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Will Inflation Affect Home Buying?

Mortgage rates have been low for quite a long time now. Even recently, when they’ve started to creep up, they’ve come back down again. But we all know this can’t last forever. In fact The Federal Reserve Chair, Janet Yellen, recently indicated rate increases can be expected in the not too distant future. 

Well, she may not have mentioned mortgage rates specifically. But when the Federal Reserve stops buying up bonds and allows inflation to take its natural course — that means it will rise — then mortgage interest rates will also be affected, along with many other costs associated with purchasing and owning a home. 

The Basics
So how does inflation affect mortgage rates? Let’s start with understanding what inflation is. Inflation basically means that prices are rising. When inflation runs its natural course, the cost of products slowly rises, so that you’re paying more for the same item. In a stable economy, wages will rise to match inflation, so that costs aren’t out of control and the people can still keep the economy moving by making purchases and circulating cash. 

As a country we are in a good place economically now, with low unemployment, rising wages, and robust consumer spending. However, if the people start spending more, and create a risk of supply not being able to meet demand for goods and services, the Fed may raise interest rates to slow things down. So a strong economy can itself trigger inflation to grow, affecting your clients’ purchasing power and home buying prospects. 

Show Your Clients Why They Should Buy NOW 
When inflation rises quickly, your clients’ buying power won’t keep up, and they won’t be able to buy the same items and services for the same cost as they once could. That includes their mortgages: Inflation will cause the mortgage interest rate, and possibly the fees associated with a home mortgage purchase, to rise. For some people this could put homeownership out of reach. Consider this example: When interest rates are at 5 percent, a homebuyer can pay around $1,600 per month on a $300,000 loan; but at 6 percent, $1,600 per month gets them a loan of $270,000. 

Additional Concerns
In addition to your clients’ mortgages costing them more, the house itself will cost them more. If you’re selling a homebuyer a brand-new home, the cost of lumber will have increased, raising the price. Even in an older home, clients will be paying higher rates: for new carpet, for the HVAC serviceman, for the home warranty. 

Of course, no one can say with certainty how prices and inflation will change over the next six months, or 12, or the next five years. What we do know is that mortgage interest rates are still at historic lows; that home prices are still incredibly affordable, but they are rising; and that inflation will probably soon be on the rise: all factors which make now the right time to buy a new home. Please share my contact information with your clients and encourage them to all me to review their personal financial situations. Together we can get your clients off the fence and into a new home!

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Business Leadership: American National University

On April 2nd, 2015 Katherine Farber spoke for a class at American National University on Candlewood Ct in Lynchburg, VA about her experience as both a realtor for Keller Williams and as a business owner, being the owner of The Lynchburg Team - Lynchburg Real Estate Services, KW.  She fielded questions from the classroom of students about lead generating, lead tracking, the real estate process, the day to day challenges a realtor faces and the challenges of running a business.  She spoke about the hiring process for members of her team, focusing on her vision of training and focus - with The Lynchburg Team, Lynchbug Real Estate Services all team members undergo rigorous and continuing training to ensure that they are well versed on every aspect of the real estate transaction, and all team members have a very specific focus within the company to ensure that they are able to focus on their "One Thing". Each member of The Lynchburg Team is able to dedicate all of their time to their specific field of focus, ensuring our clients receive excellent customer service from someone who will only have that client's best interests in mind. Katherine routinely volunteers to teach about the home buying process, particularly for first time home buyers, and can often be found at colleges in the spring and early summer months helping educate the community.  In addition to the training and educating she volunteers for at local colleges, Katherine volunteers for several other local charities and causes.  For instance, currently The Lynchburg Team is coordinating a donation drive for Human Kind, accepting canned goods and non-perishable items.  

Brandon Farber

Brandon Farber

 

Last Week's Economic News in Review

Last week saw encouraging housing news with sales of existing homes reaching their best rate in 12 months, and new home sales hitting their fastest pace in seven years. Also, layoffs enjoyed a better-than-expected drop. 

Existing Home Sales 

Sales of existing homes hit their fastest pace in a year, rising 1.2 percent to an annual rate of 4.88 million in February, according to last week’s report from the National Association of Realtors. All told, sales of existing single-family homes, townhomes, condominiums and co-ops were 4.7 percent higher than the same period a year ago. 

