January 16, 2016: It has been more than two weeks since the first trading days of the year, but the world is still reverberating from those first few days. What apparently started in China spread around the world as stocks, which have enjoyed a great run since the recession, finally ran out of steam. It took only a few days for U.S. markets to move into correction territory as the losses felt the first trading week were the worst ever for the first week of the year. Putting this in perspective, stocks moved down over 10% below their peak, but are up over 100% since the trough of the recession some years ago.
Even though last year was a wash, stocks have not really had a sustained correction for almost five years, the last being in the summer of 2011. All other dips have been accompanied by almost immediate recoveries. Thus, these numbers should not be scaring anyone, at least for now. While we can’t predict the future, it is right to ask what this correction means, especially if it is sustained for any length of time. For one thing, with our economy producing jobs at a healthy rate, if the markets are predicting an economic slowdown, that slowdown is not evident right now.
The question is, is the slide because stocks need a breather, or are slower times coming? And if slower times are coming, what does that mean for the Fed’s plan to raise rates again this year? When stocks took a hit, long-term rates moved down and so did oil prices. Both of these factors help the economy, but low oil prices are hurting some sectors and some other countries. Finally, we are seeing what a wild card the world economy and world conflicts can be. No one can predict the next international incident and the consequences of such an incident. The conclusion? It looks like 2016 is going to be a wild ride, so hang onto your hats!
The Markets. Rates on home loans fell this past week. Freddie Mac announced that, for the week ending January 14, 30-year fixed rates fell to 3.92% from 3.97% the week before. The average for 15-year loans decreased to 3.19%. The average for five-year adjustables also decreased to 3.01%. A year ago, 30-year fixed rates were at 3.66%, lower than today’s levels. “Long-term Treasury yields continue to drop, dragging rates on home loans down with them. Turbulence in overseas financial markets is generating a flight-to-quality which benefits U.S. Treasury securities. In addition, sagging oil prices are capping inflation expectations. The net effect on the 30-year fixed rate was a 5 basis point drop to 3.92 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 15, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.43%||0.50%|
|1-year Treasury Security||0.55%||0.65%|
|3-year Treasury Security||1.14%||1.28%|
|5-year Treasury Security||1.52%||1.70%|
|10-year Treasury Security||2.10%||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)|
Nearly all renters 34 years of age or younger questioned in a new survey from the National Association of Realtors® say they want to own a home in the future. The survey, Housing Opportunities and Market Experience (HOME), tracks topical real estate trends, and asks consumers whether or not it’s a good time to buy or sell a home and about their expectations and experiences in the market. “Despite entering the workforce during or immediately after the worst of the financial and housing crisis, the desire to become a homeowner appears to be a personal goal for a convincing majority of young renters,” says NAR Chief Economist Lawrence Yun, adding that market conditions are creating a “sizeable, pent-up demand for buying.” Looking at renters overall, 83 percent say they want to own, and 77 percent believe homeownership is part of their American Dream. So what’s keeping some out of the market? The top two reasons given by renters for not currently owning was the inability to afford it (53 percent) and needing the flexibility of renting (19 percent). When asked what would likely be the main reason for buying in the future, 33 percent of renters cited getting married, starting a family, or retiring as a trigger. Another 26 percent said an improvement in their financial situation would make the difference. Source: Realtor.org
Rapidly rising rents are ensuring that it makes more sense to buy in much of the country, a new report from RealtyTrac showed. According to RealtyTrac’s 2016 Rental Affordability Analysis report, it is currently more affordable to buy rather than rent in 58% of the 504 counties analyzed as part of the report, despite home price appreciation outpacing rent growth in 55% of markets. Not only is the rent rising equal to, or in some cases more than home prices, rents are outpacing weekly wage growth in 57% of markets, RealtyTrac’s report showed. According to RealtyTrac’s report, rents on three-bedroom properties are expected to increase an average of 3.5% in 2016 over 2015 across all 504 counties analyzed, per the HUD data. “Renters in 2016 will be caught between a bit of a rock and a hard place, with rents becoming less affordable as they rise faster than wages, but home prices rising even faster than rents,” said Daren Blomquist, vice president at RealtyTrac. “In markets where home prices are still relatively affordable, 2016 may be a good time for some renters to take the plunge into homeownership before rising prices and possibly rising interest rates make it increasingly tougher to afford to buy a home,” Blomquist added. Source: HousingWire
Which age groups are financially fit to buy homes the fastest? Hanley Wood’s Data Studio recently used Metrostudy and Census data to find out how long it would take each generation to save up a 10 percent down payment on a home based on the median household income and median home price for each age group. Millennials and retirees tend to save for the longest amount of time in order to put a 10 percent down on a home, according to the study. More specifically, younger millennials aged 18 to 24 – who are usually recent college graduates – will have to save the longest at an average of 8.77 years in order to save enough for a 10 percent down payment on a home costing $221,600. Retirees aged 65 and over will take, on average, about 7.37 years to save up for a down payment on a $291,000 home. Americans aged 45 to 54 years old – who tend to be at their top earnings power — take the least amount of time to save up for a down payment. Still, it takes more than three-and-a-half years to save for that age group. Source: Hanley Wood Data Studio