Tag Archives: mortgage

Mortgage Interest Deduction Capped in Proposed Tax Overhaul

Source: RISMedia / Jameson Doris

After weeks of debate, Republican lawmakers have finally revealed their legislation for a major tax overhaul, the largest to be proposed in decades. The bill, entitled the Tax Cuts and Jobs Act, nearly doubles the standard deduction for middle-class families and makes no changes to the way 401(k) plans are treated pretax, but for REALTORS® and the consumers they serve, it’s not all good news.

Last June, House Speaker Paul Ryan warned that he would likely be unable to save all of the tax incentives that REALTORS® view as vital, The Wall Street Journal reported. We now know exactly what the Republicans were unable to salvage. Under their bill, existing homeowners can keep their mortgage interest deduction, but purchases that are made moving forward will be capped at $500,000. The bill also cuts the corporate tax rate to 20 percent (from 35 percent), as reported by The New York Times on Thursday.

“This legislation closely tracks with the House Republican Blueprint for tax reform, which threatens home values and takes money straight from the pockets of homeowners,” said National Association of REALTORS® (NAR) President Bill Brown in a statement. “REALTORS® believe in the promise of lower tax rates, but this bill is nowhere near as good a deal as the one middle-class homeowners get under current law. Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford.”

“The House Republican tax reform plan abandons middle-class taxpayers in favor of high-income Americans and wealthy corporations,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB), in a statement. “The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property tax incentives. Capping mortgage interest at $500,000 for new-home purchases means that homebuyers in expensive markets will effectively lose this housing tax benefit moving forward.

“The House leadership killed a cost-effective plan proposed by NAHB that Ways and Means Committee leaders agreed to include in the legislation,” MacDonald said. “It would provide a robust homeownership tax credit that would have helped up to 37 million additional homeowners who do not currently itemize. Most of them are low- and moderate-income homeowners. Meanwhile, as corporations receive a major tax cut, small businesses, which generate the lion’s share of job growth, get limited relief. The bottom line: Congress is ignoring the needs of America’s working-class families and small businesses, and by undermining the nation’s longstanding support for homeownership and threatening to lower the value of the largest asset held by most American families, this tax reform plan will put millions of homeowners at risk.”

“The tax reform legislation proposed by House Republican leaders takes a historic step in directly revising the mortgage interest deduction (MID), a $70 billion annual tax expenditure that primarily benefits higher income households—including the top 1 percent of earners in the country,” said Diane Yentel, president and CEO of the National Low Income Housing Coalition (NLIHC), in a statement. “The Republican tax proposal makes sensible reforms in lowering the amount of a mortgage against which the MID can be claimed to $500,000 for new-home loans and doubling the standard deduction. This change to the MID would impact fewer than 6 percent of mortgages nationwide and would save an estimated $95.5 billion over the first decade; however, the legislation uses the savings generated by the MID reform to pay for lower tax rates for billionaires and corporations without addressing the affordable housing crisis in America. This proposal is a non-starter.

“Instead, Congress should reinvest the savings from the MID reform into affordable housing solutions, like the national Housing Trust Fund, rental assistance, or a renter’s credit, that would help the lowest income people in America—including seniors, people with disabilities, families with children, and other vulnerable populations—who too often struggle to pay the rent and make ends meet.

“The National Low Income Housing Coalition has significant concerns with other provisions in the overall tax bill and further analysis is needed to determine the impact,” Yentel said.

The California Association of REALTORS® (C.A.R.) echoed similar concerns. “We are currently reading through the bill proposed [on Thursday] to determine the exact impact it will have on California homeowners and its housing market,” said C.A.R. President Geoff McIntosh. “From what we have seen so far, limiting the mortgage interest deduction to $500,000 will no doubt hurt homeownership in states with high housing costs such as California.

“Any change that would make home-buying less attractive will be detrimental to the housing industry and the nation’s economy because of the 2.5 million private-sector jobs created by the industry in an average year,” McIntosh added.

It’s important to keep in mind, however, that this legislation will be aggressively contested and debated over the next several weeks as Republicans fight to have a finalized version on President Trump’s desk by Christmas. That version stands to be unrecognizable to what was announced today, due to battles various lobbying groups are about to wage.

