Question of the
week: One challenge we are having with buying our new home
is all the advice we are getting from so many people, who should be listen to?
Answer: Everyone at work who has bought a house, both sets of
parents, your brother in-law, your cousin, your dog walking partner and your
trainer at the gym all have advice for you once they find out you are buying a
home. As well you are getting opinions, advice and input from your real estate
agent and mortgage professional. Who should you listen to?
last two mentioned, your real estate and mortgage professionals, should be at
the top of your list of advice givers. Your real estate agent should have
strong knowledge of the area where you are purchasing your new home, and the
range of values and properties available to be able to assist you in finding
the right home for your family at the price you can afford. Your mortgage
professional should have you well prepared, being able to provide you with a
preapproval package to present to the seller with your offer and should provide
details as to the mortgage options, down payment ranges, payments, rates, etc.
when you walk into the home you wish to purchase you should not be concerned
with whether you can afford the home; that should already be settled in your
conversations with your mortgage professional. Your concern should be if the
home is right for you and what offer you should make to the seller to ensure
they will sell you the home.
this point the best advice you will probably get will be from yourself. Many,
many years ago a seasoned real estate veteran asked me when I walked into his
open house to introduce myself, “Do you want it? Would you like to buy this
home?” I explained who I was and why I was there and that even if I
wanted to purchase the home I could not afford it. He knew this but me
something that I have oft repeated over the years, and that has been proven by
many clients who I have asked to keep this in mind. It’s the three-step rule.
The veteran agent told me that in his many years of selling homes he observed
that most buyers know within three steps of walking into a home if they want to
buy it or not. I have mentioned this to many clients over the years and most
have confirmed that within three steps they did know they wanted to purchase
the home they bought.
we move onto this week’s economic news, here is one piece of advice I give
every client. I let them know I will present them with different mortgage
options, “what ifs” for different home prices, down payment amounts, and help
them select the option that is best for them. That said, I will not sleep in
their new home, I will not use any of my money for their down payment and I
won’t be making any of their mortgage payments, so take my advice with that in
mind. They will own the home, they will buy the home with their money and they
will be making the monthly mortgage payments, so in the end what they need to
be the decision makers, not me, not their real estate agent and not their
personal trainer. Unless someone is filling all three of those roles, living in
the house, paying for down payment and making the payment, take their advice
the end your instinct is often the best advice you will receive, as long as
that instinct is honed with good advice and information from trusted
Have a question? Ask me!
Remember, with Dennis it’s not just a mortgage,
it’s your complete financial picture.
significant economic news this week that led to choppy trading days for
Mortgage Backed Securities (MBS) with very large inter- and intraday swings in
prices. Tuesday had three big reports that impact rates. Durable goods orders
dropped for the second month in a row as manufacturing has softened considerably,
hurt by a stronger dollar lower manufacturing can be a drag on economic growth.
Housing data for new home sales showed strong growth in December and the
Case-Schiller showed growth in national home prices for November and year over
year increase of 4.3% in the 20 housing markets in the index. Finally another
consumer sentiment index showing confidence continues to rise with the index
being the highest since before the recession. The durable goods news is
positive for lower rates, the housing news is somewhat neutral and the
strengthen consumer confidence reports give a push for higher interest rates.
Federal Reserve meeting announcement released Wednesday gave a boost to MBS
prices (lower rates) as the word “patience” was used regarding future rate
increases from the Fed. Stating the economy has be expanding at a “solid pace”
and improving labor conditions, the Fed is expecting inflation to slowly
approach two percent. Reading into this it appears the Fed may be shifting
focus from labor markets to prices as the impetus to push the button and
increase short term interest rates it charges member banks from 0-0.25%. The
announcement was treated with popping corks on Wall Street as both equities and
bonds rose on the news.
