Hood Canal Undressed

Hood Canal Real Estate, Mortgage, and Economy 1/16/11

Here is the Hood Canal Real Estate Report for Jan 16, 2012:

Interest Rates Bouncing Along Resistance: Interest rate markets have been unable to break through levels that equal historic lows. As experts continue to analyze all the market forces the consensus is that we will not see significant rate improvements unless a catastrophic event creates new and historic circumstances. At the same time there is no indication that rates will be moving up. The rumors regarding QE3 are the only thing that we can see would cause rates to increase in the near future. Although many analysts and Wall Street firms are improving their forecasts for the US economy this year, and some are actually recommending moving out of fixed income treasuries, the bond and mortgage markets have so far been able to resist moving higher in rates. US interest rates have been generally unchanged for over a week now; Europe’s debt problems keeping a minor bid in US treasuries while improved economic outlooks are weighing on the markets. A balance between the two forces has stabilized rates for the moment. The pending fee increases for all Conforming loans will certainly result in rate increases. See below.

“Happy days are here again.” Milton Ager and Jack Yellen. And while it seems that consumers are certainly feeling happier, not everything that happened last week was cause for song.
There was good news last Friday, as the first look at Consumer Sentiment for January came in at 74.0, which is the highest level since May 2011. However, there was also news last week that the holiday shopping season may not have been as robust as previously thought.
Retail Sales in December rose by a meager 0.1% from 0.4% in November, and when stripping out autos, sales actually fell 0.2%. Why did this happen? It seems that steep holiday discounting held down the value of goods sold, so sales were big, but only because of the heavy discounting.
The news out of Europe last week also wasn’t too happy. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde met to discuss and finalize the debt restructuring deal for Greece. Back in October, a deal called for Bondholders to “accept” a 50% haircut on the face value of the Greek debt – but as creditors and authorities have started to forge a final deal, the actual haircut back to investors is looking quite likely to be larger than 50%. This is simply because worsening financial conditions in the Greek economy make paying the debt back with “just” a 50% haircut highly unlikely…maybe impossible. What’s more, the next reasonable question to consider is will Ireland, Portugal and even Italy ask for a similar haircut or deal on what may be unsustainable debt in their countries?
The happy news is that these problems are finally being addressed to make things better in the future. And in the short term, the uncertainty should keep money flowing into the relative safe haven of the US Dollar and US Bonds – including Mortgage Bonds, to which home loan rates are tied. In addition, Mortgage Bonds continue to be supported by the Fed’s purchases, which are also helping to keep home loan rates at record low levels.
All of this means that now continues to remain a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
Europe still has major influence in US markets, however for the present the worries over defaults and safe haven moves into US treasuries has waned somewhat. The 10 yr German bund underperformed all their euro-area peers as European stocks rose, curbing demand for the safest fixed-income assets. Angela Merkel said yesterday that euro-area nations are considering accelerating capital contributions to the region’s bailout fund. French bonds rose after Fitch Ratings said the nation will probably retain its credit grade unless the European debt crisis worsens. Merkel will meet IMFs Lagarde today after discussions with French President Nicolas Sarkozy yesterday. The leaders said they plan to drive forward their agenda for stricter budget rules as they seek to craft a master plan for rescuing the euro.

Real Estate Miscellaneous Stats:

Market Analysts See Real Estate Recovery by 2013: While there is still negativity around Real Estate nationwide, there are some that think we are close to being out of the woods. Case Shiller reports that home values have dropped 31% since their peak in 2006 nationwide. A Bloomberg News report quotes Scott Simon of PIMCO saying values will likely drop another 7%. The good news is this makes housing very cheap. Zillow reports that housing declines in 2011 were the smallest in 4 years. This is consistent with most analysts views of a recovery. They predict appreciation will return in 2016 and will be at 3% through that time. Freddy Mac’s chief economist predicts a 1% decline in 2012 and 2% appreciation in 2013. Existing-home sales rose to an annualized 4.42 million in November, the highest in 10 months after figures were revised, the National Association of Realtors said this past week. Moody’s Analytics Inc. expects home prices to drop about 3 percent in 2012 as more foreclosed homes go on sale.

