Archive for category: Mortgages

Question of the week: Can you explain a reverse mortgage and its benefits?

Answer: For several years I have been saying that reverse mortgages (RM for the remainder of the WR&MU) are the most misunderstood financial tool available to consumers. Because the lack of knowledge of RMs, how they work and the benefits, many eligible homeowners do not consider using a RM as part of their financial planning and stability.

Before we get into whether you should get a RM, let’s go through some basics of the product.

• First and foremost, and most importantly, the lender cannot take your home as long as you are living in the property.*  More on this below.

• You can use a RM to purchase or refinance your primary residence, note this does not include second, or vacation, homes; though proceeds from a RM may be used to purchase a vacation home.

• Eligible properties are 1-4 units, as long as you occupy one unit, condominiums, and certain manufactured homes depending on requirements from lender.

• The most common RMs are HECM (Home Equity Conversion Mortgage), which are government insured by the Federal Housing Administration, yes, the same entity responsible for FHA mortgages used by millions to purchase or refinance their homes. To be eligible for a HECM you must be 62 years old or older.

• Other RMs in the market have a minimum age of 55, these products are not insured by FHA and have different guidelines and features.

• For HECM products there is an equity line feature, as well the amount of the available funds on the equity line increases over time. This feature is flexible depending on what funding options you select at closing. Some borrowers obtain a RM and have an amount of funds available they may draw on in the future, with no proceeds being disbursed at closing. For example, they obtain a $450,000 HECM with no funds paid to them at closing. Over the life of the loan the they can draw on the equity line, either in lump sums or regular payments.

• For the life of the loan, you do not need to make payments on the mortgage, but you must make payments for taxes, insurance, homeowners association fees, etc. While you are not required to make payments on the RM, you may do so.

• Some RMs have higher closing costs and more features, other RMs have lower closing costs and fewer features. Some RMs have adjustable rates, other RMs have fixed rates. It is important that you understand the options available and compare features, rates and costs.

• All potential borrowers must go through counselling about RMs, the benefits, the costs, the risks, the options. This counselling is done by a third party who is not affiliated with the loan originator or any lender. A final and complete application for a RM cannot start until seven days after the counseling is completed. This allows time for the borrower to do more research and make a decision.

• Loan amounts are determined by value of the property, age of the youngest borrower, and the current interest rate and fees on the RM.

• The loan is due when the home is no longer the primary residence for any borrowers; i.e. when relocate to a senior facility, purchase or rent another home as primary residence, borrowers have died. If a husband and wife have a reverse mortgage and one of them dies, the loan is still in place until the surviving spouse no longer occupies the property.

• When the last spouse vacates the property, the loan becomes due. At this point communication between whoever is legally able to make decisions and enter agreements for the property and the RM lender to allow time for the title of the property to be transferred.

• Homes with RMs can inherited. Depending on the value of the property and the balance on the RM, heirs can retain the property provided the RM is paid off, either with a refinance. This must be done within one year of the passing of the borrower on the RM. (Side note, over the years we have assisted may clients with refinances to pay out other beneficiaries to retain a home with a RM and the parents have passed away.)

• If the balance of the loan exceeds the market value of the home the home can either be sold with an agreement from the lender to accept a lower payoff to enable the sale, or the property may be deeded to the lender.

*This is the most misunderstood aspect of RMs. A lender cannot kick a borrower out of the home. A lender cannot prevent an heir from obtaining the property as long as the RM is paid in full. Depending on the value of the property and the balance on the RM, the heirs may choose to deed the property to the lender.

Here are some issues that come up when discussing RMs options with clients.

