February 16, 2016: Stocks have had a rough start to the year and many analysts are blaming it on a slowing economy, especially in other parts of the world. We think that the Federal Reserve Board deserves some of the credit for the weakness in stocks. We are not saying the Fed was not justified in raising rates. However, it is likely that some investors involved in the equities market must have come to the realization that the party might be over when it comes to borrowing at such low short-term rates.
Did the Fed react too quickly with regard to moving rates up? It is hard to fathom this since they left rates so low for so long. And they warned us for a year that the rate increase was coming. Still, we do get the impression that the bad news around the world could have swayed the Fed to wait another few months. It was almost as if they had said that rates were going up “this year” so many times, they only had one more chance and that was the December meeting.
On the other hand, the last jobs report moved our unemployment rate to 4.9%, which is the lowest in eight years. The economy produced 150,000 jobs in January and still the markets were disappointed in the number. The news on job creation is evidence which supports the action by the Fed to move rates upward, even if ever so slightly. Though the stock market may be reacting to the world-wide economic slowdown, there is also more than just a small possibility that the specter of higher short-term rates also is factoring into the equation.
The Markets. Rates on home loans have now fallen close to 2015 lows. Freddie Mac announced that, for the week ending February 11, 30-year fixed rates fell to 3.65% from 3.72% the week before. The average for 15-year loans decreased to 2.95%. The average for five-year adjustables also decreased to 2.83%. A year ago, 30-year fixed rates were at 3.69%, virtually the same as today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The 30-year fixed rate dropped another 7 basis points this week to 3.65 percent. This week’s drop leaves the rate just 6 basis points above last year’s low of 3.59 percent. In a falling rate environment, rates on home loans often adjust more slowly than capital market rates, and the early-2016 flight-to-quality has run true to form. The 30-year fixed rate has dropped 36 basis points since the start of the year, while the yield on the 10-year Treasury has dropped 59 basis points over the same period. If Treasury yields were to hold at current levels, rates on home loans might well sink a little further before stabilizing.” 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 February 12, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.39%||0.43%|
|1-year Treasury Security||0.47%||0.54%|
|3-year Treasury Security||0.81%||1.14%|
|5-year Treasury Security||1.11%||1.52%|
|10-year Treasury Security||1.63%||2.09%|
|12-month LIBOR||1.153% (Jan)|
|12-month MTA||0.350% (Jan)|
|11th District Cost of Funds||0.655% (Dec)|
|Prime Rate||3.50% (Dec)|
A home loan program steeped in history continues to make it. The United States Department of Veterans Affairs, known as the VA, backed an all-time record 631,151 loans in fiscal year 2015, eclipsing the previous high-water mark set just two years prior. More and more veterans are using these flexible, $0 down loans to crack the housing market during a time of tight credit and limping wages. A good year for the industry was a great one for military buyers: VA purchase loans surged 19% year over year, according to recently released figures. The outlook for this 71-year-old benefit program is bright, too. The population of younger veterans is expected to increase 36% over the next five years, according to a recent Deutsche Bank analysis. To be sure, VA loans aren’t the right fit for every veteran. But they’re also no longer on the sidelines. In fact, in many ways, these government-backed loans are arguably the most powerful residential loan product on the market. Greater awareness of the benefits—and the surprising safety—of VA loans has propelled market share in recent years. Credit guidelines for VA loans are generally more forgiving compared with conventional loans, and VA buyers don’t have to spend years scraping up a down payment. That one-two punch helps make homeownership possible for scores of veterans and military families who might otherwise miss out. The average VA buyer has about $7,000 to $8,000 in assets, according to the VA. These loans also carry no mortgage insurance and limit what buyers can pay in closing costs. Source: Realtor.com
New home sales rose by nearly 11 percent in December, HUD and the Census Bureau reported. The report said sales of new single-family houses improved to 544,000, seasonally adjusted, a 10.8 percent increase over November’s revised 491,000 and 9.9 percent higher than a year ago (495,000). HUD/Census estimated 501,000 new homes sold in 2015, a 14.5 percent increase from 2014 (437,000). The median sales price of new houses sold in December fell to $288,900; the average sales price dropped to $346,400. The seasonally adjusted estimate of new houses for sale at the end of December rose to 237,000, representing a 5.2-month supply at the current sales rate. Higher-priced homes accounted for a larger share of new homes sold in 2015, the report said. Homes above $400,000 accounted for 28 percent of the total, up from 21 percent in 2013 and 24 percent in 2014. Source: CNN/Money
The preferred energy sources for the future of U.S. homes may be solar and wind, according to a new survey conducted by SolarCity, a solar installer, and Clean Edge, a marketing research firm. Of the approximately 1,400 home owners surveyed, half identified solar energy as the most important energy source for the future of housing—regardless of where respondents lived or their political views. Coming in second as an important future energy source was wind, followed by natural gas, increased efficiency, oil, hydro- and nuclear power. On the other hand, the power sources that received the least public support were geothermal, coal, and biofuel/biomass. About 87 percent of respondents surveyed said that renewable sources are important to the nation’s energy future. However, respondents said that “saving money,” not “reducing my environmental impact,” serves as the most important factor in deciding to purchase clean energy products and services. In fact, 82 percent of home owners surveyed cited saving money as the most important factor, while reducing the environmental impact was cited by 34 percent. “Sustained double-digit growth rates for more than a decade reflect the long-term nature of this current shift to more efficient, cleaner, and environmentally friendly products and services,” the surveyors wrote. “But don’t be mistaken; as our research clearly points out, it is cost savings, much more than environmental factors, that are driving this monumental shift.” Source: Green Building