January 10, 2017 –
We just saw the last unemployment report of 2016. The December numbers came in at 156,000 jobs added for the month, which was a bit lower than expected–but the previous two months were revised upward by almost 20,000. The unemployment rate came in at 4.7%, as expected. Wage growth came in higher than expectations. With the year ending and a changeover in Presidents, it also gives us the chance to see how this important economic indicator is doing, not only for the past year, but for the past several years as well.
For all of 2016, the economy gained just over 2 million jobs. This is an impressive number, but it was down from 2.7 million jobs added the year before and 3.1 million jobs added in 2014. In addition, the unemployment rate started 2015 at 5.0% and ended the year at 4.7%. Finally, the labor participation rate started the year at 62.6% and ended the year at 62.7%, virtually flat for the year. It was over 66.0% before the recession hit. Looking back eight years, at the end of 2008, the unemployment rate was 7.3% and reached 10.0% during the first year of the Presidency, when the country was mired in recession.
Overall, the economy lost 8.7 million jobs during the recession, which bridged two administrations. Since the end of the recession, we have averaged a net gain in jobs of 190,000 per month, or just under 2.3 million per year. This means we have recovered the jobs lost during the recession and more, but if you average the job gains over 10 years, to include the first stages of the recession, the annual average job gains have totaled much less. In conclusion, we have made up much ground, especially when looking at the unemployment rate. However, there is more work to be done with regards to adding more jobs and increasing the labor participation rate.
The Markets. Rates opened the year lower for the first time since late October. For the week ending January 5, Freddie Mac announced that 30-year fixed rates fell to 4.20% from 4.32% the week before. The average for 15-year loans decreased to 3.44%, and the average for five-year adjustables moved up to 3.33%. A year ago, 30-year fixed rates were at 3.97%, approximately 1/4% lower than today’s levels. Attributed to Freddie Mac — “This marks the first time since 2014 that rates on home loans opened the year above 4 percent. Despite this week’s breather, the 66-basis point increase in the 30-year fixed-rate since November 3, is taking its toll on refinances, as the Mortgage Bankers Association’s refinance index plunged 22% this past week.” 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.
Current Indices For Adjustable Rate Mortgages
Updated January 6, 2017
|Daily Value||Monthly Value|
|6-month Treasury Security||0.62%||0.64%|
|1-year Treasury Security||0.83%||0.87%|
|3-year Treasury Security||1.43%||1.49%|
|5-year Treasury Security||1.86%||1.96%|
|10-year Treasury Security||2.37%||2.49%|
|12-month LIBOR||1.686% (Dec)|
|12-month MTA||0.614% (Dec)|
|11th District Cost of Funds||0.603% (Nov)|
|Prime Rate||3.750% (Dec)|
Various real estate entities have weighed in with their prognostications for the 2017 housing market. Most observers expect home sales and prices to moderate in the coming year. They say suburbs will make a comeback while the days of historic low rates are over. Of course, a lot depends on the actions of the new administration. Although President-elect Donald Trump said little about housing during the campaign, some of the issues he highlighted will have an effect on the residential real estate market, such as infrastructure spending, regulatory and tax reform, and immigration policies.
- Realtor.com predicts “a year of slowing, yet moderate growth,” with its fourth quarter Housing Opportunities and Market Experience Survey finding that 70 percent of people believe that now is a good time to buy a home. Millennials and boomers will dominate the market and Realtor.com expects these two massive demographic groups to power demand for the next decade. Home prices will grow at 3.9 percent annually, compared to an estimated 4.9 percent in 2016. Inventory is down an average 11 percent in the top 100 metro markets, and it is not expected to improve next year. Homes will be selling 14 percent faster. The survey also found that 70 percent of people say now is a good time to buy a home.
- Zillow says the homeownership rate will bounce back even as renting becomes more affordable. The real estate data firm also sees a reversal of a recent trend, predicting that “more Americans will drive in from the affordable suburbs for work, despite urban development efforts.” Additional predictions include: Cities will focus on denser development, more millennials will become homeowners, and buyers of newly built homes will have to spend more to cover rising costs of construction. “Those looking for more affordable housing options will be pushed to areas farther away from good transit options, in turn leading more Americans to drive to work,” said Svenja Gudell, Zillow chief economist.
- Redfin predicts “strong buyer interest, better access to credit and a modest and much needed increase in inventory that will allow home sales to grow but not as much as in 2016.” Redfin expects median home sale prices to rise 5.3 percent annually in 2017 compared to 5.5 percent this year and existing home sales to increase 2.8 percent annually in 2017 compared to 3.4 percent last year. 2017 will be the fastest real estate market on record as homes stayed on the market an average of 52 days this year, according to Redfin. It expects them to sell even faster in 2017. Redfin expects rates on home loans to rise but no higher than 4.3 percent on the 30-year fixed rate next year.
- The Mortgage Bankers Association predicts that rates on home loans will rise slightly but remain low, purchase applications will increase and refinance applications will decrease. “Strong household formation coupled with further job growth, rising wages and continuing home price appreciation will drive strong growth in purchases in the coming years,” said Mike Fratantoni, MBA’s chief economist. MBA expects rates on the 30-year fixed rate loans to remain below 5 percent through the end of 2018. “Historically low and, in some cases, negative rates around the world continue to put downward pressure on long-term U.S. [bond] rates, keeping them lower than the domestic growth environment would otherwise warrant,” Fratantoni said. Source: The Washington Post
Buyers are continuing to purchase bigger homes, according to the National Association of Realtors®’ 2016 Profile of Home Buyers and Sellers. In five out of the nine U.S. regions, buyers sought to trade up and buy bigger homes than last year. Forty-six percent of all buyers traded up in the size of their home, up from 42 percent in 2015, NAR’s report showed. As homeowners gain more equity, they may be looking to trade up for a bigger home. So far in 2016, sellers reported selling their homes for a median of $43,100 more than they purchased it, which is up from $40,000 in 2015 and $30,100 in 2014. The most common reason for selling a home was that the home was too small. Source: NAR