• A lender can foreclose on a home with a RM. Keep in mind a foreclosure occurs after the lender files a notice of default, meaning the borrower has violated one or more closes of the Note; if the default is cured there is no foreclosure. Here are the factors that can lead to default.
  • Homeowner does not pay property taxes or other required expenses such as insurance or homeowners association fees.
  • Property is no longer primary residence.
  • Borrower dies, as mentioned above, while this will trigger a notice of default calling the loan due, there are time frames heirs have to retain the home by paying off the balance due.
  • Borrower does not use the home as primary residence for more than twelve consecutive months, i.e., relocates to a senior care facility.

• If your loan balance is higher than the value of the home the lender cannot make you pay the loan balance down. If the lender does foreclose and the loan balance is higher than the proceeds from the foreclosure the lender cannot come after you for any balance due.
  • Scenario: Senior purchased a home twenty years ago in a retirement community in Beaumont. The balance on the RM is $350,000. The property is worth $340,000. The homeowner wants to relocate to a senior facility. Contacts the lender and deeds the property to the lender. The lender sells the property and after expenses nets approximately $300,000. The lender cannot file any claims or suits against the borrower for the $50,000 difference between the loan balance and the proceeds following the sale.

• If you do turn the property back to the bank it will have negative impact on your credit. In scenario above, if the senior is no longer going to purchasing property, automobiles or otherwise access new credit the impact of a negative rating on the credit report is negligible.
• The rates on RMs are higher than rates on traditional mortgages. This is due to the lender not receiving any interest payments until the loan is paid off, plus the risk that they may have a property that is worth less than the amount they loaned plus accumulated interest.

• A very common reason eligible borrowers do not obtain RMs is because they are concerned with losing equity in their home due to the increasing balance of the RM for accruing interest. Interestingly, this is often more a concern for the potential borrower’s children worried about inheritance than the borrower. Yes, the loan balance is increasing, but in most markets, especially in coastal Southern California, home values are increasing as well. With the calculations involved to determine the amount of the loan at funding, and any potential equity line, the math is whether or not the RM balance is increasing faster than the value of the property, and at what rate.

Many people have a difficult time understanding how a reverse mortgage works because they have imprinted in their consciousness that when you get a loan you make monthly payments until it is paid off. Perhaps the easiest explanation is it is an interest only mortgage, but you don’t pay the interest until the loan is paid off.

You and your spouse are both 68 years old are down-sizing, you sell your home for $1,100,000 and pay off your $350,000 mortgage. After costs of sale, you have about $675,000. The home in Palm Desert you are buying costs $850,000. Your income is social security payments for you and your spouse and accessing funds from your IRAs.

Option 1, you purchase the property with $450,000 down using a traditional 30-year fixed mortgage of $400,000 with an interest rate of 6.5% for a monthly payment of $2525 per month. As well you have association dues of $300 per month, your monthly housing expense is about $2825 monthly before real estate taxes (which you can transfer from your current property). With your housing costs and other expenses, plus enjoying your retirement you need to pull about $3000 per month out of your IRAs, which is taxed as ordinary income.

Option 2, you purchase the property with a reverse mortgage. Based on your ages you are eligible for about $300,000 mortgage and put $550,000 down. Your monthly payment for the mortgage is zero, your housing costs is your $400 per month for HOA fees and estimated insurance. You to pay housing and other expenses, plus enjoying your retirement you pull about $400 per month from your IRAs.

In this scenario, there is a difference of over $31,000 per year that is not accessed as taxable income from retirement accounts. Estimating federal and state taxes to be about 30%, that is an additional $9400 per year, or $780 per month, you will pay in taxes due to having the traditional mortgage.

As well, while your mortgage balance is decreasing with the traditional mortgage, so are your IRA balances from the additional withdraws to pay the higher housing expense, and taxes. Further, by removing the additional funds you are also removing the funds from growth in the markets, dividend and interest reinvestment.

You are widowed and have lived in your home for over 30-years, you have no mortgage. Your property value is $750,000. You are experiencing difficulties and rather than move to a senior assisted living facility want to have in-home care where someone cooks and cleans for you, as well a nursing professional come to check on you on a regular basis. Estimated cost for this care is $6000 per month. Based on your age and the value of your home you can obtain a HECM line of credit for about $460,000.

