07 Jan 2019
By Kevin Gahagan

What’s Ahead For Mortgage Rates This Week – January 7th, 2019

Financial Reports

What’s Ahead For Mortgage Rates This Week – January 7th, 2019Last week’s economic reports included Labor Department readings on private and public sector jobs, the national unemployment rate. Weekly readings on mortgage rates and first-time jobless claims were also released. Monthly reporting on construction spending was delayed due to the government shutdown.

Public and Private-Sector Jobs Growth Exceeds Expectations

ADP reported 271private sector jobs added in December as compared to 157,000 jobs added in November. Analysts expected 182,000 jobs added for December and said that December’s reading was the highest number of jobs added in almost two years. Large companies added 54,000 jobs, medium sized companies added 129,000 jobs and small companies added 89,000 private-sector jobs.

The Bureau of Labor Statistics reported 312,0000 public and private-sector jobs were added in December, which was more than double November’s reading of 176,000 public and private-sector jobs added. Analysts predicted 182,000 new jobs added for December.

In related news, the national unemployment rose to 3.90 percent from November’s level of 3.70 percent. While the unemployment rate was expected to dip to 3.60 percent, it rose due to more workers seeking jobs. Unemployment rates are determined as a percentage of workers actively seeking employment. A larger pool of people seeking work suggested expanding job opportunities.

Mortgage Rates Fall as New Jobless Claims Rise

Freddie Mac reported lower average mortgage rates last week as rates for fixed rate mortgage were four basis points lower at 4.51 percent; rates for 15-year fixed rate mortgages averaged 3.99 percent and rates for 5/1 adjustable rate mortgages averaged two basis points lower at 3.99 percent. Discount points averaged 0.40 percent for 30-year fixed rate mortgages, 0.30 percent for 15-year fixed rate mortgages and 0.20 percent for 5/1 adjustable rate mortgages.

In remarks made at the American Economic Association, current Fed Chair Jerome Powell joined former Fed Chairs Janet Yellen and Ben Bernanke to comment about the economy in 2018 and emphasized that Fed policy would be adjusted quickly and flexibly” if economic conditions warrant. All three Fed Chairs expected a slowing of economic growth in 2019, but their overall outlook was positive.

First-time jobless claims rose by 10,000 new claims to 231,000 first-time claims filed. Expectations of 218,000 new claims filed were based on the prior weeks reading of 221,000 new claims filed. The increase in new claims filed was caused in part by holiday season fluctuations and more people actively seeking jobs. Unemployed workers must be actively seeking work to qualify for unemployment benefits.

What‘s Ahead

This week’s scheduled economic reports include readings on job openings, minutes of the December meeting of the Fed’s Federal Open Market Committee, and inflation. Weekly readings on mortgage rates and new jobless claims will also be released.

02 Jan 2019
By Kevin Gahagan

Case-Shiller: Home Price Growth Grinds to Lowest Rate in 2 Years

Financial Reports

Case-Shiller: Home Price Growth Grinds to Lowest Rate in 2 YearsHome prices rose by 0.40 percent in October according to Case-Shiller’s 20-City Home Price Index and were unchanged from September’s year-over-year reading of 5.50 percent growth.

Slower growth in home prices could help some would-be home buyers enter the market, but rapidly rising mortgage rates have sidelined buyers concerned with affordability and meeting strict mortgage lending requirements.

High Mortgage Rates Stifle Demand for Homes

October’s year-over-year reading for home price growth was the lowest in two years, but home price growth continued to exceed wage increases; builders continued to face labor shortages and higher materials costs. Rising mortgage rates were a major cause of lower demand for homes as the average rate for a 30-year fixed rate mortgage increased from les than 3.50 percent at the beginning of 2017 to a high point of 4.94 percent in September.

Mortgage rates have fallen in recent weeks but remain more than one percent higher than they were two years ago. Recent volatility in financial markets and concerns over general economic conditions also contributed to a lower pace of home price growth.

