Fed Announces Slow Approach to Interest Rate Increases in 2015

Author: Tory Barringer December 17, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services34

The Federal Reserve announced Wednesday that it intends to take a slow approach to raising interest rates in the coming year, even as the economy continues to strengthen.

In a policy statement released following the last 2014 meeting of the Federal Open Market Committee (FOMC), the central bank reaffirmed its view that the economy is expanding at a "moderate pace," pointing to continued improvements in the labor market tempered by still-high numbers of unemployed and underemployed Americans and slower growth in the housing sector.

Given the current climate, the committee hinted that it will take steps to raise short-term interest rates in 2015, though it still would not commit to a time frame, saying only that "it will likely be appropriate to maintain ... the [current] federal funds rate for a considerable period of time."

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said in its statement.

While the phrase "considerable period of time"—commonly interpreted by analysts to be around six months—is not a new addition to the Fed's language, policymakers did clarify that they're counting the time from when the central bank ended its asset purchase program in October. If the interpretations hold out, that could signal an increase as soon as April, though many economists expect June is more likely.

In a survey, 15 of 17 officials at the Fed predicted an increase in interest rates starting next year, with the other two saying the first hikes will come in 2016.

At the same time, their forecast for rates slipped to 1.125 percent by year-end 2015, down from the last outlook in September.

Perhaps encouraged by recent monthly payroll numbers, officials predicted the unemployment rate next year will drop to 5.2–5.3 percent, a more optimistic outlook than in September. As of November, the national unemployment rate was 5.8 percent.

Economic growth, meanwhile, was pegged at 2.6–3.0 percent for 2015, unchanged despite a rosier outlook for 2014.

Consumer Sentiment Index Reaches Highest Level Since ’07 in December Reading

Author: Tory Barringer December 15, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services2

Consumer sentiment gained another five points in an early December measure, putting confidence levels at a near eight-year high.

The Thomson Reuters/University of Michigan survey of consumer sentiment came in at a preliminary index reading of 93.8 for December, up from November's final reading of 88.8. December's report beat economists' forecasts by more than four points and puts the index at its highest level since January 2007.

Increases in the latest measure were broad-based. The gauge measuring consumer expectations jumped 6.2 points to hit 86.1, also the highest since January 2007, while the measure of consumer economic sentiment was up three points to 105.7, the highest since February 2007.

While the month's final index—due December 23—could see an adjustment, the latest reading is a positive sign in the middle of the holiday shopping season.

In a statement, survey director Richard Curtin noted that expected wage gains are at their highest level since 2008, and consumer attitudes toward buying are the most favorable they've been in several decades.

"Obviously, lower gasoline prices, well received employment reports, and a more optimistic view on the direction of the economy are helping drive consumer mood higher," said Chris Christopher, director of U.S. consumer economics for IHS Global Insight, in a note.

Christopher also gave some of the credit to lawmakers, who in the past few years have stood in the way of growth over debates like 2012's fiscal cliff and last year's government shutdown. This year, they're on track to avoid another shutdown with a last-minute deal.

"The budget deal passing is another big plus for consumer mood since continued political bickering and finger pointing is a downer," he said.

Report: Housing Market Will Gain Momentum In Next Year

Author: Brian Honea December 12, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services14

The housing market will continue its gradual recovery and gain momentum in 2015 after a disappointing 2014, according to the Wells Fargo Economics Group 2015 Economic Outlook entitled "A Whole New Ballgame," released earlier this week.

Wells Fargo cited a number of reasons in the report for its optimistic housing market predictions for next year, namely easing of credit, job and income growth, and mortgage rates near their lowest levels in a generation. The economists predict existing home sales, which dropped by 3.8 percent for the first 10 months of 2014, will grow by 4.1 percent in 2015.

Single-family starts, which grew by just 6 percent (655,000 units) in 2014 due to a weak job market, slow household formation, tight lending standards, and a backlog of troubled mortgages going through the foreclosure process, are expected to make a comeback in 2015, according to Wells Fargo. Economists expect the percentage of single-family starts to more than double next year, up to 13.7 percent.

