Are Things Looking Up This Week For Mortgages? Check Out Josh’s Latest 60 Second Update!!

On the first Friday of each month, the Bureau of Labor Statistics releases Non-Farm Payrolls data for the month prior.

The data is more commonly called “the jobs report” and it’s a major factor in setting mortgage rates for residents of Utah and homeowners everywhere. Especially today, considering the economy.

This is because, although it’s believed that the recession of 2009 is over, there’s emerging talk of new recession starting.

Support for the argument is mixed:

1. Job growth has been slow, but planned layoffs touch a 10-year low
2. Consumer confidence is down, but beating expectations
3. Consumer spending is weak, but not declining

In other words, the economy could go in either direction in the latter half of 2010 and the jobs market may be the key. More working Americans means more paychecks earned, more taxes paid, and more money spent; plus, the confidence to purchase a “big ticket” items such as a home.

Jobs growth can provide tremendous support for housing, too.

Today, though, jobs growth was “fair”. According to the government, 54,000 jobs were lost in August, but that reflects the departure of 114,000 Census workers.  The private sector (i.e. non-government jobs), by contrast, added 67,000.

In addition, net new jobs was revised higher for June and July by a total of 123,000.  That’s a good-sized number, too.

Right now, Wall Street is reacting with enthusiasm, bidding up stocks at the expense of bonds — including mortgage-backed bonds.  This is causing mortgage rates to rise.  Rates should be higher by about 1/8 percent this morning.

Our strong belief is that it will NOT happen.

The rumor started when Housing and Urban Development Secretary Shaun Donovan appeared on CNN‘s “State of the Union with Candy Crowley” on Sunday. CNN reported:

When pressed on whether the White House will now push for an extension of the tax credit, Donovan suggested the credit will not come back in the short-term but he left the door open to bringing it back down the road if the industry does not improve.

“I think it’s too early to say, after one month of numbers, whether the tax credit will be revived or not,” Donovan told CNN. “All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will launch in the coming week, and we are going to be focused on where the housing market is moving going forward. And we’re going to do everything we can to make sure that this market stabilizes and recovers.”

This started a firestorm of conversation as to whether the administration was going to announce a new tax credit anytime soon.

What has happened since?

Economist Tom Lawler came out saying he believes that Donovan was caught off guard and started to adlib a response:

As best as I can tell Secretary Donovan was in New Orleans giving interviews on the “Katrina” anniversary, but CNN’s reporter focused first on housing and the possibility of a “double dip.” and Donovan appeared to be “winging it.”

The Wall Street Journal reported:

On Monday, there was this reply from Robert Gibbs, the White House press secretary: “I think bringing that [tax credit] back is not on — is not as high on the list as many other things are.”

Diana Olick from CNBC stated:

I went the official route and followed up with a HUD spokesperson who responded:  “No news here…there are no discussions underway to revive the credit.”

Why do we think it won’t happen?

The purpose of the original tax credit was to lower the supply of homes on the market by increasing demand. The administration felt that was necessary to stabilize prices. It worked in November. Inventory did decrease and prices stabilized.

However, as we can see by the graph below, the extension of the tax credit actually did the exact opposite in April. Instead of lowering supply, it prompted sellers (both homeowners and banks with a pent-up supply of distressed properties) to put their houses on the market as they saw an opportunity to sell.

We do not believe that the administration or Congress will try to lower supply that way again. They are trying to limit supply by preventing foreclosures using an assortment of refinancing and modification programs instead.

Bottom Line

There is no way for anyone to be 100% sure of anything pertainig to the housing market right now. However, we strongly believe that buyers should not put off a decision to purchase in anticipation of a tax credit that probably will never come to fruition. Find the home of your dreams, move in and make sure that you and your family begin enjoying the lifestyle you always dreamt about and deserve. That is so much more important than a couple of dollars you may never see anyway.

We want to thank our friends at KCM Blog for this awesome post !!

With home prices in many local areas holding firm and mortgage rates still dropping, home affordability is reaching new heights.

According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between April-June 2010 were affordable to families earning the national median income.

It’s a slightly higher reading as compared to last quarter, and the second highest reading in the survey’s history.

As with all aspects of real estate, however, home affordability varies by locale.

For example, 97.2% of homes sold in Syracuse were affordable for families making the area’s median income, earning the New York city its first “Most Affordable Major City” designation.  Indianapolis was the first quarter winner.

On the opposite end of the spectrum, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 9th consecutive quarter.  Just 19.9% of homes are affordable to families earning the local median income, down 1 percent from last quarter.

