Whipsaws and whiplash. We all know what the term whiplash means when someone gets into a car accident. When we hear the term, we envision a painful neck injury and maybe a neck brace. This term is also often used with the term “whipsaw” when observing the markets. A whipsaw occurs when the market moves erratically in several directions. And if you follow that market, you can get economic whiplash. Now the stock market has not been that erratic as it has steadily moved upward this year with a few days of retrenchment here and there. However, the bond market has been a bit more schizophrenic in its personality this year. For the past few years, the bond market has been a safe haven from volatile markets. The Federal Reserve Board pushed rates down and the struggling economy kept them down.
Anyone who purchased or refinanced a home or bought a car has seen the benefit of low rates in the past few years. And those who put their money into bonds have seen a good steady return for the most part. At the beginning of this year, it appeared that the economy was going to start to roll. Rates then made their first move upward in the past several months. Then came some headlines in Cyprus, the Boston bombing and some weaker economic reports. Rates edged back down to near historic levels. The stronger-than-expected employment report caused rates to move up in short order. That is a lot of movement for a market which still features historically near record lows. On the other hand, it is a lesson to be learned. When rates decide to move upward, there is nothing the Fed can do about it. And we will get no warning.
The Markets. Rates edged up again for the second straight week. Freddie Mac announced that for the week ending May 16, 30-year fixed rates rose from 3.42% to 3.51%. The average for 15-year loans increased to 2.69%. Adjustable rates were also higher, with the average for one-year adjustables rising to 2.55% and five-year adjustables climbing to 2.62%. A year ago 30-year fixed rates were at 3.79%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans followed U.S. Treasury bond yields higher this week on signs of stronger consumer spending. Advanced retail sales rose 0.1 percent in April, above the market forecast consensus of a 0.3 percent decline. Excluding such items as automobiles and gasoline, sales were up 0.5 percent for the second time in three months. Households are also shoring up their balance sheets. Total household debt fell by about $110 billion in the first quarter.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated May 17, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.08%||0.09%|
|1-year Treasury Security||0.12%||0.12%|
|3-year Treasury Security||0.37%||0.34%|
|5-year Treasury Security||0.79%||0.71%|
|10-year Treasury Security||1.87%||1.76%|
|12-month LIBOR||0.717% (Apr)|
|12-month MTA||0.169% (Apr)|
|11th District Cost of Funds||0.967% (Mar)|
Homeowners will see increases in the rates they pay for flood insurance soon with owners of vacation homes seeing the biggest jump. Though floods can bring walls of water 20 feet high, even a few inches of water can cause thousands of dollars in damage. Between 2007 and 2011, the average flood claim fielded by the National Flood Insurance Program was nearly $30,000. The cost of the typical flood policy is about $625 a year. According to the Federal Emergency Management Agency, which operates the flood insurance program, flooding occurs practically every day, practically everywhere. And it is costly, racking up $2.9 billion in losses between 2002 and 2011. Flooding is the nation’s most common natural disaster. About 90% of all disasters in the U.S. involve flooding, and flash floods happen in all 50 states. In areas prone to flooding, there is a 26% chance a homeowner will be hit by a flood of some kind at least once during the life of a 30-year loan. And flood damage can just as easily result from overburdened or clogged drainage systems and drainage from new development as from major storms. “New roads and housing developments reduce the land’s natural ability to absorb water,” says The Woodlands, Texas, insurance agent Gordy Bunch. “Runoff can multiply as much as six times when the land is paved over.” Just because a house lies in the 100-year flood plain doesn’t mean it is safe for the next so many years, either. That’s a common misconception that lulls people into a false sense of security, says Bunch. “The 100-year flood plain simply means your home or business has a 1% chance of flooding every year,” the insurance pro says, “not once in every 100 years.” Another common misunderstanding about flood coverage, particularly among new homeowners, is that standard homeowner policies cover homes for flood damage. They do not. So if their home is damaged by a hurricane, tropical storm or even heavy rains, they are not covered unless they have a separate flood policy. Every inch of the country is mapped into one of two risk-based flood zones. By law, federally regulated and insured lenders must require flood coverage on properties in high-risk areas, where there’s a 1% or greater chance of flooding in any given year. Lenders must tell you whether the property is in a high- or low-risk area. Lenders typically do not require coverage on properties in low- to moderate-risk areas. But coverage is still recommended; one-in-five claims come from folks outside a high-risk zone. Fortunately, everyone—even renters and business owners—can buy a flood policy. The lone caveat is that the property must be in a community that participates in the NFIP, which Congress created in 1968 to fill a void in coverage that most private companies would not offer. About 20,000 communities participate. Source: National Mortgage Servicing News
To have a high credit score, individuals tend to keep revolving balances low to their available credit, not max out credit cards, and consistently make payments on time, according to the company behind the FICO credit score. FICO recently released findings from a study about the habits and behaviors of those who have the highest credit scores — 785 or greater. These high-credit scorers tend to qualify for the best rates on home loans, saving thousands of dollars over the life of a loan. Nationwide, 25 percent — or 50 million people — are considered “high achievers” with their credit scores. “High achievers” tend to exhibit some of the following behaviors, according to FICO:
- 96 percent have no missed payments on their credit report. For any who have a missed payment, it occurred, on average, about four years ago. (Payment history makes up 35 percent of a person’s credit score.)
- They tend to have a well-established credit history and rarely open up new accounts. On average, the oldest credit account was opened 25 years ago. Overall, according to FICO, these “high achievers” tend to have credit accounts that are at least 11 years old.
- They’re not always debt-free: They average about seven credit cards, including both open and closed accounts, and have an average of four credit cards or loans with balances. One-third of “high achievers” have balances of more than $8,500 on non-mortgage accounts. The remaining two-thirds have total balances of less than $8,500.
- About 1 in 100 have a collection listed on their credit report. What’s more, 1 in 9,000 has experienced tax liens or even a bankruptcy.
