What a Difference One Month Makes :: Wild January

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Let’s go back four weeks. We are fresh off an increase in rates by the Federal Reserve Board and a Holiday Season. We are bracing ourselves for several rate increases in the coming year and a rise in rates on home loans. It took only one trading day for stocks to get our attention. Oil prices continued to move to levels we have not seen for close to a decade during our recession. World economic news made headlines as the stock market in China took a beating.

All of a sudden, rates are coming down as stocks suffer a correction, despite the Fed’s activity. To explain all of this, we go back to two points we have made time and time again in our economic analysis. Number one, the Fed directly affects short-term rates, but does not control long-term rates directly. Certainly, there is an indirect effect on long-term rates resulting from the Fed’s actions. Secondly, you can’t predict the future, period. Even the Fed does not know what is going to happen.

We do know that if this news continues, the Fed’s plan to continue to raise rates may be put on hold. There have been some bright spots. One bright spot has been job creation, though wage growth has been moderate. The other bright spot has been real estate. Soon we will see some news on both. The jobs report is released Friday, and shortly thereafter we will see if consumers are still purchasing homes while some of this turmoil is hitting the markets. It was a real interesting first month of the year, and we are just getting started.

The Monday Market Update

Rates on home loans fell again this past week. Freddie Mac announced that, for the week ending January 28, 30-year fixed rates fell to 3.79% from 3.81% the week before. The average for 15-year loans decreased to 3.07%. The average for five-year adjustables also decreased to 2.90%. A year ago, 30-year fixed rates were at 3.66%, slightly lower than today’s levels.

“The yield on the 10-year Treasury stabilized around 2 percent this week, and the 30-year fixed rate dipped 2 basis points to 3.79 percent. The recent market turmoil has given the Fed pause; as was universally expected, the Fed stood pat this week but kept its options open for a rate increase in March. This week’s housing releases confirmed the momentum of home sales going into 2016. A hesitant Fed, sub-4-percent fixed rates for at least for a little while longer, and strong housing fundamentals should generate a three percent increase in home sales this year.”

Note: As of January 1, Freddie Mac is no longer providing survey data for 1-year adjustables.
Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

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