That said, prices climbed as well. The median price for existing homes of all types hit $202,600 in February, which was 7.5 percent higher than February 2014’s price. This marked the 36th straight month of year-over-year price gains. It appeared that higher prices caused by winnowing supply were holding the market back, according to NAR chief economist Lawrence Yun. 

“Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” Yun said in a public statement. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.” 

Looking at inventory, the total pool of existing homes for sale at the end of February grew 1.6 percent to 1.89 million units, representing a 4.6-month supply of available homes at February’s sales pace. 

New Home Sales 

New home sales hit a seven-year high in February, with sales of new single-family homes hitting an annual rate of 539,000, the Census Bureau and the Department of Housing and Urban Development reported last week. February’s pace was 7.8 percent higher than January’s revised rate of 500,000 and was 24.8 percent higher than February 2014’s pace of 432,000. 

John Johnson, chief executive of homebuilder David Weekley Homes attributed February’s gains to improved consumer confidence and low interest rates. 

“There’s evidence that buyers who had been forestalling or delaying their decision are now comfortable enough to buy,” Johnson told the Wall Street Journal. “And there’s some awareness that interest rates aren’t going to stay down forever.” 

Looking at price, the median sales price of new homes sold in February was $275,500, and the average sales price was $341,000. The estimated inventory of new homes for sale at the end of February was 210,000, representing a 4.7-month supply at February’s sales pace. 

Initial Jobless Claims 

First-time claims for unemployment benefits filed by the newly unemployed beat analysts’ expectations, and fell to their lowest level in five weeks. Initial jobless claims filed during the week ending March 21 dropped to 282,000, a decline of 9,000 claims from the preceding week's unrevised level of 291,000, the Employment and Training Administration reported last week. This beat job market watchers’ expectations that claims would come in at 290.000 for the week. 

The four-week moving average — considered a more stable measure of lay-offs — fell to 297,000, a drop of 7,750 claims from the prior week’s unrevised average of 304,750. 

All in all, a sustained low level in layoffs spells good things for the job market, because it typically corresponds with increased hiring. 

“If we continue to see claims down here, you can expect to see more payroll gains,” said Raymond Stone, managing director at Stone & McCarthy Research Associates, told Bloomberg. “The good, strong gains we’ve seen in payrolls will continue.” 


This week we can expect: Monday — Personal incomes and spending for February from the Bureau of Economic Analysis. Tuesday — Consumer confidence for March from The Conference Board. Wednesday — February construction spending from the Census Bureau; car and trucks sales for March from the auto manufacturers. Thursday — Initial jobless claims for last week from the Employment and Training Administration; February balance of trade from the Census Bureau and Bureau of Economic Analysis; February factory orders from the Census Bureau. Friday — March unemployment, payrolls, hourly earnings and average workweek from the Bureau of Labor Statistics.

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Make A Difference in your community!

Human Kind's Mission Although the words have changed, the essential mission of HumanKind has remained constant during our 110-year history: to strengthen individuals and families through care, counseling and education. Their Vision We envision a compassionate society where the inherent value of every person is recognized, where families are healthy, and communities where everyone can prosper. Their Values Our values are service, integrity, teamwork, excellence, developing potential and diversity. Our commitment to our values is intended for ever individual we encounter and this is how we live them out: Service is humble, professional and compassionate Integrity is demonstrated by dignity, ethics and respect Teamwork is seen in positive attitudes, collaboration and shared  responsibility Excellence is measuring quality while striving for continuous improvement Developing Potential is encouraging and fostering growth in effectiveness Diversity is respected, encouraged and celebrated - See more at: http://www.humankind.org/about-us/mission-vision/#sthash.0chshaqr.dpuf   The Lynchburg Team - Lynchburg Real Estate Services Keller Williams is proud to support Human Kind, a nonprofit organization, and hope that you will help support them too by Donating Today!  Donate the items below by Calling 434-879-3275 or email Contact@thelynchburgteam.com to help families in need. Human Kind helps families improve their lives by giving them the tools they need to succeed in life!  Rice  Beans Baby food Canned vegetables/fruit Canned Meat Cereal Baby Formula Diapers Sauces Shampoo Conditioner Soap Toothbrushes Toothpaste Deodorant Floss Mouthwash Pasta Pasta Sauce Cake mix Jello Pudding Cleaning Products Baby Wipes