“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” says Anthony Sprauve, credit score advisor for myFICO. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.” Source: FICO
Home improvement spending is expected to grow as the year progresses, according to data released by the Joint Center for Housing Studies of Harvard University. And such a jump is not unusual, considering spending in the segment grew 10% last year alone. “Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country,” says Eric S. Belsky, managing director of the Joint Center. “This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes.” Kermit Baker, director of the Remodeling Futures Program at the Joint Center, believes growth in real estate sales and prices is starting to put pressure on the current capacity of the home improvement industry. “Contractors and subcontractors are having more difficulty finding skilled labor, and building materials costs are unusually volatile for this stage of a recovery,” notes Baker. Source: HousingWire
Right now the markets are warily eyeing a possible slowdown in the economic recovery. While we can’t tell you if we are indeed in the middle of another pause, we can tell you that we are already reaping some benefits of even the hint of a pause. What are these benefits? Oil prices, interest rates and gold prices have all fallen. It is easy to see the benefits of lower gas prices and rates with regard to the economy. Lower gas prices give consumers more money to spend. Lower rates encourage refinancing as well as home and automobile purchases. The real estate and auto industries were already in recovery mode before interest rates eased back. For example, in March nearly 1.5 million cars and trucks were sold, a number not seen since May 2007. In addition, housing starts broke the 1.0 million mark in March, the strongest performance since June of 2008. On the other hand, why should we care that gold prices are dropping?
Of the three, the move in gold has been much steeper than oil or rates. When the financial crisis hit five years ago, there was a threat that the financial system would collapse and move us into a depression. Gold soared in response to this threat. Even during the recovery — every time we had a pause — gold prices stayed strong because there was a threat of a double dip recession. Today, there is a possibility of a pause, but gold prices are weak. Is it because we are no longer worried about our economy slipping back into recession or is it because countries in trouble like Cyprus could be selling their stores of gold? In either case, we can say that gold is falling back at a time in which the economy continues to grow at a pace which will not ignite inflation. That is the best type of growth possible. Lower energy prices, lower interest rates and positive economic growth are a strong combination. Of course, we all wish that the economic recovery would become even stronger. However, there are benefits to a moderate recovery — especially if it does not come with the threat of a recession around the corner or inflation down the road.
The Markets: Rates continued down in the past week, albeit slightly. Freddie Mac announced that for the week ending April 18, 30-year fixed rates fell from 3.43% to 3.41%. The average for 15-year loans decreased marginally to 2.64%. Adjustable rates were mixed but also stable, with the average for one-year adjustables up slightly to 2.63% and five-year adjustables falling to 2.60%. A year ago 30-year fixed rates were at 3.90%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans nudged lower this week as consumer spending showed signs of weakness. Retail sales contracted for the second time in three months, falling 0.4 percent in March. In addition, the University of Michigan reported their Consumer Sentiment Index dropped 6.3 points in April to settle at 72.3, its lowest level since July. The April reading snapped a streak of three consecutive gains.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated April 19, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.09%||0.11%|
|1-year Treasury Security||0.12%||0.15%|
|3-year Treasury Security||0.35%||0.39%|
|5-year Treasury Security||0.71%||0.82%|
|10-year Treasury Security||1.72%||1.96%|
|12-month LIBOR||0.736% (Mar)|
|12-month MTA||0.174% (Mar)|
|11th District Cost of Funds||0.999% (Feb)|
The Home Affordable Refinance Program — a government refinancing program for underwater home owners — will be expanded for another two years, the Federal Housing Finance Agency announced. HARP was originally set to expire Dec. 31, 2013, but will now be extended to the end of 2015. “More than 2 million home owners have refinanced through HARP, proving it a useful tool for reducing risk,” says FHFA acting director Edward DeMarco. Home owners eligible to apply for refinancing under HARP must have a Fannie Mae- or Freddie Mac-backed mortgage that was guaranteed on or before May 31, 2009, must be current on their loan, and must have a current loan-to-value ratio more than 80 percent. Source: Chicago Tribune If you are interested in finding out whether you could benefit from a HARP refinance, which is designed for homeowners that are underwater on their home loans — contact me.
Home ownership and rental demand may both get an uptick as a large number of immigrants are expected to enter the United States and call it home by 2020, according to a new study sponsored by the Mortgage Bankers Association’s Research Institute for Housing America. The study makes projections to the year 2020 on the growth of U.S. home owner households headed by immigrants. The number of foreign-born home owners continues to grow bigger each decade, according to the report. For example, the number of foreign-born home owners rose 800,000 from 1980 to 1990; by 2.1 million from 1990 to 2000; and then by 2.4 million from 2000 to 2010. For the 2010 to 2020 period, researchers project that number to rise 2.8 million. The home ownership rate has particularly grown among the Hispanic immigrant population. In 1990, Hispanic immigrants had a 15 percent home ownership rate, which grew to nearly 53 percent in 2010. By 2020, Hispanics’ home ownership rate is expected to rise above 61 percent, according to researchers. The states with the greatest demand from the foreign-born on home ownership are California and New York. The report was prepared by Dowell Myers, professor of the Population Dynamics Research Group at the University of Southern California School of Policy, Planning and Development; and Senior Research Associate John Pitkin.”Immigrants are an important and growing source of demand that has bolstered housing markets in recent decades,” Myers said. “Growth in housing demand in recent decades has been more stable among foreign-born than native-born households. This is because increases in native-born demand have been subject to large swings in the size of cohorts reaching ages 25 to 34, the most common age of entry to the housing market. Rising numbers of foreign-born households are driven by the continued increases in homeownership rates achieved as immigrants settle longer in the United States,” Pitkin said.” Source: The Mortgage Bankers Association
The number of listings on the market increased 2.36 percent in March from the previous month — possibly an indication that sellers are becoming more willing to put their homes on the market as asking prices increase, according to housing data from realtor.com. While the data shows a month-to-month inventory increase, inventories are still down 15.22 percent compared to last year. The median age of the inventory continues to drop year-over-year by 12.35 percent, the amount of time homes are sitting on the market has fallen by 20 days since February, according to realtor.com. The median age of inventory of for-sale listings was 78 days in March. “The next three months will be significant in determining the impact of the recovering housing market,” says Steve Berkowitz, chief executive officer of Move Inc. Median list prices have increased year-over-year in a greater number of the 146 markets realtor.com tracks. Source: RIS Media
For the first time, Congress has failed to kick the can down the road before a fiscal deadline hit. We are now fully sequestered. What does that mean? On one hand, we can say that it does not mean much if you look at the stock market. Most of us would have thought that the stock market would take a hit as the deadline expired. Yet, stocks were up solidly this week and for the month of February. Are the markets thinking that Congress will take action after March 1st, but before the cuts really have a chance to hurt the economy? Or are the markets perhaps thinking that the cuts will not affect the economy that much? You could make a case for either argument at this time.
On the other hand — if we look closer stocks were not fazed by the cuts — but oil prices and interest rates did fall this week. Both rates and oil prices trended higher earlier this year as stocks rallied and the fall-back came despite positive economic news released in the past few days. This positive news included continued upbeat news from the real estate sector. Usually when the stock market is strong, oil prices and interest rates are rising. If this trend holds, lower rates and oil prices in the face of positive economic news could actually give the economy a boost to offset the dampening effect government cuts might have on the economy. To make matters more complex, we have the all important employment reports released this week. Our first week under sequestration could be an interesting one, indeed.
