Economic Commentary

Another Milestone: The Weekly Market Update

Slow and Steady Wins

The economic recovery recently hit an important milestone. It is now officially the second longest expansion in our history. For much of the expansion, the recovery has felt more painful than others. For one, the Great Recession was extremely deep and painful. Therefore, most Americans needed a long-term for their personal recovery from the recession. Secondly, the recovery was quite slow. Sometimes it was so slow it did not seem like a recovery at all.

On the other hand, the slow pace of the recovery brought some major advantages to the equation. Interest rates were able to remain low for a longer period of time. We had a sale on money that has lasted most of the previous decade. Additionally, the long life of the recovery can be attributed to the fact that the economy has not overheated during the recovery.

Overheated economies bring inflation and rapidly rising interest rates which can turn the economy south in a hurry. Even as rates have risen in the past two years, it has been a slow and gradual process. As a matter of fact, long-term rates have taken their time to react to the Federal Reserve Board’s short-term rate hikes. Of course, the next question is–how long will the recovery keep going? We know it can’t last forever. Our hope is that when the recovery does pause, it does so in a very mild way, in contrast to the last recession. For now, the old guy is just trudging along.

The Weekly Market Update

Rates were stable in the past week. For the week ending May 10, Freddie Mac announced that 30-year fixed rates remained at 4.55%. The average for 15-year loans decreased slightly to 4.01% and the average for five-year adjustables rose to 3.77%. A year ago, 30-year fixed rates averaged 4.05%.

 Attributed to Sam Khater, Chief Economist, Freddie Mac -- “The minimal movement of interest rates in these last three weeks reflects the current economic nirvana of a tight labor market, solid economic growth and restrained inflation. As we head into late spring, the demand for purchase credit remains rock solid, which should set us up for another robust summer home sales season.” 

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

 

The Impact of Trade Battles: The Weekly Market Update

No Wars -- Yet
No Wars -- Yet

No Wars -- Yet

There seems to be a lot of rhetoric going back and forth on the topic of trade wars. Much of this debate centers upon the question of whether we are in a trade war or not. We can’t answer that question definitively, but certainly we do understand that some of the basic characteristics of a trade war have been implemented and others have been threatened. We have imposed tariffs on other countries’ goods and they have done the same to our goods.

The important question is not whether this is a full-blown trade war, but what is the impact of the implementation of tariffs? In the short run, we have seen one major impact — the stock market has become very volatile. As we have previously discussed, this volatility is caused by more than one factor. However, the risk of trade wars certainly is playing a significant part in contributing to volatility. Why are the markets uneasy regarding these tariffs?

For one, tariffs raise prices to our consumers. On the other side of the equation, when other countries retaliate against our goods, it hurts the producers of these goods — from manufacturers to farmers. These two factors can actually balance each other out. For example, higher prices contribute to inflation which can bring higher interest rates. On the other hand, lowering exports can hurt certain sectors of the economy and that might bring rates down. Which side of the equation might win out? It is hard to tell. We actually hope that these “shots being fired” are precursors to the negotiation of better trade agreements that will benefit all parties. In the meantime, there will be some negative impacts and certainly a lot of noise.

The Weekly Market Update

Rates on 30-year fixed home loans were stable again in the past week. For the week ending March 29, Freddie Mac announced that 30-year fixed rates fell one tick to 4.44% from 4.45% the week before. The average for 15-year loans also decreased slightly to 3.90% and the average for five-year adjustables fell to 3.66%. A year ago, 30-year fixed rates averaged 4.14%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- “Treasury yields fell from a week ago helping to drive rates on home loans slightly lower. The yield on the 10-year Treasury dipped below 2.8 percent for the first time since early February of this year. The decline in Treasury yields comes as investors move into safer assets amid increased trade tensions. Following Treasurys, rates on home loans fell slightly. The U.S. weekly average 30-year fixed rate fell 1 basis point to 4.44 percent in this week’s survey.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Volatility Issue: The Weekly Market Update

The Economic Environment
The Economic Environment

The Economic Environment

In the first three weeks of the year, the stock market experienced gains that were nothing short of spectacular, extending a great year for equities in 2017. Starting with the last week in January, the markets have been experiencing extreme amounts of volatility — both up and down. It has not been unusual to see the headlines read “the biggest one-day gain/loss in ___ years.”

The question is, should we be worried about such volatility? Though the markets have turned lower since the end of January, the magnitude of losses certainly are not worrisome. This is especially true considering the extent of gains we have experienced for the previous two years. Certainly, one would think that the markets are due for a breather after running so hard and fast. On the other hand, breathers don’t have to be accompanied by extremes. It should be noted that the volatility in stocks has not been accompanied by nearly the same amount of volatility in the bond or commodity sectors. If all sectors were extremely volatile, this might be interpreted as a more pressing concern.

Extremes can be caused by factors which are promoting uncertainty. For example, rising interest rates, implementation of tax reforms and threats of trade wars are factors we are dealing with today. Certainly, higher rates and threats of trade wars can cause uncertainty in the markets. On the other hand, tax reform has been a positive factor affecting the markets, up until the point of implementation. Uncertainty and volatility seem to go hand-in-hand. It may just be that stocks are finding a new level of comfort. However, if rates keep rising and trade wars bloom, that comfort level may be harder to find. In reality, we don’t know why markets behave as they do, but it helps to at least understand the factors influencing today’s environment.

