Wednesday, July 31, 2013

Tools of the Trade with Your Self-Directed IRA: What Every Investor Must Know!

magine having the ability to control your retirement dollars with investments you make every day, with an asset base you understand and with tax-deferred or tax-free dollars. There are things every investor must know if they intend to leverage their IRA in order to make intelligent financial decisions and capitalize on building wealth on a tax-deferred or tax-free basis.

1. Unrelated Debt Financed Income Tax.

When you have a debt-financed property in an IRA, you may be subject to UDFI on the profits from the sale of, or income from, the property.
Does this mean that you should not buy real estate that is debt financed in your IRA? Absolutely not! The tax you pay is based on the percentage of the debt financed. If you finance a purchase and sell it right away, your IRA would be taxed on the percent of profit made by the borrowed money.
In a buy and hold situation, the percentage is based on the average outstanding debt over the previous twelve-month period. In addition, your IRA gets all write offs from UDFI for the percentage of debt financed. If the property is debt free for more than twelve months, there is no UDFI. You can also avoid UDFI by having a non-disqualified third party pledge other assets.

2. Non-recourse loans.

If you are trying to leverage property (get a loan) in your IRA, finding a non-recourse loan can be difficult. Any loan that an IRA takes out must be a non-recourse loan or one guaranteed by a non-disqualified person. Disqualified people can not personally guarantee a loan to an IRA.
In a non-recourse loan situation, the property stands a sole collateral. Therefore these types of loans usually have a 60-65% loan to value. There are institutions who’s business is to offer non-recourse loans for a self-directed IRA.Other ways to obtain a non-recourse loan is to use a private lender, utilize owner financing, or borrow from a small community bank that offers portfolio lending. For more information on non-recourse lenders, visit out web site at irainnovations.com

3. Partnering with Your Plan.

You can personally partner with your plan or IRA to make any investment. If you have a small amount of money in your IRA and need more for an acquisition of property, you and anyone else you know, including companies you or anyone else owns can provide the balance you need to complete the transaction.
Become an informed investor and know the rules and regulations regarding your self-directed IRA and how they relate to your financial future. In return, you get the opportunity to take advantage of tools that allow your IRA to continually build wealth on a tax deferred or tax free basis.

RISE IN HOME PRICES IS NOT ANOTHER NATIONAL “HOUSING BUBBLE” ?

The rapid recovery in home prices in a number of U.S. metros has already led some observers to suggest that we are in another home price bubble.   We find this unsupporting for a number of reasons, the foremost of which is that most people using this term may not fully understand what defines a bubble.  We started writing about home price bubbles about 10 years ago when there was a bubble building in a number of important housing markets around the country.
One common theme used to describe bubbles in other markets is the idea that prices have risen very quickly to levels which could not be justified by underlying fundamentals.  There are a number of well documented historical examples of bubbles that include the stock market in 1929, gold prices in 1979-80, and Japanese real estate prices in 1989-90.  It is typically acknowledged that in the late stages of a bubble, prices keep rising primarily because they are expected to keep rising.  At the time of our previous research, we suggested several definitions of home price bubbles based on the concept that home prices had risen far above levels which could be justified by any economic measure.  These included the ratios of home prices to household incomes, rents, construction costs, and employment.
While these can be useful metrics in identifying when prices may be overvalued, bubbles typically move far beyond so-called “overvalued levels” and can last far longer than most people expect.  The study of bubbles in other markets such as the ones mentioned above led us to develop a straightforward and easily understood “bubble indicator” which works in most markets and does not depend on a deep understanding of the underlying fundamental factors.
Our finding was that a simple measure of how much the market has increased over a five-year period has proven to be an excellent indicator of most bubbles.  In the case of the U.S. stock market over the past 100 years, we found that whenever the 5-year rate of change of the S&P 500 Index has exceeded 200 percent, a significant market top has subsequently occurred. Figure 1 above shows the Dow Jones Industrial Index along with this indicator and, as seen, it identified the bubble peaks of 1929, 1987, and 1999-2000.  These were followed by the overall stock market “crashes” of 1929, 1987, and the crash of technology stocks in 2000, respectively.
DJIA stock index housing market bubble

