Rate update for Washington State

April 6, 2010

The Fed Pulls The Plug

We have talked about this for months. The Federal Reserve Board has finally reached the date in which they are no longer purchasing Mortgage Backed Securities. The devastation of the secondary market for home loans was one of the major effects of the financial meltdown which occurred over a year ago. The Fed took definitive actions to keep rates on home loans down as they also kept overall rates down while the government took many other actions to right the financial ship. Now the Fed is ready to see if the private markets will pick up the slack and allow home loans to be originated and sold on the open markets and at a price that will not halt the economic recovery, particularly in the real estate sector. Is this a non-event at this point?

Note that rates have already increased moderately in the past two weeks. There have been many explanations for this increase, including tepid response to government bond auctions. However, it is entirely possible that the tepid response was due to anticipation of this April 1 date. Now speculation moves to another level as it appears we will ponder as to whether rates will continue to rise and whether the Fed will start selling some of the hundreds of billions of dollars in bonds they currently own. Here is a quote from a recent article from the NY Times: "No one expects the Fed to unload its holdings anytime soon, which would be reckless given the housing market’s fragility and the country’s high unemployment. But since the Fed now owns about 25 percent of the outstanding stock of bonds, any talk about actually selling should be a cause for greater concern than the Fed simply ending further purchases." What will happen? No one actually knows. However, with rates still very low, housing prices down and the tax credit scheduled to end at the end of the April, this month could be the last of the great home purchase opportunities in history. The employment numbers just released for the previous month represent good news and the last minute rush to sell homes could be even better news.

Fixed rates rose again this past week, but ARM rates declined. Freddie Mac announced that for the week ending April 1, 30-year fixed rates averaged 5.08%, up from 4.99% the week before. The average for 15-year fixed also rose to 4.39%. Adjustables decreased with the average for one-year adjustables falling to 4.05% and five-year adjustables declining to 4.10%. A year ago 30-year fixed rates were at 4.78%. “Rates for fixed loans rose this week following a run up in long-term bond yields, while ARM rates eased slightly,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Rates on 30-year fixed loans were the highest since the starting week of this year. Home-price declines continue to moderate with more metropolitan areas showing stabilizing or rising values. Compared with one year ago, house prices were down 0.7 percent in January 2010 in the S&P/Case-Shiller® 20-City Composite Index, which was the smallest 12-month decrease since January 2007. Nine of the cities experienced positive growth, led by San Francisco’s 9.1 percent annual gain. Recently, the Mortgage Insurance Companies of America reported that homeowners who moved out of default outnumbered those who became newly delinquent in February, which was the first such occurrence since March 2006.” 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 April 1, 2010

Attention shoppers: You have barely a month left before the homebuyer tax credit expires. First-time homebuyers may qualify for up to $8,000, while those who are trading up could get as much as $6,500. But either way, buyers have to ink sales contracts by the end of April and close before July 1 to see the refund. And this is absolutely, positively your last chance to claim the credit. (Probably.) So don’t wait, thinking the credit will be extended for a third time. There is little sentiment for continuing this program, especially because many consider the latest iteration’s results to be disappointing. Even the Senate’s biggest proponent of the homebuyer tax credit, Johnny Isakson, R-Ga., is ready to let it end. "He has no plans to introduce legislation to extend the credit," said Isakson’s spokeswoman. "Part of the benefit of the tax credit was the urgency its sun-setting generated." That urgency was less pronounced after the latest extension, which was enacted last fall. While the first version, which just covered first-time homebuyers, netted huge sales jumps, the real estate market slumped over the winter and early spring. That may be because some people believed that Congress would just keep adding time to the game clock, according to Nicolas Retsinas, director of Harvard’s Joint Center for Housing Study. That could have kept them home by the fireside instead of out house hunting. Source: CNN/Money

About one in every six Americans lives in a multi-generational household, up 30 percent since 2000, according to U.S. Census figures and a study released Thursday by the Pew Research Center. The study found that the economy is a primary driver of the trend, but there are other factors as well. Aging Americans are opting for home health care over nursing homes, and Hispanic and Asian immigrants come from cultures where multi-generational living is the norm. The Pew study and an examination of census data by AARP concluded that the most likely multi-generational scenario is a parent who owns a home and shares it with an adult child and a grandchild. In addition, older women are more likely than older men to live in a multi-generational household. Source: Associated Press

Banks are again offering home equity loans. Lenders are expected to make about $36 billion in new home equity loans over the next year, according to Moody’s Economy.com. That’s actually more than the $34 billion in home equity loans made in 2008. The difference will be the way the money is spent, says Frank Nothaft, chief economist at Freddie Mac. Most of it will go for necessary home improvements. “Consumers are better at managing their own personal balance sheet as a result of the difficult recession we went through,” Nothaft says. Source: Bloomberg