The Markets. Rates were down in the past week. Freddie Mac announced that for the week ending February 28, 30-year fixed rates fell from 3.56% to 3.51%. The average for 15-year loans was down slightly at 2.76%. Adjustable rates were also down, with the average for one-year adjustables falling slightly to 2.64% and five-year adjustables decreasing to 2.61%. A year ago 30-year fixed rates were at 3.95%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates eased somewhat as the consumer price index in February held steady for the second month in a row. House price indicators, however, showed gains in 2012. The S&P/Case-Shiller® national home price index rose 7.3 percent last year, reflecting the largest four-quarter growth since the third quarter of 2006. This, in part, was a driving force that pushed up the number of existing and new home sales in February to the highest levels since July 2007 and July 2008, respectively.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated March 1, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.13%||0.11%|
|1-year Treasury Security||0.17%||0.15%|
|3-year Treasury Security||0.36%||0.39%|
|5-year Treasury Security||0.77%||0.81%|
|10-year Treasury Security||1.89%||1.91%|
|12-month LIBOR||0.818% (Jan)|
|12-month MTA||0.178% (Jan)|
|11th District Cost of Funds||0.962% (Jan)|
During the peak of the housing crisis, foreclosed homes sold at a 25% discount on average, but the market is stabilizing and the price differentiation between a home’s foreclosed valued and original market value is beginning to narrow, FNC reported. The real estate analytics firm released a Foreclosure Market Report recently, saying home prices are rising in many metro areas while foreclosure prices are starting to bottom out, creating some price stability. “The fact that we are seeing a combination of rising home prices and a bottoming out of foreclosure prices is a very good sign the housing recovery is taking hold,” said Dr. Yangling Mayer, FNC Senior Research Economist. “This is the very first time in the long housing recession that the two are happening at the same time.” By the fourth quarter of 2012, the average foreclosure discount, which is a comparison between a foreclosed home’s market value and its final sales price, had dropped to 12.2%, compared to 25% during the peak of the downturn. Single-family REO and foreclosure sales made up 18.1% of the market in the fourth quarter of 2012, down from 26.5% in the first quarter of the same year, FNC said. Source: HousingWire
Near-record low interest rates helped ensure a gain in nationwide housing affordability amid relatively stable house prices in the final quarter of 2012, according to the National Association of Home Builders Housing Opportunity Index (HOI). In all, 74.9 percent of homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $65,000. This was up nearly a percentage point from the 74.1 percent of homes sold that were affordable to median-income earners in last year’s third quarter. “The most recent housing affordability data should be encouraging to many prospective home buyers, because it shows that homeownership remains within reach of median-income consumers even as most local markets appear to be on a recovery path,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. He noted that the most recent reading of the NAHB/First American Improving Markets Index found that 259 out of 361 metros currently qualify as improving, including representatives from all 50 states and the District of Columbia. “The median price of all new and existing homes sold in the fourth quarter of 2012 was $188,000, essentially unchanged from the previous quarter’s $189,000 that marked a nearly three-year high,” noted NAHB Chief Economist David Crowe. “It is noteworthy that affordability remains historically high thanks to favorable rates even as national home price indexes show some rise in values.” Source: NAHB
Nearly 20 percent of recent movers identified “convenience to job” as the most important factor in their choice of neighborhood in 2011, according to the 2011 American Housing Survey (AHS), the definitive source of information on the quality of housing in the United States. For the first time ever, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) have made survey results available on the Census Bureau’s American FactFinder data access tool. A wide range of specific topics is covered in the survey, including plumbing and source of water and sewage disposal; housing problems; householder’s satisfaction with home and neighborhood; value, purchase price and type of home loan; recent home improvement activity and costs; safety features and potential health hazards; features in home providing accessibility to people with disabilities; and socio-economic characteristics of the householder. Statistics are national-level only and are provided for apartments, single-family homes, manufactured housing, new construction and vacant housing units. Recent movers were also asked how they found their current units. The most common methods for home owners were talking with a real estate agent (20 percent), Realtor.com (17 percent) and word of mouth (16 percent). For renters, the most common ways included word of mouth (34 percent), sign on the outside of the building (11 percent) and Craigslist (11 percent). Highlights on the nation’s 115 million occupied homes:
- The median year these homes were built was 1974, with owner-occupied units being slightly newer (1976 compared with 1972 for renter-occupied).
- The median size of single-family detached and mobile home units is 1,800 square feet, with owner-occupied units being larger (1,800 square feet) than renter-occupied ones (1,300 square feet). Newly constructed units are also usually larger, with a median size of 2,200 square feet.
- Most homes have three or more bedrooms (64 percent). New homes (those built in the last four years) generally have more bedrooms, with 74 percent of them having three or more.
- About half the homes (52 percent) have two or more bathrooms. Again, new units have more bathrooms, with 83 percent of them having two or more. Source: HUD
It has been a few weeks since the politicians have rattled their sabers at each other and therefore we are due for increased rhetoric. With the State of the Union Address and response behind us, we now approach the deadline to head off draconian budget cuts. By now the markets may be immune to deadlines set by politicians. With the negotiations regarding the fiscal cliff fizzling out and the big fight focused upon raising the debt limit postponed quietly, many are again expecting the same result. We know that Congress may surprise us and the surprise could go in two directions. The first direction would result in both parties digging in their heels as the budget cuts go into effect. The second direction would be actual negotiations to attack the deficit with a balanced plan that would result in more reasonable cuts and a long-term budget plan.
In reality, most market observers are expecting more action to kick the can down the road — again. Meanwhile, we are closing in on another employment report as we start to get more readings as to the state of the economy in 2013. This data will follow readings on the real estate market to be released this week. There was a lot of optimism during January as the stock market roared and interest rates and oil prices climbed. This trend only continues if real estate continues to gain momentum and we continue to create jobs at a pace to bring down the stubborn unemployment rate. As we have contended previously, the rebound in real estate is a requirement of increased job creation. The numbers released last week show that Europe’s recession is actually deepening. This means that it is imperative for the United States to be building momentum that will help lift the rest of the world. As the world’s largest economy, we led the world into recession some five years ago. Now we need to show leadership in recovery.
