Weekly Market Recap

As we enter 2012, here are some money saving tips specifically related to the housing sector to help you manage your financial budget and capitalize on savings.

- Buying a home: What size is right?

     According to a survey by the National Association of Realtors, home construction firms expect U.S. houses to average 2,152 square feet in 2015, down 10% from last year. This means that if you’re buying with the goal of selling it in the future, trends suggest that oversized homes may be a declining trend in the future. So an astute buyer needs to decide what size home is right for them.

- Selling a home: What price is right?

     According to Joe Magdziarz, president of the Appraisal Institute, sellers and their agents should look at comparable sales data just within the past 90 days to find the right price. You don’t want to be one of the 75% of homeowners who believe their home is worth more than it is. You, as a knowledgeable Weichert Realtor, can help your client assess what price point the market will dictate to help sell your clients home.

- Already a home owner: Shorten your loan.

     Refinancing your mortgage to a shorter term can save you significantly.  For instance, a $250,000 mortgage, going from a 30 year at 4.25% to a 15 year at a 3.50% would save you $12,000 in interest over the life of the loan (assuming full term duration). Don’t want to do a 15 or 30 year term loan? Terms of 10, 20, and 25 years are also available. I can help you custom fit the term that works best for you.

- Already a home owner: Refinance, Refinance, Refinance.

     Even if you don’t think you have enough equity (or any equity) in your existing property, there are new product offerings coming on the market each day, so where you may have gotten a “no” in the past, you may be able to get a “yes” today or in the near future.  Additionally, there are options to do a cash-in refinance, where you bring some cash to closing. If disposable cash is an issue, there are also options to build closing costs into the structure to come to the table with little or no cash in many cases.

Have questions? Need help analyzing what is best for you? Ask me…I can help!

In speaking with a couple of real estate associates over the past few days night, the topic of refinancing came up. When analyzing a specific situation, the comment was made, “I would consider refinancing my home at today’s lower rates, but I am already X years into the loan, and I’m not sure I want to start all over  again” (meaning they had paid down X years of their 30 year mortgage, and they didn’t want to start over again with a new 30 year mortgage). To which I commented “then why not refinance into a 20 year or 25 year term loan so you don’t have to start over again”. In most cases the knowledgeable associates responded, “You can do that”?

Sometimes, we are so close to a situation, or an answer appears so commonplace, that we assume everyone knows the answer, but perhaps, we haven’t done as great of a job as we should have getting the news out.  So with a slow news week, this gives us a great opportunity to get the message out for those who didn’t know, and reiterate the message for those that did: on Fannie Mae and Freddie Mac loans (loans that are the vast majority of our refinance transactions), the following terms are available for Fixed Rate structures: 10 year, 15 year, 20 year, 25 year, and 30 years.

So there is no need to “start over”. Everyone can take advantage of these historically rates and continue to maintain (or even reduce) the existing term of their loan without “starting over”. In fact, we have seen the majority of the refinance scenarios in 2011 be of the “trade-down” variety, where an original 30 year term refinances into a new 15, 20 or 25 year term loan (at a lower price to reduce payment, a shorter term to reduce life of loan and future value interest paid, or both), or 15 year term loans refinance into 10 year term structures.

The prevailing thought is that interest rates will stay low for quite some time given the woes of the global financial markets and the economic climate, and that may be hard to debate. What is not hard to debate is with rates at this level, the downside (rates ticking back upwards) is significantly more likely than the upside (rates dropping down further), so why risk the chance of missing out on a great thing?

This is the week to capitalize…I can help you start the process of reducing your payment and/or your loan term, just in time for the coming holidays.

I can help….ask me how!

The 30 year Fixed Rate mortgage, continuing to test new lows, dropped below 4% last week for the first time in modern history to 3.99% with .68 points during the week ending Oct. 6, according to Freddie Mac's weekly survey.  A spokesman confirmed that the 30 year's average of 4.01% with .66 points last week was previously the lowest the weekly rate has been.  Freddie has been following rates since its startup in 1970.

While the week to week drop below 4% is only a matter of two basis points, it marks a benchmark level that could have more of a psychological impact on borrowers who qualify for new loans and have a rate high enough to benefit enough from a refinance.

