June 21, 2016
The Federal Reserve Board’s decision not to raise interest rates last week was not a surprise by any means. After the weak jobs report for May, the decision was a no-brainer. Thus, the words of the Fed were more important than the decision to stand pat. In their statement, the Fed cut its forecast for U.S. economic growth in 2016 to 2%, down from 2.2% earlier. Chairperson Yellen pointed to “headwinds blowing on the economy” as a factor in this reduced outlook. In addition, the statement indicated that they “expect economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” This means no increase now and less of a chance of an increase in July and possibly for September.
One factor the markets will be watching very closely will be any signs of the kindling of inflation. The Fed continues to have leeway, as long as there is no inflationary pressure. For the past year, we have had one important deflationary factor — plunging oil prices. Now that oil prices seem to have stabilized close to $50 per barrel, it is time to keep our eyes out for other evidence of rising prices. For example, while the retail sales report released last week was as expected, the news that import and export prices rose more than expected is important in this regard. Producer prices came in higher than expected last week as well.
Another factor affecting the markets is the referendum on Britain’s proposed exit from the European Union. Most economists have forecasted that such a move could throw the UK into recession. Though we will know the results of the referendum this week, any terms of a separation would still have to be negotiated. We do know that the markets do not like uncertainty and a vote to leave will leave the western world with plenty of uncertainty — another factor that could tie the hands of the Fed.
The Markets. Rates fell to another three-year low in the past week. Freddie Mac announced that, for the week ending June 16, 30-year fixed rates fell to 3.54% from 3.60% the week before. The average for 15-year loans decreased to 2.81% and the average for five-year adjustables also fell to 2.74%. A year ago, 30-year fixed rates were at 4.00%, almost one-half of one percent higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “The 10-year Treasury yield continued its free fall this week as global risks and expectations for the Fed’s June meeting drove investors to the safety of government bonds. The 30-year rate on home loans responded by falling 6 basis points for the second straight week to 3.54 percent — yet another low for 2016. Wednesday’s Fed decision to once again stand pat on rates, as well as growing anticipation of the U.K.’s upcoming European Union referendum will make it difficult for Treasury yields and — more importantly — rates on home loans to substantially rise in the upcoming weeks.” 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 June 17, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.36%||0.42%|
|1-year Treasury Security||0.53%||0.59%|
|3-year Treasury Security||0.81%||0.97%|
|5-year Treasury Security||1.10%||1.30%|
|10-year Treasury Security||1.57%||1.81%|
|12-month LIBOR||1.337% (May)|
|12-month MTA||0.467% (May)|
|11th District Cost of Funds||0.690% (Apr)|
|Prime Rate||3.50% (Dec)|
Are you a “transactor” or a “revolver” when it comes to your credit? Terms like these never have mattered much to home buyers seeking a home loan. You’ve probably never heard of them. Yet they are about to become more important to millions of home loan-seekers and they may even help determine whether you qualify for a loan in the first place. A transactor is someone who pays off credit bills in full every month or makes more than the minimum required payment. A revolver is the opposite: someone who routinely makes the minimum payment on credit cards and other debts, rolling balances over to the next month. Credit industry statistical research suggests that, all other factors being equal, revolvers tend to present higher risks of future default to lenders, especially when they are accumulating substantial unpaid balances. Transactors tend to be lower risks. Until now, lenders and investors had difficulty distinguishing revolvers from transactors. Credit reports told them whether you as an applicant were late on card payments and whether you defaulted on your car loan, but they didn’t show what you paid on your balances month by month over extended periods. Fannie Mae, a dominant player in the housing market, will soon begin evaluating how all loan applicants have managed their credit over the previous two years: how much they owed in revolving debt each month, the minimum payment allowed on each debt and how much they actually paid. As a general rule, according to Eric Rosenblatt, Fannie’s Vice President of Credit Risk Analysis and Modeling, the new system will “benefit borrowers who regularly pay off revolving debt” and should “provide more creditworthy borrowers access to credit.” Starting June 25, the new reach-back data will become an integral part of Fannie’s automated underwriting, an online system that is used by the vast majority of lenders to determine whether applicants are eligible for the loan they’re seeking. Source: Ken Harney, The Nation’s Housing Note: The date of implementation is likely to be delayed by Fannie Mae
Mom and dad must make cool roommates. Young adults between the ages of 18 to 34 are more likely to live with a parent than to get married or move in with a romantic partner, according to a newly released analysis of Census data by the Pew Research Center. This is the first time in more than 130 years in which young adults have chosen their parents’ homes over forming their own households, the study notes. In 2014, 32.1 percent of young adults were living with a parent. On the other hand, slightly fewer—31.6 percent—were living in a household formed upon a “romantic relationship,” either with a spouse or a partner, according to Pew’s analysis. The trend for young adults to live with their parents longer grew more pronounced after the Great Recession in 2008. Fewer job opportunities forced some young adults to move back home. Also, young professionals are delaying marriages longer (with one in four young adults who may never marry), and the trend of young adults living together has “substantially fallen since 1990,” according to researchers. Young men are living at the family home at the greatest numbers. About 35 percent of young adult men were living with a parent compared to 29 percent of women. About 14 percent of 18 to 34 year olds live alone, the study shows. Source: The Chicago Tribune
An overwhelming number of people nearing or in retirement want to remain in their current home as long as possible, according to the results of a new survey released by The American College of Financial Services. The Home Equity and Retirement Income Planning Survey found that 83 percent of the respondents do not want to relocate in retirement. “One very interesting notion was that the desire to age in place increases significantly as you get older,” said survey author Jamie Hopkins, Professor of Retirement Income Planning and Co-Director of The American College New York Life Center for Retirement Income Planning. “We saw more uncertainty between the ages of 55 and 62. But once we started getting past 62 and you start moving into retirement, we saw that these individuals really don’t expect or want to leave their homes.” The study also saw almost no homeowners with a strong desire to rent in retirement. The survey, created to better understand retirees’ attitudes about home equity and housing decisions, also revealed that 44 percent have considered using home equity in retirement, but that only 25 percent feel comfortable spending it as a source of income. It also found that only about 20 percent of the respondents felt that it was extremely important to leave their home as a legacy asset to their children or other heirs, while 45 percent listed it as not important. According to the survey, just 30 percent of the participants earned a passing grade on basic knowledge about reverse mortgages. Despite a strong desire to age in place, only 14% of the respondents had considered a reverse loan, with only one respondent having entered into a reverse product. Source: American College of Financial Services