Accessing $6000 per month to pay for the care you obtain $72,000 per year, tax free, to cover the costs. After five years you owe about $500,000 on the mortgage (remember the line of credit increased annually).

During this time your home value has increased an average of 3% per year to about $1,200,000. You are 83 and it is time for you to move into an assisted living facility. The RM enabled you to age in your home for five more years, after which you sell your home, and net approximately $600,000 to pay for your assisted living and medical needs until no longer needed.

As you can see, in these scenarios, while the RM balances do grow and reduce equity, they are enabling the preservation of liquid assets, enabling stay-at-home aging, with little to no risk to the homeowner.

I used “you” for my examples, however some of those receiving the WR&MU are not in the viable age range for reverse mortgages; substitute “your parents” for “you” to see how your family may benefit from this useful financial tool. Especially with rising rates and inflation putting more pressure on older homeowners looking to downsize or maintain quality of life and lifestyle.

If you, a family member, or friend are interested in learning more about reverse mortgages please contact me.

To schedule an initial meeting by phone or Zoom, click here for my calendar, please feel free to forward to a friend or family member!

Have a question? Ask me!

Some good news this week. Inflation data came in much lower than expectations. March CPI showed prices dropped 0.1% from February, the lowest inflation figures since May 2020 and well below Wall Street’s estimate of 0.1% increase in prices. Year over prices increased 2.4% against expectations of 2.6% growth.  Core price (energy and food stripped out) grew at 0.1% for the month and 2.8% year over year. The two components removed for the core data went in opposite directions in March. Gass prices dropped 6% in the month, while food prices increased 0.4%, with eggs increasing 6% for the month and 60% since last March*. Hotels, airlines and other discretionary spending industries saw prices drop as consumers unsure of their economic future pulled back on spending.

In ordinary times the data would push interest rates lower as lower inflation increases the chances the Federal Reserve will lower rates. But we are in interesting times not ordinary and investors have been very skittish as they watch for news from the White House on tariffs on, tariffs off, tariffs up, tariffs down (somewhere in there is a Broadway song). Key to the mortgage market has been the activity in the Treasury markets, which has seen prices drop (rates up) this week, not good for mortgage rates.

Rates for Friday April 11 2025: The pull back in Treasury markets was exacerbated in the mortgage backed securities market, pushing 30-year rates to their highest since January, with the largest Friday to Friday rate increase since February 2023.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                             6.75%          Up  0.625%

30-year high-balance conforming        6.875%        Down 0.375%

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 with 740 FICO score for purchase mortgages.

*Coming out of Ralph’s and heading to my car I was accosted in the parking lot by a guy who said, “stick ‘em up.”

I raised my right and with my left I reached from my front pocket and said, “Here’s my wallet.”

“No body carries cash; I don’t want your wallet! Give me your eggs!”

While Spring may have arrived in March, this week is the official start for many, especially golfers. The Masters is underway, starting the one a major a month schedule for pro golfers finishing with the British Open in August.

Question of the week: Should we have seller pay costs?

Answer: Yes.

While the answer seems obvious, of course you should have a seller pay costs for you—if they are willing.

But what if the question was, “should we pay more and have the seller pay costs?” The answer will almost always still be “yes.”

In the WR&MU last Friday we answered, “Are prices dropping?” In the discussion were statistics from the California Association of Realtors for home sales in February. Amongst the data were that homes sold at 99.4% of their list price, that 31% of homes on the market reduced their list price, and that the median size of the price reduction was 4.5% of the original list price.

This data shows list prices are softer and that the market overall is shifting from sellers to buyers.

Let’s do some math comparing a lower price or the same price with seller paying costs.