The Markets. Rates continued to be stable in the past week. Freddie Mac announced that for the week ending February 14, 30-year fixed rates remained at 3.53%. The average for 15-year loans also stayed at 2.77%. Adjustable rates fell, with the average for one-year adjustables rising to 2.61% and five-year adjustables increasing to 2.64%. A year ago 30-year fixed rates were at 3.87%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates remain near record lows and continue to support housing demand, translating into a pick-up in home prices in most markets. The median sales price of existing homes rose 10 percent between fourth quarter 2011 and 2012, the largest year-over-year gain in seven years. Among large metropolitan areas, 88 percent saw positive annual increases in the fourth quarter, compared to 81 percent in the third quarter and 75 percent in the second. The largest gains occurred in Phoenix (34 percent), Detroit (31 percent) and San Francisco (28 percent).” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated February 15, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.13%||0.11%|
|1-year Treasury Security||0.16%||0.15%|
|3-year Treasury Security||0.42%||0.39%|
|5-year Treasury Security||0.86%||0.81%|
|10-year Treasury Security||2.00%||1.91%|
|12-month LIBOR||0.818% (Jan)|
|12-month MTA||0.178% (Jan)|
|11th District Cost of Funds||1.071% (Dec)|
Underwater borrowers who have stayed current with their housing payments now may be able to give up their properties and get their debts erased, according to new guidelines issued by housing agencies Fannie Mae and Freddie Mac. Non-delinquent borrowers who have Fannie and Freddie-backed loans and who can document a hardship, such as an illness, job change, or other situation that requires they must move can apply for a deed-in-lieu transaction. Eligible borrowers also must have a 55 percent debt-to-income ratio. Servicers will be required to confirm that the property has been left in good condition. Borrowers who are eligible will have the debt remaining between the property’s value and size of home loan erased. “The goal is to make sure people who have suffered a hardship have the appropriate options to prevent foreclosure,” says Andrew Wilson, spokesman for Fannie Mae. Borrowers may still be required some repayment, however, if the borrower has the means to do so. “Home owners applying for deed-in-lieu transactions may be asked to make cash contributions of up to 20 percent of their financial reserves, excluding retirement accounts,” Bloomberg reports about the guidelines. “Or, they may be asked to sign a promissory note for future no-interest repayments. The amount and terms can be negotiated.” Fannie and Freddie’s new eligibility for deed-in-lieu of transactions has been met with some criticism, particularly at a time with the government-sponsored enterprises are still underwater themselves from steep losses the last few years. But some argue that past programs tended to penalize borrowers on the brink of foreclosure who kept making their payments, says Julia Gordon, director of housing finance and policy at the Center for American Progress. Mortgage servicers in some cases were even advising borrowers to stop making their housing payment so that they could qualify for more assistance. “Fannie and Freddie are finally recognizing that some people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their home loan — not the investor, not the home owner, and certainly not the neighborhood.” Source: Bloomberg
Freddie Mac’s fourth quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house, as 84 percent of homeowners who refinanced their first-lien home loan either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table; just shy of the record 85 percent during the fourth quarter of 2011. Of these borrowers, 46 percent maintained about the same loan amount, and 39 percent of refinancing homeowners reduced their principal balance. “On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points, mark not seen for 27 years,” said Frank Nothaft, Freddie Mac vice president and chief economist. “On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months. Fixed-rate rates on home loan hit new lows during December, with 30-year product averaging 3.4 percent and 15-year averaging 2.7 percent that month, according to our Primary Mortgage Market Survey.” Source: Freddie Mac
If you’re one of the millions of homeowners and renters who work or run a business from the place you live, here’s some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home. Rather than the complicated 43-line form you now have to fill out to claim a write-off — the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations — the IRS has come up with a much simpler option: what it calls a “safe harbor” method that allows you to measure the square footage of your business space and apply for a deduction. The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October, the Census Bureau estimated that as of 2010, 13.4 million Americans were making some type of business use of their homes and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. Kristie Arslan, president and chief executive of the National Association for the Self-Employed, says, that the IRS rules for home offices have been “cumbersome and time-consuming. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.” The new IRS option, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible. Here’s how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used “exclusively” and on a “regular basis” as your principal place of business “for any trade or business,” or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct home loan interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use. Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items — depreciation on the house you own is one — can be tricky and require significant record-keeping and time expenditures to get it exactly right. In addition, the IRS has acknowledged that the presence of a home office deduction on a taxpayer’s filing may increase that taxpayer’s potential for being selected for audit. The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business-purpose treatment are you using? Multiply that number by $5 per square foot and you’ve got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option. Source: Ken Harney, The National Housing
It is all about momentum. For the last couple of years we have had an economic recovery of sorts. But anyone can tell you that the recovery has been lacking spark as it seems like every year the recovery hits a mini-slump. Last year the slump hit as we approached mid-year and the European debt crisis worsened. The economy bounced back from this mini-slump but it slowed the momentum of the recovery over the year. Yes, momentum. We want the recovery to gain the big “mo,” which of course stands for momentum. Momentum is what will enable us to shift into a higher gear. The question is–are we headed into another lackadaisical recovery year or are we going to gain this elusive momentum?
There are still potential speed bumps out there such as Europe and our own government’s mishandling of every financial deadline. On the other hand, other speed bumps seem to be smaller. For example, last year you heard about the massive shadow inventory of homes about to be foreclosed upon. Last year we also demonstrated that an improving real estate market will absorb this inventory. The pace of new home starts reported for December on Thursday tells us that we finished the year with momentum in place with regard to the housing markets. Every speed bump removed or lowered enables us to move faster. Our reading of economic growth for the 4th quarter due next week should be interesting in this regard. If growth was decent while the threat of the fiscal cliff hovered over the economy, this could mean that momentum is being achieved. What we would like is to be moving downhill for a while. It is tough to slow down when you are moving downhill.