Katherine Farber

Katherine Farber

 

Metallic Wallpapers Make Your Home Shine

In 2015, silver and gold have shimmied out of the jewel box and onto the wall — and whether subtle silver or bold gold, wallpapers with hints of metallic are hardly wallflowers.
  “As the economy begins to look up, consumers are having more fun with fashion, and that attitude translates to home design, too,” says Gina Shaw, vice president of product development at York Wallcoverings. “Metallic home accessories are making a comeback because of the fashion influence of metallic shoes, bags and clothing.” Metallics add interest and dimension many rooms in your home. “They work well with any style, modern to traditional and come in a range of styles from solid backgrounds to just a hint of shimmer,” Shaw says. Try out the trend with mica, sand and glass bead patterns that whisper with subtle shimmer, or go full-out with designs that incorporate mylar for a gleaming mirror-like look. Five tips for decorating with metallic wallpapers: Create a grand entrance with metallics in an entryway.
A powder room is another small space where metallics can make a big statement.
Use metallic wallpapers to complement bronze, copper or pewter decorative hardware or stainless steel finishes in kitchen appliances.
A soft, shimmery metallic in a bedroom can create a cozy environment conducive to sleep.
Don’t forget the “fifth wall” – try a shimmery metallic overall texture on the ceiling.
Like the idea of metallic wallpaper but not up for doing it yourself? Contact me for a referral to a home improvement contractor who can install wallpaper for you. I can also put you in touch with a designer who can help you envision ways to incorporate the metallic trend in your home. Image source: York Wallcoverings

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Specialty Consumer Reports Track Your Employment, Insurance, Prescriptions and More...

Your ability to write a check, buy insurance and get a job can all be influenced by "specialty" consumer reports that track your behavior, according to a new report from Consumer Action, a nonprofit group that advocates for consumer rights. CA's new Insider's Guide to Specialty Consumer Reports explains: What information companies collect about you.
How to check what's in your specialty reports.
How to correct errors in your specialty reports.
Your rights under the Fair Credit Reporting Act.
What Do They Know About You? CA says specialty consumer reports were created so companies could check to see if you’re being truthful about things like your employment history or if you’re hiding health information from insurance companies. The most common types of specialty reports are: Alternative credit history
Check writing and bank account history
Background and employment screening
Insurance claims
Medical and prescription history
Residential tenant history
Utilities payment history
Knowing what’s in your specialty consumer reports is important because companies use the information to make decisions about your finances and employment. Checking your reports and correcting errors ensures you’re treated fairly by the companies that use specialty reports to make decisions about you.

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3 Tips to Staging the Inside of Your Home Like a Pro

Are you considering putting your house up for sale, but not sure where to start? Afraid it will take too long to sell, or that you won’t get the price you want? Think about “staging” your home, or in other words, setting the scene for immediate buyer interest in your property. To be really effective, you need to look at both the outside and the inside of your home. Here are 3 tips to get you started with the inside of your home: 1. De-clutter. This is one of the most important things you can do. It might be easier to think of de-cluttering like this – you’re moving anyway, so why not start packing now? Pack up everything you don’t need and store the boxes out of sight in the garage (or consider temporarily renting a small storage locker). 2. Organize your closets - put similar colors together, pants together, skirts together, shirts together etc. Why? Because it will make the closets look bigger. (Really.) An organized closet appears bigger, and you want your closets to look as spacious as possible. 3. Make your home look like a model. You want to de-personalize as much as possible so potential buyers can imagine themselves and their own belongings occupying the space in your house. That means minimizing – putting away everything you don’t need or use. Clear off kitchen counters as much as possible – stash all those appliances you don’t use, and put miscellaneous small clutter in a few attractive baskets or boxes And the biggest tip of all? Imagine yourself as a potential buyer looking at your property for the very first time. What impressions are you getting? Would YOU buy your house? What would you like to see changed before you put an offer on your house? And don’t worry about spending several thousand dollars to get your house ready to sell – you’ll get it all back when your house sells. Proper staging helps you sell your house in a shorter time and at the price you want.  