Monday, July 29, 2013

What a Washington County jury's denial of Chase says about Oregon foreclosure cases

A Washington County jury on Thursday ruled in favor of a couple who claimed JPMorgan Chase foreclosed on their home after making broken promises.
As the Oregonian reports, the case is likely the first wrongful foreclosure suit to go before a jury in Oregon since the housing crash hit. That the jury found sympathy in the case of Bela and Eva Lengyel -- who, the jury determined, had been denied a loan modification that they qualified for and Chase had initially agreed to provide -- could be a harbinger of things to come for foreclosure cases in Oregon.
As the O's Elliot Njus reports, the case "offers a glimpse into how juries may deal with fallout from the mortgage crisis and the way the nation's leading banks reacted. "
"If I were a transnational bank, I would be very concerned about facing juries in this state," Terry Scannell, the attorney who represented the couple, told the newspaper.

Monday, July 22, 2013

The Amateur Economist Report by Justin Lee Thayer 07/22/2013

Rates 3/4 of a point since 6/19.  Investors assumed at that time the economy was taking off! Ben Bernanke, Federal Reserve Chairman, said all is well and the Fed will start cutting back on any stimulus spending.  Since 06/19 a several scares in the markets freaked investors out, but harsh reactions were calmed. I expect a steady incline in home values until the high seasons ends mid September.
30 year fixed conforming =
4.500%
4.596%
15 year =
3.625%
3.706%
3/1 ARM =
3.375%
3.461%
FHA/VA 30 year fixed =
4.250%
4.917%
30 Yr Fixed Non-Owner =
4.750%
4.818%
Prime rate is currently =
3.250%


Foreclosure activity declines in Oregon

Foreclosure activity continued a sharp decline in May while the number of at-risk homes also fell.
Lenders foreclosed on 52,000 U.S. homes during the month, the real estate data firmCoreLogic Inc. reported. That's an increase from 50,000 in April, but down 27 percent from 71,000 foreclosures in the same month a year earlier.
The "shadow inventory" of homes foreclosed, in foreclosure or in danger of foreclosure, once a major concern that threatened to prolong the housing market's decline, has declined to 2 million properties. That's down 34 percent from its 2010 peak.
"The stock of seriously delinquent homes, which is the main driver of shadow inventory, is at the lowest level since December 2008," said CoreLogic chief economist Mark Fleming. "Over the last year it has decreased in 42 states by double-digit figures, resulting in rapid declines in shadow inventory for the first quarter of 2013."
In Oregon, lenders foreclosed on 4,500 homes in the 12 months ending in May. About 2.8 percent of all Oregon homes with a mortgage are in a stage of the foreclosure process, down 0.4 percentage points from a year earlier.

Residential Distressed / foreclosure Properties for Oregon Second Quarter (April-June) 2013

