Fed Meeting Looms
Taking into account recent statements by the members of the Federal Reserve Board and recent economic reports, as we mentioned previously, the markets are counting upon a rate increase next week when the Fed meets. The acceleration of wage growth has the markets particularly worried and right now many analysts are expecting another increase in December. All told, that would make four hikes this year, with the pace of increases accelerating.
The Fed raised rates one time in 2015 and 2016 and three times in 2017. While two more hikes this year are not guaranteed, by next week we will likely have met last year’s pace of increases. When will the Fed stop raising rates? Mostly likely this will not happen until the pace of economic growth slows down or at least levels off. More growth increases the risk of inflation and this is exactly what the Fed is trying to prevent.
Will the increase slow the economy down? While this has not happened as of yet, there are some signs that a slower pace of growth could be on the horizon. Certainly, the real estate market has slowed down in the face of higher rates and higher home prices. But another factor within this sector is the shortage of inventory. One could surmise that more homes for sale would speed the pace of real estate sales. Thus, we can’t yet call the real estate market a precursor to a slower economy –but if sales continue to stagnate and inventory rises significantly, that could be a turning point.
Millennials could stand to make some improvements to their credit files. Only 39 percent of millennials without a home loan have a prime or better score, and the majority are facing higher delinquency rates on personal loans, shows a newly released study from Experian, an information services company. Eighty-six percent of millennials recently surveyed say they believe that buying a house is a good financial investment, according to the National Association of REALTORS®’ data. However, Experian’s research shows that only 15 percent are owners today. Further, 61 percent of millennials may need to improve their personal loan and bank card usage habits in order to obtain lower rates for when they are ready to purchase a home. “This data presents good news for younger, thin file millennials interested in buying a home,” says Michele Raneri, vice president of analytics and business development at Experian. “We’re seeing that small changes in financial behaviors such as building a history of on-time payments and improved credit practices can help lenders shift from viewing millennials as high-risk to low-risk relatively quickly. Knowing where you stand from a credit perspective is critical to improving your financial well-being.” Experian evaluated personal loan trends, credit scores, bank card behaviors, and mortgage trends of about 60 million millennial consumers. “Often, young people start their credit journey with a couple of mistakes first, but in the end, these mistakes create opportunities to learn how to use and build credit responsibly,” says Rod Griffin, director of consumer education and awareness at Experian. Millennial home buyers are, on average, 31 years old with an income of $64,000, Experian’s data shows. Source: ExperianDifferences in household composition and financing options incentivize homebuying demand for veteran and active military, according to the 2018 Veterans & Active Military Home Buyers Profile, which evaluated the differences of recent active-service and veteran home buyers and sellers to those who have never served. The results revealed quite a few contrasts between active-service military buyers and buyers who have never served. At a median age of 34 years old, the typical active-service buyer was a lot younger than non-military buyers (42 years old) and was more likely to be married and have multiple children living in their household. Active-service members typically bought a larger home that cost more than those purchased by both non-military buyers and veterans. Despite lower median incomes ($84,000), more stable job security and no down-payment financing options give aspiring military homeowners an advantage over their civilian peers. Fifty-six percent of active duty and 41 percent of veterans put no money down when buying a home, compared to 7 percent of non-military. As for household composition, 77 percent of active duty and 78 percent of veterans are married, compared to 63 percent of non-military. Source: National Association of Realtors®
The median age of owner-occupied homes in the U.S. is 37, indicating that more properties may become pricier to maintain as they grow older and vulnerable to disrepair, according to the 2016 American Community Survey. But builders view the aging housing stock as an opportunity. Rising home prices may prompt more households to spend more on home improvement, the National Association of Home Builders notes on its Eye on Housing blog. Further, “this indicates a strong rising demand for new construction over the long run, as current owner-occupied housing stock is older,” the NAHB writes. More than half of the owner-occupied homes were built prior to 1980, and 38 percent before 1970. Sixteen percent of the housing stock was built between 2000 and 2009. The 3 million units that came to the market between 2010 and 2016, however, added only 4 percent to the owner-occupied housing stock. A decline in new construction has prompted the share of homes that are six or fewer years old to fall greatly since 2006, according to the NAHB. Meanwhile, the number of homes that are 46 years old or older has jumped from 31 percent in 2006 to 38 percent in 2016. Source: National Association of Homebuilders