A Lesson To Be Learned

interest-rate-increase-dreamstime_9702982-300x240Whipsaws and whiplash. We all know what the term whiplash means when someone gets into a car accident. When we hear the term, we envision a painful neck injury and maybe a neck brace. This term is also often used with the term “whipsaw” when observing the markets. A whipsaw occurs when the market moves erratically in several directions. And if you follow that market, you can get economic whiplash. Now the stock market has not been that erratic as it has steadily moved upward this year with a few days of retrenchment here and there. However, the bond market has been a bit more schizophrenic in its personality this year. For the past few years, the bond market has been a safe haven from volatile markets. The Federal Reserve Board pushed rates down and the struggling economy kept them down.

Anyone who purchased or refinanced a home or bought a car has seen the benefit of low rates in the past few years. And those who put their money into bonds have seen a good steady return for the most part. At the beginning of this year, it appeared that the economy was going to start to roll. Rates then made their first move upward in the past several months. Then came some headlines in Cyprus, the Boston bombing and some weaker economic reports. Rates edged back down to near historic levels. The stronger-than-expected employment report caused rates to move up in short order. That is a lot of movement for a market which still features historically near record lows. On the other hand, it is a lesson to be learned. When rates decide to move upward, there is nothing the Fed can do about it. And we will get no warning.
The Markets. Rates edged up again for the second straight week. Freddie Mac announced that for the week ending May 16, 30-year fixed rates rose from 3.42% to 3.51%. The average for 15-year loans increased to 2.69%. Adjustable rates were also higher, with the average for one-year adjustables rising to 2.55% and five-year adjustables climbing to 2.62%. A year ago 30-year fixed rates were at 3.79%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans followed U.S. Treasury bond yields higher this week on signs of stronger consumer spending. Advanced retail sales rose 0.1 percent in April, above the market forecast consensus of a 0.3 percent decline. Excluding such items as automobiles and gasoline, sales were up 0.5 percent for the second time in three months. Households are also shoring up their balance sheets. Total household debt fell by about $110 billion in the first quarter.” 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 May 17, 2013

  Daily   Value Monthly   Value
  May   16 April
6-month   Treasury Security 0.08%  0.09%
1-year   Treasury Security 0.12%  0.12%
3-year   Treasury Security 0.37%  0.34%
5-year   Treasury Security 0.79%  0.71%
10-year   Treasury Security 1.87% 1.76%
12-month   LIBOR    0.717%   (Apr)
12-month   MTA    0.169%   (Apr)
11th   District Cost of Funds    0.967%   (Mar)
Prime   Rate    3.25%

Homeowners will see increases in the rates they pay for flood insurance soon with owners of vacation homes seeing the biggest jump. Though floods can bring walls of water 20 feet high, even a few inches of water can cause thousands of dollars in damage. Between 2007 and 2011, the average flood claim fielded by the National Flood Insurance Program was nearly $30,000. The cost of the typical flood policy is about $625 a year. According to the Federal Emergency Management Agency, which operates the flood insurance program, flooding occurs practically every day, practically everywhere. And it is costly, racking up $2.9 billion in losses between 2002 and 2011. Flooding is the nation’s most common natural disaster. About 90% of all disasters in the U.S. involve flooding, and flash floods happen in all 50 states. In areas prone to flooding, there is a 26% chance a homeowner will be hit by a flood of some kind at least once during the life of a 30-year loan. And flood damage can just as easily result from overburdened or clogged drainage systems and drainage from new development as from major storms. “New roads and housing developments reduce the land’s natural ability to absorb water,” says The Woodlands, Texas, insurance agent Gordy Bunch. “Runoff can multiply as much as six times when the land is paved over.” Just because a house lies in the 100-year flood plain doesn’t mean it is safe for the next so many years, either. That’s a common misconception that lulls people into a false sense of security, says Bunch. “The 100-year flood plain simply means your home or business has a 1% chance of flooding every year,” the insurance pro says, “not once in every 100 years.” Another common misunderstanding about flood coverage, particularly among new homeowners, is that standard homeowner policies cover homes for flood damage. They do not. So if their home is damaged by a hurricane, tropical storm or even heavy rains, they are not covered unless they have a separate flood policy. Every inch of the country is mapped into one of two risk-based flood zones. By law, federally regulated and insured lenders must require flood coverage on properties in high-risk areas, where there’s a 1% or greater chance of flooding in any given year. Lenders must tell you whether the property is in a high- or low-risk area. Lenders typically do not require coverage on properties in low- to moderate-risk areas. But coverage is still recommended; one-in-five claims come from folks outside a high-risk zone. Fortunately, everyone—even renters and business owners—can buy a flood policy. The lone caveat is that the property must be in a community that participates in the NFIP, which Congress created in 1968 to fill a void in coverage that most private companies would not offer. About 20,000 communities participate. Source: National Mortgage Servicing News

To have a high credit score, individuals tend to keep revolving balances low to their available credit, not max out credit cards, and consistently make payments on time, according to the company behind the FICO credit score. FICO recently released findings from a study about the habits and behaviors of those who have the highest credit scores — 785 or greater. These high-credit scorers tend to qualify for the best rates on home loans, saving thousands of dollars over the life of a loan. Nationwide, 25 percent — or 50 million people — are considered “high achievers” with their credit scores. “High achievers” tend to exhibit some of the following behaviors, according to FICO:

  • 96 percent have no      missed payments on their credit report. For any who have a missed payment,      it occurred, on average, about four years ago. (Payment history makes up      35 percent of a person’s credit score.)
  • They tend to have a      well-established credit history and rarely open up new accounts. On      average, the oldest credit account was opened 25 years ago. Overall,      according to FICO, these “high achievers” tend to have credit accounts      that are at least 11 years old.
  • They’re not always      debt-free: They average about seven credit cards, including both open and      closed accounts, and have an average of four credit cards or loans with      balances. One-third of “high achievers” have balances of more than $8,500      on non-mortgage accounts. The remaining two-thirds have total balances of      less than $8,500.
  • About 1 in 100 have a      collection listed on their credit report. What’s more, 1 in 9,000 has      experienced tax liens or even a bankruptcy.

“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” says Anthony Sprauve, credit score advisor for myFICO. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.” Source: FICO

Home improvement spending is expected to grow as the year progresses, according to data released by the Joint Center for Housing Studies of Harvard University. And such a jump is not unusual, considering spending in the segment grew 10% last year alone. “Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country,” says Eric S. Belsky, managing director of the Joint Center. “This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes.” Kermit Baker, director of the Remodeling Futures Program at the Joint Center, believes growth in real estate sales and prices is starting to put pressure on the current capacity of the home improvement industry. “Contractors and subcontractors are having more difficulty finding skilled labor, and building materials costs are unusually volatile for this stage of a recovery,” notes Baker. Source: HousingWire

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