we received some head scratching data in the form of a dramatic drop in
initial filings for unemployment insurance. Down 43,000 from the prior week,
the usually volatile post-Martin Luther King Day week for unemployment claims
was much more volatile than usual. The 265,000 claims were the lowest since
April 2000. Because the data was so far outside the norm investors were not
sure how to react; primarily because many major corporations have been
announcing layoffs in the thousands in the coming months/year. At this point
the data is an anomaly until supported by filings below 300,000 each of the coming
estimate for fourth quarter GDP activity was announced today and it missed
the consensus estimate. Following robust 5.0% growth in the third quarter of
2014 the final quarter saw the economy grow at just 2.6%. Most of the growth
was in personal consumption, reflective of higher consumer sentiment, but was
offset by higher imports and lower exports. The news is a concern for future
economic growth given the challenges of the economies in Europe and China as
their growth slows as well. This news is decidedly positive for lower mortgage
Friday January 30, 2015: The news today pushed rates lower from last
Friday. The hi-balance and FHA rates are showing “flat” but due to price
discrepancy at the low levels we are at these rates have lower prices and/or
credits for closing costs. Mortgage Backed Securities have climbed to their
highest rates in some time and caution is advised as a large correction may be
on the horizon with any significant positive economic news domestically or
MORTGAGES AT COST OF 1.25 POINTS
conforming 3.50% Flat
high-balance conforming 3.625%*** Flat
30 year FHA 3.25%*** Flat
30 year FHA
high-balance 3.50%*** Flat
Please note that
these are base rates and adjustments may be added for condominiums, refinances,
credit scores, loan to value, no impound account and period rate is locked. Rates
are based on 20% down (3.5% for FHA) with 740 FICO score for purchase
mortgages. ***FHA rates have no points and credit towards closing costs.
national holiday Sunday, the Super Bowl. It has become the biggest annual
spectacle in the United States, it is viewed around the globe and will be the
biggest television audience of the year—short of some major unexpected event. It
is estimated that Americans will spend $14.31 billion for the Super Bowl, from
buying new big screen televisions to 1.25 billion chicken wing (yes Billion).
Easily outpacing Halloween’s $7 billion and St Patrick’s Day’s $4.8 billion in
spending, the Super Bowl as an economic engine is approaching a real religious
holiday (as opposed to the unofficial religion of football---but don’t say that
in Texas and much of the South) of Easter that an estimated $16 billion spent
of candy, food, clothing and decorations.
My interest in
the game this year is purely pool oriented as Seattle was one of five teams I
drafted in the beginning of the year, if they win I am happy, if the Patriots
win I am less happy as my squads did fairly well.
I am glad the
game is about to be played and hoping it is exciting and keeps us captivated
until the end, enough about deflated balls and who will or won’t do an
interview. Let the game be played and played well enough that we only talk
about that on Monday.
Don’t spill wing
sauce on your new jersey and enjoy the game.
Have a great
Question of the
week: Why do you need so
many documents from us?
Answer: While the rest of the world is going “green” and reducing
paper our industry is going “white” and increasing the amount of paper needed
to get a mortgage.
Prior to the mortgage
and housing market meltdowns documentation requirements in our industry were
greatly reduced. In that era would run a borrower’s information through the
Automated Underwriting System (AUS) of either Fannie Mae or Freddie Mac and if
everything was to guidelines we would get an approval for the borrower and list
of documentation needed for the loan to be funded by the lender and then to be
purchased from the lender by Fannie or Freddie. As the AUS systems and loan
fallout statistics had more and more data our document requirements would become
smaller and smaller.
Eventually for many
borrowers the list of required documents would be: . That’s not entirely true we would still
need to provide a credit report, preliminary title report and escrow
instructions. However the AUS system would not require any income documentation,
merely a phone call to verify the borrower was still working, no documentation
of bank accounts or other assets, and if the value input for the property was
within the range of values for Fannie or Freddie’s database no appraisal. So
for more than a few years Fannie and Freddie, and therefore the lenders, were
not requiring documentation of income, assets or the subject property.
That was the pendulum
swinging to the far side of easy credit.
Today the pendulum has
swung almost as far away from that as possible. In response to the market
crashes politicians being politicians had to do something and the result was
the passage in 2010 of the Dodd-Frank Act, formally known as the “Dodd-Frank Wall
Street Reform and Consumer Protection Act.” Part of the Act was to reign in the
lack of underwriting criteria for residential mortgages and the formation of
the Consumer Financial Protection Bureau.
The Act required the
definition of “Qualified Residential Mortgage” (QRM) as part of lender risk
retention. And after a few years of meetings and feedback from the public the
risk rules were written jointly by the Office of the Comptroller of the Currency
(Dept of the Treasury), Board of Governors of the Federal Reserve, Federal
Deposit Insurance Corporation, Securities and Exchange Commission, Federal
Housing Finance Agency and the Department of Housing and Urban Development. Six
government agencies writing one piece of policy, as you can expect it is rather
if you wish to read it.
