Falling bond yields are reviving the U.S. mortgage market

Rates on the standard 30-year mortgage are at their lowest level in almost three years. They are closely linked to yields on 10-year U.S. Treasury notes, which on Wednesday tumbled to 1.675%, the lowest level since October 2016.

Mortgage rates are falling more slowly, but economists expect them to catch up if bond yields remain at this low level.

That is already prompting borrowers to flood lenders with calls. They are hoping to save hundreds of dollars a month by refinancing their mortgages or use lower-rate loans to buy more-expensive homes. The influx is a welcome development for a market that looked moribund late last year, when mortgage rates nearly reached 5%.

Falling behindTreasury yields are falling too fast formortgage lenders-and mortgage rates-tokeep up.Comparison of 10-year Treasury yields and30-year mortgage rates

%Treasury yieldMortgage rateJan. ’19MarchMayJuly1.52.02.53.03.54.04.55.0

Differential between 30-year mortgagerates and 10-year Treasury yieldsSource: Mortgage News Daily (mortgage rate);Refinitiv (Treasury yield)

.percentage pointsJan. ’19MarchMayJuly1.601.651.701.751.801.851.901.95

“My applications are up across the board,” said Angela Martin, a Nashville, Tenn.-based loan officer at Movement Mortgage, a retail mortgage lender that originates about $13 billion of loans a year. “Every time the Fed starts talking is when my phone starts ringing off the hook.”
The Federal Reserve trimmed its benchmark interest rate last week for the first time in a decade and after several years of rate increases.

Ms. Martin said she has seen a sharp increase this week in applications for refinancings and new-home purchases.

Average mortgage rates for 30-year fixed-rate loans have steadily fallen since a peak of 4.94% in November, according to mortgage-finance giant Freddie Mac , mirroring declines in the 10-year Treasury over that period. Thursday, Freddie Mac said the average rate fell to 3.6%, its lowest level since November 2016.

That figure doesn’t entirely factor in the most recent changes in the 10-year note, since lenders often take some time to reprice their mortgage rates after a big bond-yield drop, said Ralph McLaughlin, deputy chief economist at real-estate data provider CoreLogic Inc. That means lenders could soon start offering even lower rates. Until then, lenders may include perks such as credits at closing to entice borrowers in lieu of lower rates, he said.

Refi PoolNumber of U.S. homeowners who would qualify for and benefit from a refinancing, at different rates.Source: Black Knight Inc.

.millionMORTGAGE RATE3%3.253.53.7544.254.54.7555.255.505101520

What might seem like a small decline in mortgage rates can have a big effect on monthly payments. A 5% rate on a $500,000 30-year loan translates into a monthly payment of $2,684, according to LendingTree Inc., an online loan information site. At 4%, the monthly payment would fall to $2,387, excluding taxes and insurance.

Jim Cook, an advertising executive in Chicago, decided to refinance mortgages on his home and a rental property Friday, days after receiving a text from a college buddy urging him to take advantage of the steep drop in rates.

“When he texted me I thought the savings would be minimal, like $100,” Mr. Cook said. “Then I got the quotes in my inbox and showed them to my wife and she said, ‘That’s saving us $500!’”

Refinancing this month will cut about half a percentage point from his home mortgage rate and reduce monthly payments on the two properties to $3,392 from $3,844, he said.

Falling rates often lift the housing market. A one-percentage-point decrease in rates can typically lead to an increase in home sales of 7% to 8%, according to Lawrence Yun, chief economist at the National Association of Realtors.

But Mr. Yun said the current drop in mortgage rates might not have the same effect if consumers believe the falling rates are a product of broader economic uncertainty or a potential recession.

“Low rates are always welcome, but right now [low] rates are occurring for the wrong reasons,” Mr. Yun said. Investment accounts that borrowers planned to tap for a down payment have also likely been hit by broader stock-market swings.

