Friday, July 30, 2010
Sunday, May 2, 2010
Thursday, February 28, 2008
Keeping you updated Week of Feb 25, 2008
Keeping you updatedon the market! For the week of February 25, 2008
MARKET RECAP
The interest-rate party was fun while it lasted, but it appears to be over – at least for awhile. Depending who you ask and when you asked him, the 30-year fixed-rate prime conforming mortgage spiked as much as 41 basis points (according to Bankrate), or as little as 32 basis points (according to Freddie Mac). Either way, the 30-year benchmark is well above levels this time last week, and even this time last year, exceeding 6.4% in some markets.
The punchbowl was swiftly removed because of a rising threat of inflation. The Labor Department reported that consumer prices jumped 0.4% in January and are up 4.3% in the past 12 months, nearing a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3%.
The same day inflation reared its ugly head, the Federal Reserve disclosed that it reduced its forecast for economic growth this year to between 1.3% to 2%, half a percentage point below the level of its previous forecast offered in October. Fed officials blamed the decelerating outlook on slumping housing prices, tighter lending standards and higher oil prices.
Somewhat remarkably, housing eschewed its familiar role as red-headed economic stepchild. For the second straight month, homebuilder confidence rose, according to the National Association of Home Builders and Wells Fargo index of builder sentiment. The index increased to 20 in February, up from 19 in January. Disaggregating the index, sentiment increased to 24 in the Northeast, 15 in the West, 24 in the South and remained at 16 in the Midwest.
Perhaps the increased confidence resulted from an unexpected increase in new home sales, which inched ahead 0.8% to an annual rate of 1.01 million homes in January, and the fact that traffic in model homes picked up in January, according to the NAHB.
Economic Indicator Analysis
Existing Home Sales(January)
Mon. Feb. 25,10:00 am, et
4.82 Million (Annual Rate)
Important. The downtrend continues, but is showing signs of easing.
Producer Price Index(January)
Tues. Feb. 26,8:30 am, et
All Goods: 0.4% (Increase)Core: 0.3% (Increase)
Very Important. More evidence of inflation could send interest rates higher.
Consumer Confidence(February)
Tues. Feb. 26,10:00 am, et
85 Index
Moderately Important. Higher energy prices are tempering consumer optimism.
Mortgage Applications
Wed. Feb. 27,7:00 am, et
None
Important. Applications are falling on rising rates and a slowing economy.
Durable Goods Orders(January)
Wed. Feb. 27,8:30 am, et
1.5% (Decrease)
Important. Consumers are showing signs of cutting back on big-ticket purchases.
New Home Sales (January)
Wed. Feb. 27,10:00 am, et
604,000 (Annual Rate)
Important. Sales are expected to hold above December's multi-year low.
Gross Domestic Product(4th Quarter 2007)
Thurs. Feb. 28,8:30 am, et
0.6% (Annual Rate)
Very Important. A lower-than-expected GDP growth rate could send markets into a tailspin.
Personal Income & Expenditures(January)
Fri. Feb. 29,8:30 am, et
Income: 0.2% (Increase)Expenditures: 0.1% (Increase)
Important. Consumers are tightening their purse strings in response to heightened economic concerns.
THAT '70S SHOW
The 1970s was known for more than just bad haircuts, polyester suits and unreliable automobiles; it was also deemed a prolonged period of economic morass. Those of us with long memories remember “stagflation” – a word coined by the Brits to define the years from 1970 to 1981, a period marked by 15% annual inflation rates, three recessions and unemployment approaching 10%.
The word “stagflation” is reappearing in contemporary vernacular. Some pundits are lamenting that 2008 is beginning to resemble 1978. There are similarities, to be sure: namely rising oil and commodity prices and easing productivity growth rates. But that's as far as the resemblance goes. Today's circumstances are far different: the inflation rate is much lower, unemployment is only 4.9% and the Fed is much more aggressive at cutting inflation off at the knees.