The rankings for all 225 metro areas are viewable on the NAHB website but regardless of where you live, buying a home is as affordable as it’s ever been in history. Furthermore, because home values are in recovery and mortgage rates may rise, the market is ripe for home buyers.

All things equal, buying a home may never be this inexpensive again!

What an UGLY week of economic reports:

• New home sales for July 276,000, which was the lowest sales number EVER on record and pushed inventory of new homes to 9.1 months.
• Existing home sales plunged by 27% (record drop) to 3.83 million and inventory exploded to 12.5% month supply.
• Durable goods (items that last for several years like TV’s and cars) orders were down this week, the largest decline since January 2009.

It looks like the Obama Tax Credit while good while it lasted, simply pushed forward buyers instead of creating them.  The sugar high of the stimulus has worn off and has left us with a federal deficit that will be around for a LONG time…

However, I am hopeful that the smart investors and buyers recognize the best opportunities are often found at the most pessimistic time.  To give us better perspective and some hope, I want to share this Time Magazine article passage from 1992:

“The US economy remains almost comatose. The slump already ranks as the longest period of sustained weakness since the Depression. The economy is staggering under many “structural” burdens, as opposed to familiar “cyclical” problems. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought; the debt hangover; the banking collapse; the real estate depression; the health care cost explosion and the runaway federal deficit.”

Sound familiar?  It’s amazing how that description sounds much like it was taken out of this month’s Time Magazine.  We all know there was incredible growth and opportunity in the economy in the years after 1992.  I’m confident history will repeat itself and give way to much better days ahead, which points to today as the time to search for opportunity.

Best wishes,

As I look at these “Tipping Points” the first thing that jumps off the page to me is that 47% of renters would buy if they were able to save enough for a down payment…

BINGO!  We have Utah Housing 102.5% financing…  How about HUD $100 down programs…  Did you know Provo City has a plethora of $20,000 and $10,000 grants available for homes in the downtown area…  Oh and Sandy City still has nine $5,000 grants available to be used for new construction (and Wright Homes just built a new PUD starting at $249k that would be PERFECT for this program)…

Do renters know this?  How can we get this information to them?  Social media outlets, corporate real estate relationships with employers, direct mail, 1^st time homebuyer seminars, movie theatre advertising…

Here’s a link to the whole article and PLEASE let me know if anyone comes up with some fantastic ideas to market to them: http://info.trulia.com/index.php?s=43&item=97

The tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.

According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges.

During that period, eight in 10 lenders added hurdles.

For mortgage applicants in Salt Lake , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.

Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters.  There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.

That said, lots of homeowners are still getting loans.

Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.

According to Freddie Mac, mortgage rates are as low as they’ve been in history.

So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.

• I truly want a place for Zander (my son) to call his room, his house, his yard.  Somewhere he is completely comfortable, happy and a place that is his own.  I believe he thrives off consistency, consistency of schedule, of people and of places.  In other words, he is most comfortable when his surroundings match his expectations of what is normal and a BIG piece of that is a home, a place to go to sleep and a place to wake up every morning!
• Control over our livings space, I live in a condo now and I lose a lot of control over what happens outside my door.  With a home I can change the landscaping, fence the yard, etc.  If he’s into swimming, we’ll get a pool, if he likes football, we’ll grass over the pool and if he likes dancing, I’ll ship him off to military school (just kidding).
• Feeling of neighborhood and community.  I don’t want to worry every time he runs out the front door, I want to know my neighbors and have an understanding that as parents we watch each other’s kids as they play.  I think that’s hard to create if you move every few years or live in a community with a lot transient neighbors.
• Affordability!  I know that this new home could, possibly drop in value by 10%.  But with interest rates where they are, I was able to get a 4.5%, 30 year fixed loan that was affordable to me.  So if values drop a little in the next 24 months, I don’t really care.  I’m not selling in the next 24 months and Zander sure the heck does not care; he has his room, his house and his yard to play in.  I found this cool graph about how today’s homes are more affordable (purchase price + interest rates) than they have been for 30 years and I thought I would share it.

I guess the point is, when it came down to decision time, the financial side was just less important than the dad side…  Now if I could just get my dang loan closed, these mortgage people are a joke, I can’t believe all the crap they are asking for and can it really take this long?  LOL!!!