Volatile stock markets have left many consumers nervous. U.S. stocks suffered their worst day of the year Monday amid worries about trade frictions and slowing growth, though they partly recovered Tuesday and Wednesday.

Falling rates can also inflate home prices, since borrowers can afford bigger mortgages when rates are low. That can harm those still looking to buy their first home, since high prices are already pushing many would-be borrowers out of the housing market.

For example, a borrower with a budget of $2,000 a month can afford a mortgage of roughly $373,000 when rates are 5%, according to LendingTree calculations. That same borrower can afford a mortgage of roughly $419,000 when rates fall to 4%.

“Low rates in the housing market are not an unambiguously good development,” said Tendayi Kapfidze, chief economist at LendingTree.

Much of the mortgage activity fueled by lower rates is in the form of refinancings, which can help mask a slowdown that by many measures is gripping the housing market. The Mortgage Bankers Association expects refinancing volume to rise 16% this year, and to make up 30% of mortgage loans. By comparison, the group expects mortgage-purchase loans to rise about 6%.

Black Knight Inc., a mortgage-data and technology firm, estimates that 9.7 million U.S. homeowners would qualify for and benefit from a refinancing. That is a 7.8 million increase from when rates peaked in November 2018.

“These are some of the lowest rates we’ve ever had,” said Guy Cecala, chief executive of Inside Mortgage Finance, an industry research group. “It certainly brings most people into refinance territory.”

Falling interest rates in recent months boosted mortgage refinancings far more than new-home purchases for Summer Garrett, a loan consultant at Caliber Home Loans Inc. in Dallas. She said refinancings make up about half the loans she is currently working on, up from less than 20% earlier in the year when both Treasury bond yields and 30-year mortgage rates were higher.

By Matt WirzChristina Rexrode and Rachel Louise Ensign Updated Aug. 8, 2019 1:43 pm ET
Reported by The Wall Street Journal

 

Fed sees case building for interest rate cuts this year

WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday signaled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.

Even as the U.S. central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting was marked.

The bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Fed Chairman Jerome Powell said others agree the case for lower rates is building; the Fed dropped its pledge to be “patient” before rate moves in a sign it was poised to act; and Powell stopped referring to weak inflation as “transient.”

Although economic growth is expected to continue, Powell said policymakers’ concerns congealed in the few weeks since the Fed last met in early May, with the unpredictable outcome of President Donald Trump’s trade dispute with China and other countries at the top of their minds.

Trump slapped new tariffs on China on May 5, took other steps that upended markets, and yet of late has sent hopeful signals of progress in the dispute when he meets Chinese officials next week – difficult terrain for the Fed to navigate.

The U.S. president has repeatedly accused Powell’s Fed of undermining his administration’s efforts to boost economic growth and has repeatedly demanded that rates be cut.

“Seven weeks ago we had a great jobs report and came out of the last meeting feeling that the economy and our policy was in a good place,” Powell said. “News about trade has been an important driver of sentiment in the interim.”

“We are quite mindful of the risks to the outlook and are prepared to move and use our tools as needed,” he said in a press conference following release of a policy statement in which the central bank said it “will act as appropriate to sustain” a nearly 10-year economic expansion.

‘ACT AS NEEDED’

Fresh economic projections released by the Fed show nearly half of the 17 policymakers now show a willingness to lower borrowing costs over the next six months, and seven see rates likely to warrant being lowered by a full half a percentage point – near what bond investors have anticipated.

Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, U.S., June 19, 2019. REUTERS/Kevin Lamarque

Though the baseline economic outlook remains “favorable,” Powell said, risks continue to rise, including the drag that rising trade tensions may have on U.S. business investment and signs that economic growth is slowing overseas.

“Ultimately the question we are going to be asking ourselves is, ‘are these risks going to be continuing to weigh on the outlook?’” Powell said.

