March 2011


7 Great Places to Retire

Sunbelt cities–traditional hotspots for retirees–don’t always offer good cost-of-living or the best place to settle down during retirement, according to Forbes’ annual list of best places to retire. While Forbes’ list takes into account numerous factors in choosing its “best retirement places,” this year it focused more on tax burden and cost-of-living.

Among the more affordable retiree cities that made the “best retirement places” list for 2011 are (listed in no particular order):

Indianapolis: Very affordable housing.
Fargo, N.D.: Lowest crime rate on the list and inexpensive living costs.
Charlotte, N.C.: Affordable housing as well as cost of living.
Charleston, S.C.: Lowest taxes of all the cities Forbes evaluated.
Colorado Springs, Colo.: Affordable housing and low cost of living.
Jacksonville, Fla.: No state income or estate tax.
Pittsburgh: Tax breaks for retirees.

See Forbes’ complete list of 16 best retirement places.

Source: “The Best Retirement Places,” Forbes (March 23, 2011)

Read more:
Top 6 Cities Where Buying Is Better Than Renting

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 Millennials: ‘The New Lifeblood’ for the Industry

More of the millennial generation is approaching the home buying age, but they aren’t like buyers before, according to a recent study by Wells Fargo.

Millennials–those born between 1979 and 1991–are more diverse, technology-driven, and tend to trust their instincts more so than previous generations.

Despite media reports of a sour real estate market, Millennials still are optimistic with their views about home ownership, according to Wells Fargo, which surveyed more than 3,000 Americans to discover their attitudes about home ownership. In the survey, Wells Fargo found that millennials even responded favorably to more rigorous credit requirements, saying they found them beneficial to their goal of remaining in a home once they buy.

The millennial generation consist of about 51.5 million potential first-time home buyers, the Wells Fargo study says–which is 6 million more than the baby boomers who reached home buying age in 1977.

Brad Blackwell, executive vice president at Wells Fargo, says the wave of Millennials will be the new lifeblood for the industry.

“We’re going to have to figure out how to reach them,” Blackwell says.

Some dread the demise of Fannie and Freddie

By Kelli Galippo • Mar 21st, 2011 • Category: real estate newsflash

A housing market devoid of any government-backed mortgage guarantee but still serving the best interest of homeowners is inconceivable, according to a letter to the editor published in the New York Times. Many prospective homebuyers and homeowners, as well as a majority of real estate professionals, believe a stable and consistent supply of home financing can only be supplied through the mortgage market if the government provides a guarantee, promising investors the government will pay if homeowners default on their loans.

Many mortgage bankers are particularly concerned about the 30-year fixed-rate mortgage (FRM), which may become less popular for investors if not backed by the government sponsored entities (GSEs) Fannie and Freddie. The private mortgage market claims interest rates and loan fees will rise to cover the greater risk of originating a 30-year FRM without a government guarantee.

A common thread of concern among brokers and lenders alike is the fear of change. Many believe dismantling the government guarantee — especially in the midst of this existing economic turmoil — would only serve to further delay recovery.

first tuesday take: Sometimes the hardest thing to do and the right thing to do are one and the same. While eliminating Fannie and Freddie’s grip on the housing market will not necessarily be a walk in the park, it is a necessary measure to stave off yet another housing crisis. Only during a crisis can hard decisions be made and implemented, and we do not want this current crisis to go to waste.

Fannie and Freddie, as an arm of the government, must certainly continue their role as lender of last resort until the housing market stabilizes and harkens a return to fundamentals. Like the gradual tipping of a scale, the GSEs’ exit must be staggered over a period of time and unwind gracefully as the private market gains confidence and slowly takes over. [For more information regarding the fate of Fannie and Freddie, see the February 2011 first tuesday article, Frannie’s future is at stake and the March 2011 first tuesday article, Mortgage market reform from the executive branch.]

The 30-year FRM is a current necessity, but that does not automatically mean it is the best financial choice for housing our population. If interest rates are too high for lack of a government guarantee and borrowers can’t produce a 20% down payment to eliminate the risk of default covered by a government guarantee, the question we should be asking is not what kind of deal a lender is willing to make. Rather, the prudent question is whether those homebuyers are financially capable of managing homeownership at all. The economic reality for many prospective homebuyers is it would be more financially beneficial to rent than to own. [For more information regarding renting, see the February 2011 first tuesday Market Chart, Rentals: The future of real estate in CA?]

