Weekly Rate & Market Update 9-23-16
Question: Why shouldn’t I get 20% discount from retailer to apply for a credit card?
Answer: This question came up in a backdoor sort of manner with a client who has a blemish on his credit report from a credit card company that mismanaged his account. The reason he had the account was he received a discount from a retailer when he applied for the card as he was paying for his purchase.
Stores are starting to put up Christmas decorations (remember when they waited for Thanksgiving, and then they at least waited until after Halloween?) and that means many of us will be wandering the malls looking for that perfect reindeer and Santa sweater for Aunt Nellie and the moose slippers for Uncle Burt. Once we reach the register the dutifully trained sales associates will inquire if we want 10% off our purchase by applying for a credit card, with possible additional incentives of higher discounts for first five purchases, etc.
Instincts tell most people to say “sure!” because who doesn’t want to save 10% off?
My advice has always been, and will continue to be, say no to the new card. This is for several reasons.
First, most of the sales associates you see in stores at the holidays are temporary hires. While many of them are outstanding people, some are not as upstanding and it is easy for them to take your personal information you are giving them for the credit card application to use on their own in the future—social security number, address, driver’s license number, etc. It happens and you do not want to be a victim of identity theft.
Second, if you charge your items on your new card at point of purchase the bill will come in several weeks with a nice option to make the minimum payment due, or make no payment until after the holidays.
When the bill come you think, “Hey, it’s the holidays, I’ll make the minimum payment now and catch up and payoff the remainder of the balance in January.” Next thing you know you carried the balance until you receive you tax refunds in April, while paying 21% interest on the items you saved 10% on at the register.
Third, the inquiries that have the biggest impact on your credit score are inquiries for credit cards and department store cards—auto loan and mortgage inquiries have no to minimal impact. That 10% savings on some sweaters, scented candles and slippers may knock down your credit score below a threshold that kicks in a higher interest rate on your new mortgage or auto loan. That higher interest rate over time can cost you more over time than the 10% savings on your purchase.
Finally, 10% sounds like a lot but if you break it down the savings is often not that great. I have stood behind people at the register getting their 10% off of a total bill of $80, saving $8.00. How much are you really saving?
Faithful readers of the Weekly Rate & Market Update know that retail sales have been a bit sluggish this year, up only about 1.5% in 2016 and about the same form August 2015 to August of this year. Since Christmas is approximately 20% of most retailers sales for the years they need to move inventory between now and the end of the year. With retail sales having been somewhat flat it stands to reason that there could be some significant discounts this holiday season. Take advantage of the discounts being offered on the shelves and do not apply for that point of purchase credit card to save a few dollars more.
And didn’t you get Uncle Burt moose slippers last year, maybe a Rams sweatshirt this year?
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Weeks were we get any Fed news any other economic news is usually ignored until the Fed speaks. This week was no exception. There was a data release however that is important to the mortgage and real estate industries and that was the existing home sale figures for August released by the National Association of Realtors. For the second month in a row sales of existing home sales dropped nationally. The slowdown is primarily caused by higher prices and limited inventory. Existing, or previously owned, home sales are about 90% of the market nationally and earlier this year reached the highest since 2007. Sales are up 0.8% from last August and the median price is 5.1% higher nationally. In the Los Angeles Metropolitan Area sales are up 3.8% from July and 6.2% from August 2015 with the median price on a single family residence up to $473,950—6.1% higher than last August. Overall the news is mortgage rate neutral. Home sales have driven the economy the last few years and a slowdown could have far reaching impact on the economy but since the slowdown appears to be price and inventory driven investors ignored the data.
Not ignored by investors is any word from the Federal Reserve. On Wednesday the Federal Reserve Open Market Committee announced it was leaving its Fed Funds Rate unchanged for now. The vote for no change has narrowed however with the vote this week being 7-3 as opposed to prior meetings when the vote was 9-1. The statement in the release was somewhat mixed with most of the economic assessment the same as July. The statement gives no real reason for the Fed to increase rates in December but the consensus is growing that there will be a rate hike at that time. The immediate reaction was a bump in Mortgage Backed Security (MBS) prices causing a bit of a dip in rates, but not much as MBS trading has maintained its tight range we have seen for the past few months.
Rates for Friday September 23, 2016: Conforming rate slipped back down after spending the last two weeks above its seven week bottom on the Fed speak, while high balance has remained flat for ten consecutive Fridays. I continue my advice of locking through your escrow period to protect these incredibly low rates from any sudden increases.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Down 0.25%
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** 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 may have no points and credit towards closing costs, changes daily.
My favorite season is upon us. I love autumn with the cooler days and nights but still plenty of sunny days. Having grown up in different regions that experienced all four seasons, unlike Southern California where we have summer and not summer, I have always enjoyed Fall and all that comes with it, from the leaves and weather turning to the start of football season and the baseball playoffs. I am hoping this autumn we have many crisp days and nights!
Have a great week,
Dennis
