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The Rate Rises – Short Term Loans to be Impacted


The Federal Reserve fulfilled expectations on Wednesday: It raised the range on the federal funds rate -- an overnight lending rate -- by 25 basis points (a quarter percentage point). Specifically, it raised the range to 1.25% to 1.5%. This was the fifth 25-basis-point increase in the past two years.

What the Fed Move Means for Real Estate

Tree 12-14-17

As most economists and financial analysts expected, the Federal Reserve voted to raise its key interest rate once again in a sign of confidence in the U.S. economy. The Federal Open Market Committee announced Dec. 13 that it would raise its target for the federal funds rate by a quarter of a percentage point for a new range of between 1.25 and 1.5 percent.

Field Guide to Mortgage Calculators


Sorting through the math involved in buying a home requires more than a device or app that adds and subtracts. That's why mortgage calculators have proliferated online. They come in many different forms and offer a surprising variety of functions to help us understand the financial implications of buying and owning a home.

Good Times Keep a-Rollin’, Here’s Why

Fall 12-4

Housing has led the economy. Housing leads the economy. The proof is in the data. 

The latest data show sales of new homes surged 6.2% to 685,00 units on an annualized rate in October. The surge lifts the sales pace to its highest point in a decade. It also lifts year-over-year sales growth to 8.9%.

What is Mortgage Preapproval and Why is it Important?

Autumn Home 11-29

Mortgage preapproval is often one of the first steps you will take in the complex process of buying a home. Like many other aspects of homebuying, it's one that's shrouded in mystery and its fair share of misconceptions. Particularly if you're a first-time buyer, it's essential to understand what mortgage preapproval is, why it's important and how to complete the process.

A mortgage preapproval serves two important purposes:

Still Going Strong, Will Keep Going Strong

Autumn Home

Housing led the economy out of the 2009 recession. It leads the economy to this day.

New housing activity is a big deal to economic growth. When all the inputs to a new home -- material, financing, sales, accouterments (furnishings and such) -- are factored in, it’s easy to appreciate new housings’ contribution to the economy. 

New housing activity remains a big deal, and it remains a big deal where it matters most. The single-family-home segment is where it matters most. 

Single-family-home starts were up a stout 5.3% in October. Starts rose to 877,000 on an annualized rate for the month. More single-family starts are in store. Permits rose to 839,000 on an annualized rate in October.

The numbers in total, which include the multi-family segment (also up in October), show starts at 1.29 million on an annualized rate. Starts have trended higher in recent months. They’ve trended higher for the past five years, but they remain below the historical 1.5 million (annualized) average. Room for growth exists. 

As for tenured homes, buyer interest creeps higher.

Existing home sales rose 2% in October to lift overall sales to 5.48 million on an annualized rate. Single-family homes led the charge. They rose 2.1% for the month.

Buyer interest is there. Seller supply continues to dampen enthusiasm, though. 

Total housing inventory decreased 3.2% in October. It’s now lower than it was this time last year. No one should be surprised when prices are considered. The median price for an existing home rose 5.5% to $247,000 in October. The October price increase marks the 68th consecutive month of year-over-year price gains.

We offer the usual caveat -- housing markets are local markets: Colorado, Connecticut; New York, New Mexico, they’re hardly the same. Overall, though, things look good. They look good despite a high degree of skepticism.  Read enough of the popular financial media outlets and you’re sure to encounter an article with at least one sentence that contains both “bubble” and “housing.”

A high degree of skepticism is a positive. The fact that many market participants are worried about a bubble suggests there is no bubble. The housing market remains a healthy market due in large part to healthy skepticism. 

Is it a perfect market? No market ever is. That said, we see little proof the housing market floats on air. 

Yield Curve Flattens, Should We Care?

Leafy Window

The yield curve has flattened in recent months: Short-term yields have risen; long-term yields have drifted lower. 

The yield on the 2-year U.S. Treasury note was 1.22% to start the year. The yield on the 10-year Treasury note was 2.45%. Today, the 2-year note yields 1.68%, the 10-year note yields 2.33%.  The yield on the 2-year note is up 66 basis points, the yield on the 10-year is down 12 basis points. (Yields on 20-year and 30-years bonds are also down.) 

Should we care?

We should. When the yield curve flattens, or inverts, a recession has usually loomed. The yield curve has predicted all U.S. recessions except one since 1950. The yield curve, though still normal (upward sloping), is the flattest in a decade. The last time the yield curve was this flat, an 18-month recession ensued.  

A flattening yield curve can indicate that market participants are worried about the macroeconomic outlook. They anticipate a slowing economy, which would prompt the Federal Reserve to lower interest rates and provide more liquidity. Market participants sell short-term maturities and go to long-term maturities because long-term debt prices will rise more on a lower-rate trend. 

That’s one reason.

The Fed simply raising the federal funds rate is another. This reason we know. The Fed has been raising the fed funds rate. It’s likely to raise it again next month. 

The Fed raising the fed funds rate, a short-term rate, could constrict credit growth. Rising short-term rates coupled with falling (or even steady) long-term rates could strangle credit growth. Lenders prefer a steeper yield curve because they earn a greater spread on the price paid for funds and the interest earned lending those funds long term. 

So, does this mean the good times will soon end? 

Not, necessarily. This time is different. Then again, this time is always different. 

A flatter yield could be the new normal. Few market participants before 2008 would have expected the Fed to hold the fed funds rate at close to zero, which it did for six years. That was an unprecedented new normal. Asset prices re-inflated while consumer-price inflation remained remarkably muted. 

The flattening yield curve also could be nothing more than a supply-demand reaction. The U.S. Treasury Department has said it wants to shift the focus to short-term debt. It wants to issue more bills and 2-year and 5-year notes and fewer long-term notes and bonds. More supply on the short-end requires higher yields to draw more demand. 

Our take is that things don’t feel “recessiony,” as unscientific as that explanation is. We still have low inflation, solid corporate earnings growth, persistent employment growth (with low wage inflation), and a lot of folks worried about the flattening yield (a good thing).

We see business as usual. Business as usual includes mortgage rates holding a tight range through the remainder of the year, with the range possibly holding into 2018. The range has held 3.875% to 4.125% on a prime 30-year loan.  We expect more of the same.


Just the Facts: Busting Several Mortgage Myths


Going into the mortgage process, it is common for many first-time or even seasoned homebuyers to have a few misconceptions. With reasonable and clear expectations, the entire process of obtaining home financing can be simple and painless. Here are few myths about the homebuying process, combined with the truths behind them.

The Economy Keeps Humming Along

River Home

Businesses keep doing what they’ve been doing for the past five years -- hiring employees and making money. 

What to know about FHA loan requirements

FHA rowhome

U.S. homebuyers have a number of financial tools at their disposal today when it comes to smoothing out the notoriously expensive and complicated process of purchasing a home. One of the oldest and most well-known is a publicly funded program from the Federal Housing Administration, popularly known as the FHA loan.