above photo Mel Watt, director of the Federal Housing Finance Agency (FHFA), from left, Jerome Powell, chairman of the U.S. Federal Reserve, Steven Mnuchin, U.S. Treasury secretary, and Jay Clayton, chairman of the Securities and Exchange Commission (SEC), listen during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Tuesday, Oct. 16, 2018. Powell said at the meeting he is worried about a spillover from hard Brexit, but stocks and Treasuries showed little reaction. Photographer: Andrew Harrer/Bloomberg via Getty Images
Today, the Federal Housing Finance Agency (FHFA) announced conforming loan limits would increase from $453,100 to $484,350. For higher cost areas (see map below) the new limit will be $726,525. FHFA was created as the umbrella agency for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
They purchase home loans from a network of lenders across the nation. The lenders originate the loans from consumers who are seeking to finance their home purchase or to refinance their existing mortgage. The lenders also work with mortgage brokers, credit unions and other organizations who have direct contact with consumers.
Once the loans are funded, they are packaged and sent to respective investors (i.e., Fannie Mae and Freddie Mac) and sold as securities, which are backed or collateralized from the property.
Nationally the average loan amount is $229,000. The new guidelines take effect for mortgages that originate starting January 1, 2019. The increase will help those who see home prices continue to rise.
Conforming loans are those where the loan amount is $484,350 OR LESS. Any loan amount in excess of that loan is defined as a “Non-Conforming” loan. For borrowers the impact is typically ½ point or 50 basis points on the interest rate.
As an example based on current limits
The bottom line difference could be approximately $190 each month. So, while the monthly payment is crucial, the move also provides those with higher loan amounts an additional $31,250 to deal higher prices, while being able to obtain more affordable interest rates.
Today the Bureau of Labor Statistics (BLS) released its jobs report which surpassed expectations. 250,000 new jobs were reported for October. In the political world that is good news. You would think with employment, the economy and other measures Donald Trump and the GOP (Republican party) brag about, they would be hard pressed for both houses of the chamber (Congress) to be in jeopardy?
The mid-term vote is just days away. Surely you would think the positive jobs report might be the fuel needed to keep the chamber. Unfortunately, Trump has communicated very little to voters about the economy. Perhaps in doing so and if they are honest, he and his supporters feel they would have to credit the Obama administration with establishing a positive foundation for them being able to reap the benefits they are achieving? In the world of Trump, that is a no…no.
The snakebite effect
Instead of the economy, Trump feels he must feed his base one dish; Immigration. He feels that subject will be enough for his base to out vote the Democrats and opposition voters to keep the chamber. Some in the GOP aisle are frustrated that he has blown the opportunity gained in 2016 and feel he has been snakebit. They point to his antics and bombastic behavior that will lead many voters to insist a change is the best option to end the polarization he has created.
As it stands right now, despite the jobs report and other economic news, when Trump wakes up next Wednesday the Democrats, who need 23 seats to claim control of the House of Representatives, might wind up with approximately 35. The Senate is expected to remain in GOP control. The result will be voters have recognized that a check or balance on the Executive is needed versus having one party controlling all three branches? At the same time, it must be noted Trump and his supporters are hoping for the same “shocking” result they achieved in 2016, when they faced long odds of winning, yet came out ahead.
Democratic congressional candidate the Midterm elections, Ilhan Omar, speaks to a group of volunteers in Minneapolis, Minnesota, on October 13, 2018. – Somali-American state legislator Ilhan Omar claimed victory in her primary in Minnesota in August, putting her on track to become one of the first female Muslim members of the US House of Representatives. (Photo by Kerem YUCEL / AFP) (Photo credit should read KEREM YUCEL/AFP/Getty Images)
COVER PHOTO. Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on October 10, 2018 in New York. - Wall Street stocks plunged Wednesday, with major indices losing more than three percent in a selloff prompted by the sudden jump in US interest rates. At the closing bell, the Dow Jones Industrial Average had lost 3.1 percent or 830 points to finish at 25,613.35, in the biggest fall since February. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
Mortgage rates jumped to 4.90% which is a number not seen in nearly seven years based on Freddie Mac’s weekly rate survey. Although an increase was expected the jump of nineteen basis points caught some by surprise. As strong as the economy is purchasing a home continues to be an illusive transaction for many. The rise in rates buffeted by the increase in home prices have left many reconsidering their plans as evidenced by the drop in mortgage applications.
Remember that tax break earlier in the year?