NAR had already begun fighting before the legislation was announced. Recently, the Association deployed digital ads in every district of House Ways and Means Committee members asking constituents in those areas to remind their lawmakers not to “let tax reform become a tax increase for middle class homeowners.”

The Association has now announced that it will expand these efforts to Senate Finance Committee members’ states by the end of the week.

In the immediate future, things will move rapidly and countless groups will come forward to have their opinions heard. This is one area where NAR has a distinct advantage. Not only does it carry the influence of being the largest association; it also represents one of the most coveted voting blocs in the country: homeowners.

Here’s How Much You Need to Save Each Day to Buy a Home in 15 Top Cities

Source: RISMedia

For homebuyers—especially first-time ones—what looms larger and scarier than the prospect of pulling together enough cash for a down payment? A late-stage IRS audit, maybe? A bracing swim in gulper eel–infested waters?

All wrong! The answer is nothing. For more and more Americans, the down payment has become the Everest-size mountain they need to climb to reach their dreams of homeownership—or perhaps freeze to death trying. In these days of rising home prices, it seems harder than ever to pull together that mammoth mound of moolah needed to get yourself into a new place. It can lead to desperation. Will you need to resign yourself to a lifetime of living with your parents, renting cramped apartments, or settling for the boondocks of Alaska (where you might be able to afford your own cabin sans running water)?

Actually, there is something else you can do: Whip out a calculator and start budgeting. That big lump sum you’re stressing over is a lot less intimidating when you break it down into daily payments. We can help!

The thrifty data team at realtor.com® crunched the numbers for America’s 15 largest urban areas to figure out just how much buyers need to save per day to eventually purchase a home of their own. Here’s how we did it:

  1. We looked at the median home listing price in May for the country’s 15 biggest metropolitan areas and the average percentage that buyers in those areas put down on a home. Using those figures, we calculated the typical down payment for each of those cities.
  2. Next, we figured out how much potential buyers need to save each day toward a down payment, over five- and 10-year timelines, to reach their goal. (We’re making the big assumption that home prices and down payment percentages remain unchanged over that time.)

We know saving is tough. But it’s also necessary—and not just for the initial costs.

“If you haven’t been able to save up enough for a significant down payment, your saving skills may not be up to the task of paying the monthly mortgage, your insurance, your property taxes, maintenance [costs], and what we like to call your emergency fund for emergency repairs,” says Michael Corbett, the TV host of Extra’s “Mansions and Millionaires” and author of “Ready, Set, Sold!” Thanks for the pep talk, Mike!

He recommends aspiring homeowners earmark their tax refunds and annual bonuses for their down payment. They can take a part-time job on the weekends or do a little consulting work to sock away those extra shekels.

“All of this only helps you toward homeownership if you put that money away,” Corbett says. “A lot of people say, ‘I’m not going to go to Starbucks anymore,’ but they don’t take that $5 or $6 per latte and actually save it.” Hey, do you really need to drink 15 of those things a day, anyway? We thought not.

So let’s take a cross-country jaunt and start saving!

1. New York City, N.Y.
Median home price:
Average down payment: 17.2% ($71,191 on a median-priced home)
Daily saving goal (5 years): $38.99
Daily saving goal (10 years): $19.49

Prices in the City That Never Sleeps may make homeowner hopefuls want to pack up and head for cheaper parts of the country. But you’d miss out on the world-class theater, museums, restaurants, and endless career opportunities.

The median sale price for those dreaming of a Manhattan address hit a record high of about $1.1 million in the second quarter of 2016, according to the most recent Elliman report. But those willing to buy in the city’s other boroughs—even hipster Brooklyn—as well as surrounding burbs can save bundles.

2. Los Angeles, Calif.
Median home price:
Average down payment: 18.3% ($124,074)
Daily saving goal (5 years): $67.95
Daily saving goal (10 years): $33.97

It may feel like you need the salary of a movie star or, at the very least, a Flo-from-Progressive-level commercial actress to afford your own digs in Los Angeles. But fortunately for those not being stalked by the paparazzi, a recent report by the Los Angeles County Economic Development Corp. projects that key employment sectors will add thousands of jobs in the next two years: health care; construction; and professional, scientific, and technical services. And there’s even a booming neighborhood where tech startups and outposts of companies like Google and Yahoo are clustered—it’s known as Silicon Beach.

