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April 21, 2009

More Evidence

Do you want more evidence of a bottoming of the economy? Apparently, Bernanke has seen it. The Federal Reserve Chair referred to the latest data on home sales, home building and consumer spending as evidence that the economy is improving. "A leveling out of economic activity is the first step toward recovery," Bernanke said in prepared remarks. We would like you to look in a different place. Lately the price of gold has lost its luster. What does that mean?

There are two things that can make gold prices soar. One is the threat of inflation. The other is economic or political crisis. Both factors have been at work during the past year. Twice gold has risen near the $1,000 per ounce mark. First it was last year during the rise of oil prices. Then it was early this year as the economic crisis worsened. Though gold prices are a long way from the $400 they were five years ago, they have dropped more than ten percent over the past few weeks. Though there is a threat of long-term inflation because of stimulus spending by the government, there is no current threat of inflation. And the markets seemed to be signaling an end to the economic crisis on the horizon. We must emphasize, this does not mean the economy is recovering. But you have to reach a bottom before you can turn up. Does that mean rates will not go lower? Could be...

The Markets. Rates turned back down this week. Freddie Mac announced that for the week ending April 23, 30-year fixed rates averaged 4.82%, down from 4.87% the week before. The average for 15-year fell to 4.48%. Adjustables were mixed with the average for one-year adjustables increasing to 4.91% and five-year adjustables falling to 4.88%. A year ago 30-year fixed rates were at 5.88%. Frank Nothaft, Freddie Mac vice president and chief economist stated "The housing industry is starting to exhibit some positive signs, albeit scarce and too early to tell how permanent. In its April 15th regional economic report, the Federal Reserve reported that better-than-expected buyer traffic led to a scattered pickup in home sales in a number of its Districts over the 6-week period ending on April 6th. Factors such as homebuyer tax credits, low rates, and more affordable prices were cited as leading to more potential buyers. This may have added to the rise in homebuilder confidence in April, which rose to the highest level in six months, according to the National Association of Home Builders."

Current Indices For Adjustable Rate Mortgages
Updated April 17, 2009

The Bank of Mom & Dad has gotten busier since no-down-payment mortgages have practically disappeared. "In the last six months, I've dealt with more parents than I ever have," said Jay Seville, an associate with Re/Max Allegiance in Arlington. "They're part of the financing now, either with the down payment or a secondary loan." FHA loans allow gifts for the entire down payment and closing costs, while conventional loans can be more restrictive. Some families are avoiding the required paperwork by turning over the money months before the home purchase, so it can be considered the buyers' own. Both financial advisors and real estate practitioners who have experience with these kinds of family loans seek to make sure that everyone understands the terms of the loan. They advise that the terms be written down for future reference in the event of memory disputes or legal conflicts. "There are two types of pain in life: the pain of discipline and the pain of regret," said Nicholas Yrizarry, founder of a wealth management group in suburban Washington DC. "In the case of family matters, one must have discipline upfront . . . rather than having pain of regret later." Source: Washington Post

Banks are quickly accepting bids and writing contracts for foreclosed homes, but buyers are complaining that settlements are taking too long. Real estate pros say purchasing a bank-owned property is different than dealing with a regular home owner, considering that banks have to check claims on the property and problems can arise at closing. Plus, in some states, banks also need court approval of the foreclosure. Although banks are swamped by the record number of foreclosures, the bank-owned homes will have to be sold to help stabilize residential prices and boost the housing market. Source: Washington Post

The $8,000 first-time home buyer mortgage tax credit, which is part of the Recovery and Reinvestment Act of 2009, is a great boon. But, it doesn't help people who don't have money for a down payment and closing costs. Now some states are contemplating offering an $8,000 loan to home buyers before they close on the condition that they repay the loans as soon as they get their federal tax credits. The idea has been adopted in Missouri, which advances the money to those who take out first mortgages offered through the state's housing finance authority. The New York State Builders Association is lobbying the State of New York Mortgage Agency to adopt a similar strategy. "A lot of states are trying to get through the technical aspects of this," says Gregory Brown, an assistant vice president for government affairs at the National Association of Home Builders. "I feel very confident they'll find a way to make it work." Meanwhile, some home builders are taking matters into their own hands, offering programs that purchase the tax credit from borrowers prior to closing. Source: The New York Times