January 12, 2016
Many analysts weighed in regarding the “after-effects” of the first rate increase by the Federal Reserve in almost a decade. At least initially, these predictions seem to be bearing out. For example, according to Freddie Mac’s chief economist, Sean Becketti, interest rates should remain at “historically low levels” throughout 2016, in spite of whatever moves the Federal Reserve is expected to make. “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,” Becketti said. “Mortgage rates will tick higher but remain at historically low levels in 2016.”
Yes, we experienced the first increase in the prime rate of banks in almost a decade. But with regard to long-term rates, these rates have barely moved in the weeks after the Fed’s action. The rate on the 10-year Treasury note averaged 2.26 in November. On January 5, the rate was 2.25. Of course, world events have intervened to help lower rates as well. Keep in mind that if the Fed continues to raise short-term rates in 2016, it is expected that long-term rates will eventually drift upwards. This would include an increase in rates on home loans.
However, though many are expecting more increases, intervening events around the world may very well tie the hands of the Fed with regard to their ability to move as quickly as some are predicting. Domestically, the most recent employment report released Friday is a good indicator of future activity absent of such world influences. The increase in jobs of almost 300,000 was another sign of strength, and it will help bolster the Fed’s plans. The message? Though rates are low right now, those who wait too long to purchase a home may be paying a higher price for that home and higher financing rates as well.
The Markets. Rates on home loans were mixed this past week, with 30 year fixed rates below 4.0% once again. Freddie Mac announced that, for the week ending January 7, 30-year fixed rates fell to 3.97% from 4.01% the week before. The average for 15-year loans increased slightly to 3.26%. The average for five-year adjustables rose one tick to 3.09%. A year ago, 30-year fixed rates were at 3.73%, lower than today’s levels. “Concerns about overseas economic developments have dominated financial markets to start the year. U.S. Treasury bond yields fell amidst a global equity selloff and flight to safety. In response, the 30-year mortgage rate dipped 4 basis points to 3.97 percent.” Note: As of January 1, Freddie Mac is no longer providing survey data for 1-year adjustables. 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 January 8, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.46%||0.50%|
|1-year Treasury Security||0.66%||0.65%|
|3-year Treasury Security||1.22%||1.28%|
|5-year Treasury Security||1.61%||1.70%|
|10-year Treasury Security||2.16%||2.24%|
|12-month LIBOR||0.981% (Dec)|
|12-month MTA||0.322% (Dec)|
|11th District Cost of Funds||0.644% (Nov)|
|Prime Rate||3.50% (Dec)|
In December, Fannie Mae released its new HomeReady Program focused upon low-to-moderate income purchasers by requiring as little as 3.0% down payment on base conforming loan amounts. On the same date, Fannie Mae introduced another important change to its guidelines. The lessening of the down payment payment required on high balance loans is something that will benefit consumers in higher cost areas. For conforming conventional loans between $417,000 and $625,500, the minimum down payment was lowered from 10.0% to 5.0%, a significant savings. According to previous surveys from Fannie Mae, the liquid assets required to purchase a home is the number one barrier to home ownership. Now consumers will have a wide choice of government sponsored low-down payment programs in high cost areas: 0% for VA loans, 3.5% for FHA loans and 5.0% for Fannie Mae loans. These alternatives many times offer lower rates than are available through conventional “non-conforming” programs.
The idea of paying for workers’ homes lost momentum during the recession but may be gaining new steam, said Robin Snyderman, a principal at consulting firm Brick Partners. The state of Illinois has long offered tax credits to employers who invest in worker housing. In January, New York Representative Nydia Velázquez introduced a bill in Congress that would provide a 50 percent tax credit on employer dollars used to provide renter or down-payment assistance. Small businesses would get a 100 percent credit under the plan. Beyond federal legislation, there are other reasons housing as an employee benefit could see new popularity. As American preferences bend toward urban living, companies have increasingly sought to move downtown. Housing benefits can help employees afford expensive areas, but they can also spur investments to revitalize downtrodden neighborhoods. “Most employers don’t think of themselves having a role in housing,” said Snyderman. “But it’s also true that we’re seeing anchor institutions committing to neighborhoods in interesting ways.” Source: Bloomberg
The construction industry is poised for one of the largest leaps in employment growth over the next decade, according to the Bureau of Labor Statistics. The construction sector is expected to add 790,400 jobs through 2024 – the fourth highest job growth projection among major industries, according to BLS. The health and social assistance sector leads with a projected 3.8 million job gain, followed by professional and business services (1.9 million), and the leisure and hospitality sector (941,200). “In percentage terms, the construction sector ranks second in terms of expected growth,” the National Association of Home Builders reports on the findings. “The construction industry is expected to experience 1.2 percent compounded annual growth for jobs over 2014-2024. Only the health and social assistance industry (1.9%) exceeds this growth rate.” Source: National Association of Home Builders