Brandon Farber

Brandon Farber

 

Last Week's Economic News in Review

Real estate was the big newsmaker last week, with existing and new home sales showing middling performance. While real estate was mixed, initial jobless claims took an unexpected bounce upward.

Existing Home Sales 

Sales of existing homes for January were a mixed bag. Transactions of existing single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent to an annual rate of 4.82 million in January, according to the National Association of Realtors. This was their lowest pace in nine months, but 3.2 percent higher than the same period a year ago. 

“January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” said Lawrence Yun, NAR chief economist. “Realtors are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”

Existing home inventory did tick up for January, growing 0.5 percent by the end of the month to 1.87 million existing homes available for sale, but was 0.5 percent lower than January 2014’s 1.88 million unit-supply. To Yun’s point, unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December. 

January’s median price for existing homes of all types grew to $199,600, a 6.2 percent increase over January 2014, marking the 35th consecutive month of year-over-year price gains.

“The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand,” Yun noted. “The big test for housing will be the impact on affordability once rates rise.” 

New Home Sales 

New home sales for January saw similar performance. Transactions of new single-family homes fell 0.2 percent from the previous month to a rate of 481,000, according to estimates released last week by the Census Bureau and the Department of Housing and Urban Development. While down on a monthly basis, January’s sales were 5.3 percent higher than January 2014’s estimated rate of 457,000.

Looking at price, the median sales price of new houses sold in January came in at $294,300, and the average sales price was $348,300. Looking at supply, the estimate of new homes for sale at the end of January totaled 218,000, representing a supply of 5.4 months at January’s sales pace.

Once again, real estate analysts were saying that a true housing recovery depends on other economic factors.

“We are still taking sort of a meandering, bumpy path toward recovery,” IHS Global Insight U.S. Economist Stephanie Karol told the New York Times. “We expect housing will improve later this year due to the improvement in the labor market and credit conditions.” 

Initial Jobless Claims 

Looking at one of those other market factors, employment, first-time jobless claims filed by the newly unemployed saw their biggest jump since December 2013 last week; that’s after falling by a similar amount the week before. Initial jobless claims for the week ending Feb. 21 shot up to 313,000, an increase of 31,000 claims from the previous week's revised level of 282,000, the Employment and Training Administration reported last week. 

The four-week moving average, which is considered a more reliable measure of jobless activity also saw a stiff increase, growing to 294,500, a gain of 11,500 from the preceding week’s revised average of 283,000. 


This week we can expect: Monday — January personal incomes and spending from the Bureau of Economic Analysis; January construction spending from the Census Bureau. Tuesday — February car and truck sales from the auto manufacturers. Thursday — Initial jobless claims for last week from the Employment and Training Administration; January factory orders from the Census Bureau. Friday — Consumer credit for January from the Federal Reserve; January trade balance from the Census Bureau; February unemployment, payrolls, hourly earnings and average workweek from the Bureau of Labor Statistics.

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Last Week's Economic News in Review

Last week’s economic headlines were a mixed bag, with producer prices and new home construction falling, while layoffs declined further than analysts had expected. 

Producer Price Index 

Producer prices witnessed their biggest decline since 2009, as cheap oil dragged the producer price index for final demand — the prices that businesses get for their goods and services — down by 0.8 percent in January, according to last week’s report from the Bureau of Labor Statistics. 

The decline in final demand prices was led by the index for gasoline, which fell a whopping 24 percent, the Bureau reported. Prices for diesel fuel, jet fuel, basic organic chemicals, and home heating oil also fell. 

January’s drop marked the third-straight monthly drop in PPI for final demand. Should the drop lend any credibility to jitters over possible deflation? Not according to Ian Shepherdson, chief economist for Pantheon Macroeconomics. 

“It’s absolutely not going to happen,” Shepherdson told the Wall Street Journal. “You need to have a broad decline in prices, and at the moment we absolutely do not have that by any stretch of the imagination.”

Housing Starts 

New home construction fell in January, with starts on construction of homes of all types dropping 2 percent to an annual rate of 1,065,000, the Census Bureau reported last week. Starts on single-family homes fell a sizable 6.7 percent to an annual rate of 678,000. 

Building permits issued for construction of private housing also declined, dipping 0.7 percent to an annual rate of 1,053,000. Permits for single-family homes dropped 3.1 percent to an annual rate of 654,000.

