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Weekly Mortgage Applications Decline, Although Rates Drop

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According to the report released by the Mortgage Bankers Association, the entire mortgage application volume reduced by 1.7 percent last week but the volume’s value was 15 percent lower in the previous year. A reduction in the mortgage rates should have bolstered the mortgage business, but the reverse is the case in this scenario.

In this summer, dwindling affordability is a significant factor that has restricted the potential homebuyers, and this is affecting the mortgage market adversely. There was a decrease of the average contract interest rate for 30-year fixed mortgage rate with conforming loan balances of $453,100 or less from 4.81 percent to 4.78 percent, the lowest rate since the end of week which ended on July 20, with increasing points from 0.42 to 0.46 which also include the origination fee for loans with a 20 percent down payment.

According to Joel Kan, an MBA economist, he said that the treasury returns were significantly lower over the week, due to an FOMC release which states that Fed officials may be considering a more careful strategy to the final two anticipated rate increases of 2018. In the previous week, there was a three percent decrease in the applications to refinance a home loan, an application which is known to be sensitive to rates. However, the volume was 33 percent lower per annum, as the interest rates were noticeably lower in the previous year.

The home purchase mortgage applications also reduced by one percent for the week. The volume was three percent greater than the similar week last year but expected to be higher when the strong demand and improved economy are considered. The home price is the main issue in this aspect as most buyers cannot compete in most of the major markets, and they are withdrawing from the race. There is an increase in the prices of homes, but the speed has slackened in the last few months as some sellers stay on the market for an extended time. Despite that, the prices are not decreasing on a national scale, and there is no sign of diminishing in the presence of strong housing demand.

According to Aaron Terrazas, a senior economist at Zillow in an interview on CNBC’s “Power Lunch” on Tuesday, he said the appreciation of home value has reduced, but its present state is three times its historic pace and triple the wage growth’s rate. He also opined that it remains a seller’s market and will persist to be a seller’s market until there is an intense change in interest rates or inventory.

The mortgage rates are under severe burden in this week because the return on the ten-year US Treasury bond, which they slackly follow, is increasing again. In this summer, rates have moved within a narrow range, but they are exhibiting signs that they could start to soar higher.

Canada’s Hot Economy Tests Canadian Banker Poloz’s Patience With Canadian Rates

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With the pushing of protectionism from President Trump, the biggest obstacle to the economic expansion of Canada is within its borders. Local news emanating from Canada confirmed that the economy of Canada is closer to overheating than stumbling on the back of trade uncertainty, a situation that has compelled the Bank of Canada to introduce higher interest rates.

There is an anticipated report from Statistics Canada that the economy increased to an annual three percent rate or more in the second quarter, a feat considered as the fastest stride in a single year. It is believed to serve as a balance for the weaker start to 2018 and create more space for expansion for a profit of a rate higher than two percent for the entire year after 2017 strong 3.1 percent advance.

This huge demand is unraveling the little capacity possessed by the economy. The companies in the country are faced with a shortage of labor and production constrictions, as the inflation rate of three percent is the maximum when the Group of Seven is studied.

According to the Chief Financial Officer of the Royal Bank of Canada, Rod Bolger in a telephone interview in the previous week opined that trade uncertainty is on the mind of everybody, but there is a strong demand. The challenge faced by several clients of the Royal Bank of Canada is the sourcing of labor as it is hard to get skilled professionals and the upward pressure on labor rates cannot be ignored.

However, the tightening signs are visible as the rate of unemployment is presently at four-decade lows, improvement of pay raises, and the increase in the number of job vacancies by different companies. According to the information shown by the job listings, various businesses are offering thousands of dollars to hairstylists and mechanics in the form of signing bonuses.

Over the years, Canada has exclusively depended on the immigrants to develop its working population as its entire population advance in age. Statistics Canada released a report that in the last one year, the population of landed immigrants in the labor force was increased by 164,000 and down 72,000 for individuals that were born in Canada.

According to the economists at the Bank of Canada, the economy of the nation is expected to grow more than two percent before the emergence of inflation. This is the main reason why financial markets are not focused on the swiftness of the expansion but the pace of the rising rates and its amount. In the words of Jean-Francois Perrault, the Chief Economist at the Bank of Nova Scotia, he said that every company is complaining about the shortage in labor and confirmed that the issue of labor is the most complicated problem faced by several businesses at the moment.

In a bid to ensure a breakthrough on trade would provide relief for parts of the capacity restraints, it has been observed that brands are incapacitated in the aspect of demographics, but they can resolve labor shortage issues by purchasing more equipment and embracing new technologies. However, more trade certainty should reinforce their belief and enthusiasm to invest which will encourage them to offer increased wages that will attract more individuals into the workforce.

