‘Jumbo’ Loans Set to Lower Oct. 1

Daily Real Estate News | Friday, September 30, 2011

 

Starting Saturday, many borrowers in pricey housing markets may find they’ll need a higher down payment or pay higher rates. The size of mortgages that the government will back in several high-priced regions is set to drop on Oct. 1, which some analysts expect will serve as another thorn to the housing market.

In 2008, Fannie Mae and Freddie Mac raised its cap on conforming loans up to $729,750 in some of the most expensive housing markets so that larger mortgages would be available to home buyers. But those caps are set to reset on Oct. 1, scaling back to a maximum of $625,500 in some areas of the country.

Housing analysts say the drop will make it more expensive and harder for some buyers to qualify for home purchases in expensive markets, particularly along the coasts.

“The down-payment issue is the most significant aspect form borrowers standpoint,” says Greg McBride, a senior financial analyst at Bankrate.com. “These changes will price some prospective borrowers out of the market.”

Source: “Big Borrowers Face Larger Down-Payments, Rates,” MarketWatch (Sept. 30, 2011) and “Big Mortgages: Harder to Get and More Expensive With Loan Caps,” CNNMoney (Sept. 30, 2011)

Read More:
On Loan Limit Drop, Middle Faces Hard Hit

House Fails to Vote on Extending Loan Limits

 

Market Updates September 2011

 

10 YR Treasury 2.027 (time of CMG Rate Sheet Release)
Open is about 4 tix worse from yesterday. Approximately 0.174 worse in rebate on rate sheet.

Growing concern that Greece’s leaders are divided as to how to handle their current financial crisis has lead most US stocks to go down. The Netherlands and Germany are leading a drive to include more private-sector involvement in the next austerity package for Greece. “Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, of Oakbrook Investments in Lisle, Illinois. “Any weakness there is going to be a drag worldwide.”

As a further sign that consumer spending has taken a turn for the worst, the world’s largest consumer electronics chain, Best Buy, is planning on slashing its holiday hiring by about half of what it was last year. This is a poor indicator both for the economy and is real bad news for the unemployed. Best Buy hired 29,000 seasonal employees last year, and anticipates hiring only 15,000 this year. “Our plan isn’t built or predicated upon a meaningful move in the economic environment,” said Brian Dunn, CEO of Best Buy, “The consumer is being really careful about where he or she is spending the dollars, and I think that will continue through the holidays.”

US home mortgage applications rose last week, showing that refinance demand is going up as rates are going down. Refi applications, according to the Mortgage Bankers Association’s seasonally adjusted index, went up 11.2 percent and purchase applications rose 2.6 percent. “Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

Market Summary

At 12:32 PM ET: Although the major indexes are mixed in trading today, most stocks are lower on the NYSE where declining issues lead advancing issues by 2.0 to 1. Among individual stocks, the top percentage gainers in the S.&P. 500 are Jabil Circuit, Inc. and Amazon.com Inc. http://markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp

 

Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011

 

Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); “Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and “S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

Read More

Real Estate OK in Debt Deal But Risks Remain

 

Young Generation Hit Hard by Recession

Daily Real Estate News | Monday, August 08, 2011

 

The recession has hit the younger generation hard and is forcing them to delay many major life changes and purchases, according to a new survey. About 44 percent of Millennials — people aged 18 to 29 — say they will have to delay buying a home due to economic factors, according to a survey conducted by The Polling Co. Inc./WomanTrend.

About 75 percent say they have or will delay a major life change or purchase due to economic factors, and 30 percent say the bad economy has prompted them to delay changing jobs or cities. What’s more, nearly 25 percent say they will delay starting a family, and 18 percent say they will delay getting married.

Such delays by the younger generation has started to affect household formation. Many young professionals are moving back in with their parents to curb costs, which has caused household to grow in recent years after facing decades of declines.

“The impact of the poor economy, in human terms, has been devastating. This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity,” says Paul T. Conway, president of Generation Opportunity.

Source: “Young Americans Waylaid by Recession, Study Shows,” Los Angeles Times (Aug. 5, 2011)

Read more:

What Does Gen Y Want?

 

Good news bears

Commodity prices

Good news bears

Aug 8th 2011, 13:39 by The Economist online

A fall in commodity prices offers some cheer among the market gloom

THE equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut. There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.

