Mortgages and the New Fed Bank Rate

I’ve been asked about the Federal Reserve’s recent increase in bank rates by a few clients currently home shopping. They wonder how it’s going to affect the cost of a mortgage. The Fed finally raised the benchmark fund rate on December 16 to between 0.25 and 0.5 percent after nearly 7 years of a near zero rate. The answer is that this increase does not directly impact long-term consumer loans like purchases or refinances. So mortgage rates will not necessarily increase as a result.

The benchmark fund rate is used when banks lend money to each other overnight. It has been held at nearly zero to support the economic recovery  following “the worst financial crisis and recession since the Great Depression,” MLend Financial Group states in a recent newsletter quoting Fed Chair, Janet Yellen.

So if you recently applied for a pre-approval, or soon plan to, don’t expect any surprises. Rates are projected to stay in the approximate ranges they have been for the last 6 months with new programs rolling out on a regular basis in the hopes of enticing more buyers into the market.

One of these new programs, for instance, just out from Prosperity Home Mortgage is offering conventional terms on a fixed rate, with relaxed credit requirements, use of compensating factors, unlimited use of gifted funds and increased qualifying ratios.

The particular program offers an excellent opportunity for many potential first-time home buyers that have found it difficult to save enough money for a down payment and closing costs. Or for those that had some financial trouble during the economic recovery and have been left wondering if they would qualify for a mortgage now.

With better-than-expected data in today on consumer confidence in the economy, the job market and housing, these kinds of programs can be a real boost to those ready to get started in homeownership. They deserve a close look as the stock market is poised to end in 2015 with a gain over 2014. The Associated Press is reporting today that gains will be seen more broadly in other markets, too, such as Germany, France, Britain and several Asian markets.


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The Real Estate Market – 2016

The National Association of REALTORS® reported in October that increasing costs of rents are making it hard for would-be homebuyers to save for down payments. Rent prices are approximately 4 percent higher than a year ago and have been on an upward spiral since 2007. These first-time homebuyers who typically lead in the percentage of homeowners are at 30-year lows.The NAR report goes on to say that rising rents make it especially difficult for potential first-time homebuyers because the rent increases are outpacing wage gainsNational Assoc of REALTORS on RENTS

Weak wage growth has been a consequence of decade-long subpar economic growth but income inequality has been rising since 1980, according to the Economic Policy Institute reporting. EPI on Stagnant Wages

Concerns that high manufacturing wages in the U.S. are causing growing job losses and declining U.S. competitiveness are common but incorrect, says EPI. The report cites Germany’s manufacturing wages, the highest in the world. Their economy has remained stable even in the face of competition from China. While U.S. manufacturing declined by 31 percent between 1997-2013, Germany’s fell by only 4.7 percent. EPI on Manufacturing Wages and Jobs

The New York Times reported in November on the resiliency and recovery of the U.S. economy from the worst of the Great Recession of 2007. It also reports the economy is being held back – hence, the real estate market, as well – by what governments at all levels have failed to do.

Specifically, the Times cites productivity-enhancing investments that would counter the downshifts still being experienced. Such investments, they say, should include spending for education, transportation, environmental protection, science and other fields. The report goes on to say that laying a foundation for future growth would include enacting policies to ensure that pay and profits from enhanced productivity are broadly shared, rather than concentrated at the top of the income-and- wealth ladder. Such policies would include strict anti-trust enforcement, steeply progressive taxes, a higher minimum wage and support for labor unions. New York Times on Stagnant Wages

The EPI report says additional policies should include increased spending on research and development and infrastructure. Internationally, they say the U.S. manufacturing sector could be rebuilt by fighting currency manipulation and unfair trade.


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Summarizing the 2015 Real Estate Market

It’s been a head-scratching year. That has a lot to do with my few posts. Along with other professionals, I hold the widely held view of the year being an indecisive one with mystifying starts and stalls. Its sluggish start will likely define its close.

There are positive and encouraging signs: dollar sales volume continues to increase and this now has multi-year track record. Limited inventories, while frustrating buyers choices, has had the overall effects of not only preserving values but helping to increase values in most price categories.

But there are lingering concerns. Stagnant wages in the American workforce have been hinted at being behind what is viewed as the most anemic recession recovery on record. The Federal Reserve has repeatedly highlighted it as a component in the delays of  raising borrowing rates. Politicians are talking about it on the campaign trails. And the latest reports from National Association of Realtors are headlining it: What’s Behind the Drop in Sales Contracts?


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2015 Down Payment Assistance Guide

I continue to watch the real estate market recovery. It’s a big piece of the overall economy recovery. While I still wonder what kind of year 2015 will be, there are promising signs carrying over from the 2014 4th quarter such as continuing strong job numbers and early signs of wage increases. These aspects  influence the health of the real estate market.

It seems there may be a lot of people that would benefit from closing cost assistance to help their homeownership dreams come true. I encourage you to check out a newly released guide outlining the availability of these programs for all U.S. counties. Share it with your friends who may be interested in home buying, too:

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Top 2015 Housing Predictions

National Association of REALTORS predicts the first-time home buyer will re-emerge in the new year after staying out of the market after the housing crisis. Access to credit and mortgage qualifications made easier, more employment opportunities should encourage young buyers to enter the market.

The top five housing predictions are:

1. Millennials will drive household formation and result in more first-time home buyers in the market.

2. Home sales are expected to rise 8 percent YOY and distressed property sales will make up a smaller share of growth.

3. Home prices will rise approximately 4.5 percent.

4. Mortgage interest rates will begin to rise by mid-year and will be an average 5 percent by year end.

5. Housing affordability will decline although still remain in a strong range.

Mortgage rates remain low, credit availability is increasing along with inventory levels. Don’t hesitate to get into the market and take a look at your options. It is a great time to buy or sell. For more help or info, contact me.

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Does it Still Make Sense to Own a Home?

Yes. Studies continue to indicate that owning, versus renting, a home is still the best way to accumulate wealth. So says The Center for Responsible Lending of Federal Reserve Board’s Survey of Consumer Finances.

A recent study found that the median net worth of home owners in 2013 was $195,400 while for a renter it was $5,400. Even after the substantial decline in wealth after the housing crisis of 2008, home ownership remains central to Americans’ ability to amass wealth. Most obviously, home owners can accrue substantial wealth through property value appreciation.

Home ownership requires buyers to save for a down payment and, as owners, those individuals have the tendency to continue saving in order to pay down on their mortgage. Renters could invest in savings but most do not. These points, and others, are discussed in the research paper by researchers at Harvard University’s Joint Center for Housing Studies and is a chapter in a new JCHS book, “Homeownership Built to Last.”

There can be lots of questions and confusion about becoming a homeowner. Need to talk about it? Contact me.

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Looking on the Bright Side

The unemployment rate for November is in from the Bureau of Labor Statistics. It’s unchanged at 5.8 percent from October. The economy is reported as having added 321,000 jobs – considerably more than the 214,000 in October or the monthly average gain of 224,000 per month over the past 12 months.

National Association of REALTORS predicts increases in employment opportunities in 2015 will spur aspiring homeowners to return to the market and this should help the continuing housing recovery. With access to credit improving, NAR also predicts there will be substantially larger numbers of young buyers in the market.

NAR is aligning with the national expectations that mortgage interest rates will climb to approximately 5 percent by mid-year. With inventory of homes increasing each month, it makes sense if you’re thinking about buying, you should get started to take advantage of rates that should be a thing of the past in the new year.


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