Weekly Mortgage and Real Estate Report – Week of June 27, 2016

ECONOMIC COMMENTARY
Brexit HeadwindsLast week we spoke of the Federal Reserve Board quoting “headwinds” faced by our economy, something that Janet Yellen reiterated in her testimony to Congress this week. Now we get to see a prime example of these headwinds in action with regard to the vote on Britain’s exit from the European Union. The uncertainly leading up to this vote was a factor in unsettling the markets, but that is nothing like the uncertainty we now have as the vote to leave is contemplated by the markets.

It would not be unreasonable to expect the volatility to subside when the world realizes that it will take at least two years for Brexit to happen and we don’t know what form that exit will take. There are so many variables — including how some parts of the United Kingdom who supported Bremain will react. We have bounced back from wars, natural disasters and terrorist tragedies again and again. We are certain that these new headwinds will not stop our progress either. However, regardless of our resiliency, our leaders must continue to be vigilant in keeping these factors in mind, and the Fed will continue to do just that.

Certainly the stock market has also been very resilient in the past. From the depths of the recession, it has bounced back magnificently over the better part of the last decade. However, since the end of 2014, the level of 18,000 for the Dow Jones Industrial Average has been a difficult level for the market to maintain. Every foray above that level seems to be accompanied by a pull back. It is interesting that we reached the 18,000 level again the day of the Brexit vote. The good news in all of this? At least temporarily, we will have record low rates again and for those who react quickly, refinancing or purchasing a home will be a great move.

REAL ESTATE NEWS
 Many within today’s generation of teens, 21 million strong, say they’ll be willing to give up modern luxuries for a more mainstream view of the American dream of homeownership, according to a new study from Better Homes and Gardens Real Estate, which reveals the home ownership wish lists of children ages 13 to 17, part of Generation Z. Eighty-nine percent of Gen Z teens surveyed say owning a home is part of what they believe the American dream is, followed by graduating from college (78%); getting married (71%); and having children (68%). They’re optimistic that they’ll become home owners one day, too. Ninety-seven percent say they’ll own a home one day, and they say they’d even be willing to make some unusual sacrifices in order to put them on the path to home ownership. For example, 53 percent say they’d be willing to give up social media for a year or would be willing to do twice as much homework every night in order to become a home owner one day. Forty-two percent would go to school seven days a week, and 39 percent would even be willing to take their mom or dad to their prom if it meant they could be a home owner one day, the survey showed. Sherry Chris, president and CEO of Better Homes and Gardens Real Estate remarked, “Today’s teens are fiscally literate and realistic when it comes to their future. It’s quite profound that a generation that has never known a world without social media is willing to give up such a staple in their modern lives to achieve their dream home.” Source: Better Homes and Gardens Real EstateClosing costs might come as a surprise to many buyers, especially young adults. Two-thirds of millennials – those between the ages of 18-34 – who plan to buy a home say they were unaware of closing costs, finds a new survey of more than 1,000 adults conducted by ClosingCorp, a provider of residential real estate closing cost data and technology for the mortgage and real estate industries. What’s more, more than one-third of potential home owners – across all age brackets – say they’re “not very” or “not at all” aware of closing costs. Closing costs can come as a big surprise, which can often amount to 2 to 5 percent of the total purchase price of a home. “This study emphasizes the need to better educate millennials, and really all consumers in general, on the real estate closing process,” says Brian Benson, CEO of ClosingCorp. “While interest rates are often the driving force in initiating a real estate transaction, the [real estate agent], lender, title and other settlement fees also have a significant impact on the down payment and cash outflow from the borrower perspective. Not understanding how everything is related can be a real impediment for first-time home buyers who want to get into the market.” Most of the adults surveyed say they learned about closing costs first from their real estate agent or by doing their own research. Indeed, millennial home owners said they were more likely to learn about closing costs from a real estate agent than a lender by a ratio of nearly 2-to-1, according to the survey. “We as an industry should be stepping up our proactive education efforts to ensure home buyers are fully prepared to make the most significant financial transaction of their lives,” Benson says. Source: Realtor Magazine