A key contributor to the attenuation in new home construction would be factors preventing first-time buyers from entering the market, such as student debt and rising prices. That said, increased employment — and hopefully future improvement in wages — will improve new home construction.

“We’re getting there, though gradually,” First Trust Portfolios LP deputy chief economist Robert Stein told Bloomberg. “We see the housing recovery continuing this year. It’ll be choppy, but we’ll see consistent improvement over the previous year.” 

Initial Jobless Claims 

First-time claims for unemployment benefits filed by the newly unemployed fell below expectations, after lay-offs saw an equally unexpected rise the week before. 

Initial jobless claims filed during the week ending Feb. 14 fell to 283,000 claims, a drop of 21,000 claims from the preceding week’s level of 304,000, the Employment and Training Administration reported last week. Last week’s jobless activity outperformed analysts’ expectations of a smaller drop to 295,000 claims.

The four-week moving average, considering a more stable gauge of lay-off activity, dropped to 283,250 claims, a decline of 6,500 from the preceding week’s average of 289,750. 

“It appears that once we come out of the Veterans Day to Presidents Day fog bank, when the individual readings tend to be prone to gyrations, we may settle at a pace of layoffs consistent with where we were before mid-November,” Amherst Pierpont Securities chief economist Stephen Stanley wrote in a public statement. 

This week we can expect: Monday — Existing home sales for January from the National Association of Realtors. Tuesday — Consumer confidence scores for February from The Conference Board. Wednesday — New Home sales for January from the Census Bureau. Thursday — Initial jobless claims for last week from the Employment and Training Administration; January consumer price index from the Bureau of Labor Statistics; durable goods orders for January from the Census Bureau. Friday — The Bureau of Economic Analysis’ second GDP estimate for the fourth quarter of 2014; consumer sentiment for January from the University of Michigan and Thomson-Reuters Survey of Consumers.

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Life After Cable TV

The number of American households ditching cable TV in favor of streaming or pay-as-you-go services is steadily climbing. New alternatives seem to be popping up all over as more people become frustrated with paying high fees for bundled packages that include many “junk” channels that they are just not interested in. Are you ready to stop paying for channels you don’t want?

Saving Money
Financially, it could be very much worth your while. If you’re paying $100 per month for a cable subscription, that comes out to $1200 per year — for many homeowners, a full mortgage payment. Alternatives such as Netflix ($7.99 to $11.99 per month), Hulu + ($7.99 per month) and Amazon Prime Instant Video (included with your Prime subscription, $99 per year) can provide films and TV shows on multiple devices at a fraction of the cost.

Mobility
Another plus to most of these cable alternatives is their portability. You can watch on your TV, through a gaming device, on a tablet, on a smartphone, on a laptop, on your desktop at work … all for one price. No extra equipment is needed to adapt your gadgets (are you paying for multiple cable boxes in your home?). Most can also pick up where you left off on another device: You started watching a movie on the TV in your living room, then picked it up on your smartphone during your lunch hour, and then on your tablet later that evening in bed. It’s entertainment when and where you want it; you can feel like you are in charge.

Choices
The inability to watch live TV is one reason you may be reluctant to disconnect from cable TV. Enter CBS All Access ($5.99 per month), which provides live streaming in many cities. New on the horizon is Sling TV, a Dish Network service that plans to offer live cable channels — including ESPN — for $20 per month, with no contract. Sling TV made a major splash at the 2015 Consumer Electronics Show, winning the Best of the Best award.

Of course, none of these services provides what we all really want: an a la carte menu of channels that we put together into a custom TV package. Luckily, innovation isn’t going anywhere anytime soon. And more choices are appearing on the horizon: HBO is considering offering HBO Go as a standalone to people who don’t subscribe to the cable channel; Showtime is also apparently getting aboard that wagon. PlayStation Vue is a cloud-based service that “reinvents the television experience,” according to its parent Sony. It plans to launch with 75 channels, contract-free, and it appears they will offer live CBS local stations in select markets.

