Real Estate News

The Fed Has Spoken

A View from the Beach

March 21, 2017 – 


Since we spent the past several weeks explaining why the Federal Reserve Board was likely to raise rates last week, we can definitely say that the Fed’s decision was not a surprise — especially since the increase was limited to .25%, which was also expected. A disappointing jobs report could have caused the Fed to hold back, but that did not happen. Now, the most important question is, where do we go from here?

In this regard, the tone of the Fed statement is just as important as their decision to raise rates. While much more information will come out when they release the minutes of the meeting in a few weeks, their statement after the meeting gives us plenty to go on. It is also not a surprise that their statement confirmed that the Fed is satisfied with the direction of the economy at the present time and that they feel that the economy can “withstand” higher rates. It is also not a surprise that they feel that more rate increases are possible in 2017.

This brings up an important question. The economy can withstand a few rate increases, especially because rates were so artificially low. But how many increases can be absorbed before the economy starts to respond negatively? Though we can’t answer this question, we do remind our readers that the Federal Reserve Board’s move directly affects short-term interest rates, and only indirectly affects long-term rates. If the markets feel that the Fed is being aggressive to stave off the threat of inflation, then longer-term rates, such as rates on home loans and even cars, may not move as fast. Of course, if the economy keeps humming, then long-term rates are more likely to be affected at the same time.


The Markets. Rates matched their highest level in more than a year as the specter of a Fed rate increase approached, but the numbers did not reflect a move down after the rate increase was announced. For the week ending March 16, Freddie Mac announced that 30-year fixed rates rose to 4.30% from 4.21% the week before. The average for 15-year loans increased to 3.50%, and the average for five-year adjustables moved up to 3.28%. A year ago, 30-year fixed rates averaged 3.73%. Attributed to Sean Becketti, chief economist, Freddie Mac — “As expected, the FOMC announced its first rate hike of 2017 and hinted at additional increases throughout the remainder of the year. Although our survey was conducted prior to the Fed’s decision, the release of the February jobs report all but guaranteed a rate hike and boosted the 30-year fixed rate 9 basis points to 4.30 percent this week. Increasing inflation, continued gains in the labor market and the Fed’s intentions for further rate increases — all three will keep pushing rates up this year.” 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 March 17, 2017
Daily Value Monthly Value
March 16 February
6-month Treasury Security  0.89%  0.65%
1-year Treasury Security  1.01%  0.82%
3-year Treasury Security  1.63%  1.47%
5-year Treasury Security  2.05%  1.90%
10-year Treasury Security  2.53%  2.42%
12-month LIBOR  1.713% (Feb)
12-month MTA  0.663% (Feb)
11th District Cost of Funds  0.616% (Jan)
Prime Rate  3.750% (Dec)

  Those wanting to sell their home during the spring season shouldn’t be too quick off the mark to list, as waiting could mean a faster sale and a higher price. According to analysis from Zillow, waiting until late spring may be a better strategy…along with listing on a Saturday. It found that those homes listed in the first two weeks of May sold around 9 days faster and for almost 1 per cent more. “With 3 percent fewer homes on the market than last year, 2017 is shaping up to be another competitive buying season,” said Zillow Chief Economist Dr. Svenja Gudell. “Many home buyers who started looking for homes in the early spring will still be searching for their dream home months later. By May, some buyers may be anxious to get settled into a new home— and will be more willing to pay a premium to close the deal.” The study also found that homes first listed on a Saturday averaged 20 per cent more viewings than those on other days. Source: Zillow


U.S. Treasury Secretary Steven Mnuchin said the Trump administration’s tax reform plan will not change the deductibility of home loan interest and charitable contributions. “Let me first clarify, we are not taking away the charitable deduction and we are leaving the mortgage interest deduction as is,” Mnuchin said in an interview on Fox Business Network. “We think those are both very, very important. But what we are going to do is we are looking at other places in which the reduction in deductions will offset the rate decrease,” he said. On Dec. 1, prior to President Donald Trump taking office, Mnuchin told CNBC that Trump wanted to cap the amount of interest on home loans that taxpayers can deduct. The deduction is already capped at loans up to $1 million if you are married and filing income taxes jointly, and at $500,000 if you file separately. Mnuchin said he expects a tax reform plan to be passed by Congress and signed by the president by August. Source: Reuters

The intersection of marriage and homeownership is growing wider, as a new data study from Zillow has found almost 15 percent of all homebuyers between the ages of 24 and 35 during 2015 were unmarried couples, up from 11 percent in 2005. In some markets, there is a greater prominence of unmarried couples buying residential property: in Washington, D.C., for example, almost 16 percent of all young homebuyers in 2015 were unmarried couples, up from 7.5 percent 10 years earlier. But while more unmarried couples are buying houses, fewer singles are entering into homeownership: roughly 25 percent of all 2015 homebuyers ages 24-35 were single, down from 28 percent in 2005. “Buying a home is a big part of The American Dream—equally shared by millennials and Baby Boomers alike—but it’s becoming extremely difficult to make it work on a single income,” said Zillow Chief Economist Svenja Gudell. “Many singles looking to purchase a home on their own may not make enough money to afford or qualify for a mortgage on their dream home. That makes buying a home with a significant other even more appealing, even if marriage isn’t quite part of the picture. Simply put, buying a home is much easier with two incomes. Assuming home value growth continues to outpace income growth, I imagine this trend will continue.” Source: National Mortgage Professional

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