Discussing mortgage rates and what will happen to home prices if rates continue to increase, the big Jobs Report, construction spending, positive news about manufacturing, another report about increasing rents plus more!
From Freddie Mac:
- 30-year fixed-rate mortgages averaged 4.56% with an average 0.4 point
- This is down from last week when it averaged 4.66%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.94%
- 15-year fixed-rate mortgages averaged 4.06% with an average 0.4 point
- This is down from last week when it averaged 4.15%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.19%
A little reprieve after last week’s record breaking high!
Sam Khater, Freddie Mac’s chief economist, said:
The decline was driven by recent trade and geopolitical issues, which led to a sudden decrease in long-term Treasury yields. Meanwhile, confident American consumers shrugged off the market volatility, as purchase mortgage applications continued to trend higher from a year ago.
Extremely low inventory conditions in most markets are preventing sales from breaking out, while also keeping price growth elevated. Even if rates climb closer to 5 percent, sales have room to grow more, but only if current supply levels start increasing more meaningfully.
Khater is being extremely optimistic about supply levels increasing in a more meaningful way. We want more homes for sale and need more homes for sale but wishing and wanting don’t make things happen…
The Mortgage Bankers Association reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.84% from 4.86%, with points decreasing to 0.47 from 0.52 (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 $453,100) decreased to 4.73% from 4.81%, with points decreasing to 0.36 from 0.42 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.24% from 4.31%, with points decreasing to 0.51 from 0.56 (including the origination fee) for 80 percent LTV loans.
Not huge decreases reported by the MBA but decreases none the less!
Danielle Hale, Chief Economist at Realtor.com, said:
Treasury rates dropped dramatically lower this week as Italian political turmoil caused investors to prefer Treasury investments. Yields dropped to as low as 2.77 percent on Tuesday—30 basis points from one week prior. Mortgage rates followed but didn’t fall quite as far. While this is the biggest move lower in a year, since April 2017, mortgage rates are still 62 basis points higher than this time one year ago.
Homebuyers in the market can take advantage of the tumult and lock-in lower rates, but don’t count on these low rates to last. Rates will begin to climb again as uncertainty wanes. In fact, Treasuries have already rebounded slightly. Mortgage rates are expected to approach 5 percent by the end of the year.
PLEASE notice that Hale said that you should NOT count on these rates to last. Then again, we also have the reaction to Trump tariffs on metal against Canada, Mexico and the EU to consider…
I am not so sure if this will help our economy more than it hurts it. It could wind up driving costs up for consumers and causing retaliation by Canada, Mexico and the EU.
If we see the economy tank due to a trade war or some other calamity, it is possible that mortgage rates will not start increasing again. However, we do not know if Trump’s tariff binge will turn out to be a repeat of the policy mistakes of Herbert Hoover or not…
The thing to remember is that these are the average rates and may not reflect what is realistic or possible for everyone! The best thing for anyone looking to buy a home is to sit down with several mortgage lenders of their choice and discuss their options and possibilities.
If Mortgage Rates Increase, Will Home Prices Fall?
I know that some are predicting that home prices will fall if mortgage rates keep increasing. I have said that I think it will take more than increasing rates to cause home prices to fall.
But what are some of the experts saying?
Mark Fleming, First American’s Chief Economist, said:
Understanding the resiliency of the housing market in a rising mortgage rate environment puts the likely rise in mortgage rates into perspective – they are unlikely to materially impact the housing market…
The driving force behind the increase are healthy economic conditions…The healthy economy encourages more homeownership demand and spurs household income growth, which increases consumer house-buying power. Mortgage rates are on the rise because of a stronger economy and our housing market is well positioned to adapt.
Terry Loebs, Founder of Pulsenomics, said:
Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices. These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.
Laurie Goodman, Codirector of the Housing Finance Policy Center at the Urban Institute, said:
Higher interest rates are generally positive for home prices, despite decreasing affordability…There were only three periods of prolonged higher rates in 1994, 2000, and the ‘taper tantrum’ in 2013. In each period, home price appreciation was robust.
Freddie Mac said:
As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.
No one knows what the future holds. Waiting to buy a home because someone is predicting that prices will fall could prove to be expensive…
Buying a home before you are financially ready or rushing the home buying process because home prices are rising could also be a mistake!
