Uncertainty Abounds...

Volume 12 Issue 11 November 2017

D

uring the past several

weeks, inter-

est rates, oil

prices and

even gold prices have

been rising. The stock

market has been moving

upward steadily as well,

though stocks have been

moving up for many

years now and accelerat-

ing for the past year. With the

Federal Reserve Board raising short-

term rates and starting to sell assets,

along with the many hurricanes we have

witnessed, these higher prices are not

unexpected.

In reality, it is amazing that interest rates

and oil prices have stayed so low with

all of these factors

involved. We all would

like to know where

things are headed in

the future--will they

continue up or settle

back down? The bottom

line is, we can't predict

where prices and rates

will go without knowing

where the economy is headed.

We do know the economy has been

heading in the right direction since

a pause which took place in the first

quarter of the year.

However, we won't have a great idea

of where the

In This Issue P2 Hispanics to Anchor Growth || P2 Should You Consider an Adjustable Rate Mortgage

P3 Uncertainty Abounds || P4 Fall/Winter Sweet Spots

Did you know…

Real Estate is America’s favorite long-

term investment, according to a recent poll by Bankrate. In its Financial Security Index, which was conducted by Princeton Survey Research Associates International, they asked 1,002 adults about money that wouldn’t be touched for at least 10 years—what did they think was the best investment?

Twenty-eight percent said real estate, while cash investments came in a close second at 23 percent. Bringing up the rear was the stock market at 17 percent, gold at 15 percent and bonds at 4 percent. Bankrate suggests that the rea-son real estate is the favorite is three-

fold: rising home prices, perpetually low interest rates, and tax incentives. Plus, there’s the added bonus of having a place to call home, permanently.

Source: Bankrate

Selected Interest Rates October 19, 2017 30 Year Mortgages——–3.88%

2017 High (March 16 %

2017 Low (Sept 14)——3.78%

15 Year Mortgages—— 3.19%

5/1 Hybrid ARMs——–—–3.17%

10 Year Treasuries—–—2.32%

Sources—Fed Reserve, Freddie Mac

Note: Average rates do not include fees

and points. Information is provided for

indicating trends only and should not be

used for comparison purposes.

Continued on Page 3

THIS NEWSLETTER IS BROUGHT TO YOU BY:

Should You Consider an…

T

he popularity of adjustable rate mortgages (ARMs) rises and falls depending upon

the overall direction of interest rates, as well as the spread between fixed rate mortgages and adjustables. There are many reasons why one might opt for an adjustable rate mortgage. In analyz-ing whether you might be a viable candidate for an adjustable, there are many fac-ets you may want to consider before making a decision:

What is the current interest rate spread between a fixed rate and an adjustable? Fixed mortgage rates are based upon long-term interest rates while most adjustables are based upon short-term rates. For example, a one-

year adjustable will typically be priced off current one year T bills. Short-term rates are typically lower than long-

term rates, which is why adjustables will have starting rates below fixed rate loans. The difference between the two, the spread, is not always the same. If fixed rates are at 5.0% and a one-year adjustable starts at 2.0%, the benefit is clearly seen. If the adjustable starts at 4.5%, the choice is not so clear.

How long are you going to keep the mortgage? Note that the question here is not how long you live in the house. If you convert the home to rental property sometime in the future, you

will still be making payments on the mortgage. Also, you may refinance the

mortgage in the future and remain in the property. Factors that might affect your long-term use of the mortgage might be your job stability, mobility and the current interest rate of the mortgage. For example, if you purchase a home and obtain a mort-gage during a period of relatively high mortgage

rates, a refinance is more like-ly in the future. The average life of a mortgage in the United States ranges from five to seven years depending upon the economic and interest rate environment.

Which direction do you think mort-gage rates will move? If you feel that the present level of rates is high and the movement is likely to be down, you are more likely to benefit from an ARM. Note that an opinion of the future of interest rates is just that -- an opinion. Yet, if rates have recently moved up, they are more likely to move lower in the future.

