The Best of Both Worlds ReduxLast week we spoke of record highs for the stock markets and historic lows for interest rates — again. This week we go deeper with the main question–can these conditions continue into the future? Generally, stocks increase because of a stronger economy and a stronger economy typically will raise interest rates because of the increased threat of inflation. For example, it is not unusual for rates to rise on the same day that stocks are rallying and we have already seen rates rising from their lows set just about two weeks ago. But we must remember that we are citing normal trends and it has been a long time since we have witnessed anything normal in our economy.
As we look back, we can see that our stock market has recovered dramatically since the depths of the recession. And one of the conditions present during this long recovery period has been record low rates. Certainly, these low rates have presented favorable conditions for investing in the stock market, since there were virtually no returns for leaving money sitting in a bank. Over time, the stock market’s recovery was dramatic, but the economy’s recovery was anything but dramatic. The economy’s recovery could be best described “as slow and steady.”
This slow and steady recovery kept rates low for a very long time. It was expected that this was the year that rates started back up and the Federal Reserve Board’s move to raise short term rates in December of last year increased those expectations. The stock market’s progress was thus halted, at least partially because of this expectation of higher rates. However, as the year came to a close, the economy slowed to a crawl and negative foreign news dominated the headlines during the first part of 2016. Thus, when the Fed meets this week, few are expecting another hike in short-term rates. Will rates continue to stay low while stocks shine? The markets will be watching the Fed’s statement — especially for any inkling regarding a strengthening economy on the way.
According to MGIC Connects’ infographic — Look Who’s Buying Her First Home! — single women are the next largest home buying group after married couples. Whereas married couples hold the largest home buying position with 54%, single women come in second with 18%, followed by unmarried couples with 15%, single men with 11% and other with 2%. And the statistics are showing that it only goes up from there, according to MGIC. About 45% of Millennial women ages 18 to 24 are enrolled in college, compared to 38% of men in that same category, according to data from Pew Research Center. Also, about 38% of Millennial women ages 25 to 32 have a bachelor’s degree, compared to 31% of men in that category. That being said, about 36% of single women live at home with their parents or relatives, according to Pew Research Center. That is at its highest level since 1940. The median age of single women homebuyers is 32 years old, according to the National Association of Realtors’ 2015 Profile Buyers & Sellers. The median income for single women first-time homebuyers is $49,000. Whereas single women may be a growing force, homes owned by single men have a 10% greater value, and appreciate 16% more than homes owned by single women, according to an analysis released by RealtyTrac, a source for comprehensive housing data. Source: HousingWireBritain’s vote to exit the European Union will likely have a long-term impact on the world economy, but in the short-term, U.S. real estate could be flooded with investors flocking to the U.S. as a safe haven, pushing up the dollar and sending down interest rates. “Demand for U.S. real estate could rise,” says NAR Chief Economist Lawrence Yun. On the commercial side, global corporations could show additional interest in U.S. real estate as they come to see the U.K. as a less certain place to set up or maintain their businesses. Yun adds, “especially in London, as it becomes a less attractive place to conduct global business.” While a rise in the dollar could hurt U.S. exports, it’s also expected to put downward pressure on interest rates for home loans. In the long run, though, the uncertainty stemming from the vote could cause broad global weakening, which would hurt jobs, income, and consumer confidence. That would be a net-negative for U.S. real estate, even if it sees gains in the short-term. Source: Realtor® Magazine
Now outnumbered by Millennials, Baby Boomers and others aged 55 and older nonetheless may be competing with their younger counterparts for the same pool of rental housing. Freddie Mac’s first-ever survey of housing plans among those born before 1961 reveals an inclination toward renting over owning. Freddie’s 55+ Survey shows an estimated six million homeowners, and nearly as many renters, prefer to move again and rent at some point. Of those that expect to move again, over five million indicate they are likely to rent by 2020. More to the point, they expect to do so economically. Seventy-nine percent of 55-plus renters, and 83% of 55-plus homeowners who expect to rent their next home, believe their next home will cost the same as or less than their current one. That belief may clash with reality sooner or later. “When a population this large expects to move into less expensive rental housing, we have to expect it will create significant new pressure on both the supply and cost of existing affordable rental housing,” says David Brickman, EVP with Freddie Mac Multifamily. Source: The GlobeSt