This weekend is Memorial Day and for many it is the start of the summer and vacation season. There will be many thousands of picnics and visits to the beach all across America. There will be reminders that the real meaning of Memorial Day is to recognize those who were killed serving our country in the many wars we have fought throughout our history.
Certainly as the world has evolved, so has the definition of war. In the past, wars had a defined start date and ending date. The impact on the economy was great as our defense spending went up significantly during war time and when wars ended, we had members of our armed services returning home and starting families. On the other hand, today, we seem to be in a state of war which is threatening to be perpetual. And these wars are not just by land, sea and air–but in the cyber world as well.
How does a perpetual war with no definitive start date or ending date affect us today? Certainly, it is no less costly with regard to defense spending. But there are psychological costs to a continuing war as well, especially one in which combatants change over time. This type of war requires innovation, patience and perseverance. It can also be taxing to our economy as resources are spread thin –resources that could be put to use for many more positive purposes. Our current period of economic stagnation may not only be a result of the recovery from the Great Recession, but affected by this new normal we face as well.
The Markets. Rates were stable in the last week, but the data was collected before the bond market reacted to the release of the minutes of the last Fed meeting. Freddie Mac announced that, for the week ending May 19, 30-year fixed rates rose one tick to 3.58% from 3.57% the week before. The average for 15-year loans was unchanged at 2.81%. The average for five-year adjustables increased slightly to 2.80%. A year ago, 30-year fixed rates were at 3.84%, approximately one-quarter of one percent higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The 10-year Treasury yield saw minimal movement over the past week, despite encouraging news from April’s consumer spending and CPI data. Accordingly, the 30-year fixed rate moved up just 1 basis point from its 2016 low, to 3.58 percent. Although there was minimal change in rates this week, the hawkish tone of Wednesday’s release of the Fed’s minutes had an immediate impact on Treasury yields, and could possibly shake up next week’s survey results.” 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 May 20, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.43%||0.37%|
|1-year Treasury Security||0.64%||0.56%|
|3-year Treasury Security||1.06%||0.92%|
|5-year Treasury Security||1.38%||1.26%|
|10-year Treasury Security||1.85%||1.81%|
|12-month LIBOR||1.230% (Apr)|
|12-month MTA||0.438% (Apr)|
|11th District Cost of Funds||0.678% (Mar)|
|Prime Rate||3.50% (Dec)|
A recent Gallup survey has found that American renters are almost twice as likely to worry about not being able to pay their housing costs as homeowners. Overall 33 percent of Americans are very or moderately worried about paying their rent, home loan or other housing costs. However, renters are the ones most often awake at night, fretting over their finances. Sixty-three percent of renters earning an annual wage of less than $30,000 are very or moderately worried about paying for their accommodation compared to 47 percent of homeowners at the same income level. Renters worry more than homeowners at all income levels, even those in the upper-income brackets. Twenty-nine percent of those taking home $75,000 or more are also concerned about paying for the roof above their heads, compared to 15 percent of homeowners. Gallup explained that homeowners may be less worried than renters as they are likely to have more stable housing payments. They would only experience minor year-to-year increases in property taxes and insurance while renters would probably experience more significant increases. Additionally, rental payments generally reflect current real estate market conditions whereas a homeowner’s housing payments would reflect values of the time the home was purchased.Source: Forbes
Steady job growth, low rates, and pent-up demand is prompting an increase in the demand for new single-family homes, and homebuilders say they’re ready to build them. That said, builders say they’re being met with plenty of headwinds that could subdue some construction, such as a shortage of lots and labor and tight access to construction and development loans. “Builders remain cautiously optimistic about market conditions,” says Robert Dietz, chief economist of the National Association of Home Builders, in a Spring Construction Forecast Webinar on Thursday. “2016 should be the first year since the Great Recession in which the growth rate for single-family production exceeds that of multifamily. And we see single-family growth accelerating in 2017 as the supply side chain mends and we can expand production.” NAHB forecasters predict that single-family production will see a 14 percent uptick this year to 812,000 units, and then rise another 19 percent to 964,000 units in 2017. Single-family starts will reach 64 percent of historically normal levels by the fourth quarter of this year and rise to 77 percent of normal by the end of 2017, NAHB reports. By the end of 2017, the top 20 percent of the largest states will reach at least 102 percent of normal single-family production levels, compared to the bottom 20 percent, which likely will still remain below 65 percent, NAHB reports. “Consumer surveys suggest the ultimate goal of millennials is to purchase a single-family home in the suburbs,” says Dietz. “We see growth for single-family looking ahead. The recovery continues and is dictated by demand side conditions and supply side headwinds.” Source: National Association of Home Builders
Some first-time buyers are finding ways to cover the costs of homeownership by purchasing a multi-unit home that can accommodate a mother-in-law apartment or another rental unit. The added money can then help them cover their housing payment. “Renters like the privacy and homey feel of an accessory dwelling over renting a room in an apartment complex,” notes a recent article at RISMedia “Thanks to this demand, savvy buyers know they can rely on a steady stream of income from a rental unit. Many homeowners use this money source as a way to save for retirement or pay down their loan.” What’s more, at resale, buyers stand to net more for their multi-unit home. According to an article in the New York Times, 15 percent of buyers say they are willing to pay extra for a home with an accessory dwelling. These buyers say they want the extra space for a tenant, relative (multi-generational households are growing), or for a detached home office. Taxes can also work to the advantage of multi-unit home owners. For example, owners may be able to deduct expenses from their taxes like repairs, maintenance, insurance, supplies, and travel. Still, buyers of these properties likely will need to expect to pay more. Multi-unit homes tend to sell at a premium. Some fully permitted units fetch up to 60 percent more than single dwelling homes, according to some surveys. Also, buyers need to carefully consider whether they truly are ready to step into a landlord-type role and the responsibilities that can hold. Source: RISMedia