Last December president Trump and the GOP controlled congress touted the tax cut as a “cure-all” and justification of their leadership prowess. Indeed, a good chunk of working people did receive benefits from the tax cut and a few were lucky enough to get bonuses. The average cut was about $1,600.
For those who were positioning to buy a home or refinance their existing mortgage the recent mortgage rate hike has wiped out that savings.
**based on average mortgage of $239,000
Most understand rates and economic metrics are cyclical. In other words when you have an improved economy, you will also see a rise in consumer goods. Also, recently the Feds increased the discount rate. This was done as a preventative measure to thwart inflation. Normally political leaders stay out of the Fed’s business but Donald Trump has continued to intimate their move has contributed to rate increases claiming they will result in a negative impact.
“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” President Donald Trump
Another pressure-point for the economy is the recent drop in the DOW Jones and financial markets. Business leaders, especially those in the real estate sector attribute the decline to the uncertainty of the Trump imposed tariffs and other measures. They feel recent gains may be wiped out.
“These tariffs will translate into higher costs for consumers and U.S. businesses that use these products, including home builders,” Randy Noel, chairman of the National Association of Home Builders
Publishing numbers not seen since 1969, yesterday the Bureau of Labor Statistics (BLS) released its October jobs report. The numbers reflect data compiled for the month of September as unemployment dipped to 3.7%, with new jobs pegged at 134,000. That is good news for the Trump administration as it validates their message of a strong economy. The news was expected and comes at a good time for them as even though they inherited the foundation of a good economy from the Obama administration, they have been mired in a string of self-inflicted blunders ever since taking over the reins.
They view those blunders as attacks from those who are upset they won the 2016 election. Others view them as leaders who are inexperienced at managing a government, fraught with suspicious characters linked to criminal behavior.
In addition to the Mueller investigation, they are dealing with a majority of the public not in support of their United States Supreme Court nominee, Brett Kavanaugh. Earlier today Kavanaugh squeaked by with a 50-48 vote. While there is jubilation from those who support Trump and Kavanaugh, the untold cost may not be realized until the mid-term vote slated for November 6th. Some fear this and other moves by the administration might cost the GOP control of congress.
Trump understands the media dynamic
As September numbers are a positive sign, Trump no doubt will use the data to proclaim the numbers reflect the lowest, specifically among African-Americans and other minority groups. While the numbers are real and give great justification to those who support Trump, it must be noted he is a master manipulator of the spoken-word and you really have to ponder how serious he is about the claim? Or, is he appeasing to the conscious of those who have very little knowledge of the historic perspective of employment gaps between whites and minority groups? Oftentimes they view any news spouted from Trump as near-gospel, certainly not worthy of understanding the overall context of such statements.
Understanding media, Trump has woven unemployment data into his rallies and other talking-points. The issue for some regarding this sentiment is whether Trump is genuine, as his tone appears to mock the point which is a very serious issue for African-American’s who have been systemically unemployed at a rate at least twice that of whites. This has been lingering problem presidents have been dealing with ever since the notion of race entered the American nomenclature. It was created to divide people and groups. While the numbers in fact have declined, the real gap is a constant historical fact; a key metric providing evidence to the wealth gap that highlights the polarization of our nation.
In attempting to proclaim his support for the African-American community, who can forget this quote Trump made while on the campaign trail?
“Oh look at my African-American over here,” Mr. Trump said. “Are you the greatest? Do you know what I’m talking about?”
Indeed, unemployment numbers are down but a nagging question remains which is why is there a disparity with white workers versus other ethnic groups?
“Among the major worker groups, the unemployment rates for Whites
(3.3 percent) declined in September. Blacks (6.0 percent), Asians (3.5 percent), and Hispanics (4.5 percent)stagnation” Bureau of Labor Statistics (October 2018)
The jobs report will continue to boast consumer confidence. However, the issue for many is keeping pace with rising consumer cost. The Fed’s recent rate hike is the reality of a cyclical economy. Some things go up and others go down. As an example, housing prices continues to soar resulting in many who are employed to delay buying a home, simply because the percentage needed from their paycheck to handle the monthly payment has increased year over year.
Here is an example of 1969:2018 – Wages & percentage of income needed for monthly payment.