In the real sense, there is least expectation of investment revitalization in Canada that could overturn the entire growth trend. The reason is that businesses are careful of overstretching themselves in the Canadian economy that is presently experiencing a slowdown.

The desire of the Canadian Prime Minister, Justin Trudeau to increase immigration will offer relief significantly, but this issue will be a controversial topic in the political sphere. Research has shown that the influx of more immigrants is not the perfect solution as they may not be as productive as the persons they replaced. These factors could leave companies in a tight corner in the future as they may struggle to keep up with demand thereby stimulating inflationary pressures.

Investors see close odds that the Bank of Canada will increase borrowing costs for the fifth time by October, since the hiking cycle started in July 2017 with several increments and two additional increases by the middle of 2019. The models of the central bank stayed behind the curve on regularizing borrowing expenses from traditionally low levels, but the Stephen Poloz, the Governor of Bank of Canada, has believed that there is still some floppiness in the labor force, especially among the women and the youth, which could be attracted with lesser rates.

Economists do not entirely believe in the assertion that supply is the most significant obstacle in Canada, one of the advanced economies in the world. They opined that the companies could be making a capacity investment because demand is suppressed by other factors such as a debt extension or imbalanced wealth distribution. However, an increase in the rates may not be the perfect solution if demand is the cause of the issue.

With the availability of few options for the Bank of Canada, as its primary assignment is to confront inflation, and not focus its energy on structural challenges like production constraints and income inequality. The patience of Poloz is being tried with the inflation at a full percentage point beyond the two percent target.

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German and Swiss Lenders Change Of Plans on Negative Rates

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As a result of the recent negative deposit rates levied by the central banks in the region, some smaller banks in Switzerland and Germany are presently finding it hard to provide the appropriate answers to the situation. In the last few days, various lenders have made a pronouncement of new policies. The penalty in the form of interest on the savings of private customers was either presented, modified or annulled.

In the case of the PostFinance AG in Switzerland, the penalty interest was introduced. A levy was placed on account balances of 500,000 francs or exceeding the amount by October 1. However, the limit previously used was on account balances in the region of one million francs. The levy is equal to one percent of the money that surpasses the threshold.

According to the spokesperson of PostFinance, Reto Kormann in his interview with Bloomberg, he confirmed that PostFinance had received more than five hundred million francs in client funds in the last one year even though the financial institution is not paying any interest. He said there is a need to stiffen the fee regime to stop the resilient new money inflow and achieve an outflow of the funds of the customers. He also said that PostFinance, as a state-owned financial institution is not permitted to borrow money on its volition thereby making a few products available to counterbalance the inconvenience of negative interest rates.

On the other hand, Hamburger Sparkasse AG, which will soon be introducing its penalty interest levies, also explains its resolution with higher expenses for liquid funds. According to its spokesperson, Stefanie Von Carlsburg said if their customers store huge deposit cash in their checking accounts, it will have financial implications on the daily operational cost of Haspa. She said a valuation of the low-interest environment’s burden in recent years was calculated to be a high double-digit million euro per annum.

Carlsburg confirmed that a levy of 0.4 percent would be placed on private savings of 500,000 euros or more by the lender starting by September. She even said that the levy does not take care of the expenses earned by the ECB’s penalty rate for bank deposits as they have to offer payment for deposit insurance. According to the information released by the German Savings Banks Association, the lender was the biggest savings banks by assets in 2017 in the whole of Germany.

In contrast to the Haspa’s policy, Hamburger Volksbank eG has resolved to revoke its 0.2 percent penalty rate, which was announced in the first phase of 2017 for individual account balances of 500,000 and more in some accounts. According to the spokeswoman of Hamburger Volksbank eG, Heidi Melis, she said that customers who were affected by the policy moved their cash from their respective accounts as time goes by. This led to the presence of a few clients with a balance of 500,000 euro, and the bank chose to abolish the penalty rate. The cash flows will continuously be checked to see how it will evolve in the future.

Most lenders will repay the money they acquired from central banks. However, the European Central Bank has a deposit rate of minus 0.4 percent, and the Swiss National Bank deposit rate is currently at minus 0.75 percent. Pushing these expenses to the corporate clients by compelling them to pay the penalty interest is not an uncommon occurrence, but this step is the concession for private clients in the area.