The Markets. Rates were stable in the past week, but moved higher towards the end of the week. Freddie Mac announced that for the week ending January 17, 30-year fixed rates fell from 3.40% to 3.38%. The average for 15-year loans remained at 2.66%. Adjustable rates were also stable, with the average for one-year adjustables decreasing to 2.57% and five-year adjustables remaining at 2.67%. A year ago 30-year fixed rates were at 3.88%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates were flat to down a little this week amid reports that inflation remains contained. The overall producer price index rose 0.1 percent between November and December, below the market consensus forecast, and the consumer price index was unchanged. For the year as a whole, consumer prices rose just 1.7 percent in 2012, almost half that of 2011′s increase of 3.0 percent.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 18, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.11%||0.12%|
|1-year Treasury Security||0.14%||0.16%|
|3-year Treasury Security||0.39%||0.35%|
|5-year Treasury Security||0.79%||0.70%|
|10-year Treasury Security||1.89%||1.72%|
|12-month LIBOR||0.849% (Dec)|
|12-month MTA||0.175% (Dec)|
|11th District Cost of Funds||1.000% (Nov)|
With 11 months of data reported, 2012 will go down as a record year for favorable housing affordability conditions, and a great year for buyers who could get a home loan, according to the National Association of Realtors (NAR). NAR’s national Housing Affordability Index stood at 198.2 in November, based on the relationship between median home price, median family income and average interest rate. The higher the index, the greater the household purchasing power; record keeping began in 1970. An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small down payments, the affordability levels are relatively lower. For all of 2012, NAR projects the housing affordability index to be a record high 194, up from 186 in 2011, which was the previous record. November’s reading was 2.5 index points below October, but up 1.5 index points from a year earlier. NAR projects the housing affordability index to average 160 during 2013, which means on a national basis that a median-income family would have 160 percent of the income needed to purchase a median-priced existing single-family home. Conditions vary widely, with the highest buying power in the Midwest. Even in the West, where the regional index is lower, they typical family is well positioned in most markets. Source: National Association of Realtors
The lower inventory of homes for-sale could bode well for the job market, according to a recent article written by Robert Dietz, an economist with the National Association of Home Builders, in U.S. News & World Report. “More jobs in the broader economy fuels more housing demand, and with more housing demand comes more jobs in the housing sector, especially in construction, an industry still languishing in the wake of the bust,” according to the article. Every new home built keeps, on average, three people employed full-time for a year. Therefore, Dietz estimates that if single-family housing starts rise from 530,000 this year to 640,000 in 2013, housing could generate more than 300,000 jobs for the economy next year. As builders get more confident about the housing market, they will ramp up construction. And rising home prices lately from low housing inventories is helping to increase their confidence. The existing-home inventory has decreased 47 percent as of October 2012 from its peak in July 2007, according to National Association of Realtors data. Source: US News & World Report
**You have gotten approved for a home loan and now you are just waiting to make it to the closing table. Make sure you don’t throw your loan approval into jeopardy by making one of these common mistakes–
- Making a big purchase. Avoid making major purchases, like buying a new car or furniture, until after you close on the home. Big purchases could change the your debt-to-income ratio that the lender used to approve the buyer’s home loan and could throw the approval into jeopardy.
- Opening new credit. Now isn’t the time to open up any new credit cards.
- Missing any payments. Home buyers need to be extra vigilant about paying all their bills on time, even if they’re disputing one.
- Cashing out. Avoid any transfers of large sums of money between your bank accounts or making any undocumented deposits — both of which could send up “red flags” to your lender. Source: Realty Times
The Truth About Qualified Mortgages (QM) and Why You Can Skip the Hype
Any Realtor who has closed a single transaction in the last 5 years knows that mortgage lending guidelines have become extremely stringent – many would venture to say too much so. Now with all of the press that the new Qualified Mortgage piece of the Frank Dodd Act, many Realtors are preparing for things to get even worse. I believe you really don’t have much to worry about. Why not? Simple. The 8 factors considered in the Ability-to-Repay determination highlighted to qualify as a Qualified Mortgage are already implemented, with the exception of a hard cap for the debt-to-income ratio of 43%. It should be noted though that for that hard cap, there is the ability to bypass it and still qualify, and that should be around for quite awhile yet (up to 7 years). Also, lenders have 12 months to implement the QM rules, so you can erase those fears of overnight sweeping guideline changes. The bottom line, focus on what you have been focusing on, enjoy the continued improvement to the housing market in 2013, and this shouldn’t really affect your world much right now.
This Week’s Mortgage Rates Forecast
Risks Favor: LOCKING
This week has a plethora of Economic data on the calendar which will make up for last week’s lull. Expect lots of daily volatility, with intra-day repricing possible all week. Rates shouldn’t venture too far, but I should be consulted for the best times to lock mortgage rates this week. Depending on when you lock, on the highs or the lows, you could vary your rebate by as much as .5% of your loan amount (that is $1,000 on a $200k loan amount). So even though I say that rates are stable, meaning that we won’t see large increases from where we are at now to the end of the week, there will be lots of volatility.
Source: TBWS Rate Alert
What happens when you get ready to fall down a cliff and when you close your eyes real tight — bracing for impact– nothing happens? Well, that is what happened last week when Congress magically caused the cliff to be moved. All along we indicated that the most probable result was for a very last minute agreement that would also kick the can down the road. Congress is so predictable because that is exactly what happened. The very last minute was defined as approaching midnight on New Year’s Day. And while the agreement addressed a variety of issues, it also left plenty more to argue over in about two months time when Congress must raise the debt ceiling and automatic cuts in government programs are scheduled to take place.
Of course, Congress could take care of that problem in January and avoid another last minute death-defying experience. But what is the fun in that? No, we are likely to go down to the wire again in a few months. For now, we all breathe easier. And while there was damage done in the form of consumers holding back on spending and businesses holding back on hiring, the employment report released on Friday tells us that this damage was not as strong as we would have expected. America is a resilient nation and the economic recovery remains on track despite games played in Washington. It may take a while for us to collect our breath, but we believe that we will carry forward towards a stronger 2013.
The Markets. Rates were again stable in the past week, however the report did not reflect a trend upwards toward the end of the week. Freddie Mac announced that for the week ending January 3, 30-year fixed rates fell one-tick from 3.35% to 3.34%. The average for 15-year loans also fell one-tick to 2.64%. Adjustable rates were up slightly with the average for one-year adjustables increasing to 2.57% and five-year adjustables rising to 2.71%. A year ago 30-year fixed rates were at 3.91%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates started the year near record lows which should continue to aid the ongoing housing recovery. New home sales rose in November to a two-year high and were up 15.3 percent from the previous November. Similarly, pending sales on existing homes increased for the third month in November to the strongest pace since April 2010.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 4, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.12%||0.14%|
|1-year Treasury Security||0.15%||0.18%|
|3-year Treasury Security||0.40%||0.36%|
|5-year Treasury Security||0.81%||0.67%|
|10-year Treasury Security||1.92%||1.65%|
|12-month LIBOR||0.864% (Nov)|
|12-month MTA||0.172% (Nov)|
|11th District Cost of Funds||1.000% (Nov)|
Homeowners fare well in the fiscal cliff deal passed by the Senate and House on Jan. 1. The American Taxpayer Relief Act of 2012 apparently extends a law that expired at the end of 2011, which allowed for the deductibility of mortgage insurance (MI) premiums, according to a research report from Isaac Boltansky with Compass Point Research & Trading. The law now applies to fiscal years 2012 and 2013. “The law dictates that eligible borrowers who itemize their federal tax returns and have an adjusted gross income (AGI) of less than $100,000 per year can deduct 100% of their annual MI premiums,” Compass Point said. “Certain borrowers with AGIs above $100,000 may benefit from the deductibility as well but are subject to a sliding scale. The tax break covers private MI as well FHA MI and VA and Rural Housing Service fees. In 2009, about 3.6 million taxpayers claimed the MI deduction,” the research firm added.