REO Solutions: The Obama Administration is preparing a plan to try and unload foreclosed properties held by Fannie, Freddie and FHA; the plan calls for packaging bundles of REOs with the goal of selling blocks of homes to private investors as income properties (rentals). It is a plan that has been kicked around for a while but until now, only talk. Every key agency frm the Fed to FHFA appears to be involved with the plan. Rental income is up, prices for homes still falling; if the prices are right maybe some of the REOs can be sold—depends mostly on how much the agencies are willing to give up when prices are set. There is little reason to expect the plan will be successful, but is worth a try; what lender will step up to finance a huge pool of foreclosed houses without a huge infusion of up-front cash?

New Mortgage Fees “Go Live” In Late-January: Fannie Mae and Freddie Mac have been instructed to start collecting the new, higher guarantee fees effective April 1, 2012.However, mortgage applicants will notice new fees appearing sooner than that. This is because loans that land with Fannie or Freddie can take 75 days or more to get there. Fannie and Freddie will increase their guarantee fee on all residential loans being pooled by 10bp on April’s Fool’s Day, but most believe that this increase should start to reflect on mortgage applications in February, if not sooner. Other increases might be needed over the next couple years, especially if g-fees are raised to match what a non-government institution would charge for the risk. Some estimates that I have seen on this are another 15-35 basis points over the next two years (on top of the 10bp increase effective 4/1). This could equal in increase in rates of about .125%.
Other changes are set for HARP. As part of the HARP 2.0 program changes, 30-year HARP loans will have an LLPA cap of 75bps (loans with terms of 20 years or less will have a cap of 0. This presents a significant restriction on how many additional fees can be collected from those loans.

Loan Program Of The Week. My Community Loan: This is a conventional loan product that allows 3% down payment on purchase transactions. One of the main features allowed on this program is financed single premium mortgage insurance. The single premium fee is around 2.2 to 2.8% of the loan amount. It can be paid for by seller contributions. This structure can lower a borrower’s payment by a significant amount as compared to an FHA loan. Call for details.

Hood Canal Real Estate Report

Tips For Selling Your Home in This Market!

Today’s buyers are looking for turnkey homes. That is, they want to move right in without having to do a lot of work. Buyers with busy lifestyles pay a premium for listings that are in prime condition. Staging can make the difference between a listing selling or not, the time it takes to sell, and the ultimate sale price.

Sellers who are financially strapped often have a hard time accepting that they’ll need to invest in preparing a house for sale even though they may sell for less than they paid. Fix-up costs can mount up; your agent can help you prioritize so that you don’t waste money. It’s important to keep your goal in mind, which is to sell your house in a difficult market.

Recently, a home in Piedmont, Calif., an affluent city neighboring Oakland, came on the market in “as is” condition. It had been lived in for decades without much upgrading. Although located in a desirable area, the listing was vacant, dark and showed poorly. The sellers refused to do any work to improve its appeal.

After months on the market with no significant interest, the sellers pulled the house off the market and made improvements. The wall-to-wall carpet was pulled up to reveal hardwood floors that were then refinished. Painters lightened the interior and a professional stager was hired to bring in furniture, artwork, house plants and accessories. The listing was put back on the market with a fresh look and sold right away.

For more excellent Home Selling information click here.

Hood Canal Real Estate, Mortgage, and Economy 1/8/12

Here is the Hood Canal Real Estate Report for January 8, 2012:

Interest Rates Make Small Improvements: The same story lines continue to dominate the conversation. US economic activity continues to show some improvements while uncertainty in Europe keeps a lid on sentiment. This is keeping rates low and the stock markets in a holding pattern. The market analysts we subscribe to continue to suggest that further improvements in interest rates are going to be minor. They site technical factors as well as the continuing improvements in many economic measures here. We will see if that changes at any point where news out of Europe gets much worse. Regardless of the various momentary influences on US markets, particularly the bond and mortgage markets, the 10 yr note continues to find resistance when it falls below 2.00%, recently at 1.95% it is holding. Most technical analysts remain of the opinion that rates will stay low. That sentiment won’t last much longer unless the yield continues to decline which means if rates do not continue to go down they will likely start go move up.