Above caption. Federal Reserve Chairman Jerome Powell Holds A News Conference Following Federal Open Market Committee Meeting
WASHINGTON, DC - SEPTEMBER 26: Federal Reserve Board Chairman Jerome Powell speaks during a news conference on September 26, 2018 in Washington, DC. The US Federal Reserve raised the short-term interest rates by a quarter percentage point on Wednesday, the third increase of the year, and signaled two more hikes were coming in 2018 and four in 2019. (Photo by Mark Wilson/Getty Images)
[Washington, DC] In a move that was forecast several weeks ago, this afternoon Jerome Powell, chairman of the Federal Reserve raised the discount rate to 2.250%. This move occurred to the chagrin of his boss and the person who appointed him Donald Trump, as since June of this year he has been quite vocal that Powell should not raise rates.
The Feds are non-partisan and to effectively operate are independent of political interference. As customary, president’s and those in leadership refrain from making comments about monetary policy. That is most, except Trump who once again has demonstrated his lack of understanding regarding political protocol.
“I’m not thrilled,” Trump said in an interview last month
Powell has stood firm and justified the move to control a positive economy. The discount rate is the cost commercial banks pay for funds. Their impact does not immediately affect consumers but they typically result in higher borrower costs.
You can’t have it both ways
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent. Jerome Powell, Fed Chairman
Ever since the financial meltdown of 2008, systemic changes were adopted to strengthen the economy. In Trump’s case, even though it is very tough for him to admit he inherited an economy that had all the signs of positive growth, as a practical measure it must be properly managed. As the economy moves forward, it is the Fed’s who are in control of monetary policy and to manage interest rates so that inflation of other negative factors are mitigated.
The nine member panel of the Federal Reserve Open Market Committee voted unanimously to support the increase.
As expected this week’s mortgage numbers saw a slight increase of two basis points to come in at 4.54% The increase is predicated on economic data which continues to show improvement. Another key factor to support the notion that rates will continue to climb is the latest jobs report which saw new jobs at 201,000.
While rates have risen, the biggest dilemma for those who desire a new mortgage is finding homes that are within their affordability range. As an example, in a year over year comparison rates have increased nearly seventy-five basis points or three-quarters of a percent. So, while it is great the economy is moving forward, consumers must deal with the reality that cost of goods and services also increase.
The result is affordability remains a solid metric but the key with mortgage rates is timing and being in a position to qualify and take advantage of mortgage rates based on your budget.
Average Mortgage Amount – One Year Analysis
While the mortgage of choice remains a 30-year fixed rate based on its amortization to provide more affordable payment, the average mortgage term is approximately seven years (based on data that consumer needs of refinancing).
As mentioned rates have risen, likewise the economy has also strengthened. For most consumers it’s a dollars and cents evaluation, so in their mind the rise is rates is of concern or something that impacts their buying power. As an example, nationwide the difference of $130 each month translates into $1,560 annually or $10,920 based on a seven-year term. Specifically for those in California the numbers are $155 monthly or $1,860 annually which is $13,020 based on the seven-year term.
The question remains; can your budget handle the increase? does the touted tax-cut provide enough money back into your budget to mitigate the increase?
A snapshot of this week’s mortgage rates (popular programs)
Mortgage rates inched up this week to land at 4.520%. The one basis point rise in week over week reporting is not the biggest news. The rate represents the benchmark thirty-year conventional mortgage.
Low rates do not mean a thing if you can’t find an affordable home!
For most homebuyers or even those wishing to take advantage of low rates, the trick is having the credit to quality and having the down payment (or sufficient equity). Recently, another element has been added to the equation of securing a home; finding an affordable property. For many the reality of an “average home price” results in sticker shock. Some parts of the country have the price well over $500,000, and that is for first-timers!
The result of would be buyers remaining on the sidelines is a reduction of mortgage applications. If the pace continues, expect lenders to trim staffing so their operations are “right-sized.”
Rates are cyclical and while many in the public policy arena tout a positive economic environment, for homebuyers that news triggers higher interest rates as well as higher home prices.
Here is a snapshot of this week’s rates:
August 30, 2018
Fees & Points
Freddie Mac is an institutional investor and provider of mortgage funds to local lenders who work with consumers but sell the mortgages to them. Each week they publish the mortgage market rate survey which is data obtained from a sample of their pool of lenders.
[Expo Park – Los Angeles, CA] Last Thursday the California African-American Museum hosted the final symposium series on gentrification. The event was created by Karen Mack of L.A. Commons. “Evolution of View Park: Making Sense of Gentrification” featured great audience participation, some solid questions and an excellent presentation.
