Tuesday, April 17, 2012

Keeping you Updated on the Mortgage Market

For the week of April 16, 2012

The shift from winter tranquility to spring volatility is readily apparent in the mortgage markets. Fed Chairman Bernanke has noted that there are still considerable challenges which face the economy and that the Fed’s low rate stance is what is driving them back downward. Freshly-released minutes of the last Fed meeting from three weeks ago reflected the strong economy leading up to that point. This pushed rates back up, with the deepening woes in Europe and the weak March employment report causing rates to go back down again.

The statement accompanied by the close of the Monetary Policy Setting Committee and subsequent testimony of Fed Chairman Bernanke both suggest that the economic climate may require additional support for the coming time period. The meeting minutes themselves indicate otherwise, in them is a stronger assessment of the state of the economy – one in which the Fed may be less inclined to start or expand any programs designed to keep interest and mortgage rates low into the future.

In other words, the economy is growing but with less strength than previously thought. Interest rates had been easing somewhat, as an accumulation of the most recent economic data pointed towards expansion, with slightly less upward momentum at the end of the first quarter than at the beginning of it. The mixed signals are continuing.

Adding to the challenge of determining whether or not the current market conditions are moving upward or downward is the recent unemployment figures with 357,000 new applications for unemployment benefits filed during the last week of March. However, fewer people getting laid off is different than more people getting hired and new jobs being created. While job retention is an indicator of economic improvement, it is still a wobbly economy which needs steadying.

Broadening the recovery means hiring the under-employed as well as the unemployed. Over the past three months, a spate of hiring pushed new job creation well over the 200,000 level. Upon closer examination, the 120,000 new hires in March are exactly one-half of the February gain. This weaker-than-expected report counterbalances the FOMC’s ‘stronger’ minutes, and underlies the cause of retreating interest rates. While the nation’s unemployment rate slipped to 8.2% for the month, the contraction in the labor force itself accounts for at least a portion of the declining rates.

Economic Indicator - Release Date and Time -Consensus Estimate - Analysis

Bureau of Labor/PPI
April 16, 2012, 8:30 a.m. EST
Unchanged at 0.4 percent, but up from 0.1 January 2012
Moderately Important. Increase is holding steady which can help
Business Outlook Survey
April 19, 2012, 12pm EST
Up 2.3 from 10.2 in February 2012 to 12.5 in March
Important.With moderate price pressures, positive future movement is suggested.
Durable Goods Report
April 20, 2012, 8:30 a.m. EST
2.2 percent increase, following the 3.6 percent January decrease
Moderately Important. Increase is offset by prior decrease
S & P/Case Shiller Home Price Index
April 24, 2012, 9:00 a.m. EST
+0.2% positive annual growth in Denver
Moderately Important.Regional growth is tempered by national market condition decreases

Regional Growth Leading Recovery

Looking at the S&P/Case Shiller home price index, there are not enough signs to completely guarantee that prices have stopped their descent which began in 2006. The main overlying positive sign in median housing prices is that prices are not descending as rapidly compared to the last few years. The index itself is still down by more than 30 percent.

That covers the national outlook. The regional outlook, particularly for Denver, is a little bit rosier. Many residential developers, realtors, investors, and mortgage lenders are busy in some areas of the country; Denver being one of them.

There are still issues with the national foreclosure settlement between the major mortgage lenders, the state attorney generals, and the federal government. It remains uncertain how the market itself will behave once the five banks involved begin to write-down principal mortgage amounts of underwater properties. Analysts point out that it could stem the pace of foreclosures or enlarge the REO portfolios of these lending entities.

The only certainty for 2012, is that the housing recovery will be seen on a regional level, rather than national. Fortunately, for the Denver housing market, that is good news as it is one of the regions which is showing positive momentum and the beginnings of growth.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.

See what's for sale on Sanibel & Captiva Islands www.SanibelHomeSeeker.com

Tuesday, April 10, 2012

Keeping you updated on the market! For the week of April 9, 2012


Just as anticipated, mortgage rates have settled back a bit after its recent upward movement of fifteen basis points over the last two weeks. Widespread upward economic movement fostered the rise, but a more realistic approach to the economy’s forward momentum seems to be creeping back in.

Rates have bumped off a little from their historic bottoms of February, but the modest movement should not create any additional disturbance or turbulence for the housing market. Even in the worst-case scenario, the eighth percentage point increase in a loan’s interest rate is probably not enough to ruin most deals. Especially since that slight increase could be ‘brought down’ through the payment of approximately a half-point fee, perhaps less.