Unemployment Rate Falls to 18 Year Low
Good news from the BLS:
Total nonfarm payroll employment increased by 223,000 in May, and the unemployment rate edged down to 3.8 percent. Employment continued to trend up in several industries, including retail trade, health care, and construction.
In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $26.92. Over the year, average hourly earnings have increased by 71 cents, or 2.7 percent.
Check out the chart showing the unemployment rate for the past 20 years:
U.S. Secretary of Labor Alexander Acosta said:
With 223,000 jobs created in May, America’s job creators have now added over 3.4 million jobs since President Trump’s election. That job increase includes more than a million jobs since the President signed his tax cuts package into law five months ago.
This is pretty impressive and going to make the midterm elections interesting. And on the surface, things do sound pretty encouraging. We still are not seeing wage growth as strong as we want but at least wages are growing!
This is the 92nd consecutive month of job growth which shows you just how bad things were after the economy and housing market imploded! Even the U-6 (people who want to work but have given up searching and those working part-time because they cannot find full-time employment) fell to the lowest level since 2001!
The bad news is this very solid report will give the Fed ample justification to raise their benchmark rate in their next meeting! And that should cause mortgage rates to increase…
Construction Spending Increased
From the Census Bureau:
Construction spending during April 2018 was estimated at 1.8% above the revised March 2018 estimate. The April figure is 7.6% above the April 2017 estimate. During the first four months of this year, construction spending was 6.6% above the amount spent during the same period in 2017.
Spending on private construction was 2.8% above the revised March estimate. Residential construction was 4.5% above the revised March estimate.
Any increase is good but we all know that the housing market is hurting from a lack of homes being built, especially affordable homes. BUT this is not true in every market ( like the Anderson SC area ) so I suggest talking to an experienced local Realtor to see what is happening in your area!
Burrito Index Update
From Of Two Minds:
Long-time readers may recall the Burrito Index, my real-world measure of inflation. The Burrito Index tracks the cost of a regular burrito since 2001.
It’s time for an update: the cost of a regular burrito has now reached $7.50, triple the 2001 cost. That’s a 200% increase in 17 years. According to the federal government, inflation since 2001 has risen about 40%: what $1 bought in 2001 now costs $1.43, according to the BLS Inflation calculator.
The Burrito Index is five times the official inflation rate.
Lest you reckon only burritos have tripled in cost since 2001–have you checked out college tuition or rents lately?
Think about how the costs of things have increased compared to the lackluster income growth for the average American…
Growth in Manufacturing Continues
Economic activity in the manufacturing sector expanded in May, and the overall economy grew for the 109th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Rents Increase 2% YoY
The national average rent was $1,381 in May 2018, having increased by 2 percent year over year, and by 0.3 percent ($4) month over month, according to data from Yardi Matrix.
With more and more families renting, the demand for two and three-bedroom apartments is on the increase, and so are the rents. The national average price to rent a three-bedroom apartment in May was $1,688, up 2.1% year over year, the highest increase of all unit types, while the cost of studio apartments was up only 1.6% over the year. One-bedroom rents were 1.7% more expensive in May 2018 than in 2017, and 2-bedroom apartments were 1.9% more expensive.
I must point out that rents are increasing since people that buy a home with a fixed-rate mortgage enjoy a monthly payment that will not change for the term of the mortgage. Well other than the increases due to rising home owner’s insurance, property taxes and the cost to maintain the home.
Plus you have to consider the wealth building effect of owning a home and the intangible benefits of owning your home…
49% Say U.S. Moral Values Are ‘Poor’
Forty-nine percent of Americans say the state of moral values in the U.S. is “poor” — the highest percentage in Gallup’s trend on this measure since its inception in 2002. Meanwhile, 37% of U.S. adults say moral values are “only fair,” and 14% say they are “excellent” or “good.”
Sad to see this report. But just watching the news gives us all reasons to fear for the future of America…
The thing is, you can be a pessimist and think the future is bleak OR you can work to make the world a better place. Even if that means just being nice to strangers…
It is up to each of us to live a moral and ethical life. To follow the Golden Rule…
If every one works to do what they can to make the world a better place, great things can happen. Don’t let the actions of others be your justification for living in a manner that could be considered lacking moral values.
Well that is it for today! If you enjoyed this post, I hope you will share it on Facebook, Twitter or Google! And as always, if you have any questions about real estate in the Anderson SC area, Contact Me!