October 18, 2016 –
There is now less than 30 days before the Presidential election. And as we predicted some time ago, the rhetoric has ratcheted up significantly. So much so, that many analysts are indicating that this is the most acrimonious race in history. No one should be surprised at all regarding these conclusions. And with the focus on ancillary issues, there is less focus upon the economy. For one, we are surprised about how little is being said about the economy–from housing issues to tax plans. Not to say that the candidates have not laid out plans, but they don’t seem to be the focal point of the election rhetoric.
Is this lack of focus affecting the markets? For one, the markets have been a bit more stable these past few months, as compared to the period from late 2015 through early 2016. There have been volatile days and weeks, but overall, the stock market has traded in a pretty tight range during this time. Are the markets looking past the election and will they just meander around until election day passes?
Not that all the markets have been stable. For one, oil prices have recovered well over 50% from their lows earlier in the year. It appears that some oil producing nations are serious about cutting production, and these agreements are fueling the increases, if you pardon the pun. Oil prices have risen before, only to come back down, and it remains to be seen where prices will go from here. Higher oil prices could be perceived by the Federal Reserve Board as an inflationary risk. Thus, the specter of higher oil prices could be one factor persuading the Fed to act on higher interest rates at their December meeting — again assuming that they will not act in November right before the election.
The Markets. Rates rose last week, as the markets continued to anticipate a December rate increase by the Federal Reserve Board. For the week ending October 13, Freddie Mac announced that 30-year fixed rates rose to 3.47% from 3.42% the week before. The average for 15-year loans also increased to 2.76%, and the average for five-year adjustables rose slightly to 2.82%. A year ago, 30-year fixed rates were at 3.82%, approximately one-third of one percent higher than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac — “This week the 10-year Treasury yield continued its climb, as an increasing number of financial market participants foresee a December rate hike after a series of positive economic data releases. The rate on 30-year fixed loans moved up 5 basis points to 3.47 percent in this week’s survey, the first increase in one month. Even though we’ve seen economic activity pick up, consumer price inflation and implied inflation expectations remain below the Federal Reserve’s 2 percent target.” 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 October 14, 2016
|Daily Value||Monthly Value|
|6-month Treasury Security||0.45%||0.47%|
|1-year Treasury Security||0.66%||0.59%|
|3-year Treasury Security||1.00%||0.90%|
|5-year Treasury Security||1.27%||1.18%|
|10-year Treasury Security||1.75%||1.63%|
|12-month LIBOR||1.559% (Sep)|
|12-month MTA||0.542% (Sep)|
|11th District Cost of Funds||0.703% (Aug)|
|Prime Rate||3.50% (Dec)|
Consumers across all ages, income brackets, and education levels lack awareness about low-down-payment options, according to the National Association of Realtors®’ latest Housing Opportunities and Market Experience (HOME) survey of more than 2,700 Americans. Many are hesitant about buying a home right now, particularly young people, partially because they believe they must have a 20 percent down payment to purchase. However, the average median down payment for a first-time buyer has been 5 percent throughout the 35-year history of NAR’s Profile of Home Buyers and Sellers, the longest-running survey of national housing data. Yet fewer than 20 percent of consumers in the HOME survey believed a down payment of 10 percent or less would be enough to purchase. Respondents ages 65 and older (43 percent) as well as those younger than 35 (37 percent) were the most likely to believe they need more than 20 percent for a down payment. “It’s possible some of the hesitation about buying right now among young adults is from them not realizing there are financing options available that do not require a 20 percent down payment,” says NAR Chief Economist Lawrence Yun. Creditworthy prospective buyers should know that many lenders now offer safe, sustainable loans with as little as 3 percent down, and obtaining financing isn’t as difficult as it was in the immediate years after the downturn,” says NAR President Tom Salomone. Source: Realtor® Magazine
Economic growth is poised to accelerate to 2.6 percent in the second half of the year, a rebound from the lackluster growth of 1.0 percent in the first half of 2016, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group’s September 2016 Economic and Housing Outlook. The ESR Group’s full-year 2016 forecast remains at 1.8 percent, consistent with their prior forecast. Consumer and government spending are expected to drive growth despite a cool down in consumer activity so far in the third quarter. At the same time, inventory investment and net exports are likely to drag on growth and nonresidential and residential investment are expected to be neutral for the year. “Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,” said Fannie Mae Chief Economist Doug Duncan. “A bright spot for housing market activity is the strengthening of new home sales, which is significantly outperforming activity in recent years,” said Duncan, “The share of new home sales that are under construction or not started has climbed to nearly 70 percent, improving the outlook for single-family homebuilding.” Source: Fannie Mae
A trend that’s helped force U.S. home ownership to a 50-year low may finally be running out of steam. According to a new report from Zillow, a real estate and rental marketplace, incomes are now rising faster than home values for the first time since 2011. The data shows that home values have been growing at a 5 percent annual rate since the beginning of the year, outstripped by 2015’s income growth of 5.3 and 5.4 percent for family and non-family households respectively. “We’re finally seeing income growth that we haven’t had for quite some time,” said Svenja Gudell, Zillow’s chief economist. Yet, “it’s a combination of both,” she said, when asked in an interview about the effect on house prices themselves — “Even their present 5 percent growth rate is a slowdown from the early days of the recovery.” The Federal Reserve’s wage tracker has been ticking steadily higher in recent years, with some of America’s lowest paid workers enjoying a boost to their paychecks. Federal Reserve Chair Janet Yellen said in yesterday’s press conference that monetary policy makers expect wages to improve further in the months ahead, which could help to mend home ownership rates that recently hit their lowest levels since 1965. Source: Zillow