Industry News
State of the Economy:
Last Week in Review

“Workin’ nine to five. What a way to make a livin.’” Dolly Parton. And with last week’s Jobs Report showing that unemployment has reached three-year lows, that’s something more people have been able to do lately. Read on to learn more about what’s happening in the labor market…and with home loan rates.
On Friday, the Labor Department reported that 200,000 jobs were created in December, with 212,000 private job gains offsetting modest losses in government jobs. Adding to the positive spin of the report was the Unemployment Rate falling to 8.5% from a previously reported and upwardly revised 8.7% reading.
While people being removed from the labor force are skewing this unemployment number to some degree, it’s important to note that the U-6 unemployment rate dropped a few ticks as well, to 15.2%. This number includes ALL unemployed individuals, including those “marginally attached” to the labor force, who are either ‘discouraged’ and haven’t sought work recently, as well as those folks working part-time who really desire full-time jobs.
Overall the Jobs Report was a modestly positive reading on the labor market. We still have 5.6 million people unemployed for 27 weeks or more, and that number is little changed this month. But the big takeaway today is that the trend is improving.
The other big takeaway is that bad news out of Europe helped balance out the good Jobs news here at home…allowing Bonds and home loan rates to recover from their initial negative reaction to the Labor Department’s report. The Euro is continuing to be weighed down by rising concern on member countries’ ability to get their deficits in order and their debt in manageable position.
The bottom line is that the problems in the Eurozone are vast, complicated, and without easy solutions…so it will take a very long time for clear resolution. And during times of global uncertainty, money will flow into the relative safe haven of the US Dollar and US Bonds – including Mortgage Bonds, which home loan rates are tied to. This means that home loan rates should continue in their sideways trend and remain near historic lows, making now a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
Data from Europe Shows Some Improvements, but there hasn’t been much change yet in the sentiment that Europe’s debt issues have been alleviated in the least. The potential change in some of the thinking is that global economies won’t be hurt as badly has had been believed based on recent reports in the US and a few counties in Europe. Presently markets are somewhat less fearful, but it is a fragile belief that doesn’t have a lot of substance yet.

Banks in Europe still barely hanging on; They are hoarding assets that they may need as collateral if they have to borrow from the European Central Bank. Each day we get news from the region, an ongoing and frustrating mess that is nowhere near a resolution.

Real Estate Miscellaneous Stats:

Market Analysts See Real Estate Recovery by 2013: While there is still negativity around Real Estate nationwide, there are some that think we are close to being out of the woods. Case Shiller reports that home values have dropped 31% since their peak in 2006 nationwide. A Bloomberg News report quotes Scott Simon of PIMCO saying values will likely drop another 7%. The good news is this makes housing very cheap. Zillow reports that housing declines in 2011 were the smallest in 4 years. This is consistent with most analysts views of a recovery. They predict appreciation will return in 2016 and will be at 3% through that time. Freddy Mac’s chief economist predicts a 1% decline in 2012 and 2% appreciation in 2013. Existing-home sales rose to an annualized 4.42 million in November, the highest in 10 months after figures were revised, the National Association of Realtors said this past week. Moody’s Analytics Inc. expects home prices to drop about 3 percent in 2012 as more foreclosed homes go on sale.

Loan Program Of The Week. Foreign National Loan: Guild Mortgage has access to lenders with programs for foreign national home buyers. These are buyers that have no residency status in the US, no us income, do not have a Social Security Number or no US based assets. These programs require a 50% down payment but generous loan limits are available. Qualification includes getting a TIN, documenting income and source of assets via translated documents. Call for more details.

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy for 1/2/12

Here is the Hood Canal Real Estate Report for Jan 2, 2012:

Interest Rates Gain Back Lost Territory: Rates move back to the best levels of the last 2 weeks and bump along historic lows. The same factors we have watched continue to move the markets. The US economy continues to show some improvements as employment numbers move better, consumer sentiment improves and industrial data comes in somewhat positive. Market experts say that improvements from here face some resistance but it may be worth watching for new developments. Have a Happy New Year.