The Weekly Market Update

Rates were stable in the past last week. For the week ending April 12, Freddie Mac announced that 30-year fixed rates rose to 4.42% from 4.40% the week before. The average for 15-year loans remained at 3.87% and the average for five-year adjustables moved down slightly to 3.61%. A year ago, 30-year fixed rates averaged 4.08%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac --“Rates on home loans have been holding steady over the past two months. Rates have bounced around 4.4 percent since mid-February. Rates could break out and head higher if inflation continues to firm. The U.S. Bureau of Labor Statistics reported this week that the Consumer Price Index increased 2.4 percent over the 12 months ending in March, the largest 12-month increase in a year. Members of the Federal Reserve’s Federal Open Market Committee are looking at inflation indicators to help determine the appropriate path for policy. If inflation continues to trend higher, we may see two or three more rate hikes from the Fed this year, and rates on home loans could follow. For now, rates are still quite low by historical standards, helping to support homebuyer affordability as the spring homebuying season ramps up.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

That Time Again: The Weekly Market Update

Jobs Data This Week
Jobs Data This Week

Jobs Data This Week

Now that April Fools Day has passed, we can get down to some serious business. And the first order of business each month is the release of the employment report. Each report seems to have a special meaning with regard to the economy, and this month the job numbers will be no exception. In February we had very strong employment growth, and we will be watching for any revisions of February’s numbers, as well as focusing on the data for the month of March.

Two very strong months could signal the Federal Reserve Board to move up their timeline for rate increases this year. As of their meeting in March, they are sticking with an estimate of three increases this year and the markets have already built in at least some of these increases. If the numbers ease back and there is any significant downward revision for February, then the focus will shift the growth of wages.

Right now, the Fed is not only looking at a strengthening economy, but also how this growth will affect the inflation rate. Any evidence of increased pricing would also serve as justification for future rate increases. While increasing wages are great news for the American worker, any acceleration of the growth of wages could be felt by consumers in the form of higher rates. The best scenario for Friday? Solid growth in jobs and wages, but just not too hot

The Weekly Market Update

Rates on 30-year fixed home loans were stable again in the past week. For the week ending March 29, Freddie Mac announced that 30-year fixed rates fell one tick to 4.44% from 4.45% the week before. The average for 15-year loans also decreased slightly to 3.90% and the average for five-year adjustables fell to 3.66%. A year ago, 30-year fixed rates averaged 4.14%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- “Treasury yields fell from a week ago helping to drive rates on home loans slightly lower. The yield on the 10-year Treasury dipped below 2.8 percent for the first time since early February of this year. The decline in Treasury yields comes as investors move into safer assets amid increased trade tensions. Following Treasurys, rates on home loans fell slightly. The U.S. weekly average 30-year fixed rate fell 1 basis point to 4.44 percent in this week’s survey.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Aftermath: The Weekly Market Update

March Winds Down
March Winds Down

March Winds Down

Like the first two months of the year, March has been a very interesting month. From an economic perspective, the two “headline” events included a very strong employment report and the Federal Reserve Board announcing that they were raising rates for the fifth time in just over two years. And while these are very important events shaping the economic landscape, we have to remind ourselves that there are many other factors in play right now.

For example, while we witnessed the effect of the tax changes on the stock market even before the plan was enacted, the economic effects of the tax plan are just starting to hit. While the vast majority of the changes in the economy will be positive, we have already pointed out that the price to pay for stronger economic growth will be higher interest rates. These rates will affect consumers such as homebuyers, but also the government’s budget. For example, in February, the federal government racked up the largest deficit in six years because of lower tax receipts and increased spending — which included a higher bill for interest on the government’s massive debt.

Even the immigration debate and implementation of tariffs will influence the economy. One of the greatest needs today is more inventory for our nation’s homebuyers and builders are complaining about the lack of skilled labor to build our homes. Tariffs on lumber and steel will also have a negative effect upon the cost of building our homes, though it is hopeful that our domestic production can step-up and create more jobs while they fill in the gaps. Thus, there is no free lunch. Every change brings positives, but also costs. The good news is that the economy is stronger, and jobs are being created — plus homebuyers are waiting to purchase your home if you are willing to sell it!

The Weekly Market Update

Rates on 30-year fixed home loans were stable in the past week. For the week ending March 15, Freddie Mac announced that 30-year fixed rates rose one tick to 4.45% from 4.44% the week before. The average for 15-year loans also increased slightly to 3.91% and the average for five-year adjustables rose to 3.68%. A year ago, 30-year fixed rates averaged 4.23%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The Federal Reserve raised interest rates -- a much-anticipated move that comes as both U.S. and global economic fundamentals continue to strengthen. The Fed's decision to raise interest rates by a quarter of a percentage point puts the federal funds rate at its highest level since 2008 -- a decision which was widely expected. The U.S. weekly average 30-year fixed rate rose only 1 basis point to 4.45% percent in this week's survey. So far, U.S. housing markets remain resilient in the face of higher interest rates. The National Association of Realtors® reported this week that existing home sales in February increased 3 percent month-over-month on a seasonally adjusted basis and are up 1.1 percent from a year ago."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Fed Meets This Week: The Weekly Market Update

Rate Hike Likely
Rate Hike Likely

Rate Hike Likely

The Federal Reserve Board's Open Market Committee meets this week. While the vast majority of the world will be going about their business, thousands of financial analysts will be on the edge of their seats trying to determine what the Fed's direction will be. Like all Americans, they are concerned that the Fed will raise short-term rates. However, this action would not be unexpected, and thus it is not the top concern of these analysts. They are more concerned about what the Fed will say about the future.