Two major factors in the turnaround in homeownership have been the rise in foreclosures and with the earlier decline in home prices, according to Wells Fargo. The homeownership rate, which peaked 10 years ago, has fallen 4.8 percentage points down to 64.4 percent, the lowest rate for homeownership in 19 years.

"We would expect this series to overcorrect because of tight mortgage credit, changing attitudes towards homeownership and household finances continue to be repaired," the report said.

Foreclosures peaked about four years ago, resulting in large numbers of investors purchasing many homes at low prices in major metropolitan areas. The foreclosure crisis is mostly over, having decreased significantly in the last three years since their peak, but the numbers are still above long-run norms, according to Wells Fargo. Foreclosure numbers remain high particularly in judicial foreclosure states, such as Florida, New Jersey, Illinois, and Nevada, where the foreclosure process must pass through the courts.

Tax Deductions Sellers Won’t Want 

to Miss

Learn which tax benefits you can take advantage of when selling your home. - 

when you sell a home and make a profit of less than $250,000 (or less than 

$500,000 when you file a joint return with your spouse).If you meet those

 qualifications,and if you have lived in that home for two of the five years before 

you sell, the IRS doesn’t want to hear about your home sale because the profit

 you make is excluded from being taxed under U.S. Code 121. 

And now for the deductions …

 The IRS grants some tax deductions for home sellers.

 Getting the deductions requires that you itemize your taxes, 

admittedly a tedious job, but one that is probably worth your while. 

Here are five tax deductions you should take for 2014.

1. Selling costs

If you don’t qualify for the 121 exclusion, you will owe taxes on any 

profit, so make sure you deduct all your selling costs from your gain.

You can deduct the following:

• Your real estate agent’s commission
• Legal fees
• Title insurance
• Inspection fees
• Advertising costs
• Escrow fees
• Legal fees

And there’s another consideration. You might qualify for a partial 

exclusion if you sell your home due to circumstances involving divorce, 

change in employment, change in health, or other unforeseen

 circumstances.

2. Moving deduction

If you have to sell your house because you’re relocating for work, you might be able to deduct some of your moving expenses, Deductions could include transportation costs, travel to the new place, storage costs, and lodging costs.

3. Property tax deduction

You can deduct your property taxes for the portion of the year that you 

owned the home. Deduct the taxes up to, but not including the date of 

the sale, according to the IRS. The buyer pays beginning from the sale date.

4. Home improvements

It’s a sad fact that you sometimes need to improve your home — 

not for your own benefit and enjoyment — but for the home’s future 

owners. If you make home improvements that help sell your home, and

 if they are made within 90 days of the closing, they are considered 

selling costs, which are deductible, according to Dr. Goodwin.

5. Points

If you paid points to lower your interest rate when you refinanced 

your home, you might qualify for an additional deduction.

Because you can deduct a proportional share of the points until the 

loan is paid, when you pay off the loan through a sale, you can 

deduct the remaining value of those points.

Report: Buying a Home Twice as Affordable as Renting

Author: Tory Barringer in Daily Dose, Data, Featured, News December 9, 2014 Share on facebookShare on twitterShare on google_plusone_shareShare on linkedinSharing Services15

As home prices continue to grow and housing affordability diminishes, a new report maintains that the cost of buying a home is still only about half the cost of renting.

Looking at trends in incomes, home values, and rental prices in the third quarter, Zillowestimates that U.S. homeowners spend on average 15.3 percent of their income on monthly mortgage payments. For younger homebuyers, who typically make smaller down payments, that figure is only slightly higher: 17.4 percent.

"Homes for younger buyers remain affordable thanks to continued low mortgage interest rates and their tendency to shop for less expensive homes," Zillow said in its latest home value report.

Renters, meanwhile, are spending 29.9 percent of their monthly income on their living space as rent growth outpaces home prices nationally. According to a recent forecast from the company, rental costs are expected to rise 3.5 percent annually in 2015 compared to growth of 2.5 percent for home values.