It should be no surprise to anyone who has applied for a loan recently that banks are being much more careful. A new repost indicates just how tight conditions have become – and how even borrowers with favorable credit profiles are being denied. Loans closed by banks and mortgage lenders in February had borrowers with an average credit score of 750; this average is up from 740 six months earlier, and an average loan-to-value ratio of 76%, with the average denied loan having a credit score of 699 and a loan-to-value ratio of 83%.

While there is no hard downshift in economic activity, research shows that essentially, with the new spring housing season approaching, we are in the same boat, just with more favorable mortgage rates. An accumulation of February data and early data available for March suggests that activity is stabilizing with a softer trend beginning. Federal Chairman Bernanke’s reassurance about the direction of interest rates doesn’t hurt either, in terms of tri mm ing any upward pressure for current rates.

Recent weekly data is reinforcing the notion that a cooler economic climate is in formation. Claims for new unemployment benefits moved downward in January to a rate which is the lowest it has been in 4 years. However, the unemployment benefits rate does not incorporate in statistics about workers who are under-employed. Approximately 9.3 million workers are considered underemployed as defined by the Bureau of Labor Statistics. That number is up from just over 8 million in July 2011, but down from a peak of approximately 9.5 million in September 2010. Overall, employment gains for March will be no better nor no worse than February.

Economic Indicator - Release Date and Time - Consensus Estimate - Analysis

Consumer Price Index
Monday April 12, 8:30 a.m. EST
Remains at 0.4 level
Important. Over the last 12 months, there has been a 2.9% increase.
Retail Sales Report
Tuesday April 13, 8:30 a.m. EST
1.1% increase over previous and 6.5% up from February 2011
Important. Only one area down from February 2011 rates.
Industial Production
Friday April 16, 9:15 a.m. EST
Holding steady at 0.4 rise
Moderately Important.Misc. goods and home electronics contribute greatly.
Housing Starts
Saturday April 17, 8:30a.m. EST
1.1% down from previous but 2.9% over February 2011
Moderately Important. Statistical analysis shows starts are for projects on existing homes.

Stability Increasing
It will be another month before anyone can take a look at the Gross Domestic Product for quarter one of 2012. Current information reveals that the last quarter of 2011 held a 3% clip for GDP , but the early indicators are revealing that there is a slight slippage from that pace. The economy’s ability to expand or grow, without kicking off inflation is thought to be around 2.8% GDP . However, as Chairman Bernanke points out, there needs to be considerably stronger growth for at least a little while, if the unemployment rate is to decline significantly.

According to the Chicago Federal Reserve National Activity Index – (an economic gauge which uses some 85 indicators to determine if the economy is growing faster or slower than its ‘potential’) – came in at a diminutive negative -0.09 for February 2012; down from a relatively brisk +33 in January. With the use of these figures, this puts GDP growth just shy of 2.8% for the month.

In February, orders for durable goods moved to 2.2% higher. This positive news was a tad below economic expectations, and was not as much of an anticipated recovery from the 3.6% decline in January. However, it is very co mm on to see swings from negative to positive and back again in durable goods ordered, while the current percentage holds its own.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.
To see all homes for sale on Sanibel and Captiva Islands see my website www.SanibelHomeSeeker.com

Tuesday, April 3, 2012

Bill could help short sale sellers in 2013

WASHINGTON – April 2, 2012 – Under U.S. law, a homeowner with an underwater mortgage who goes through a short sale has part of his or her debt forgiven by a bank. The amount forgiven is legally considered income, as if the lender gave the owner a monetary gift by saying, “You no longer have to pay this.”

As a gift, that money is income and taxable by the IRS when the homeowner fills out his yearly income taxes. However, a temporary law effective through Dec. 31, 2012, nixes that amount as homeowner income, making the debt forgiveness tax-free. A short sale in 2012, then, allows a homeowner to walk away free of debt.

As it stands now, that rule expires next year, and underwater homeowners who go through a short sale could be taxed on the amount forgiven.

However, a bipartisan bill introduced late last week by U.S. Senators Debbie Stabenow (D-MI) and Dean Heller (R-NV) – the Mortgage Relief Act – would extend that rule past Dec. 31 if approved by both the House and Senate and signed by President Obama. Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH) and Jeff Merkley (D-OR) cosponsored the legislation.

“It is bad enough that so many families are faced with mortgages that now exceed the value of their home,” says Stabenow. “But to add insult to injury, without this bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”

Stabenow championed the original Mortgage Relief Act of 2007 designed to fix the problem that now expires at the end of 2012.

Stabenow and Heller’s new bill will extend this tax protection for underwater homeowners through 2015.