The purpose of the risk retention policy and
definition of a QRM was to encourage lenders to take more stringent approaches
to underwriting home mortgages to ensure not only that lenders would have less
foreclosure risk but as importantly to ensure that borrowers who took out mortgages
had the ability to repay them and reduce the risk they would lose their homes
to foreclosure. By trying to ensure fewer foreclosures the national housing
markets would be safer and stronger.
Loans that do not meet the QRM guidelines cannot
be sold by the lender to a third party unless the lender retained a 5%
ownership, or risk, in the loan. So if Bubba’s Bank makes a $500,000 loan to a
local homeowner that does not meet the QRM standards and Bubba’s Bank sold the
loan to a REIT the new rules require that Bubba’s Bank retain a 5% stake, or
$25,000, in the mortgage. Fund and sell enough of non-QRM mortgages and your 5%
stake can become pretty large. The 5% retention not only increases the exposure
to loss by the lender but it reduces the amount of capital available to lend to
To recap, lenders must approve and fund
mortgages within the guidelines of the risk-retention rules mandated by Dodd-Frank
which define a Quality Residential Mortgage.
So why all the required paperwork that is more
excessive than what was required prior to the Automated Underwriting Systems,
say prior to 1999 or 2000? At the foundation of the QRM definition is the
Ability to Repay clause.
For a mortgage to be considered a Qualified
Residential Mortgage the borrower must provide proof that they have the ability
to repay the mortgage. And cash in the bank is not generally considered proof
you have the ability to repay the mortgage as the rule requires the borrower to
show historical and current evidence of receiving income that will support the
repayment monthly of the mortgage, plus other debt obligations, and not exceed
43% of their gross income.
If you are buying a $400,000 home, have $600,000
in the bank, are putting down $80,000 and applying for a $320,000 loan at 4%
then you have to show you have income to make the $1527.73 monthly mortgage
payment, plus the taxes and insurance as well as any auto or credit card
payments and all these payments cannot exceed 43% of your income. Even though
you can purchase the property with cash and still have $200,000 in the bank
after closing all of your income must be verified.
Self-employed or part owner of a LLC? Two years
tax returns for yourself and any company in which you have a significant stake
(generally 25% or greater). Own rental property? Provide tax returns proving
receipt of income and showing expenses plus proof property is currently rented.
Income from IRA distributions? Several months statements showing the balances
support future payments and must be able to continue for at least three years.
Every source of income needs to be thoroughly documented.
As for assets, I have covered this point many times over the
years but it boils down to almost every deposit that is not part of your
regular income must be documented as to its source. At least two most recent
month’s bank statements must be provided for all accounts where funds for
closing will be coming from and any “odd” deposits, i.e. not from your
employer, on those statements will be scrutinized.
It can be pretty frustrating to keep providing
more and more and more documentation, but understand that we are asking for it
because the lender is asking for it, and the lender is asking for it because six
government agencies are requiring it. The old saying is you can’t fight City
Hall, but it is even harder to fight the Departments of Treasury and Housing
and Urban Development, the Fed, FDIC, FHFA and SEC—so if we ask for it know it
is needed to get your mortgage approved.
Not a lot
of news this week, two releases important to mortgages and housing were of
significance. The weekly unemployment filings were released yesterday and while
lower than the prior week of 317,000 initial claims, the 307,000 filings were
above the consensus and puts the four week moving average above 300,000 claims
filed per week. This indicates trouble for the January employment report
released in two weeks and supports the position that our job markets are still
weak. This news is positive for lower mortgage rates.
greater significance to most readers of the Weekly Rate & Market Update
was the National Association of Realtors monthly existing housing report. After
a 6.3% drop in sales in November, December saw an increase of existing homes
sales of 2.4% over November. The increase in sales dropped the housing supply
on the market from 5.1 months to 4.4 months, this lower supply could cause
January’s sales to decline some with less inventory for buyers to choose from.