Related items

TOPIC: Economies »

• The ECB goes shopping: The reluctant rescuer
• Financial crisis: Negative reaction
• Europe’s debt crisis: The ECB presses “pause” on the crisis

TOPIC: U.S. Economy »

• America’s recovery: Good news, but is it good enough?
• America’s recovery: Sideways isn’t good enough
• Housing markets: Still struggling

TOPIC: Oil prices »

• Shrinking air fares: Only in Canada, you say? Pity
• Oil Prices: Speculators unburned
• Oil markets: Acting with reserves

TOPIC: United States »

• The war in Afghanistan: How to read the downing of the Chinook
• S&P’s credit-rating cut: Three examples of downgrade chutzpah
• American government debt: Theatre of the absurd

 

Readers’ comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.

 

Welcome back to Earth !

BRL, you better find a parachute for you…

Deflation, your time has finally come, after 2.5 years of delay

We called it:
http://seekingalpha.com/article/285619-the-debt-downgrade-and-the-summer…

We’re outperforming today as we did all of last week.

I remember in 2008 petroleum peaked in May for their highest price in history. The cause was never explained.

This price exceeded 2004 levels when the Gulf refineries were smashed by a series of Hurricanes notable Katrina and Rita. The prices exceeded the outbreaks of Gulf War 1 and 2 with Iraq and even the 9/11 attacks. The price of oil exceeded Supertankers being attacked by terrorist teams, Iran mining the critical choke point of the Strait of Hormuz where 40% of World travels, Putin’s energy cut offs, or raging piracy off the Somalian coasts.

I want to propose an actor and a plot. Follow the Money. Who has the Wealth and Power and the Means and Motive? The world’s largest exporter of oil is Saudi Arabia.

And in 2008 they saw an opportunity to influence the election of the most powerful office in the world. The Saudis grew tired of Bush and the Republicans. And the Republican Presidential Candidate McCain seem to want to open up a third war front on Iran. The other candidate was named Hussein and may prove to be a tribal brother.

And when your only tool is a hammer, every thing looks like a nail. By reducing oil imports by 5%, the Saudis can affect oil prices world wide instantly and to astonishing effect. The Saudis used their control over oil supply to jigger a shortage, which lead to price spikes 6 months before the election and precipitated the American Great Recession of 2008. John McCain argued their was no recession under Republican leadership and was soundly trounced in the election.

But this Recession snowballed into the Nov 2008 banking crisis, Lehman Bros downfall, the mortgage crisis, AIG insurance crisis, Automaker bankruptcy and the unemployment morass. All because of oil spikes.

An incumbent President’s greatest opponent is the state of the economy in an election year. And the Saudis are again using their hammer this time to LOWER the price of oil to brighten the American economy and re-elect President Obama. We are puppets on a string.

Unfortunately, the law of unintended consequence, the Recession they brought on in 2008 is still around and may be into a double dip. The Saudis are at it again doing their best to suppress the price of oil to promote a recovery.

Surprise, Money is Power! And Economic issues can influence Politics. Strange things happen in election years. Yes, even foreign actors can also pull some stringshmTzic3YT/

Your assertion that the Saudis influenced oil price to rout the Republicans in American presidential election is clever, but simply UNTRUE. The Saudis, or more accurately King Abdullah and the House of Saud, most likely WANTED warmongering hawks in the White House again, so that the US could wipe Iran and its nuclear programmes off the map. Wikileaks showed that King Abdullah, while posturing as an Islamic patriot who wanted the US to moderate its Mideast policies, privately encouraged GWB to attack Iran. This explains the confusion and the disorderliness with which the Saudi diplomatic corps to Washington D.C. have been conducting themselves vis-a-vis the Iranian issue.

And in this day and age, it is unwise to assume that the power to set the price of oil is centralized in Riyadh, Caracas or whatever. Thousands of traders tinker with the price of crude, and other governments can simply flood the market with their strategic oil reserves to drive the price down.

On this blog we publish a new chart or map every working day, highlight our interactive-data features and provide links to interesting sources of data around the we

 

 

A Good Time To Buy Real Estate: Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

MCLEAN, Va., Aug. 4, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS^®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

News Facts

• 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.

• 15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.

• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.18 percent this week, with an average 0.6 point, down from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 3.63 percent.

• 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

• “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.

• “On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired.”

Get the latest information from Freddie Mac’s Office of the Chief Economist on Twitter: @FreddieMac

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

SOURCE Freddie Mac

 

World debt guide; Owe Dear

The Economist online

Our interactive graphic shows how deeply in hock we all are

THE headlines are all about sovereign debt at the moment. But that is only part of the problem. Debt rose across the rich world during the boom, from consumers maxing out credit cards to financial firms taking on more leverage, and the process of reducing it is still at a very early stage.
The interactive graphic above shows the overall debt levels for a wide range of countries, based on data supplied by the McKinsey Global Institute. In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this map) found the limit in practice when they hit eight-to-ten times GDP.

The debt is also broken down by sector. Note the huge size of Britain’s banks relative to its economy, and the high level of Spanish corporate debt. Note, too, Japan’s vast amount of government debt, not yet a problem but an obvious reason for jitters over the longer term.

Japan has the dubious distinction of topping our sovereign-debt vulnerability ranking below, which orders countries based on their primary budget balance, their debt-to-GDP ratio and the relationship between the yield on their debt and economic growth (if the former is larger than the latter, the debt burden is getting steadily worse). Britain does badly, too, although a tough austerity programme and the long duration of its outstanding debt protect it from a loss of confidence. Here’s the table:

 

The Fed’s plan of attack: Another stimulus plan?

The Fed’s plan of attack

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

The Federal Reserve (Fed) is ready to dole out additional stimulus if need be ― that includes another round of Treasury bond buying (quantitative easing) or lowering interest rates. In the Fed’s biannual economic report to Congress, they indicated such measures will only be taken if the economy does not significantly improve or if deflation becomes a danger.

Fed representatives believe the second half of 2011 will show signs of an improving economy – more jobs and more sales. In the event they are wrong, stimulus measures are ready to be employed.

first tuesday take: The Fed’s responsibilities are threefold: dispense enough money into circulation, keep the labor market stable and maintain inflation at 2-3%. The efforts thus far to produce a growing jobs market (and thus improve real estate sales of all types) by injecting funds into the banking system through Treasury bond (T-bond) buying have proven less effective than they anticipated.

To complicate matters, 2008 legislation authorized the Fed to pay interest on bank reserves and that return has given lenders incentive to hoard their funds by placing them with the Fed rather than make loans. [For more information regarding the Fed’s purchase of Treasury bonds, see the October 2010 first tuesday article, The Fed purchases Treasuries, fends off deflation and the July 2011 first tuesday article, The Fed’s monetary policy, straight from the horse’s mouth.]

Will another round of Fed T-bond buying get lenders moving? It depends on how confident lenders feel about their pool of potential borrowers compared to the Fed. In the meantime, the Fed must continue monitoring the economy and be prepared to adjust their battle plan accordingly. Dropping interest payments on those 1.8 trillion in bank reserves on deposit with the Fed would quickly get lenders lending. [For more information regarding the Fed’s policies, see the June 2011 first tuesday article, Suspect behavior, why and how the Fed creates a recession.]

Re: “Federal Reserve chief hints at stimulus plan” from Mercury News

– ft

 

National Debt: There never was a surplus

Deficits

There never was a surplus

Jul 27th 2011

YESTERDAY the White House published a chart that explains how we got from the Clinton administration projection that the government would pay off its entire debt and then build up $2.3 trillion in savings by 2011, to the $10.4 trillion in debt we actually wound up with. Of that $12.7 trillion shift, the Bush tax cuts account for $3 trillion. James Fallows explains: “As the figures demonstrated, the Bush-era tax cuts, extended last year under Obama, were the biggest single policy source of deficit increase over the past ten years. Therefore you can be for reducing deficits, or you can be for preserving the tax cuts, but you cannot rationally be for both.”

I think there’s something else we need to look at in this chart. It’s the very first item at the top of the chart’s right-hand column: the shift in the debt profile that resulted from no policy change at all, but from “Economic and technical changes (eg, lower tax revenues due to recession)”. It’s $3.6 trillion.

