Tag Archives: Interest Rates

5 Predictions for the Housing Market in 2016 – NerdWallet

One thing that seems more and more clear to me is that so goes millennials so goes the nation in next decade. If millennials decide not to buy houses there is going to be a large wealth shift – we will become even more of a renter society. So, a stable housing market that young people want to participate in matters. A lot of people are outraged by our nation, and world’s growing wealth gap (and in many ways rightfully so), but not participating in ownership of housing could be one of the greatest factors in the next great wealth shift. A lot of numbers show that young people do want to own their own stuff, and have a more self-sustaining lifestyle in a lot of ways. I’m just very curious which direction my peers and I are going to trend towards in regards to housing.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

5 Predictions for the Housing Market in 2016

  February 5, 2016  Home Search, Mortgages

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A New Year brings new opportunities, and that’s certainly true if you’re looking to sell or buy a home in 2016. What exactly does the year ahead have in store for housing?

Industry experts point to a lot of promising signs — moderate increases in prices and sales, the creation of more households, and an improving job market — for the national housing picture in 2016. But the gains won’t look like they have over the past two years, and we’ll see more local housing markets stabilizing in the near future. And that’s a good thing.

After the deluge of damaging foreclosures and short sales that flooded U.S. cities during the downturn, a number of housing markets have recovered in a big way in recent years, to the relief of homeowners and economic analysts alike. In 2013, there were 5.09 million existing-home sales nationally, according to the National Association of Realtors. In 2014, sales dropped by 3.1% to 4.93 million. Although final figures for 2015 are not yet available, NAR predicted existing-home sales would close out the year at 5.3 million — nearly 7% higher than the previous year.

With NAR forecasting existing-home sales to rise by 3% to 5.45 million in 2016, experts say we’ll start seeing more balance return to the housing market in the near future.

Here’s a closer look at five key housing predictions for 2016:

1. Rising rates will squeeze first-time homebuyers most

The Fed’s move to increase interest rates in December reflects the major strides the U.S. economy has made as it emerges from the Great Recession. Higher rates (though they haven’t happened yet), along with rising prices and limited supply, will make it harder for some to afford a new home. The good news: Long-term mortgage rates will see only a gradual increase this year and will remain relatively low compared with what they were before the downturn.

Thirty-year fixed-rate mortgages, which averaged under 4% for most of 2015, will average 4.4% this year, according to Freddie Mac. Meanwhile, housing data firm CoreLogic, in its latest U.S. Economic Outlook report, predicts mortgage rates will increase roughly half a percentage point in 2016 over 2015.

If you’re a first-time homebuyer or you earn a lower income and haven’t had a raise lately, the rate increase might make it harder for you to afford a home. For the most part, though, a slight rate bump isn’t cause for panic and is unlikely to sideline most potential homebuyers, says Christian Redfearn, an associate professor of real estate at the University of Southern California.

Increasing mortgage rates will clamp down on refinancing activity as fewer homeowners will have enough incentives to refinance their current mortgages, according to CoreLogic. As a result, the firm is forecasting refinance originations to decrease by one-third this year.

2. Sales will rise, but modestly

Even though mortgage rates are rising, home sales will still be up about 3% this year as existing homeowners jump into the selling pool, according to a forecast from the National Association of Realtors.

After years of depressed prices, many homeowners have regained much of the equity they lost in the downturn, so they may seek to cash in on that value and sell in 2016 to move up to their next home, NAR President Tom Salomone says. In some markets, though, prices have increased too quickly, causing a bumpy recovery that’s priced out some potential homebuyers, he says.

“We don’t want these big peaks and valleys we’ve seen since the downturn,” Salomone says. “Steady, sustainable growth is what we’re after.”

As the economy continues to grow and more jobs are added, potential homebuyers with strong credit will be more willing to jump into the market too, Salomone says.

3. House prices will increase, too, but not at 2015 levels

Another trend that sellers in particular will appreciate: Home prices will rise again this year by 4% to 5% as demand increases faster than supply, according to CoreLogic. Although the increase in home prices will outpace inflation, it’s less than the 6% increase seen in 2015.

The more measured growth of home sales and prices is good news for the millions of younger Americans who are on the cusp of homeownership. However, experts agree that a shortage of housing inventory and new construction, which leads to bidding wars and competitive market conditions, will fuel higher home prices until more sellers enter the market or more homes are built.