For existing homeowners the report also had the good news that year over year
the national median price for existing home sales climbed is up 6% from
December 2013. For a bit of a reality check for those of us in Southern California,
the median single family home price nationwide is $209,500, in the six county
Southern California region the median price is $415,000.
more annoying than normal to be around this week because of another wild
week for Mortgage Backed Securities (MBS). Like many mortgage professionals I
subscribe to a service that provides up to the minute news on the MBS market. I
also receive updates hourly and when big swings up or down occur with a text to
my phone. All week my phone was whistling and/or buzzing throughout the day
alerting me to sudden drop or pop in the MBS prices and possible rate changes
from lenders. The cause of all the movement was international events, most
particularly the announcement by the European Central Bank announcing its
version of the Fed’s Quantitative Easing program. The ECB will be purchasing
€60 billion (almost $70 billion) per month of sovereign debt (i.e. bonds issued
by European Union member nations) until October 2016. The reason for the move
is Europe’s stagnant economy, poor labor markets and huge debt. We’ll see if
the move is effective in preventing European countries falling into recession
Friday January 23, 2015: The ECB’s announcement caused money to flow into
the United States with investors buying equities one minute and bonds the next,
shifting their optimism back and forth between markets in anticipation of bond
and stock prices moving up as the ECB’s Euros finds their way across the pond
to higher returns, and possibly (probably?) safer returns on Wall Street and
Main Street in the New World. With all the market gyrations rates stay flat
week over week.
high-balance conforming 3.625% Flat
celebrating the big holiday today? Well it’s not really a holiday but I feel it
should be one. You don’t know what day it is? It is National Pie Day! Conveniently
positioned about the time most people have fallen off their New Year’s
resolutions to not eat desserts, National Pie Day is a wonderful opportunity to
grab a piece of your favorite pie! What is your preference? I am a big lover of
pie, dutch apple always on top but I won’t let a coconut cream get passed me
Have a great week,
and enjoy your celebratory piece of pie!
Question of the
week: When should I
Answer: Rates are dropping and this is a common question these
days, feels like 2013 again.
There are certain policies and guidelines we
follow to determine if you are eligible for a refinance and if you meet the
criteria then you should strongly consider giving me a call to lower our
For a “rate and term” refinance, essentially
just lowering your monthly payment, the basic guideline is that your payment
must decrease by 5% or more and the costs of the refinance must be paid off by
savings within 48 months or less (personally my guideline is that costs should
be paid off in about 30 months or less).
What does this look like? If you funded a
$400,000 mortgage at 4.125% your monthly payment is $1939 per month, to save 5%
your payment needs to be $1842 per month. Using a mortgage calculator put in
your current loan amount, in this instance assume you have had your loan for
just over one year and balance is $390,000, put in the payment needed, $1842,
amortize for 360 months and you find that you need a rate of 3.91% or lower
with costs of $3000 or less to meet the criteria.
If you have mortgage insurance then the savings
can occur quicker if your home has gone up in value, either lowering the
mortgage insurance because your loan is below the prior level of coverage (i.e.
move from a 95% loan to a loan between 86-90% of the home value, or from 90%
loan to value to below 85%) or even better eliminate the MI all together, in
which case your monthly savings on the mortgage principal and interest need not
be as great.
If you are looking to reduce your term from 30
years to 20 or 15 years then the 5% savings rule does not apply as unless you
have had your loan for a considerable period of time your payment will be going
Also exempt from the 5% payment savings rule is
if you are applying for a cash-out refinance, used to pay off an existing home
equity line or other debt or for funds for home remodel or any other purpose.
With lower rates one strategy some use to determine how much cash out to obtain
is, depending on the home value, retaining their same payment and leverage the
lower interest rate into a new loan amount with cash to them at closing. In the
above example if the borrower refinanced at 3.75% you could have the maximum
Fannie/Freddie conforming loan of $417,000 and lower your payment $8 per month;
same payment but approximately $27,000 in cash to fix up that guest bath or
re-roof the house and put up a patio cover.
As for costs in most cases I price refinances so
that you are not paying a new set of closing costs for loan, escrow and title
fees, but rather include that in the rate we are using. You can, of course, pay
fees if you like however in most instances it makes more sense to let the
market pay the fees for you.
One more rule of thumb, which is very general,
to gauge when you should consider refinancing. The chart below that I quote
rates every week is based upon an 80% loan to value purchase mortgage for borrower
with 740 credit score and paying 1.25 points plus all closing costs. If you add
0.375% to the rate below you will have a close idea of what a refinance rate
would be with no points or costs* (*there is an upfront appraisal cost as well
if you have an impound account that would be taken care of either with funds at
closing or via the loan).
A very rough rule of thumb but a quick look at a
ballpark where you could refinance today.
A better rule of thumb that is much more full
proof would be to call or email me to run your numbers against the market that
day to calculate your payments and potential savings.