Parents are increasingly helping their adult children financially purchase a home, finding themselves in a new role going from parent to landlord. College graduates struggling to pay rent or save up for a down payment in high-cost metros are turning to their parents for help. Parents are buying up property and then renting it out to their children, often for an amount that’s well-below market value. “Over the last three or four years, we’ve been seeing more pied-à-terre purchases that involve parents buying a small unit as a home for a child with a first job in the city, and also as an investment,” Jonathan J. Miller, the president of the real estate appraisal firm Miller Samuel, told The New York Times. “They’re adding an asset to their portfolio that they hope will appreciate over time. Meanwhile, that asset is solving a housing problem for their children, and if the parents can defray costs along the way or make a little something, so much the better.” Source: The News York Times

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Weekly Mortgage and Real Estate Report – Week of June 20, 2016

ECONOMIC COMMENTARY
Economic HeadwindsThe Federal Reserve Board’s decision not to raise interest rates last week was not a surprise by any means. After the weak jobs report for May, the decision was a no-brainer. Thus, the words of the Fed were more important than the decision to stand pat. In their statement, the Fed cut its forecast for U.S. economic growth in 2016 to 2%, down from 2.2% earlier. Chairperson Yellen pointed to “headwinds blowing on the economy” as a factor in this reduced outlook. In addition, the statement indicated that they “expect economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” This means no increase now and less of a chance of an increase in July and possibly for September.

One factor the markets will be watching very closely will be any signs of the kindling of inflation. The Fed continues to have leeway, as long as there is no inflationary pressure. For the past year, we have had one important deflationary factor — plunging oil prices. Now that oil prices seem to have stabilized close to $50 per barrel, it is time to keep our eyes out for other evidence of rising prices. For example, while the retail sales report released last week was as expected, the news that import and export prices rose more than expected is important in this regard. Producer prices came in higher than expected last week as well.

Another factor affecting the markets is the referendum on Britain’s proposed exit from the European Union. Most economists have forecasted that such a move could throw the UK into recession. Though we will know the results of the referendum this week, any terms of a separation would still have to be negotiated. We do know that the markets do not like uncertainty and a vote to leave will leave the western world with plenty of uncertainty — another factor that could tie the hands of the Fed.

REAL ESTATE NEWS
 Are you a “transactor” or a “revolver” when it comes to your credit? Terms like these never have mattered much to home buyers seeking a home loan. You’ve probably never heard of them. Yet they are about to become more important to millions of home loan-seekers and they may even help determine whether you qualify for a loan in the first place. A transactor is someone who pays off credit bills in full every month or makes more than the minimum required payment. A revolver is the opposite: someone who routinely makes the minimum payment on credit cards and other debts, rolling balances over to the next month. Credit industry statistical research suggests that, all other factors being equal, revolvers tend to present higher risks of future default to lenders, especially when they are accumulating substantial unpaid balances. Transactors tend to be lower risks. Until now, lenders and investors had difficulty distinguishing revolvers from transactors. Credit reports told them whether you as an applicant were late on card payments and whether you defaulted on your car loan, but they didn’t show what you paid on your balances month by month over extended periods. Fannie Mae, a dominant player in the housing market, will soon begin evaluating how all loan applicants have managed their credit over the previous two years: how much they owed in revolving debt each month, the minimum payment allowed on each debt and how much they actually paid. As a general rule, according to Eric Rosenblatt, Fannie’s Vice President of Credit Risk Analysis and Modeling, the new system will “benefit borrowers who regularly pay off revolving debt” and should “provide more creditworthy borrowers access to credit.” Starting June 25, the new reach-back data will become an integral part of Fannie’s automated underwriting, an online system that is used by the vast majority of lenders to determine whether applicants are eligible for the loan they’re seeking. Source: Ken Harney, The Nation’s Housing  Note: The date of implementation is likely to be delayed by Fannie Mae
Mom and dad must make cool roommates. Young adults between the ages of 18 to 34 are more likely to live with a parent than to get married or move in with a romantic partner, according to a newly released analysis of Census data by the Pew Research Center. This is the first time in more than 130 years in which young adults have chosen their parents’ homes over forming their own households, the study notes. In 2014, 32.1 percent of young adults were living with a parent. On the other hand, slightly fewer—31.6 percent—were living in a household formed upon a “romantic relationship,” either with a spouse or a partner, according to Pew’s analysis. The trend for young adults to live with their parents longer grew more pronounced after the Great Recession in 2008. Fewer job opportunities forced some young adults to move back home. Also, young professionals are delaying marriages longer (with one in four young adults who may never marry), and the trend of young adults living together has “substantially fallen since 1990,” according to researchers. Young men are living at the family home at the greatest numbers. About 35 percent of young adult men were living with a parent compared to 29 percent of women. About 14 percent of 18 to 34 year olds live alone, the study shows. Source: The Chicago Tribune