The markets have already built-in two to four rate increases this year into their thinking. But there is a big difference between two increases and four. Market rates have already moved up in anticipation of these rate hikes. Any talk of accelerating inflation from the Fed and the markets could become amped up further. If the Fed indicates that they remain on a slow and steady path of rate increases, we might see the markets calm down a bit.

For the most part, the economic news leading up to the meeting does not seem to indicate an overheating economy -- except for last month's jobs report. Existing home sales are constrained due to tight inventories, personal spending increases have been moderate and so has manufacturing growth. A slow and steady expansion actually could be the best news for all concerned, as we would see continued job gains without rates moving up to a point in which the economy starts to be adversely affected.

The Weekly Market Update

Rates on 30-year fixed home loans decreased from week-to-week for the first time in 2018. For the week ending March 15, Freddie Mac announced that 30-year fixed rates fell to 4.44% from 4.46% the week before. The average for 15-year loans decreased to 3.90% and the average for five-year adjustables rose to 3.67%. A year ago, 30-year fixed rates averaged 4.30%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The Consumer Price Index report for last month indicated inflation may be cooling down -- as consumer price inflation was 2.2% year-over-year in February. Following this news, the 10-year Treasury fell slightly. Rates on home loans followed Treasurys and ended a nine-week surge. The U.S. weekly average 30-year fixed rate fell 2 basis points to 4.44% in this week's survey, its first decline this year."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Fed Meets This Week: The Weekly Market Update

Rate Hike Likely
Rate Hike Likely

Rate Hike Likely

The Federal Reserve Board's Open Market Committee meets this week. While the vast majority of the world will be going about their business, thousands of financial analysts will be on the edge of their seats trying to determine what the Fed's direction will be. Like all Americans, they are concerned that the Fed will raise short-term rates. However, this action would not be unexpected, and thus it is not the top concern of these analysts. They are more concerned about what the Fed will say about the future.

The markets have already built-in two to four rate increases this year into their thinking. But there is a big difference between two increases and four. Market rates have already moved up in anticipation of these rate hikes. Any talk of accelerating inflation from the Fed and the markets could become amped up further. If the Fed indicates that they remain on a slow and steady path of rate increases, we might see the markets calm down a bit.

For the most part, the economic news leading up to the meeting does not seem to indicate an overheating economy -- except for last month's jobs report. Existing home sales are constrained due to tight inventories, personal spending increases have been moderate and so has manufacturing growth. A slow and steady expansion actually could be the best news for all concerned, as we would see continued job gains without rates moving up to a point in which the economy starts to be adversely affected.

The Weekly Market Update

Rates on 30-year fixed home loans decreased from week-to-week for the first time in 2018. For the week ending March 15, Freddie Mac announced that 30-year fixed rates fell to 4.44% from 4.46% the week before. The average for 15-year loans decreased to 3.90% and the average for five-year adjustables rose to 3.67%. A year ago, 30-year fixed rates averaged 4.30%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The Consumer Price Index report for last month indicated inflation may be cooling down -- as consumer price inflation was 2.2% year-over-year in February. Following this news, the 10-year Treasury fell slightly. Rates on home loans followed Treasurys and ended a nine-week surge. The U.S. weekly average 30-year fixed rate fell 2 basis points to 4.44% in this week's survey, its first decline this year."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Jobs Machine Hums: The Weekly Market Update

Jobs Take Center Stage
Jobs Take Center Stage

Jobs Take Center Stage

The wild year has continued with regard to volatility in the markets, political headlines and, sadly, national tragedies. Through it all, we have seen three patterns emerge. First, the volatility has been focused mostly in the stock and bond markets. Stock gains were some of the strongest in memory in January and the losses in February came close to wiping out those gains. The bond market has been weak, and this has led to higher long-term interest rates.

Secondly, we have seen an economy which has continued to strengthen, but not overheat. There is no longer talk of the lack of inflation being a threat to growth. But, on the other hand, inflation has not been a major issue either. Lastly, up until now, jobs growth has been rather steady. Other than a hiccup late last year due to the devastating storms we had during the hurricane season, our jobs growth has been holding at a strong enough level to keep unemployment low.

February's job report saw this trend grow stronger with 313,000 jobs added. The unemployment rate remained at 4.1%. With regard to wages, the story there showed no acceleration of wage growth. Overall this report was viewed as good news. For those waiting and wondering what the Federal Reserve Board's Open Market Committee will do with interest rates next week when they meet, the consensus is that this report will not change the odds much that the Fed will increase rates. Nothing is a certainty, but if you listened to the Congressional testimony of the new Chairman, Jerome Powell, a rate hike this month is definitely a strong possibility.

