The Volatility Issue
In the first three weeks of the year, the stock market experienced gains that were nothing short of spectacular, extending a great year for equities in 2017. Starting with the last week in January, the markets have been experiencing extreme amounts of volatility — both up and down. It has not been unusual to see the headlines read “the biggest one-day gain/loss in ___ years.”
The question is, should we be worried about such volatility? Though the markets have turned lower since the end of January, the magnitude of losses certainly are not worrisome. This is especially true considering the extent of gains we have experienced for the previous two years. Certainly, one would think that the markets are due for a breather after running so hard and fast. On the other hand, breathers don’t have to be accompanied by extremes. It should be noted that the volatility in stocks has not been accompanied by nearly the same amount of volatility in the bond or commodity sectors. If all sectors were extremely volatile, this might be interpreted as a more pressing concern.
Extremes can be caused by factors which are promoting uncertainty. For example, rising interest rates, implementation of tax reforms and threats of trade wars are factors we are dealing with today. Certainly, higher rates and threats of trade wars can cause uncertainty in the markets. On the other hand, tax reform has been a positive factor affecting the markets — up until the point of implementation. Uncertainty and volatility seem to go hand-in-hand. It may just be that stocks are finding a new level of comfort. However, if rates keep rising and trade wars bloom, that comfort level may be harder to find. In reality, we don’t know why markets behave as they do, but it helps to at least understand the factors influencing today’s environment.
Most homeowners with adjustable-rate loans could experience their first interest rate increase if the low-interest-rate environment ends, according to survey results released by HSBC. The study revealed that 87% of US homeowners have never experienced a rate increase on their home loan. “From a homeowner’s perspective, we’re heading into unfamiliar territory,” said Pablo Sanchez, HSBC’s regional head of retail banking and wealth management for HSBC Bank USA. “The average US homeowner is already spending almost 40% of their monthly income on their housing payment. When you factor potential interest-rate rises into household budgets, making that monthly payment could become a struggle.” “The good news is that US homeowners are well-informed about their home loans,” Sanchez said. The survey found that 81% of US homeowners are aware of how much interest they are paying while 79% are aware of their loan terms. Although increasing rates are a concern, HSBC said homeowners continue to have options. Fifty-two percent of homeowners have switched providers and 46% have studied switching their loan to get a better deal. According to the survey, 53% of those who switched were primarily driven by a desire to obtain a better deal or because of increases in their rates. Other reasons homeowners switched included moving or buying a new property with 19% and the expiration of their existing loan terms with 12%. Source: Mortgage Professional America — Have an adjustable that is going up? Contact us for alternatives.Thousands of potential homeowners fail to pursue the American Dream due to confusion over the homebuying process, according to the fifth annual America at Home survey from NeighborWorks America. The new survey found that the average Millennial believed that the minimum required down payment is 21 percent, while 70 percent of adult respondents believed they lacked the necessary funds for a down payment. Seventy-four percent of adults and 84 percent of Millennials found the homebuying process complicated, while 29 percent of respondents said they knew someone who delayed homeownership because of student loan debt. Furthermore, nearly 73 percent of all consumers and 62 percent of Millennials were either unaware or unsure about down payment assistance programs in their communities for middle-income homebuyers. Among those familiar with these programs, 53 percent reported receiving “not much information” or “nothing at all” about them. However, there was still reason to be optimistic despite the mostly negative data: 93 percent of adults believed owning a home is part of the American Dream, while 81 percent of adults and 72 percent of Millennials felt homeownership increases financial stability. Source: NeighborWorks America
The median rent in the United State rose 2.8 percent over the past year to $1,445, the fastest pace of appreciation since May 2016, according to Zillow. Rental appreciation had slowed in the past two years as new apartment supply came online following a construction boom. But it is now rising again due to the record-low supply of homes for sale. The strong pace of apartment construction in the last five years has mitigated some of the supply problem, but most of the new apartments are in luxury buildings. Luxury rents have actually come down in the past six months, but rents in the rest of the market, where supply is leaner, are doing just the opposite. New households are forming at the fastest pace in two years, and more of them are owner households, a reversal from the recession when renter households outpaced owners by far. But current renters are not moving to ownership at a normal pace, and that is keeping occupancies high. National apartment occupancy was 95 percent at the end of last year, and that could move even higher in coming months. Construction of new apartments has been slowing, and new single-family home construction is nowhere near where it needs to be, given red-hot demand. “The country’s apartment market remains tight, with product availability generally limited to recently completed properties moving through initial leasing,” said Greg Willett, chief economist at RealPage. “Unless a renter can afford that expensive new stock, finding a ready-to-lease unit takes some real work in most locations.” Source: CNBC