What is the life cap of the adjustable as compared to the present level of fixed rates? The major advantage of fixed rates over adjustables concerns the issue of security. With a fixed rate mortgage one will be secure in having the knowledge of their payment over the life of the loan. With an adjustable, long term security comes in the form of a cap on the mortgage rate. This cap is

Page Two

“…consider the fact that all adjustables

are not alike…”

H

ispanics are increasing-

ly making up what’s

considered the typical

American home buyer,

Curbed.com reports. Latinos are

expected to make up 52 percent of

new home buyers between 2010

and 2030, largely driven by the

country’s 14.6 million Latino

millennials. Since 2000, the number

of Hispanic households has jumped

by 6.7 million, which comprises

42.5 percent of the country’s over-

all household growth. Hispanics’

“fervent desire to own a home” has

fueled homebuying by Latinos

across the country, demographers

note.

“The fact is, the majority of Latinos

want to be home owners and will

make up half of all new home

buyers in the next 20 years,” Scott

Astrada, director of federal

advocacy at the Center for Respon-

sible Lending, told NBC. “They

have a central place in the housing

market and finance system.”

Harvard University Joint Center for

Housing Studies’ “State of the

Nation's Housing" study predicts

minorities overall will drive three-

quarters of the gains in U.S. house-

holds. Latinos will likely account

for one-third of those increases

alone...����

Source: Curbed.com

Hispanics to Anchor Growth

Page Three

the maximum rate over the life of the loan. If this maximum is close to the present level of fixed rates, then we can say that the worst case is palatable. If fixed rates are presently 6.0% and the life cap of an adjustable is 7.0%, the risk is minimal.

How fast do you expect your income to rise in the future? If you expect your income growth to be strong, it may make sense to opt for an ARM. Your payment will be lower in the short run when your financial plan most needs the assistance.

As you make your decision, it is important to also consider the fact that all adjustables are not alike. Some may have interest and payment changes each year, while others may be fixed for the first ten years of the mortgage. A seven-

year ARM provides security and will typically offer a lower rate than fixed rates. The more frequent the changes, the lower the starting rate of the ARM. In addition, most ARMs have caps that limit the amount of change per each adjustment. For example, most one-year adjustables have annual caps ranging from 1.0% to 2.0%.

Another difference between adjustables concerns the index upon which future rate changes are based. Some indices may have a history of being more stable in times of market volatility. In particu-lar, the Monthly Treasury Average (MTA) tends to change more slowly (lagging) than indices directly based upon Treasury Bills or the LIBOR. This would make MTA based adjustables better performers during periods of rising rates, but disadvantageous when rates are falling.

When making your decision concerning a mortgage, be sure to keep an open mind. The right mortgage product today just might become the wrong choice tomorrow. Your economic circumstanc-es may change which would alter your choice. It seems that the external economic environment is forever changing.

Surely, if we could predict the future of interest rates the decision would be easy. Since we can't make such a prediction, the choice of a mortgage might be best considered one of luck and timing. Yet, with careful planning and knowledge of alternatives we can improve the chances!...����

...Adjustable Rate Mortgage Continue from Page 2

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The Hershman Group www.originationpro.com

1-800/581-5678

Again & Again

Continued from Page 1

economy is heading now because of

the interruptions of major storms

and wildfires. We could have a very

poor quarter and then have a major

growth spurt because of the

tremendous rebuilding that we will

be undertaking. Certainly, housing

will be affected by this rebuilding

as there may be an even more

pronounced shortage of skilled

labor as workers move into the

rebuilding areas.

Markets always move on psycholo-

gy because we can't predict the

future. However, the markets are

always looking for indicators of the

future. Right now, our indicators are

likely to be even worse predictors

of the future than normal. Thus, in

answer to the question — where are

we heading? The answer may be

more hidden than usual....����

“…because we can’t

predict the future...”

Fall/Winter Sweet Spots

Address Correction Requested

In This Issue:

Uncertainty Abounds

T

he spring homebuying season may be long gone but that doesn’t

mean first-time buyers should wait months to start looking. A report

from Trulia looked at the supply of starter, trade-up and premium

homes across the 100 largest metros and found that starter homes

inventory will increase typically around 7.0 percent in the fall; while prices

decline 4.8 percent in the winter compared to the spring.

The strongest season for starter homes in 70 of the 100 largest metros is

between October and December. Seven of the top 10 metros will see this swing

in inventory and prices. "Starter homebuyers should begin looking now. The

fall season provides a great opportunity for finding the right home and

neighborhood thanks to a bump in homes for sale on the market, followed by

lower winter prices," said Trulia senior economist Cheryl Young...����

Source: Trulia