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.
Friday April 16, 9:15 a.m. EST
Holding steady at 0.4 rise
Moderately Important.Misc. goods and home electronics contribute greatly.
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.
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.
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