Happy New Year

happy-new-year-2013Last week we learned something about American resolve. While Congress did its best to ruin the Holiday cheer, Americans were still busy celebrating. This celebration included purchasing gifts for others and homes for themselves. Aside from the threat of fiscal cliff chaos, Americans are feeling better about the economy and after years of austerity they are spending again. The final numbers for Holiday retail sales are not in and while some are pessimistic that the numbers will be uneven, malls around the country were certainly busy. We understand that we are still a long ways away from a strong economy and there are still potholes we must navigate around in order to keep the recovery marching forward. However, there are plenty of reasons to be optimistic at the start of this new year.
The most important reason to be optimistic is the improving state of the real estate market as existing and new home sales continue to increase. What a difference a year makes in this regard. Last year at this time we were listening to market prognosticators telling us about how long it will take to overcome the shadow inventory hanging over the market. Some said it would be decades before the market recovered. Meanwhile, the population of our country has been increasing for years and we have not been building enough homes to house this population growth. As the economy improves, children are moving out on their own and creating more demand. This demand creates more economic growth. Are we at the start of the virtuous cycle we have been waiting on for years? Time will tell, but we start this new year with more optimism about our chances, regardless of whether our government leaders decide to help our recovery or throw more roadblocks in the way.

The Markets. Rates were again stable in the past week. Freddie Mac announced that for the week ending December 27, 30-year fixed rates fell from 3.37% to 3.35%. The average for 15-year loans was unchanged at 2.65%. Adjustable rates were mixed with the average for one-year adjustables increasing to 2.56% and five-year adjustables decreasing slightly to 2.70%. A year ago 30-year fixed rates were at 3.95%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on residential loans ended this year near record lows. The 30-year fixed-rate averaged 3.66 percent for 2012, the lowest annual average in at least 65 years. Rates on 30-year fixed loans were nearly 0.6 percentage points below that of the beginning of the year, which translates into an interest payment savings of nearly $98,600 over the life of a $200,000 loan. Moreover, opting for a 15-year fixed loan at today’s rates, a homeowner could save an additional $138,400 in interest payments.” 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 December 28, 2012
Daily Value Monthly Value
Dec 27 November
6-month Treasury Security 0.12% 0.14%
1-year Treasury Security 0.15% 0.18%
3-year Treasury Security 0.37% 0.36%
5-year Treasury Security 0.72% 0.67%
10-year Treasury Security 1.74% 1.65%
12-month LIBOR 0.864% (Nov)
12-month MTA 0.172% (Nov)
11th District Cost of Funds 1.011% (Oct)
Prime Rate 3.25%

In an effort to make up for a large budget shortfall, the Federal Housing Administration announced it will publish new standards for certain home owners and replace a popular reverse-mortgage program on Jan. 31, 2013. As among the changes, borrowers with credit scores between 580 and 620 will face stricter underwriting standards. Such borrowers will face stricter limits on their debt-to-income ratio. The FHA also will soon require a minimum down payment of 5 percent for high-cost loans that exceed $625,500. FHA also plans to suspend its popular reverse-mortgage option, which allows those 62 years and older to take cash out of their homes in a big, upfront payment, The Wall Street Journal reports. FHA will be replacing it with the Home Equity Conversion Mortgage saver, which offers lower cash payments than the large upfront payment of the other program. The changes are part of an effort to make up for a $16.3 billion deficit FHA faces. The FHA reverse program alone accounts for $2.8 billion of those losses. Last month, the FHA also announced it would increase insurance premiums. Source: The Wall Street Journal Those who act quickly can beat the timing of these FHA changes. Contact us for information on getting the process started and find out if there are alternatives that will help you purchase or refinance without using the FHA program.

Home values have now increased every month for more than a year, rising 0.6 percent from October to November to a Zillow Home Value Index of $156,200, according to the November Zillow Real Estate Market Reports. Home values were up 5.2 percent compared with last November, the largest annual gain since August 2006, when home values rose 6 percent year over year. The monthly increase is the 13th in a row for national home values. The last time home values stood at $156,200 was May 2004. Of the nation’s 30 largest metro areas covered by Zillow, 25 experienced monthly home value gains. National rents were largely flat month over month, falling 0.1 percent to a Zillow Rent Index of $1,278. Year over year, rents nationwide were up 4.5 percent and rose on an annual basis in 27 of the 30 largest metros surveyed. “The housing market recovery we’ve been experiencing throughout 2012 should continue on its own momentum into 2013,” said Zillow Chief Economist Dr. Stan Humphries. “Tight inventory, courtesy of negative equity, is running headlong into high demand driven by historic affordability and renewed consumer and investor interest. This is helping home values rise in a majority of metro areas nationwide. Looking forward, we expect this dynamic to continue, with the welcome result being more underwater borrowers released from negative equity as home values rise.” Source: National Mortgage Professional
With low rates and fallen home values, some housing analysts are questioning why more first-time buyers—particularly the younger generation—aren’t flooding to the market. As a recent Reuters article questions: Could they be missing out on the “sweet spot” of the housing market by delaying their home purchases? The desire to buy is certainly there. Ninety-three percent of renters in the millennial generation say they plan to buy a home in the future, according to a poll by Trulia. But the number of first-time home buyers remains constrained: One in three home buyers are first-timers, the article notes. “Maybe that’s because some millennials—generally those now in their 20s to early 30s—don’t have the jobs that qualify them for loans or because they are taking time to accumulate down payments,” writes Linda Stern, a Reuters columnist. Whatever the case, they may still have some time to cash in, particularly as long as financing a home purchase remains so low. The Fed announced it is keeping rates low until the unemployment rate drops below 6.5 percent, which the Fed doesn’t expect to happen until 2015. Real estate and finance professionals may be able to help the younger generation work toward their goal of home ownership in the meantime too. For example, as the Reuters article points out, those looking to buy soon should take several steps to home ownership, such as working to improve and protect their credit score. “If your score is anything less than 740, find out how you can raise it — paying down a credit card balance, putting more time between you and your last late fee,” Stern writes. Young adults who are aspiring for home ownership also should start tightening up their wallets and saving for a down payment and closing costs. Also, they should learn about home loans available from the Federal Housing Administration, which offers loan products with low down payments that are popular among first-time home buyers. Source: Reuters

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