February 28, 2017 –
It has been a whirlwind start to the year with record stock prices and a new administration coming together. And the year could get a bit more interesting with an employment report due out at the end of next week. Of course, the jobs data is always important, but this report could hold a bit more weight with a meeting of the Federal Reserve coming up in a few weeks. The Fed has recently talked about raising rates as much as three times this year, but the markets have been predicting no increase before May or June.
Could a very strong jobs report make a March increase more likely? This is certainly within the realm of possibilities and the recent release of the minutes of the last Fed meeting seemed to be somewhat open to that scenario. Keep in mind, even though the economic news released thus far this year has not been significantly stronger than expected, the inflation data reported recently was higher than forecasted. And the Fed is watching the inflation rate very closely while analyzing the economy.
In addition, while the economic reports have not been that strong, consumer confidence is up, along with the stock market. There is a possibility that this confidence turns into more jobs created because employers are also feeling more confident. More jobs will boost the economy. In addition to the total number of jobs added, one indicator which will be watched very closely will be wage growth. If wages grow more quickly than expected, this would denote that the job market is getting tighter and would be another factor elevating inflationary concerns.
The Markets. Last week, rates were stable as they have been for the past month. For the week ending February 23, Freddie Mac announced that 30-year fixed rates rose one tick to 4.16% from 4.15% the week before. The average for 15-year loans increased to 3.37%, and the average for five-year adjustables moved down to 3.16%. A year ago, 30-year fixed rates averaged 3.62%. Attributed to Sean Becketti, chief economist, Freddie Mac — “In a short week following Presidents Day, the 10-year Treasury yield fell about 8 basis points. However, the 30-year mortgage rate rose 1 basis point to 4.16 percent. This week’s survey once again displays the disconnect between mortgage rates and Treasury yields, a result of continued uncertainty.” 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 24, 2017
|Daily Value||Monthly Value|
|6-month Treasury Security||0.66%||0.62%|
|1-year Treasury Security||0.81%||0.83%|
|3-year Treasury Security||1.44%||1.48%|
|5-year Treasury Security||1.87%||1.92%|
|10-year Treasury Security||2.38%||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)|
Consumer sentiment has surged since the November election, as Americans become increasingly optimistic about the future of the economy and their own personal finances. But most consumers seem to understand that better economic growth comes at the cost of higher interest rates. According to data, that may be nudging them into the housing market. In the University of Michigan’s closely-watched consumer sentiment survey, the number of people who said that now is a good time to buy a home because of rising interest rates surged to the highest level in more than 20 years – one in five. It makes sense that Americans are responding to the possibility of higher rates. Borrowing costs jumped nearly a full percentage point in the weeks after the November election. But they’re still low. Even with that late-year surge, the 2016 average for rates was the lowest on record, Freddie Mac noted last month. There’s some uncertainty about the direction of rates over the next year or so. Housing economists surveyed by MarketWatch in early December forecast an average of about 4.5% over the course of 2017. But many economists who watch the bond market think the furious selling of Treasurys in the weeks after the election may have been overdone. Rates on home loans generally track the direction of the benchmark 10-year Treasury yield. Whatever the precise course of rates over the next year, it’s a good sign that consumers are aware that they could be rising, and that their response is to try to get ahead of it in order to buy a home. Source: MarketWatch
Home prices ended 2016 with yet another year-over-year uptick, according to CoreLogic. They increased 7.2% year over year in December, CoreLogic said in its Home Price Index Report. The index was also 0.8% higher month over month. Looking to 2017, CoreLogic expects the housing market to hit a new home price peak. “As of the end of 2016, the CoreLogic national index was 3.9% below the peak reached in April 2006,” Frank Nothaft, chief economist for CoreLogic, said in a news release. “We expect our national index to rise 4.7% during 2017, which would put homes prices at a new nominal peak before the end of this year.” Source: National Mortgage News
Many markets are calling for greater new-home construction to meet buyer demand and counter housing shortages plaguing many areas. But the homebuilding industry is facing a big challenge in meeting that call: They can’t find enough skilled workers. The Bureau of Labor Statistics Job Openings and Labor Turnover Survey shows that nearly 200,000 construction industry jobs are unfilled across the country, an increase of 81 percent in just two years. The unemployment in the construction industry is at 4.5 percent, the lowest in a decade. That is putting increased pressure on foremen, project managers, and developers. Further, builders are, in some cases, being forced to stretch delivery times for the homes they are building by weeks or even months. Many workers fled the industry following the housing downturn. As the market rebounded years later, the industry is finding the workers didn’t return. The financial challenges from the labor shortage are causing more builders to devote most of their attention to luxury projects to help recoup the added costs from delays. The lack of trained labor in the residential construction industry is “far and away” the number one issue facing the homebuilding industry today, says John Courson, president and CEO of the Home Builders Institute. The industry is starting to invest in vocational education in response to the labor shortage. For example, HBI is focusing on educational programs that target at-risk youth, ex-offenders, and veterans to help these populations find immediate job opportunities that don’t require a college degree. HBI is also pushing for more vocational programs at high schools to help students partner with professionals for internship opportunities. Source: Curbed.com