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Throughout the tepid recovery from our deep recession we have emphasized again and again that we have faced a crisis of confidence. Companies that are not confident do not hire workers. Consumers that are not confident do not purchase cars and houses. Little-by-little confidence has been recovering. Not coincidentally, the economy has also been recovering "little-by-little." The question is -- what is affecting confidence today? We have some very conflicting factors. On the negative side we have the crisis in Europe hanging over our heads every day. The average American is not affected by the crisis, but certainly many read the headlines. On the other hand, many companies are directly affected by the slowdown overseas. Certainly, the sharp stock market correction of the past month has been a reflection of the issues in Europe and this stock contraction affects both consumer and company confidence. As we wrote previously, there is the "power of the Dow" and right now that power is working against boosting confidence.
On the positive side of the coin, oil prices are down and the real estate market is showing some sparks of life. When gas prices are down, consumers feel more confident not only because they have more money to spend on other purchases, but like the stock market there is a psychological reaction. Likewise, record low interest rates help fuel major purchases of cars and houses because consumers have a sense of urgency to act before rates reverse their course. The conclusion? Today we have a tug-of-war which is slowing the recovery but hopefully not stopping the recovery. The downward revision of the first quarter economic growth rate to 1.9% is a real indication of this slowdown which is also reflected in the disappointing employment report released on Friday. The gain of 69,000 jobs was a surprise even with lowered expectations. The economic slowdown is not being felt just at home, but all over the world. Our greatest hope is that the slowdown reverses course quickly so that the recovery marches on at a quicker pace.
 The Markets. Fixed rates on home loans hit record lows again in the past week and that was before the employment report was released. Freddie Mac announced that for the week ending May 31, 30-year fixed rates fell from 3.78% to 3.75%. The average for 15-year loans fell to 2.97%, the first reading ever under 3.0%. Adjustable rates were stable, with the average for one-year adjustables remaining at 2.75% and five-year adjustables up slightly to 2.84%. A year ago 30-year fixed rates were substantially higher at 4.55%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, "Market concerns over tensions in the Eurozone led to a decline in long-term Treasury bond yields helping to bring fixed rates to new record lows this week. Compared to a year ago, rates on 30-year fixed rates are almost 0.9 percentage points lower which translates into nearly $1,200 less in annual payments on a $200,000 loan. Meanwhile, the S&P/Case-Shiller 20-city composite home price index (not seasonally adjusted) showed annual home-value gains in March in seven cities and a monthly gain in 12 cities." 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
Updated June 1, 2012
| |
Daily Value |
Monthly Value |
| |
May 31 |
April |
| 6-month Treasury Security |
0.14% |
0.14% |
| 1-year Treasury Security |
0.18% |
0.18% |
| 3-year Treasury Security |
0.35% |
0.43% |
| 5-year Treasury Security |
0.67% |
0.89% |
| 10-year Treasury Security |
1.59% |
2.05% |
| 12-month LIBOR |
|
1.049% (Apr) |
| 12-month MTA |
|
0.147% (Apr) |
| 11th District Cost of Funds |
|
1.163% (Mar) |
| Prime Rate |
|
3.25% |
 The Federal Housing Finance Agency reports that U.S. home prices climbed 1.8 percent in March, the largest monthly gain in at least two decades as housing recovery gains steam. The rise from the previous month topped analyst estimates, which ranged from a 0.2 percent decline to a modest improvement of 0.7 percent. Such factors as all-time-low rates, job gains and a dearth of properties for sale in many markets are working together to bolster demand for homes. In addition, sales of new homes rose to a seasonally adjusted annual rate of 343,000 units in April, up 3.3 percent from March and 9.9 percent higher than a year earlier, the Commerce Department reported. The median price of a new home hit $235,700 last month, a gain of 4.9 percent from April 2011. The data provides additional evidence that the housing market is starting to rebound. Sources: Crain's New York Business and The New York Times
With rising rents, more renters are being swayed into home ownership, even in pricey housing markets like New York. For example, one New York renter said he started looking into owning a home when his landlord tried to increase his rent by 13 percent when his lease was up for renewal. He found that he could buy a home and get the same amount of space for cheaper than continuing to rent, plus he’d be building equity. Other renters are starting to see that buying may be a better option for them, too. Rents are increasing at about the same pace that home values are dropping, says Stan Humphries, Zillow’s chief economist, who says, according to their surveys, home prices have dropped 3.1 percent year-over-year whereas rents have increased 2.5 percent. "Herein lies the seeds to eventually more interest in buying on the part of consumers, which will help put a floor under home prices," Humphries told Investors Business Daily. Recent housing surveys, including Zillow’s, are showing home prices are starting to rise in recent months. Affordability in housing has been at record highs from the combination of falling home values and record-low rates. Humphries says that housing prices have rolled back to 2003 levels. "That increased affordability in the face of rising rental prices will begin to get buyers off the fence this year,” Humphries says. Source: Investors Business Daily
The Federal Administration on Aging predicts that the population of individuals aged 65 and older will double between 2000 to 2030, but a six-year-old survey of cities by the National Association of Area Agencies on Aging found that fewer than 50 percent are ready to meet the needs of an aging population. Five years after the survey, the group still found a need for access to better transportation and housing for seniors. Lawmakers in Ohio -- where 25 percent of residents in half of its counties will be 60 or older in a matter of eight years -- want to make homes more accessible and save money on fall-related hospitalizations, proposing a tax credit for the installation of bar handles, light switches, and ramps. Meanwhile, CityView Executive Chairman Henry Cisneros, a former HUD secretary, says communities should permit denser housing and allow "granny flats" to be built next to homes. Baby boomers are seeking affordable and accessible dwellings, transportation, recreational activities, and in-home care and services. In Boston, Washington, D.C., and other cities, nonprofit corporations are helping boomers age in place, charging annual membership fees to handle transportation, landscaping, and maintenance tasks. Source: USA Today
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