American culture heavily emphasizes homeownership as a pillar of social success. Our governmental policies in turn facilitate the achievement of that pillar, but at great cost to most individuals’ financial well-being and net worth since investors are usually the only ones fit to take the risk. As evidenced in our current taxation policies, we prize homeownership by indebtedness over living within one’s means. That policy is being rejected as the population is deleveraging in an act of revulsion. [For more information regarding homeownership tax loopholes, see the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility.]

Maybe the real change needs to start by evaluating the ideals our economic policies endorse…

Re: “Discouraging Home Buyers” from the New York Times

Copyright © 2010 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

Current Market Rates

By ft Editorial Staff • Mar 24th, 2011 • Category: Charts

91-Day Treasury Bill – Average Auction Rate

 

Chart updated 3/24/11

Week Ending
3/25/11
0.10%
Month Ago
2/25/11
0.13%
Year Ago
3/24/10
0.16
 This rate determines the minimum interest rate the seller must impute in a delayed §1031 transaction and report when not receiving interest on §1031 monies held by a facilitator/accomodator and sets the amount of the ordinary income the facilitator/accommodator must report. [See first tuesday article, Interest imputed on §1031 monies delivered to facilitators.]

3-Month Treasury Bill

 

Chart updated 3/4/11

Month
3/2011
0.14%
Month Ago
2/2011
0.15%
Year Ago
3/2010
0.18%
 The 3-Month Treasury Bill is the rate managed by the Federal Reserve through the Fed Funds Rate as the base price of borrowing money in the short-term. It is used in determining the yield spread, which predicts the likelihood of a recession one year forward. [For more information on the yield spread, see the March 2010 first tuesday Article, Using the yield spread to forecast recessions.]

10-Year T-Bonds – Average Market Yield

 

Chart updated 3/24/11

Current
3/24/11
3.34%
Month ago
2/23/11
3.49%
Year ago
3/26/10
3.84%
This rate is a leading indicator of the direction of future FHLMC rates, which historically run around 1.4% higher during a stable money market. The rate is comprised of the level of worldwide demand for the dollar and anticipated future domestic inflation.

Average 30-Year Conventional Commitment Rate

 

Chart updated 3/24/11

Current
3/24/11
4.81
Month ago
2/24/11
4.95%
Year ago
3/25/10
5.01%
The average 30-year commitment rate is the rate at which a lender commits to lend mortgage money in the United States-West as reported by FHLMC. More information is available here.

 

Chart updated 3/24/11

Current
3/24/11
4.04%
Month ago
2/24/11
4.22%
Year ago
3/25/10
4.38%
 The average 15-year commitment rate is the rate at which a lender commits to lend mortgage money in the United States-West as reported by FHLMC. More information is available here.

 

Chart updated 3/4/11

Month of
2/2011
0.16%
Month Ago
1/2011
0.15%
Year Ago
2/2010
.17%
The ARM interest rate equals the 6-month T-Bill rate (at time of adjustment or an average of several prior rates), plus the lender’s profit margin.

Treasury Securities Average Yield — 1-Year Constant Maturity

Chart updated 3/4/11
Month of
2/2011
0.31%

 

Month Ago
1/2011
0.32%
Year Ago
2/2010
0.35%
 This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. The ARM interest rate equals T-Bill yield, plus the lender’s profit margin. The index is an average of T-Bill yields with maturities adjusted to one year.

12-Month Treasury Average

 

Chart updated 3/4/11

Month of
2/2011
0.31%
Month Ago
1/2011
0.31%
Year Ago
2/2010
.44%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. This figure is an average of the one-year T-Bill rates for the past 12 months.The ARM interest rate equals the 12 Month Treasury Average yield plus the lender’s profit margin.

Cost of Funds Index (11th FHLBB District)

 

Chart updated 3/4/11

Month of
2/2011
1.48%
Month of
1/2011
1.57%
Month of
2/2010
1.83%
 This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. The ARM interest rate equals Cost-of-Funds, plus the lender’s profit margin. Current index reflects the cost of funds two months’ prior in the United States-West. More information is available here.

