This Week in Real Estate: December 19, 2016


As expected, the Federal Reserve announced This Week in Real Estate that it was raising the target federal funds rate by a quarter of a percentage point to between 0.5% and 0.75%, marking the first time the Fed has raised rates since December 2015 and only the second time in a decade. It is important to remember that Federal Reserve decisions can influence mortgage rates, but they aren’t set or established by the Federal Reserve. Rather, mortgage rates are determined by the price of mortgage backed securities, a security sold via Wall Street. So, a Fed move by itself does not lead to an increase in consumer mortgage rates. On the contrary, mortgage rates dropped more than 50 basis points (.50%) after the Fed’s late-2015 move. Below are a few highlights from the second week of December that influence our business:

* What The Fed Rate Hike Means For Your Wallet. The long awaited Fed rate hike came Wednesday, as predicted by many. The Fed’s decision indirectly influences many interest rates because it controls the federal funds rate – the interest rate that major banks and credit unions charge each other when lending money. The impact of a federal funds rate increase on mortgage interest rates remains unclear. Potentially, the initial Fed interest rate hike could raise rates on the long-term bonds used to set mortgage rates. Yet, the 10-year Treasury bonds are also influenced by inflation expectations and the worldwide economic outlook. In the short term, adjustable-rate mortgage and home equity lines of credit would be more sensitive to a federal interest rate hike. So, although it’s impossible to say exactly how a rate hike will impact mortgage rates, it might be best to eliminate uncertainty. If you’re seeking a new home mortgage or considering refinancing an existing mortgage in the near future, you might want to lock in a loan sooner rather than later.
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* Growth in Homeowner’s Equity Continues. According to the Federal Reserve Board’s third quarter of 2016 release of its Financial Accounts of the United States report, household holdings of real estate totaled $22.725 trillion in the third quarter of 2016, $1.520 trillion higher than its level in the third quarter of 2015, $21.204 trillion. At the same time, home mortgage debt outstanding, $9.708 trillion in the third quarter of 2016, rose by $185 billion over the same four-quarter period. Since the total value of household-held real estate rose faster than the aggregate amount of mortgage debt outstanding, then home equity held by households grew. Over the year, total home equity held by households grew by $1.336 trillion, 11.4 percent, to $13.018 trillion. Household’s home equity is now 57.3 percent of household real estate.
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* Home Builder Confidence Ends The Year at Highest Point Since 2005. Builder confidence in the market for newly-built single-family homes jumped seven points to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since July 2005. All three HMI components posted healthy gains in December. The component gauging current sales conditions increased seven points to 76 while the index charting sales expectations in the next six months jumped nine points to 78. Meanwhile, the component measuring buyer traffic rose six points to 53, marking the first time this gauge has topped 50 since October 2005. Looking at the three-month moving averages for regional HMI scores, the Northeast rose six points to 51, the Midwest posted a three-point gain to 61, the South rose one point to 67 and the West registered a two-point gain to 79.
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Have a productive week.

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