“We will act as needed, including promptly if that’s appropriate, and use our tools to sustain the expansion,” he said, adding that if the Fed does ease monetary policy by cutting rates, it may also halt a gradual slimming of its massive balance sheet.

Interest-rate futures surged in response to the dovish remarks, and traders are now betting heavily on three rate cuts by the end of the year. U.S. stocks turned higher, with the benchmark S&P 500 index up about 0.3% from the previous day’s close. In the Treasury market, expectations the U.S. central bank would be cutting rates before long drove the yield on 2-year notes, often a proxy for Fed policy, to the lowest in a year and a half at around 1.75%.

 

“I think the big surprise was how many folks moved into the cut camp on the Fed side. You had seven members that are now looking for two cuts in 2019,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“Maybe this goes to the point that the China trade situation is such a critical pivot for whether the Fed cuts or not.”

MISSED TARGETS

The new economic projections showed policymakers’ views of growth and unemployment were largely unchanged from March. But they now project headline inflation to be just 1.5% for the year, down from the previous projection of 1.8%.

They also expect to miss their 2% inflation target next year as well, a blow for a central bank that has missed that goal for years.

Policymakers “expressed concerns” about the pace of inflation’s return to 2%, Powell said. Wages are rising, he added, “but not at a pace that would provide much upward impetus” to inflation.

The long-run federal funds rate, a barometer for the state of the economy over the long term, was cut to 2.50% from 2.80%.

St. Louis Fed President James Bullard, who had argued that rates should be cut, dissented in Wednesday’s policy decision.

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 I Date listed: 12/4/2018  | ID: 19246432

Residence Information
Type: Duplex | Rooms: 1.0 | Outdoor space: Yes

Building Information
Period: Post-War | Built: 1899 | Building Type: Townhouse

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Cobble Hill Duplex for Lease

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Cobble Hill, New York Rental $6495 | Last updated: 6/25/2019 | ID: 19596427
Residence Information Type: Duplex | Rooms: 7.0 | Bedrooms: 2 | Bathrooms: 2.0
Decorative Fireplace: 1 | Air conditioning: Window
Period: Post-War | Built: 1901 | Building Type: Townhouse


A New York designer says luxury property isn’t about how much money you spend, and it shows a major shift in priorities among the elite

Luxury properties are no longer all about marble floors and French doors.

According to New York-based designer Andrew Kotchen, founding principal of architecture and design firm Workshop/APD, luxury is more about experience than aesthetic. Kotchen’s firm has designed everything from urban lofts and homes to city buildings and restaurants across London, the Bahamas, Miami, Nantucket, Aspen, and New York City.

“It’s about comfort,” he said in a recent interview with Mansion Global. “A beautiful hotel, for example, is not luxury if it’s not relaxing. It’s not just about rich materials spread throughout. The world we live in thinks the more money you throw at it, the more fancy materials, the more luxury it is. It’s not true.”

He continued: “Certainly there are baseline conditions of quality and craft, but it’s really an experience. That’s what it means to me. It’s not a place, a thing, or a product.”

The focus on experiences explains why luxury condo developers are pouring money into “well-being” amenities. Consider boutique Los Angeles condominium 1030 Kings, which has an outdoor yoga deck, and Arbor18 in Brooklyn, which boasts not only a zen garden but also an infrared sauna with built-in chromotherapy.

It also explains why luxury buyers are downsizing, prioritizing quality over space. But the evolution of luxury real estate is part of a bigger shift in the overall luxury industry: The wealthy are increasingly spending money discreetly and on experiences instead of items that once signified status.

Entire industries are developing or adjusting their services to cater to consumers’ heightened interest in the experience behind the brand. As Business Insider’s Lina Batarags reported, “Wellness is increasingly regarded as a modern embodiment of luxury, and accordingly, an array of spas and studios offering treatments like cryofacials, weeklong retreats, and vitamin IV drips are delivering those experiences.”