Let’s begin with the “What?”:

1. There are really two categories of Jumbos. One lies within the existing Fannie Mae/Freddie Mac/FHA loan limits. It’s in the zone between the old loan limit ($417,000 in high cost areas) to the current loan limit ($729,250 in high cost areas). Often these loans are referred to as Non-Conforming. The second type of Jumbo is the loans that exceed the current loan limits….those above the $729,250 number. For the purpose of this discussion, there is little difference as to the changing market, but there is a difference in loan eligibility requirements and pricing.
2. When I refer to an increased appetite for these loans, I do not mean to say there is a lowering of qualifying standards. When we underwrite Jumbos, there are still firm guidelines as far as FICO scores, income ratios, down payment and reserve requirements. What we are seeing is that there are more people looking to lend on these loan products. More buyers of these types of loans (increased demand, more competition) have brought the cost of the loans down considerably (lower rates for borrowers).

Now to the “Why?”:

Historically, Jumbo loans perform well (which means their delinquency rates are low). With the stricter underwriting criteria, there is no reason to believe that won’t continue to be true.

While it is true that the call for Jumbos in the Mortgage Backed Securities world is still a bit lagging, many banks and other portfolio lenders are closing these loans and holding them in their own portfolio for primarily two reasons:

1. The rate of return is better than they can get elsewhere. Performing mortgages are delivering over a two percentage point return more than comparable treasury bills, for example.
2. When these loans prove their performance history, they will become more marketable in the MBS world. So when rates do climb in the future, these loans will be sold for a profit and the cash received will be reinvested in higher yielding products.

Finally, “How does this affect you?”:

With rates so attractive, homes are more affordable. Because Jumbo loans typically attract move up buyers (as opposed to first time buyers), the analysis of numbers can often demonstrate that home sellers can get a bigger or more expensive home for a manageable payment. That may even allow a home seller to accept a lower price on their current home to get into the new home NOW while rates are so attractive.

Thanks to our friends at KCM Blog for this great article.

1. More Americans have poor credit than ever before.                    
2. There are also more Americans with excellent credit than there have been in the past.
3. The number of people with a mid-range score (650 – 699) has dropped.

According to the FICO report, 43.4 million Americans have a FICO score below 599, which is considered poor. This number represents 25.5 % of all Americans. Their poor credit score will make it harder (or impossible) for these people to:

• Get a mortgage
• Buy a car with a loan
• Get an unsecured credit card
• Rent an apartment
• Sign up for a cell phone plan

Additionally, these individuals may pay higher interest rates if they can get credit, and may pay more for car, homeowners’ or renter’s insurance.

Since the effects of financial problems don’t appear on your credit score immediately, the number of Americans with low FICO scores may get worse, according to the AP report. The U.S. Department of Labor says that 26 million people are out of work or underemployed — with many facing foreclosure.

Financial hardship often leads to foreclosure or failure to pay debts, which means millions more credit scores may drop before the year ends.

On the other end of that spectrum, 17,9 percent of Americans (up from the historical average of 13 % and down only slightly from last year’s report) have a FICO score of 800 or more. This shows that many Americans have gotten more conservative in their spending and are learning how to manage their credit better.

It takes effort and financial savvy to raise your score from a 750 to that highly-coveted FICO score of 800 or more. This shows that Americans with good credit are getting even smarter about managing it. They are doing things like minimizing hard inquiries on their credit files, paying close attention to their debt-to-available-credit ratio, and balancing the types of credit they show in their final with a mix of installment loans and revolving credit. They might also be using credit monitoring services to keep track of their FICO score and make sure there are no errors on their credit reports.

Borrowers with a credit score in the moderate range (from 650 – 699) may be hit the hardest by changes to their credit score.
According to the FICO report, this sensitive group makes up only 11.9% of all Americans, but they are the ones who may find it harder to get a mortgage or good rates on a credit card or car loan. A few wrong moves or late payments can put them in the “high risk” category, too.

On the positive side, though, smart money management can see them increase their score to an excellent credit rating of 750 or higher.

But the report is even more telling than that. The real estate market will continue to suffer as it’s harder for people to get mortgages with lower scores — or people may choose to rent rather than paying higher interest rates. Several other industries, including banking, which rely on people borrowing money, will continue to experience problems.

Awareness has already created a mindset shift, and sources are reporting that retail spending has dropped since the report was released.

It’s interesting to compare our FICO scores and see how we stack up against other Americans. But, regardless of what the numbers say, your main financial focus should continue to be paying your bills on time, not charging more than you can pay off within that billing period, and making sure your debt-to-available credit ratio is 50% or lower.

*We want to thank Dawn Allcot and www.creditshout.com for this timely article.