Steel Prices on a Sharp Upswing

Prices for steel will rise through early 2017 on the expectation of more infrastructure spending by the Trump administration and robust construction of hotels, office and school buildings. Over the longer run, though, production overcapacity in China will help temper increases.

The cost of steel plate products, used in bridge construction, pipelines, etc., are already up sharply—a 20% increase since the presidential election. Buyers are also shelling out 7% more for steel-reinforcing bar used in road and bridge and building construction. Also up: Prices for hot- and cold-rolled steel, used to make cars, appliances and more. Hot-rolled steel is up 14%; cold-rolled 11%. Meanwhile, scrap metal is selling for 16% more. Continue reading “Steel Prices on a Sharp Upswing”

What Rising Interest Rates Mean for the Housing Market

Low inventories of homes, especially those at the lower end of the price range, should keep rising mortgage rates from pulling down sales growth much. But home price gains are likely to slow, especially for homes at the higher end of the price range and ones in large metro areas of the West where price growth had been high for a while.

Thirty-year fixed mortgage rates have risen by about half a percentage point since the election. For a new $250,000 loan with a 20% down payment, the principal and interest payment has risen by $55 per month. The annual income a borrower needs to qualify for that loan is now $44,000, up from $42,000 earlier. Qualifying income for those who make a down payment of 5% has risen from $50,000 to $53,000. For a $350,000 loan with 20% down, the increase in the monthly nut will be $80, with qualifying income at $65,000, versus $62,000 earlier.

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How the Next Fed Rate Hike Will Affect You

We expect the Federal Reserve to raise its federal funds interest rate from 0.25% to 0.5% at its meeting on December 14. This will have a domino effect, boosting some loan and deposit rates for consumers, but not all of them.

How the Fed Rate Hike Will Affect Your Loan Rates

When the Fed raises, the bank prime rate will immediately jump by the same quarter percentage point. Interest rates on home equity lines of credit will also rise by the same amount, to a minimum of 3.75%. Auto and personal loan rates should rise, too. In fact, auto lenders may nudge their rates up a tick more in the months to come as delinquencies on subprime auto loans creep up.

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The Friday Jobs Report: Setting the Stage for the Federal Reserve’s December Rate Hike

The days of job gains of 200,000 or more per month are likely in the past as the labor market continues to tighten and employers struggle to find qualified workers. Instead, expect a gain of 170,000 jobs to be reported for September. Despite the modest number, this is still likely to cause a slight drop in the unemployment rate, to 4.8%, and push up wages by 2.7% from a year earlier. That’s a bit faster than the yearly rate of 2.4% recorded in August.

A decent jobs gain of 150,000 or more, a drop in the unemployment rate and faster wage gains would signal the further improvement in the labor market that the Federal Reserve is looking for to justify its first quarter-point interest rate hike in a year. The end of the next Fed meeting is November 2, and it’s obvious that Fed Chair Janet Yellen has enough political sense not to do anything the week before the presidential election, lest she be blamed by one side or the other for trying to influence the results. Therefore, the Fed move will likely take place on December 14, safely after the election.

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Brexit Vote Puts Damper on Interest Rates

10-year T-notes at 1.4% by end ’16

The vote by Britain to leave the European Union has completely changed the outlook for interest rates. Rates should stay low for an extended period of time as U.S. Treasury notes and bonds remain important safe haven investments in the face of uncertainty over growth in Europe and Japan.
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