As reported by the Business Insider

Plans Change for Downtown Brooklyn Development on Site of Former Printing Plant

Plans have shifted quite drastically for a prominent development in Downtown Brooklyn.

In a surprise twist, a developer has abandoned already approved plans to build a 44-story apartment tower and instead will construct a 23-story office building, Building Department records show. The currently empty lot at 141 Willoughby Street was once the site of an early 20th century printing plant. It was demolished at the end of 2018.

The current plans are roughly half the size of what the developer, Savanna Partners, had originally envisioned. The switch could reflect a softening market for luxury rentals in the borough. Savanna declined to comment to The Real Deal, which was the first to write about the change in plans.

In 2014, there were plans for a proposed 49-story glass tower, which required a zoning variance. The City Council voted to rezone the site but with modifications.

They allowed a FAR of 15, rather than the 18 requested, enough to create a roughly 44-story mixed-use building. The Real Deal reported at the time that the building would include 203 apartments with 61 at below-market rates to comply with the mayor’s Mandatory Inclusionary Housing program.

It’s unclear whether the developer plans to build housing nearby instead. Savanna owns two neighboring lots, located at 383 and 385 Gold Street, the former being a parking lot and the latter public open space, purchased from New York City’s Economic Development Corp. Two of the three lots are currently surrounded by a construction fence, but no plans have been filed for the two lots on Gold Street.

Rendering via Savanna Fund

Morris Adjami was the original architect on the project; new plans list SLCE Architects as the architect of record.

The previous building at 114 Willoughby was designed by architect Frank H. Quinby and constructed in 1919 as the printing plant of the American Law Book Company. The factory was constructed on a small plot of land created with the extension of Flatbush Avenue around 1906, according to a 1919 story about the then-new building in the Brooklyn Daily Eagle. The company eventually moved to Manhattan and the building was used for storage.

The building in 2017

The property is right across the street from Brooklyn Point, which, when completed, will be the tallest building in the borough. Less than a block away, construction is in full swing on another office tower, located at 420 Albee Square.

Story and Photos as reported from Brownstoner

 

Following the Money in Residential Real Estate

Almost half the money spent by New York City home buyers in the first quarter of 2019 went toward the most expensive properties. That wasn’t always the case.


By Michael Kolomatsky  May 2, 2019  The New York Times

Nearly half the money spent on residential real estate in Manhattan during the first quarter of 2019 (45.4 percent, to be exact) was spent on the most expensive homes — those that sold for more than $4 million — according to information collected by Jonathan J. Miller, president of the appraisal firm Miller Samuel.

As for the most affordable homes — those priced under $1 million — only 14.5 percent of the money spent on real estate went toward buying them.

That might not seem surprising, but rewind to the third quarter of 2001 and you’ll find that ratio nearly inverted: 14 percent of the money spent went toward properties over $4 million, while 42 percent went to those under $1 million. (The share spent on homes in the middle, between $1 million and $4 million, has remained relatively unchanged.)

Why the huge growth at the top? Simply put, the high cost of land combined with easily available capital made building anything but the highest-end properties unappealing to investors and developers, said Mr. Miller, who began charting the dollar distribution among these price ranges in the days following the Sept. 11 attacks, anticipating that the event might affect the market.

NYC Brokers Relieved as Mansion Tax Replaces a Pied-a-Terre Levy

One-time payment is preferable to once-a-year tax, brokers say
Rate would top out at 4.15% on home purchases over $25 million

The tax, included in the new state budget and replacing an annual pied-a-terre levy, would be a one-time payment that’s less likely to scare buyers away, brokers say. It’s just the entry fee into New York’s exclusive market.

“We probably dodged a bullet here,” Steven James, chief executive officer of Douglas Elliman’s New York City division, said in an interview. “It’s not the catastrophe we thought was going to happen.”

