Real Estate News

The Fed and the State of Interest Rates

A View from the Beach
A View from the Beach
January 31, 2017 –


The start of a new year is a good time to reflect as we previously have on the state of jobs and real estate. Another important factor we are monitoring is the movement of interest rates. There is no doubt about the fact that one benefit of our very slow and steady recovery from the Great Recession has been incredibly low interest rates. These rates have made home ownership and other large purchases such as cars more affordable for tens of millions of Americans. In addition, these rates have spurred millions of Americans to refinance their home loans, which has provided another boost for the economy.

Even as the recovery has moved forward and the unemployment rate has moved down near pre-recession lows, rates have stayed low. As a matter of fact, Freddie Mac has reported that last year, rates on home loans were the lowest in the history of their survey. The previous low of 3.66% was also post-recession in 2012. Just to give a perspective, rates on 30-year fixed loans averaged approximately 6.0% in the years before the recession and during the first part of the recession. And before the real estate boom at the turn of the century, rates averaged in the 7.0% range.

Since the election, rates have moved up from their record lows to just over 4.0% on 30-year loans. Where they will go from here is a complete mystery. Most analysts predict they will move upward from here, but analysts have been known to be wrong. Here is a point to consider. If rates stay where they are today, they will be the lowest in history, save for a few months in the previous few years. This means that getting a loan is still a bargain. And even though the Federal Reserve Board is meeting this week, their actions are not expected to change things at the present time. Thus, we can continue to enjoy the good times — for now.


The Markets. Last week, rates were higher for the first time this year. For the week ending January 26, Freddie Mac announced that 30-year fixed rates rose to 4.19% from 4.09% the week before. The average for 15-year loans increased to 3.40%, and the average for five-year adjustables moved down one tick to 3.20%. A year ago, 30-year fixed rates averaged 3.79%. “The 10-year Treasury yield increased more than 10-basis points this week. The rate on 30-year fixed loans moved up as well to 4.19 percent, a 10-basis point jump. This week marks the first increase in the rates on home loans since December 29. The 2.8 percent decline in existing home sales in December is a reminder of the lack of homes for sale. According to the National Association of Realtors, supply is at its lowest level since 1999, a factor that should support higher house prices regardless of the oscillations of rates.” 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 27, 2017
Daily Value Monthly Value
January 26 December
6-month Treasury Security  0.62%  0.64%
1-year Treasury Security  0.82%  0.87%
3-year Treasury Security  1.49%  1.49%
5-year Treasury Security  1.95%  1.96%
10-year Treasury Security  2.51%  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)

  One of the nation’s leading credit scoring companies has released a study that shows the use of trended credit data along with a traditional credit report could expand consumer access to credit to 1.5 million consumers per year. The Equifax Consumer Credit Impact Analysis determined that the inclusion of trended credit data could result in an approximate increase of four percent more mortgages—or 267,000 home loans—being issued to borrowers that would have previously been rejected as ineligible. Equifax also stated that 4.1 percent home equity lines of credit—or 65,000 accounts—could be issued with this realignment to credit scoring. “Giving weight to how borrowers pay off credit debt puts more power in their hands to manage their credit evaluation.” said Peter Maynard, senior vice president global analytics at Equifax. “New ways of assessing consumer credit behavior through unique insights is something we are continuing to develop at Equifax, and opportunities to expand credit to consumers and mitigate for risk for lenders make these type of approaches solid ones for the entire marketplace.” Source: National Mortgage Professional

Construction of single-family homes is expected to gradually rise this year, as a growing economy, solid employment gains, and rising household formation buoys builders’ forecasts. Last year, the National Association of Home Builders projected 1.16 million total housing starts in 2016, which was up nearly 5 percent from the previous year. Now NAHB is forecasting a 10 percent increase in single-family production for 2017 and a 12 percent rise for 2018. Still, there will be pressing challenges as builders look to increase their supplies this year. “While positive developments on the demand side will support solid growth in the single-family housing sector in 2017, builders in many markets continue to face supply-side constraints led by the three Ls — lots, labor and lending,” says NAHB chief economist Robert Dietz. Sixty-four percent of builders reported “low” or “very low” lot supplies. “The industry needs to recruit more workers and get more land in the pipeline, but it will take time.” Builders are particularly facing challenges building $200,000-range entry-level homes. Regulatory requirements comprise nearly 25 percent of the cost of a new home, which has made construction on lower-cost homes more difficult, Dietz says. Nevertheless, townhome construction, which tends to appeal to younger buyers, is already showing significant growth, comprising 12 percent of all single-family starts, Dietz says. “As millennials age, that is a big potential base to expand the home buyer market,” adds Frank Nothaft, CoreLogic’s chief economist. Source: NAMB

Ninety-nine percent of Americans say they’re a good neighbor, finds a new survey by the Community Associations Institute, a community association governance and education group. What is a good neighbor? Being quiet, friendly, respecting your neighbor’s privacy, and cleaning up after your pet, CAI’s 2016 National Good Neighbor Day Survey finds. Eighty-three percent of respondents say face-to-face interactions are the most common way they communicate with their neighbors. Also, having a dog helps to meet your neighbors, the survey found. Eighty-three percent of respondents said they get to know their neighbors while walking their dog. Many people say they’re proud of the neighborhood they live in. Eighty-six percent say they are proud to live in their neighborhood and actively recommend it to their friends and colleagues. Source: Community Associations Institute

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