It is Thanksgiving week and traditionally we are spending time this week counting our blessings. We will focus upon economic blessings rather that the many personal favorites we could recite — for example, the fact that we will not be barraged by political ads this month. So, what do we have to be thankful for economically in a year that our painful recovery from the financial crisis recovers? The fact that recovery continues itself is a positive we can point to. Look at Europe and you can see the majority of an entire continent slip back into recession. On our side we are seeing positive signs. CNN reports that the hiring of public school teachers hit its highest level in six years. The importance of this number is we know that state and local spending has been a drag on the economy for the past several years. The tide is turning.
Meanwhile, The Wall Street Journal recently reported that new household formulation is also the highest it has been for six years. The children are finally moving out! A coincidence? We think not. These new households will increase demand for rentals and home purchases for years to come, which will increase the tax base of state and local governments. As we found out, an economic recovery without real estate demand will be weak. Add real estate demand and the recovery will get stronger. The elements are in place. In addition, we would like to thank Congress and the President in advance for not throwing a wrench into our plans for a better 2013 by coming up with an agreement that will avoid the fiscal cliff. That would be the icing on the carrot cake for our Thanksgiving plans.
The Markets. Rates hit another record low last week. Freddie Mac announced that for the week ending November 15, 30-year fixed rates fell from 3.40% to 3.34%. The average for 15-year loans decreased to 2.65%. Adjustable rates were mixed with the average for one-year adjustables decreasing to 2.55% and five-year adjustables increasing slightly to 2.74%. A year ago 30-year fixed rates were at 4.00%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Fixed rates on home loans eased this week to record lows on indicators of higher consumer confidence and lower wholesale prices. Consumer sentiment rose in November to the highest reading since July 2007 according to the University of Michigan. Meanwhile, the core producer price index fell 0.2 percent in October.” Editorial note: We hate to contradict Freddie Mac, but we are thinking that it was the concern over the budget negotiations (the fiscal cliff) and regarding how the damage from Sandy might affect the economy which pushed rates down–not strong consumer confidence. 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 16, 2012
|Daily Value||Monthly Value|
|6-month Treasury Security||0.14%||0.15%|
|1-year Treasury Security||0.17%||0.18%|
|3-year Treasury Security||0.32%||0.37%|
|5-year Treasury Security||0.62%||0.71%|
|10-year Treasury Security||1.58%||1.75%|
|12-month LIBOR||0.924% (Oct)|
|12-month MTA||0.166% (Oct)|
|11th District Cost of Funds||1.038% (Sept)|
Americans are setting up house at the fastest rate in more than six years, an indication that recession anxiety, which prompted adult children to move in with their parents and single people to postpone marriage, is starting to ease. The nation added 1.15 million households in the 12 months that ended in September, according to the most recent Census Bureau data. That is a significant rise from the past four years when an average of 650,000 households were formed annually. While what economists call “household formation” is running a little lower than the average 1.25 million added annually during the boom years, the latest data nevertheless represent an important shift. Rising household formation, which is tied to employment growth, means more students are finding jobs when they leave college, more adult children are leaving their parents’ homes and more couples feel confident enough about the future to tie the knot. It could also mean that immigration is picking up. “During the recession, a lot of those major life events like marriage, children and migration were put on hold,” said Kenneth Johnson, a senior demographer at the University of New Hampshire’s Carsey Institute. “It may be that there are couples who are thinking about living together, and they’re thinking, ‘The jobs picture is getting better. It’s time to make the next step.’ ” Source: The Wall Street Journal
While the number of short sales has surged in recent years, closing on such transactions still poses plenty of challenges along the way that can threaten to derail the deal. Negotiations remain a sticking point in these transactions because sellers can agree to any amount on a home sale but it’s the lender who ultimately has the final say. Compounding the issue, many lenders also are still reluctant to even discuss a short sale with a seller until a purchase contract is in place. “That means the buyer who makes the first offer is a guinea pig, because nobody knows whether the lender will even accept a short-sale offer,” the Los Angeles Times reports. Sometimes short sales are listed at a “ridiculously low price” to start getting offers in and to begin the negotiations with the lender, according to the National Association of Exclusive Buyer Agents. Another big hurdle agents report with short sales is that once lenders do approve a short sale, they tend to require it to close within a short time frame. But that short time may not provide enough time to the buyer to have the home examined by a home inspector. Some buyers, therefore, may opt to have an inspection done on the home prior to a lender’s approval of the short sale. However, if the lender rejects the offer, the buyer could lose the money they paid for any inspections. Buyers also could lose the upfront money they spent on credit reports, application fees, and the appraisal if the lender later drops out of the deal. Source: Los Angeles Times
Fifty percent of Americans recently surveyed say they expect home rental prices to rise in the next year, and it’s making them lean more toward home ownership, according to the Fannie Mae October National Housing Survey, which surveyed 1,000 Americans. “This has been a year of steady growth in the percentage of consumers with positive home price expectations,” says Doug Duncan, Fannie Mae’s senior vice president and chief economist. “Increasing household formation, encouraged by an improving labor market, is adding additional momentum to the housing recovery and putting upward pressure on rental price expectations. Expected increases in both owning and renting costs may encourage more consumers to buy and add further strength to the housing recovery already under way.” Rental price expectations continue to rise and are much higher than home price expectations, according to Fannie Mae. More Americans say that with rising rents, home ownership is looking like a better option. Seventy-two percent of those surveyed say that now is a good time to purchase a home. Eighteen percent say it’s a good time to sell. Still, the optimism over the direction of the housing market is met with some caution and predictions of a slow recovery–not a high speed one, according to Fannie. Source: Fannie Mae