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Mortgage Rates And Short-Term Interest Rising At The Same Time: Meaning For Real Estate Investors

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A surge in short-term interest rates will lead to higher mortgage rates. This is a factual statement, but the valuable consequences for the real estate investors may not be significant. In the United States, the body that controls the activities of the entire banks in the country is called the Federal Reserve System. It is the sole central bank that operates with a centralized banking system. In most cases, it is often referred to as the Federal Reserve or the Fed.

The primary focus of this write-up is the Federal Open Market Committee, which is an integral part of the Federal Reserve. The FOMC comprises five Federal Reserve Bank presidents and seven governors of the Federal Reserve Board. The Federal Open Market Committee conducts its meetings eight times annually. Interestingly, the outcomes of these meetings are waited upon by each financial expert, every financial institution, and each stock exchange. The reason is that the monetary policy of the United States is determined at the committee meetings, and this invariably regulates the activities of each financial institution in the United States.

For instance, a significant tool utilized to regulate the market is the consolidated short-term interest rates given to the banks by the committee. These interest rates are the approved rates at which banks are permitted to offer each other short-term loans. This rate is the recommended rate that the Federal Reserve trades money to the financial institutions, and the banks will simultaneously sell to the people who are their customers. In precise terms, the short-term interest rate can be defined as the cost of money as it determines the value of the other interest rates in the financial industry of the United States.

Most often, the short-term rates are reduced or increased when the Federal Open Market Committee resolves that the presence of national economic situations permit or demand to raise the rates. In a research conducted by OECD, short-term interest rates got to a historic height in the early 1980s, reaching more than 18% per year, and are currently within the range of historic lows in the United States. According to a report by Freddie Mac, it is essential to observe that the highest short-term rates in the United States matched with the highest mortgage rates as a historic high of 18.63% of mortgage rates was reached in 1981.

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CAP Rates Hold Steady for Most Sectors.

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According to a survey conducted by the CBRE’s North America Cap Rate, the capitalization rates for the United States commercial real estate assets remain static in the first half of 2018 without the involvement of some retail segments. However, CBRE ascribed the emergence of the unwavering cap rates to the barrier of domestic and international capital, a continuous low-interest rate atmosphere, and above-trend economic growth. The logistics and industrial sectors have been marked as the outstanding markets remaining among major commercial real estate groupings, diminishing by ten basis points on average to 6.42 percent in the year’s first half.

According to Barbara Emmons-Perrier in his interview with the Commercial Observer, a renowned broker who is an expert in the industrial, office and land sales opined that individuals are in love with east and west coasts, but he thinks dynamics are improved in the west. The Long Beach and Ports of Los Angeles are some of the attractive spots of the West Coast. These areas are better than the other ports in the United States and a genuine industrial business driver. It is noteworthy that foreign investors usually consider these ports, and the Los Angeles is preferred as a result of their interest. Most of the imports emanating from the Asian markets arrive at the Long Beach and Los Angeles Ports.

Office cap rates reduced by 2bps to 6.63 percent for central business district properties, the next successive decrease after a steady increase from a fresh low of 6.55 percent in the second part of 2015 when the other sectors were considered. On the other hand, suburban cap rates for soothed project augmented by three bps to 7.91 percent in the first half of 2018- the sixth successive increase since the emergence of the latest low of 7.44 percent in the first part of 2015.

For class AA stabilized products, cap rates are marked down by one bp (6.37 percent) and three bps for steadied class A product (7.11 percent). However, there is an expectation for the cap rates to remain somewhat firm for the two property categories in the second part of the year, with about seventy percent of the markets without any hope of changing anytime soon.

Multifamily cap rates, an asset category hugely classified as a safe investment haven expectedly continued its stability at traditionally low levels for the first phase of the year, depicting the assurance and interest of the high investor. For the records, cap rates for infill soothed averaged 5.21 percent (down two bps from 2017’s second half) and the average estimated return on expense for value-add acquisitions was 5.95 percent (down three bps). The suburban steadied assets estimated at 5.53 percent on average, while the anticipated rate on expenses is within the region of 6.27 percent- as both of them are 6ps from the second phase of 2017.

The rates of hotel cap are somewhat reduced by 4bps, causing a reversal of a drift of unpretentious increment which had lasted for two years. Nevertheless, most of the sections of the markets ranging from the economy to the luxury as well as the geographical areas had shy, single-digit reductions in the value of cap rates that fluctuates within 1 and nine bps.

It is important to note that there has been an increase in the value of retail cap rates for value-add retail and stabilized properties. On the other hands, maintained grocery-anchored neighborhood and community center assets had its cap rates increased to 7.41 percent by a simple nine bps while there is an improvement in the value of value-add assets by four bps to 9.17 percent as there is strong pricing on core retail centers. There is an increase in the average cap rate for stabilized power centers throughout every class segments in most markets.