In answer to the question, “when should I
refinance?” for many people it could very well be today.
word to describe the week from a mortgage perspective is “crazy.” There was
a fair amount of economic data this week that was favorable to rates and piling
on was international factors that encouraged lower rates. Putting solid brakes
on the positive run was profit taking today and perhaps the beginning of a
correction for bonds which perhaps rose too fast. Let’s look at data.
for both producers and consumers in December provided no fuel for higher rates
as our costs for fuel dropped precipitously in the month. The Producer Price
Index dropped 0.3% for the month and prices for producers rose 1.1% from last
December; to show the impact falling petroleum prices have had, stripping out
energy and food the monthly PPI increased 0.3% and year over year the increase
was 2.1%--near the top of the Fed’s target inflation range. Consumers Prices
reflected similar results with prices declining 0.4% in December and up 0.7%
from last December, stripping out energy and food prices for consumers were
flat for the month and up 1.6% for the year. This data is positive for lower
rates as low prices reduce the chances for the Fed raises rates sooner rather
consumer driven data this week provided opposite reads. First was the
retail sales data for December which surprised to the downside with sales
dropping 0.9% from November, expectations were for sales to drop 0.1% due lower
fuel prices. While the drop in retail sales showed a consumers held back on
purchases, today’s release of Consumer Sentiment shows a surge in positive feelings from
consumers for their situation, which is somewhat expected given the extra money
in our pockets from lower gas prices and prices for goods overall. The lower
retail sales data is positive for rates and the consumer sentiment data is
negative for rates.
Friday January 16, 2015: As mentioned it has been a crazy week for Mortgage
Backed Securities (MBS), keep in mind when MBS, and bond, prices rise rates drop,
when prices drop rates rise (think of a teeter-totter with price on one side
and rate on the other). Yesterday we saw the biggest one day rise in MBS prices
in over a year. Today we are seeing the largest one day drop in a year. With
price going so high a correction in the MBS and bond markets is to be expected
as well as some profit taking so the drop today is not a major surprise. So if
you timed it perfectly and the lenders priced right at the top of the market
your rate would be somewhat significantly better than if you were to lock at
this moment. With all the movement up and down through the week and especially
yesterday and today the net result is no change from last Friday.
Monday is Martin
Luther King Day and a national holiday, like most businesses we will be closed.
All of our national holidays have meaning and an opportunity for reflection on
our nation’s history and culture. As part of what has become a January
tradition here is a link to one of the great speeches in human history, King’s “I
Have A Dream” oratory from the steps of the Lincoln Memorial in August 1963. Dr.
King was a little slow to get started, but after a few minutes he founds his
stride and the rhythm and words make history.
will remember George Raveling. He played basketball at Villanova in the early
1960’s and later became head coach at Washington State, Iowa and USC. He was on
the steps of the Lincoln Memorial that day in 1963 as a bodyguard for King.
When King finished his speech he handed his copy to Raveling, who still has the
speech today and has turned down millions of dollars for it so he can leave it
to his children.
Here is the full
speech, since you may/probably have the day off on Monday,
spending seventeen minutes to watch and listen to history might be able to be
fit into your schedule.
Have a great week,
Question of the
week: What is in your
crystal ball for 2015?
Answer: I have been asked a variation of this question several
times recently and as I told one questioner, my crystal ball is murky and could
Our economy is now
five and a half years beyond the end of the Great Recession and only recently
have we seen data that shows economic growth that could be described as more
than moderate. As well with the December employment data released this morning
three million jobs were added to the economy in 2014, the most in one year
since 1999. Based on these two factors we should be prepared to see a robust
“Should” being the
operative word in that last sentence.
In conversations and
communications I have had with several different analysts and economic geeks
such as myself one point I consistently bring up is that the economic
fundamentals that I studied when I received my degree in 1984, and that many
also learned who were degreed in the 1990’s are not valid, or not as valid, any
more. We are beyond the “new economy” the sprung from the technological
revolution that took hold for the average consumer in the 1990’s and exploded
in the 2000’s and are now in the “new-new economy” and as such many factors
that used to be predictors of economic activity no longer apply.
Through my lenses of interpreting
the new-new economic factors here is what I see for 2015.
Jobs Because its
importance I will focus much of my crystal-balling on employment.
Primary to any economy
are the wages and earnings of the populace who use the fruit of their labor,
money, to buy goods and services, invest for the future and very importantly
pay taxes. Employment markets are always evolving and this has been seen very
starkly with the Great Recession.