The Weekly Market Update

The rise in rates for home loans continued at a slower pace in the past week. For the week ending March 8, Freddie Mac announced that 30-year fixed rates increased to 4.46% from 4.43% the week before. The average for 15-year loans rose to 3.94% and the average for five-year adjustables rose one tick to 3.63%. A year ago, 30-year fixed rates averaged 4.21%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The 10-year Treasury yield has been bouncing around in a narrow 15 basis point range for the last month. While the yield on the 10-year Treasury is currently below the high of 2.95 percent reached two weeks ago, rates on home loans are up for the ninth consecutive week. The U.S. weekly average 30-year fixed rate rose 3 basis points to 4.46 percent in this week's survey, its highest level since January 2014."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Fed Will Be Watching: The Weekly Market Update

Jobs in Focus
Jobs in Focus

Jobs in Focus

The minutes of the Federal Reserve's January meeting were released the week before last. These minutes indicated that the Fed is comfortable that an expansion with “substantial underlying economic momentum” could sustain additional increases in interest rates this year. This statement was of no surprise to the markets, as rates have been increasing for several weeks now in anticipation of action by the Fed due to a strong economy.

With the next meeting of the Fed just two weeks away, obviously this statement heightens the possibility of a rate increase announcement at the March meeting. A rate increase at this meeting is not a certainty, but it definitely could happen. What could keep the Fed from holding off at this late juncture? The volatility of the stock market could be a factor, especially if additional drops become precipitous. Additionally, late economic data showing the economy is not as "hot" as expected would be taken into consideration.

The most important data is to be released this week. The jobs report is the first reading of data for February and is watched closely by the Fed. The Fed will be watching both the amount of jobs created, but also will be looking for any signs of stronger wage inflation. We may actually need a disappointing jobs report with no acceleration of inflation to convince the Central Bank from holding off at this point.

The Weekly Market Update

The rise in rates for home loans continued at a slower pace in the past week. For the week ending March 1, Freddie Mac announced that 30-year fixed rates increased to 4.43% from 4.40% the week before. The average for 15-year loans rose to 3.90% and the average for five-year adjustables fell to 3.62%. A year ago, 30-year fixed rates averaged 4.10%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "Optimistic testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell sent Treasury yields higher as Powell stated his outlook for the economy has strengthened since December. Following Treasurys, the 30-year fixed rates jumped 3 basis points in this week's survey. The 30-year rate has been on a tear in 2018, climbing 48 basis points since the start of the year and increasing for eight consecutive weeks. We think that the strength in the economy and pent up housing demand should allow U.S. housing markets to post modest growth this year even with higher interest rates. We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust despite these rate increases."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Assessing Returns: The Weekly Market Update

The Confidence Factor
The Confidence Factor

The Confidence Factor

There are many questions which have arisen because of the movements in the stock market and interest rates. For example, how high will interest rates need to go in order for investors to start thinking that they can achieve better returns than the stock market? That seems far-fetched because the stock market has done so well since the great recession, with the S&P gaining an average of over 10% per year. But, keep in mind that these gains have included a rebound from sharp losses during the recession and were fueled by record low interest rates.

And where would one go to achieve these better returns? One possible place would be real estate. One reason rates are rising is because recently, inflation has become a factor. Well, inflation has affected rents being paid and home prices for some time. If someone purchased a house five years ago, chances are they have done very well — whether they are living in the home or it is an investment property.

As we have said, this year’s wild ride has made it even tougher than normal to make predictions. It is possible that these gyrations could start affecting economic growth, despite the stimulus of the tax legislation. Investor and consumer confidence are really important factors — and neither likes to witness the uncertainty that volatility brings. The best news would be for the markets, rates and inflation all to calm down a bit as spring approaches. Next week’s jobs report could go a long way to convince the masses that everything is on-track and not overheating — if we don’t get a surprise on the low or high side.

The Weekly Market Update

The rise in rates for home loans slowed in the past week. For the week ending February 22, Freddie Mac announced that 30-year fixed rates increased to 4.40% from 4.38% the week before. The average for 15-year loans rose one tick to 3.85% and the average for five-year adjustables climbed to 3.65%. A year ago, 30-year fixed rates averaged 4.16%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac --"Fixed rates on home loans increased for the seventh consecutive week, with the 30-year fixed rate reaching 4.40 percent in this week's survey; the highest since April of 2014. Rates on home loans have followed U.S. Treasurys higher in anticipation of higher rates of inflation and further monetary tightening by the Federal Reserve. Following the close of our survey, the release of the FOMC minutes for February 21, 2018 sent the 10-year Treasury above 2.9 percent. If those increases stick, we will likely see rates continue to trend higher."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Wild Ride: The Weekly Market Update

Rates and The Correction
Rates and The Correction

Rates and The Correction

Several weeks ago, we spoke about the negative effects of economic growth. The two factors we cited were higher interest rates and higher oil prices. Now we are starting to see the markets react to this new reality. Many are blaming rising interest rates for causing what we can now call a stock market correction. A correction which we have not seen for some time. Why would higher rates cause stocks to falter? Abnormally low rates have propped up the markets for years. Why keep your money in the bank earning 1.0% interest when you can earn 10% or more in the stock market? That is an over-simplification, but certainly higher rates are taking some of this extra stimulus out of the equation.