Continued low-interest rates and above-trend economic growth are responsible for the holding down of the value of the cap rates. It is interesting to know that investors are interested in the revolution in the real estate, especially in the office markets and logistics. However, the wall of capital targeting real estate is more extensive than what it used to be, but it has been hard to discover appealing investment opportunities. In a press release delivered by the Global Chief Economist of CBRE, Richard Barkham, he suggested that current owners want to hold, and even if they are leveraged up, possess the refinancing alternatives to do that. He maintained that there is an expectation for the cap rates will remain its steadiness in the second phase of 2018. He also said that the economy of the United States is performing credibly well with diplomatic pressure on inflation, and these pointers are significant factors for the real estate industry.

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Mortgage rates have started their summer collapse.

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Even though mortgage rates have not been impressive in recent times, they are swinging in the appropriate direction for individuals who want to buy homes.

Freddie Mac, in its most recent data, opined that the 30-year fixed mortgage rate average fell to 4.51 percent with an average 0.5 point in contrast to the 4.53 percent recorded last week, and 3.86 percent last year. For four consecutive weeks, the 30-year fixed-rate average has fallen but has maintained similar slight band for the whole summer.

At an average 0.5 point, the 15-year fixed mortgage rate average dropped to 3.98 percent while the value was placed at 4.01 percent last week, and also 3.16 percent last year. However, the five-year flexible rate average has fallen to 3.82 percent with an average 0.3 point as its value in the previous week was 3.87 percent and 3.17 percent last year.

According to Aaron Terrazas, a senior economist at Zillow said that “mortgage rates have reached the late-summer stagnant points, maintain a steady position over the previous week and staying at the same point they were last month.” He also opined that financial markets are usually silent in the concluding weeks of August, and there is relatively little major economic news to shake their line. For instance, new-home sales data which naturally does not have much impact on the market could create a sense of fear of a slackening housing market if they thwart.

There was an aura of disappointment when the existing-home sales data was released in this week. It was on record that sales reduced at the rate of 0.7 of a percent in July, making it the fourth month that declines will be recorded in a sequence of falls and it is the prolonged slump since 2013. Higher mortgage rates and rising prices have restricted the market significantly.

According to Sam Khater, chief economist at Freddie Mac, he said that affordability limitations had ensured the coolness of the housing market in the highbrow coastal markets. He also suggested that most metropolitan areas are urgently in need of new and current inexpensive inventory to tackle this issue.

This week, the Federal Reserve expressed its worries regarding the housing market. The Central Bank, in its minutes from the meeting that held on July 31 and August 1 made public on Wednesday, observed that home building had reduced. However, factors such as land scarcity, higher mortgage rates, and shortages in labor, tariffs, and delays in building approvals were identified as some of the problems. The Federal Reserve also observed the increase in the rate of tariff as well as the likelihood of a momentous slumping in the housing sector.

The notes indicated that there would be an increase in rate next month. The home loan rates are unlikely to be affected as the market has predicted the move.

According to a weekly mortgage rate trend index released by Bankrate.com, it shows that about two-thirds of the professionals reviewed confirmed that the rates would likely retain its stability in the next week. The Chief Executive of Arcus Lending, Shashank Shekhar predicted a steady rate regime would continue.

According to Shashank Shekhar, mortgage rates will maintain their current positions. In his observation, he said despite the weekly wavering, mortgage rates in this week have remained at a similar point they were in the middle of April. It has been confirmed that the rates have been stable for the fourth month in a row after the abrupt hike witnessed at the start of the year, and there is no expectation of a change in this week. The issue between President Trump and the combo of Michael Cohen and Paul Manafort could be one of the primary reasons why you should preserve your money in financial instruments such as bonds, which typically reduce the mortgage rates.

According to the recent data from the Mortgage Bankers Association, the four weeks of diminishing rates have triggered the reversal of the downward sliding of applications. The composite market index, which is a calculation of the entire loan application volume improved at 4.2 percent from last week. However, the refinance index climbed 6 percent from the previous week, and the purchase index increased 3 percent. The refinance portion of mortgage activity represents 38.7 percent of the entire applications.

In the words of Joel Kan, an MBA economist, there has been an increase in the purchase and refinance applications in the previous week after several weeks of diminishing application activity. Refinance applications which have been partly assisted by the decrease in the rate, top the list with a 6 percent increase over the week but were considered as low based on history ratings and 33 percent below this time in the last year. Purchase applications also witnessed a three percent increment and maintained a higher rate in comparison with the previous year, but they were still under their 2018 average as a result of the continuing issues of low inventory and affordability.

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