April 19, 2016
Recently we have been discussing a variety of factors affecting the markets. These factors have included oil prices, the international economy, terrorism, inflation, job growth and more. When there are so many other important things going on around us, sometimes we neglect to focus upon factors which are not a major explosion, but give us a good reading as to the direction of the economy and the markets. That is why this week we are talking about corporate profits.
Our first quarter has ended and major companies have been reporting their profits for several days now. Corporate earnings growth fell throughout 2015. It is no coincidence that the stock market rally stalled last year and interest rates stayed lower than we expected. Stocks were volatile in the first quarter of this year, but by the end of the quarter, things were pretty much where they were for the past year -- which is flat. And rates are still lower than expected.
Certainly corporate profits are a function of the economy and we expect a stronger economy to boost profits. Thus, the first quarter's earnings reports are being watched carefully in this regard. The price of commodities, especially oil, has really hurt profits in the energy sector. You can see how inflation, the economy and all of these factors are intertwined. Thus when the Fed meets next week, they will also have a fresh batch of data in the form of earnings reports. And if these reports continue to be weak, there will be less chance of a rate increase. It is not the only factor, but certainly one to watch this month.
In the past week, rates on home loans fell slightly again to their lowest point in almost three years. Freddie Mac announced that, for the week ending April 14, 30-year fixed rates fell to 3.58% from 3.59% the week before. The average for 15-year loans was also slightly lower at 2.88%. The average for five-year adjustables increased slightly to 2.84%. A year ago, 30-year fixed rates were at 3.67%, close to today's levels. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Demand for Treasuries remained high this week, driving yields to their lowest point since February. In response, 30-year fixed rates fell 1 basis point to 3.58 percent. This rate represents yet another low for 2016 and the lowest mark since May 2013." 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.
Current Indices For Adjustable Rate Mortgages
Updated April 15, 2016
|6-month Treasury Security
|1-year Treasury Security
|3-year Treasury Security
|5-year Treasury Security
|10-year Treasury Security
|| 1.179% (Mar)
|| 0.410% (Mar)
|11th District Cost of Funds
|| 0.670% (Feb)
|| 3.50% (Dec)
| Writer Jason Zweig recently wrote a forward-looking letter to his grandchildren for The Wall Street Journal that documents the joys of home ownership and what many young adults may miss out on if they continue to be lifelong renters. Zweig writes that it took him decades to learn the true value of home ownership, beyond the advantages of equity building. Zweig reminisces in the letter as he and his brother help to move out their 87-year-old mother from the place she called home for half a century. The home contained memories for the family – where the family grew up and even where her husband died in 1981. Their mother had turned the home almost into a museum of family treasures over the years. As the mother told her sons: “I have no emotional attachment to the house; I never liked it physically. But everything important that ever happened in our life as a family is here, and I can’t just leave all that behind.” Zweig’s letter talks about the true treasures of owning a home and the difficulty in saying goodbye to a place you call home for so many years. “A home is more than an investment,” he writes. “It is the place that helps shape who we are. Your generation may well be thankful that you don’t have to bear the burdens of owning one – the mortgage, the maintenance, the pain of pulling up roots that run decades deep. My generation, and my mother’s, are thankful we had the blessings.” Source: NAR
A large number of homes have been converted to rental units in recent years. Most of these homes had been sold as a foreclosure or in a short sale. But many of these homes will soon filter back into the owner-occupied housing stock, which some experts say could be one answer to alleviating inventory shortages. It also could propel remodeling activity. Researchers from Harvard University’s Joint Center for Housing Studies recently took a look at the process of reconverting these rental units back into the owner-occupied housing stock. To evaluate, they looked at owner-occupied homes in 1995 that were tracked over 20 years from the American Housing Survey. Nearly a quarter of the homes in the 1995 group were converted to a rental at least once in that period. “The pattern of home improvement spending on converted homes is particularly interesting,” notes JCHS researchers on their Housing Perspectives blog. “For homes that were converted to rentals and then converted back to home ownership, spending on home improvement projects was over 20 percent below average prior to being converted to a rental unit, and almost 20 percent above average after that same rental unit was converted back to home ownership. For every million rentals converted back to home ownership, therefore, there is expected to be almost a billion dollars more spent each year on home improvement activity. Source: JCHS’ Housing Perspectives Blog
Economists to real-estate agents have debated whether the housing boom and bust of the last decade has dramatically remade the way Americans live or merely created a temporary disruption. U.S. Census data released recently provides strong support for the latter thesis—that shifts in where Americans move were merely temporary, according to analysis by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. For one thing, the rate at which Americans are moving to the suburbs is once again outpacing the rate at which they are moving to cities. That picks up on a decades long trend that only very temporarily reversed during the recession. Urban counties grew by 0.8% in 2015 to roughly 77 million people, compared with suburban counties, which grew by nearly 1% to 159 million people. Mr. Kolko defines counties as urban based on how dense they were as of the 2010 census. Source: The Wall Street Journal