Not that rising rates are the only explanation with regard to the trepidation in stocks. As we also explained several weeks ago, the tax plan was great news for stocks because it immediately made companies more profitable by lowering their tax rates significantly. Stocks have been rallying for nine years, comprising the second longest bull market in history, but the rally intensified in anticipation of the tax plan. We surmised that all the good tax news was already built into stocks, but the rally continued anyway — until rates started rising.

The question now is whether this is just a healthy and long-overdue correction which may reverse quickly, or is it the beginning of the end for the bull run? As always, we will stay away from predictions. Rates could ease back down or stabilize — and the market could climb back. Right now, the economy is healthy and rates have not risen far enough to cause the economy to pause. Actually, if the growth eased a bit, this could cause the Federal Reserve Board to be less concerned with inflationary pressures and perhaps permit them to take their foot off the pedal. For now, we have a pretty wild ride going on.

The Weekly Market Update

Rates on home loans rose again in the past week. For the week ending February 15, Freddie Mac announced that 30-year fixed rates increased to 4.38% from 4.32% the week before. The average for 15-year loans rose to 3.84% and the average for five-year adjustables climbed to 3.63%. A year ago, 30-year fixed rates averaged 4.15%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "Wednesday's Consumer Price Index report showed higher-than-expected inflation; headline consumer price inflation was 2.1 percent year-over-year in January -- two tenths of a percentage point higher than the consensus forecast. Inflation measures were broad-based, cementing expectations that the Federal Reserve will go forward with monetary tightening later this year. Following this news, the 10-year Treasury reached its highest level since January 2014, climbing above 2.90 percent. Rates on home loans have also surged. After jumping 10 basis points last week, 30-year fixed-rates rose 6 basis points to 4.38 percent, its highest level since April 2014."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Rate Predictions and Perspective: The Weekly Market Update

Where Will Rates Go?
Where Will Rates Go?

Where Will Rates Go?

It is amazing how it seems every year we have predictions that interest rates will go up. And each year interest rates do go up. And then, they go back down. The yield of the 10-year Treasuries have gone up over 0.5% over the past few months. But they also went up just about the same amount during the winter of 2016-17. Similar rises were witnessed in 2015 and 2014, though the patterns were slightly different. Each time, rates came back down.

If we look at this pattern, we can conclude that rates are likely to come back down again, right? Not so fast. There is one intervening variable that occurred this year, as opposed to previous years. That variable is the tax legislation. Tax reform is designed to stimulate economic growth. In previous years, rates came back down because our economic growth never became too strong to ignite inflation. Nor did rates move high enough to scare the stock market into a correction, as has happened in the past week -- not that stocks were not due for a correction after so many years of increases.

Some say that the Federal Reserve Board raising short-term interest rates makes higher long-term rates a certainty. But, we must remember, the Fed raised rates in 2015 and 2016, albeit not as quickly as 2017. In 2015 and 2016, the Fed was "normalizing" rates because the economy had stabilized. Now the economy is growing, and we have added a major stimulus. Rates are not rising because the Fed is raising rates, rates are rising because the markets and the Fed expect further economic growth. That being said, it is still impossible to predict the future of economic growth or rates. On the other hand, if you feel this is the last opportunity to take advantage of historically low rates, you may want to act accordingly.

The Weekly Market Update

Rates on home loans continued their climb in the past week. For the week ending February 8, Freddie Mac announced that 30-year fixed rates increased to 4.32% from 4.22% the week before. The average for 15-year loans rose to 3.77% and the average for five-year adjustables climbed to 3.57%. A year ago, 30-year fixed rates averaged 4.17%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The U.S. weekly average rate of 30-year fixed loans rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Rates on home loans have followed. The 30-year fixed rate is up 33 basis points since the start of the year. Will higher rates break housing market momentum? It's too early to tell for sure, but initial readings indicate housing markets are sustaining their momentum so far. The MBA reported that purchase applications are up eight percent from a year ago in their latest Weekly Mortgage Applications Survey."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Job Numbers Released Post-Fed: The Weekly Market Update

Wage Growth Accelerating
Wage Growth Accelerating

Wage Growth Accelerating

And so, the Double Feature played out this week. First, we had a decision by the Federal Reserve Board not to raise the benchmark short-term rate at the present time. The markets were expecting this because the Fed had raised rates in December. However, all eyes were on the Fed statement and certainly this statement held out the possibility that they could raise short-term rates at their next meeting in March.

What data will the Fed be looking at in order to make a decision? Actually, the first report was released just two days later. Last week’s jobs report indicated that the economy had added 200,000 jobs in January. The number of jobs added for the previous month was revised upward as well. The unemployment rate came in at 4.1%, which was unchanged. Finally, the focus was upon the wage data, which showed that wages were up 0.3% month-to-month and 2.9% year-to year. The yearly wage increase was higher than expectations.

Why is the wage data important? With the economy humming and the stock market soaring, the Fed is now most concerned with the threat of inflation. And certainly, any increase in the growth of wages is a big component of inflation. The Fed will get to see another jobs report, as well as a revision of the first estimate of growth for the fourth quarter, before they meet again in March. If the numbers are strong, we could see another hike in short-term rates.

