Retailers in 2015
The holiday shopping season didn't pan out the way it was expected for retailers in 2015 due to unseasonably warm weather coupled with lower spending by international tourists. Macy's announced it will be closing 36 stores and plans to lay off over 4,000 workers across the country. The retailer hopes to save about $400 million to help offset disappointing 2015 results. Macy's said that sales in November and December fell 4.7% from the same period in 2014. Macy's CEO Terry Lundgren said 80% of the sales decline is attributed towards a lack of sales in cold weather gear such as coats, sweaters, boots and scarves.
Mortgage rates dipped below 4% this week and continue to hover just above all-time lows. Freddie Mac reported that the average rate for a 30-year fixed conventional mortgage fell to 3.97% this week when paying 0.6 in points and fees. Freddie Mac said concerns about overseas economic developments have dominated financial markets to start the year. In response, the 30-year mortgage rate dipped 4 basis points to 3.97 percent. Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nations residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders.
The Labor Department reported on Thursday that Americans filing for first time unemployment benefits fell by 10,000 in the latest week to 277,000. First-time claims have remained below the 300,000 mark for 44 straight weeks, the longest stretch since the early 1970s. The four-week moving average of unemployment claims, which irons out seasonal abnormalities, slipped 1,250 to 275,750 last week. The report comes ahead of tomorrow's government Jobs Report for December, which will be closely watched by investors around the globe and the Federal Reserve Bank of the U.S. for consideration in upcoming interest rate decisions.
Mortgage rates will stay at historic lows in 2016
Freddie Mac reports that even in the midst of the Federal Reserve raising the benchmark short-term Fed Funds Rate, mortgage rates may see modest increases, but will stay at historic lows in 2016. Freddie went on to say that home sales will remain strong next year, while refinance activity should somewhat cool. Analysts at sister company Fannie Mae said the current fixed of 3.97% will rise only to 4.1% next year this time.
With millions of young Americans entering the workforce or already working, many are straddled with student loans to pay off. With the Federal Reserve raising short-term interest rates earlier this week, the question many are asking is that will their interest rates go up for their existing loans? The answer is no.
Those already with loans will not see the rate go up, for they are fixed rates over the life of the loan. It is possible that borrowers taking out new student loans next year may feel a rate increase. The bulk of student loans are issued by the federal government, so as mentioned, those rates will not increase. However, those with private student loans often carry a variable rate and could edge higher.
Fed raised its short-term interest
The Federal Reserve Bank (the Fed) of the U.S. finally raised its short-term interest rate for the first time in nearly a decade yesterday. There is a misconception amongst consumers that mortgage rates automatically will push higher because of this. The Fed, however, does not control long-term rates, which are actually based on economic conditions and inflation expectations. On the other hand, consumers will be impacted as the following rates are adjusted higher - short term interest rate loans, credit card rates, HELOC rates, and auto, business and student loans.
Americans filing for first-time unemployment benefits declined in the latest week, signaling ongoing improvement in the labor markets. Weekly Initial Jobless Claims fell 11,000 in the latest week to 271,000, the 41st straight week below the 300,000 level. That is the longest stretch since the early 1970s. The four-week moving average of claims, which irons out seasonal abnormalities, remained unchanged at 270,500. Continuing claims or those who still receive benefits fell 7,000 to 2.24 million.
Fannie Mae released its December 2015 Economic and Housing Outlook this week revealing that economic activity in the fourth quarter appears to be weaker than expected. The report went on to say that real consumer spending is expected to rebound early next year amid a tightening labor market and a renewed decline in gasoline prices, helping to offset persistent economic headwinds. “Home sales will likely remain subdued in the near term, but private residential construction spending started the fourth quarter on a strong note and housing demand is looking up as we head into next year,” said Fannie Mae Chief Economist Doug Duncan.
CoreLogic reported that home price gains
CoreLogic, a consumer, financial and property information and analytics firm, reported that home price gains, including distressed sales, rose 6.8% from October 2014 to October 2015 as the housing recovery marches on. A spokesperson from CoreLogic said, “Many markets experienced a low inventory of homes offered for sale and strong buyer demand, sustaining upward pressure on home prices.” On a month-over-month basis, prices rose 1%, while the numbers for September 2014 to September 2015 were revised down to 5.55% from the 6.4% originally reported. Looking ahead, CoreLogic sees a 5.2 % increase from October 2015 to October 2016.
National manufacturing slipped again in November and fell below the 50.0 mark for the first time since November 2012 and the lowest level since June 2009. A few of the reasons for the decline is low oil prices coupled with a strong dollar. The ISM Index fell to 48.6 last month, below the 50.5 expected and below the 50.1 recorded in October. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting.
A recent poll conducted by Reuters to a group of economists showed sales of existing homes in the U.S. are expected to pick up in 2016, although house price inflation probably will not. However, there are some risks in so far as some potential borrowers may be shut out due to a lack of available credit, low wage growth and higher interest rates. Of the 22 polled, 19 said they see the housing recovery as modest, three called it robust. None said it will be fragile.
Benchmark interest rate
Government sponsored entities and mortgage service giants Fannie Mae and Freddie Mac reported last week that their benchmark interest rate for the standard mortgage modification program fell below 4% for the first time since the program began in January 2012. The new rate is 3.875% and has been in effect for Freddie Mac since November 5, while Fannie Mae’s will begin on November 13. The program is "designed to help those borrowers who are ineligible for the Home Affordable Modification Program."
The chances of an interest rate hike from the Federal Reserve grew larger after the strong October Jobs Report was released last Friday. The U.S. economy has been gaining strength in the past year and the Federal Reserve may feel that it is time for interest rates to rise, after being near zero percent since late 2008. If rates do rise, responsible buyers will still have easy access to loans and low-rates, however, banks will demand higher interest payments from less-qualified consumers.
Thanksgiving travel will be a bit less costly this season with airline flight costs lower, along with the price of gasoline if traveling to grandma's by car. Thanksgiving flights for the top 10 destinations are down by an average of nine percent from last year. At the gas pumps, prices are down to a national average of $2.20, the lowest average in over a decade. Hotel prices, however, are expected to rise by five percent, so consumers may want to stay with relatives or friends when traveling during Thanksgiving.