January 24, 2012

 Greece Back On Center Stage

Coming back to the roots of the European debt crisis, Greece was back on center stage. For all the time that Greece has been in the headlines, most analysts have speculated that a default is only a matter of time. The question is not will it happen, but when will it happen. Talks this week to avoid such an "imminent" default continued this week. If the talks don't break down and the dialogue continues, that is considered good news in itself. It is possible that the only hope for Greece is to avoid defaulting for long enough for the European economy to rebound so that the nations of Europe have the strength to take more meaningful action.

Meanwhile, this past week the first set of earnings releases focused upon the financial sector. In all, the reports by larger national and regional banks were disappointing and showed that we are not out of the woods with regard to the legacy of bad loans piled up on the asset sheets of banks during the recession. While the economy recovers, debt loads of banks and nations will prove to be a drag on growth. This is why analysts are looking at the good economic releases we have experienced in the past few months and still predict caution. For the consumer, this situation actually represents good news. A recovery that does not get too strong too fast will continue to translate into record low interest rates for a longer period of time. If it were not for Europe or the banks right now, the sale on our nation's real estate would be over much more quickly. On the other hand, looser credit standards will not come until banks dig out from their credit morass. We are not likely to have looser credit standards and record low rates at the same time as the two just don't go hand-in-hand.

The Markets. Fixed rate loans were stable in record territory in the past week. Freddie Mac announced that for the week ending January 19, 30-year fixed rates averaged 3.88%, down slightly from 3.89% the previous week. The average for 15-year loans inched up to 3.17%. Adjustable rates were also stable, with the average for one-year adjustables decreasing to 2.74% and five-year adjustables remaining at 2.82%. A year ago 30-year fixed rates were at 4.74%, almost a full percent higher from this week. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, "Rates on home loans were nearly unchanged this holiday week in lieu of a mixed bag of economic data reports. On the consumer front, retail sales edged up only 0.1 percent in December, but the Reuters/University of Michigan sentiment index continued to climb in January to the highest reading since February 2011. On the business side, industrial production rose 0.4 percent in December, slightly below the market consensus forecast, and the core producer price index rose faster than market expectations. Finally, on the home construction front, builder confidence rose for the fourth consecutive month in January to the highest level since June 2007." 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 January 20, 2012

 Home affordability is at 1971 levels, due to falling home prices and record low rates, pushing home ownership in reach to more families, according to the U.S. Department of Housing and Urban Development (HUD). Home owners are bringing in nearly double the median income they need to cover the cost of an average home, HousingPredictor reports. "With rates at historically low levels and markets across the country beginning to improve, home ownership is within reach of more households,” Bob Nielsen, chairman of the National Association of Home Builders, said in a statement. Home sales have been ticking up, according to recent reports by the National Association of Realtors®, the National Association of Home Builders, as well as the Obama administration’s December Housing Scorecard. Source: HousingPredictor

The apartment vacancy rate is at its lowest level since late 2001 as the rental market continues to soar, according to the latest fourth-quarter data by Reis Inc. As demand increases, the vacancy rate for apartments dropped in the fourth quarter to 5.2 percent compared to 6.6 percent a year prior. “Multifamily property has been the star of the real-estate sector for more than a year, generating profits for landlords but headaches for renters struggling with the economic downturn,” an article in The Wall Street Journal notes. “Demand has swelled from people being foreclosed out of their houses as well as those unable or unwilling to buy.” Landlords are also raising their rents. Asking rents moved up 0.4 percent in the fourth quarter, averaging $1,064 a month nationwide — compared to $1,026 in 2009. New York City continued to have the highest rent in the country at $2,876 a month. Meanwhile, as the rental market takes off, builders are rushing to play catch up in building new units to meet the demand. In 2011, Zelman & Associates estimates that more than 173,000 units were started, and about 225,000 and 280,000 starts are expected in 2012 and 2013. Source: The Wall Street Journal

Borrowers who have a history of paying rent on time may see a boost to their credit score. Experian, a leading credit report company, added a section to its credit reports last year that reflected on-time rent payments, which helped give a boost in the credit scores to some on-time rent payers. Now the two other major credit reporting companies are following suit. CoreLogic and FICO recently announced they are also adding a score that reflects payment histories from landlords, The New York Times reports. “Evidence of positive rental payments could be a plus for consumers,” Joanne Gaskin, FICO’s director of product management global scoring, told The New York Times. Nearly half of high-risk consumers saw an increase of 100 points or more after their rental history was added to their credit report, says Brannan Johnston, the managing director of Experian’s rent bureau. Consumers with average or higher credit scores, on the other hand, did not see any major difference to their scores. For former home owners who lost their homes to foreclosure, they may be able to rebuild their credit histories more quickly now by showing they are “very responsible renters,” Tim Grace, senior vice president of CoreLogic, told The New York Times. Source: The New York Times

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