than other foreign currencies. This is actually good news because our economy seems to be getting stronger while others languish. To a consumer a stronger dollar is good because it lowers the cost of goods bought overseas and even makes vacations cheaper. It is bad for U.S. companies that do business overseas because our exports become more expensive. So a stronger dollar is a double-edged sword for our economy and thus the Federal Reserve Board.
Overall, a strong dollar is good because it lowers the risk of inflation. And inflation is exactly what the Fed is looking to protect us from when they raise rates. With oil and gas prices going down and the dollar getting stronger, the risk of inflation is going down. Plus, the risk to our economy is rising and the recent drop in our stock market certainly reflects worries concerning this risk. The question is-will these factors convince the Fed to wait longer before they raise rates? At least for now, we have the best of all worlds — a recovering economy, low rates, low gas prices and cheaper vacations to Europe!
The Markets. Rates on home loans were stable in the past week, but trended down later in the week in response to the release of the minutes of the last meeting of the Fed. Freddie Mac announced that for the week ending August 20, 30-year fixed rates eased to 3.93% from 3.94% the week before. The average for 15-year loans decreased to 3.15%. Adjustables were also stable, with the average for one-year adjustables unchanged at 2.62% and five-year adjustables rising slightly to 2.94%. A year ago, 30-year fixed rates were at 4.10%, close, but still higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “There was little movement in the financial markets this week as the 30-year fixed rate remained steady, dropping only 1 basis point to 3.93 percent. Overall inflation grew an underwhelming 0.2 percent year-over-year in July, but core inflation remains steady at 1.8 percent keeping chances alive for a potential rate hike in September. Housing markets have responded positively to low rates — the 30-year fixed rate has been below four percent for five consecutive weeks. One-unit housing starts in July 2015 jumped to 782,000 units, up 12.8 percent from June and up 19 percent from last year. Overall, the housing market remains on track for the best year since 2007.” 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 21, 2015
|Daily Value||Monthly Value|
|6-month Treasury Security||0.22%||0.12%|
|1-year Treasury Security||0.39%||0.30%|
|3-year Treasury Security||1.00%||1.03%|
|5-year Treasury Security||1.50%||1.63%|
|10-year Treasury Security||2.09%||2.32%|
|12-month LIBOR||0.828% (July)|
|12-month MTA||0.198% (July)|
|11th District Cost of Funds||0.659% (June)|
Flattery is a tried-and-true negotiating strategy, but homebuyers in hot markets are making a bizarre art form out of kissing up. In hot markets, it’s common for homebuyers to include a personal appeal along with their offer paperwork and financing details. Usually that means a letter, to introduce the seller to the buyer’s family and wax on about what the buyer loves about the house. But buyers are stepping up their games: Recent personal entreaties have included YouTube videos and baked goods, says Andrew Vallejo, a Redfin agent. “After they toured the property, they left a note for the seller on the kitchen counter about how much they loved the house,” he says of one recent couple. “The next day they came back and hand-delivered cookies to the seller and to five or six of the seller’s neighbors.” Cookies might be new, but the offer letter is an old staple of hot markets. There’s plenty of anecdotal evidence to indicate that the strategy works, though only in certain regions. The Internet, meanwhile, is awash with advice for prospective homebuyers. So there’s a good chance that a house-hunter attempting to sweet-talk will be going up against another one with the same strategy, which usually involves a variation on a common theme. The first step is flattery: “I love those drapes! I won’t change a thing!” The second step is more flattery, by way of aspiration: “Your lovely home is key to the life I want for my family.” These can be powerful sentiments but probably less compelling if the seller is receiving several letters that all say the same thing. Redfin numbers show that during the first six months of 2015, letter-writers were 14 percent more likely to have an offer accepted than would-be buyers who didn’t send a note. Source: Bloomberg News
Although many areas are reporting strong results for home sales, there is one thing standing in the way of even hotter markets according to the CEO of paint producer Sherwin Williams – the rain! The company reported weakened sales of its products in its recent quarterly report and chief executive Chris Connor said that poor weather in 24 states meant that contractors were unable to use existing paint stocks or to buy more. Connor told the Business Insider: “Residential building permits were up 25 per cent year-over-year in May, while actual starts were up only 5 per cent. Year-to-date, residential permits have increased at twice the rate of starts.” Source: MPA
A survey by the National Association of Realtors concludes that Like-Kind exchanges support the nation’s financial growth, job creation and economy. Between 2011 and 2015, 63 percent of realtors participated in the like-kind transactions and real estate investors and commercial property owners are in favor of the current tax rules. “Like-kind exchanges that allow investors and businesses to defer capital gains taxes on the exchange of similar properties bring great advantages to investors, real estate markets and the economy,” said NAR Chief Economist Lawrence Yun. “Realtors and their clients often look for better economic use of existing properties that are underutilized, which helps promote local economic development and increase the nation’s gross domestic product.” Eighty-six percent of respondents said the savings from tax deferment allowed them or their clients to invest additional capital and make improvement in their acquired properties; these investments are generally responsible for the creation of new jobs, such as in construction and property management. Source: National Association of Realtors