An overwhelming number of people nearing or in retirement want to remain in their current home as long as possible, according to the results of a new survey released by The American College of Financial Services. The Home Equity and Retirement Income Planning Survey found that 83 percent of the respondents do not want to relocate in retirement. “One very interesting notion was that the desire to age in place increases significantly as you get older,” said survey author Jamie Hopkins, Professor of Retirement Income Planning and Co-Director of The American College New York Life Center for Retirement Income Planning. “We saw more uncertainty between the ages of 55 and 62. But once we started getting past 62 and you start moving into retirement, we saw that these individuals really don’t expect or want to leave their homes.” The study also saw almost no homeowners with a strong desire to rent in retirement. The survey, created to better understand retirees’ attitudes about home equity and housing decisions, also revealed that 44 percent have considered using home equity in retirement, but that only 25 percent feel comfortable spending it as a source of income. It also found that only about 20 percent of the respondents felt that it was extremely important to leave their home as a legacy asset to their children or other heirs, while 45 percent listed it as not important. According to the survey, just 30 percent of the participants earned a passing grade on basic knowledge about reverse mortgages. Despite a strong desire to age in place, only 14% of the respondents had considered a reverse loan, with only one respondent having entered into a reverse product. Source: American College of Financial Services

Weekly Mortgage and Real Estate Report – Week of June 13, 2016

ECONOMIC COMMENTARY
Will They or Won’t They?The answer to the question as to whether the Federal Reserve will raise interest rates this week obviously depends upon whether you asked the question on the Thursday before the Jobs Report as opposed to afterwards. Before the jobs report was released, it was expected that there was close to a 50-50 chance of a rate increase. Now the chance of the Fed taking action has been lowered significantly. As a matter of fact, many are now predicting that rates may not go up after the July meeting as well.

The concern over the weak jobs report has not gone unnoticed by the Federal Reserve Governors. Federal Reserve Governor Lael Brainard called for a reconsideration of any potential rate hikes, citing a slowing labor market and continued evidence of global economic instability as reasons for the Fed to keep its foot on the financial brake. Chairperson Yellen had this to say the following week: “This past Friday’s labor market report was disappointing.” Thus, there is good reason for the markets to believe that the Fed will hold off.

We would like to add two points. The markets seem to love any news that would cause the Fed to hold off from raising rates. The Wednesday after the jobs report, the Dow hit the 18,000 level, but then fell back late in the week. Secondly, keep in mind that the monthly job numbers are frequently volatile and subject to major revisions. Even if the Fed does not make a move, there will be another employment report released before the July meeting. While it is not likely the numbers could rebound enough to erase doubts, May’s job numbers might still prove to be an anomaly.