AllAreas2ndQDistressed

Here are some additional facts about distressed residential properties in the second quarter of 2013:
All areas when comparing percentage share of the market, second quarter 2013 to first quarter 2013:
• When comparing the second quarter 2013 to first quarter 2013, distressed sales as a percentage of new listings decreased by 6.3% (9.0% v. 15.3%).
• In a comparison of the second quarter 2013 to first quarter 2013, distressed sales as a percentage of closed sales decreased by 9.2% (15.3% v. 24.5%).
• Short sales comprised 5.7% of new listings and 8.5% of sales in the second quarter of 2013, down 3.5% and down 2.9% from the first quarter of 2013, respectively.
• Bank owned/REO properties comprised 3.3% of new listings and 6.8% of sales in the second quarter of 2013, down 2.8% and 6.3% from the first quarter of 2013, respectively.
Portland Metro when comparing percentage share of the market,second quarter 2013 to first quarter 2013:
• When comparing the second quarter 2013 to first quarter 2013, distressed sales as a percentage of new listings decreased by 5.8% (8.1% v. 13.9%).
• In a comparison of second quarter 2013 to first quarter 2013, distressed sales as a percentage of closed sales decreased by 8.8% (13.4% v. 22.2%).
• Short sales comprised 5.8% of new listings and 8.4% of sales in the second quarter of 2013, down 2.9% and 2.8% from the first quarter of 2013, respectively.
• Bank owned/REO properties comprised 2.3% of new listings and 5.0% of sales in the second quarter of 2013, down 2.9% and 6.0% from the first quarter of 2013, respectively.
Clark County when comparing percentage share of the market, second quarter 2013 to first quarter 2013:
• When comparing the second quarter 2013 to first quarter 2013, distressed sales as a percentage of new listings decreased by 7.1% (16.6% v. 23.7%).
• In a comparison of second quarter 2013 to first quarter 2013, distressed sales as a percentage of closed sales decreased by 6.3% (24.3% v. 30.6%).
• Short sales comprised 9.7% of new listings and 13.6% of sales in the second quarter of 2013, down 5.0% for new listings and 5.1% for sales when compared to the first quarter of 2013, respectively.
• Bank owned/REO properties comprised 6.9% of new listings and 10.7% of sales in the second quarter of 2013, down 2.1% and 1.2% from the first quarter of 2013, respectively.

Ninth Circuit: An act protecting tenants after foreclosure has its limits | HousingWire

Ninth Circuit: An act protecting tenants after foreclosure has its limits | HousingWire

Tenant protections are a way of life, especially in foreclosure cases, when a renter is often left dangling after a landlord loses a rental property to foreclosure.
But no matter how many protections are crafted for tenants, a case out of the Ninth Circuit Court of Appeals, reveals just how slippery laws protecting renters can be.  
In Logan v. U.S. Bank National Association, the Ninth Circuit held that the 'Protecting Tenants at Foreclosure Act' does not create a private right of action for tenants to bring a civil challenge in court when they believe a financial firm has violated provisions of the act.
Instead, the court said the act is designed to give tenants a defense to an eviction proceeding rather than a private right of action to file suit, enforcing parameters of the Act.
The case developed when the plaintiff’s rental property ended up in the hands of US Bank after a foreclosure proceeding against her landlord. The tenant received a three-day notice of termination from the bank, according to the court records.
Logan claimed in her lawsuit that the eviction process violated the Protecting Tenants at Foreclosure Act, which requires a 90-day notice prior to eviction when removing an existing tenant after foreclosure.
Even though the act is designed to protect tenants, the ruling shows its power sticks when tenants are defending themselves against an eviction.
With no private right of action under PTFA, renters stuck in this situation do not have the same power to create a "federal ejectment claim" or to enforce the PTFA.

How Safe is Formaldehyde in our Buildings and Homes?

How Safe is Formaldehyde in our Buildings and Homes?