Approximately, 20 to 25 percent of American homeowners are currently underwater on their mortgages.
© 2012 Florida Realtors®
See whats for sale on Sanibel and Captiva Islands here www.SanibelHomeSeeker.com

Keeping you updated on the market.

April 2, 2012
One week's worth of data does not a trend make. We say that because of renewed concern the housing rally is set to peter out because of a burst of sub-par news.

The news on lower existing and new home sales was disappointing, to be sure, but hardly a foreboding omen. The news on pending home sales, which tracks contract signings for existing homes, wasn't all that bad either. The index was down 0.5% in February, but the index has been up for the most part over the past six months. Sometimes a little perspective is needed.

Pessimism was further heightened by the S&P/Case-Shiller home price index, which showed another price decline. Month-over-month, the average price declined 0.5 percent in January. Year-over-year, the average price is down 3.8 percent.

The fear properties in various stages of foreclosure and delinquency will continue to roil the market is on the rise. We are not terribly concern though; the attenuating factor being foreclosed and delinquent properties are a well-vetted, well-understood variable. More important, it's an improving variable. Data from CoreLogic show that faster REO-clearing rates and improving employment and low mortgage lending rates point to a sustained housing-market recovery.

In our opinion, frustratingly low appraisals and and too-stringent lending standards are more pressing issues for many buyers and sellers. Loosening the tethers on both, and particularly the latter, would go a long way toward keeping the recovery on course.

A strong economy would also go a long way toward sustaining the recovery. The good news is the economy continues to grow. The final number on gross domestic product shows that the economy grew 3.0 percent in the fourth quarter of 2011. This latest reported quarter was much stronger than the 1.8 percent growth reported in the third quarter of 2011.

The employment data support the notion the economy is growing. Yes, we are aware that Federal Reserve Chairman Ben Bernanke recently warned that improvements in the labor market may not be sustained, but we think otherwise nonetheless: Job creation has accelerated in recent months. Concurrently, jobless claims have decelerated. In fact, the latest report on weekly jobless claims shows the four-week moving average falling to its lowest level in four years.

Of course, the state of the economy always impacts credit markets. Interest rates dropped this past week when Bernanke stated he thought the economy has yet to reach full-recovery mode. Investors equivocated and money moved from stocks and co mm odities into U.S. Treasury securities. The mortgage market responded in kind, and we saw lending rates drop five to 10 basis points across most offerings.

We can't say for sure how long rates will stay down. We've seen a marked increase in volatility in lending rates in March. We think volatility will remain high going forward, which is why we feel impelled to say that the risk of waiting for lower lending rates outweighs the benefit of substantially lower lending rates materializing.

Economic Indicator, Release Date and Time, Consensus Estimate, Analysis

Construction Spending(February)
Mon, April 2,10:00 am , et
Important. Gains in residential real estate construction is driving spending gains.
Mortgage Applications
Wed., April 4,7:00 am , et
Important. The positive trend in purchase applications is a positive sign for home sales.
Employment Situation(March)
Fri. April 6,8:30 am , et
Unemployment Rate: 8.2%Payrolls: 235,000 (Increase)
Very Important. Another month of strong job growth will pressure interest rates to move higher.
Consumer Credit(February)
Fri., April 6,3:00 pm , et
$15 Billion (Increase)
Important. Rising credit use reflects increased confidence and economic growth.

The Most Persuasive Sign its Time to Lock and Load

Economist Hyman Minsky is the author of a persuasive short monograph titled “The Financial Instability Hypothesis.” Minsky basically states that the longer a market appears stable, the less stable it actually is because of excessive speculation and leveraging of that market.
We've been in a 31-year bull market in U.S. Treasury securities. That is, long-term real yields – yields adjusted for inflation – have been trending down since the early 1980s. A recent analysis by Credit Suisse shows that real rates on long-term Treasury securities are down to 50 basis points, or 0.5%.
Such a low rate doesn't compensate for opportunity cost and time value. In fact, the real interest rate is so low today, even the early 1900s can't boast of such low rates.

We've been in a very long bull market in bonds. Long sustained trends tend to lull participants into complacency. In turn, complacency tends to ratchet up the use of leverage. We don't know how much leverage there is behind this lending market, but we suspect more than there was 30 years ago Carry trade – borrowing short term to buy long-term credit instruments – has been a very lucrative, easy-money trade over the past decade.

The point is, 31 years is a long time, record lows don't last forever, and neither does easy money. If Minsky's hypothesis holds, the odds interest rates could rise in the near future is much higher than many borrowers think.

Article courtesy of Patti Wilson, Senior Loan officer, Mutual of Omaha Bank
See everything for sale on Sanibel & Captiva Islands www.SanibelHomeSeeker.com