New York’s powerful real estate industry succeeded in killing the pied-a-terre tax that some considered “class warfare” against the rich, and a measure likely to hurt already-slowing luxury sales. While the higher mansion tax would apply to most buyers of homes costing $2 million or more, it won’t be a deal-killer for many people, brokers say.

Counting Pennies

Elizabeth Stribling-Kivlan, president of Stribling & Associates, said a client from Europe had canceled a house-hunting trip for an apartment above $25 million because of the pied-a-terre tax, which would have been levied each year based on the value of the home. The agent is hopeful he might now change his mind.

“It’s a lot easier to pay one time than every year,” Stribling-Kivlan said. “It’s easy to look at someone who makes an enormous purchase and say they have a lot of money. It does matter to them. But a lot of people get wealthy by counting their pennies and spending wisely.”

Read More: NYC Congestion Fee, Mansion Tax Ushered in by State’s New Budget

The pied-a-terre proposal, which had support from Governor Andrew Cuomo, collapsed after real estate professionals complained that it would damage sales and city tax officials said they didn’t have the resources to assess properties or determine who was an absentee owner.

Lobbyists also questioned the constitutionality of treating second-home buyers differently than permanent residents and whether legal challenges could arise when adjacent properties were assessed at different values.

Simpler Tax

The mansion tax has the benefit of being simple.

New York buyers already pay a flat 1 percent tax on home purchases of $1 million or more. Now, there would be a scale of graduated levies that would start at 1 percent. The rate would increase at $2 million and continue to rise until it reaches a top of 4.15 percent on any amount over $25 million.

The tax is expected to raise $365 million this year, money that would secure about $5 billion in bonds for mass transit.

Bess Freedman, chief executive officer of Brown Harris Stevens in New York, said she’s not happy about the new tax — but she’s relieved.

“Do we love it? No,” she said. “But we can digest it.”

If the levy had been in place for 2018, it would have affected about 26 percent of Manhattan’s residential market, or anything above $2 million, according to Jonathan Miller, president of appraiser Miller Samuel Inc. In Brooklyn, just 8.1 percent of deals were in that price range, he said.

‘Don’t Live Here’

To Pamela Liebman, president of brokerage Corcoran Group, the mansion tax is damaging to the whole market and a loud-and-clear message from officials that it doesn’t matter if the barrier to entry becomes unreasonable for big-spenders. In the past weeks, the brokerage has lost deals in the $25 million range over concerns about taxation.

“It’s particularly onerous on the high end, and these are people who have choices — they could buy here, but they don’t have to,” she said. “I have no issue with a small increase, but a 4 percent tax on expensive apartments is basically saying: Don’t live here.”

James Parrott, the economist whose proposal was the basis for the pied-a-terre tax legislation, says the mansion tax is both good and bad. On one hand, it will help pay for transit. But he also worries that it will be difficult to use the revenue for bonds because levies on home sales are lumpy, rising and falling from year to year.

Also, there’s the matter of fairness. Foreign buyers, for example, don’t pay income taxes, but the transit system and the city’s services contribute to the value of their properties, he says. The industry argues the opposite, saying wealthy second-home buyers spend money in the city while they’re in town and that bolsters employment from doormen to shop clerks on Fifth Avenue. And they don’t add kids to the schools or burden the transit system.

Still, it’s hard for the industry to declare victory, according to Parrott.

“They had to accept an increase in the mansion tax,” Parrott said. “If you call that a victory for them, OK.”


The 4% Mortgage Is Back

The average rate on a 30-year fixed mortgage was down nearly a quarter point this week from a week earlier, its biggest drop in over a decade

Mortgage rates are fast approaching 4%, a rate low enough that economists and lenders believe it will help jump-start the housing market again.

The average rate on a 30-year fixed mortgage fell to 4.06% this week, its lowest since January 2018, according to data released Thursday by Freddie Mac, the mortgage-finance giant. The rate was down nearly a quarter point from a week earlier, its biggest drop in over a decade.

Read full story at The Wall Street Journal.

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