One of the more watched provisions of the fiscal cliff was the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31. The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through principal forgiveness or a short sale are exempt from being taxed on the forgiven amount. “The amount extends up to $2 million of debt forgiven on the homeowner’s principal residence,” Compass Point Research & Trading said. “For homeowner’s to qualify, their debt must have been used to ‘buy, build, or substantially improve’ their principal residence and be secured by that residence. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014.” Another win for housing is a provision tied to the government’s plan to increase the capital gains tax rate from 15% to 20% for individuals who earn more than $400,000. While in theory, this is harder on higher-income homeowners, Compass Point sees a silver lining through an exclusion. Compass Point notes the law “states that only gains of more than $250,000 for individuals ($500k for households) are subject to taxes on the excess portion of capital gains. Point being, in order for an individual homeowner to be impacted by the increased capital gains tax rate they would need to have an adjusted gross income above $400,000 and gain more than $250,000 from the sale of the property. Since this exclusion threshold remained intact, the impact of the capital gains tax increase is limited.” Source: HousingWire
Homeownership will be a bit more affordable for eligible U.S. service members in 2013. The Department of Defense has increased its Basic Allowance for Housing (BAH) for 2013, giving most active duty personnel larger monthly stipends to offset housing payments. The Basic Allowance for Housing is a monthly, non-taxable stipend paid to many active duty military members. Previously, the Basic Allowance for Housing was known as Basic Allowance for Quarters (BAQ). BAH rates are based on average housing costs, and are updated annually with data from property managers nationwide. Current rental rates for townhomes, duplexes, apartment units, single-family homes and other residence types are considered in the Basic Allowance for Housing, as is other information culled from the American Community Survey, an annual U.S. Census Bureau publication. The Basic Allowance for Housing is payable to military members in non-government quarters and there are three factors which determine a military member’s individual Basic Housing Allowance: Pay Grade, Location and Number of Dependents. As would be expected, military members with higher pay grades (i.e. rank) receive a larger Basic Allowance for Housing. The same is true for military members living in “expensive” cities as compared to inexpensive ones. And, lastly, military personnel with dependents receive higher monthly allowances as compared to personnel without dependents. Beginning January 1, 2013, eligible service members will receive an average Basic Allowance for Housing increase of 3.8%. Personnel in some areas will receive an increase which is larger than the national average; some will receive less. For more specific information regarding the BAH, the following links will connect you with the actual data for each metropolitan area in the United States (Sources: Daily Mortgage Reports and VA):
2012 may be remembered as the year home prices started to rise again but owning a home remains significantly cheaper than renting in the Chicago area.
The cost of renting was about 31% higher than the average mortgage payment here in the third quarter according to a report by Deutsche Bank. That disparity, which includes property taxes, insurance, and other homeowner costs, was greater in the Chicago area than in all but 7 metropolitan areas tracked by Deutsche Bank.
That spread represents the record high rents landlords are able to charge in the wake of the recent housing bust.
So what is holding back buyers from purchasing a new home?
There are several factors. The obvious ones are uncertainty in the economy and the perception of the lack of available mortgage funds. The key factor though seems to be the perception that if they buy a place, they will need to stay in it a long time.
Owning could remain less expensive in the Chicago area for a while longer, yet landlords soon may have a harder time hiking rents. Just in downtown Chicago alone, new development will add over 4700 new apartment units in the next 2 years.
So, before you consider renting, look at your purchase options as it can save you thousands over the next few years. Source: Chicagorealestatedaily.com
Let’s play a game. Below I list six actual news headlines and it’s your job to guess what year they were written.
- “Refinance your home now” - Kiplingers.com
- “Tips for Refinancing your Mortgage” - New York Times
- “It’s now Literally the Best Time Ever to Refinance Your Mortgage” – BusinessInsider.com
- “Mortgages: Why it may be time to refinance Your Loan” – Wall Street Journal
- “The Great American Refinancing” - Barrons Magazine
- “Is Now a Good Time to Refinance” – Smart Money Magazine
If you answered 2012 for all of them, it would be a perfectly logical guess, as all of these articles would certainly pertain to today’s environment. But, if you answered 2008, 2009, 2010, 2010, 2011, and 2012 you would score perfectly. Yes, these headlines are actually listed in order of appearance by year starting in 2008!
In hindsight, it is obvious that none of the articles are correct. 30 year mortgage rates have consistently fallen for years, making now actually the best time in a generation (so far) to refinance. This month the rate is around 3.375% and continues.
What’s all this mean? The right time to refinance is determined by your individual circumstances. Simply stated, if it makes financial sense, do it! Give me a call and we can discuss your options.
A tax break that has saved struggling homeowners from paying thousands of dollars to the IRS is just days away from expiring.
If the Mortgage Forgiveness Debt Relief Act of 2007 does not get extended by Congress by the end of the year, homeowners will have to start paying income taxes on the portion of their mortgage that is forgiven in a foreclosure, short sale or a principal reduction.
Assume someone owes $150,000 on their home and it sells for $100,000 in a short sale or a foreclosure auction. If the law expires, that means they could owe taxes on the remaining $50,000. For someone in the 25% tax bracket, that would mean paying $12,500 in taxes.
So far, though, very little has been done to extend the act as Republicans and Democrats continue to butt heads over the fiscal cliff.
Thousands of mortgage borrowers would be affected. More than 50,000 homeowners lose homes to foreclosure each month and the number of short sales has tripled over the past three years to a rate of about half a million a year. And, under the terms of the
$25 billion foreclosure abuse settlement, roughly one million borrowers may have their mortgage debt lowered through principal reductions over the next couple of years.
Most short sellers will not follow through on sales to closing without debt forgiveness in place. Instead they’ll fight foreclosure, prolonging the housing crisis.
Even if Congress allowed the mortgage debt forgiveness to expire, not all borrowers who lose their home to foreclosure, sell their home in a short sale or have their principal reduced will take a tax hit. If the debt is discharged in a bankruptcy, no tax is due. And anyone who is insolvent — meaning they have more debt than assets — at the time the debt was forgiven would not have to pay the tax.
Still, the real concern is what effect this will have on the recovering, but still fragile, housing market. I can only hope that as soon as the fiscal cliff issues are solved, congress will take up the issue (insert joke here).