 

Chart updated 3/4/11

Average 15-Year
3/3/11
4.15%
Average 30-Year
3/3/11
4.87%
12-Month Treasury Avg
2/24/11
0.307%
 The average 15- and 30-year conventional commitment rates are the rates at which a lender commits to lend mortgage money in the United States-West for the duration of the life of each respective loan as reported by FHLMC. More information is available here. The 12 Month Treasure Average is an average of the one-year T-Bill rates for the past 12 months.The ARM interest rate equals the 12 Month Treasury Average yield plus the lender’s profit margin. Numbers are reported with a one-month delay to accurately resent 12 Month Avg.

London Inter-Bank Offered Rate

 

Chart updated 3/4/11

1 Month
0.26%
6 Month
0.46%
1 Year
.79%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. The ARM interest rate equals the LIBOR rate plus the lender’s profit margin. The rate is set by the banks in London, England.

Prime Rate

 

Chart updated 3/4/11

Month of
2/2011
3.25%
Month Ago
1/2011
3.25%
Year Ago
2/2010
3.25%
 This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. The prime rate is used by banks to price short-term business loans and set ARMs tied to the prime rate. Historically the rate is 3% over the Federal Funds Target Rate.

Discount Rate – Federal Reserve Bank of San Francisco

 

Chart updated 3/4/11

Month of
2/2011
0.75%
Month Ago
1/2011
0.75%
Year Ago
2/2010
0.50%
 Usury law limits the annual interest yield on nonexempt loans to 10%, or the discount rate plus 5%, whichever is greater. The discount rate is charged on loans made by the the Federal Reserve Bank to its members. More information is available here.

Applicable Federal Rates

 

Chart updated 3/4/11

Short (to 3 years)
March 2011
0.77%
Medium (3 to 9 years)
March 2011
2.16%
Long (9+ years)
March 2011
4.46%
Determines minimum interest yield reportable on carryback financing. The AFR category is determined by the carryback due date. *Rates are for monthly payments. Click here for AFRs on other payment periods.

San Francisco Los Angeles
December 2009
689.374
January 2010
663.598
December 2010
699.882
January 2011
675.541
Annual Change
1.5%
Annual Change 1.34%
San Diego
Second Half 2009
823.872
Second  Half 2010
834.120
Annual Change
1.49%

The periodic percentage change in the CPI is a measure of domestic inflation, and is used to measure price movements among goods and services associated with the consumer’s cost of living. The CPI is one of the factors used to adjust monthly rents in non-residential leases. More information about the CPI is available here. [For more information on the CPI, see the November 2009 first tuesday article, Calculating Owner-Occupied Housing in CPI. first tuesday students can also see Chapter 44 of the textbook Property Management, “Rent Increases and the CPI,” available on the Forms-on-CD 4.2 and Online Library. (Not a first tuesday student? Click here and enroll in any course for one-year’s access to all books and materials published by first tuesday)]

Rate Analysis for Private Lender Section 32 Reg Z Loans

Last updated 3/4/11

Monthly*

6-Month

1-Year

2-Year

3-Year

5-Year

7-Year

February 2011

0.16%

0.27%

0.73%

1.23%

2.18%

2.86%

On junior trust deed loans a margin of 5 – 8% points is added to the Index Figure (Cost-of-Funds Rate) for the maturity date of a Treasury bill equal in length to the pay off date of the loan to set the Section 32 threshold for term limitations. With this in mind, if the percentage of the total loan amount represented by points and fees is greater than the applicable Federal Securities Rate plus ten percentage points, additional disclosures, limitations and prohibitions are triggered by Reg Z Section 32. [For more information, please reference the June 2008 first tuesday articles, Regulation Z Controlled Lending and Brokering Cal-32 High-Cost Loans. first tuesday students can also access  first tuesday Form 223-1, Points and Fees Test, and first tuesday Form 223-1, Supplemental Truth-in-Lending Section 32 Disclosure, available on the Forms-on-CD 4.2 and Online Library. (Not a first tuesday student? Click here and enroll in any course for one-year’s access to all books and materials published by first tuesday)]

*Selection of rate:

The rate for each month is set as the rate of the Treasury Security for each maturity date (term) on the 15th of the prior month as provided by the Treasury’s statistical release H. 15.

