March 15, 2015
You use gas produced from oil to drive to the market. Well, apparently the price of oil has been driving the markets all year. While everyone has been watching the Federal Reserve Board for clues as to which way rates are going, we think that the Fed is watching oil prices. While the price of oil does not usually drive the markets, you can see that the stock market and interest rates dropped significantly while oil prices were bottoming earlier this year. Conversely, as the stock market has rebounded in the past few weeks, so have oil prices.
As you can guess, longer-term interest rates also have started trending upwards as stocks and oil prices have been rising. This is not to say that these trends will continue, but at least for now, the markets seem to be moving in tandem. As we have pointed out previously, lower oil prices are good for the economy, but the markets get spooked when they move too low. The last time this happened was the depth of the financial crisis and that is when the stock market also hit its low point of the decade.
When oil prices become too low along with other commodities, this is when the Fed starts thinking about deflation risks instead of inflationary risks. We think these risks will probably cause the Fed to hold off from raising rates this month, even though our economy is still growing and producing jobs. However, if the price of oil holds at this level or rises further, the Fed will have more flexibility at the next meeting. We should note that the last report on oil inventories showed that the surplus is continuing and thus there is little chance that oil prices will start spiking any time soon. So, enjoy your ride to the market.
The Markets. Rates on home loans inched higher again in the past week. Freddie Mac announced that, for the week ending March 10, 30-year fixed rates rose slightly to 3.68% from 3.64% the week before. The average for 15-year loans was also slightly higher at 2.96%. The average for five-year adjustables increased to 2.92%. A year ago, 30-year fixed rates were at 3.86%, above today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The 10-year Treasury yield ended the survey week exactly where it started, however the solid February employment report boosted the yield noticeably on Friday and Monday. Our mortgage rate survey captured the impact of this temporary increase in yield, and the 30-year fixed rate rose 4 basis points to 3.68 percent. This marks the second increase this year. Nonetheless, the 30-year fixed rate remains 33 basis points lower than its end-of-2015 level.” Note: 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 March 11, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.50%||0.45%|
|1-year Treasury Security||0.69%||0.53%|
|3-year Treasury Security||1.11%||0.90|
|5-year Treasury Security||1.45%||1.22%|
|10-year Treasury Security||1.93%||1.78%|
|12-month LIBOR||1.179% (Feb)|
|12-month MTA||0.377% (Feb)|
|11th District Cost of Funds||0.664% (Jan)|
|Prime Rate||3.50% (Dec)|
Congress has consistently enacted tax legislation which favors homeowners. Indeed, much has been written that our tax laws discriminate against renters, by giving unfair and unequal tax benefits to those who own homes. For those of us who own homes, here is a list of the itemized tax deductions available to the average homeowner. Every year, you are permitted to deduct the following expenses:
- Real estate property taxes, both state and local, can be deducted. However, it should be noted that real estate taxes are only deductible in the year they are actually paid to the government.
- Interest on home loans on a first or second home is fully deductible, subject to the following limitations: acquisition loans up to $1 million, and home equity loans up to $100,000. If you are married, but file separately, these limits are split in half.
- Points paid to lower your interest rate are deductible. Points paid to a lender when you refinance your current home loan are not fully deductible in the year they are paid; you have to allocate the amount over the life of the loan. Source: Realty Times Note: Be sure to consult your tax advisor regarding taking advantage of all of your house-related deductions. If you are looking for advice regarding your tax situation and do not have an advisor to talk to, we can recommend one.
Rising rents are quickly encroaching upon ‘a life event’ as the top reason homebuyers will look to purchase a home. As it stands, one in four homebuyers is looking to purchase because their rent is too high, according to a Redfin survey of 750 homebuyers this month. Redfin noted that this is up from one in five in November, and up from one in eight last August. When asked what most influenced their decision to buy, Redfin said that the only choice buyers cited more frequently was a major life event, such as the birth of a child or a marriage. Meanwhile, Zillow recently released a report saying that rent appreciation is finally projected to cool down in 2016, giving renters a much-needed break from what seemed to be never-ending price increases. “The slowdown in rental appreciation will provide some relief for renters who’ve been seeing their rents rise dramatically every single year for the past few years. However, the situation remains tough on the ground: rents are still rising and renters are struggling to keep up,” said Zillow Chief Economist Svenja Gudell. Source: HousingWire
Americans significantly lack understanding about minimum home financing qualification criteria, particularly renters who plan to buy a home within the next five years, according to a survey of 3,868 consumers by Fannie Mae’s Economic & Strategic Research Group. When asked about key home loan qualification criteria — down-payment percentages, borrower’s credit scores, and debt-to-income ratios — about half of consumers answered with “don’t know” or failed to provide a valid answer, according to the survey. For those consumers who did provide an answer, many respondents thought the requirement for a minimum down payment was four times larger than Fannie Mae’s actual figure of 3 percent. When it came to minimum credit scores, many thought the requirement was 652 — when in actuality, Fannie Mae’s requirement is 620. Mark Palim, Fannie Mae’s vice president of Applied Economic and Housing Research, noted: “Advancing from aspiration to sustainable home ownership is more likely to occur if consumers have an accurate understanding of the requirements to qualify for a home loan.Source: Fannie Mae