Formaldehyde:
Formaldehyde (HCHO) is considered a strong irritant and potent sensitizer. Inhalation of large amount of HCHO can cause severe irritation of the upper respiratory tract and death. Data from human exposures indicate that exposure to large concentrations of HCHO gas may lead to pulmonary edema. Even HCHO gas present in the workroom at concentrations of 1 to 11 ppm can cause eye, nose, and throat irritation. Formaldehyde has the potential to cause cancer in humans.
Sources of formaldehyde in the home include building materials, pressed wood products (hardwood plywood wall paneling, particleboard, or fiberboard) and furniture made with these pressed wood products. Urea-formaldehyde foam insulation (UFFI), combustion sources and environmental tobacco smoke. Durable press drapes, other textiles, and glues.
Health Effects:
Formaldehyde, a colorless, pungent-smelling gas, can cause watery eyes, burning sensations in the eyes and throat, nausea, and difficulty in breathing in some humans exposed at elevated levels (above 0.1 parts per million). High concentrations may trigger attacks in people with asthma. There is evidence that some people can develop sensitivity to formaldehyde. It has also been shown to cause cancer in animals and may cause cancer in humans. Health effects include eye, nose, and throat irritation; wheezing and coughing; fatigue; skin rash; severe allergic reactions. May also cause other effects listed under "organic gases."
Monitoring for Formaldehyde:
Indoor air quality is a very site-specific issue and should be monitored as such. Some factors affecting the frequency of monitoring and the types of testing employed are size, location, occupant characterization, activity level and categorization, and, of course, complaints logged. Typical commercial space monitoring occurs monthly or quarterly, while residential monitoring may be done on a seasonal basis. Any real estate, commercial and or residential, that is being bought or sold should be evaluated.
Vapor monitor badges, such as the Formaldehyde Screen Check (FOSC), have been used over 25 years by VA, Armed Forces, many health care facilities, and by some of the largest industrial corporations throughout the world as well as consumers.
- See more at: http://www.transworldnews.com/NewsStory.aspx?id=1383403&sthash.AuWSJuTB.PV8HLM98.uxfs.mjjo#sthash.AuWSJuTB.WVUbW4K5.dpuf

Banks May Suffer, but Rising Mortgage Rates Won't Shake Housing (CLGX, FNMA, JPM, WFC, Z)

Banks May Suffer, but Rising Mortgage Rates Won't Shake Housing (CLGX, FNMA, JPM, WFC, Z)

Wednesday, July 17, 2013

Corelogic: There is no housing bubble

Home prices are up over 12 percent nationally from a year ago, and limited supplies of homes for sale continue to push that number higher. Demand is coming back, home builder sentiment is at a seven-year high and real estate agents are reporting bidding wars. None of this means housing is heading back to the bubble, according to economists at CoreLogic.
"The fundamentals are there right now, and the market is responding," said Mark Fleming, chief economist at CoreLogic.

Even in the fastest growing markets, where prices are up around 20 percent from a year ago, Fleming pointed to still near-record affordability. For housing price affordability to return to the average level that we saw in the years between 2000 and 2004, he said, either home prices would have to rise an additional 47 percent or interest rates rise to 6.75 percent. Only Washington, D.C., and Hawaii are "technically unaffordable," according to CoreLogic.

"Buyers buy based upon payment, and those payments are still highly affordable relative to their incomes," he said. "Even with 100 basis point swing, there's still plenty of room in that affordability index."
The concern, however, has been that as mortgage rates rise, home prices would necessarily fall, as buyers lose purchasing power. That may not be the case, according to a new analysis.
"History shows that a rapid rise in interest rates tends to have little correlation with home prices. Rather, rising rates are more likely to contribute to a decrease in home purchase volume and an increase in the market share of adjustable-rate mortgages," wrote Mark Palim in a Fannie Mae commentary. Home prices are determined more by income and employment than anything else. That is why prices cannot continue to rise at the current rate. Incomes are not keeping pace, and affordability will therefore suffer.
"If prices were to continue to rise at 12, 15, 20 percent in some markets, then we are talking about a different scenario," said Fleming. "We have room to grow, but it can't grow indefinitely."
By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.


Tuesday, July 16, 2013

Housing Inventories Rising Faster Than Usual

The number of homes for sale rose 4.3 percent in June to 1.9 million—the highest level in the past year. These gains are also higher than usual for this time of year, according to newly-released housing data from realtor.com®. 
Following two years of declines, housing inventory is finally reversing course. More home owners are seeing rising prices and may be more apt to try to sell their homes. 
The number of homes for sale has risen the most in the past year in areas that had seen the largest declines, such as Sacramento, Calif. (up 11 percent), Atlanta (up 10.9 percent), Phoenix (up 6.2 percent), and Miami (up 2.2 percent). From May to June, inventories soared by the highest month-over-month amounts in Southern California, with inventories up 51.5 percent in Orange County, 45.7 percent in Los Angeles, and 18.1 percent in San Diego, according to realtor.com®. 
However, inventories of homes for sale remain far below last year’s level in markets such as Boston (down 35.1 percent), Denver (down 30.1 percent), Detroit (down 25.7 percent), Seattle (down 23.2 percent), and San Francisco (down 21.7 percent). 
Realtor.com® also reports that median asking prices climbed 0.5 percent in June from May, reaching $199,900. Median asking prices are up by 5 percent over last year. 

