December 27, 2011

 The Economy Stokes Further Optimism

With the European debt crisis hanging over the markets, our politicians continuing to act like children and now the markets worrying about the regime change in North Korea, there seems to be no end to the scary headlines. Even if the news is not scary, the media is pumping up bad news. For example, last week the National Association of Realtors adjusted home sales down for the past five years because they did not present accurate numbers. The headline? The recession caused worse real estate sales than we thought. The media seems to have lost the fact that existing home sales rose last month. New home starts were also surprisingly stronger, especially in the multi-family sector. Finally, real estate inventory is significantly lower than it was 12 months ago.

Through all of these negative headlines, the economic news is actually brightening our horizon. We had previously mentioned the precipitous drop in first time unemployment claims which is stoking optimism regarding possible future employment gains. Here is the point. The recovery is moving forward while worries overseas and in Washington are dampening our "public" enthusiasm. For example, the stock market has rallied significantly from the lows of October but despite this rally, interest rates are still at their historic lows and gas prices have not risen in the past several months. If the crisis in Europe were resolved and politicians were being cooperative, rates and gas prices would be going up based upon the positive economic news. We don't really care what the media "headlines" say. We care that these economic reports prod businesses to use some of the cash they are sitting on to pick up the pace of hiring. This is what we need for our current economic situation to continue to get better into the first quarter.

The Markets. Fixed rate loans set record lows again last week. Freddie Mac announced that for the week ending December 22, 30-year fixed rates averaged 3.91%, down from 3.94% the previous week. The average for 15-year loans were stable at 3.21%. Adjustable rates were also down, with the average for one-year adjustables decreasing to 2.77% and five-year adjustables decreasing slightly to 2.85%. A year ago 30-year fixed rates were at 4.81%, almost a full percent higher from this week. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, "Rates on 30-year fixed loans have been at or below 4 percent for the last eight weeks and now are almost 0.9 percentage points below where they were at the beginning of the year, which means that today's homebuyers are paying over $1,200 less per year on a $200,000 loan. This greater affordability helped push existing home sales higher for the second consecutive month in November to an annualized pace of 4.42 million, the most since January. In addition, new construction of one-family homes also showed a back-to-back monthly gain in November to the largest increase since June. Moreover, homebuilder confidence in December rose to its highest reading since May 2010 according to the NAHB/WF Housing Market Index." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated December 23, 2011 

 Foreigners looking to purchase homes in the U.S. are increasing their online search activity for bargains, as sliding home prices continue to attract investors from around the globe — especially Canada. Florida properties remained the lead attraction for foreign investment in the third quarter, followed by Arizona, Nevada and California, according to traffic on the website for Point2, a Canadian-based real estate marketing company. Those housing markets have experienced the steepest declines in home prices from the sector's peak in June 2006. Canadian traffic generated the highest number of visits to all top 10 states listed on Point2's website, with a significant majority in six out of the 10 states. Potential buyers in the United Kingdom and Mexico followed in second and third place. Source: HousingWire

A recent report from the Residential BuildFax Remodeling Index shows that there has been record high levels of remodeling activity, especially during the month of September, reports RealityTimes.com. The overall rate rose 34 percent this year, and September stayed up 2 percent from August. Regionally, the South rose 9 percent; the Midwest rose 4.9 percent; the West rose 4.6 percent; and the Northeast 2.9 percent, writes RealityTimes.com. “Rates on home loans continue to be near record lows, and as homeowners from coast to coast refinance, they are continuing to update their current home and invest in their properties,” Joe Emison, Vice President of Research and Development at BuildFax told RealityTimes.com. “The data from BuildFax show that homeowners are not only doing important ‘maintenance’ projects, such as fixing their roof, but also taking on projects that add to the ‘livability’ of their homes by adding decks, remodeling their bathrooms and updating their kitchens. Source: RealtyTimes.com

Last year, 27 percent of first-time home buyers received a financial gift from relatives or friends that they applied toward a down payment on a new home — up from 22 percent in 2009, according to data from the National Association of Realtors®. While gift-giving a down payment has increased, those who receive such gifts need to make sure they follow IRS and banks’ gift-giving rules.

• Home owners still need to come up with at least some of the down payment on their own. A spokesperson with Freddie Mac told Newsday that loans backed by Freddie Mac require that when the loan-to-value is greater than 80 percent, the buyer will need to come up with at least 5 percent of the purchase price from his or her own funds. For Fannie Mae loans, Fannie allows all down payment funds to come as a gift on one-unit principal residences. “The thing that is tricky about this is that few people know whether the loan will get sold to Fannie or Freddie,” the Newsday article notes. 
• You may need to document where the down payment money came from. “A gift letter should be signed and dated and include the giver’s name, address, and telephone number, along with his or her relationship to the borrower,” according to Total Mortgage Services in the Newsday article. 
• If you’ve had the gift for a long time, you likely won’t need to document it. If the gift has been in your bank account for three months or longer, it’s considered “seasoned” and doesn’t require a gift letter, lenders say. Source: Newsday

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