The Fed Reserve announced mortgage rate hikes for the first time in almost 10 years this week.  So what does that mean?  Good thing Syd Leibovitch breaks down all the financial markets and helps keep you informed.

 

First Fed rate hike in almost a decade – The Federal Reserve announced its first rate hike since 2006 on Wednesday.  This was widely anticipated. The rate increase was a 1/4% from the near 0% put into effect in 2008 to help lift the country out of recession. At the depth of the recession the U.S. unemployment rate had hit 10%. It has dropped to 5%. With such strong job gains most experts felt that a rate increase was overdue. Fed Chairperson, Janet Yellen stated that the economy was on solid footing, unemployment has dropped and is expected to drop further, and inflation, while below the target rate, is showing signs of normalization.  The Federal Funds Rate and Discount Rate are overnight rates set by the Fed charged to banks.  Following the Fed’s increase banks increased their prime rates by 1/4%. Most home equity lines are tied to prime, so they went up 1/4%. Longer term loans were not affected. They are the same as they have been for a couple of months. Short term adjustable loans will probably increase slightly. 

Stocks surged upon Fed rate hike announcement only to drop Thursday and Friday – Investors bought stocks following the announcement of a 1/4% rate hike by The Fed, as it was a clear sign that The Fed felt the economy was solid. The Dow gained 225 points Wednesday following the announcement.  Unfortunately, on Thursday and Friday the market was again rattled by fears that demand for U.S. Companies’ goods were slipping due to slowing overseas. On Friday we saw further drops, one was Apple, which has slid 10% in December, mostly due to weaker overseas sales. Oil and natural gas hit multi year lows in prices as demand has slowed. Auto sales were weaker that expected, and some banks reported earnings that were below expectations. The  Dow Jones Industrial Average closed the week at 17,128.55, down from last week’s close of 17,265.21. The S&P 500 closed the week at  2,005.55, down from last Friday’s close of 2,012.27.  The NASDAQ closed the week at 4,923.08, down from last week’s close of 4,933.37.

Treasury bonds yields  – Bond yields rose early in the week as did the stock markets, but dropped Thursday and Friday as investors sold stocks and moved money to the safety of bonds.   The 10 year treasury bond yield closed the week at 2.21%, up from 2.13% last Friday.  The 30 year treasury bond yield closed Friday at 2.92%, almost unchanged from last week’s close of 2.88%.  It’s interesting to note that 10 and 30 year U.S. treasury notes were actually paying a higher yield before The Fed raised rates on Wednesday than the yield they ended the week at on Friday.

Mortgage rates   –  Rates were slightly higher than they were last Friday, but are the same as they have been for the last couple of months, with the exception of last Friday. Anyone who locked in on that day saved 1/8%! The 30 year fixed rates are around 4.00% for loans up to $417,000, and around 4.25% for loans over $417,000.  The 15 year fixed rate loans are about 3.375% for loans up to $417,000, higher 15 year term loan amounts have rates that are around 3.50%. 3-Year ARM and 5 -Year ARM rates are both around 3%.  

California employers add just 5,500 workers in November – The U.S. Department of Labor released data showing that California employers added just 5,500 jobs in November. This was a significant slowdown from robust monthly gains seen throughout the year. The unemployment rate dropped to 5.7%, an 8 year low. Despite the unimpressive job growth wages grew 2.6% over the last 12 months in California, well above the 1.9% national rate for the same period.

Home sales and prices slide in November – The California Association of Realtors reported that the number of existing home sales (re sales) slipped 8.4% from October. Further, the number of homes sold was down 1.6% from November 2014. It marked the first time this year we have not seen a same month over month increase in the number of sales compared to 2014. These numbers do not make sense compared to the October pending sales figures which should have resulted in more closed sales than we had. We will need to wait until December to see how much of this decrease was due to transactions delayed because of confusion over The Consumer Financial Bureau’s – know before you owe disclosure regulations, known as TILA, which applies to all home loan applications taken after October 3, 2015. Many transactions closed late as lenders have been and are still confused on how to interpret the rules, and how to fill out the disclosures. Personally, to me, it looks like they took something that was confusing and made it almost indecipherable.  The purpose of the change was to make the costs, products and rates more clearly disclosed. This has not been the result in my view! The median price of a single family detached home in California dipped 0.2% in November, but was 6.8% higher than last November.

Have a great weekend!
Syd​


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