The future may not be now, but it’s certainly stepped up the pace when it comes to entertainment options. As homeowners, ditching the cord — literally, in most cases, and how great will it be to get rid of those tangled wires? — is looking like a better option all the time.                                                                                 

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An Overview of 2014's home sales

The year of 2014 started out slow but moved into a healthy trend towards the summer and has continued to stay strong.  Median price for 2014 was $208,500, an increase of 5.8%. We appear to be nearing the end of the bounce-back effect on home prices and are moving back to a long-term growth path.   On an annual basis home prices appreciated 5.8% for 2014, returning close to the longterm average as we predicted last year.   Coming soon U.S. Economy: Provided by The Lynchburg Team - Lynchburg Real Estate Services - KW Call 434.879.3275 or email contact@thelynchburgteam.com for more information.       

Katherine Farber

Katherine Farber

 

Last Week's Economic News in Review

Last week's voluminous economic headlines featured a mixed bag of gains in personal incomes and consumer credit, while consumer spending dipped, the unemployment rate saw a slight increase, and layoffs increased as well.

Unemployment

Let's start with the unemployment news: The economy added 257,000 jobs in January, while unemployment rate for January ticked up by a tenth of a percent to 5.7 percent for the month, according to last week's Bureau of Labor Statistics report. Also, hourly earnings went up 12 cents to an average of $24.75 for the month.

So why did the unemployment rate go up while the economy actually added jobs? The answer is that more employable people were joining the job market. The Bureau's civilian non-institutional population, which is a fancy way of saying, "all employable Americans", grew by 696,000 people to hit 249,723,000.

Moreover, the labor force participation rate, which describes the number of employable Americans either with a job or looking for one, increased by 0.2 percent to 62.9 percent, while the number of discouraged workers (out-of-work Americans who have given up on hunting for a job) dropped to 682,000, which was down 155,000 people from the same period a year ago.

The net-net is that employment is on good enough an upswing and more workers want in on an economy that has added 1 million jobs since November.
"These are pretty amazing numbers," IHS Inc. Chief Economist Nariman Behravesh told Bloomberg. "The January number is strong, but then you've got sizzling November and December numbers too. And then you've got the wage gains."


Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed saw a moderate gain after a massive plummet from two weeks ago. Initial jobless claims for week ending Jan. 31 grew to 278,000, a gain of 11,000 claims from the preceding week's total of 267,000, the Employment and Training Administration reported last week.

The four-week moving average, considered a more reliable measure of lay-off activity, dipped to 292,750, a decline of 6,500 claim from the prior week's revised average of 299,250.

Incomes and Spending

Personal incomes grew by 0.3 percent to hit $41.3 billion, as did disposable personal income (DPI; income after taxes), which increased 0.3 percent $35.8 billion, according to last week's report from the Bureau of Economic Analysis. Meanwhile, personal consumption expenditures (PCE; consumer spending) dropped $40.0 billion, or 0.3 percent.

Meanwhile, personal saving — DPI less PCE, personal interest payments, and personal current transfer payments — grew to $643.2 billion in December from $568.2 billion in November. Similarly, the personal saving rate — personal saving as a percentage of DPI — grew 4.9 percent in December, compared with 4.3 percent in November.

"Consumers appear to be saving most of their recent windfall from lower gasoline prices," PNC Financial Services Group senior economist told Morningstar. "However, consumer spending growth will be solid in 2015 thanks to more jobs, higher wages, and lower energy costs. Households will be able to both spend more and save more this year."

Consumer Credit

Last but not least, consumer credit grew by 5.4 percent in December to hit a total of $3.3 trillion, a $14.7 billion gain, the Federal Reserve reported last week.

Encouragingly, the big gain was in revolving debt, such as credit cards, which grew 7.9 percent to $887.9 billion. This showed an increased willingness on the part of Americans to use credit cards for their spending. Meanwhile, non-revolving debt, such as student and car loans, showed a healthy 4.5 percent increase to reach $2.4 trillion for the month.

This week we can expect: Tuesday — Wholesale inventories for December from the Census Bureau. Wednesday — January budget from the Treasury Department. Thursday — Initial jobless claims for last week from the Employment and Training Administration; retail sales for January and business inventories for December from the Census Bureau. Friday — January important and export prices from the Census Bureau and the Bureau of Economic Analysis

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Do Oil Prices Affect Mortgage Rates

It may be hard to see how the sharp decline in oil prices will affect the housing market. We can all see that home heating bills will be lower, and it will cost less to make trips to the home-improvement store! But there are relationships between oil, inflation, and interest rates that you may want to pay attention to that can help you instill a sense of urgency in your clients who are thinking of buying or selling anytime soon.

