Did The Fed Waste Ammunition? Is this really the lowest of low?

March 3rd, 2020 at 11:00 am

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Even before we saw the jobs report, the Federal Reserve decided to step in with an "emergency" rate cut in response to the coronavirus crisis before their next scheduled meeting. Even though we have not seen many negative reports on the economy, the Fed saw what was on the horizon. The only problem is that the markets viewed this as somewhat of a panic move by the Fed -- verifying that the worst may be coming. The stock market rallied the day before the news, but fell back after the Fed acted. From there, the recent volatility continued.

Of course, one day of reaction does not mean that the Fed's move was not on target. We do know that if a coronavirus slowdown hits, the Fed will have less ammunition to fight with, as their short-term rates are pretty close to zero. With regard to the jobs report, the economy still seems strong to us. The increase of 273,000 jobs in February was above expectations. There was also a revision upward of January's strong report -- to the tune of almost 50,000 jobs. Together the report was seen as much stronger than expected. The headline unemployment number rose to 3.6%, still near a historic low. Wage increases were at 3.0% annually, meaning that inflation remains under control.
The next report that is released will not be considered a "pre-virus" report, though certainly the full effect of the virus may not be seen for some time within our economy. We obviously receive a lot of goods from China and the shortages which are cropping up will likely have some impact. Certainly, the travel industry will be affected as well. How much, we are not sure. We can say that our lower interest rates will counter with some positive stimulus in the short run, especially within the real estate markets and with regard to refinances.
The Markets. Rates officially hit their all-time lows last week. For the week ending March 5, Freddie Mac announced that 30-year fixed rates moved down to 3.29% from 3.45% the week before. The average for 15-year loans decreased to 2.79% and the average for five-year ARMs moved down to 3.18%. A year ago, 30-year fixed rates averaged 4.21%, over 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac - "The average 30-year fixed-rate home loan hit a record 3.29 percent this week, the lowest level in its nearly 50-year history. Meanwhile, applications for home loans increased 10 percent last week from one year ago and show no signs of slowing down. Given these strong indicators in rates and sales, as well as recent increases in new construction, it’s clear the housing market continues to be a positive force for the broader economy." 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
March 6, 2020 Monthly Value February
6-month Treasury Security 1.51%
1-year Treasury Security 1.41%
3-year Treasury Security 1.31%
5-year Treasury Security 1.32%
10-year Treasury Security 1.50%
12-month LBOR 1.382% (Feb)
Prime Rate 4.25% (March)
Sales of newly built single-family homes saw a large jump in January, as warm weather in many parts of the U.S. prompted an early start to the homebuying season, says Jing Fu, director of forecasting and analysis at the National Association of Home Builders. New-home sales rose 7.9% in January to a seasonally adjusted annual rate of 764,000 units, the U.S. Commerce Department reported. Sales are 18.6% higher than a year ago and are at the highest monthly sales pace since July 2007. While sales are increasing, inventories remain low. New-home inventories are 6.6% lower than a year ago and are at the lowest supply since 2017. “The months’ supply has fallen to 5.1 [months], indicating additional housing inventory is needed,” Fu says. That echoes the calls of many economists from the real estate industry—including the National Association of REALTORS®—who have been calling on home builders to ramp up residential construction to meet growing demand among home buyers. “Demand conditions in January continued to be favorable for new-home sales,” economists Ben Ayers and Daniel Vielhaber wrote in a research note on Monday. “Unemployment and mortgage rates continue to be very low, household formations continue to run hot, while the inventory of existing houses on the market is extremely limited, pushing more home buyers into the market for new homes.” The median sales price was $348,200 in January. A year ago, it was $305,400. Source: MarketWatch
Millennials and Gen Zers exploring the possibility of homeownership are still getting assistance from the Bank of Mom and Dad to help finance their property purchasing, according to a new survey. The survey, which polled 1,045 adults, found 77 percent of Millennials and Gen Zers are expecting to receive financial assistance from their parents to purchase their first home. The most common expectations included downpayment assistance (38 percent), co-signing the home loan (31 percent) and covering closing costs (24 percent). Of those expecting down payment assistance, the majority of respondents were looking for less than $10,000, while 19 percent anticipated $10,000 or more. Among the one in four Millennials and Gen Zers who indicated that they were not interested in buying a home, 61 percent said they would be willing to change their minds if their parents helped them. On the parents’ side, 65 percent said they were willing to help their children buy a home. However, 76 percent of parents said they had yet to provide this type of financial support. Source: DS News -- Contact us for a free article entitled "Do You Want to Help Your Children?"
It is growing harder for middle-income Americans to afford to rent an apartment, the Harvard Joint Center for Housing Studies reported. Higher-income households have accounted for much of the growth in rental demand since 2010 and new supply has focused on the multifamily market’s upper end. Meanwhile, rising demand and constricted supply have reduced the stock of low- and moderate-cost rental units, leaving modest-income Americans caught in the middle, Harvard’s America’s Rental Housing 2020 report said. The report said households with incomes exceeding $75,000 accounted for more than three-quarters of the growth in renters between 2010 and 2018. “This shift has significantly altered the profile of the typical renter household,” it said, calling a growing number of renters with incomes between $30,000 and $75,000 “cost-burdened” by paying more than 30 percent of their income for housing. In addition, most of the lowest-income renters spend more than half of their monthly income on housing, the report said. “Despite the strong economy, the number and share of renters burdened by housing costs rose last year after a couple of years of modest improvement,” said JCHS Managing Director Chris Herbert. “And while the poorest households are most likely to face this challenge, renters earning decent incomes have driven this recent deterioration in affordability.” Source: JCHS