Homebuyers May Benefit from Stock Meltdown

This was sent to us by Tammy Pollard, Sr. Mortgage Advisor with Paramount Bond & Mortgage Co, LLC

Despite the facts that the Federal Reserve recently raised interest rates, U.S. stocks are tumbling and new worries about the Chinese economy seem to emerge daily, there is still a positive outlook for homebuyers.

All the worries about China that have assaulted the U.S. stock market in early 2016 have done the opposite for bonds. More money pouring into Treasurys has driven mortgage rates to a two-month low. A 30-year mortgage slipped below 4% in mid-January.

The housing market had already been steadily gaining ground even before the latest drop in rates. Actually, it’s been one of the strongest parts of the economy over the past year. Sales of new and previously owned homes are likely to finish 2015 at the highest level since before the Great Recession.

What’s more, the number of permits to build additional homes is on track to reach an eight-year high. Work on new construction is forecast to rise to a 1.19 million annual rate in December from 1.17 million in the prior month. Starts will top the 1 million mark for the second straight year. Just six years ago, builders were producing fewer than 600,000 new homes a year.

Sales of existing homes, meanwhile, are expected to hit a 5.15 million annual rate in December and finish the year about 25% higher compared to the post-recession low. Most economists predict new construction and sales will increase again in 2016, aided by a much improved labor market.

The Fed raised a key short-term rate in December for the first time in nearly a decade, and the central bank is widely expected to push rates even higher in 2016. Yet so far that hasn’t translated into upward pressure on long-term Treasurys or home mortgages. Right now investors are more worried about whether a slowing Chinese economy will hurt the rest of the world.

The higher cost of buying a home could act as another repellent. Prices rose in 2015 to levels last seen shortly before the onset of the Great Recession in late 2007. An expected increase in home construction could make it easier for buyers, though. Permits for new construction in November, for instance, were almost 20% higher compared to the same month in 2014. A greater supply of homes for sale would help hold the line on prices.