A really basic way oil and the housing market are connected is that when oil and gas prices drop, people have more disposable income, and therefore can spend more on a home purchase. According to housingwire.com, non-oil-producing states may see housing prices rise as the population realizes benefits from lower prices. Manufacturers may be able to increase production inexpensively and hire more workers as well. On the flip side, oil-producing states may see layoffs and a climb in unemployment, which translates to less disposable income and less money to put into a home purchase. Experts do caution that the changes may not take effect immediately.

A more complicated relationship exists between oil and interest rates and the bond market. In general, the bond market and interest rates have an inverse correlation — that is, when one goes down, the other goes up. Bond prices and interest rates are inversely related: as one goes down, the other goes up. However, bond yield — the interest earned — and interest rates move in the same direction: when one goes up, so does the other. So when a Treasury bond has a high yield, overall interest rates are also higher. With more disposable income, investors are looking to the bond market and putting more money there. More investors equates to a lower yield, or return, on the bond investment. So as the yield on bonds is dropping, so is the interest rate on mortgages. It's a complex relationship but ultimately it can benefit your business as more people look at investing in a new home.

Now, to throw a monkey wrench into that scenario, consider that if oil prices stay low, leading to lower unemployment and possibly wage increases as well, fewer people will buy bonds, yields will increase, and interest rates — including mortgage interest rates — will also increase. Whew!

So are declining oil prices good for the housing market? The answer is … kind of, for now. And how does that affect you? It’s a great way to let clients know that If they're looking to make a change in their home ownership, whether buying or selling, it's a good time to make a move while interest rates are low and home prices have not yet risen. Please encourage your clients to contact me today to discuss their personal financial situation and to see how they can benefit from today's economic situation.                                                                                                      

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First-Time Homebuyers on the Comeback?

Jan. 23, 2015--Sorohan, Mike msorohan@mba.org
The past month has seen interest rate drops back under 4 percent; a surge in mortgage applications, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey; and now, an uptick in first-time homebuyer activity. The latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey said first-time homebuyer activity, buoyed by low interest rates, started to increase much earlier than the typical seasonal home buying trend. First-time homebuyers accounted for 36.3 percent of home purchases in December, based on a three-month moving average. Market share for first-time homebuyers increased in December after four consecutive months of declines, including a share of 35.0 percent in November. Tom Popik, research director for Campbell Surveys, noted that first-time homebuyer participation rebounded earlier than the seasonal pattern seen in previous years. “Market share for first-time homebuyers tends to decline throughout the winter and increase in the spring,” he said. The survey said in 2014, the market share for first-time homebuyers topped out at 37.6 percent in July, the highest level seen since 2010. “If the typical boost in market share for first-time homebuyers continues through the spring, the first-time homebuyer share of home purchases in 2015 will surpass the elevated activity seen last year,” the report said. MBA this week reports mortgage application volume increased last week to its highest level since June 2013, led by a 22 percent increase in refinance application volume, as 30-year fixed mortgage rates fell to its lowest level, 3.80 percent, since May 2013. MBA Chief Economist Mike Fratantoni said the recent reduction in FHA mortgage insurance premiums also played a role, noting FHA refinance applications increased 57 percent last week. Popik said a number of factors could help continue to increase first-time homebuyer activity in 2015, including sustained low interest rates, reduced FHA premiums, introduction of low down payment programs from Fannie Mae and Freddie Mac and strong mortgage origination activity in the Veterans Administration program. The report said time on market for non-distressed properties in December increased to an average of 10.3 weeks compared to 9.7 weeks a year ago. The sales-to-list price ratios on non-distressed properties in December fell by a larger amount than the more gradual decline seen at the end of 2013. In a separate report, FNC, Oxford, Miss., said its Residential Price Index showed the nation’s average home prices were largely unchanged from October to November. This trend occurs after prices declined for the first time in September following two-and-a-half years of modest-to-strong price increases nationwide. The report said weak housing activity, including sales of existing homes largely contributed to continued price weakness. The retreat in the annual rate of home price appreciation continues, down to 5.2 percent in November, compared to 7.9 percent in June. Year to year, average home price appreciation across the country dropped below 6 percent. This morning, Black Knight Financial Services, Jacksonville, Fla., said its First Look report said mortgage delinquencies dropped by 7.2 percent in December after spiking in November, bringing the national delinquency rate back under 6 percent and down to 5.6 percent for the month and nearly 13 percent down from this time last year The report said early stage delinquencies dropped by 220,000 from November; the number of loans 90 days or more delinquent decreased by 31,000. Prepayments jumped more than 25 percent from November, reaching its highest level since August 2013. While the report said the inventory of loans in foreclosure continued its decline, ending December at 820,000, down nearly 35 percent from the end of 2013. Foreclosure starts, on the other hand, saw a 21 percent month-over-month increase, although starts were still down by nearly 15 percent from a year ago.