How much more aggressive the Fed will need to get will depend on this week's producer price index. Credit markets were caught off guard by last week's rise in consumer prices. If producer prices negatively surprise as well, we could see the Fed do a 180 on interest rate cuts, which would make a 6.4% 30-year fixed-rate mortgage seem like a bargain, at least into the relevant future.
MARKET RECAP
The interest-rate party was fun while it lasted, but it appears to be over – at least for awhile. Depending who you ask and when you asked him, the 30-year fixed-rate prime conforming mortgage spiked as much as 41 basis points (according to Bankrate), or as little as 32 basis points (according to Freddie Mac). Either way, the 30-year benchmark is well above levels this time last week, and even this time last year, exceeding 6.4% in some markets.
The punchbowl was swiftly removed because of a rising threat of inflation. The Labor Department reported that consumer prices jumped 0.4% in January and are up 4.3% in the past 12 months, nearing a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3%.
The same day inflation reared its ugly head, the Federal Reserve disclosed that it reduced its forecast for economic growth this year to between 1.3% to 2%, half a percentage point below the level of its previous forecast offered in October. Fed officials blamed the decelerating outlook on slumping housing prices, tighter lending standards and higher oil prices.
Somewhat remarkably, housing eschewed its familiar role as red-headed economic stepchild. For the second straight month, homebuilder confidence rose, according to the National Association of Home Builders and Wells Fargo index of builder sentiment. The index increased to 20 in February, up from 19 in January. Disaggregating the index, sentiment increased to 24 in the Northeast, 15 in the West, 24 in the South and remained at 16 in the Midwest.
Perhaps the increased confidence resulted from an unexpected increase in new home sales, which inched ahead 0.8% to an annual rate of 1.01 million homes in January, and the fact that traffic in model homes picked up in January, according to the NAHB.
Economic Indicator Analysis
Existing Home Sales(January)
Mon. Feb. 25,10:00 am, et
4.82 Million (Annual Rate)
Important. The downtrend continues, but is showing signs of easing.
Producer Price Index(January)
Tues. Feb. 26,8:30 am, et
All Goods: 0.4% (Increase)Core: 0.3% (Increase)
Very Important. More evidence of inflation could send interest rates higher.
Consumer Confidence(February)
Tues. Feb. 26,10:00 am, et
85 Index
Moderately Important. Higher energy prices are tempering consumer optimism.
Mortgage Applications
Wed. Feb. 27,7:00 am, et
None
Important. Applications are falling on rising rates and a slowing economy.
Durable Goods Orders(January)
Wed. Feb. 27,8:30 am, et
1.5% (Decrease)
Important. Consumers are showing signs of cutting back on big-ticket purchases.
New Home Sales (January)
Wed. Feb. 27,10:00 am, et
604,000 (Annual Rate)
Important. Sales are expected to hold above December's multi-year low.
Gross Domestic Product(4th Quarter 2007)
Thurs. Feb. 28,8:30 am, et
0.6% (Annual Rate)
Very Important. A lower-than-expected GDP growth rate could send markets into a tailspin.
Personal Income & Expenditures(January)
Fri. Feb. 29,8:30 am, et
Income: 0.2% (Increase)Expenditures: 0.1% (Increase)
Important. Consumers are tightening their purse strings in response to heightened economic concerns.
THAT '70S SHOW
The 1970s was known for more than just bad haircuts, polyester suits and unreliable automobiles; it was also deemed a prolonged period of economic morass. Those of us with long memories remember “stagflation” – a word coined by the Brits to define the years from 1970 to 1981, a period marked by 15% annual inflation rates, three recessions and unemployment approaching 10%.
The word “stagflation” is reappearing in contemporary vernacular. Some pundits are lamenting that 2008 is beginning to resemble 1978. There are similarities, to be sure: namely rising oil and commodity prices and easing productivity growth rates. But that's as far as the resemblance goes. Today's circumstances are far different: the inflation rate is much lower, unemployment is only 4.9% and the Fed is much more aggressive at cutting inflation off at the knees.