3. Chicago, Ill.
Median home price:
Average down payment: 13.4% ($35,496.60)
Daily saving goal (5 years): $19.44
Daily saving goal (10 years): $9.72

Homes have been flying off the market in this Midwestern metropolis, with prices steadily climbing to about 5 percent higher in May than they were a year earlier, according to a recent report. And why wouldn’t they? A (relatively) laid-back alternative to the coastal cities, Chicago boasts pioneering theater companies, 20 Michelin-starred restaurants, and an increasingly vibrant music scene. It’s the future home of the Obama Presidential Center. And while winters can be rough, come spring Chicagoans enjoy 8,100 acres of parkland—not to mention 26 miles of public beaches.

But the secret is out: A recent analysis by realtor.com found that the downtown Loop neighborhood is one of the top 10 neighborhoods in the country for job growth, which is fueling household formation and new construction.

4. Dallas, Texas
Median home price:
Average down payment: 13.6% ($45,342.40)
Daily saving goal (5 years): $24.83

Although Dallas is in the middle of oil country, the slump in the price of crude doesn’t seem to be hurting its real estate market—at least, not yet. Home values rose 9.3 percent year over year in May, whereas the national rate was 5.9 percent, according to a recent CoreLogic report.

That makes sense as the population of the city has been growing as well (4.1 percent from July 2010 through July 2015, according to the U.S. Census Bureau), helped, no doubt, by the lower cost of living. Major companies are moving in, including Toyota, which is moving its North America headquarters from California to just outside Dallas, in Plano. The suburban city will also be home to the new regional headquarters of Fannie Mae.

5. Houston, Texas
Average down payment:
 12.7% ($42,532.30)
Daily saving goal (5 years): $23.29
Daily saving goal (10 years): $11.65

Houston’s real estate market, on the other hand, got hit much harder by the turmoil in the oil industry. But the number of homes sold began to climb again in May, although year-over-year prices bucked the national trend by staying flat, according to the Houston Association of REALTORS®.

Still, the city isn’t all about oil—it’s also home to 26 Fortune 500 companies, and a realtor.com analysis last year found it was one of the top U.S. cities drawing millennial would-be home buyers.

6. Philadelphia, Pa.
Median home price:
Average down payment: 12.1% ($28,435)
Daily saving goal (5 years): $15.57
Daily saving goal (10 years): $7.79

Buying a home in the City of Brotherly Love is more affordable than in many of the other big Northeastern cities on this list, but here’s the thing: It doesn’t look like it will stay that way for long. Like the rest of the country, property prices are steadily rising.

They jumped nearly 22 percent this year alone, Kevin Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation, told the Philadelphia Inquirer.

“The average Philadelphia home has achieved a new all-time high in value,” Gillen told the paper. But rest assured: It won’t approach New York levels anytime soon.

7. Washington, DC
Median home price:
Average down payment: 12.6% ($55,427.40)
Daily saving goal (5 years): $30.35
Daily saving goal (10 years): $15.18

Prices haven’t been rising quite so high in the nation’s capital as of late, and that has a lot to do with the uncertainty surrounding the presidential election, say local real estate agents. After all, whoever wins the Oval Office will determine who is placed in more than a few jobs in the city.

That’s a big reason why prices rose just 2.1 percent annually in the area in May. And by the time many aspiring homeowners save up that down payment and purchase a home, Hillary Clinton or Donald Trump might be gunning for a second term—and who knows what sort of impact that will have on real estate values!

8. Miami, Fla.
Median home price:
Average down payment: 14.1% ($49,349.99)
Daily saving goal (5 years): $27.03

Miami is known for its nonstop nightlife and Latin culture—the 2010 U.S. Census counted 70 percent of its residents as Hispanic. Located at the tip of the continental U.S., it’s no surprise that it’s known as the Gateway to the Americas, drawing people from across Latin America. The recent restoration of diplomatic ties—and soon, commercial flights—with nearby Cuba is sure to make its impact felt on the place many still call the Magic City.