The Amateur Economist Report by Justin Thayer 07/16/2013

Some see the recent rise in mortgage rates as a difficulty, but the latest Fannie Mae National Housing Survey posits a different point of view. Their chief economist says: "The spike in mortgage rate expectations this month...may increase housing activity in the near term by driving urgency to buy." He explains: "Consumers may recognize that today's still favourable mortgage rates and home ownership affordability levels will recede over time.... More prospective home buyers may be deciding that now is the time to get off the fence."

The share of survey respondents who believe mortgage rates will increase hit a record high 57%. And the share who believe home prices will go up in the year also came in at a record 57%. So guess what? 72% of respondents believe now is a good time to buy! Rates may ease anyway. The current rise was attributed to the Fed's announcement it could begin tapering its bond purchases as soon as September. This sent bond prices down and mortgage rates up. But last week, comments from the Fed Chairman, reported below, implied the tapering is off. 
The Dow and S&P 500 both ended the week at all-time highs, while the Nasdaq, ahead seven sessions in a row, enjoyed its longest winning streak in two years. Observers credited these blow out performances to remarks from Bernanke. The minutes from the last Fed meeting had left investors worried because some central bankers feel a tapering of their bond purchases could happen "soon." But laterthe Chairman clearly stated: "Highly accommodative monetary policy for the foreseeable future is what's needed." He said low inflation and high unemployment mean the Fed needs to press on with its stimulus.

Stimulus, of course, means the Fed's $85 billion a month bond buying spree and rock-bottom Federal Funds Rates. All of this is good for business, while the Fed's mortgage bond purchases keep those prices up and mortgage rates down. Bernanke was so successful in relieving investors' fears, that they basically ignored the economic data that missed estimates. PPI wholesale inflation ran hotter than expected in June and Michigan Consumer Sentiment slipped below expectations for July. New weekly jobless claims were up 16,000, to 360,000, and continuing claims went up 24,000, to 2.98 million.

The week ended with the Dow up 2.2%, to 15464; the S&P 500 up 3.0%, to 1680; and the Nasdaq up 3.5%, to 3600. 
Bond prices recovered last week on the disappointing economic data and Bernanke's comments. The FNMA 3.5% bond we watch ended the week up 1.77, to $100.08.According to Freddie Mac's Primary Mortgage Market Survey, national average mortgage rates continued to trend higher for the week ending July 11. This was based on market speculation that the Fed will reduce future bond purchases. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. Rates are still at attractive levels.
This week should show that consumers continue to do their part to help the recovery, with Retail Sales predicted up a healthy 0.7% for June. That month'sConsumer Price Index should indicate inflation still under control.  

Builders continue to boost the housing recovery, with Housing Starts expected up again for June and Building Permits predicted to hit a 1 million unit annual rate. Things aren't quite so copacetic on the factory scene, with both the NY Empire and Philadelphia Fed Manufacturing Indexes off for July, though still showing expansion.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. 