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Last Week's Economic News in Review

While 2014’s existing home sales were slightly down, sales in December picked up steam, as did new home construction. Meanwhile, initial jobless claims fell, but not as far as the market had hoped.

Existing Home Sales

The pace of existing home sales rebounded last December, with transactions of single-family homes, townhomes, condominiums and co-ops rising 2.4 percent from November to an annual rate of 5.04 million, the National Association of Realtors reported last week.

Looking at the year in total, 2014 saw 4.93 million home sales, a 3.1 percent decline from 2013’s 5.09 million sales. That dip was chalked up to early lackluster activity that negatively impacted 2014’s overall performance. But while volume was down, prices hit their highest level since 2007. The national median existing-home price for 2014 hit $208,500, which marked a 5.8 percent gain over 2013’s median price of $197,100.

“Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated,” said NAR Chief Economist Lawrence Yun, summarizing the year. “Sales were measurably better in the second half — up 8 percent compared to the first six months of the year.”

Shifting back to December performance, total housing inventory for the month dropped 11.1 percent to 1.85 million existing homes for sale, which represented a 4.4-month supply at December’s sales rate. This was down from November’s 5.1 months and just 0.5 percent lower than December 2013’s 1.86 million.

Not surprisingly, that inventory drop had an effect on prices. December’s median existing-home price hit $209,500, which was 6 percent higher than December 2013’s median price, and marked the 34th straight month of year-over-year price increases. That’s a concern given that wages are not keeping pace with the real estate market, according to Yun.

“A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates,” he explained.

New Home Construction

While existing home inventory might have dipped, new home construction, especially for single-family homes, saw healthy gains in December. Building permits issued in December for the construction of private housing hit an annual rate 1,032,000, which marked a 1.9 percent gain over November, and a 1 percent increase of December 2013, according to last week’s report from the Census Bureau. Permits for single-family homes issued in December hit a 667,000, which was 4.5 percent higher than November and the highest point since mid 2008.

“The strength is where you’d like to see it, in single-family housing,” Societe Generale senior U.S. economist Brian Jones told Bloomberg. “It bodes well for residential real estate. It’s another thing going in the right direction for the economy.”

Starts on construction of private housing in December rose to an annual rate of 1,089,000, which was 4.4 percent over November’s revised pace of 1,043,000 and 5.3 percent higher than the December 2013 rate of 1,034,000. Starts on single-family homes in December shot up to a rate of 728,000, which was 7.2 percent higher than November’s revised rate of 679,000.

Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed dropped, but not as far as expected, according to last week’s numbers from the Employment and Training Administration. Initial jobless claims filed during the week ending Jan. 17 dropped to 307,000, a decline of 10,000 from the prior week’s revised level of 317,000.

Employment watchers had expected 302,000 claims. The question on many analysts’ minds was whether the third week in a row of jobless claims over the 300,000 mark was indicative of any trend, or merely the lingering impact of holiday hire layoffs

“It has to do with noise surrounding the end of the holiday season,” RBS Securities Inc. economist Guy Berger explained in a Bloomberg interview. “There isn’t any real sign that layoffs are picking up in any real sense. It seems like the labor market is entering 2015 in pretty good shape.”

The four-week moving average, which is considered a more reliable measure of jobless activity, hit 306,500, an increase of 6,500 claims from the preceding week’s revised average of 300,000.
 

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