REAL ESTATE NEWS
 Active-service military buyers between the ages of 18 and 35 are purchasing homes at a “far greater rate” than non-military buyers – 51 percent versus 34 percent, according to the National Association of Realtors®’ newly released Veterans & Active Military Home Buyers and Sellers Profile. This is the first time NAR has released such an in-depth look at the military with the aim of evaluating the differences between active-service/veteran real estate clients and those who’ve never served. Despite their lower median income ($76,800), active-service military members tend to have more job security, says Lawrence Yun, NAR’s chief economist. “No-down payment financing options…are giving aspiring home owners in the military a deserving advantage over their civilian peers,” he adds. “Furthermore, their tendencies to marry and raise a family at an earlier age and carry less student debt make buying a home a more desirable and achievable option.” Because of the tendency to marry and have children at younger ages, active-service members often purchase larger homes that cost more than those purchased by non-military buyers and veterans alike, according to the study. The loans available to the military prove to be a big perk. Veterans Affairs loans offer 100 percent financing for veteran and active-service home buyers. Source: National Association of Realtors®Women buying homes may need more reassurance and confidence in a real estate transaction than men, according to ValueInsured’s Modern Homebuyer Survey, which uncovered a housing confidence gap between genders. Women show more desire to buy a home than men, but they may still be more hesitant to sign on the dotted line. Seventy-seven percent of the women surveyed who don’t own a home say they want to buy, compared with 70 percent of men, according to the survey. The survey found that men are more confident than women that they can sell their home for the same amount or more than what they paid for it. Also, more men than women would like to sell their current home and upgrade to a new one (83 percent of men versus 74 percent of women). Researchers attribute the confidence gap in housing between the genders as women’s tendency to be more debt-averse. Women were more likely than men to cite being “debt-free” when asked about their personal definition of the American dream. Men tended to more often cite “owning my own home.” Source: ValueInsured.com

Big cities across the U.S. are seeing their post-recession population surge slow as Americans uproot for new jobs and suburbs regain some of their appeal. Census Bureau figures show the top 50 cities accounted for 20% of the nation’s population growth for the 12 months ending July 1, 2015. That figure is down from 21% the prior fiscal year, and has slid each of the years since 2011, when cities accounted for 26.7% of U.S. population growth. U.S. cities have experienced a population surge since the recession ended in 2009, as revitalized downtown cores drew millennials, empty nesters and immigrants with lower crime, pedestrian-friendly environments and job growth. That growth is slowing as a bulge of late-20s Americans reaches prime homebuying age and high urban real-estate costs are making suburbs and exurbs more attractive, according to economists and demographers. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of June 6, 2016

ECONOMIC COMMENTARY
Jobs and YellenThe Chairperson of the Federal Reserve Board spoke at an event at Harvard University on the last Friday of May. The probability for a June or July rate hike increased because of her statement that a rate hike is “probably” appropriate in the near term, given an improvement in economic data. “As I have said in the past, it’s appropriate I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably, in the coming months, such a move would be appropriate,” she said.

A very important slate of this data was released this week, headlined by the May jobs numbers released one week after Yellen’s talk. The job numbers were very weak with only 38,000 jobs added, while the unemployment rate fell from 4.9% to 4.7%. These numbers could be seen as contradictory, but the fact that more people dropped out of the job force, lowering the labor force participation rate, shed doubt about the lower unemployment rate. All in all, it will be seen by the Fed as a sign that the economy is not improving as much as we would like.

Other numbers released recently have been mixed, with positive numbers from the real estate sector and consumer outlays, but lower construction spending and slightly lower readings for consumer confidence. What does this mean? The jobs numbers are the most important, and this means that the chances for an immediate rate hike by the Fed have decreased significantly. We won’t have to wait long to find out about a rate hike in June as the Fed’s Open Market Committee meets next week.

WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates rose slightly in the past week, but these numbers were released before the weak jobs report was unveiled. Freddie Mac announced that, for the week ending June 2, 30-year fixed rates rose to 3.66% from 3.64% the week before. The average for 15-year loans increased to 2.92%. The average for five-year adjustables also increased to 2.88%. A year ago, 30-year fixed rates were at 3.87%, approximately one-quarter of one percent higher than today’s levels. Attributed to Sean Becketti, chief economist, Freddie Mac — “Since jumping 11 basis points on May 18th, the 10-year Treasury yield has leveled-off around 1.85 percent. Rates on home loans continue to adjust to this new level with the 30-year fixed rate inching up another 2 basis points this week to 3.66 percent. Recent statements by the Fed appear to have persuaded the market that a rate hike may come sooner than later. However, the market is fickle, and Friday’s employment report has the potential to swing opinion 180 degrees in the other direction.” 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 June 3, 2016
Daily Value Monthly Value
June 2 April
6-month Treasury Security  0.48%  0.37%
1-year Treasury Security  0.68%  0.56%
3-year Treasury Security  1.03%  0.92%
5-year Treasury Security  1.36%  1.26%
10-year Treasury Security  1.81%  1.81%
12-month LIBOR  1.230% (Apr)
12-month MTA  0.438% (Apr)
11th District Cost of Funds  0.690% (Apr)
Prime Rate  3.50% (Dec)
REAL ESTATE NEWS
 New U.S. single-family home sales surged to a more than eight-year high in April and prices hit a record high, offering further evidence of a pick-up in economic growth early in the second quarter. The Commerce Department said that new home sales jumped 16.6 percent to a seasonally adjusted annual rate of 619,000 units, the highest level since January 2008. The percent increase was the largest since January 1992. March’s sales pace was revised up to 531,000 units from the previously reported 511,000 units. Economists polled by Reuters had forecast new home sales, which account for about 10.2 percent of the housing market, rising to only a 523,000 unit-rate last month. New home sales are volatile month-to-month and April’s increase probably exaggerates the housing market strength. Still, last month’s gain pushed new home sales well above their first-quarter average of 531,667 units. The report came in the wake of fairly upbeat data on home resales and residential construction. It also added to retail sales and industrial production reports in suggesting that the economy was gathering speed after growth almost stalled in the first quarter. Source: CNBCThere was no such animal as a credit score until about 1995. Well, it’s back to the future. Good going Fannie Mae. On June 25, Fannie Mae will be rolling out the automation of a manual process for residential loan applicants without credit scores, according to Mindy Armstrong, senior product manager at Fannie Mae. Here’s how it will work: A loan officer takes your application and runs your credit, but the credit bureaus Equifax, Transunion and Experian have no credit scores for you. This usually happens because you don’t have any or don’t have enough traditional credit (credit cards or auto financing, for example). In the past, that meant that loan officers were unable to qualify you for a loan backed by Fannie Mae. But soon, you will qualify — opening up a vast new array of borrowing options. You are eligible for a purchase or a no cash-out refinance loan, if the lender can gather at least two pieces of credit information that covers the last 12 months. One must be a verification of rent. The other can be anything from a utility bill to on-time payments to your local gym. You must put a minimum of 10 percent down (or have 10 percent equity when refinancing), all of which can be a gift. It has to be a single unit primary residence and loan amounts cannot exceed $417,000. Source: The Orange County Register

For the majority of home buyers, they want a home with about 9 percent more space than they currently have. A new study translates that to a median of 2,020 square feet. But the amount of desired square footage can vary quite a bit among the different age groups, according to findings from the National Association of Home Builders’ “Housing Preferences of the Boomer Generation: How They Compare to Other Home Buyers.” For example, millennial and Gen X buyers desire the most space, at more than 2,300 square feet. Baby boomers and seniors, on the other hand, mostly would be happy with homes that are under 1,900 square feet. NAHB’s study also found that more than half of all home buyers across all age groups would like to have a home with three bedrooms. Thirty percent of respondents say they’d prefer four bedrooms or more. Millennials and Gen X’ers are most likely to want a home with at least four bedrooms. Source: NAHB