Economic Calendar for the Week of July 15 – July 19
 DateTime (ET)ReleaseForConsensusPriorImpact
M
Jul 15
08:30Retail SalesJun0.7%0.6%HIGH
M
Jul 15
08:30NY Empire Manufacturing IndexJul3.67.8Moderate
M
Jul 15
10:00Business InventoriesMay–0.1%0.3%Moderate
Tu
Jul 16
08:30Consumer Price Index (CPI)Jun0.3%0.1%HIGH
Tu
Jul 16
08:30Core CPIJun0.2%0.2%HIGH
Tu
Jul 16
09:15Industrial ProductionJun0.3%0.0%Moderate
Tu
Jul 16
09:15Capacity UtilizationJun77.7%77.6%Moderate
W
Jul 17
08:30Housing StartsJun958K914KModerate
W
Jul 17
08:30Building PermitsJun1000K974KModerate
W
Jul 17
10:30Crude Inventories7/13NA–9.874MModerate
W
Jul 17
14:00Fed's Beige BookJulNANAModerate
Th
Jul 18
08:30Initial Unemployment Claims7/13348K360KModerate
Th
Jul 18
08:30Continuing Unemployment Claims7/62.950M2.977MModerate
Th
Jul 18
10:00Philadelphia Federal IndexJul5.312.5HIGH
Th
Jul 18
10:00Leading Economic Indicators (LEI)Jun0.3%0.1%Moderate

FHA financing a manufactured home in Eugene/Springfield

FHA is a great way to finance a manufactured home with its own land in Eugene/Springfield or anywhere. I repeat, you can finance the purchase or the refinance of a manufactured home even in today’s lending environment in Lane County.
FHA continues to be the best way to finance the purchase of a manufactured home, especially if you only have a limited down payment. There are minimum standards, for instance, the home needs to be a double wide, it has to have been manufactured after June 15, 1976, it can’t have been moved since it was originally set up and it must have a concrete foundation and tie downs.
There are a couple of other interesting things of note when considering a manufactured home.
  1. The manufactured home cannot be in a flood zone, period, end of report. It doesn’t matter if you can get flood insurance or not, they cannot be financed if they are in a flood zone.
  2. USDA will guarantee new manufactured home purchases, but there are no lenders, to my knowledge, that will finance them. USDA will not finance existing homes.
  3. Conventional loans are also available for manufactured homes with a minimum of 20% down on a purchase and a lower loan to value on a refinance.
  4. I have found no lender willing to finance an existing manufactured home on rented ground or a park. There may be some out there, but I am not aware of them.
  5. Modular homes and manufactured homes are different. A modular home is built in a factory and assembled on the site. A manufactured home is built in a factory and comes to the site assembled with only the joining of the sections to be done on the site. Modular homes are financed like any other site built home.

Sunday, July 14, 2013

The cost of waiting to buy a home in this market!

At the end of June, mortgage rates for a 30-year fixed-rate mortgage jumped to 4.5%, up from 3.9%on June 1 — and a notable jump from the historically low 3.35% monthly average rate toward the end of 2012. However, while higher rates do mean an increase in monthly mortgage payments, experts are urging potential home buyers not to resign themselves to renting for the next few years just yet — it’s still a good time to buy a home.
These moderate increases in payments may still be manageable, particularly if buyers look at less expensive properties, or negotiate a lower price.
For example, the difference in monthly payments for a $200,000 home at 3.9% and one at 4.5% is just $70.03. If budgeted correctly, this could be a manageable expense.
Rick Allen, chief operating officer of Mortgage Marvel, is one expert who says now is still the time to buy a house. His platform records online mortgage loan applications, about a million transactions a year, which serves as a barometer for how well the housing market is doing. He says that refinances are down, as to be expected with a rate increase, but that “shouldn’t scare people off.”
“Relatively speaking, rates are still at or near historic lows,” says Allen. “A 4.5 percent mortgage is still an incredibly attractive rate at which to finance a home. From a real estate perspective, we’re not far off from recent lows, and we’re heading to improve real estate values. The combination of those two factors make this still a good time to buy.”