As mentioned in previous articles on this series; the gentrification topic is very complex and one that can be quite emotional in discussing, particularly from the brave souls in attendance who offered compelling anecdotal commentary. These types of events are eye-openers as the commentary offered by the audience oftentimes transforms into a venting session which is necessary to put the topic front and center. However, it can be precarious as the venting can go on and on…….leaving very little room for solutions based strategies to be communicated.
“This series has been so successful Karen should take it on the road” Robert Lee Johnson, Community Author
The event started at 2pm and once again the venue was packed to the brim. As predicted due to the primary area of discussion; View Park, the majority of those in attendance were African-American.
Crack epidemic in the 80’s
The civil rights movement of the 1960’s as well as the dismantling of racial covenants which previously kept African-Americans from moving into certain communities was critical as there was an increase in the movement towards achieving middle class status through home ownership.
Families grew at an impressive clip. What gets lost in the whole gentrification discussion, particularly trying to answer the question of if certain neighborhoods or property was hard to achieve why did some of those same families leave and flee to the suburbs and other areas? For those who cherish Ronald Reagan as an icon of growth while perpetuating the “American dream,” those from the African-American communities have a different perspective. It is well documented funds needed to fight the Nicaraguan war as well as other conflicts in Central and South America came from the purchase of the readily supply of cocaine. The product found haven in urban centers across America. The result was turf battles, killings and other negative consequences which dismantled neighborhoods that were once beacons of progress and hope. As those areas decayed, it became ripe for reinvestment to replace current occupants.
Legacy and affordability
A key theme or issue which many were seen nodding their heads in agreement was the notion that offspring of those who purchased property in the 60’s, 70’s, 80’s and beyond have great difficulty in being able to purchase their own home, today! While that is a statement many seem to affirm, it raises many questions. Did those parents who originally purchased home not do an adequate job in helping their offspring achieve financial literacy? Due to their successes, did they seem to project a road that their offspring would not have to work or sacrifice like they did? Why do they assume their offspring cannot qualify for financing, while admitting their incomes are perhaps higher based on the age they first purchased? It is more complex then assessing those who grew up in the area cannot afford the very area they grew up in.
The interest in the symposium topic was obvious based on packed crowds at each event. There was a strong sentiment of how homeownership was achieved and how it was critical for them to create a legacy for their heirs. More important was the need for African-Americans to maintain those neighborhoods.
United States history is ripe with laws, regulations, discrimination and other tactics to deprive groups such as African-Americans from owning property or relegating them to specific communities. Some in attendance were quick to point out their pleas to keep neighborhoods in the hand of African-American should not be construed as defining them as racist. Technically that would be impossible as racism is using race to oppress other ethnic groups. African-Americans are not creating any laws or systemic maneuvers to keep any out.
As mentioned due to the venting there was more assessment of the problem versus solution. However, that is to be expected as what Karen Mack organized was a starting point to discuss the issue and that is crucial for stakeholders to speak to their issues.
One important theme offered by those presenting possible solutions was the need to become organized and take a more active role in legitimate organizations.
Due to time the event had to conclude but many in attendance committed to taking this discussion offline and continue to address issues to combat the negative reality of gentrification.
Readers are encouraged to educate themselves on this topic. Karen Mack may or may not agree to a road show, in the meantime those interested must stay engaged in community platforms such as the one which brought folk together for this series.
Creating some relief for those obtaining a new mortgage, rates slid down 10 basis points in week over week reporting. This morning job numbers also posted impressive gains, despite Donald Trump breaking a long-standing policy of intimating the news prior to the official release with one of his early morning tweets. The issue is the Bureau of Labor Statistics is to be the first voice in officially releasing the numbers, which normally is around 8:30AM . Period!
In Trump fashion while he did not specifically break protocol, his mere mention was enough to cause consternation for those who treasure integrity from our institutions.
These two metrics and other positive signs bode well for those in political control and could be enough to keep them in the driver’s seat. The unknown is will they be enough to fend off the impending blue wave from the November election that could result in Democrats gaining control of one or both seats of Congress?
Those in control insist the majority of voters are only concerned about kitchen-table issues and pay little attention to the other dilemmas Trump and the ruling party are attempting to deal with. They are banking on as long as impressive economic numbers are achieved, any other issues are secondary and will keep them in control.
Of course, Congressperson Maxine Waters (D-California) who has been a thorn in the side of Trump and his supporters sent out a warning while appearing on a national news program earlier this year in March.
“for if some reason, Robert Mueller does not get him, Stormy will.”