Employment in the
United States peaked in January 2008 with 138 million on non-farm payrolls and
reached their post-recession low in February 2010 with 129 million workers. The
December labor report shows 140 million workers on non-farm payrolls. At first
glance one would consider this very positive, our labor force is 2 million
greater than it was at its prior peak. Parsing the numbers we can see that the
increase is far below where our total jobs would be had our economic recovery
since June 2009 been “normal” under the economic fundamentals of the pre-new-new
Over the past six
calendar years job addition to the economy has averaged 27,000 per month while
an estimated 150-175,000 workers per month have entered the job force. This
means that during this time more new workers have entered the labor market than
jobs have been created. As a result of this supply and demand gap we have seen
two large factors that impair economic recovery, first very stagnant wage
growth during the recovery period and second a sharp reduction in the labor
Since January 2011 the
Consumer Price Index (CPI) which measures inflation for consumers has grown
just under 9.68%, during this time the average hourly wage has increased from $19.31
per hour to $20.68, an increase of 7.1%. Since 2011 the average worker has seen
his income increase 1.5% slower than inflation. In other words to pay for an
item that cost $100 in 2008 the worker would have to work 5.18 hours, today to
purchase the same item it would cost $109.68 and he would need to work 5.3
hours to purchase it. Which would be fine if the worker were averaging 2.3%
more hours per week in work but that is not the case as the average work week
has increased only 1.2%.
The labor participation
rate is defined as the percentage of civilian population over the age of 16 who
are working or looking for work and the prime working age is considered to be
ages 25 to 64. In January 2011 the labor participation rate was 66.2% of the
eligible population, in December 2014 the participation rate dropped down to
One of the biggest reasons for the decline in
the participation rate is the elimination of jobs during the recession period,
and by elimination of jobs I mean the elimination of job categories. Take
Stratis Financial as an example. Before the recession we had on payroll a
receptionist who handled many tasks. She left us to move to Texas and instead
of hiring a new position we left it vacant and instead invested in a phone
system that eliminates the need for a receptionist. How many companies across
the country, the globe, have done the same thing? Now most people you call at
work you are dialing direct numbers and not going through a receptionist.
Technological advancements that have expanded
the scope of what technology can accomplish in the place of a person as well as
lowering the price of that technology has resulted in permanent job loss of
thousands of positions, with thousands more on the horizon. Think of the
permanent job loss at places like Kodak and Polaroid due to digital cameras, in
the future a large part of the food service industry will eliminate counter
personnel and you will punch in your own order and pay—self-check out as you
are seeing a many grocery stores and places like Home Depot.
Looking into 2015 I see our job market remaining
somewhat stagnant as new jobs created do not meet the total overall demand and wage
stagnation continue and technology replaces more jobs domestically with
machines and devices manufactured overseas.
With no large boost in job creation and wages consumer demand will not have any
strong increase either. Our economy will continue to grow in 2015 at a decent
and steady pace, most estimates I have seen call for the Gross Domestic Product
(GDP) to grow around 3%, some say a little higher and some say a little lower.
Impacting the GDP for the coming year will be oil prices. While consumers have
received what some are comparing to a tax break with significantly lower prices
at the pump, workers in the petroleum industries and municipalities dependent
on petroleum tax revenues, are seeing what would then amount to a tax increase.
Oil production in the United States has grown exponentially since the opening
of large private fields for exploration and production. The resulting booms in
the economies of these areas, North Dakota for example, has created thousands
of jobs and poured billions into our economy. Many cities and states had become
accustomed to the price of oil being over $80 per barrel for the past five
years are now seeing huge cutbacks in revenue with oil below $50 per barrel.
Companies dependent on oil production and supply are seeing their revenues
slashed and with it hours worked and jobs will follow.
Inflation remains below the target of the
Federal Reserve of near 2%, GDP growth a modest 3% and wage growth staying
subdued points to an overall economy in 2015 that will be dependable but not
bad or fantastic. To use a sports analogy our economy will be more like Kurt Rambis
than Magic Johnson.
With the steady-Eddy economy predictions most analysts are predicting similar
moderation in home sales and prices—and of course this will be very regionally
variant as homes in areas with high dependence on oil production and supply may
see a drop in home sales and prices while those in areas less dependent will
see a more steady and even increase. Most of the analysis I have read for local
Southern California markets range from an increase of 2-4% in sales and prices
for existing home sales. Pockets could see higher growth or lower growth but
overall 2015 should experience moderate paced increases in the housing markets.