These moderate increases in payments may still be manageable, particularly if buyers look at less expensive properties, or negotiate a lower price.
For example, the difference in monthly payments for a $200,000 home at 3.9% and one at 4.5% is just $70.03. If budgeted correctly, this could be a manageable expense.
Rick Allen, chief operating officer of Mortgage Marvel, is one expert who says now is still the time to buy a house. His platform records online mortgage loan applications, about a million transactions a year, which serves as a barometer for how well the housing market is doing. He says that refinances are down, as to be expected with a rate increase, but that “shouldn’t scare people off.”
“Relatively speaking, rates are still at or near historic lows,” says Allen. “A 4.5 percent mortgage is still an incredibly attractive rate at which to finance a home. From a real estate perspective, we’re not far off from recent lows, and we’re heading to improve real estate values. The combination of those two factors make this still a good time to buy.”
As the unemployment rate continues to decline, Allen says we’ll see more potential homeowners enter the market as well. Though Allen says “theoretically, rates could go through the roof or back down to the floor” but he personally believes we’ll see rates around 5% through the end of the year.
This is the early stage of the recovery of the housing market, and the rising interest rates encourage potential home buyers to be more decisive, and act quickly. As more homes are bought, supply decreases, so prices may rise even further. So if you’ve been thinking about buying a home, don’t lose your confidence, but it may be prudent to act quickly as rates continue to rise.


Saturday, July 13, 2013

Home Video Tour of 1361 Modoc st in Springfield Oregon. Homes for sale in Oregon

Home tour video of 275 Maple street Eugene Or $180k Home for sale in Eugene Ore

The Amateur Economist Report 07/13/2013

This week the Federal Reserve tried to calm investor's nerves and smooth out the markets.  That seemed to work fairly well, but we don't know what next week will bring in the way of investor concerns and confusion. Monday we'll see the retail sales data which is always watched very closely, and Tuesday brings the consumer price index.  Both of these are important gauges of inflation, and even though we don't expect any major inflation worries to come out of these reports, they can still produce more volatility.

Mortgage rates will likely stay within their current range for a while, and I doubt that we will see rates below 4.00% on the 30 year fixed loans again for a very long time.  

Mortgage Rates Continue to Rise, Fed Eases Fears

Mortgage rates moved higher again this week as speculation continued about whether the Federal Reserve will end its future bond purchases, which have kept rates at historical lows, Freddie Mac reports in its weekly mortgage market survey. But remarks by Federal Reserve Chairman Ben Bernanke on Wednesday may indicate that the Fed won’t be ending its program immediately. 

On Wednesday, Bernanke said that unemployment is still high and inflation too low. He said the Fed would not raise short-term rates until the unemployment rate reaches 6.5 percent. The jobless rate is currently 7.6 percent. The Fed has been buying $86 billion a month in government bonds to hold down long-term interest rates, which have helped mortgage rates in recent months reach all-time lows.
Freddie Mac reported the following national averages with mortgage rates for the week ending July 11: 
  • 30-year fixed-rate mortgages: averaged 4.51 percent, with an average 0.8 point, rising from last week’s 4.29 percent average. A year ago at this time, 30-year rates averaged 3.56 percent.  
  • 15-year fixed-rate mortgages: averaged 3.53 percent, with an average 0.8 point, increasing from last week’s 3.39 percent average. Last year at this time, 15-year rates averaged 2.86 percent.  
  • 5-year adjustable-rate mortgages: averaged 3.26 percent, with an average 0.7 point, up from 3.10 percent last week. Last year at this time, 5-year ARMs averaged 2.74 percent. 
  • 1-year ARMs: averaged 2.66 percent, with an average 0.5 point, holding steady from last week’s average. A year ago at this time, 1-year ARMs averaged 2.69 percent. 