*Rate information gathered from:

The Federal Reserve Board

Federal Reserve Bank of San Francisco

Federal Reserve Bank of St. Louis

The Bureau of Labor Statistics

The Federal Home Loan Bank of San Francisco

Freddie Mac

Fannie Mae

U.S. Department of Labor

U.S. Department of the Treasury

Internal Revenue Service

Where Did All the First-time Buyers Go?

In January, first-time home buyers made up 29 percent of the market, the lowest since the National Association of REALTORS® started tracking first-time buyers on a monthly basis in 2008.

In a healthy market, first-time buyers generally make up 40 percent to 45 percent of all purchasers. So with low interest rates and falling housing prices, why are first-time home buyers sitting on the sidelines?

A USA Today article highlighted some of the factors that have first-time home buyers skittish about the market:

Tougher lending standards: Some first-timer buyers can’t meet credit or employment history requirements, Guy Cecala, publisher of Inside Mortgage Finance, told USA Today. Lenders also are requiring higher credit scores and some want higher down payments that are shutting out more first-timers. The best loan terms usually require 20 percent down payment or more, says Greg McBride, senior analyst at Bankrate.com.

Expired tax credits: Federal incentives that included lures for first-time buyers gave a big boost to home sales in 2009 and 2010. But with those tax credits now expired, first-time buyers aren’t as eager to jump in to the housing market.

Competition from cash buyers: NAR reports that cash buyers accounted for a record-reaching 33 percent of existing-home sales in February. Sellers like cash deals because those transactions are more likely to close, says Jerry Abbott of Grupe Real Estate in Stockton, Calif. As such, competing against these cash buyers has left some first-time home buyers out.

Source: “First-time Home Buyers Getting Shut Out,” USA Today (March 28, 2011)

More resources:

Handouts for Buyers and Sellers

February Pending Home Sales Rise

Pending home sales increased in February but with notable regional variations, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator, rose 2.1 percent to 90.8, based on contracts signed in February, from 88.9 in January. The index is 8.2 percent below 98.9 recorded in February 2010. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, says it’s important to look at the broader trend. “Month-to-month movements can be instructive, but in this uneven recovery it’s important to look at the longer term performance,” he said. “Pending home sales have trended up very nicely since bottoming out last June, even with periodic monthly declines. Contract activity is now 20 percent above the low point immediately following expiration of the home buyer tax credit.”

Yun notes there could have been some weather impact in the February data. “All of the regions saw gains except for the Northeast, where unusually bad winter weather may have curtailed some shopping and contract activity.”

The PHSI in the Northeast fell 10.9 percent to 65.5 in February and is 18.4 percent below a year ago. In the Midwest, the index rose 4.0 percent in February to 81.1 but is 15.9 percent below February 2010. Pending home sales in the South increased 2.7 percent to an index of 100.3 but are 5.3 percent below a year ago. In the West, the index rose 7.0 percent to 105.6 and is 0.6 percent higher than February 2010.

“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation, and excellent affordability conditions providing confidence to buyers who’ve been on the sidelines,” Yun said.

Source: NAR

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Mortgage Rates Edge Up This Week

The popular 30-year mortgage rate, as well as other rates, were on the rise this week, but still remain at low levels, Freddie Mac reports in its weekly mortgage market survey.

The 30-year fixed-rate mortgage averaged 4.81 percent this week, up from last week’s 4.76 percent. Last year at this time, the 30-year mortgage rate averaged 4.99 percent.

The 15-year fixed-rate mortgage inched above the 4 percent mark this week, after sinking below that level last week to 3.97 percent. This week, 15-year rates averaged 4.04 percent. A year ago at this time it averaged 4.34 percent.

The 5-year adjustable-rate mortgage averaged 3.21 percent this week, up from last week’s 3.17 percent.

“The rate uptick was related to higher than anticipated inflation data for February and ongoing geopolitical concerns,” says Frank Nothaft, chief economist at Freddie Mac.

Source: “30-Year Fixed-Rate Mortgage Edges Up to 4.81 Percent,” Freddie Mac (March 24, 2011)

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