May 31, 2016

An economic commentary that starts out with a quote from Bob Dylan? Basically, it is not enough to say that we have another jobs report coming up and it is very important. True, any jobs report which comes out just before a meeting of the Federal Reserve Board’s Open Market Committee is going be seen as important. On the other hand, with at least this report, two factors have changed which give us a different perspective regarding this particular jobs data. What are these factors?

First, the minutes of the last meeting of the Open Market Committee were recently released, and the participants indicated that a rate increase was possible at the next meeting which takes place in two weeks. Many had predicted the Fed would hold off on raising rates for now. Secondly, we had an uptick in consumer inflation. One thing keeping rates low was the threat of deflation and the plunge in oil prices witnessed late last year became the focus of these concerns. Now oil prices are firming and, while inflation is not raging ahead, the fear of deflation is fading.

This brings a new perspective to the jobs numbers. While there are some temporary factors in play, such as a major strike, a strong jobs report could certainly make a June rate increase more certain. On the other hand, keep in mind that the Fed controls short-term rates directly, and longer-term rates do not necessarily move in tandem with shorter-term rates. We witnessed this phenomenon when the Fed raised rates late last year and rates on home loans actually fell. Though, we should not expect rates to stay this low if the Fed is actually worried about inflation starting to heat up. As we said, the times they are a changing.

The Markets. Rates rose in the past week. Freddie Mac announced that, for the week ending May 26, 30-year fixed rates rose to 3.64% from 3.58% the week before. The average for 15-year loans increased to 2.89%. The average for five-year adjustables also increased to 2.87%. A year ago, 30-year fixed rates were at 3.87%, approximately one-quarter of one percent higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “U.S. Treasury yields moved up in response to the Fed minutes release, which kept alive the possibility of a summer rate-hike. Rates on home loans followed, with the 30-year fixed-rate increasing 6 basis points to 3.64 percent. Despite this increase, May ends the month averaging only 3.60 percent, 1 basis point below April’s average, and the lowest monthly average in 3 years. Homebuyers are taking advantage of these historically low rates with April’s new-home sales increasing by 16.6 percent, the fastest pace since January 2008.” 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.

A major credit reporting agency says it will soon take into account homeowner association fees. Home owners who are late on payments may soon see the effect on their credit score. Sperlonga, a credit data aggregator, is the first company to provide HOA payment and account status data to Equifax, which is one of the three major credit-reporting agencies. A full rollout of the new HOA reporting to Equifax will go live in October. Homeowner associations and property management companies collect about $70 billion in HOA payments yearly among at least 333,000 community associations, according to the Community Association Institute. “Until now, HOA payments have gone largely unreported to the national credit-reporting agencies,” says Matt Martin, chairman and founder of Sperlonga. “Our service will help elevate association payments to the same level of importance as the consumer’s other financial obligations like home loans, auto loans, and credit card payments. Property owners that pay HOA fees on time should begin to see the similar impact [on] their credit reports as they would with other payment obligations traditionally found in a credit report.” For property owners who are late or delinquent on their HOA payments, they will likely see a negative effect on their credit score, just as if they had missed a loan payment. “Introducing new sources of data beyond what has traditionally been found on credit files can provide additional insight into a consumer’s financial behavior and help deliver expanded credit access,” says Mike Gardner, senior vice president at Equifax. Source: Credit.com

With some homeowners flush again with equity–and more homeowners regaining previously lost equity–key indicators of remodeling activity suggest strongly accelerating growth through the end of 2016 and into 2017. The Joint Center for Housing Studies of Harvard University, Cambridge, Mass., said its Leading Indicator of Remodeling Activity projects that home remodeling spending will increase by 8.6 percent by the end of 2016 and then further accelerate to 9.7 percent by the first quarter of next year. Chris Herbert, managing director of the Joint Center, said annual spending for remodeling and repairs is expected to reach nearly $325 billion nationally by early next year. “Ongoing gains in home prices and sales are encouraging more homeowners to pursue larger-scale improvement projects this year, compared to last, with permitted projects climbing at a good pace,” he said. Meanwhile, the National Association of Home Builders said its survey of home remodelers suggests whole house remodels and additions are regaining market share. The survey by NAHB Remodelers said whole house remodels increased by 10 percent in 2015 from two years ago; room additions increased by 12 percent; finished basements increased by 8 percent; and bathroom additions increased by 7 percent. “While bathroom and kitchen remodels remain the most common renovations, basements, whole house remodels and both large and small scale additions are returning to levels not seen since prior to the downturn,” said 2016 NAHB Remodelers Chair Tim Shigley. “Clients want to add more space.” Source: The Mortgage Bankers Association

New quarterly numbers from the National Association of Realtors (NAR) show the median existing single-family home price increased in 87 percent of the metro markets analyzed by the trade group. NAR found 154 out of 178 metro areas recorded gains based on closed sales in the first quarter, compared with the first quarter of 2015, while 24 areas (13 percent) recorded lower median prices from a year earlier. Among the markets experiencing gains, 28 metro areas recorded double-digit increases. However, this is below the 30 metro areas recording such gains in the fourth quarter of 2015, and it is far below the 51 metro areas experiencing double-digit increases in the first quarter of last year. “The solid run of sustained job creation and attractive interest rates below four percent spurred steady demand for home purchases in many local markets,” said NAR Chief Economist Lawrence Yun. “Unfortunately, sales were somewhat subdued by supply and demand imbalances and broadly rising prices above wage growth.” The national median existing single-family home price in the first quarter was $217,600, up 6.3 percent from the first quarter of 2015 ($204,700), according to NAR, while the median price during the fourth quarter of 2015 increased 6.7 percent from the fourth quarter of 2014. Source: NAR