Industry News
State of the Economy:
Last Week in Review

It’s been said that “the only constant is change.” And we certainly saw a lot of changes in 2011. As we ring in 2012, here’s a look at how 2011 ended, and what lies ahead for home loan rates.
The Stock and Bond Markets were closed on Monday in observance of the Christmas holiday, and it was a fairly quiet week after that. However, there was some good news, as Consumer Confidence came in at 64.5 for December. Not only was this the third highest number reported for 2011, but this important index has jumped nearly 25 points in the past three months and now sits at its highest level since April. What’s more, this report followed the recent Consumer Sentiment Index reading, which also came in at its highest level in six months.
While consumers certainly appear more optimistic here, the news hasn’t been as positive out of Europe. The Euro struggled somewhat last week after just an okay performance from one of Italy’s Bond auctions. While the country sold all their debt at yields slightly lower than where they were just the day prior, yields are still historically high (near 7% on 10-Year Notes) for a country that has a lot of debt to service and refinance in the coming year. In addition, Spain’s government announced on Friday that the country’s budget deficit will surpass 8%. Spain also unveiled new austerity measures to combat their economic and budgetary difficulties.
So what does all of this mean for home loan rates here in the U.S. in 2012? The uncertainty in Europe should continue to help Bonds and home loan rates, as investors will see our Bonds as a safe haven for their money – and remember, home loan rates are tied to Mortgage Bonds, so rates typically improve as Mortgage Bonds improve. However, continued good economic reports here in the U.S. could balance out those improvements. That’s because investors will typically move their money out of Bonds and into Stocks during good economic times, so they can take advantage of gains.
The bottom line is that whatever lies ahead this year, 2012 begins with home loan rates near historic lows…which makes this a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
This is the time of year when we hear a multitude of economic forecasts from economists. From what we have read over the last few days, the consensus for 2012 is better based on various surveys. Economists surveyed by Bloomberg and Reuters are expecting GDP growth in 2012 at +2.4% frm 2011 that is under 2.00%. Of course most forecasts have the caveat that Europe could drag the world back into recession and a global credit crisis if banks in the region fail or sovereign debt defaults occur. 2012 like 2011 will be held captive by Europe’s continuing inability to accomplish much so far.

Europe remains the key for US interest rates, not news that safety trades have pushed US yields to all-time lows. In Jan, after a few weeks of quiet from the EU, ECB, and the IMF, expect renewed comments and “plans” on how to deal with the increasing debt mess and banking concerns in Europe’s banks. At the end of the year the dangling question that has hung over global markets for two years hasn’t changed. Can officials of various bodies actually solve the debt crisis in a manner that doesn’t lead to default? And where is the money going to come from to relieve the region’s banks? At the end of day so far, there isn’t enough money or near term solution to the developing crisis. Will Europe drag global economies down as it re-enters recession?

Real Estate Miscellaneous Stats:
The S&P/Case-Shiller index of property values in 20 cities dropped 3.4% from October 2010 after decreasing 3.5% in the year ended September, the New York-based group said today. The median forecast of 27 economists in a Bloomberg News survey projected a 3.2% decrease.

