Discussing mortgage rates, what buyers need to know about getting a mortgage today, land regulations and home prices, CMBS delinquencies, the middle class and the housing bust/recovery, wages and the housing market plus more!
Time to check in on this week’s mortgage rate reports!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 4.60% with an average 0.4 point
- This is up from last week when 30-year fixed-rate mortgages averaged 4.54%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.93%
- 15-year fixed-rate mortgages averaged 4.08% with an average 0.4 point
- This is up from last week when 15-year fixed-rate mortgages averaged 4.02%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.18%
Sam Khater, Freddie Mac’s chief economist said:
The higher rate environment, coupled with the ongoing lack of affordable inventory, has led to a drag on existing-home sales in the last few months. Yesterday, the Federal Reserve passed on raising short-term rates, but with the embers of a strong economy potentially stoking higher inflation, borrowing costs will likely modestly rise in coming months.
Even with home price growth easing slightly in some markets, mortgage rates hovering near a seven-year high will certainly create affordability challenges for some prospective buyers looking to close.
While rates are close to a 7 year high, the chart above goes back 10 years. It shows that mortgage rates are still much lower than they have been in the recent past.
The Mortgage Bankers Association reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84% from 4.77%, with points remaining unchanged at 0.45 (including the origination fee) for 80% 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) increased to 4.76% from 4.72%, with points increasing to 0.37 from 0.31 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 4.29% from 4.23%, with points increasing to 0.53 from 0.44 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The MBA also reported increasing rates but remain calm. Like I said, mortgage rates have been much much higher in the past.
What You Need to Know About Getting a Mortgage
Many people focus solely on what the mortgage rates are but there many other things you need to know:
Being an educated and prepared home buyer can save you thousands of dollars!
How Strict Land Use Regulations Affect Home Prices
From Zillow Research:
Home values and job growth have both risen since 2010, but home values grew much more steeply in metros with stricter land use regulations.
Home values in the most restrictive metropolitan areas grew an average of 23.4 percent, more than double the home value appreciation in the least restrictive metros (9.4 percent) and about one third faster than metros in the middle (17.9 percent). This occurred despite the most restrictive metros only seeing slightly higher job growth: 11.5 percent, compared to 7.5 percent in the least restrictive metros and 11.3 percent in moderately restrictive markets.
Is the increase in the most restrictive markets due to home builders being forced to pass the burden of overly strict land use regulations onto buyers? With the problems of low inventory and not enough affordable housing, should we see a reduction in land use regulations?
CMBS Delinquency Rate Drops
Thanks to the continued resolution of distressed legacy debt and the brisk pace of new loan securitizations, the overall Trepp CMBS Delinquency Rate continued its impressive fall in July. The rate has now plunged more than 1% since the beginning of the year as it set another post-crisis low in July. The overall delinquency rate for US commercial real estate loans in CMBS is now 3.81%, a decrease of 14 basis points from the June level.
The July 2018 rate is 168 basis points lower than the year-ago level. The July reading breaks the previous post-crisis low of 3.95% set last month. The all-time high of 10.34% was registered in July 2012.
While Trepp is tracking commercial delinquencies, this is still a very important indicator for the economy. Remember, we need a healthy economy for a healthy housing market and a healthy housing market for a healthy economy.
Those That Forget the Past…
From American Banker:
Despite some regulatory gains under the last administration, the deregulation underway by Trump officials threatens to endanger the financial system all over again.
“Too big to fail” financial firms, those that would crash the entire financial system and global economy if they failed, were at the core of causing and spreading the financial crash of 2008. That was the worst meltdown since the Great Crash of 1929 and caused the worst economy since the Great Depression of the 1930s.
While steps have been taken to mitigate the harms megabanks and other enormous financial institutions can cause, that work is quickly being unwound by the current administration, putting the country at risk for another crash like the one we saw just a decade ago. Change under the guise of “reform” is now moving in the wrong direction.
Sad that some of the safeguards to prevent the TBTF banks from crashing the economy are being rolled back.
Middle Class Americans Haven’t Recovered From Housing Bust
A new study by the Opportunity and Growth Institute at the Minneapolis Fed found that the housing boom and bust made middle-class Americans poorer but boosted wealth for the richest 10%, widening the income and wealth gap substantially.
Authors of the paper examined the relationship between incomes and asset prices over the past 70 years, concluding that rising and falling housing and stock markets have been the main drivers of wealth inequality.
Home prices have recovered or surpassed the levels before the bust BUT in some ways, many middle class Americans have not recovered what they lost. While the economy is doing MUCH better, there are still some issues under the surface that need to be addressed…
Such as how many people do not have a job according to a Bloomberg article:
The prime-age employment-population ratio, that most straightforward of job market measures, hit a new post-recession high of 79.5 percent in the U.S. in July, according to today’s jobs report from the Bureau of Labor Statistics. This means that of Americans ages 25 to 54 who aren’t uniformed military service members or behind bars, 79.5 percent have jobs. The advantage of this metric over the oft-maligned unemployment rate (3.9 percent in July) is that it includes those who aren’t actively looking for jobs.
So anyway, 79.5 percent is a big improvement over a few years ago. It’s not breaking any records, though.
While the employment/unemployment numbers are much better, there are many ways to look at the health of the labor market. We need to consider the prime-age employment-population ratio, U-6, wage growth, what types of jobs are being added/lost, and much more.
The key thing to remember is to always plan for the economy to hit the skids or for an unexpected job loss or health issue. Bad things happen to good people and an ounce of prevention is worth a pound of cure.
Still things are looking pretty good. And the prime-age labor force participation rate could be indicating that we will see wage growth soon according to Mark Fleming at First American:
As this participation rate rises, competition among employers for workers increases, leading to higher wages. The prime-age labor force participation rate, which hit a post-recession low in September 2015, rose steadily to 82.1 percent as of today’s unemployment report, indicating that competition for workers may be heating up among employers and that higher wages may be on the horizon.
If the prime-age labor force participation rate continues this trajectory and reaches its pre-recession average of 83.2 percent, we estimate annualized wage growth would rise to 3.3 percent. So, if you’re interested in one indicator to watch for the outlook for wage growth, then look no further than the prime-age labor force participation rate.
For years, I have said we need real wage or income growth for ALL Americans to see the economy fully recovered and healthy. And if things keep going the way they are, we could see wages keep up with inflation.