Rates Most of the news for interest rates focuses on the Federal Reserve
and when it will increase the rate it charges banks to cover their reserves.
Keep in mind through all this news that the Fed does not directly control long
term rates, which are what impact mortgage rates. Investors who react to all
economic and financial data determine what your interest rate will be on your
mortgage. Looking at the domestic and global economic data and the continuing
near zero rates of the Fed investors continue to pour money into equity markets
and purchase bonds in the United States (mortgages are similar to bonds and
rates act in tandem).
We closed 2014 and are starting 2015 with long
term rates dropping. As we move further into 2015 rates should continue to
remain at the current low levels or slip further in the first quarter and
through the year I do not see conforming rates rising above 2014 highs of 4.375%,
or if they do not by much and we should spend most of the year with very near
the 4.00% range for 30 year fixed rate conforming mortgages.
There are a lot of variables that always come
into play that impact mortgage rates and home sales and values, jobs, wages,
prices, consumer spending, political policies and global economics. Looking
through my crystal ball at these factors I am not seeing tremendous changes in
2015 from 2014. Steady is the operative word and I think we will see it in employment,
prices and rates for the coming year.
economic news for the week was the employment report for December. The news
was very mixed with positive being an increase of 252,000 jobs for the month,
the negative was a 0.2% decline in hourly wages. Headlines will show a large
drop in the unemployment rate from 5.8% to 5.6% however as discussed above this
was due to decline in the labor participation rate as many people quit looking
for work and therefore are no longer considered unemployed. The overall news
seems to be positive for mortgage rates as Mortgage Backed Securities have
risen sharply today (lower rates).
Friday January 9, 2015: After reaching their highest levels since May 2013
Mortgage Backed Securities retreated on Wednesday and Thursday and are climbing
again today. The net result is a drop in rates to those May 2013 levels. We may
have bounced off the top of the range and next week could see some pull back,
or we may be in a new range and hold these numbers for a while. Either way with
rates this low waiting may cost you the new bottom.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.50% Down 0.125%
30 year high-balance conforming 3.625% Down
30 year FHA 3.25%*** Flat
30 year FHA high-balance 3.50%*** Flat
Please note that these are base rates and adjustments
may be added for condominiums, refinances, credit scores, loan to value, no
impound account and period rate is locked. Rates are based on 20% down (3.5%
for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no
points and credit towards closing costs.
My apologies for the longer than usual commentary
today but I wanted to get into some detail on the state of the economy and
especially the job markets.
How are those resolutions working out? I tend not to
make them but do try to instill and reinforce positive routines in my daily
life. My thought is that healthy positive habits are routines and negative or
unhealthy routines are ruts. Keep to your routines and when you are in a rut
sometimes just a slight adjust to a routine is all you need to get back on
Question of the
week: No question this
week, next week my crystal ball for 2015
economic data this week that has had minimal impact on rates. In lieu of
economic data here is a bonus chart: the conforming rate I quote every Friday
for the past 10 years, from January 2005 through last Friday. As you can see
our high was 6.625% in late June 2006 and our low was 3.125% from late September
to the last Friday in 2012.
Friday January 2, 2015: Mortgage Backed Securities ended 2014 and are
starting 2015 on the upswing (lower rates) as investors move their portfolios
into fixed income securities (i.e. bonds and mortgages). As a result rates are
down slightly from last Friday. If MBS hold these levels next week we should
see lower rates as lenders push through the higher MBS prices onto rate sheets—they
are holding back some of the gains due to choppy trading and some hedging
through the holidays.
30 year conforming 3.625% Down 0.061%
30 year high-balance conforming 3.75% Down
30 year FHA high-balance 3.625%*** Flat
I managed to make it to midnight on Wednesday,
midnight local time as opposed to just Central (or even Eastern…) time as we
had a quiet New Year’s Eve at home. We had quite a 2014 in our family and I
cannot say I was sad to see the calendar page turn to a new year.
Every new year holds the promise of something special
and 2015 is no different. My resolution is to continue to provide competitive
rates, quality information and excellent service to you throughout 2015.
Have a great week and Happy New Year,
Dennis C. Smith, California Bureau of Real Estate Broker #00966315; NMLS #296660
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597; NMLS #238166