But the number of sales here dropped about 10.4 percent annually in May, according to data from the Miami Association of REALTORS® provided to The Miami Herald.

Meanwhile, prices shot up as a strong dollar discouraged foreign buyers from snapping up those luxury condos at the same time that there are fewer foreclosures for investors and flippers to snap up, according to the Herald.

9. Atlanta, Ga.
Median home price:
Average down payment: 10% ($26,990)
Daily saving goal (5 years): $14.78
Daily saving goal (10 years): $7.39

Putting down roots in Atlanta, with its lower cost of living, burgeoning film industry, and usually pleasant weather, is still relatively affordable. But it may not stay that way for much longer.

The cost of purchasing a residence jumped 6.5 percent in April from a year earlier, above the national average, according to the latest S&P/Case-Shiller Home Price Indices report. That’s largely due to the lack of properties on the market at a time when more companies are moving down to the area, bringing a new crop of future Atlantans with them.

10. Boston, Mass.
Median home price:
Average down payment: 16.4% ($73,783.59)
Daily saving goal (5 years): $40.41

Home prices are steadily rising in the birthplace of the American Revolution—at the annual rate of about 5.7 percent in April compared with the same time a year earlier, according to the S&P/Case-Shiller report. That puts it right around the national average.

But hold on: Standard & Poor’s predicted in January that Boston home values will jump 24 percent by 2020! While the situation isn’t quite as bad as taxation without representation, lovers of the home of the Red SoxThe Pixies, The Freedom Trail, and Revere Beach, the country’s first public coastline park, should probably get a head start on saving as soon as possible.

11. San Francisco, Calif.
Median home price:
Average down payment: 21.8% ($190,750)
Daily saving goal (5 years): $104.46
Daily saving goal (10 years): $52.23

Holy moly! There’s no easy way to say this: Buying an abode in San Francisco ain’t cheap, so if you’re not well-off, you’d better start playing the lottery now. Some good news: While it remains one of the hottest real estate markets in the U.S., in June we started to see higher-priced homes flying off the market just a wee bit slower than before—perhaps a sign that the tide is finally turning.

Still, buyers shouldn’t hold their breath waiting for prices to soften on the city’s “affordable” residences. It might be a better plan to work on creating the next Snapchat. How hard could it be?

12. Detroit, Mich.
Median home price:
Average down payment: 12% ($24,000)
Daily saving goal (5 years): $13.14
Daily saving goal (10 years): $6.57

Buying a home in the former automotive manufacturing hub won’t set buyers back too much these days. Also, according to our calculations, it’s one of the U.S. cities where you can pay your mortgage off the fastest. Even so, interested buyers might want to get moving sooner rather than later.

In recent years, Detroit has been experiencing a resurgence as more startups, shops, and restaurants are moving in. That’s likely to lead to higher prices, so cash-strapped buyers should buy a home while they still can.

13. Phoenix, Ariz.
Median home price:
Average down payment: 11.9% ($36,771)
Daily saving goal (5 years): $20.14
Daily saving goal (10 years): $10.07

Plenty of buyers may still be able to swing the home prices in Arizona’s capital area, but they are going up—prices rose about 5.5 percent, according to the S&P/Case-Shiller report.

Still, you’ll get more bounce for the ounce than elsewhere. Our analysis found that Phoenix-area municipalities of Gilbert, Chandler, and Scottsdale offer some of the largest homes in America, and they’re likely to be relatively new construction as well. Speaking of Gilbert, it also made our list of boom towns with notable job growth, while Chandler is home to the satellite offices of several major tech companies.

14. Seattle, Wash.
Median home price:
Average down payment: 13.3% ($59,185)
Daily saving goal (5 years): $32.41
Daily saving goal (10 years): $16.21

Home prices here have been rising far faster than the national average. Seattle prices shot up 10.7 percent in April compared to the same time a year earlier, according to the S&P/Case-Shiller report.

Bidding wars have also been driving up the cost of homeownership, as about three-quarters of Seattle-area residences have been receiving multiple offers, according to a recent Seattle Times article. In a testament to how crazy it’s become, last month, more than 100 people were lined up, some of them having slept there overnight, to plunk down deposits on condos that haven’t even broken ground yet, according to the Times.

