February Views You Can Use

"We will recover...in time, I know we will recover" - Natasha Bedingfield. The economic recovery has been in the works for a while. It's a slow process, but things are looking a little better each month. Last month was no different. But at the same time, we're not quite where we want to be. The articles below explain where the housing market and economy are now...as well as how long the Fed believes the recovery may take:

 Recovery Continues

The economy and the housing market continue to recover...but that recovery is viewed as a marathon, not a sprint. Last month, the Fed reiterated that sentiment. On the one hand, the Fed's Policy Statement that it released after its regularly scheduled meeting was pretty much the same story, including such statements as stable long-term inflation expectations, a tepid economic recovery, and fragile job market. But there was one big exception to their norm. The Policy Statement said there will be "exceptionally low levels for the Federal Funds Rate at least through late 2014." This is a huge change from the previous statements of "low rates until mid-2013."

On the surface, extending the zero interest policy until 2015 tells us the Fed thinks the economy will just be slogging along, and accommodative monetary policy will be required to keep the economy growing at least at a modest pace. One could argue that recent economic data is better of late and that all this loose monetary policy is unnecessary. But the Fed has spoken, and as the old adage goes: "Don't fight the Fed."


The housing market also received a little good news last month. First, Existing Home Sales increased 5% over the previous reading (read more about that report in the article below). Second, the National Association of Home Builders' Housing Market Index (HMI) rose in January to a reading of 25. That was up 4 points from the previous reading and marks the 4th consecutive month of increases. The last time the HMI had a reading of 25 or more was in June 2007.


The bottom line is that the economy and the markets continue to show some signs of improvement, but there's still a way to go. That said, Bonds and home loan rates remain at historic best levels, which means now is still a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

What To Watch: Existing Home Sales

One way to measure the health of the housing market is to monitor the number of houses being sold. And one of the best ways to do that is by keeping an eye on the Existing Home Sales report that's released by the National Association of Realtors.

Why Is It Important? The Existing Home Sales report measures how well pre-owned single-family homes are selling. That data is important because sales of existing (or pre-owned) houses account for roughly 84% of all houses sold. As a result, this report sometimes moves markets and is considered a good gauge of near-term spending for housing-related items.


What's the Trend? The most recent report on Existing Home Sales indicated sales in December 2011 increased 5% over the previous reading. That was the third consecutive month of increases and the second highest reading of 2011. The December level was also 3.6% above December 2010 and, as a whole, Existing Home Sales were up 1.7% from 2010. Total housing inventory dropped 9.2% for December, representing a 6.2-month supply, down from a 7.2-month supply in November.


Where Does the Data Come From? The information is collected by the National Association of Realtors from 650 realtor associations.


When Is It Released? The Existing Home Sales report is scheduled for release on the 25th day of every month (or on the first business day thereafter) by the National Association of Realtors.


I'll be watching this release to see if the trend from the latest report continues...and to see how it impacts the markets. If you have any questions about economic reports and how they impact home loan rates, please call or email me. I'm always happy to explain what's going on and how it impacts the rate you can get based on your unique situation.

Fee Increase To Impact Home Loans

In December 2011, Congress reached a last-minute deal to fund the payroll tax cut extension. The payroll tax extension will provide a 2% tax reduction for individuals making up to $106,800 - so the tax extension will be very helpful for many Americans who are struggling during these tough economic times. But like so many things in our tangled economy, there's a flip side. In this case, the tax cut deal has a rippling effect that will impact the mortgage world.


Here's what's happening and what it means to home loan rates:
What is happening and why? To put it bluntly, the passage of the payroll tax cut extension is being funded via a mandate to Fannie Mae and Freddie Mac (the nation's largest providers of mortgage money) to increase their guarantee fees or "g-fee's" by at least 10 basis points on the rate. So rather than giving a par rate of 4.00%, for example, the par rate is now increased by at least 10 basis points, or approximately 4.10%. But home loan rates are priced and offered in .125% increments, so this will most likely impact consumers by .125% in rate. Whether you agree or not on the politics behind this cost being passed along to folks who are taking out mortgages, the Congressional Budget Office recently estimated that the increase will ultimately pay for about $35.7 Billion of the cost of the payroll tax extension.


What exactly is this "g-fee"? The guarantee fee or "g-fee" is an amount charged by mortgage-backed securities (MBS) providers, like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In other words, it acts a lot like insurance and helps lower the overall risk...which means home loans can be offered at terrific interest rates to borrowers that have good - but not perfect - credit.


What exactly is the impact of the rate increase? For example, for a $200,000 home loan, the increased g-fee (assuming a .125% increase in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front - but most people probably won't do this.


Who will this impact? The change will impact all new borrowers of Fannie Mae and Freddie Mac loans. The bill will also impact Federal Housing Administration (FHA) loans by increasing the annual mortgage insurance premium that borrowers pay by one-tenth of a percent.


When will it start? Officially, the increase to guarantee fees will begin on April 1, 2012. However, the increase is already starting to be seen in rate sheets right now, since home loans being originated now will likely not be closed, pooled and securitized until April...and therefore will need the increased g-fee priced in earlier.


How long will this be in effect? The increase will be effective through October 1, 2021.
The bottom line is that the g-fees will be going up...and this will impact homebuyers looking to obtain a home loan through Fannie Mae, Freddie Mac and FHA.


The good news is that home loan rates are still at historic lows right now, and it's a great time to purchase a new home or refinance. If you or anyone you know has any questions, please call or email!

Q & A: Home Protection?

QUESTION: How can you protect a home from theft?


ANSWER: Recent studies have found that alarm systems are the single most effective way to reduce the risk of burglary. However, studies have also noted that houses near wooded areas or in areas with easy access to highways tend to get targeted more often. If you already live in a house or want to purchase a house that fits that description, don't fear. You'll just want to take extra precautions, such as clearing the bushes and branches away from windows and entrances, as well as installing fake or real security cameras in prominent places so potential thieves will see them. You may even want to start up a neighborhood watch program - it's a great way to get to know your neighbors and to help your entire neighborhood feel safer.


If you have any questions that I can help with at this time, please call or email today. It will only take a few moments to discuss what's going in the markets and how it impacts your unique goals and situation.