With the budget negotiations going on did anyone in America think that Congress would not go down to the wire before coming to an agreement? Whether we were optimistic that an agreement would be coming or not, the fact that it would not come early was of no surprise to anyone. We will not go into why deals have to be made at the last minute. We will just note that there will be consequences that come from waiting until the last second to come up with a deal. Some of these consequences are “psychological” with companies refusing to hire and consumers holding back on Holiday shopping in an uncertain environment.
Other consequences are technical in nature. How does the IRS prepare for the next year not knowing what the tax rates are going to be? Every company in American depends upon the IRS to give it instructions. The uncertainty extends beyond general tax rates. There are a host of government programs and tax write-offs that hang in the balance–from the Mortgage Debt Forgiveness Act to long-term rates on Capital Gains. Decisions on selling assets and even selling a home may be affected by whatever deal is struck. These uncertainties are extended if Congress and the President come up with a compromise that is a temporary solution — kicking the can down the road. As the Holidays approach, we hope that an agreement can end much of this uncertainty and clear the path for a stronger economic recovery next year.
The Markets. Rates were again stable at record lows last week. Freddie Mac announced that for the week ending December 13, 30-year fixed rates fell slightly from 3.34% to 3.32%– exactly where it was two weeks ago. The average for 15-year loans decreased slightly as well to 2.66%. Adjustable rates were mixed but steady with the average for one-year adjustables falling to 2.53% and five-year adjustables increasing to 2.70%. A year ago 30-year fixed rates were at 3.94%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates held relatively steady following the November employment report. Although 146,000 jobs were created, above the market consensus forecast of 85,000, revisions subtracted 49,000 workers over the September and October period. The unemployment rate fell from 7.9 to 7.7 percent. However, in its December 12 monetary policy statement, the Federal Reserve (Fed) noted that this rate remains elevated and modified the statement to tie any increases to its target rate to the unemployment rate falling below 6.5 percent. The latest Fed central-tendency forecast is for unemployment to be between 7.4 and 7.7 percent in the fourth quarter of 2013 and between 6.8 and 7.3 percent by late 2014.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated December 14, 2012
|Daily Value||Monthly Value|
|6-month Treasury Security||0.11%||0.14%|
|1-year Treasury Security||0.14%||0.18%|
|3-year Treasury Security||0.34%||0.36%|
|5-year Treasury Security||0.70%||0.67%|
|10-year Treasury Security||1.74%||1.65%|
|12-month LIBOR||0.864% (Nov)|
|12-month MTA||0.172% (Nov)|
|11th District Cost of Funds||1.011% (Oct)|
Foreign buyers have flooded the U.S. housing market, taking advantage of favorable exchange rates, weaker prices and, in some cases, record-low rates. Foreign nationals accounted for $82.5 billion, or 8.9%, of the $928 billion spent on U.S. residential real estate from April 2011 through March 2012, according to a survey from the National Association of Realtors. That was up 24% from $66.4 billion the previous year. More than 50% of sales over the past year occurred in just five states: Florida, California, Texas, Arizona and New York. Chinese are also shopping in the U.S. in growing numbers. Buyers from mainland China and Hong Kong account for over $7 billion in sales annually, or 11% of international sales activity in the year to March, according to NAR, making them the second-largest foreign buyers of U.S. homes. If the Chinese are the second-largest foreign buyers of U.S. homes, who’s No. 1? Our neighbors to the north in Canada. Canadians accounted for 24% of sales to foreigners in the year to March, according to NAR. And it’s not likely to let up: Realtor.com says Canadians account for the most international search activity on the listing site every month in nearly all of major U.S. metro areas. Brazilians are getting attention for their buying sprees in markets like Miami and increasingly, New York City, but Argentineans have been just as active. “The foreign buyer story should be as much about Argentineans as Brazilians,” asserts Philip Spiegelman, a principal at International Sales Group, a marketing and sales organization for real estate developers. “The market in downtown Miami has been principally dominated by Argentineans, then Brazilians, then Venezuelans.” Increasing numbers of Venezuelans are pouring money into American real estate, seeking a safe haven for their wealth from political and financial uncertainty back home. Teplitzky says many of her South American clients, who also include Colombians and Argentineans, seek out rental units, especially in Miami. “The new landlords in Florida are South Americans and their tenants are Americans,” she adds. Source: Forbes
A measure of U.S. home prices rose 6.3 percent in October compared with a year ago, the largest yearly gain since July 2006. The jump adds to signs of a comeback in the once-battered housing market. Core Logic also said that prices declined 0.2 percent in October from September, the second drop after six straight monthly increases. The monthly figures are not seasonally adjusted. The real estate data provider says the decline reflects the end of the summer home-buying season. Steady price increases are helping fuel a housing recovery. They encourage more homeowners to sell their homes. And they entice would-be buyers to purchase homes before prices rise further. Home values are rising in more states and cities, according to the report. Prices increased in 45 states in October, up from 43 the previous month. Rates on home loans are near record lows, while rents in many cities are rising. That makes home buying more affordable, pushing up demand. And more people are looking to buy or rent a home after living with relatives or friends during and immediately after the Great Recession. At the same time, the number of available homes is at the lowest level in 10 years, according to the National Association of Realtors. The combination of low inventory and rising demand pushes up prices. An index measuring the number of Americans who signed contracts to buy homes in October jumped to the highest level in almost six years. That suggests sales of previously occupied homes will rise in the coming months. Source: Silicon Valley Mercury News
Rents are forecasted to rise nationally 4.6 percent next year, and that’s following a 4.1 percent increase this year, according to the National Association of Realtors®. What’s more, rents are expected to continue to climb for the foreseeable future, rising more than 4 percent a year for 2014 and 2015, forecasts Reis, a market research firm. “The pendulum has definitely swung back in favor of landlords, not renters,” Ryan Severino, senior economist for Reis, told USA Today. Rents are rising even more rapidly in some areas. For example, rents in San Jose, Calif., and San Francisco have been climbing at a 13 percent to 15 percent annual rate as of late last year, according to MPF Research. Other metro area seeing rent increases of more than 5 percent by the end of September include Oakland, Calif.; New York; Denver; Houston; Nashville; and Columbus, Ohio, MPF reports. The rise in rental costs are causing more renters to consider home ownerships, says Greg Willett, MPF vice president. Rates are at historical lows and home prices are up, but still way below their 2006 peak. Source: USA Today
While the analysts report that the Holiday shopping season has gotten off to a strong start, the news from Congress continues to stay front and center. The lame duck session is addressing the automatic budget cuts and tax increases that go into effect in January if an agreement is not reached. The changes would be so draconian that the media has nick-named these “the fiscal cliff.” The concern right now is whether the threat of the fiscal cliff is causing businesses not to hire and consumers not to spend. Thus far, the results from Black Friday and Cyber Monday seem to indicate that at least the public is not worried. We are not of a mind to believe that Congress will let us fall down a fiscal cliff.