Because I like even numbers, let’s assume a home has been on the market for 60-days is listed for $1,050,000. The timing may be right for the listing agent to approach the seller to lower the price closer to $1,000,000—or perhaps $999,990 because for the psychology of sales indicates it will attract more attention for the extra 1% price reduction because it is not One Million Dollars.

In negotiations the sales price offered by the seller is $1,000,000.

Should you purchase the home for $1,000,000 or more?

You accept the offer and structure your financing with 20% down and a $800,000 loan at 6.5%.  Let’s assume loan costs, escrow, title, etc of close to $20,000, is $220,000 for down and closing costs. Your monthly payment on the mortgage would be $5057 per month.

But what if you offered a sales price of $1,035,000? As part of the offer, the seller pays the $20,000 in closing costs, plus agrees to pay for a temporary rate buy down for your loan; a 2/1 buydown.

What is a temporary buydown? It is loan strategy used primarily in higher rate markets to soften the monthly payment for borrowers. In a 2/1 buydown mortgage’s rate is 2% lower for the first year, 1% lower for the second year, then for the rest of the loan at the note rate.

The cost of the buy-down is the total savings in payments for the two years the rate is bought down.

$828,000 mortgage with a 6.5% rate payment is $5235 per month. If you have a 2/1 buydown:

Year  Rate            Payment     Savings/mo           Annual Savings

    1    4.50%          $4,190         $1045                     $12,540

    2    5.50%          $4700          $535                      $6,420

 3-30  6.50%          $5235          $0                          $0

Total savings on monthly payments $18,960 thanks to the buydown, this amount is also the cost of to temporarily buydown your interest rate.

Your costs to close are $38,960, the original closing cost plus the buydown.

The seller agrees to pay this amount for you, net proceeds to the seller is about the same as if they sold the property for $996,040.

Your down payment is higher, by $7000, but you save almost $19,000 in monthly payments and the new mortgage for only $178 more per month after two years. The math, cash savings $38,900, divided by $178 per month after two years is almost twenty years before the higher monthly payment equals the savings at closing.

An added bonus, if you sell or refinance the property before the loan rate and payment adjusts to 6.5%, the amount remaining from the buydown is credited to your loan balance for payoff.

Consider in 18-months you can refinance your home for 5.5%, you can do so, get a credit to paydown your balance of approximately $3200, and lock in your lower rate and payment for the future.

If the seller is negotiating on price, negotiate on price and terms for seller to credit costs at closing. The credit can pay closing costs, pre-pay HOA fees, or with the change in real estate agent compensation the seller can pay your agent’s fee.

While a higher sales price will come with a higher down payment and monthly payment, the savings is costs compared to the higher down payment and monthly mortgage difference almost always works out in your favor in the long run.

If you focus on cash to close as opposed to sales price you can generally find common ground with a seller that does them no to little harm while providing a tremendous financial benefit to you.    

To schedule an initial meeting by phone or Zoom, click here for my calendar, please feel free to forward to a friend or family member!

Have a question? Ask me!

The second, and final, revision of GDP for the 4^th quarter of 2024 showed economic growth of 2.4%, higher than the prior revision of 2.3% growth. Last year ended with a nice amount of growth, though slowing from the prior quarter (3.1%), consistent with inflation slowing as well.

Enough to weather the storm? Personal income increased 0.8% in line with Wall Street estimates, thanks in part to social security benefits being paid out to public sector retirees who had non-Social Security Administration pensions. With personal spending increasing 0.4% in February, incomes far outpaced spending—increasing savings that can be used to buffer possible increases in inflation due to tariff increases.

As expected, the preferred inflation gauge for the Federal Reserve, the Personal Consumption Expenditures (PCE), rose 0.3% in February. The core index (energy and food stripped from data) rose a tick over expectations, up 0.4%. Year over year inflation remains, stubbornly, above the Fed’s 2.0% target, rising 2.5% in February, in line with January’s increase; the year-to-year core rate increased last month to 2.8% from 2.7%. While meeting expectations, inflation is still higher than expectations from five to six months ago and remains a concern for the Fed, and investors.

