Discussing the latest reports on mortgage rates, the effect of rising rates and your home buying power, renting is getting less affordable and much more!
From Freddie Mac:
- 30-year fixed-rate mortgages averaged 3.90% with an average 0.5 point
- This is down from last week when it averaged 3.92%
- Last year at this time, 30-year fixed-rate mortgages averaged 4.08%
- 15-year fixed-rate mortgages averaged 3.30% with an average 0.5 point
- This is down from last week when it averaged 3.32%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.34%
Len Kiefer, Deputy Chief Economist, said:
The 30-year fixed mortgage rate fell two basis points to 3.9 percent in this week’s survey, but we closed our survey prior to a surge in long-term interest rates following an upward revision to third quarter U.S. Real GDP growth and comments by Federal Reserve Chair Yellen touting a broad-based economic expansion.
The market implied probability of a Fed rate hike in December neared 100 percent, helping to drive short term interest rates higher. The 5/1 Hybrid ARM, which is more sensitive to short-term rates than the 30-year fixed mortgage, increased 10 basis points to 3.32 percent in this week’s survey. The spread between the 30-year fixed mortgage and 5/1 Hybrid ARM is just 58 basis points this week, the lowest spread since November of 2012.
You really need to consider Kiefer’s comments…
Mortgage applications decreased 3.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 24, 2017. This week’s results include an adjustment for the Thanksgiving holiday.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged from the week prior at 4.20%, with points decreasing to 0.34 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) decreased to 4.14% from 4.16%, with points decreasing to 0.27 from 0.30 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 3.57% from 3.56%, with points decreasing to 0.40 from 0.42 (including the origination fee) for 80 percent LTV loans.
Remember these are the average rates and buyers need to talk to the mortgage lender of their choice to investigate their options and what is possible.
With that little disclaimer out of the way, you really need to consider the impact of mortgage rates on you home purchasing power…
Mortgage Rates and Home Buying Power
Your mortgage rate has a huge impact on your monthly payment but also affect how much home you can buy. Your home buying power and how much you can spend will decrease if mortgage rates increase.
Sometimes you will hear the term affordability in discussions about buying a home. And what you can afford safely is a very very important consideration!
The chart below shows the impact that increasing mortgage rates will have on homes in the national median price range:
Every time interest rates increase a quarter of a percent, how much home you can pay for decreases by 2.5%! Later in this post you will see that NAR is predicting that mortgage rates will increase to 5% in 2018.
Single Family Serious Delinquency Rate Flat
Freddie Mac just reported that their serious delinquency rate remained flat in October. Their multifamily delinquency rate increased.
Service Sector Firms Reported Positive Growth in November
From the Federal Reserve Bank of Richmond:
Fifth District service sector firms continued to see strong growth in November. The overall revenues index jumped from 24 to 30 in November, buoyed by an increase in revenues for service firms. However, the revenues indicator dropped for retail firms, but it remained positive at 26.
Growth in employment and wages was observed by firms across the service sector, and firms remained optimistic that growth in demand would continue in the coming months.
District services firms reported higher price growth in November and expect it to remain fairly stable in coming months. Conversely, retail firms observed slightly softer growth in prices in November but expect it to increase in the next six months.
Great news for the Fifth District ( South Carolina is in the Fifth District). Hold on because there is more…
Manufacturing Activity Saw Robust Growth in November
Also from the Richmond Fed:
Manufacturing firms reported robust growth in November. The composite index jumped from 12 to 30, the highest it has been since 1993. This rise was bolstered by strengthening conditions across all three components of the index. While indicators of current wages and finished goods fell in November, both maintained positive values, dropping from 24 to 21 and 14 to 9, respectively.
District manufacturing firms remained optimistic that growth will continue in the coming six months. But a smaller share of firms raised their expectations than had in October in all areas, except for wages and capital expenditures.
Manufacturing firms reported stronger price growth in November, as growth rates for both prices paid and prices received reached a three-month high. They expect prices to continue to grow in the next six months but at a slightly lower rate.
Very good news!