15. Minneapolis, Minn.
Median home price:
Average down payment: 11.2% ($32,928)
Daily saving goal (5 years): $18.03
Daily saving goal (10 years): $9.02

Even in the reasonably priced twin cities of Minneapolis and Saint Paul, prices rose 5.7 percent year over year in May—hitting their highest levels since well before the housing bubble burst in June 2006, according to the latest Minneapolis Area Association of REALTORS® report. And they can only be expected to keep on climbing.

This post was originally published on REALTOR.com.

One Million Borrowers Regain Equity in 2015

Source: RISMedia

One million borrowers regained equity in 2015, bringing the total number of mortgaged residential properties with equity at the end of Q4 2015 to approximately 46.3 million, or 91.5 percent of all mortgaged properties, according to the new CoreLogic® analysis. Nationwide, borrower equity increased year over year by $682 billion in Q4 2015. The CoreLogic analysis also indicates approximately 120,000 properties lost equity in the fourth quarter of 2015 compared to the third quarter of 2015.

The total number of mortgaged residential properties with negative equity stood at 4.3 million, or 8.5 percent, in Q4 2105.
This is an increase of 2.9 percent quarter-over-quarter from 4.2 million homes, or 8.3 percent, in Q3
2015 and a decrease of 19.1 percent year-over-year from 5.3 million homes, or 10.7 percent, compared with Q4 2014.

Negative equity, often referred to as “underwater” or “upside down”, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home value, an increase in
mortgage debt or a combination of both.

Record-Low Mortgage Rates Are Coming

Mortgage rates in the U.S. are incredibly low… and there’s a great chance they’ll go lower…

Last week, U.S. 30-year mortgage rates finished the week around 3.6%.

They haven’t been this low – basically ever. (The exception is late 2012, when they nearly touched 3.3%.)

As an American, it sounds outrageous to even consider that they could go lower. But when you take the rest of the world into account, it’s not as outrageous as it seems.

I will show you why today. But first, let’s back up for a minute…

Where do mortgage rates come from? Who decides what they will be?

Typically, the U.S. 30-year mortgage rate is (somewhat) based off of the U.S. 30-year Treasury bond interest rate…

Take the 30-year government rate (which is thought of as the “risk-free” rate)… add a bit of interest due to the risk of the borrower… and boom, there you have it. (It’s a rough approximation of reality, at least.)

You can see this idea in the chart below… The lower line is the 30-year Treasury rate. The upper line is the 30-year mortgage rate…

It has to do with what’s going on in the rest of the world…

Interest rates are crashing globally. And 30-year government bond rates outside the U.S. are “crazy low.” Take a look:



Country Rate
United States 2.68%
Germany 1.01%
Japan 0.71%
Switzerland 0.27%


Look closely at this list… One of these four is not like the others. Which one is it?
Source: Dr. Steven Sjuggerud


It doesn’t take long to realize that U.S. interest rates are dramatically higher than the rest of the developed world.

Keep this in mind: Money flows where it’s treated best.

The difference between U.S. rates and the rest of the world is simply too great for investors to ignore… Money is about to flow into the U.S.

Investors who have their money in low-paying bonds in Germany, Japan, and Switzerland will move some of that money into higher-paying U.S. bonds.

That will put downward pressure on long-term U.S. interest rates.

And the chart above shows, if U.S. interest rates on 30-year government bonds go down, U.S. mortgage rates will likely follow them lower.

Mortgage rates are incredibly low in the U.S. based on history. And as I showed today, there’s a strong chance they could go even lower…

Mortgage Rates Continue to Fall

Source: RISMedia

Mortgage rates move lower for the fourth consecutive week as the Fed held interest rates steady at its FOMC meeting last Wednesday, according to Freddie Mac’s recently released Primary Mortgage Market Survey® (PMMS®).

Results show that the 30-year fixed-rate mortgage (FRM) averaged 3.9 percent with an average 0.6 percent point for the week
ending January 28, 2016, down from last week when it averaged 3.81 percent. A year ago at this time, the 30-year FRM averaged
3.66 percent.