Las Vegas Leads Cities with Highest Home Price Growth

The top three cities in October’s Case-Shiller 20-City index were Las Vegas, Nevada with year-over-year hone price growth of 12.80 percent; San Francisco, California’s home prices rose by 7.90 percent year-over-year and Phoenix, Arizona home prices rose by 7.70 percent year-over-year. 

October’s home price growth rates suggest that West Coast cities such as San Francisco, and Seattle, Washington may be losing their domination over double-digit home price growth rates they’ve enjoyed in recent years. Slower rates of home price growth could indicate that home prices have topped out in costly metro areas.

David M. Blitzer, managing director and chair of S&P Dow Jones Index Committee, echoed analyst’s concerns: “Rising home prices and mortgage rates mean fewer people can afford to buy a house.” The Fed’s recent decision to raise its key interest rate range for the third time in 2018 concerned some economists, but the Fed said that its Federal Open Market Committee predicts that it will raise rates only twice next year based on current and expected economic conditions in 2019.

Banks and credit-card companies typically follow the Fed’s interest rate decisions; this means that rates for consumer lending including mortgages are likely to increase in 2019.

31 Dec 2018
By Kevin Gahagan

What’s Ahead For Mortgage Rates This Week – December 31st, 2018

Financial Reports

What’s Ahead For Mortgage Rates This Week – December 31st, 2018Last week’s economic reports included readings from Case-Shiller Housing Market Indices, National Association of Realtors® on pending home sales and weekly readings on mortgage rates and new jobless claims.  

The Commerce Department’s reading on sales of new homes was delayed due to the federal government’s shutdown.

Case-Shiller: Home Price Growth Lowest in Two Years

Home price growth was nearly nil with October’s month-to-month reading of 0.40 percent; The Case-Shiller 20-City Home Price Index showed a year-over-year home price growth rate of 5.50 percent, which matched September’s year-over-year reading. Las Vegas, Nevada led home price growth in the 20-city index with a year-over-year increase of 12,80 percent; San Francisco, California had home price growth of 7,90 percent and Phoenix, Arizona home prices grew by 7.70 percent year-over-year in October.

While San Francisco, California, Seattle, Washington and Portland, Oregon dominated the top three spots in the 20-City Home Price Index in recent years, the latest home price growth rates indicate that the West Coast may be easing off on its rapid home price gains. High-cost metro areas risk reaching a tipping point when there are few properties available with very high prices and buyers competing.

,Affordability and slim choice of available homes can cause would-be buyers to sideline themselves while they await more options and lower prices. Rising mortgage rates caused concern among buyers concerned with affordability and qualifying for mortgage loans under strict lender requirements.

Pending Home Sales Improve, But Remain in Negative Territory

Future home sales slipped in November, but less so than they did in October. Pending sales registered in negative territory with a reading of -0.70 percent in November as compared to October’s reading of -2.60 percent.

Analysts and real estate pros view pending sales as an indication of future completed sales and mortgage activity; falling numbers for pending home sales suggest slowing home sales that could impact housing markets. Pending sales are considered sales for which purchase contracts have been signed, but that have not closed.

Mortgage Rates, New Jobless Claims

Freddie Mac reported lower averaged fixed mortgage rates with the rate for a 30-year fixed rate mortgage lower by seven basis points at 4.55 percent. The average rate for a 15-year fixed rate mortgage fell by six basis points to 4.01 percent and the average rate for a 5/1 adjustable rate mortgage rose two basis points to 4.00 percent. Falling mortgage rates could induce discouraged home buyers to look for homes again.

First-time jobless claims dropped by 1000 claims to 216,000 new claims filed. Analysts predicted a reading of 217,000 mew claims filed, which was unchanged from the prior week’s reading.

What‘s Ahead

This week’s scheduled economic reports include readings on construction spending, non-farm payrolls and the national unemployment rate. Weekly reports on mortgage rates and first-time unemployment claims are also scheduled. Please note that some scheduled readings could be delayed due to the federal government shut-down.