The Weekly Market Update

Rates on home loans continued to increase in the past week. For the week ending February 1, Freddie Mac announced that 30-year fixed rates increased to 4.22% from 4.15% the week before. The average for 15-year loans rose to 3.68% and the average for five-year adjustables climbed slightly to 3.53%. A year ago, 30-year fixed rates averaged 4.22%, virtually the same as today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "The Federal Reserve did not hike rates this week, but the market views future hikes as a near certainty. The expectation of future Fed rate hikes and increased borrowing by the U.S. Treasury is putting upward pressure on interest rates. The 30-year fixed rate is up over a quarter of a percentage point (27 basis points) from the first week of the year. Rates on 30-year fixed loans have increased for four consecutive weeks and are now slightly above where they were last year at this time."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Busy Month Ends: The Weekly Market Update

Double Feature
Double Feature

Double Feature

As we have mentioned previously, it has already been a busy year with major storms, wildfires that turned into mudslides, a new tax plan and the in-fighting in Washington seemingly getting worse. And that is just the first month of the year. We end the first month and start the second month with another busy week, at least on the economic front. This week we have the first meeting of the year for the Federal Reserve Board and also the first reading on jobs which contains 2018 data.

Thus far this year it seems that the economy continues to move forward, even without the anticipated effects of the tax plan. Of course, the anticipation itself has fueled much optimism which can be seen in record stock market closes. The performance of the economy is all about optimism. Since the Fed just raised their benchmark rates in mid-December, most analysts are not expecting another increase so soon. However, even if they do not raise short-term rates at this meeting, they will be discussing how much and how quickly they will be raising rates this year.

How much and how fast will depend upon the strength of the economy. And major evidence of this strength will be released a few days after they meet in the form of the January employment report. December’s job gains were a bit under forecast, and thus we will be looking at not only January’s numbers, but revisions to the previous months’ data. A really strong report could move the Fed to raise rates at their next meeting in March. Even if they do not, one thing is certain — unless something happens to derail the economy, their only move is up this year.

The Weekly Market Update

Rates on home loans moved upwards again in the past week. For the week ending January 25, Freddie Mac announced that 30-year fixed rates increased to 4.15% from 4.04% the week before. The average for 15-year loans rose to 3.62% and the average for five-year adjustables climbed to 3.52%. A year ago, 30-year fixed rates averaged 4.19%, slightly higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- "Rates keep climbing. The 10-year Treasury yield reached its highest point since 2014 reflecting expectations of broad-based economic growth. Rates on home loans, in turn, followed the surge in Treasury yields. The 30-year fixed rate jumped 11 basis points to 4.15 percent, its highest level since March of last year.

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Downside is the Upside: The Weekly Market Update

Rates and Oil
Rates and Oil

Rates and Oil

The stock market is setting records. We have a new tax plan which lowers taxes significantly for companies and moderately for individuals. We just had a decent retail holiday season with higher home sales closing out the year. In other words--everything is looking up for the economy. Most economists are cautiously optimistic that the good times will continue through at least 2018.

Unfortunately, with the economy gaining momentum, some of the movements upwards are actually turning out to be downers. More specifically, we are referring to interest rates and oil prices. The price of oil is now over $60 per barrel after oscillating above and below the $50 level for more than a year. Certainly, higher oil prices is the price we have to pay for having a better economy that increases oil demand. However, oil prices could still fall if the news on the supply side becomes more optimistic. There have been plenty of forecasts showing at least the potential of this occurring.

Not so with interest rates. You can't pump money out of the ground. The better economy has caused the Federal Reserve Board to raise short-term interest rates five times over the past two years. Long-term rates have also been trending upward as the economy has improved. Most are not expecting another increase by the Fed when they meet at the end of this month. But that does not mean that long-term rates won't keep rising if we get the news that the economy is still rolling. As a matter of fact, the threat of higher interest rates is one reason that real estate is so hot. Most want to purchase before rates go up further. Will rates keep moving up? That depends upon whether the economy stays strong in 2018.

The Weekly Market Update

Rates on home loans continued to follow long-term rates higher. For the week ending January 18, Freddie Mac announced that 30-year fixed rates increased to 4.04% from 3.99% the week before. The average for 15-year loans rose to 3.49% and the average for five-year adjustables was unchanged at 3.46%. A year ago, 30-year fixed rates averaged 4.09%, slightly higher than today's level.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "Some may be wondering if this is the last time we'll see a three handle on 30-year fixed rates. Never say never, but inflation is firming, and the Federal Reserve's Beige Book indicates broad-based economic growth and labor markets are tightening. This means upward pressure on long-term rates, like the 30-year fixed-rate, is building."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Mid-January Report: The Weekly Market Update

Busy Start to Year
Busy Start to Year

Busy Start to Year

Believe it or not, we are halfway through the first month of the year. While a few weeks passing may not seem like much, these are very exciting times. Americans are reacting to a new tax plan, stocks have already broken records and we have had the first natural disaster of the year — a bomb-cyclone. A few weeks ago, most of us had never heard of a bomb-cyclone. And even though we did not know, since we are publishing from the east coast, we certainly felt the cold. When it snows in Florida, it is definitely a weather event.

The question is–what have we learned since the beginning of the year? We have learned that the stock market’s surge in anticipation of the adoption of the tax plan is not over now that the plan has come to fruition. There was some concern that all the gains were built into the pricing of stocks, but the New Year has brought more good news in this regard. Of course, this does not mean that the gains will last all year — but it was a good start.