National Association of Realtors Mistates Home Sales: The national Real Estate association made an announcement last week that they had over estimated home sales from 2007 through 2010 making an already dismal situation appear worse than we thought. 2010 sales numbers were revised down 14.6% and the total sales from 2007 through 2010 were lowered by 14.3%. This lowered total sales during that period by 3.5 million units. The discrepancy is said to be due to some variences in census data and double counting of some sales. Another factor is a movement away from For Sale By Owner properties that made standard formulations unreliable.
Loan Program Of The Week. New Portfolio Jumbo Loan: Guild Mortgage has just entered in to an agreement with a Jumbo Loan provider that offers some of the most flexible underwriting and creative provisions for loan approval. Here are a few bullet points:
• Loan Amounts Up to $5,000,000.00 and $10,000,000.00 on a case by case basis.
• True portfolio product with flexible underwriting policy. We just approved a loan that was declined with other portfolio lenders because of income problems.
• Asset Depletion can be used to supplement income. This can be done even if a client does not have a history of depleting assets on their tax returns. Income calculations from this source are based on age of the borrower. 4001K funds can only be used if the borrower is of retirement age.
• Pledged Assets can be used to reduce down payment. This allows the borrower to keep their assets invested. This can allow down payments as low as 10%. Pledge cannot come from a 401K, IRA or annuities.
This loan can be very helpful for high net worth borrowers that may not show a lot of income on their tax returns.
Some Interesting Information:
Part 1: 5 Simple Steps for Achieving Your New Year’s Resolutions
Each new year is full of promise and potential. Perhaps that’s why so many of us choose this time of year to make positive changes in our lives.
And, believe it or not, achieving your goals can be easier than you think. The following 5 steps can help you get started and follow through!
1. Set realistic goals. The first step to your successful New Year’s resolutions is to set realistic goals for the coming weeks and months. You can start by focusing on the things you’re passionate about or the things you’ve always wanted to do. Maybe it’s a worthy cause you want to become involved in…or maybe you want to kick a habit that’s bothered you for years. If it’s something that you’re passionate about, you’ll have a better chance of being successful. Once you have the topic, make sure you write down a specific, attainable goal. It’s not enough to just think about doing something. Come up with a specific statement you want to achieve. For example, the most common resolution is to lose weight. But that’s not specific enough. Write down exactly how much weight you want to lose and by when. But make it realistic…and healthy at the same time.
2. Make a simple plan to achieve each goal. Once you have your goals written down, take the resolution a step further by figuring out how you’ll achieve it. That means breaking the goal down into simple steps that you can achieve over time. And, often, it means multiple little steps. So, for the weight loss resolution, you may write down a number of simple, daily or weekly steps – such as exercise 20 minutes three times a week, eat vegetables and fruit with each meal, switch to diet cola or better yet water during the day, and lose a certain number of pounds per month. Remember to consult a physician before starting any weight loss or exercise routine to make sure you’re approaching it in a healthy manner.
3. Announce your goals. One of the best ways to make sure you stick to your goals is to make them known to your friends, coworkers, and family members. The reality is, once you’ve told people you’ll do something, you’ll feel more accountability than if you just keep it to yourself. You’ll also have a cheering section to help you stay focused and positive as you work to achieve your goals. But don’t just share your goals; share the specific steps that you’re going to take each day or week to achieve those goals. If you use any social media websites to connect with friends and family, make your goals and steps part of your daily/weekly updates…it’s a great way to get the word out and hear feedback from people who want to help you stay on track.
4. Track and celebrate your progress. Small steps aren’t just about making your way to a goal; they’re also about building momentum, a positive attitude, and celebrating successes along the way. There are a number of ways to track and celebrate your success. For example, if your goal is to work out 20 minutes a day three times a week, you can use a marker and a calendar. Each day you work out, simply color that day in green (or another positive color that you like). As the month unfolds, you’ll see more and more green covering the calendar, which will help you see just how much work you’ve done and keep you motivated to keep going. In addition, you can also use social media to track and celebrate your success. Maybe you tweet or update your Facebook status every time you exercise. Or maybe you announce when you’ve lost a few pounds. The point is, you’ve already announced your goals to friends and family as a way to hold yourself accountable, now it’s time to celebrate with those same people every time you achieve a step along the way.
5. Don’t get discouraged. You’re bound to have good weeks and bad weeks. Just because you fall off track once or twice doesn’t mean you should give up. Instead, acknowledge that you had a bad day or week, figure out what happened to throw you off track (maybe it was a busy or stressful week), and then make a plan to overcome the problem if it happens again. For example, if you had a tough week at work that required you to work late and miss the trip to the gym, make a plan to be proactive the next time work gets busy. Perhaps you make a plan to walk during your lunch break or wake up early to do jumping jacks and push-ups before heading into the office. But…whatever you do…don’t give up on your goals or yourself. Review your plan and recommit yourself to those simple steps. You can even use social media to acknowledge a mistake and commit to overcoming that problem in the future. That way, you’ll have a new sense of accountability and support from your friends and family.
Best wishes to you in achieving all your goals and dreams this year. And if your New Year’s resolutions involve any financial or housing matters that I can help with, please call or email today. I’ll be happy to help out in any way that I can.

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy 12/26/11

Here is the Hood Canal Real Estate Report for Dec. 26th 2011:

Interest Rates Lose Some Ground This Week: More risky assets took some momentum away from mortgage backed securities this week as fear over Europe subsided a small amount and the US economy continued to show improvements. In the US the economy is improving, about every data point over the last month has been better than thought. The only reason US rates are at these low levels is because money from around the world is moving to the safest place—the US bond markets. The US stock markets had a large rally this week on news out of Germany and the UK that their economies are holding up relatively well during the Euro crisis. While there still are no ‘solutions’ this small amount of good news lowered the level of panic. This caused bond rates to increase. Mortgage bonds held up much better than treasuries as the Fed is buying mortgage backed securities. I continue to believe the bond and mortgage markets will trade in narrow ranges through the remainder of the year.

Fitch lowered France’s credit outlook and put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Italy’s benchmark 10-year bond yield returned yesterday above 7%, the level that led Greece, Portugal and Ireland to seek bailouts, before falling below the threshold.