While continually rising rents might be expected to drive more Americans into purchasing homes, they're also making it difficult for renters to save up for a down payment. In a recent survey, Freddie Mac found that 61 percent of current renters don't expect to buy a home in the next three years, with half of respondents saying they can't afford to save for the initial costs.

"Despite rising home values, homeownership remains very accessible for buyers that can scrape together a down payment—even if that down payment is relatively modest—find a home to buy and secure financing," said Dr. Stan Humphries, chief economist at Zillow. "But what keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align, largely because renting is so unaffordable these days."

While current conditions might be tough for the hopeful would-be homeowner, Humphries reiterated his belief that increased inventory and slowly loosening credit will create a more favorable market for buyers, giving renters incentive to take the big step into buying.

"Buying conditions are getting better every day, and in time the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership," he said.

Survey: Nearly 70 Percent of Industry Professionals See Lower Down Payment As Positive

Author: Brian Honea December 11, 2014 Share on facebookShare on twitterShare on emailon pinterest_shareMore Sharing Services4

The majority of mortgage industry professionals said they believed that the lowering of the down payment to 3 percent for first-time homebuyers by Fannie Mae and Freddie Mac was a step in the right direction for the housing market, according to theCollingwood Group's November 2014 Mortgage Industry Outlook Report released earlier this week.

In a survey conducted online distributed to a diverse group of mortgage and housing industry professionals, 69 percent of respondents said that lowering the down payment was a move in the right direction for housing, while 31 percent said it was a move in the wrong direction, according to the Collingwood Group. Though the survey respondents represented professionals who work in all phases of the mortgage process, the largest percentage of respondents (50 percent) were lenders or originators.

According to the Collingwood Group, the survey respondents who believed lowering the down payment was a positive move said it reflected concern of policymakers with current market dynamics, and it indicated a willingness on the part of the Federal Housing Finance Agency (FHFA) to ease lending standards. At the same time, most respondents pointed out the existence of other high loan-to-value (LTV) products and said they believed the Federal Housing Administration (FHA) offered the best option.

"The announcement of a low down payment mortgage option may create more opportunities for buyers to afford housing; however, it falls short of appropriately loosening tightened credit standards for other LTV loans," one anonymous survey respondent said in the report. "The 97 percent allows the GSEs to capture loans that would otherwise go to FHA."

According to the Collingwood Group's report, this point raised the question as to whether FHA would lower its insurance premiums sometime in 2015 in order to compete. A spokesperson said it has not been determined whether the premiums will be lowered.

"FHA has made no decisions regarding the premiums," HUD press secretary Cameron French said. "We are regularly evaluating a number of factors to ensure our premiums are at the right levels. As a result of the most recent annual report, we are looking through new information and will use that to inform any future decisions."

Forecast Calls for Modest Growth in Home Sales for 2015

Author: Tory Barringer December 9, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services0

In keeping with other recently released predictions, the latest housing forecast from market research firm IHS Global Insight calls for modest growth in home sales in 2015 following what's been a disappointing year.

In her outlook, IHS economist Stephanie Karol focuses on two major trends that have shaped the housing market in 2014: low household formation and diverging trends for new versus existing-homes.

According to data from the Census Bureau, the country saw the addition of only 467,000 new households between March 2013 and March 2014, well below the post-recession average of about 600,000 per year.

While formations are expected to disappoint again in 2014, Karol predicts next year will see the addition of 1.08 million new households, with economic growth driving up the rate of new formations—and demand for new housing.

"As a swell in steady employment joins with rising wages, household formation should climb, boosting homeownership rates," she said.

With demand projected to rise, Karol anticipates homebuilders will respond by ramping up housing starts, closing the massive gap between existing single-family inventory and the unsold stock of new homes (which she estimates at nearly 40 to one) and boosting new home sales up to 480,000.

Together, both new and existing-home sales are forecast to rise to 5.34 million annually, the result of improving home equity spurring more homeowners to sell.

"As a result, inventories have expanded—and families, who are no longer being consistently outbid by investors with plenty of cash on hand, have entered the market in sufficient numbers to stabilize median price growth in the 4–5 percent range," Karol said. "Overall, the post bubble-landscape will continue into next year, but with slightly smoother terrain."