Rates for Friday March 28 2025: We love consistency and stability, and the 30-year fixed rate is giving us that Friday to Friday, despite some early week volatility. The conforming rate has stayed the same for four straight weeks, since it dropped the first week of the month.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                             6.375%        Flat

30-year high-balance conforming        6.625%        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 with 740 FICO score for purchase mortgages.

It’s here, it’s here!

Major league baseball is officially underway for all teams (I will refrain from a prolonged rant against the first regular season games being played overseas a week before every other team starts).

Optimism is in the air for most clubs, “this could be our year!” Which is valid as no team has repeated as World Series champions since the Yankees won three in a row from 1998 to 2000.

Eternal hope is all Seattle Mariner fans have had as their team has never made the World Series. Joining the Mariners in having never won the championship trophy, but having played in the World Series, are the Milwaukee Brewers San Diego Padres, Tampa Bay Rays and Colorado Rockies.

This phan is rooting for the Philadelphia Phillies for the 56^th straight year!

Ring the Bell!

Question of the week: Should we build an ADU?

Answer: Maybe.

Accessory Dwelling Units add value to a property, how much depends on multiple factors so it may take a while for your increase in property value to catch-up to your costs of building an ADU.

Over the past several years Sacramento has been fairly aggressive in removing local zoning regulations and ordinances that restrict the building of Accessory Dwelling Units, and reducing the costs to build them, as a way to ease the housing shortage in the state.

Towards the end of last year, the Legislature passed, and the Governor signed, into law clarification of prior laws and some new regulations preventing local housing and building agencies from have more restrictive building regulations than those from the state.

To over simplify the matter, if you can fit a unit on your property, you can build it.

In addition to prior regulations that:

• Raised height regulations (depending on how close to public transit or current structures on property 16- to 18-feet)
• Speed up the process (all agencies reviewing ADU plans must respond within 60 days of plan submission)
• Reduce setbacks (if ADU less than 800 square feet there is no front setback requirement to prevent building the ADU)
• Removes restrictions on permitting existing unpermitted units (if had unpermitted unit in a garage to be permitted it no longer is required to meet current building standards unless there is health and safety concern)
• Reduce costs (for example, fire sprinklers are no longer required for main dwellings as part of ADU permitting process)

Laws that went into effect on January 1^st go further in easing the building of ADUs:

• Further reduces costs for converting illegal units (checklist of “substandard conditions” that must be repaired or upgraded to receive permit, prohibits agencies charging penalties, impact fees, or connections fees as long as new utilities connections are not required)
• Increases the maximum number of ADUs (to eight as long as the number of ADUs do not exceed the number of existing units on multi-family lot and meet setback and height requirements)
• Eliminates off-street parking in some cases (ADUs on multi-family properties can build ADU units on existing uncovered parking areas and be required to have replacement off-street parking)
• Takes power away from the California Coastal Commission (CCC must provide clear guidance on amending local costal program to streamline approval process for ADUs)

Additional benefits for property owners with ADUs as enacted by the state:

• Forbids owner-occupancy requirements for ADUs (gated community and other neighborhoods with CC&Rs, HOAs, etc cannot prohibit property owner from renting the ADU)
• Local agencies must have pre-approved ADU plan scheme(s) (architect can submit plans for ADU to be pre-approved so can be used for future ADU construction without going through plan review and approval process)

Perhaps the most advantageous law in regards to property values is requiring local agencies to allow ADUs to be sold separately from the lot’s primary dwelling if certain conditions are met.

Rental unit, guest quarters, she-shed or man-cave, office space, work shop or craft space, are all possible applications for an ADU. Consider a two-story unit within the 16-foot height limit with living quarters below and office space above with separate entrance, as just one possibility.

Another option is constructing an ADU for full-time in home care  using conventional financing, then refinancing with a reverse mortgage to eliminate housing payments that can go towards paying for the in-home care for aging adults.