“The yield on the 10-year treasury stabilized around 2 percent this week, and the 30-year mortgage rate dipped 2 basis points
to 3.79 percent,” sats Sean Becketti, chief economist, Freddie Mac. “The recent market turmoil has given the Fed pause; as was
universally expected, the Fed stood pat this week but kept its options open for a rate increase in March. This week’s housing
releases confirmed the momentum of home sales going into 2016. A hesitant Fed, sub-4-percent mortgage rates (at least a little
while longer), and strong housing fundamentals should generate a three percent increase in home sales this year.”

2016 Forecasted to Bring Modest Increase in Home Sales

Source: RISMedia

Following the housing market’s best year in nearly a decade, existing-home sales are forecasted to expand
in 2016 at a more moderate pace as pent-up buyer demand combats affordability pressures and meager economic growth,
according to National Association of REALTORS® Chief Economist Lawrence Yun in a newly-released video on his 2016
housing market expectations.

In the NAR-published video, Yun discusses his expectations for the U.S. economy and housing market in 2016 and points
to pent-up demand, sustained job growth, and improving inventory conditions as his reasons for an expected gain (from 2015)
in new and existing home sales.

Despite his forecasted increase in sales, Yun cites rising mortgage rates, home prices still outpacing wages and shaky global
economic conditions as headwinds that will likely hold back a stronger pace of sales.

“This year the housing market may only squeak out 1 to 3 percent growth in sales because of slower economic expansion and rising
mortgage rates,” Yun says in the video. “Furthermore, the continued rise in home prices will occur due to the fact that we will
again encounter housing shortages in many markets because of the cunulative effect of homebuilders under producing for multiple
years. Once the spring buying season begins, we’ll begin to feel that again.”

New Year’s Pledge: Automatic Wealth Through Rental Real Estate

By Mark Ford, founder,
The Palm Beach Research Group

Do you invest in real estate?

I’m not talking about your home. Owning a home has more to do with security (emotional and personal) than it has to do with
building wealth.

I’m talking about rental real estate.

I love real estate. It’s not without its problems, but it’s the best way I’ve found to accumulate a good deal of wealth on a part-
time basis.

In the many years I’ve been actively investing in real estate, it has given me returns much better than the stock market. In fact,
my average return has been between 5% and 8%, without leverage. When I use bank financing, those numbers are in the 12%-15% range.

I’ve tried all sorts of real estate investing. But I’ve gotten the best results by sticking to this plan: direct investments in
income-producing properties… either residential or commercial.

You receive something with rental properties you don’t get with many other real estate deals: guaranteed income. Sure, you get
appreciation, too. But I’ve come to see that as secondary to having dozens of extra, ongoing income streams. (And did I mention
it’s money cost of borrowing, the maintenance, and the theoretical loss of income by charging a modest rent.

I netted something like $10,000 per year on a condo I bought for $65,000. That was a return of roughly 15%, cash on cash. (Cash-on-
cash return = annual dollar income / total dollar investment.)

Had I used bank financing, I would’ve made more – without any significant increase in risk.

I own dozens of individual properties like this. They send me checks – usually thousands of dollars – on the first of every month.
That’s a nice way to begin your month.

Mark on his favorite day of the month: the first.

On the credenza are 24 small red binders. Each represents a separate real estate investment I’m involved in.

Some are individual properties I own myself. Some are properties I own with friends. Some are direct investments. Some are in
partnerships or corporations. Some are rental plays. Some are build-and-sells.

If you decide this is the year to begin a real estate portfolio, start slowly.

My first real estate investment was a bad one. I’ve written about it before. It was a rental unit in Washington, D.C. (It was
overpriced and occupied by a prostitute who would neither pay me rent nor do her business elsewhere.)

It took me years to dig myself out of that mistake. I emerged a smarter (but not-yet-smart-enough) real estate investor.

Take your time. Be selective. Educate yourself. Some of what’s on the bookshelves is full of misguided advice.

My best advice is to subscribe to our rental real estate program. It’s part of the Palm Beach Research Group’s Wealth Builders
Club. That, you can trust.

You can also take adult education classes… if you can find them. Be leery of free seminars –they’re likely to be selling

Here’s a promise: If you start investing in rental real estate this year, you’ll be glad you did. If you keep investing – buying at
least one new property per year (which will be easy once you get going) – you will be a real estate multimillionaire in no
time (not counting your other assets).

