February 27, 2007
Rate Watch - Mortgage rates fell in the past week. The 30-year fixed rate mortgage averaged 6.22%, down from 6.30% last week, according to Freddie Mac's Primary Mortgage Market Survey. Last year at this time, the 30-year averaged 6.26%.
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What happens overseas has an impact on our interest rates. Last Wednesday, Japan's central bank-the Bank of Japan, announced a 25 basis point rate hike (.25%) boosting their benchmark interest rate to 0.5% - the second increase in the last 7 months. The USA's Federal Reserve has its benchmark interest rate currently set at 5.25%. Their economy is second only to the US economy in global size, and the new higher trend in their rates means that their yield becomes more attractive and may eventually lure some money away from US debt instruments. That may lead to higher rates in the US. On Friday, Germany released economic data that was worse than expected. The weak data is seen as lowering the risk of a possible interest rate hike by the European Central Bank, and US bonds enjoyed the news.
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The S&P 500 has gone almost 1,000 trading days without suffering a 10% decline, the second longest stretch in history. This also means that Stocks are ripe for some profit taking-and if this occurs, Bonds may benefit as money flows out of the Stock market and into Bonds. That results in lower interest rates.
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About half of all single-family homes on the market are now vacant, according to the National Association of Home Builders. (That's a 30% increase that occurred during the third quarter from a year earlier to a whopping 1.9 million homes).
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A National Association of Realtors survey of 7,548 home buyers from mid-2005 to mid-2006 reveals that close to half obtained mortgages for 100% of the sales price. During this period, NAR says the median down payment for first-time buyers was 2% while the median for trade-up buyers was 16%. The emergence of piggyback loans that involve an 80% or 90% first mortgage and a 10% to 20% second mortgage enabled these buyers to contribute less than the traditional 20% down payment; and in the midst of a housing slump, many now owe more than their homes are presently worth.
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Freddie Mac announced today that they will no longer buy subprime mortgages that have a "high likelihood" of payment shock and foreclosure. Freddie Mac will invest only in mortgages that assume a borrower can make the highest possible mortgage payments and will introduce new products to help troubled mortgage borrowers. The company will limit the use of low-documentation mortgages to "help ensure that future borrowers have the income necessary to afford their homes," the company said in a statement.
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Disclaimer: The information contained in this newsletter has been gleaned from various sources and is intended to be current and accurate, however we cannot and do not warrant or guarantee as such. This newsletter is for informational purposes only and is not intended to be, nor should be considered as, investment advice. It does not take into consideration the financial circumstances, needs or investment objectives of any specific person who may receive this newsletter. Individuals should seek financial advice with regard to specific circumstances before making any investment decision.
Copyright 2007 Ann Arbor Mortgage Company, LLC
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