Incline Village Real Estate Blog

The Mortgage Market Guide
OMG Lenders

“BOTH OPTIMISTS AND PESSIMISTS CONTRIBUTE TO OUR SOCIETY. THE OPTIMIST INVENTS THE AIRPLANE, AND THE PESSIMIST – THE PARACHUTE.” G.B. Stern. And last week’s Jobs Report had something for both optimists and pessimists, as the numbers were both good and bad…depending on which survey you looked at, and what numbers you focused on.

First, the headline numbers: The Labor Department reported that there were 20,000 jobs lost in January, which was worse than expectations of 15,000 jobs gained. However, the Unemployment Rate came in lower at 9.7%, down from last month’s read of 10.0%. But what do these numbers actually tell us?

Steve Peterson, Sierra Pacific MortgageOffice: 888-232-7687 Cell: 775-219-7151 Fax: 866-649-3235

Conforming 30 year fixed rates are currently 5.00% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).

The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).
The stock markets gave a relatively weak performance in January, especially after the strength of 2009. Tradition has it that a poor January forecasts an ailing market for most of the rest of the year. And indeed, I suspect it will be a rougher path for at least the first half of this year than it was for the second half of last year.

One of the main problems is that the federal support of interest rates and lending must be withdrawn as soon as possible. The White House is talking (yes, houses can sometimes talk) about supporting today’s weak lending to small businesses, but we aren’t likely to see many new lending/support programs. Indeed, the Fed’s support of low mortgage rates is scheduled to cease at the end of March. You can already feel the worries about this in the inclination of the stock markets to decline.

Interest rates are hanging in there, but it’s difficult not to believe that the end-of-March withdrawal of support will push rates a bit higher. Respected mortgage analysts see rates rising at least a half a percent, which won’t bring down the real estate recovery, such as it is–but won’t help, either.

The path to recovery is indeed a rocky one. Thankfully, it still seems to be headed in the right direction.
February 3, 2010

KEY INDICATORS

Gold $1115.30/ounce [up]Crude Oil (Brent) $75.10/brl [up]U.S. Dollar to… Euro .7166 [up] Japanese Yen 90.38 [up]6-mo Treasury Bill Yield 0.16%10-yr Treasury Note Yield 3.65% [6-mo up 2 bps, 10-yr up 3 bps]11^th Dist Cost of Funds 1.828%[-]30-yr Fixed-rate Mortgage 5.39%15-yr Fixed-rate Mortgage 4.81%1-yr ARM 4.61% [HSH averages rates: 30-yr down 3 bps,15-yr down 5 bps; 1-yr ARM down 12 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/22 Overall 513.9 (down 10.9%; up 9.1% the week prior) Purchase Money Loans 215.6 (down 3.3%; up 4.4% the week prior) Refinancing Loans 2260.4 (down 15.1%; up 10.7% the week prior)

Jobless Claims 1/23 470,000 – prior week 482,000 – continuing claims edged to 4.602 m

New-Home Sales Dec Down 7.6% from Nov – down 8.6% from Dec 2008

Gross Domestic Product (GDP) 4^th quarter 2009 Up 5.7%

Weekly Commentary

“The United States economy saw very strong expansion in the fourth quarter [of 09], but that is unlikely to persist through most of 2010. Instead, the economy will see a period of weak growth until demand fundamentals start to improve toward the end of this year.” [Augustine Faucher, Moody’s Economy.com]

Personal income rose by 0.4% this past December. It had risen a revised 0.5% the month before. As a result, consumer spending was up 0.2% in December—but the savings rate rose once again to 4.8%. Instead of running out and spending the bit of extra cash most Americans are experiencing, they’re saving it, it appears.

At the same time, mortgage applications remain very weak, indicative of little to no improvement for real estate sales volume in the immediate future. The December Pending Home Sales Index, which keeps track of how many new purchase contracts are signed in a given month, rose a tepid 1% after its 16.4% plunge in November.

Mortgage rates are very slightly lower, as the credit markets fearfully anticipate the Fed’s withdrawal from its season of buying up mortgage-backed securities. The Fed, as you doubtless know, has been helping to keep rates low by making sure the massive supply of mortgage-backed securities available for purchase doesn’t exceed the demand from buyers…by being a buyer. As of the end of March—unless the Fed changes its mind—those mortgage-backed securities will have to be purchased by investors. The Fed will remove the training wheels, so to speak.

Analysts have suggested that mortgage rates will climb by at least a half a percent as a result of the Fed’s withdrawal of support. It’s difficult to predict. The Fed’s move, after all, could be perceived as a signal of confidence in the MBS market. But it is probable that we’ll see the markets stirred up, with a tendency toward slightly higher rates, as we move toward the end of March.