Europe’s equity markets better on data from Germany and the UK were better than expectations. German business confidence climbed in December, suggesting Europe’s largest economy is weathering the euro area’s debt crisis. The gauge of business confidence, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based Ifo institute said today. Consumer confidence in the UK rose in November from a record low as consumer expectations for the economy improved in the run-up to Christmas. Momentary reports that are not likely to be sustainable but today they are pushing equity markets higher in the region.

Real Estate Miscellaneous Stats:
December National Association of Home Builder’s housing market index, expected at 20, increased to 21 from 19 in November. Single family index came in at 22 from 20 in November; next six months outlook index increased to 26 from 25. (50 is the pivot for the indexes, above expansion, below contraction).

November Housing Starts and permits were reported. Both starts and permits were expected to be weaker (-0.8% or starts and -2.8% on permits) as reported starts increased 9.3% and permits up 5.7%, the highest in a year, multifamily starts at a three year high. New construction of single-family houses rose 2.3% from the prior month to a 447,000 annual rate, the most since June. Work on multifamily homes surged 25% to an annual rate of 238,000, the highest level since September 2008.

November Existing Home Sales were expected up 2.2%, increased 4.0% to 4.4 million. The median sales price at $164,200 was a decline of 3.5% yr/yr. Based on sales there is a 7 month supply which continues to show some improvement. A bomb was dropped by the NAR when they revised sales between 2007 and 2010 down another 14% based on double listings; the revised sales show sales were even lower than what had been reported.

Loan Program Of The Week. New Portfolio Jumbo Loan: Guild Mortgage has just entered in to an agreement with a Jumbo Loan provider that offers some of the most flexible underwriting and creative provisions for loan approval. Here are a few bullet points:
• Loan Amounts Up to $5,000,000.00 and $10,000,000.00 on a case by case basis.
• True portfolio product with flexible underwriting policy. We just approved a loan that was declined with other portfolio lenders because of income problems.
• Asset Depletion can be used to supplement income. This can be done even if a client does not have a history of depleting assets on their tax returns. Income calculations from this source are based on age of the borrower. 4001K funds can only be used if the borrower is of retirement age.
• Pledged Assets can be used to reduce down payment. This allows the borrower to keep their assets invested. This can allow down payments as low as 10%. Pledge cannot come from a 401K, IRA or annuities.
This loan can be very helpful for high net worth borrowers that may not show a lot of income on their tax returns.
Some Interesting Information:
Doubling Down—That can be a good move if you are in Vegas but what about government debt? The United States has creates as much debt in the last 7 years as was created in it’s entire history up until 7 years ago. As of 4/30/2004 total US debt was $7.13 trillion. Current total Federal Debt is $14.29 trillion. ( Source: Treasury Department )
Medicare Time bomb—Medicare Trustees released a report on 05/13/2011 regarding the financial condition of the trust fund. The new report says the trust fund will run out of money 5 years earlier than their report issued just one year ago. Medicare Part A (hospitalization coverage) is projected to be depleted by 2024 in the latest report and will be in the red for all future years. The trustees give a long term projection that goes out 75 years. They say the shortfall could be cured by an immediate increase in the Medicare payroll tax of .79%. This would raise the tax from 2.9% to 3.69%. ( Source: Medicare Trustees )
Unemployment Outpaces Jobless Rate —The number of people out of work in the last 4 years has doubled from 7 million to just over 14 million. At the same time unemployment benefits have increased 5 times in the last 4 years from $31 billion in 2006 to $159 billion in 2010. ( Source: Labor Department )
Skin In The Game —As of 1979 only 30% of all taxpayers paid no Federal Income Tax. By 2009 that number had increased to 42%. This is the last year we have data available. Many suggest that number is over 50% now. What happens when a majority of people voting to raise taxes are not impacted by that change? This is a matter of concern to many. ( Source: Internal Revenue Service ).