The are countless options for how ADUs can be used.

Should you build one?

Maybe?

To discuss financing and other options for constructing an ADU on your property give me a call!

To schedule an initial meeting by phone or Zoom, click here for my calendar, please feel free to forward to a friend or family member!

Have a question? Ask me!

It was okay. That describes the overall reaction to the Commerce Department’s Consumer Price Index data for February. Prices were up 0.2% for the month, year-over-year they increased 2.8%, a smaller hike compared to January’s 3.0%. Core prices (energy and food removed from the data) were also up 0.2% monthly, year over year the core rate in February, 3.1%, was also lower than January’s 3.3% reading. Inflation was a bit lower than expected for the month, but not enough to excite markets. The okay news puts the consensus in the markets that the Federal Reserve will not lower its benchmark interest rate at its meeting next week.

The future may not as okay, as seen by the University of Michigan’s monthly consumer sentiment survey, which hit a twenty-nine-month low in February. Concerns and uncertainty due to President Trump’s tariffs raising prices for consumers, many who are already slowing their spending, has them less positive about their economic future. Retailers from the Dollar Store to department stores to grocery stores are consistent in stating they are seeing lower income consumers spending less, including on necessities; as well upper income consumers are lowering their spending and tending to lower tier items for what they are buying. Combine the surveys and sentiments from those who provide consumer goods and services and rough winds appear to be forming for the economy.

Rates for Friday March 14, 2025: Rates continue to benefit from investors reducing stock holdings and purchasing fixed rate investments, such as mortgages as investors are more worried about inflation from the tariffs impact on the overall economy slowing than rates rising to combat inflation . The conforming rate is flat from last Friday.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                             6.375%        Flat

30-year high-balance conforming        6.625%        Up 0.125%

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 with 740 FICO score for purchase mortgages.

Great weather for ducks and geese this past week, not so great for those walking dogs in the morning who miss time their strolls in the morning after looking at the radar for when the rain will hit.

I’m sure we do not have the only dog who will not go outside to take care of business when it is raining but will run to his closet where his leash and other walk accessories are kept so he can go for a walk in the rain.

Stay dry and drive safe.

Question of the week: Economy: breezy or stormy?

Answer: Back from relaxing week in Maui with very soft and pleasant breezes, where a cold front is 81 degrees and a heat wave is 87 degrees, I spent some time relaxing by diving into so economic and mortgage data as we enter the end of the first quarter of 2025.

Some of the news portends soft breezes ahead, some portend potential storms brewing.

Consumer spending drives the economy (65-70% of the economy). The top 10% of income earners (making $250,000 and up) have been responsible for 49.7% of spending, that is approximately one-third of GDP. From September 2023 to September 2024 spending increased 12%, during this same period middle- and lower-class spending dropped.

The bottom 80% of income earners saw a 25% increase in spending from four years ago, the top 10% increased spending by 58%. Inflation during the period was 21%, the increase in spending by the bottom 80% was only 4% above inflation over a four-year period.

Our economic growth has been unhealthily dependent on the very top income earners spending a lot of money.

Housing is another primary driver of our economy. It is not news that housing sales have been very (very) slow the last several years. High interest rates and rising prices has driven many home buyers to FHA mortgages with their low-down payments and some easier to qualify guidelines than conventional mortgages.

Over the past few years, the risk on FHA mortgages has increased somewhat substantially.

In 2007 35% of new FHA mortgages had a debt-to-income (DTI) ratio over 43%. Debt-to-income is your total credit debt, including new housing payment, inclusive principal, interest, home insurance, property taxes, and if applicable mortgage insurance and homeowners association fees, divided by your gross income. If you monthly housing and credit payments are $4300 and your monthly income ins $10,000, your DTI is 43%.