Worsening Affordability Costs Renters Nearly $2,000 a Year
Rising rents are eating up an increasingly large share of tenants’ incomes, costing the typical U.S. renter almost $2,000 more per year than they would if renters were devoting the same-sized chunk of their paychecks to their landlord as they used to.
The median U.S. rent takes 29.1 percent of the typical household income – up from 25.8 percent between 1985 and 2000. Homeowners now spend $3,300 less a year on mortgage payments than they would if mortgage payments required the same share of income as they did historically.
This drives home how buying can beat renting. There is no doubt that there are financial advantages to owning a home.
Even if some of the current tax advantages are eliminated due to the tax reform…
More Homes for Sale in 2018?
Highlights from NAR’s 2018 National Housing Forecast:
Inventory expected to begin to increase – In August, the U.S. housing market began to see a higher than normal month-over-month deceleration in inventory that has continued into fall. Based on this pattern, realtor.com® projects U.S. year-over-year inventory growth to tick up into positive territory by fall 2018, for the first time since 2015. Inventory declines are expected to decelerate slowly throughout the year, reaching a 4 percent year-over-year decline in March before increasing in early fall, after the peak home-buying months. The majority of this growth is expected in the mid-to-upper tier price points, which includes U.S. homes priced above $350,000. Recovery for starter homes is expected to take longer because their levels were significantly depleted by first time buyers.
Price appreciation expected to slow – Home prices are forecasted to slow to 3.2 percent growth year-over-year nationally, from an estimated increase of 5.5 percent in 2017. Most of the slowing will be felt in the higher-priced segment as more available inventory in this price range and a smaller pool of buyers forces sellers to price competitively. Entry-level homes will continue to see price gains due to the larger number of buyers that can afford them and more limited homes available for sale in this price range.
Next year, home prices are anticipated to increase 3.2 percent year-over-year after finishing 2017 up 5.5 percent year-over-year. Existing home sales are forecast to increase 2.5 percent to 5.60 million homes due in-part to inventory increases, compared to 2017’s 0.4 percent increase or 5.47 million homes. Mortgage rates are expected to reach 5.0 percent by the end of 2018 due to stronger economic growth, inflationary pressure, and monetary policy normalization in the year ahead.
Interesting and they are predicting that home prices in the Greenville-Anderson-Mauldin area will increase 4% in 2018. Obviously, there is a difference between Greenville and Anderson…
Fed Should Continue to Raise Rates Slowly
With falling U.S. unemployment expected to put upward pressure on inflation, the Federal Reserve should keep raising interest rates gradually, San Francisco Federal Reserve President John Williams said on Wednesday.
The Fed is widely expected to raise rates when policymakers meet next month and Williams has said he supports continued, gradual rate hikes as long as the economy stays on its current path. Fed Chair Janet Yellen signaled her expectation for further rate hikes ahead in testimony earlier Wednesday.
Williams, who will have a vote on monetary policy next year when Governor Jerome Powell is expected to take over from Yellen as Fed chair, said he expects the U.S. economy to grow about 2.5 percent this year and slower after that. Unemployment, now at 4.1 percent, should continue to fall next year and bottom out at about 3.75 percent, he said.
Remember that the Fed does NOT directly set mortgage rates BUT the Fed’s actions could affect both mortgage rates and the economy.
Rail Traffic Keeps Increases
Total U.S. weekly rail traffic was up 2.4% compared with the same week last year. Total carloads were up 0.2% compared with the same week in 2016, while U.S. weekly intermodal volume was up 4.7% compared to 2016.
Unemployment Claims Decreased
In the week ending November 25, the advance figure for seasonally adjusted initial claims was 238,000, a decrease of 2,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 239,000 to 240,000. The 4-week moving average was 242,250, an increase of 2,250 from the previous week’s revised average. The previous week’s average was revised up by 250 from 239,750 to 240,000.
Good that initial claims decreased from the previous week BUT the 4-week moving average increased. And that is the less noisy number to watch. Still, this is a positive report as the 4-week average is below 250,000.
That’s it for today! Be sure to hit those share buttons and subscribe so you never miss another post!