A year ago at this time, the average weekly 30 year rate was 4.27% and the average 15 year rate was 3.72%.

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Pew Research Center out of Washington conducted a survey of over 2,100 adults, of which 57% were current homeowners, 30% were renters, and 13% were prospective buyers, with some interesting results:

          · 64% of homeowners whose homes lost value said they expect to recoup the equity losses in the next 3 to 5 years.

          · 81% of homeowners (more than 4 out of 5) believe purchasing a home is the best investment an adult can make. By comparison, the number was at 84% back in 1991.

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Did you know?

Fiction: Credit scores can change only once per month or every 30 days.

Fact: On the contrary; each creditor reports information to each credit bureau at different times of the month. This will cause the information and potentially the credit scores to change on a daily basis. For example, American Express may report to Experian on the 1st of the month, Equifax on the 15th and Transunion on the
25th. Thorough review of the credit report is needed to determine what caused the score to change from report to report.

Want more information about rates or an analysis of your current situation? Just ask…I can help.

If you are not still in the midst of a massive cleanup effort from the earthquake that rocked the Northeast on Tuesday (I already picked up the cup that knocked over on my desk), and if you have some free time while you are shut in this weekend from the negative effects of Hurricane Irene, now is a great time to pull out your laptop and run some numbers to see how truly affordable it is to finance that home of your dreams, or refinance your existing residence.  If you haven’t already (that is, assuming you have power to run the computer), let’s analyze some of the numbers:

          If you have a $300K, 30 year mortgage at say 4.99% (existing loan to Refinance or rate you would have gotten on a Purchase mortgage in 1Q11), your P&I payment would be ~$1,609.  If you were Purchasing that same house today, or looking to Refinance that purchase from early 2011 or before, the P&I payment would be ~ $1,431, a savings of $178 a month, over $2,100 a year, and over $10,000 in just 5 years!  A terrific opportunity to act now on both a Purchase and a Refinance.

          Or let’s say that you Purchased that same property in Q1 ($300K, 30 year mortgage at 4.99%), and now you wanted to refinance that mortgage into a 20 year mortgage at 3.99%.  Your P&I payment would increase by $208 a month, BUT, you would cut 9 1/2 years off the life of your loan (assuming you originally closed in early 2011), and on the life of the loan payments, the interest saved in switching from the 30 year to a lower rate 20 year mortgage example above would be over $134,400 life of loan (assuming full term payments vs. a loan that originally closed in 1Q11).

          Let’s take another example which can apply to both Purchases and Refinances: Let’s assume you purchased a house with a 30 year, $300K mortgage in August of 2008 at 6.5% (yes, those were the rates in mid-2008).  Your P&I payment would be ~ $1,896 a month.  Now it is three years later, and assuming no additional principal was paid, the loan amount would now be ~$289,252.  If you refinanced that loan into a 20 year mortgage at 3.99%, you would cut 7 years of payments off your loan AND, additionally, you would reduce your P&I payment to ~$1,752 a month, a monthly savings of $144 a month in addition to reducing the payment by 7 years.  This scenario can work on 15 year and 10 year mortgages as well in many cases.

Don’t let the shaking earth, the sideways rain, or the howling winds get you down. The bright spot this weekend is I can help you analyze how to finance that new home at the cheapest rates in years, or save money on your existing mortgage by refinancing.  I will take the time to do it right and garner your trust.

Ask me how…I can help…before the sun comes back on Monday!

To the borrowing public, lower interest rates generally mean a reason to refinance.  Astute borrowers take advantage of low interest rate environments.  What is the best plan for attacking a rate friendly market?  The following facts are value added for anyone looking to refinance their current home mortgage in 2011.

     1. Know Your Value: The number one reason home refinance loans are being rejected is that the appraisal of the clients home didn't come back as anticipated.  Basically, for a lender to refinance your home, there must be a certain level of equity in the transaction to make the scenario work.  Otherwise, your refinance scenario may not be approved.  I can help you understand the value and equity in your current home and how to make the transaction work.