It is a test of an as-yet-unanswered question: Can this economy continue to recover without massive federal support? Most economists believe it can—though you don’t have to search hard to find someone who thinks we’ll slip back into recession. Still, we’ll probably see rates rise a bit, plateau at their new level, and hold for a few months. Today’s lowest rates may vanish relatively soon.

Ephraim Schwartz, OMG

Partner, Mortgage Consultant CMPS

As expected, the Fed left the Fed Funds Rate (0 – .25%) & Prime Rate (3.25%) unchanged. Fed Chairman, Ben Bernanke, has said the Fed would like to keep rates at current levels through most of 2010. Looking ahead, if there is a culprit most likely to pressure the Fed to hike before then, it would almost certainly be rising inflation. Note: Remember, these are not tied to mortgage rates.

The most important topic the Real Estate/Mortgage industry was Fed’s Mortgage Bond purchase program which has artificial created demand in the bond space, and in turn keeping mortgage rates near all times lows, even as the stock market is up significantly since last March. Today, the Fed confirmed the MBS purchase program will end on March 31^st. This means mortgage rates will creep higher in the months ahead. Bond prices, which drive mortgage rates, will once again be dictated by normal economic factors. Specifically, the ebb & flow of investment dollar between stocks & bonds, as well as potential inflation.  

Stocks finished the day slightly higher, while bonds were slightly lower. When mortgage bonds drop, their rates/yields go higher.

Steve Peterson, Sierra Pacific MortgageOffice: 888-232-7687

Despite the weak existing sales report–relatively easily explained by
the timing of the $8,000 tax credit expiration–the real estate
recovery does seem to be moving forward, albeit very gradually.

It is worth paying close attention to economic indicators for quite
some time to come. They are virtually all the markets have to go on.
Their initial impact can push the markets up or down and then, as
reality seeps in and investors read the indicators a bit more closely,
the markets tend to correct slightly…and we wait for the next
indicator du jour to rock the boats.

This is not a terrible thing, as you’ve most likely noticed. Interest
rates have been running in a narrow channel that is blissfully low.
Stock markets have been edging up, mostly. And the occasional sound
and fury doesn’t clamp the lid shut on the housing market. Thus, it
appears, will the market wend its way back to health.

We hope your business is doing the same–getting healthier–only more
so.

Please find attached this week’s economic update. A copy of it is also at the bottom of this email in case you are not able to open the attachment.

Conforming 30 year fixed rates are currently 4.875% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).

The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).

January 27, 2010

KEY INDICATORS

Gold $1100.10/ounce [down]Crude Oil (Brent) $73.22/brl [down]U.S. Dollar to… Euro .7099 [up] Japanese Yen 89.70 [down]6-mo Treasury Bill Yield 0.14%10-yr Treasury Note Yield 3.62%[6-mo up 1 bp, 10-yr down 8 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.42%15-yr Fixed-rate Mortgage 4.86%1-yr ARM 4.73%[HSH averages rates: 30-yrup 3 bps,15-yr up 9 bps; 1-yr ARM up 78 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/15 Overall 575.9 (up 9.1%; up 14.3% the week prior) Purchase Money Loans 223.0 (up 4.4%; up 0.8% the week prior) Refinancing Loans 2663.8 (up 10.7%; up 21.8% the week prior)

Jobless Claims 1/16 482,000 – prior week 444,000 – continuing claims edged to 4.599 m

Conference Board Index of Leading Indicators Dec Up 1.1% – Nov was revised up 0.1% to 1%

Existing Home Sales Dec Down 16.7% from Nov

Producer Price Index (PPI) Dec Up 0.2% – core unchanged

Weekly Commentary

“Under [the best] circumstances, this year will be the first time since 2005 that residential construction supports the nation’s economy rather than weighs on it. The support the economy will receive from homebuilding will be modest, however. Housing starts will run far below the trend pace this year and will not reach a normal pace until 2012.” [Celia Chen, Moody’s Economy.com]

The best of circumstances, in this case, would include “job losses abating, a number of foreclosure modifications working, and restored confidence in the economy and the housing market”—all of which is uncertain, at best.

Certainly, the nation’s mood regarding the housing market was not elevated by the 16.7% monthly decline in existing-home sales. But let’s look at this more closely. There’s good news to be found.

The existing-home sales report tells us about closed sales, not about newly-signed purchase contracts. So what we have here is the number of closings in the month after people stopped buying because they thought the $8,000 first-time homebuyer tax credit had expired. This is like the car sales in the month after the cash for clunkers program was finished. Or the sales in a department store after the two-week “80% off everything” discounting ceases and prices rise to their old levels.

With the $8,000 tax credit program extended and expanded (with a $6,500 tax credit program for “move-up” homebuyers), we already have evidence that sales are gradually starting to regain their momentum. (What happens in July, when this program has expired, remains to be seen.)