Mortgage Rates Rising, But There are Plenty of Alternatives for Home Buyers

Rising rates are a worry: 30-year fixed rate mortgages have gone from 3.5 percent to about 4.5 percent in the past month. That's not great, but concerns that the housing recovery may be choked off by this is a bit premature.
Here's why:
First, the rise in rates is unlikely to deter most buyers. Let's take a couple buying a $375,000 house...they put down 20 percent ($75,000) and get a mortgage for the remaining $300,000.
There's no question they are paying more for the mortgage now.
$300,000 Monthly Mortgage Payments:
·        At 4.5%: $1,520
·        At 3.5%: $1,347
The difference is about $180 a month, or $2,100 more a year. That's not chicken feed, but it may not be a deterrent for most people.
First off, it's deductible. Assuming a 25 percent tax bracket, that $2,100 will only be $1,675. Second, to qualify for that $300,000 loan the couple is likely to have to make about $75,000 a year. $1,675 is 2.2 percent of $75,000. That is not insignificant, but I don't think it will deter a large number of people. If it does, they can buy a slightly less expensive house.
And remember: this assumes no price appreciation. If that home appreciates even two percent a year, that is $7,500 a year.
Second, there are other mortgage programs at lower rates than a 30-year mortgage. I just got off the phone with a friend of mine who is mortgage broker in Philadelphia. He described several products with rates lower than 4.5 percent for that 30-year mortgage.
Example: a 15-30 balloon program, which is fixed for the first 15 years at a 30-year amortization rate and then becomes a balloon payment at the end of 15 years. In a balloon payment, the entire outstanding balance becomes due; the investor usually just gets a new mortgage. But most home owners don't stay in their home 15 years: the average home owners stays about 8 years. The current rate: 3.5 percent.
There are other programs, like a 10-1 Adjustable Rate Mortgage (ARM). Here, you get a fixed rate mortgage for the first 10 years, which then converts to an ARM that adjusts each year. Current rate: 4.125 percent.

My point: there are plenty of alternative products out there to keep rates lower, if that is what is needed.

Underwater Home owners More Likely to Relocate

 A report released Thursday by the Federal Reserve Bank of Cleveland answers the question, “Are underwater home owners less likely to move for employment?”
If underwater home owners are hesitant to sell their homes and move for new jobs, as some have conjectured, then the housing crisis has perhaps exacerbated the nation’s high unemployment rate.
The Fed researchers point out, “If a job is available, the economic benefit of accepting it outweighs the potential costs of disposing of the home.”
The researchers find that mobility did decline during the housing crisis, particularly in states with high levels of underwater home owners.



In 2006 and 2007, the rate of home owners moving to another state was more than 1 percent in 37 states. In 2008 and 2009, that number decreased to 23 states.
In Arizona, where 51 percent of home owners were underwater in late 2009, the mobility rate decreased from 1.7 percent in 2007 to 1.4 percent in two years later.
Similarly in California, 35 percent of home owners were underwater at the end of 2009, and the mobility rate declined from 0.8 percent in 2007 to 0.6 percent in 2009.
However, high underwater rates occurring alongside declining mobility rates does not necessarily signify a cause and effect relationship.
After further examination, the Cleveland Fed found “negative equity does not limit job-related mobility and, hence, is not a major reason for elevated aggregate unemployment in the United States.”
In fact, the opposite appears to be true. “Our results show that individuals with low equity actually move more than those with high equity,” the researchers said.
Home owners with homes valued at less than 80 percent of their mortgage debt are more likely to move for a job than home owners with 20 percent positive equity in their homes by about 1 percent, according to the study.


Thursday, July 11, 2013

The Armature Economist Report: 07/11/2013

The jobs report came out  showing 195,000 new jobs.  This was much higher than the 165,000 expected.  The Labor Dept also revised the jobs count for May higher than first reported as well.  So, that picture looks very good for the economy.

Unfortunately that's a bad thing for the bond market and likewise the mortgage backed securities market, so mortgage rates have jumped today.  However, I'm showing them, down below, the same as last Friday, because it's very likely they'll come back down some next week after things settle down.  Today's knee jerk reaction is fairly typical, and was exacerbated by the fact that not many investors were actually participating in the market toady since the lure of a four day weekend distracted many.  

The unemployment rate remained the same at 7.6%, due mainly to those unemployed that are now getting back into the jobs market.  So, we are going to see the effects of "shadow workers" for some time to come.