In addition, stocks are not the only items that are going up in price. Oil prices have topped $60 per barrel for the first time since 2015. Interest rates have also risen, though the move has been more pronounced with regard to shorter-term rates. Again, this does not mean that oil prices and rates are moving up all year. On the other hand, if the economy does continue to expand and this expansion accelerates because of lower tax rates, it makes sense that rates and commodity prices will move up. Yes, it is hard to get a feel for a year based upon two weeks of activity, but we already have some interesting news to reflect upon this year.

The Weekly Market Update

Rates bounced back in the past week as the rising stock market and growing economy continue to push long-term rates higher. For the week ending January 11, Freddie Mac announced that 30-year fixed rates increased to 3.99% from 3.95% the week before. The average for 15-year loans rose to 3.44% and the average for five-year adjustables climbed slightly to 3.46%. A year ago, 30-year fixed rates averaged 4.12%, higher than today's level.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "After dipping slightly last week, Treasury yields surged this week amidst sell-offs in the bond market. The 10-year Treasury yield, for instance, reached its highest point since March of last year. Rates on home loans followed Treasury yields and ticked up modestly across the board. Rates on 30-year fixed loans averaged 3.99 percent, up 4 basis points from a week ago."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Amazing Consistency: The Weekly Market Update

The Jobs Machine Rolls
The Jobs Machine Rolls

The Jobs Machine Rolls

After a deep recession in which we lost approximately eight million jobs, America’s economy has been quite consistent with regard to the creation of jobs during the past several years. For example, during the period of 2013 to 2017, just over 10 million jobs were created. That comes to just over 200,000 jobs per month. Though the numbers are still preliminary, the December jobs report indicates that we have added 2.1 million jobs in 2017, which is slightly below, but very close to what we have created in the past four years.

This is why our country’s unemployment rate has fallen from 10% to December’s reading of 4.1%, a number most economists consider close to full employment. This is quite a dramatic drop, and the next question is — where do we go from here? Does full employment mean that we can’t improve? There are two numbers which indicate that there is still room for improvement. The labor participation rate of 62.7% is close to long-term lows and attracting the long-term unemployed back into the economy is still an important goal.

We can also improve upon the types of jobs created. Wage growth of only 2.5% over the past year tells us that we are not creating enough high-paying jobs. Thus, we have come a very long-way. The economy is in much better shape than it was during our recession of a decade ago. But there is still room to add more jobs and better paying jobs — without the economy being beset by inflation. Inflation is a concern because with inflation comes higher interest rates and low rates have buoyed our recovery.

The Weekly Market Update

Rates fell back in the past week. For the week ending January 4, Freddie Mac announced that 30-year fixed rates decreased to 3.95% from 3.99% the week before. The average for 15-year loans decreased to 3.38% and the average for five-year adjustables fell to 3.45%. A year ago, 30-year fixed rates averaged 4.20%, approximately 0.25% higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "Treasury yields fell from a week ago, helping to drive rates on home loans down to start the year. Rates on 30-year fixed-rate loans fell 4 basis points from a week ago to 3.95% in the year's first survey. Despite increases in short-term interest rates, long-term interest rates remain subdued. The 30-year rate is down a quarter of a percentage point from where it was a year ago and the spread between the 30-year fixed and 5/1 adjustable rate loans is the lowest since 2009. With the FOMC minutes showing continued support for gradual increases in rates and inflation rates remaining low, there isn't much upward pressure on long-term rates at the moment. Whether that changes due to a tighter labor market and the economic impact of tax reform remains to be seen."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Tax Law Makes Projections Even Harder: The Weekly Market Update

2018 In Focus
2018 In Focus

2018 In Focus

It is the first of the year and we have been inundated with projections regarding the economy, interest rates, real estate and more. It is always hard to predict the future and this year is going to be even harder to predict because of a new variable — the tax law. As we have mentioned previously, the lowering of tax rates is likely to stimulate an already strengthening economy. This should be good news for jobs, retailers and more. The question remains how strong will the economy get and what will the effects be on interest rates, oil prices — and ultimately inflation. We have already seen rates and oil prices creeping up in anticipation of the action.

When we move to real estate, the prediction game gets even harder. Economists were already predicting continued inventory shortages, more new homes coming on-line and moderating price increases. But the change in the standard and mortgage deductions will certainly have to be factored into the equation.

Here is the good news. There are four solid economic reasons to own a home and the tax deduction is only one of these four. The home will still serve as a leveraged investment, a forced savings plan and protection against inflation. As a matter of fact, we feel the tax law’s effect upon interest rates may be a more important factor in determining the direction of the real estate markets than the tweaks made in the deductions. In this regard, those who feel that rates will ultimately rise because of the economic effects of the law, may very well be inclined to purchase now rather than later.

