The Aftermath

We knew all along that this week we would be writing about the aftermath of the elections. What we did not know is that we would also be writing this week about the aftermath of Hurricane Sandy and the devastation it brought to the Atlantic coast. The devastation of this super storm reminds us that we are powerless when it comes to defending ourselves from Mother Nature as well as being able to predict what will happen in the future. You can hire all the high-powered economists available — nothing they can predict takes into account the unknown events that seem to hit us every year. For example, in a year when we thought that the markets would be deluged with foreclosures and vacant homes, who would have guessed that a major population area such as New York City would be facing a dour housing shortage? Yes, the storm will have devastating financial effects upon businesses and individuals in the short-run, but there will also be a rebound in construction as homes need to be rebuilt.

Many who are pined about “excess housing inventory” in the past several years seemed to forget that we have not been building enough houses to replace houses that become obsolete each year and keep up with demand. Similarly, the election will have mixed effects upon the economy. The fourth quarter will be the recipient of billions of dollars in campaign spending, a significant stimulus. Plus, a major uncertainty has been lifted. But what remains is figuring out whether Congress will remain deadlocked on many issues, starting with the budget negotiations which start even before the new Congress is sworn in. Since we can’t protect ourselves from the uncertainty of Mother Nature, it would be nice if we started removing the man-made uncertainties from the economy. On paper, Congress still looks deadlocked. In reality we hope that Congress comes together for the good of us all.

The Markets. Rates were stable near record lows this past week. Freddie Mac announced that for the week ending November 8, 30-year fixed rates rose slightly from 3.39% to 3.40%. The average for 15-year loans decreased slightly to 2.69%. Adjustable rates also stable with the average for one-year adjustables increasing to 2.59% and five-year adjustables dipping to 2.73%. A year ago 30-year fixed rates were at 3.99%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates remained near record lows following the employment report for October. The economy added 171,000 jobs, above the market consensus forecast, and the two prior months were revised up a combined 84,000. The Labor Department also reported that the unemployment rate ticked up to 7.9 percent and that average hourly wages were unchanged.” 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 9, 2012

	Daily   Value	Monthly   Value
	Nov   8	October
6-month   Treasury Security	0.15%	0.15%
1-year   Treasury Security	0.20%	0.18%
3-year   Treasury Security	0.35%	0.37%
5-year   Treasury Security	0.65%	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)
Prime   Rate		3.25%

 Another sign economic recovery: The home ownership rate is no longer falling. It remained unchanged from the previous quarter, standing at 65.5 percent in the third quarter, the Commerce Department reported. A year ago, the home ownership rate stood at 66.3 percent. The home ownership rate is still far from its 70 percent peak during the housing boom. The rate started to drop soon after as the number of foreclosures began to soar, yet foreclosures are starting to slow. The Commerce Department reported in late October that the home owner vacancy rate dropped to 1.9 percent in the third quarter — the lowest rate recorded. “Some industry watchers expect the home ownership rate to increase again as consumers take advantage of depressed housing prices — down by a third or more nationwide — and interest rates that have made owning a home cheaper than renting in many markets,” The Wall Street Journal reports. Source: The Wall Street Journal

The Department of Veterans Affairs announced it has reached a major milestone: It has guaranteed 20 million home loans since launching its loan program in 1944. “The 20 millionth VA home loan is a major milestone and is a testament to VA’s commitment to support and enhance the lives of Veterans, Service members, their families and survivors,” says Allison A. Hickey, VA’s undersecretary for Benefits. “As a result of their service and sacrifice, as a group, they prove to be disciplined, reliable, and honorable—traits that are ideal for this kind of national investment.” VA loans, which tend to boast low financing costs for home ownership, are available for eligible veterans, service members, and surviving spouses. The VA program has continued to grow, particularly in the last five years, due to its low interest rates. Loans for purchases have jumped 71 percent and loans for refinancings are up 20 times in that period. The Department of Veterans Affairs boasts the lowest foreclosure rate for the past 17 quarters. It also has had the lowest delinquency rate for the past 14 quarters on its loans, according to the Mortgage Bankers Association. Source: The Department of Veteran’s Affairs

Foreclosures continue to fall as the number of short sales inch up, according to CoreLogic’s National Foreclosure Report for September. “The continuing downward trend in foreclosures along with a gradual clearing of the shadow inventory are signs of stabilization and improvement in the housing market,” says Anand Nallathambi, president and CEO of CoreLogic. “Increasingly improving market conditions and industry and government policy are allowing distressed home owners to pursue refinancing, loan modifications, or short sales rather than foreclosures.” CoreLogic reports that 57,000 foreclosures were completed in September, down from 83,000 in September 2011. Still, from 2000 and 2006, foreclosures for a more balanced market averaged about 21,000 per month — so today’s numbers still remain elevated. Homes lost to foreclosure in September are down about 50 percent since peaking September 2010. Foreclosures are also down 22 percent compared to the beginning of the year, says Mark Fleming, CoreLogic’s chief economist. “While there is significant progress to be made before returning to pre-crisis levels, the trend is in the right direction as short sales, up 27 percent year over year in August, continue to gain popularity,” Fleming notes. Source: Core Logic