And notice the little-reported aspects of the existing-home sales report: “For the first time since 2006, the median existing-house price is up year over year.” This is a very positive sign, suggesting that home prices may soon start firming. And “on a year-ago basis, sales are up strongly, led by the Northeast with a 21% gain. The South and West follow with gains of about 15%, and Midwest sales grew by 9%.” [Quotations from Celia Chen.]

Clearly, there are many ways to read economic indicators. This report suggests that we look deeper into what the numbers tell us rather than merely at what the headlines declare, and that we look at what has happened over the longer-term, not just short-term changes. One other piece of data: fourth-quarter sales were 5% higher than were third quarter sales, even with this decline, and posted the first annual gain since 2005.

Steve Peterson, Sierra Pacific Mortgage

Conforming 30 year fixed rates are currently 5% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).

The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).

It’s pleasant to be a little more optimistic this week than last. Perhaps someday we’ll have a trend that lasts more than, say, 24 hours. I actually do suspect that real estate will emerge as a source of growing strength for the rest of the market, but the rest of the market is still plagued by odd problems–as discussed last time–caused largely by the way the Fed and Treasury have pushed interest rates so low (relative to where they would have been if left alone). We could see a stock market correction that strikes fear into the heart of Wall Street. I doubt it will last long, though.

At this point, much seems to turn on how gentle the Fed’s withdrawal from purchasing gigantic amounts of mortgage-backed securities will be. It’s a worrisome balancing act–pitting the need to get out of “artificially” supporting low rates (which could ultimately prove to be highly inflationary) and, nonetheless, to support the markets so that an interest rate spike doesn’t cut off the recovery.

January 20, 2010

KEY INDICATORS

Gold $1138.60/ounce [up]Crude Oil (Brent) $76.59/brl [down]U.S. Dollar to… Euro .7007 [up] Japanese Yen 91.14 [up]6-mo Treasury Bill Yield 0.13%10-yr Treasury Note Yield 3.70% [6-mo up 1 bp, 10-yr down 12 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.39%15-yr Fixed-rate Mortgage 4.77%1-yr ARM 3.95% [HSH averages rates: 30-yr down 9 bps,15-yr down 17 bps; 1-yr ARM down 55 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/8 Overall 528.1 (up 14.3%; up 0.5% the week prior) Purchase Money Loans 213.7 (up 0.8%; up 3.6% the week prior) Refinancing Loans 2407.2 (up 21.8%; down 1.6% the week prior)

Jobless Claims 1/9 444,000 – prior week 434,000 – continuing claims fell to 4.596 m

Consumer Price Index (CPI) Dec Up 0.1% – core CPI (without food or energy data) up 0.1% – annual core inflation now 1.8%

Retail Sales Dec Down 0.3% – weak holiday sales data
Weekly Commentary

“Positive momentum continues to be generated in the housing market. For example, credit markets are beginning to thaw. Several big banks have lowered their down payment requirements. Looser credit will reinforce market stability by fostering demand. Further, house prices have posted quarter-to-quarter gains for two consecutive quarters, according to the Case-Shiller home price index, through the third quarter of 2009. Finally, a steadying labor market combined with near record-high affordability will begin to draw potential homebuyers back to the market through 2010. These factors all suggest that home sales have long ago bottomed and will continue to trend upward over the next year, albeit at a very moderated pace.” [Michael Zoller, Moody’s Economy.com]

Mr. Zoller, though optimistic overall, remains very concerned about the fragility of the real estate recovery. Surely we all feel concern. But it is good to step back from the incessant fluctuations of the credit markets and the pronouncements of analysts—positive one day, down in the mouth the next—and seek the underlying trends in the market.

Intriguingly, Zoller even forgets to mention the $8,000 and $6,500 tax credits now available to so many buyers. These are likely to raise sales volume noticeably for a couple of months. Very few people have any expectation that the tax credit programs will be renewed once again, so we can expect another last-minute rush to sign purchase contracts by April 30, and a rush to close those deals before June 30.

Meanwhile, low rates are currently being supported by the enthusiasm among international investors for U.S.Treasury securities and corporate bonds. This enthusiasm is motivated in part by the widespread concerns about the fiscal viability of many European countries, notably Greece and Spain (and the very deep financial woes of Iceland and Dubai). The U.S. simply looks like a safer place to store wealth and watch it grow a bit—in spite of the stunning growth of our national debt.

Worrisome, though, are the on-going indications that American consumers are still reticent about opening their wallets, and employers are still waiting to do much hiring again. The unemployment insurance claims (to the left) are fewer, but they are shuffling their feet, and retail sales also remain uninspiring. But the gathering strength in the real estate market is likely to help.