Interest rates dropped this week as did stocks after economic indicators in Europe and Asia showed slowing in their economies.
The Freddie Mac Weekly Primary Mortgage Market Survey showed that the 30-year-fixed rate was 4.15%. The 15-year-fixed rate was 3.24%. A year ago the 30-year fixed was at 4.51% and the 15-year was at 3.53%. We are looking at rates on all loans in the 4 1/8% range for 30 year fixed and about 3 1/4% for 15 year loans.
There is little to no difference in rates between conforming loans and jumbo loans. That is quite surprising. Conforming rate loans carry government insurance to protect investors on a portion of loan losses, while non conforming (jumbo) loans have no insurance on loses to cover investors. This means that conforming rate loans carry less risk to investors which is why historically their rates have been about 1/2% lower than non conforming or jumbo loans. In 2008 and 2009 jumbo rates reached 2% higher than conforming as nobody wanted to invest in uninsured mortgages! If you recall the Federal Reserve after taking short term rates down to 0% made the unprecedented move of beginning a buying program of $80 billion a month of treasury bonds and mortgages to add liquidity to the mortgage market. Last year they began drawing back those purchases. The fear was that interest rates would rise quickly without their intervention. That has not happened. In fact, there is such a demand for investment in mortgages that the amount of liquidity has created lower rates in an attempt to do more loans. The last time so much money was available for mortgages they lowered qualifying standards to what is known as sub-prime to encourage people to borrow more. This time around new laws enacted do not allow qualifying standards to drop so dropping rates have been the tool used to entice borrowers to take out mortgages. It is unprecedented to have conforming and jumbo loans the same rate. The above explanation is the reason why I feel this is happening. It should also be noted that the reason for all this money being invested in mortgages and bonds is because of political turmoil and economic uncertainty throughout the world causing people to move money to the US markets. This is also one of the reasons we are seeing so much foreign investment in our real estate market!
The 10-year Treasury note yield rate ended the week at 2.53% down from last week’s close at 2.65%. It was 2.60% a year ago.
The Federal Reserve released its minutes from last months policy meeting on Wednesday. They increased the draw down of the mortgage and bond buying program by lowering purchases another $15 billion this month and issued a statement that the program would end October 31, 2014. They also were divided on how long to keep short term rates near zero percent. They all felt that the US economy was beginning to grow at an accelerated rate, but they were divided on the risk of inflation. About half of them felt that short term rates needed to rise by years end to lower the risk of inflation, while the other half felt that inflation was under control and short term rates did not need to be risen until mid 2015. They did issue caution that rising oil rates due to increased tensions in Iraq, and the Middle East, along with the Russia and Crimea situation could rise to a level that could impact the economy. This could cause them to delay rising short term rates. They also spoke about better than expected jobs reports lately and that they expect to see the second quarter GDP numbers much better than the surprisingly poor numbers from the first quarter.
The Dow closed at 16,943.81. It was down -0.73% from last week’s close of 17,068.26 . The Nasdaq had another strong week, closing at 4415.49 up 0.17% from last week’s close of 4408.18. The S&P 500 closed at 1,967.51, up 0.37% from last week’s 1,960.23.
After the DOW closed over 17,000 for the first time ever last week, it dropped this week after a wide sell off on fears that slowing in Europe, and Asia as well as a potential bank collapse in Portugal could cause slowing here in the US. US stocks have been risen to record numbers recently and there are also fears that profits which are due out may not meet the lofty expectations built into these high stock prices. The numbers have been doing so well that it is believed the economy has made a recovery from the harsh Winter of Q1. Although there has been improvement in the jobs market and economy, it doesn’t seem to have directly impacted consumer spending which is a big factor in corporate profits.
Experts predict that S&P 500 companies results when released are expected to grow in Q2. . Tech shares took a hit, Facebook and Netflix both dropped over 3%, and Tripadvisor fell 5.5%. Shares traded reached 6.18 billion in the US which is a big jump from the May average of 5.79 billion active shares traded.
The Bloomberg Consumer Comfort Index rose to 37.6 in the week that ended on Sunday. It was the third-strongest reading since the start of 2008, up from 36.4 in the previous period.
All in all things are looking very positive for us. As I have reported for the past few weeks, we are seeing prices flattening out, so if your listing is not selling it is time to pay more attention to pricing. We are no longer seeing every sale being the highest sale. Many homes are sitting or selling below the highest comp. These homes are still higher than sales a year ago, but many are lower than the very highest sales just 45 days ago. We are also seeing all cash investors pulling back which is creating more opportunity for owner occupied purchasers that are using financing to purchase. These buyers were losing out to cash purchasers a couple of months ago, but are having more success now.
Have a great weekend!
If you’d like more information on the San Fernando Valley or Los Angeles, or to have help looking for your next home, please feel free to reach out! I’m happy to help, no obligation.