     2. Dig Up Your Documents: Make sure you have all necessary documents to avoid delays.  This includes a copy of your current mortgage statement, current paystub showing year to date earnings, last year's IRS tax returns (last two years if self-employed), and two forms of personal identification (one must be a government issued photo ID).  Other documents may be required as well.  If you don't have these items, it will slow down the process; cause delays, and possibly cause you to miss this low interest rate window.

     3. Choosing The Best Product: First off, you have to decide whether you are looking to reduce your payment or whether you are looking to reduce the term of your loan (or possibly both).  A higher rate 30 year loan refinanced into a lower rate 30 year loan will reduce your payment.  A higher rate 30 year loan refinanced into a lower rate 20 year, 15 year, or 10 year loan may keep your payment somewhat static, but will cut significant years off the duration of your loan and save years of interest (same with a 20 year into a 15/10, or a 15 year into a 10 year).  Which scenario is best for you?  Again, I can help analyze what is best for your specific financial needs or goals.

Not many in the markets expected rates to be this low again in August (or in 2011, for that matter). Did you miss the last refinance wave in 2010? Let’s not miss this one.

Have questions? Need advice? I can help...just ask!

With part one of the debt ceiling crisis behind us (albeit the story is not finished yet), there has been a lot of economic events over the past couple of weeks that have made the global markets very nervous and volatile…with a freefall in interest rates being the benefactor.

Some of the events:

· With a flair for the dramatic, an accord to come to terms on expanding the US Debt Ceiling and a move towards cutting costs and balancing the budget came with a
few hours to spare on Tuesday. However, the story continues: what cuts will be made, and how much will those cuts drag on the economy? Will the US lose its global AAA sovereign debt rating, and what will that mean for Treasury, Mortgage Backed Security, and Corporate borrowing costs?

· The Yen depreciated about 4% against the dollar Thursday morning, sending the
Global Equity markets into a further tailspin. The Bank of Japan also announced an additional 10 billion Yen to its Y40 billion Yen asset-purchase program to limit the
damage of the country’s rising currency on the export-driven recovery in the wake of the devastating earthquake and nuclear disaster earlier this year.

· The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis and to calm the ongoing woes related to
Greece, Ireland, Spain, and Portugal.

· QE3 talk on the horizon - The Fed is rumored to be considering a new round of security purchases to spur the economy if growth and employment keep languishing and inflation recedes.

So what is the bi-product of all this shaky economic news? Rates have fallen to the lowest levels of the year, with 30 year mortgages in the low 4% range, 15 years in the mid 3% range, and 5/1 hybrid ARM’s in the 2% range. Will these rates be short lived, with the prospect of a US Sovereign Debt downgrade on the horizon? Whether purchasing or refinancing, the time to act has never been better.

I can help…ask me how!

Mortgage rates have ticked up ever so slowly over the past week, mainly driven by the inability of the President and Congress to come to an accord on the “debt ceiling” situation. Most of us in the financial sectors think a deal to avoid a catastrophic situation will be struck before the August 2nd deadline, however, if the unthinkable does occur, it will be as close to political suicide for any elected government official that one could get. The potential ramifications of not striking a deal:

     - US Sovereign Debt loses its valuable “AAA” rating

     - Fixed Income rates begin to skyrocket, most notably mortgage rates

     - Or Fixed Income rates tick up more slowly, but Equities get hammered in the “flight to quality” move

Where we are:

                - President Obama stated Wednesday that he “would accept a short-term increase” in the federal debt limit “if congressional leaders reach agreement on a „significant? deficit-reduction plan before Aug. 2 but need more time to pass legislation.”

                - “The Federal Reserve is actively preparing for the possibility that the United States could default” as the deadline for raising the debt ceiling approaches, the President of the Philadelphia Federal Reserve Bank said Wednesday.

With 11 days to go, we will continue to monitor the situation and hope for a solution that accommodates all.

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U.S. housing construction rose in June to its highest level since January, as housing starts rose 14.6% to a seasonally adjusted annual rate of 629,000, according to the Commerce Department.

"Better construction levels are better than not, but regional variation and the lack of growth in single-family permits suggest catch up construction is under way rather than something more fundamental," said Steve Blitz, senior economist at ITG Investment Research.