We do understand that if they wait for the last minute – not unusual for Congress — and start the finger-pointing rhetoric, it could hurt the economy as we approach the Holidays. Thus far, Congress has been pretty cordial. It is as if the elections delivered a message to our representatives that we want them to work together. Keep in mind that even though we think either a temporary “kick the can down the road” or permanent solution will come out of the talks, that does not mean the economy will not be affected. Higher tax revenues, budget cuts and even changes in Medicare and Social Security are all on the table. You can’t cut a trillion dollar deficit without raising revenue and lowering spending. The lobbyists are busy protecting their clients’ interests such as social security and the mortgage tax deduction. We hope a balanced approach will emerge and a major potential stumbling block for the economic recovery will be removed. Meanwhile, this Friday look for the most unimportant employment report in a while. The data is expected to be skewed because of the effects of Hurricane Sandy.
The Markets. Rates were stable at record lows last week. Freddie Mac announced that for the week ending November 29, 30-year fixed rates rose slightly from 3.31% to 3.32%. The average for 15-year loans increased one tick to 2.64%. Adjustable rates were also stable with the average for one-year adjustables remaining at 2.56% and five-year adjustables decreasing slightly to 2.72%. A year ago 30-year fixed rates were at 4.00%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates were virtually unchanged this week amid growing concerns around the fiscal cliff. Although low rates failed to boost new home sales in October, year-to-date sales are up 20 percent compared with 2011 volumes and there are growing signs of a turnaround in house prices. The S&P/Case-Shiller® national home price index (seasonally adjusted) rose 5.2 percent over the first three quarters of this year. In addition, all 20 of the city indices (seasonally adjusted) had positive growth over the first 9 months, led by a 17.9 percent increase in Phoenix. More recently, the Federal Reserve’s November 28th regional economic review, known as the Beige Book, noted that 10 of the 12 districts reported the market for single-family homes continued to improve leading into mid-November.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated November 30, 2012
|Daily Value||Monthly Value|
|6-month Treasury Security||0.15%||0.15%|
|1-year Treasury Security||0.18%||0.18%|
|3-year Treasury Security||0.35%||0.37%|
|5-year Treasury Security||0.63%||0.71%|
|10-year Treasury Security||1.62%||1.75%|
|12-month LIBOR||0.924% (Oct)|
|12-month MTA||0.166% (Oct)|
|11th District Cost of Funds||1.038% (Sept)|
Deep inside all of the information concerning the Federal Housing Administration lately, there is one underreported tidbit we want to point out. For those of you who currently have FHA-backed home loans and are looking into a streamlined refinance, the time to act is now. And here’s why. In its 2012 annual report, the U.S. Department of Housing and Urban Development announced it will reverse the original plan to cancel the mortgage insurance program for FHA loans, effective “sometime in 2013.” The effective date is dependent on when the loan is endorsed by HUD. With the FHA short on insurance funds, it is having to take measures to protect this program. Yes, we can expect that insurance premiums will increase soon, both upfront and annually. The FHA believes this will strengthen its capital position but not limit access to credit for qualified borrowers. But after a certain amount of time, the borrowers no longer need to pay insurance premiums, even though FHA-backing remains in force for the life of the loan. That’s going to end soon. “While FHA’s 100% insurance guarantee remained in effect for the 30-year life of a loan, borrowers were only required to pay premiums for less than ten years,” HUD said in a statement. “FHA has been left without premiums to cover losses on loans held beyond the period for which it collects premiums. This change will apply to new loans.” Currently, once the principal balance on your loan reaches 78% and you have made a minimum of 60 payments, you are free from paying the premium. New homebuyers who plan on using FHA for financing should expect to still see the insurance payments remain due on the loan until the house is sold or can be refinanced into a conventional mortgage. FHA Acting Commissioner Carol Galante addressed the changes, saying, “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.” Source: HousingWire
Owners can take steps to avoid having their home appraised at a lower value than the asking price. “Taking the time to understand the areas that can positively influence your appraisal can help ward off the chances that your home will be appraised at a lower value than the asking price,” according to a recent article at Realty Times, which highlights ways sellers can prepare for an appraisal. Here are a few ways that home owners can hurt their appraisal, according to the piece.
- Leaving the home untidy. Having an unkept exterior or interior can cause an appraiser to decrease the value somewhat. Remind your sellers that curb appeal is also important for an appraisal. Overgrown bushes or an unkept home exterior could prompt an appraiser to take as much as 3 percent off the value, according to a CNNMoney article.
- Having incomplete remodeling projects. Don’t let home owners keep a remodeling project unfinished prior to an appraisal. If they must, make sure they include details of the complete project and when it is to be finished to the appraiser.
- Failing to list improvements or upgrades made to the home. Compile a list of upgrades and home improvements made to the home and provide it to the appraiser. While some items, like a new roof, may not help raise the appraised value, other items might. Source: Realty Times
New homes have been found to burn much faster than older homes due to a change in building materials the last decade. The increased use of prefabricated, lightweight construction materials in new-homes today has caused homes to burn and collapse faster than homes that use traditional solid-wood frame construction, firefighters and fire safety groups say. Yet, California and Maryland remain the only two states that require sprinklers to be installed in new homes. On the other hand, several state governments have enacted legislation in recent months forbidding cities from requiring sprinklers to be added to new homes. Several state governments have become outspoken critics against sprinkler systems added to new homes despite the move by the International Code Council, which develops national building codes, in 2009 voting in favor of fire sprinklers being added to all new one- and two-family homes. When the housing market started to soften, however, many lawmakers, lobbyists, and the building industry started to speak out against the installation of sprinklers in new homes. “When you start mandating a fire sprinkler system, you are going to price a lot of people out of these new homes,” Ned Munoz, vice president of regulatory affairs for the Texas Association of Home Builders, told Reuters. The Fire Protection Research Foundation found in 2008 that adding a sprinkler system to a new home would add about $3,864 onto a 2,400-square-foot home. However, Reuters reports that some insurance companies offer up to 10 percent discounts to policies when homes have fire sprinklers. With the increase in lightweight construction materials, fire experts say the sprinklers could save lives. But others argue that the decision to install fire sprinklers should be left with home owners, not a mandate among city or state governments. Source: Reuters