The Weekly Market Update

Rates rose in the past week, with 30-year fixed rates moving close to the 4.00% level. For the week ending December 28, Freddie Mac announced that 30-year fixed rates rose 3.99% from 3.94% the week before. The average for 15-year loans increased to 3.44%. The average for five-year adjustables rose to 3.47%. A year ago, 30-year fixed rates averaged 4.32%, more than 0.25% higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "As we expected, rates on home loans felt the effect of last week's surge in long-term interest rates in the final, shortened week of 2017. The 30-year fixed rate increased 5 basis points to 3.99 percent in this week's survey. Although this week's survey rate represents a five-month high, 30-year fixed rates are still below the levels we saw at the end of last year and the early part of 2017. Rates on home loans have remained relatively low all year."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Tax Law Questions: The Weekly Market Update

Economic Effects
Economic Effects

Economic Effects

For months we have been calling it a tax bill. Though we have covered the proposals, we have been careful not to predict what we would see in the final version. Today, the tax bill is law and, though we are aware of the major provisions, it is a very complex law and many of the details will be coming out in the coming days and weeks. As a matter of fact, we would not be surprised if there are a series of technical amendments in the near future intended to fix and/or clarify certain provisions as they are uncovered.

Today, we will not discuss the specifics of the law, but the possible macro-effects of the law's implementation. We have already seen one major positive effect. As we have mentioned previously, the major stock market rally America has witnessed in the past year was, at least partially, a direct result of the possibility of a tax cut for corporations. Theoretically, if you lower the tax liability of companies, their profits should increase, and they will be more valuable. But even this obvious effect is in question with regard to the future. Now that the tax law is passed, does that mean that the stock run will continue, or has all of the good news been built in to the valuation of stocks?

Another obvious effect of the law should be to boost the economy. If tax rates are lowered for most, this will give both individuals and corporations more money to spend. This leads to two questions. How much will the economy improve? Plus, since we are already near full employment levels, if the economy improves significantly, might this hotter economy increase inflation? The possibility of higher inflation would also bring the threat of higher interest rates. Again, this is not a prediction, but a question that will be answered as time goes on. Finally, the effect of the tax law on real estate, as a result of the changes in the standard and itemized deductions, will be another significant question we will cover as the details emerge.

The Weekly Market Update

Rates were stable again in the past week, but did not reflect a surge in long term rates after the survey was tabulated. For the week ending December 21, Freddie Mac announced that 30-year fixed rates rose one tick to 3.94% from 3.93% the week before. The average for 15-year loans increased slightly to 3.38%. The average for five-year adjustables rose to 3.39%. A year ago, 30-year fixed rates averaged 4.30%, more than 0.25% higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac --"Rates on thirty-year fixed loans have been bouncing around in a narrow 10 basis points range since October. The U.S. average 30-year fixed rate increased 1 basis point to 3.94 percent in this week's survey. The majority of our survey was completed prior to the surge in long-term interest rates that followed the passage of the tax bill. If those rate increases stick, we'll likely see higher rates on home loans in next week's survey. But even with yesterday's increase, the 10-year Treasury yield is down from a year ago, and 30-year fixed rates are 36 basis points below the level we saw in our survey last year at this time. Rates on home loans are low."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Fed Decision: The Weekly Market Update

The Fed Hikes Rates
The Fed Hikes Rates

The Fed Hikes Rates

The Fed Hikes Rates As expected, the Federal Reserve Board decided to raise its benchmark interest rates by .25%. The reaction of the markets was tame because this action was widely anticipated and there was no surprise .50% hike. While each Fed rate hike does signal an overall increase in interest rates, it also does not mean that all rates are spiking upward. For one, the Fed has steadfastly adhered to a plan that is designed to move back to what it calls normal rates in a slow and orderly fashion. The response to the recession and slow recovery was to keep short-term rates close to zero, which is something that could not be sustained forever.

In this regard, the markets are more likely to react to hints about the pace of future rate increases, which are likely to be detected from the minutes of the recent meeting and various public statements from Fed Board members. Right now, the markets seem to be betting on three to four rate increases during the course of 2018, and if the economy continues to perform well, that scenario is not out of the question. While facing that many rate hikes, it should also be noted that the Fed’s action to raise rates directly affects short-term rates, but only indirectly affects longer-term rates, upon which home and even auto loans are based.

The Fed’s control is over funds that are borrowed overnight by banks, which are very short-term. In fact, we can see that six-month Treasuries have moved up over .75% during the course of 2017. Yet, the 10-year Treasury has virtually remained the same from January to December, and actually was lower than January’s level for much of 2017. What does this mean? For one, it means the spread between short-term adjustable home and other loans and long-term fixed loans have narrowed, making fixed rates a more logical choice for most. Secondly, it means that mortgage rates will not necessarily move up as fast as the Fed is moving. Of course, if we see more evidence of inflation taking root, all bets are off in this regard.

The Weekly Market Update

Rates were stable in the past week, despite the Fed's move to increase short-term rates. For the week ending December 14, Freddie Mac announced that 30-year fixed rates fell one tick to 3.93% from 3.94% the week before. The average for 15-year loans remained at 3.36%. The average for five-year adjustables rose one tick to 3.36%. A year ago, 30-year fixed rates averaged 4.16%, almost 0.25% higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac --"As widely expected, the Fed increased the federal funds target rate this week for the third time in 2017. The market had already priced in the rate hike, thus long-term interest rates, including rates on home loans, hardly moved. Mortgage rates held relatively flat across the board, with the 30-year fixed rate inching down 1 basis point to 3.93 percent in this week's survey. Rates on home loans have been in a holding pattern for the fourth quarter, remaining within a 10-basis point range since October."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.