Construction of single-family homes, which made up about 70% of all starts, grew by 9.4% from a month earlier.

I am here to help...just ask!

Europe/Greece Debt Issues: The US financial markets are extending its high level of volatility as the euro zone debt crisis remains in focus, with growing uncertainty regarding Greece's ability to avoid a sovereign default. Treasuries and Mortgage Backed Securities are higher throughout the week (prices up/rates down) amid the euro-area debt uneasiness.

The Fed/China: We saw two drivers on Wednesday have a direct impact on the markets from the Fed. First, pre-market open, there were a series of hawkish comments from Fed President Fisher (Dallas), in addition to a Chinese report signaled accelerated inflation, inciting the Peoples Bank of China to raise reserve requirements by 50bps, all of which provided a pre-market pop to Fixed Income.

And then in the latter half of the day Fed Chairman Ben Bernanke was on the tape commenting on the US debt ceiling, stating it should not be used as a mechanism to force budget cuts: “Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation,” the Federal Reserve chairman said in some of his strongest words yet on fiscal policy, a subject on which he is normally cautious.

His comments raise the stakes for both sides if they fail to reach a deal to increase the debt limit but are likely to prompt a backlash from Republicans who want spending cuts in return for an increase in the amount the government can borrow.

The market, as of late, appears to have rabbit ears around any talks regarding the debt ceiling, and any comments made by officials in an authoritative role are impacting the markets (positively or negatively) in an exponential fashion.

Takeaways: With all the volatility and uncertainty in the marketplace right now (both at home and abroad), that has translated into a continuum “flight to quality” trade which has driven the Fixed Income sector, and mortgage rates in particular, to their lowest rates of the year. 30 year Fixed Mortgages in the mid 4% range, 15 year Fixed Mortgages in the high 3% range, and attractive hybrid ARM structures in the low 3% range (and the high 2% range with points). Been waiting to buy and now is the time? Looking for one last chance to refinance that existing mortgage?  I can help…ask me how!

Fed Minutes Give Hints to the Future

Last week, the Federal Open Market Committee (FOMC) released its minutes from the April 27^th meeting, giving some substance in the detail for the first time in a while related to “how they proceed from here”?  Some of the more interesting takeaways are as follows:

Most of the Federal Reserve officials stated that they prefer to raise benchmark interest rates before selling assets when the time comes to tighten policy.  During an extensive discussion of how the central bank might pull back its massive support for the world's largest economy, officials agreed they would eventual shrink the Fed's much expanded portfolio over the medium term, and that selling the mortgage related debt would be a priority.  "A majority of participants preferred that sales of agency securities come after the first increase in the (Fed's) target for short term interest rates," the Fed said.  And many of those participants also expressed a preference that the sales proceed “relatively gradually" the minutes stated.

The takeaway here is that when we see the first sign of a Fed Funds rate increase (projected Q1 or Q2 of 2012); this could be a precursor to exponentially higher rates in the mortgage sectors.  Historically, when Fed Funds increase, there is a very high correlation that mortgage rates will increase as well.  Couple with that the signal that the Fed will begin to sell its mortgage portfolio (more sellers than buyers = lower prices and higher yields), than there would be two compounding forces impacting interest rates.  But, again, the first Fed Fund increases are not anticipated until at least 1H12.

There are some dissenting thoughts to this action plan as well. Some economists are saying that right now, they don't see how the Fed would be able to off load their MBS holdings if they raise rates first, not without taking a substantial loss.  When the Fed is finally ready to start selling their MBS holdings, the market will have already pushed benchmark coupon yields above the MBS coupons owned by the Fed.  That means there would be limited incentive for investors to buy agency MBS because their yields would be below the yields (underperforming) offered by risk free benchmark Treasuries.  Therefore, the thought is that the Fed would likely be forced to hold onto a large portion of their MBS portfolio to avoid shocking the market and losing a hefty chunk of change.

However, we are a ways off from early 2012 and seeing how this actually plays out.  One thing is for certain, however: as the economy improves, interest rates, at some point in time, will increase given the forces detailed above.  For now, there is still time to capitalize on near historically low interest rates.

Need help seizing the moments? Ask me how…I can help!