February 2, 2016 –
Let’s go back four weeks. We are fresh off an increase in rates by the Federal Reserve Board and a Holiday Season. We are bracing ourselves for several rate increases in the coming year and a rise in rates on home loans. It took only one trading day for stocks to get our attention. Oil prices continued to move to levels we have not seen for close to a decade during our recession. World economic news made headlines as the stock market in China took a beating.
All of a sudden, rates are coming down as stocks suffer a correction, despite the Fed’s activity. To explain all of this, we go back to two points we have made time and time again in our economic analysis. Number one, the Fed directly affects short-term rates, but does not control long-term rates directly. Certainly, there is an indirect effect on long-term rates resulting from the Fed’s actions. Secondly, you can’t predict the future, period. Even the Fed does not know what is going to happen.
We do know that if this news continues, the Fed’s plan to continue to raise rates may be put on hold. There have been some bright spots. One bright spot has been job creation, though wage growth has been moderate. The other bright spot has been real estate. Soon we will see some news on both. The jobs report is released Friday, and shortly thereafter we will see if consumers are still purchasing homes while some of this turmoil is hitting the markets. It was a real interesting first month of the year, and we are just getting started.
The Markets. Rates on home loans fell again this past week. Freddie Mac announced that, for the week ending January 28, 30-year fixed rates fell to 3.79% from 3.81% the week before. The average for 15-year loans decreased to 3.07%. The average for five-year adjustables also decreased to 2.90%. A year ago, 30-year fixed rates were at 3.66%, slightly lower than today’s levels. “The yield on the 10-year Treasury stabilized around 2 percent this week, and the 30-year fixed rate dipped 2 basis points to 3.79 percent. The recent market turmoil has given the Fed pause; as was universally expected, the Fed stood pat this week but kept its options open for a rate increase in March. This week’s housing releases confirmed the momentum of home sales going into 2016. A hesitant Fed, sub-4-percent fixed rates for at least for a little while longer, and strong housing fundamentals should generate a three percent increase in home sales this year.” 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.
If you’ve been frustrated that the credit-scoring system has prevented you from getting a home loan, 2016 could be a watershed year. Important changes are in the works. The biggest players in the residential lending field are under pressure from federal regulators and Congress to adopt more-inclusive and updated models that incorporate non-banking forms of credit, such as rent, utilities and cellphone payments to supplement what’s in consumers’ standard credit files. For people who have thin files with minimal data at the national credit bureaus — or no files at all — the changes could bring tangible improvements. In mid-December, the federal agency that oversees Fannie Mae and Freddie Mac ordered both companies to wrap up their plans for adopting “alternate or updated credit scores” this year and move ahead with putting them into action “as appropriate.” At roughly the same time, legislation called the Credit Score Competition Act was introduced with bipartisan support in the House. The FICO scoring models used by Fannie’s and Freddie’s automated underwriting systems have been in place for years without major updates, critics complain, and the models do not incorporate more-recent, consumer-friendly improvements designed by FICO itself and by competitor VantageScore. One study by Experian found that in a sample of 20,000 tenants living in government-subsidized apartments, 100 percent of previously “unscoreable” tenants became scoreable once their rent-payment histories were used. But that won’t happen until both companies update their scoring models. What’s the prospect for that? Fannie Mae officials say scoring-system changes involve significant costs, not only for the company itself but also for the lenders that sell them home loans. But when Fannie’s and Freddie’s regulator — and maybe Congress — tell them to get moving on it, the odds increase that something good will happen, sooner rather than later. Source: Ken Harney, The Nation’s Housing
The Asian American community has become the fastest-growing minority demographic in the country and their stake in home ownership is quickly widening. By 2024, 1.8 million more Asian households will be formed, according to the newly released Asian Real Estate Association of America’s 2015 report on the State of Asian Americans. “This report shows the tremendous buying power of Asian Americans and Pacific Islanders (AAPI) not only now, but for the foreseeable future,” says Vicky Silvano, AREAA 2016 national chairwoman. “Over the past five years, AAPI took out two million home loans, representing $600 billion in home loans, more than any other minority group.” The Asian American community applied for — and received — the largest share of purchase money loans of any minority group in terms of both number and monetary value, according to the 2014 study, “Asian American Outcomes in the U.S. Residential Loan Market.” They also have a higher median personal and household income than the U.S. general population, as well as more education with nearly half of all AAPI’s holding at least a bachelor’s degree, Silvano says. Source: RIS Media
Realtor.com®’s chief economist warns that the nation is in a rental affordability crisis and that local leaders need to “wake up” and respond before matters turn even more dire. Jonathan Smoke, Realtor.com®’s chief economist, shared his warnings in a recent column following a report from the Harvard Joint Center for Housing Studies that showed a record-setting number of renters were paying more than 30 percent of their income for housing last year as their wages remained stagnant. What’s more, the report showed that 49 percent of renters are considered “cost-burdened,” which means they are struggling to pay their bills because of the high costs of rent. Twenty-six percent are considered “severely cost-burdened.” Smoke warns that this report is based on last year also, and rents have continued to grow throughout this year, which means the problem is likely much worse now. “Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead,” Smoke writes. “Solving this crisis will not be simple or easy. We need more new construction, but the market itself skews toward higher-rate units, as we’ve already seen in recent years.” Source: Realtor.com