In 2020 the number of new FHA loans with a DTI over 43% was 54%, in 2024 the number grew to 64%. Take out income taxes, social security, health insurance premiums from paychecks, for many FHA borrowers their DTI of net income exceeds 80%, leaving not much for other life essentials like food, clothing, transportation, and almost none for savings.

It is estimated that 79% of first-time buyers using FHA financing have one month or less of financial reserves in the bank. Lack of reserves puts homeowners in a precarious position should a set-back occur.

Of the FHA mortgages funded last year 7.05% were 90 days or more past due on their mortgage payment within the first twelve months of closing. This is higher than the prior peak in 2008, when we saw the mortgage and real estate markets crash and drive the economy and into the Great Recession.

The collapse leading into the Great Recession was greatly caused by homes going into foreclosure driving home values down, leading to more foreclosures as loan balances exceeded home values, or short-sales with lenders agreeing to take large losses through short sales rather than massive losses through the foreclosure process.

Covid relief by the last administration to borrower and mortgage servicers has rescued many delinquent loans. Last year there were 52,531 FHA loans in serious delinquency in their first year, yet only nine went into foreclosure. Many of the homes were saved by owners having enough equity to sell and payoff their mortgage and closing costs, others were propped up with funds from the government.

These funds pay servicers to work with borrowers missing payments to add those payments to the back end of the loan, to be repaid with interest, and/or cut payments by 25% for up to three years. In the past year 556,841 “incentive payments” were made to services to prevent foreclosures, almost the same amount of new loans funded.

Data above from Wall Street Journal

With new administration steam-rolling through federal agencies looking to cut costs and spending, will the federal payments to mortgage servicers to prop up delinquent borrowers continue? If not what is the impact on housing?

The lop-sided spending skewed to upper income earners, and the increasing risk taken by lenders for lower income borrowers and resulting challenges in their making payments, belies some of the strength in economic growth. As well, should employment markets weaken, the first to be cut are usually lower paying jobs, many of whom are already having challenges meeting all their household costs, which could be a tipping point for housing and the economy as a whole.

These are clouds gathering for a potential storm.

On the breezy side, economic data released this week shows continuity from the end of 2024 into 2025. The first revision of GDP for the last quarter of 2024 was no revision; the economy grew at a healthy 2.3% in 2024. Spending increased a healthy 4.2% for the year; the GDP report did show inflation at 2.7%, up from initial estimate of 2.5%.

Looking forward, the Atlanta Federal Reserve revised its estimate of GDP growth in the first quarter down from positive 2.3% growth to negative 1.5% on an annual basis. Part of the downturn can be attributed to severe winter weather in much of the country and the devastating wildfires in Southern California. A large part of the estimate is due to a large trade deficit as wholesalers, retailers, and consumers purchase imported goods ahead of tariffs being put in place by the Trump Administration.

Looking back, in January the Personal Consumption Expenditures (PCE) index, which is the Fed’s preferred gauge of inflation when considering its policy on interest rates, was up and expected 0.3% in January and 2.5% year over year. The core index (food and energy stripped from calculations) showed 0.3% increase in the month and 2.6% year over year, down from December’s 2.9% increase. The drop in the core rate is positive for rates.

Personal incomes grew well above 0.4% expectations, rising 0.9%. The growth was well above inflation, but did not spur increased spending as the report showed spending dropped 0.2% from December—likely attributed to weather and fires.

To schedule an initial meeting by phone or Zoom, click here for my calendar, please feel free to forward to a friend or family member!

Have a question? Ask me!

Rates for Friday February 28, 2025: Benign inflation news keeps rates flat from last Friday.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                             6.50%          Flat

30-year high-balance conforming        6.625%        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 with 740 FICO score for purchase mortgages.

Happy Birthday to those who don’t have a birthday this year; I’m speaking of course of those born on February 29^th. Since the last day of the month is on a Friday this year, assuming a lot of celebrations between 11:59:59 and 12:00:00 tonight!