“We haven’t built enough housing for a long time,” Redfearn says.

4. Housing demand will be up

The improving job market has been a boon for new household formations, a term that refers to configurations of people who live together under one roof, be it you and a few roommates, a married couple, a nuclear family of four, or just you. This increase will continue in 2016, with more than 1.25 million new households expected to be formed.

Millennials — all 83.1 million of them — now outnumber baby boomers and comprise more than a quarter of the U.S. population, according to the Census Bureau. Many of them are moving out of their parents’ homes, getting married or having children. As they do, these young Americans will create higher housing demand, particularly for rental homes.

This new surge in demand is expected to spur more construction of single-family homes and multifamily apartment buildings, but not at the pace needed to keep up with new households. NAR forecasts 1.3 million single-family housing starts this year, but the country needs 1.5 million to keep pace with demand.

Freddie Mac predicts total housing starts will increase 16% from 2015 to 2016, but it’s still not enough. That’s why more people are turning to the rental market, which is faced with a similar crunch.

5. Rents will also rise

Construction of multifamily homes will increase this year, but there’s still a shortage of rental homes for the millions who need them. Rental vacancy rates are at or near their lowest level in 30 years, according to the CoreLogic report. Accordingly, rents in 2016 will continue to rise faster than inflation, CoreLogic predicts.

With rents climbing, it’s no wonder so many millennials struggle to afford a down payment. For starters, 41% of them are saddled with student loans that frequently run into the tens of thousands, according to NAR. Plus, wages are growing slowly or not at all as rents and other living costs get steeper. It’s a combination of challenges that makes it hard to save for a down payment on a home, experts say.

Homeownership rates will dip slightly again this year as the number of new households that rent exceeds the number of new homebuyers. However, 94% of renters under 34 surveyed by NAR say they still want to buy a home in the future, and that bodes well for a more balanced market in the years to come, Salomone says.

The bottom line

The housing market has come a long way since the Great Recession, but the recovery has been uneven, and some areas still have a long way to go.

A sustainable housing market, Salomone says, is one that’s fair for both buyers and sellers. All the signs we’ve mentioned point to a more balanced road ahead for housing, but it’ll take a little more time to get there.

Federal Reserve Decision: Fed signals that higher interest rates are coming – The Washington Post

History of Interest Rates
Interest Rates From 1960 to 2015

 

*The above chart shows interest rates from 1960 to 2015, and if you click on the picture it will take you to a site where you can put in your own years and compare rates.

Buying a home is normally not a process that requires much political acumen. Over the last several years The Federal Reserve (our nation’s central bank), which is also referred to as “The Fed” has increasingly become a hotbed for political gamesmanship, as well as actual concern for people of differing perspectives. The Federal Reserve essentially sets the interest rates for lending in our nation, and thus when someone is getting a home loan the decisions of The Fed to adjust rates has a real life impact on average citizens, especially when purchasing a home (as this is likely the largest loan that an American citizen will ever take out).

So, with the recent update announcing that The Fed is likely to allow interest rates to rise after several years of keeping them unusually low (and saving borrowers money), at a cost to the American people. Having low interest rates has been a source of economic stimulus that is intended to be paid back later by the American people. With all of this said, you can observe the chart above where it measures the interest rates from 1960 through 2015. We are sitting at a very low level of interest at this time, and though it may go up it may not actually be as scary or ominous as some might make you believe. However, if you are intending to buy a home the time is ripe for getting a loan. The rates will almost assuredly not get any better, and will likely move in the other direction to some degree or another. I have included a mortgage calculator on this site in multiple places, but if you would like to play with the numbers and see how an interest rate hike will affect you feel free to play below:

How Will Interest Rates Affect Me?

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My father Kent Carter has been a mortgage lender for over 30 years, and he has served as President of the Oklahoma Mortgage Bankers Association (OMBA). I of course think he is wonderful, but whether you contact him or someone else this should be the first step that you take if you are interested in buying a home and don’t have the cash to pay for it without a loan. I actually put that on my business cards – if I help someone find their dream home and we need to move quickly to make an offer it is pretty upsetting when they realize that not having a pre-approval letter from a lender means that they must wait and might miss out on a home that they want. So if you are looking to buy a home stop what you’re doing and ask a few lenders what their rates and fees are, don’t wait! Ok, I’ll stop so that you can read the article if you’re interested in learning about The Fed and the current politics of interest rates, but if you are looking to buy a home soon Please don’t wait to line up your lender, and feel free to let me help you buy your next home 🙂

Roadmap to Buying A Home

If you’d like to read about a layman’s experience with buying a home in Oklahoma click the picture of the cute couple above, or Click Here.