In other words, that massive surplus pile of government savings, or sovereign wealth, or whatever you want to call it, simply never existed.* The Clinton administration’s calculations in 2000 that the government would pay off its debt and accumulate savings of $2.3 trillion over the following ten years were wrong. And they were wrong not because of any stupid error or dramatically incorrect theory about the economic world, but simply because they failed to predict that the American economy would experience a financial crisis in 2008, followed by the worst recession since the Great Depression and a historically anaemic recovery. (I assume they failed to predict the 2001 tech-crash recession as well.) The Clinton administration delivered a couple of years of real verifiable budget surpluses in the late 1990s, and if Clintonian levels of taxation and spending had continued, they likely would have generated annual surpluses that would have shrunk the debt by over $2 billion over the decade thereafter. But the forecast that they would have eliminated the debt entirely and replaced it with trillions of dollars in sovereign wealth was a mirage.

This isn’t particularly surprising; we simply don’t know how to make long-term projections about the economy or government revenues that don’t have trillions of dollars worth of error margin on either side. Which is why we need to be careful about budgeting and get our tax rates and our spending more or less in balance over the long term, running surpluses in good years and deficits in bad ones. The Bush tax cuts did the opposite: $3 trillion worth of tax cuts were predicated on the premise that we were returning the people “their” money. As it turned out, the money wasn’t there to return. Even without the tax cuts, the wars, or anything else, the government would have entered 2011 with $1.3 trillion in debt, not $2.3 trillion in savings. Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do.

* I’ve changed the wording in this paragraph to avoid any potential reader confusion between annual budget surpluses, which Clinton-style budgets would have generated, versus an overall buildup of sovereign wealth rather than debt, which they wouldn’t have. (Incidentally, the fact that we don’t even have a readily available word for a buildup of sovereign wealth in the vocabulary we normally use to talk about the American government seems kind of worth noting.) Additionally, I realise that if we hadn’t had the Bush tax cuts, the entire economic story of the past decade could be different; perhaps we wouldn’t have had the financial crisis. Or maybe we would have anyway. I don’t know, and I think that takes things too far. What I’m trying to say in this post is that when you get a budget forecast that says, hey, over the next ten years we’re going to pay off our entire debt and then some, you shouldn’t go rushing out to spend the money on massive decade-long multi-trillion-dollar tax cuts. Ten-year economic forecasts are not very accurate. Not to mention the fact that your decade-long tax cut will be very hard to repeal at the end of the decade.

 

 

Debt Fears Send Mortgage Rates Inching Up

Daily Real Estate News | Friday, July 29, 2011

 

The 30-year fixed-rate mortgage, a popular choice among home buyers, was up slightly this week amid growing concerns over a possible U.S. debt default next week, which has already been casting fears across financial markets. If the U.S. debt does default on its obligations, analysts say it could send mortgage rates soaring.

“Industry analysts have made it clear that if the United States defaults and the national debt is downgraded, mortgage rates could spike immediately,” Bankrate said in a mortgage rate report. “But the uncertainty over what Congress will decide over the next few days has already started to shake the mortgage world, as investors question if it’s still safe to invest in U.S. bonds.”

Bankrate.com reported the 30-year fixed-rate mortgage rising to 4.74 percent this week from 4.68 percent the previous week. The 15-year fixed-rate mortgage increased only slightly to 3.83 percent from 3.82 percent last week.

However, Freddie Mac reported less change among mortgage rates in its weekly report. Freddie Mac reported the following rates for the week ending July 28:

• 30-year fixed-rate mortgages: averaged 4.55 percent, up from last week’s 4.52 percent. Last year at this time, 30-year rates averaged 4.54 percent.
• 15-year fixed-rate mortgages:averaged 3.66 percent, which is the same as last. A year ago, the 15-year rate mortgage averaged 4 percent.
• 5-year adjustable-rate mortgages:averaged 3.25 percent this week, down slightly from last week’s 3.27 percent average. Last year at this time, the 5-year ARM averaged 3.76 percent.
• 1-year ARM: averaged 2.95 percent, which is down from last week’s 2.97 percent average. A year ago, the 1-year ARM averaged 3.64 percent.

Source: “Fixed-Rate Mortgages Edge Up on Debt Ceiling Fears,” HousingWire (July 28, 2011) and “30-Year Fixed-Rate Mortgage Follows Treasury Yields Higher,” Freddie Mac (July 28, 2011)