Real Estate News

 Listening to the Fed’s Words

September 22, 2015
Forget about what the Federal Reserve Board did not do for a minute. Let’s talk about what they said. With the Fed, it is usually more likely that their words will be more important than their actions, or lack of action. This has been a very turbulent end of the summer for the markets. Above all, the Fed is interested in restoring calm and especially making sure that their actions do not add to the instability of the markets. And we certainly have had some unstable markets during the past several weeks.

This is exactly why we were expecting “calming words” from the Fed when they made their announcement. Did we get these words? Absolutely. The Fed said that “recent global economic and financial developments may restrain economic activity somewhat.” Two things are important about this statement. First, it is softened by using the word “somewhat,” meaning the Fed does not see a risk of a world-wide economic meltdown. Secondly, the Fed used the words “international or global” more than once. The international issues broaden the scope of the Fed’s focus from just looking at our jobs or inflation numbers.

Bottom line is that the Fed did not raise rates, though they did leave that option open for their last two meetings of the year in October and December. That is good news for the markets and the consumer. The stock market has already been under pressure lately and it did not need the extra pressure of a rate hike. And rates on home loans are likely to stay low in light of the Fed’s decision. We can’t think of better news for the consumer right now.


The Markets. Rates on home loans were stable again in the past week as the Fed meeting approached. Freddie Mac announced that for the week ending September 17, 30-year fixed rates rose one tick to 3.91% from 3.90% the week before. The average for 15-year loans also increased one tick to 3.11%. Adjustables were mixed, with the average for one-year adjustables falling to 2.56% and five-year adjustables rising one tick to 2.92%. A year ago, 30-year fixed rates were at 4.23%, close, but still higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The Treasury market was relatively quiet this week, and as a result rates on home loans barely budged. Inflation fell shy of expectations in August, up 0.2 percent over the past year, but core consumer prices increased 1.8 percent year-over-year. Low rates help to support housing markets, which continue to bring good news. The National Association of Home Builders’ HMI came in above expectations at 62, which is a ten year high. Even if the Fed decides to raise short-term interest rates, we don’t expect a significant impact on the housing market. We’re still on track for the best year of home sales since 2007. And in contrast to two years ago, when rates spiked in response to the Taper Talk, the economy is in much better shape and markets have been expecting the Fed to act for months. While our outlook incorporates a moderate increase in rates over the next 18 months, rates are likely to remain low by historical standards and should not be a determining factor for most Americans looking to purchase a home.” 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 September 18, 2015
Daily Value Monthly Value
Sept 17 August
6-month Treasury Security  0.19%  0.22%
1-year Treasury Security  0.39%  0.38%
3-year Treasury Security  1.00%  1.03%
5-year Treasury Security  1.50%  1.54%
10-year Treasury Security  2.21%  2.17%
12-month LIBOR  0.843% (Aug)
12-month MTA  0.221% (Aug)
11th District Cost of Funds  0.643% (July)
Prime Rate  3.25%

 The Mortgage Bankers Association, in a new research paper, projects between 13.9 and 15.9 million additional households will form by 2024, making the next decade one of the strongest in housing in U.S. history. The report, Housing Demand: Demographics and the Numbers Behind the Coming Multi-Million Increase in Households, shows that the housing demand surge will be driven by Hispanics, Baby Boomers and Millennials. “Household formation has been depressed in recent years by a long, jobless recovery and by a lull in the growth of the working age population,” said MBA Vice President of Research and Economics Lynn Fisher. “Improving employment markets will build on major demographic trends-including maturing of Baby Boomers, Hispanics and Millennials-to create strong growth in both owner and rental housing markets over the next decade.” The report said household growth will include: 5.5 to 5.7 million more Hispanic households in 2024 than in 2014 and 3.4 to 5.0 million more non-Hispanic White households. MBA said growth will be driven by Baby Boomers, with 12.3 to 12.9 million more households age 60 and over in 2024 than there are today. Millennials will also be a key component of growth raising the ranks of households age 18 to 44 by 4.1 to 5.1 million. “When it comes to starting new households, age 35 is the new 25, as younger Americans are spending a longer time in school and delaying major life events like getting married and having children,” said MBA Vice President of Commercial Real Estate Research Jamie Woodwell. “As Millennials age and create more housing demand, these long-term social trends will mix with demographic changes and the waning hang-over from the Great Recession with a net outcome of increased demand for housing.” By 2024, MBA said, demographic and economic changes “will bring what could be one of the largest expansions” in the history of the U.S. housing market. “Averaging 1.6 million additional households per year, housing market growth over the next decade would be among the strongest the U.S. has ever seen.” Source: The MBA

Research conducted by Freddie Mac indicates that people living in single-family rental (SFR) properties (a house, townhouse, or condo) may be more likely to buy a home than those living in apartments. Freddie Mac’s survey found that overall, about 55 percent of renters in both single- and multifamily properties intend to continue renting in the next three years. When dividing up the two categories, however, the data indicated that 53 percent of renters in SFR properties intend to buy a house in the next three years compared to just 36 percent of multifamily renters who plan to buy in that period. One factor in deciding when to buy a home is how satisfied the renter is with the rental experience, according to Freddie Mac’s survey. Approximately 68 percent of those satisfied with their rental experience say they intend to continue renting, compared to 32 percent who say they plan to buy a home. A higher percentage of apartment renters (67 percent) than SFR property renters (60 percent) reported being satisfied with the rental experience. “As we gather data each quarter, we are finding the old perception that renting is something people do until they buy is not always true. The trend shows that satisfied renters are more likely to continue renting, even as we are seeing rising rents in the market,” said David Brickman, EVP of Freddie Mac Multifamily. “Dissatisfaction may drive renters to buy, and we are seeing a slight decrease in satisfaction among single-family renters. We will continue to monitor this for stronger indicators and trends, but for now, the single-family rental home market may be a good place to look to find potential home buyers.” Source: DS News

The remodeling of existing homes has bounced back from the housing bust and has now surpassed its pre-crisis level, according to the Urban Economics Lab Index, a newly launched index produced by BuildZoom and the MIT Center for Real Estate. The residential remodeling business has grown to an estimated $300 billion a year, according to the index. Yet, “despite its size, and even though it is a good indicator of consumer confidence, residential remodeling is generally overlooked,” says Issi Romem, chief economist of BuildZoom, a resource for remodeling and construction services. “The existing focus on new construction imposes a view of the economy that overemphasizes conditions in high-growth metro areas, and in particular on their fringe, where new home construction is concentrated. Remodeling provides a more evenly-distributed view of the economy, which is more likely to represent conditions in the nation as a whole.” New-home construction remains nearly 61 percent below its 2005 pre-crisis level, according to the index. On the other hand, remodeling of existing homes has fully recovered and has climbed 3.4 percent above its 2005 level. Source: BuildZoom

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