February 21, 2017 –
During the past few months we have had a very solid rally in the stock market, which has been accompanied by higher interest rates. Certainly, the economic results that have been released have not changed that much during that period, and thus we can conclude that the changes in the markets are not because of a change in fundamentals. This conclusion is not surprising, because often the markets trade on feelings rather than results.
We do know that the change in psychology is due to a change in leadership. New leadership and new policies bring a lot of uncertainty to the table. Generally, the markets do not like uncertainty. On the other hand, it is not unusual for optimism to trump uncertainty (excuse the pun). If the markets are optimistic that the changes will help the economy, high stock prices and higher rates are justified. Of course, it does help that the economy is already heading in the right direction.
As slow as it has been, the recovery has seen a precipitous drop in the unemployment rate and a net gain of several million jobs. Revving up an economy which is already growing requires much less energy, as opposed to turning around an economy. And that is what is likely making the markets more optimistic. It is unusual to apply stimulus to a growing economy, as opposed to moving an economy out of recession. On the other hand, too much stimulus to a growing economy could stimulate inflation, and this is the risk which is supporting higher rates. Remember, the markets are not always right regarding what will happen, because there is no way of accurately predicting the future.
The Markets. Last week, rates were slightly lower again. For the week ending February 16, Freddie Mac announced that 30-year fixed rates fell to 4.15% from 4.17% the week before. The average for 15-year loans decreased to 3.35%, and the average for five-year adjustables moved down to 3.18%. A year ago, 30-year fixed rates averaged 3.65%. Attributed to Sean Becketti, chief economist, Freddie Mac — “For the last 46 years, the rate on a 30-year fixed home loan has been almost perfectly correlated with the yield on the 10-year Treasury, but not this year. From Dec. 29, 2016, through today, the 30-year rate fell 17 basis points to this week’s reading of 4.15 percent. In contrast, the 10-year Treasury yield began and ended the same period at 2.49 percent. While we expect rates on home loans to fall into line with Treasury yields shortly, this just may be a year full of surprises. 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 February 17, 2017
|Daily Value||Monthly Value|
|6-month Treasury Security||0.66%||0.62%|
|1-year Treasury Security||0.82%||0.83%|
|3-year Treasury Security||1.50%||1.48%|
|5-year Treasury Security||1.95%||1.92%|
|10-year Treasury Security||2.45%||2.43%|
|12-month LIBOR||1.713% (Jan)|
|12-month MTA||0.638% (Jan)|
|11th District Cost of Funds||0.599% (Dec)|
|Prime Rate||3.750% (Dec)|
How tough is it to get approved for a mortgage? How low can your FICO credit score go before your lender shows you the door? And how much monthly debt can you be shouldering — credit cards, student loans, auto payments — but still walk away with the home loan you’re seeking? You might be surprised. New data from technology company Ellie Mae, whose loan application and management software is widely used in the residential finance field, reveals that even if you’ve got what seems to be a deal-killing low FICO score or you’re carrying a high amount of debt, you still might have a shot at qualifying for a home loan to buy the house you want. Consider some of these findings from Ellie Mae’s latest sampling of recently closed loan applications nationwide: The credit scores of most successful applicants remain well above historical averages, but significant numbers of homebuyers are squeaking through with sub-par scores. The amount borrowers must pay upfront can be much smaller than a lot of buyers sitting on the sidelines might think. The average down payment on Department of Veterans Affairs loans at the end of 2016 was just 2 percent — and that’s higher than the VA’s bare minimum requirement, which is zero down. FHA’s minimum is 3.5 percent and the typical approved applicant came close to that at 4 percent down. So how do buyers with sub-par FICOs, skimpy down payments and high qualification ratios manage to get a home loan? The key is this: They don’t have these negative factors rolled into their applications all at once. If they did, they’d be rejected. If they’ve got a weak FICO, they need strong “compensating factors” elsewhere in their application to counterbalance the credit score deficiency. Maybe it’s a larger down payment than typical, lower than average qualification ratios or higher bank reserves. Source: Ken Harney, The Nation’s Housing
According to the U.S. Census Bureau, the homeownership rate in the fourth quarter of 2016 was 63.7 percent, which was not statistically different from the rate in the fourth quarter of 2015 (63.8 percent) or the rate in the third quarter of 2016 (63.5 percent). Approximately 87.3 percent of the housing units in the fourth quarter were occupied and 12.7 percent were vacant. Owner-occupied housing units made up 55.6 percent of total housing units, while renter-occupied units made up 31.7 percent of the inventory. But while the homeownership rate barely seemed to move, it appears that potential homeowners are on the hunt for a new residence. The Redfin Housing Demand Index increased 15.1 percent to a seasonally adjusted level of 124 in December, the highest level recorded since Redfin started measuring demand in January 2013. Compared to one year earlier, homebuyer demand increased by 26.3 percent, fueled by a 36.4 percent year-over-year increase in homebuyers requesting tours and 10.2 percent year-over-year increase in buyers making offers. “In general, buyers are attracted to brand-new listings,” said Redfin Chief Economist Nela Richardson. “In December, we started seeing homes that spent time on the market, perhaps because they were not in the hottest neighborhood or needed renovation, finally get offers. Based on the number of sellers who’ve contacted Redfin this month, we expect a sizeable increase in new listings in the next two months. With new listings on the way and this year’s buyers willing to take a look at older inventory, we anticipate that sales in early 2017 will be strong.” Source: NMP
Millennial first-time homeowners are showing more willingness than previous generations to complete do-it-yourself projects around the house or wait until they can afford to make the improvements they desire, a new survey by Better Homes & Gardens magazine shows. Fifty percent of those surveyed say that at move-in, their current home’s conditions require some degree of repair or remodeling. They’re showing some compromise in their first home. Only 50 percent of first-time millennial homeowners say they are willing to spend top dollar to get exactly the features and quality they want in a home, the survey showed. “These first-time millennial homeowners are focused on building equity, not debt,” says Jill Waage, editorial director of Digital Content and Products at Better Homes & Gardens. “They are strong believers in being able to afford their dreams as they achieve them and not over-stretch themselves.” Eighty-five percent of first-time millennial homeowners say they view homeownership as a sound investment. Their housing wish-list is for a mid-sized home (about 2,000 square feet) with a renovated kitchen and bathroom as well as a deck or patio space. The DIY projects that landed the highest on their to-do lists are installing light fixtures and tile and painting walls, the survey showed. Source: RIS Media