How much more aggressive the Fed will need to get will depend on this week's producer price index. Credit markets were caught off guard by last week's rise in consumer prices. If producer prices negatively surprise as well, we could see the Fed do a 180 on interest rate cuts, which would make a 6.4% 30-year fixed-rate mortgage seem like a bargain, at least into the relevant future.
Thursday, February 14, 2008
Selling your home (FSBO)
Selling your home (FSBO)
Granted, some people are able to sell their own homes without the services of a Take us home real estate Bothell or Woodinville real estate agent. Some of these successful do-it-yourselfers are very experienced home sellers. Others are transferring ownership of their home to a child, a coworker or a tenant who's already living in the home. These circumstances are the exception, not the norm, however. For most people, a for-sale-by-owner (FSBO) transaction simply isn't in the cards.
Here are five reasons why:
FSBOs can't list their home in the MLS.
FSBOs aren't permitted to put their home in the multiple listing service (MLS) because these industry membership organizations are open only to licensed real estate brokers and agents.
Sure, a determined FSBO can put a for-sale sign in his or her front yard and run an advertisement in the local newspaper, but the home won't receive nearly as much exposure as it would through the MLS.
Many agents find it risky to show a FSBO home.
Why?
In a typical home sale, the buyer's agent receives a percentage of the commission that the seller pays the listing agent.
Without a listing agreement, there's no guarantee that the buyer's agent will be compensated for his or her services, unless the buyer has signed a buyer's brokerage agreement that specifically provides for such compensation.
Even if a FSBO offers to pay the buyer's side of the commission, most agents won't want to go through a transaction with a self-represented seller.
That shouldn't be a big a deal, right?
Most often the home seller doesn't know what is required by law for a home to be sold. Most sellers have no idea what they need to do make the transaction proceed to closing. This means that the agent representing the buyer will have to pull double duty, doing the job of both the selling agent, and the buyer agent
That means the pool of potential buyers for FSBO homes is limited primarily to un-represented and probably unqualified prospects.
FSBOs usually overprice their home.
Like most homeowners, most FSBOs honestly believe their own home is worth more than Take Us Home real estate comparable homes in the same neighborhood.
Usually, they're wrong.
A Take Us Home real estate agent can provide an update on market conditions, an assessment of the likely selling price of the home and tips for improving the home's buyer appeal. Overpricing a for-sale home is a sure way to deter potential buyers.
Buyers will feel intimidated.
Potential buyers will spend less time in a for-sale home if the owner is present during the showing, and they'll be shy about discussing its pluses and minuses with their own agent if the owner is within earshot.
Buyers will also be less inclined to make an offer if they know they'll be negotiating directly with the seller.
Having an agent on each side creates an effective emotional buffer between the seller and buyer.
FSBOs are likely to stumble into legal trouble.
Real estate transactions are fraught with potential liability for unwary sellers, particularly in states that have extensive disclosure requirements (e.g., Washington, and California).
A FSBO who overlooks even one required form or legally mandated disclosure could face a protracted and expensive buyer lawsuit after the transaction closes. Go to http://sorinrealty.com for more info.
Granted, some people are able to sell their own homes without the services of a Take us home real estate Bothell or Woodinville real estate agent. Some of these successful do-it-yourselfers are very experienced home sellers. Others are transferring ownership of their home to a child, a coworker or a tenant who's already living in the home. These circumstances are the exception, not the norm, however. For most people, a for-sale-by-owner (FSBO) transaction simply isn't in the cards.
Here are five reasons why:
FSBOs can't list their home in the MLS.
FSBOs aren't permitted to put their home in the multiple listing service (MLS) because these industry membership organizations are open only to licensed real estate brokers and agents.
Sure, a determined FSBO can put a for-sale sign in his or her front yard and run an advertisement in the local newspaper, but the home won't receive nearly as much exposure as it would through the MLS.