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy 12/17/11

Here is the Hood Canal Real Estate Report for December 17, 2011:

Interest Rates Improve A Small Amount This Week: The US rate markets have continued to improve but only a small amount and are essentially stagnant. The 10 yr note has a brick wall at 2.00% and another at 2.12%. We have been in this range for over a month and, against all the negativity out of Europe’s fumbling, long term rates have not broken in to new territory. The fears of debt defaults in Europe have lessened a little while the US economy has shown improvement albeit small; Europe will continue to keep US rates low but pulling the other direction is what appears to be a better economy in the US. Neither issue is a lock, the end result is current stagnation in the interest rate sector. In past moves when the 10 yr Note traded below 2.00% it lasted just three days before it moved back over 2.00%. It is flirting with these levels again. This time down may last longer as investors begin to wind down for the year; with Europe a constant ticking bomb investors and traders are not likely to back off their move in to bonds which keeps rates low. Technically the bond market is still holding a favorable bias, mortgage markets slightly so but still in decent shape from a technical trading perspective.

“Whistle while you work.” Snow White. That’s something more people have been able to do lately, as Initial Jobless Claims have now fallen below 400,000 – a level that historically is associated with an improving job market – for five out of the last six weeks. And that wasn’t the only bit of good news the markets saw last week. Read on for details.
Not only was last week’s Initial Jobless Claims reading of 366,000 the lowest level since May of 2008, there was a double dose of good news in the manufacturing sector, as both the Philadelphia Fed Index and the Empire State Index were both well above expectations. Normally, good economic news causes money to move out of Bonds and into Stocks as investors like to take advantage of gains…and this would typically hurt home loan rates, as they are tied to Mortgage Bonds.
However, the continued uncertainty out of Europe helped keep Bonds and home loan rates on an improving trend, as the US Dollar and US Bonds (including Mortgage Bonds, which home loan rates are based on) are benefiting from safe haven buying. Ultimately, Europe needs to provide a large financial backstop for their banks and sovereign debt in order to fix their problems longer-term. Until this happens, uncertainty should benefit the US Dollar and US Bonds, and keep home loan rates relatively low.
One factor that we can’t ignore, though, is inflation. Despite the Fed stating again last week that inflation is moderating, core consumer level inflation has continued to inch higher every month. Also, last week’s Producer Price Index showed that inflation at the wholesale level was slightly higher in November. Remember, inflation is the arch enemy of Bonds and home loan rates, because if inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would mean home loan rates move higher.
The debt crisis in Europe is not getting better, its actually worsening after the EU summit fumbled again with nothing but way out plans. Moody’s said on Monday that last week’s euro crisis summit didn’t provide new measures which would lead to a resolution of Europe’s debt problems, and it would review European Union sovereign ratings in the first quarter of 2012. S&P said before the meeting that it may cut the credit rankings of euro members. ECB President Mario Draghi announced the plan to offer lenders unlimited funds for three years after the central bank’s policy meeting on Dec. 8. The result has Spanish and Italian notes better today, leading gains in euro-area debt, on speculation banks bought the securities to use as collateral when the European Central Bank starts offering three-year loans next week.

Real Estate Miscellaneous Stats:
Flipping At The Center Of Real Estate Melt Down: There have been a number of great pieces done by different sources explaining the reasons behind the Real Estate Market Melt Down. My favorite so far is a CNBC documentary titled, ‘House of Cards’. One of the favorite objects of scorn lately is Fannie Mae and Freddy Mac. It has been my personal opinion that Fannie and Freddy could have survived as viable, in spite of real significant problems, if it were not for the private label mortgage products that gave easy access to funds. These loan programs were called Alt A, A- and sub prime. These loan products could instantly turn the average Joe in to a Real Estate investor. The ease of entry in to this career and the implosion in the stock market made the Real Estate market ripe for over expansion and an inevitable collapse. Fannie and Freddy desperately needed reform but they were not offering the 0% down investment property loan programs with stated income and even No Income No Assets. Fannie and Freddy were at jeopardy due to an overheated market but they were only a small percentage of the problem.

