In what was one of the most widely telegraphed moves ever, last week the Federal Reserve Board’s Federal Open Market Committee met and decided to raise their federal funds rate by .25%. To say that this move of raising rates was expected is an understatement. The Fed had talked of raising rates for so long that the only surprises which could have come from the meeting was no increase at all or a larger increase.
Actually, the lack of a surprise was in keeping with Fed policy, as it is their goal to be as transparent as possible with regard to their monetary policy. And because there was no surprise, there was no great reaction in the markets. Rates had already risen slightly in anticipation of the decision, but eased a bit afterwards as stocks turned negative as the week came to a close.
As we have been indicating all along, the Fed’s words accompanying their actions would be as important as the Fed’s actions themselves. So what did they say? Here is an excerpt: “The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” Thus, the wording was designed to provide further assurance that the Fed is not going to be raising rates rapidly in a knee-jerk reaction. This is good news for those who want to purchase real estate in 2016. Rates are still at historically low levels and the Fed does not want to upset the apple cart too quickly.
The Markets. Rates on home loans were slightly higher again in the past week going into the Fed’s rate decision. Freddie Mac announced that for the week ending December 17, 30-year fixed rates rose to 3.97% from 3.95% the week before. The average for 15-year loans increased slightly to 3.22%. Adjustables were mixed, with the average for one-year adjustables increasing to 2.67% and five-year adjustables remaining at 3.03%. A year ago, 30-year fixed rates were at 3.80%, a bit lower than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac –“As was almost-universally expected, the Federal Open Market Committee (FOMC) of the Federal Reserve elected this week to raise short-term interest rates for the first time since 2006. We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Rates on home loans will tick higher but remain at historically low levels in 2016. Home sales will remain strong, but refinance activity should cool somewhat.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Updated December 18, 2015
|Daily Value||Monthly Value|
|6-month Treasury Security||0.48%||0.33%|
|1-year Treasury Security||0.69%||0.48%|
|3-year Treasury Security||1.33%||1.20%|
|5-year Treasury Security||1.73%||1.67%|
|10-year Treasury Security||2.24%||2.26%|
|12-month LIBOR||0.868% (Nov)|
|12-month MTA||0.285% (Nov)|
|11th District Cost of Funds||0.649% (Oct)|
|Prime Rate||3.50% (Dec)|
Home buyers who can’t put at least 20 percent down usually have to carry private mortgage insurance, often an expensive proposition. One good thing about the insurance, though, is that it doesn’t last forever. Private mortgage insurance protects the lender in the event that a borrower stops making payments before building up much equity in the property. But a borrower who diligently pays down a loan, eventually crossing that 20 percent equity threshold, is no longer considered a big risk, and can expect to be rewarded with cancellation of the requirement. Under the Homeowners Protection Act of 1998, lenders must terminate the insurance after a certain point, something that hadn’t been done consistently before then. The act set the termination date as the point at which the principal balance on the loan is scheduled to reach 78 percent of the original value of the home. In other words, if you buy a home for $100,000 and put 10 percent down, your starting loan balance is $90,000. Once you have paid enough toward principal that the balance reaches $78,000, the insurance policy should be automatically canceled. A compliance bulletin issued earlier this month by the Consumer Financial Protection Bureau reminded lenders that automatic insurance cancellation is required even if the value of the home has declined from the original value (in other words, the sales price). The law also creates a way to seek earlier cancellation. The cancellation rules do not apply to the low down payment loans backed by the Federal Housing Administration as borrowers must pay insurance for as long as they have an FHA loan if the loan was acquired after June of 2013. Source: The New York Times Want to know more about cancelling your mortgage insurance? Contact us about a free mortgage checkup.
As affordability worsens near city centers, first-time homebuyers will move to the suburbs in greater numbers, according to 2016 predictions from Zillow. The Seattle-based real estate and rental marketplace predicts that affordable housing will continue to dry up closer to city centers. Consequently, first-time homebuyers will increasingly turn to suburbs, particularly those with an urban feel and easy access to cities. Further on the point of affordability, rents will continue to rise in 2016, which Zillow said will create the least affordable median rents recorded. Home values are also expected to rise roughly 3.5% in 2016, meaning that those whose income falls in the bottom third of all incomes will find themselves priced out of homeownership. “Many potential first-time buyers are living in hot markets where buying a home is really expensive,” Zillow chief economist Svenja Gudell said in a news release. “In 2016, we’ll start to see more people in hot coastal markets forced to move farther from the core of the city to find housing. When they get there, they’ll be looking for amenity-rich suburbs — mini-cities, with walkable cores and an urban feel.” Gudell added that the low homeownership should begin to stop falling as quickly as it has, even though the median age of first-time homebuyers is expected to climb to its highest level ever. Source: National Mortgage News
Could it be time to cash out some home equity by refinancing your home loan? For growing numbers of owners, the answer this year is an emphatic yes, at least according to new data from lenders. In a cash-out refinancing, you convert part of your home equity into money, adding to your loan’s balance. Say you have a $400,000 home with a $200,000 loan balance. You have $200,000 of equity and a couple of worthwhile projects in mind — paying off high-interest-rate credit card balances and renovating the house — that will cost you around $50,000. Since rates remain attractive in the 4 percent range and you can handle the higher monthly payments on a larger balance loan, you refinance your $200,000 existing loan and take out a new $250,000 loan to replace it. You end up with more debt, but you also walk away with roughly the $50,000 you need, less transaction fees. Cash-outs were the rage during the housing boom years of 2004-2007. At their peak, in the third quarter of 2006, nearly nine out of 10 owners who refinanced pulled out money from their homes, according to Freddie Mac. But by late 2008, the bubble had imploded. Equity holdings plunged. Cash-out refis virtually disappeared. Now, with home equity higher in many markets, cash-outs are making a comeback. Source: Ken Harney, The Nation’s Housing