Of course, we all know that some cities are expensive. When you talk about housing in San Francisco or New York, nobody thinks that comparing to the rest of the country is a sensible idea. But the reality is that, for decades, urban housing country-wide has been cheaper than suburban housing. But with changing demographics, primarily from the Millennials’ preferences perspective, urban homes are now worth more than suburban homes (2% more, according to Zillow).
If you’ve been following along with this blog for a while, then you probably now know that QE3 from the Fed helped keep interest rates down at least through 2014, and probably for three quarters thereafter. Also, you know that the Fed rate hike last year was unlikely to have any impact on long-term mortgage rates. Still, there are things the Fed can do about rates, and the world is full of uncertainty. Thankfully, at the January FOMC meeting, they gave us perhaps the most clear wording the Fed has ever produced “The Committee is … reinvesting principal payments from its holdings of … mortgage-backed securities … and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy … should help maintain accommodative financial conditions.”
It’s taken a long time to “recover” from the 2008 crash. But, housing prices are up, foreclosures are down, and interest rates are good. What could possibly be wrong? Well, if we look to our friends over in the U.K., we hear the story that perhaps they didn’t learn from our 2008 crash. That could have big repercussions for the U.S. housing market, because of the interconnectedness of everything these days. But perhaps even more scary is the possibility that we didn’t learn from the 2008 crash either.
Happy Groundhog Day, everyone! Yesterday, as I was writing about the impact of winter weather on the housing market, I ended up wondering how much winter we really were likely to have left, and so naturally, my thoughts turned to the groundhog. Sadly, it turns out that groundhogs are not very good predictors (37% accuracy, and 33% accuracy would be by chance). You’re better off with The Farmer’s Almanac, which comes in at about 51% accurate. And actually, given the failure of the groundhog, and the fact that the Almanac’s predicting a year in advance, I think that’s pretty impressive. Still, if you really want to know what’s going on with the weather, your best bet is almost certainly NOAA.
The housing market did excitingly well in December, at least in part (possibly primarily) because of the weather. U.S. News sees a bumpy 2016 ahead, but it’s not that clear from my perspective. To be sure, I expect January reports to be unusually bad, for the same reason that the December reports were good. And depending on what the groundhog says tomorrow, February might be particularly bad, too. But I don’t know that either of those will be enough to make all of 2016 a bumpy ride.
Although we don’t generally think about it, it’s fair to say that, somewhere in the back of our minds, we all know that there are lots of microscopic organisms running around that we’d just as soon (and do) forget about. Well, it turns out, not only do we have lots, we have more than anyone imagined. In the first ever census of arthropods (bugs) in American homes, a team of etymologists found that homes carried between 32 and 211 different species! Thankfully, most of them are either harmless, or even helpful. But, don’t go looking at your carpeting under a microscope.
The same forces that are making the U.S. housing market look good, as we covered in yesterday’s post, are also increasing the strength of the dollar. The problem is that a strong dollar means cheaper imports, which ultimately puts a drain on U.S. manufacturing and the economy as a whole, which reduces people’s ability to purchase homes at the higher rates reported yesterday. Bottom line: very few economic changes are one-sided, and if you get all excited about one piece of news, you’re probably missing the piece on the other side of the balance scale. Ignore the news, buy the right house for you at the right time for you, not at the right time according to the news.
U.S. housing data is making the economy look better, even as other parts lag. And it’s true, the housing market, as we’ve covered for the last several quarters, is doing really well — and the recent Fed rate hike appears to have had little, if any, effect on that. However, as we’ve also pointed out before, we live in a global world, where everything is connected to everything else. As you’ll see in tomorrow’s article, the same news that is good for the U.S. economy is bad for the U.S. economy.
We’ve already covered the fact that last quarter’s rate hike from the Fed shouldn’t have had any meaningful impact on long-term, fixed-rate mortgages. But everyone expected them to have an impact on short-term, adjustable rate mortgages. Contrary to prevailing wisdom, so far in January, refinancing is up significantly (12% week-over-week) and within those loans, the share of activity from adjustable rate mortgages has increased within the increase! Just goes to show you, you can’t trust the news. (More about that in our next two posts).
That’s the average mortgage balance across the U.S.: $157,154. Of course, whether you’re over or under that number doesn’t really say anything useful at all — it depends on so many factors, from where your home is, to whether it’s a first or second home, to how long you’ve owned the home, and so on and so on. But it’s a good point to start a conversation, and The Motley Fool brings up the number in the context of discussing “good” vs. “bad” debt, and how to make a mortgage work in your favor Check it out.