Weekly Mortgage and Real Estate Report – Week of April 11, 2016

ECONOMIC COMMENTARY
Best of All Worlds RevisitedThe first quarter of 2016 is in the books. It was a pretty wild quarter to say the least. We started the quarter with the news that the Federal Reserve had started raising interest rates and plenty of international turmoil. The stock market underwent a healthy correction and based upon the preliminary data for the fourth quarter’s economic growth, the economy ended 2015 limping. Many were pessimistic regarding the outlook for 2016 and it seems with good reason.

Then the unforeseen happened. The economy created over 600,000 jobs in the first quarter, interest rates moved lower and the stock market recovered all of it’s losses to move into “break-even” territory for the year. The fourth quarter’s economic growth also turned out to be higher than previously reported with subsequent revisions and even oil prices, which also plunged in the first quarter, recovered somewhat.

So where does that leave us for 2016? Are we going to continue to produce jobs, enjoy low interest rates and see the stock market continue to go up from here? That would indeed be the best of all worlds, but unfortunately we can’t guarantee this scenario. It would be nice. One factor we should be watching is corporate profits, which are starting to be released for the first quarter. If corporate profits don’t start growing again, it is unlikely stocks will continue to prosper. When they meet at the end of the month, the Fed’s assessment will be interesting to see.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates on home loans fell to their lowest point in over a year in reaction to the Fed announcement in mid-March and subsequent comments by the Fed. Freddie Mac announced that, for the week ending April 7, 30-year fixed rates fell to 3.59% from 3.71% the week before. The average for 15-year loans was also lower at 2.88%. The average for five-year adjustables decreased to 2.82%. A year ago, 30-year fixed rates were at 3.66%, virtually the same as today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “Rates on home loans this week registered the delayed impact of last week’s sharp drop in Treasury yields, as the 30-year rate fell 12 basis points to 3.59 percent. This rate marks a new low for 2016 and matches last year’s low in February 2015. Low rates and a positive employment outlook should support a strong housing market in the second quarter of 2016.”  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 April 8, 2016
Daily Value Monthly Value
April 7 March
6-month Treasury Security  0.36%  0.47%
1-year Treasury Security  0.52%  0.66%
3-year Treasury Security  0.83%  1.04%
5-year Treasury Security  1.14%  1.38%
10-year Treasury Security  1.70%  1.89%
12-month LIBOR  1.179% (Mar)
12-month MTA  0.410% (Mar)
11th District Cost of Funds  0.670% (Feb)
Prime Rate  3.50% (Dec)
REAL ESTATE NEWS
 A little ­known program sponsored by the Department of Housing and Urban Development allows police officers, teachers, firefighters and emergency medical technicians to buy certain homes for half price. But financing these purchases comes with some strings attached. Called Good Neighbor Next Door, this program deeply discounts foreclosure properties in areas designated as in need of revitalization. The homes are owned by HUD and first offered only to full­time educators and emergency responders who serve these areas. In return, the workers must agree to live in the home for at least three years. To be eligible, buyers may not own any other residential property or have owned a home within the previous year. Although the home price is halved, buyers must still be able to qualify for a loan equal to the full price, said John Zubretsky Jr., the owner­broker of Weichert Realtors, the Zubretsky Group in Wethersfield, Conn. The loan amount, though, will be only for the discounted price, said Mr. Zubretsky, a specialist in HUD properties. But in order to make the buyers accountable for the three­ year commitment, HUD also requires that they sign a “silent second” mortgage for the amount that the property was discounted. No interest or payments are required on this loan as long as the buyer lives in the home for at least 36 months. “That second note gets ripped up after three years,” said Kevin Kelly, a local listing broker for HUD homes in the Buffalo area. Source: The New York TimesThe 2006-2009 housing slump reduced wealth by $7 trillion. Since then, the value of homeowners’ equity in real estate has more than doubled from a low in the first quarter of 2009, a Federal Reserve report today showed. What’s more, housing wealth is poised to reach a new record as early as the second quarter, say economists at the Federal Reserve Bank of St. Louis and Pantheon Macroeconomics Ltd. Improving property values are allowing homeowners to shake off recent stock-market volatility and keep spending. From the end of 2013 through last year’s fourth quarter, home equity climbed 22 percent compared with a 11 percent gain in the Standard & Poor’s 500 Index. “The increase in housing wealth is a kind of stealth offset to stock prices,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, who predicts record home equity values next quarter. “Home ownership is much wider than stock ownership. The consumption effect from a given rise in holdings has been bigger for homes.” The number of homeowners with at least 20 percent equity is “rising rapidly,” Anand Nallathambi, president and chief executive officer of CoreLogic, said in a statement. “In 2016, we expect home equity levels to continue to build.” Source: Bloomberg

Young adults are key to boosting future household formation, but those households may look different than in previous generations. With declining marriage rates, households headed by married couples may no longer dominate the landscape. The number of 30-somethings who are married has fallen about 10 percent in the last decade, while the percentage of unmarried couples living together has nearly doubled from 7 percent to 13 percent, according to Gallup Analytics. Most notably, the “rise of singledom,” as Gallup calls it, is most evident among 18- to 29-year-olds. The number of people in that age range who are single and living alone has risen from 52 percent in 2004 to 64 percent in 2014. Among 30- to 39-year-olds, the number has increased from 15 percent to 19 percent in the same period. “It is widely known that fewer young people today are getting married. But Gallup’s data reveal that young adults are not simply swapping marriage for living together, but rather staying single longer,” Gallup’s report notes. “This doesn’t necessarily mean young adults are staying out of relationships, just that they are less likely to be making the more serious commitment associated with moving in together — whether in marriage or not.” Gallup’s report notes “the important question for society is whether the dramatic shift in living arrangements seen among 20-somethings persists into their 30s, furthering the revolution in U.S. household and family structure.” Source: Gallup

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