And you’ll be well on your way to retiring as a multimillionaire.

When you look back on all the wealth you acquired, you may feel the way I do now: that real estate was the easiest and – next to
your personal business – most lucrative wealth-building activity you ever got involved in.


Mark Ford

Guest Post: What The Fed Rate Hike Means

“These are extraordinary times.” Bon Jovi. The Federal Open Market Committee marked the end of an “extraordinary seven-year period” Wednesday when it announced the first increase to the Fed’s benchmark Federal Funds Rate in nearly a decade.

This rate, which is used when banks lend money to each other overnight, was held near zero to support economic recovery following “the worst financial crisis and recession since the Great Depression,” said Fed Chair Janet Yellen. The Fed upped the target rate range a quarter point, to between 0.25 and 0.5 percent.

According to Yellen, the move “recognizes the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.” The increase also reflects the Fed’s confidence that economic factors still lagging behind desired levels will continue to improve, especially inflation, manufacturing and new home construction.

November Housing Starts, for example, rose 10.5 percent from October, according to the Commerce Department. This was above expectations. The jump nearly erases the 12 percent decline from September to October. After months of significantly higher multifamily unit home starts, single-family home starts were up to the highest level since January 2008.

So how will the Fed’s actions impact home loan rates? The increase to the Fed Funds Rate does not directly impact long-term consumer loans like purchase or refinance home loans, so home loan rates will not necessarily increase as a direct result of the Fed’s actions.

However, it’s important keep a watchful eye on economic headlines. The economic conditions that made the Fed comfortable with a rate hike—coupled with expectations of a further strengthening economy—could amplify investments in Stocks, which could negatively impact Bonds. This includes Mortgage Bonds, to which home loan rates are tied.

For now, home loan rates remain attractive.

If you or someone you know has questions about the housing market, refinancing or home loan options, please don’t hesitate to contact me.

Michelle Wickett
Senior Loan Originator
Axia Home Loans
Phone: 360-791-0513

A rate hike is coming… Here’s why it doesn’t really matter

Comment: This is an excellent article. Long term mortgages are usually priced based on the yield of 10-year treasury notes. Even though the financial markets have been expecting an increase in short term rates from the Federal Reserve for awhile now, longer-term rates like the benchmark 10-year treasury notes have been falling.

 Source: Dr. Steven Sjuggerud

In a couple of weeks, the Federal Reserve will likely raise interest rates…

It’s nearly universally accepted that when the Fed raises short-term interest rates, long-term interest rates will go up, too. (Long-term rates include treasury bonds and mortgage rates.)

Most people don’t even think what I’m talking about is possible… They think that when rates go up, ALL rates go up.

So here’s the question of the day:

How could long-term interest rates possibly go DOWN if the Federal Reserve is close to RAISING short-term rates?

I will answer that for you today…

There’s a 68% chance of a rate hike by the Federal Reserve at its meeting on December 15-16. (That percentage comes from Bloomberg.) Those are the strongest odds of a near-term rate hike in a while.

With such strong odds of a rate hike happening in just a few weeks, we went back and looked at what has happened during rate-hiking cycles over the last quarter-century. Here’s what we learned…

Over the past 25 years, the Fed has entered three rate-hiking cycles. You might expect that long-term interest rates (as measured by 10-year U.S. Treasury bonds) would rise dramatically when the Fed hiked short-term rates.

That’s what most people believe happened… But it’s not actually what happened.

Take a look…

table Dw1123

During the mid-1990s rate-hike cycle, 10-year Treasury bond interest rates rose just 0.1%…

Long-term interest rates actually fell during the last two rate-hike cycles. So you can visualize it, here’s what short-term and long-term rates looked like the last time around…

So, do long-term rates have to rise when the Federal Reserve increases short-term rates?

If you look at the past 25 years, the answer is, “No.”

Yes, the Fed will hike short-term rates at some point – likely in December – but history shows a Fed rate hike is nothing to worry about when it comes to long-term interest rates.

Don’t let your mortgage broker or banker threaten that your 30-year mortgage rates are about to go up. History tells a different story.