Not So Fast

Not-so-fastThe Dow hit 14,000 at the beginning of February. Interest rates and oil prices have been creeping up. We have survived the fiscal cliff peril with a minimum of damage. Seems like everyone wants to declare the bad times are behind us and we don’t blame them because the economy certainly has struggled long enough. And we agree the prospects are brighter than we have seen for some time. However, we also would like to say — not so fast. There are still some really large obstacles to overcome. What are they?
For one, unemployment still hovers just under 8.0%. Many more have given up looking for work. While the job market is better than it was, it is still not strong by historical standards. Also, Europe is still squarely in recession. It will take a long time for Europe to climb out of their funk. Finally, regardless of how the budget negotiations come out, expect Federal spending to fall precipitously this year. Taken together, these obstacles are pretty significant. We are not saying that the recovery will screech to a halt. We are saying that there is every reason to believe that the economy will get stronger but will not overheat. That is good news in some respects because there is a chance that rates will not continue to spike in anticipation of a stronger economy. Keep in mind though rates are up they are still at historic lows and that means borrowing money for purchasing homes, cars or financing home improvements is still very inexpensive. For now.

The Markets. Rates were stable or lower in the past week. Freddie Mac announced that for the week ending February 7, 30-year fixed rates remained at 3.53%. The average for 15-year loans decreased to 2.77%. Adjustable rates also fell, with the average for one-year adjustables falling 2.53% and five-year adjustables decreasing to 2.63%. A year ago 30-year fixed rates were at 3.87%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates were either unchanged or lower this week following a mostly positive employment data report for January. In January, the economy gained 157,000 new jobs and revisions to November and December added another 127,000 workers. On top of that, the annual benchmark update showed payrolls grew by an additional 424,000 jobs between April 2011 and March 2012. The only downside to the report was that the unemployment rate ticked up from 7.8 to 7.9 percent in January, which is still historically high.” 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 February 8, 2013
Daily Value Monthly Value
Feb 7 January
6-month Treasury Security 0.11% 0.11%
1-year Treasury Security 0.15% 0.15%
3-year Treasury Security 0.39% 0.39%
5-year Treasury Security 0.83% 0.81%
10-year Treasury Security 1.99% 1.91%
12-month LIBOR 0.818% (Jan)
12-month MTA 0.178% (Jan)
11th District Cost of Funds 1.071% (Dec)
Prime Rate 3.25%

Breaking News. April 1. That is the date set by FHA to raise mortgage insurance premiums again. If you are thinking about purchasing a home, moving now would make sense with rates rising and FHA set to raise premiums. FHA is also increasing down payment requirements for certain loans. It would also be wise to see if you qualify for low downpayment alternative for FHA financing. If you would like more information, please contact us.
The U.S. headed into 2013 with prices on a rebound due to an 8.3% year-over-year surge in home prices in December, according to data firm CoreLogic. The Irvine, Calif.-based company said December home prices grew the most annually since May of 2006. From November, home prices – including distressed sales – edged down 0.4%. When excluding distressed properties, home prices rose 7.5% over last year in December “December marked 10 consecutive months of year-over-year home price improvements, and the strongest growth since the height of the last housing boom more than six years ago,” said Mark Fleming, chief economist for CoreLogic. “We expect price growth to continue in January as our Pending HPI shows strong year-over-year appreciation.” CoreLogic’s Home Price Index currently suggests home prices will rise 7.9% from last year in January and fall by 1% from December. When excluding distressed sales, January home prices could rise 8.6% from a year ago. Source: HousingWire

The conventional wisdom today around the millennial generation, often defined as having been born between 1980 and 2000, seems to be that they aren’t as interested in owning a home as previous generations. Recent stories in the media go so far as to claim that the dynamic, diverse people in this group prefer the flexibility of renting to the stable, long-term arrangement provided by home ownership. However, this is a misinterpretation of present-day trends, said Dr. Glenn Crellin, a professor at the Runstad Center for Real Estate Studies, University of Washington. D.C. Crellin acknowledged that the home ownership rate among the under-35 population in 2011 was just under 40 percent (compared to the national rate of approximately 65 percent), and that home ownership levels had declined more sharply among those under 35 than among other groups since the housing bubble burst. But he said many in the media were drawing the wrong conclusions from that data. “Recently, headlines showed the general press believed we were entering an era of rentership,” Crellin said. “[As a result], they believe home ownership doesn’t deserve the kind of support it had been given.” But Crellin pointed out that the rate of home ownership for those under 25 today is actually higher than that of the under-25 baby boomers in 1970. Also, a recent poll of Washington State University students that he conducted showed that 48 percent of them expect to buy a home in the next 3-5 years. While the willingness of young people to purchase a home is certainly there, the financial means to do so may not be, Crellin said. The underlying story, then, is not one of shifting mindsets but rather changing economic factors. “[The recession] is probably going to delay purchases, but it’s not the permanent transition that the national press is predicting,” he explained. Source: National Association of Realtors
The number of consumers with sub-prime credit scores is shrinking across the country, according to new data from Equifax. The total number of consumers with Equifax credit scores below 620 fell 2.1 percent, or by about 1 million consumers, in the third quarter of 2012 versus the third quarter of 2011. The overall share of consumers with Equifax credit scores under 620 fell by 0.7 percent (from 25.9 percent to 25.2 percent) during that same period. Credit scores below 620 are considered sub-prime for the purposes of this report. A consumer with an Equifax score below 620 likely will have a harder time securing credit from a bank or other lender and may have to pay a higher interest rate if a loan is secured. “Consumer credit scores are improving in most major metropolitan areas,” said Trey Loughran, president of the Personal Solutions division at Equifax. “The job market is improving and time is starting to heal the wounds of the Great Recession.” “It is nice to see that over one million people across the country have moved out of the below 620 range,” said Loughran. “We are seeing a trend of consumers being careful and disciplined about their use of existing credit while also being cautious about using new accounts they have opened.” Source: National Mortgage Professional Magazine

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