26 Dec 2018
By Kevin Gahagan

FOMC Raises Key Rate, Forecasts 2 Rate Hikes in 2019

Real Estate

FOMC Raises Key Rate, Forecasts 2 Rate Hikes in 2019During its post-meeting statement, the Federal Open Market Committee of the Federal Reserve announced that its target range for the Fed’s key interest rate would increase one quarter percent to 2.25 to 2.50 percent. While this rate hike was not expected by the Executive branch, it met analyst expectations.

FOMC said in its customary post-meeting statement that members expect to make two interest rate hikes in 2019 as compared to three rate hikes in 2018 and the Committee’s original forecast of three rate hikes in 2019. Given current economic conditions, the Fed forecasted only one rate hike for 2020.

Hawks And Doves: Federal Reserve Leaders Differ On Interest Rate Projections

Six FOMC members indicated support for three rate hikes in 2019 and the FOMC statement cited a need for future interest rate hikes while some economists expected that no mention of potential rate hikes would be included in the statement. Fed Chair Jerome Powell said, “Policy at this point does not need to be accommodative. It can move to neutral.”

FOMC’s statement cited “cross currents” impacting the economy, but expects “solid growth next year, declining unemployment a healthy economy.” The Fed specifically listed strengths in labor markets, household spending and a healthy economy influenced the committee’s decision to raise the Fed’s benchmark interest rate range.

Recent volatility in global affairs and the economy prompted FOMC to say that they would be reviewing ongoing global economic and financial developments and assess their implications for the global economic outlook.

Fed Chair Jerome Powell: “Fed Is About To Embark On A Delicate Balancing Act“

Chairman Powell said that current economic conditions have helped the Fed meet its dual mandate of maintaining maximum employment and stable economic growth, for which the Fed has set a benchmark of two percent annual growth for inflation. Current inflation is lower than expected and unemployment is near record lows. The Fed faces balancing interest rate increases with closely monitoring economic “cross currents”.

Chairman Powell said the Fed expects the median rate of economic growth to slow to 2.30 percent in 2019 as compared to 2018’s rate of 3.00 percent. The National Unemployment rate is expected to fall from its current rate of 3.70 percent to 3.50 percent by the end of 2019. Mr. Powell said that no course of action is predetermined and that Fed leaders will monitor economic and global developments on an ongoing basis.

 

19 Dec 2018
By Kevin Gahagan

How Will Interest Rates Affect the Market in 2019?

Real Estate

How Will Interest Rates Affect the Market in 2019Forbes and other reputable publications have predicted a continued rise in interest rates over 2019. The initial shock of the Fed’s action caused a slowdown in real estate markets over the final part of 2018. As the shock wears off, experts are divided as to whether more expensive money will continue to translate into lower housing starts and occupancy rates for primary markets.

Many experts believe that the rising 2018 interest rates have not yet baked themselves into the real estate market. They point to past instances of relatively high real estate hikes and the slower uptake into the property market the following year. Proponents of fast action uptake point to a much closer relationship between federal interest rates and the consumer real estate market.

The Edge Of The Housing Affordability Curve

Most consumers were hanging on the edge of housing affordability during the time of low interest rates, this set of experts argues. The second that the Fed raised interest rates, a portion of Millennials immediately became unable to buy a first house or even retain occupancy in more expensive real estate markets such as San Francisco, Los Angeles and New York.

The Fed’s Limited Reach?

The Fed controls short-term rates, but the market controls long-term rates. Over time, these long-term interest rates will be much more influential on how the real estate market will perform over the next five years. Most experts expect commercial banks to try to hold down long-term interest rates to maintain a balance between supply and demand in new housing starts. They stand to lose money over the next few quarters if they cannot accomplish this. However, the banks may struggle to control long term interest rates due to news of the Fed raising interest rates which may scare some people out of the market.

Millennials and Secondary Markets Run The World

For those who want to draw a trend line moving forward, real estate activity in secondary markets may be a good leading indicator of how the rest of the market will behave. Watching cities such as Nashville, San Diego, San Jose and Dallas may provide insights as to just how many displaced Millennials will be able to access the housing market in the United States over the next few years. This is the core group that will control housing prices in America, so they are definitely the ones to watch in terms of movement.

For up to date financial information, be sure to contact your trusted mortgage professional.