January 17, 2017 –
Last week we focused upon the employment situation in the long-term — looking back at 2016 and for the past eight to ten years. If there is one economic indicator which rivals the importance of the employment situation, it is real estate. Looking back, the real estate boom contributed to the great economic times we enjoyed just over a decade ago. And it was the collapse of that boom that sparked the financial crisis and the great recession we faced. Though the full year numbers have not come in for 2016, there has been plenty of news regarding the recapture of the real estate equity America lost during the great recession.
The numbers are not even across the country, but in general, real estate has finished the year at an all-time high in many areas. According to Zillow, the total value of U.S. housing stock grew to a total of $29.6 trillion in 2016, reaching this all-time high. Zillow also reports that the housing stock showed an increase of $1.6 trillion from 2016, a 5.7% increase in value. These are pretty impressive numbers, but when you factor in that these numbers represent a “break even” since 2016, the data takes on a different meaning.
Fortunately, we don’t want to stop there when looking at the performance of real estate. For example, in 1986, the average existing home price in the United States was $98,500. In November of 2016, the average was $276,800. This means that the total appreciation rate has been close to 300% over 30 years, or about 6.0% per year compounded annually. Of course, the rate of return is much higher when we figure that the purchaser of a home did not typically pay cash for their home in 1986, and nor would they today. The bottom line? If someone bought a home 30 years ago, and paid their regular 30-year loan payment over 30 years, they would now have an asset of approximately $300,000 free and clear — even if they only invested $10,000 to purchase that home. Thus, a short-term view of real estate is not necessarily the best view, as real estate is a long-term investment for the average homeowner.
The Markets. Rates were lower for the second week in a row to open the year. For the week ending January 12, Freddie Mac announced that 30-year fixed rates fell to 4.12% from 4.20% the week before. The average for 15-year loans decreased to 3.37%, and the average for five-year adjustables moved down to 3.23%. A year ago, 30-year fixed rates were at 3.92%, 0.20% lower than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac. — “After absorbing a mixed December jobs report, the 10-year Treasury yield fell 8 basis points. The 30-year fixed rate moved in tandem with Treasury yields falling 8 basis points to 4.12 percent, the second decline since the presidential election. The December jobs report showed 156,000 jobs added, barely meeting many experts’ expectations, while wage growth was at the high end of expectations at 0.4 percent. If strong wage gains persist, they may push inflation and interest rates higher.” 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 January 13, 2017
|Daily Value||Monthly Value|
|6-month Treasury Security||0.59%||0.64%|
|1-year Treasury Security||0.81%||0.87%|
|3-year Treasury Security||1.45%||1.49%|
|5-year Treasury Security||1.87%||1.96%|
|10-year Treasury Security||2.36%||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)|
The Federal Housing Administration has released a letter announcing that they will be lowering the FHA annual mortgage insurance premiums (MIP) effective for FHA loans closed on or after January 27, 2017. FHA is very popular with first-time homebuyers. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track,” commented William E. Brown, president of the National Association of Realtors. Brown thanked the FHA and HUD leadership for the move but added that there was still more to be done, including cutting the requirement for borrowers to maintain FHA insurance even when their equity position has improved. FHA’s announcement lowers the annual premiums by 0.25% for 30-year loans and 0.20% for 15-year loans. The up-front premium remains the same at 1.75% of the loan amount. In addition, there is no change with regard to the policy concerning the cancellation of MIP premiums, which means that loans with less than 10% down are not eligible for cancellation of the annual premiums in the future. The new annual premium on 30-year loans is 0.60% for loans with a down payment of less than 5.0% and 0.55% for loans with a downpayment of 5.0% or more. Source: FHA and NAR — If you would like a flyer which covers the 2017 changes in the industry, including loan limits and Rural Housing Fees, contact us.
Home loans through the Department of Veterans Affairs more than tripled in the wake of the 2007-2009 financial crisis, providing a critical line of lending credit to tens of thousands of veterans trying to buy a house, according to a report recently released. Researchers say those numbers show the quiet importance of the VA program, a benefit used by millions of veterans but often getting less attention than initiatives like health care coverage and education stipends. “This is a stable, accessible form of credit that has helped a lot of families,” said Keith Wiley, a research associate at the Housing Assistance Council and co-author of the report. “And over the years it has been expanding.” The report, funded in part by the Home Depot Foundation, found nearly 9 percent of all home loans in America in 2014 were backed by VA, up from 2 percent a decade earlier. Before the recession, those loans totaled around 140,000 a year. Today, those numbers are closer to 510,000, making them the third-largest home loan type in the country — behind conventional loans and loans backed by the Federal Housing Administration. VA officials said nearly 40 percent of the loans approved in recent years were issued free of service charges, since the applicants qualified for disabled veteran status. HAC officials said they hope the new report will be used as part of broader planning efforts on veteran homelessness and financial health, and to drive national policies on those issues. Source: The Military Times
According to data released by the US Census, in 2016 the U.S. population grew at the lowest rate since the Great Depression. The overall slowdown was due to an uptick in deaths, a slowdown in births and a fractional drop in immigration, all of which dampened American population growth for the year ended July 1. The 0.7% increase, to 323.1 million, was the smallest on record since 1936-37, according to William Frey, a demographer at the Brookings Institution. The Census Bureau revised downward its estimates of immigration for each year since 2010 by an average of 10%. For this year, it estimated that 999,000 immigrants arrived, down 4% from the prior year. Source: The Wall Street Journal