Many agents find it risky to show a FSBO home.
Why?
In a typical home sale, the buyer's agent receives a percentage of the commission that the seller pays the listing agent.
Without a listing agreement, there's no guarantee that the buyer's agent will be compensated for his or her services, unless the buyer has signed a buyer's brokerage agreement that specifically provides for such compensation.
Even if a FSBO offers to pay the buyer's side of the commission, most agents won't want to go through a transaction with a self-represented seller.
That shouldn't be a big a deal, right?
Most often the home seller doesn't know what is required by law for a home to be sold. Most sellers have no idea what they need to do make the transaction proceed to closing. This means that the agent representing the buyer will have to pull double duty, doing the job of both the selling agent, and the buyer agent
That means the pool of potential buyers for FSBO homes is limited primarily to un-represented and probably unqualified prospects.
FSBOs usually overprice their home.
Like most homeowners, most FSBOs honestly believe their own home is worth more than Take Us Home real estate comparable homes in the same neighborhood.
Usually, they're wrong.
A Take Us Home real estate agent can provide an update on market conditions, an assessment of the likely selling price of the home and tips for improving the home's buyer appeal. Overpricing a for-sale home is a sure way to deter potential buyers.
Buyers will feel intimidated.
Potential buyers will spend less time in a for-sale home if the owner is present during the showing, and they'll be shy about discussing its pluses and minuses with their own agent if the owner is within earshot.
Buyers will also be less inclined to make an offer if they know they'll be negotiating directly with the seller.
Having an agent on each side creates an effective emotional buffer between the seller and buyer.
FSBOs are likely to stumble into legal trouble.
Real estate transactions are fraught with potential liability for unwary sellers, particularly in states that have extensive disclosure requirements (e.g., Washington, and California).
A FSBO who overlooks even one required form or legally mandated disclosure could face a protracted and expensive buyer lawsuit after the transaction closes. Go to http://sorinrealty.com for more info.
Monday, February 11, 2008
Increase in the conforming loan limits from $417,000
As reported yesterday, the US Senate passed an expanded version of HR 5140 – an economic stimulus package that includes a temporary increase in the conforming loan limits from $417,000 to as high as $729,750 in high cost areas. The two things you must know in order to determine if you are in a high cost area:
1. You must know the formula. If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750.
2. You must know the median home price in your area. According to HR 5140, the Secretary of Housing and Urban Development will publish the median house prices within 30 days. We contacted the Public Affairs office of HUD directly to ask if there is anything definitive to reference in the interim, and they said, "no." The Wall Street Journal published median house prices recently, and you may want to reference this information to get an idea of which areas will exceed the $417,000 limit. The median housing prices can be found in the second graphic on this web page. In order to see the median housing price in descending order, click on Price ($) in the chart.
1. You must know the formula. If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750.
2. You must know the median home price in your area. According to HR 5140, the Secretary of Housing and Urban Development will publish the median house prices within 30 days. We contacted the Public Affairs office of HUD directly to ask if there is anything definitive to reference in the interim, and they said, "no." The Wall Street Journal published median house prices recently, and you may want to reference this information to get an idea of which areas will exceed the $417,000 limit. The median housing prices can be found in the second graphic on this web page. In order to see the median housing price in descending order, click on Price ($) in the chart.
Friday, August 10, 2007
Current State of Mortgage Financing...What's Going On?
Current State of Mortgage Financing...What's Going On?
Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.
The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now?
The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
First, even if you are not presently in the market for a home loan of any type, call me to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?
Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed. I am here to help and advise during these volatile times - and would welcome calls from you, your friends, family, neighbors or coworkers.
Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.
The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now?
The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
First, even if you are not presently in the market for a home loan of any type, call me to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?
Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed. I am here to help and advise during these volatile times - and would welcome calls from you, your friends, family, neighbors or coworkers.
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