-Grady

My Business Card

 

Federal Reserve Decision: Fed signals that higher interest rates are coming

 March 18 at 2:04

The Federal Reserve cleared the way for raising interest rates for the first time in six years, dropping the words “can be patient” from its guidance to investors.

But the central bank’s open market committee said a rate hike was “unlikely” at the April meeting. And while it has indicated that a rate hike could come as early as June, it might also wait until later in the year before boosting rates if inflation remains tame and below or near the 2 percent Fed target.

Higher rates have wide ramifications for global markets and for consumers, who could see higher costs associated with taking out mortgages and car loans.

Ever since the financial panic of late 2008 and 2009, the Fed has kept its target range for federal funds between zero and a quarter of a percentage point, the longest period ever of such low rates. Fed chairman Janet Yellen and other Fed officials have been saying they want to start moving rates back to “normal” levels.

The committee said it would raise the target range for the federal funds rate “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” It added that the “change in forward guidance does not indicate that the Committee has decided on the timing of the initial increase.”

The Fed has more modest expectations for the economy than it did just three months ago, an outlook that suggests a more cautious approach to boosting interest rates. It said growth “has moderated” while labor market conditions had “improved further.”

The Fed lowered its forecast for economic growth to a high of 2.7 percent in 2015 and 2016, down from an upper end of 3 percent it forecast just three months earlier. Unemployment was a spot for optimism. The Fed said that unemployment this year would edge down to a range between 5.0 and 5.2 percent, slightly lower than its December projections.

Over the past six months, low oil prices have helped keep inflation and inflation expectations modest, spilling over into inflation for other goods. The central bank lowered its own forecast for 2015 core inflation – excluding oil – to a high of 1.4 percent from a forecast high of 1.8 percent last December.

But it has said that the steep drop in oil prices was temporary and some professional economists have blamed bad weather in the northeast for causing gross domestic product to slip about one percentage point.

The open market committee also sought to reassure investors about interest rates beyond the next few meetings. It said that “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

While it made scant mention of “international developments,” most economists said that the strong dollar and aggressive steps by the European Central Bank and Bank of Japan were already having an effect similar to a rate increase by curtailing U.S. exports.

John Canally, Chief Economic Strategist for LPL Financial, said that the Fed had provided “a spoonful of sugar” to help the change in phrasing go down easily in stock and bond markets. He pointed to lower interest rate expectations among the FOMC members.

In a survey of its own rate expectations, the 17 members of the committee indicated that their own forecasts for the federal funds rate were considerably lower than they were as recently as December.

Today, only four of the 17 said federal funds rates would be 1.125 percent or higher by the end of 2015 and seven of the 17 said the rate would be 0.625 percent or lower. In December, nine of the 17 said the Fed would raise the federal funds rate to 1.125 percent or higher.

The last time the Fed raised rates was 2004, said Canally. “That’s 11 years ago,” he said. “A lot of the guys on bond trading desk now were in high school. It’s a long time ago. There’s no institutional memory.”

That’s why he expects some volatility in stock and bond markets, even though, he notes, stocks have gone up in eight of the last nine years following rate hikes.

Much rests on the Fed’s decisions on the short-term federal funds rate, especially if longer term interest rates follow suit. Canally said that while higher rates would hurt borrowers, especially those seeking short term mortgages or car buying credit, higher rates could also help savers who have an estimated $15 trillion to $20 trillion of interest bearing assets.

Even in the housing sector, the impact of higher federal funds rates could be moderated by the decline in the business of adjustable rate mortgages, which Fannie Mae economist Doug Duncan estimates make up just 4.5 percent of the mortgage market.

Steven Mufson covers the White House. Since joining The Post, he has covered economics, China, foreign policy and energy.

Federal Reserve decision: Fed signals that higher interest rates are coming – The Washington Post.