You can see how the subprime/alt-a products spiked. Much of this activity was due to the volume created by investors buying and flipping homes. Fannie and Freddy did get in to the ‘subprime’ business with some of their products but they were small players. A Federal Reserve Bank of New York study concluded that private label subprime loans were 84% of the total sub prime market. This information came from a Washington Post piece that you can see here http://www.washingtonpost.com/blogs/ezra-klein/post/barney-frank-didnt-cause-the-housing-crisis/2011/11/28/gIQANqLH5N_blog.html .
A new Federal Reserve study is pointing to flipping as a major contributing factor in the Real Estate Bubble. The study found that at the peak of the boom in 2006, 33% of all home purchases were done by someone who already owned at least one home. That is huge increase in market participation. The report also cites the use of non-traditional mortgage products as the instruments that made it possible for more people to buy with low down payments or otherwise easy terms. They note that in the ‘boom and bust’ markets such as Nevada, Arizona, California and Florida the investor participation rate was as high as 45%. In 2006 these markets had 20% of all loan originations by investors who owned three or more properties. The use of private label mortgage products gave investors the ability to bid up the prices on home and thus fueled the bubble. These borrowers were the first to default when the bubble burst. You can read the report here: http://libertystreeteconomics.newyorkfed.org/2011/12/flip-this-house-investor-speculation-and-the-housing-bubble.html .
Anecdotally this makes sense to me. I remember discussing strategies used in this area where investors would secure a home at the opening of a plat with a popular builder. By the time the home was complete they could sell it and make $80,000.00. I have a friend who did the same thing in South Florida and made $200,000.00 by waiting 1.5 years for it to me completed. But they had to have a way to close on the property while having a primary residence.
Real Estate Prices May Be More Stable: New reports suggest that home prices of non-distressed properties may be more stable than we have been led to believe. Barclay’s recently published the results of a study that shows distressed properties continuing to fall in value while non-distressed homes may even be increasing in value in some areas. Corelogic also published a report that gives similar information. They show that, while over all home values in the US are down 3.9% from last year, non-distressed properties where only down .5% this year. Barclay’s Stephen Kim sees a distinction between distressed and non-distressed properties developing in the market. This is a positive development even though distressed properties can continue to put pressure on non-distressed via appraisal issues. Another factor that is giving a false read on values is the predominance of sales in the lower price range. Home sales up to $250K made up 70% of all home sales this last quarter. Sales above $500K made up only 8% of the total sales. While this sector is typically lower, this is an unusually low number.
Loan Program Of The Week. New Portfolio Jumbo Loan: Guild Mortgage has just entered in to an agreement with a Jumbo Loan provider that offers some of the most flexible underwriting and creative provisions for loan approval. Here are a few bullet points:
• Loan Amounts Up to $5,000,000.00 and $10,000,000.00 on a case by case basis.
• True portfolio product with flexible underwriting policy. We just approved a loan that was declined with other portfolio lenders because of income problems.
• Asset Depletion can be used to supplement income. This can be done even if a client does not have a history of depleting assets on their tax returns. Income calculations from this source are based on age of the borrower. 4001K funds can only be used if the borrower is of retirement age.
• Pledged Assets can be used to reduce down payment. This allows the borrower to keep their assets invested. This can allow down payments as low as 10%. Pledge cannot come from a 401K, IRA or annuities.
This loan can be very helpful for high net worth borrowers that may not show a lot of income on their tax returns.

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy 12/4/11

Here is the Hood Canal Real Estate Report for Dec. 4, 2011:

Interest Rates Continue In A Holding Pattern: The pattern we have seen for the last number of weeks where Europe is the focus while there continues to be encouraging signs in the US economy. Fears regarding Europe were stoked earlier this week when an auction by Germany’s government went badly and resulted in interest rates approaching those of countries in danger of default. Later this week the US Federal Reserve announced initiatives to help provide dollars to European financial institutions in an effort to stave off gridlock. There is more talk of the European Central Bank providing funds to the IMF in order to buy up sovereign debt in order to keep rates down. The US and five other central banks injected liquidity into markets in move to lower currency swap rates. The move is aimed at easing strains in markets and boosting the central banks’ capacity to support the global financial system. With the program, the Fed lends dollars to the ECB and other central banks in exchange for currencies including euros. The central banks lend dollars to commercial banks in their jurisdictions through an auction process. The stock market roared back at this announcement as well as encouraging news about employment and retail sales that were very strong over Thanksgiving. AT the same time we have not seen the usual sell off in mortgage bonds so rates have remained steady. This indicates investors may not believe the ‘good news’ or are looking to rumors of further government support to keep rates low.

Our analysts have mentioned numerous times over the last couple of months that US long term rates would find it a huge hill to climb to trade for any extended time under their current levels. The 10 yr Mortgage Security, driver for mortgages, has tried a number of times since Sept to hold under 2.00% but has not been able to hold. We believe US long term rates are about as low as they may fall based on the present fundamentals. That said, Europe is a time bomb, if defaults actually occur it would change our outlook; until then current rates are about the best we expect.

Industry News
State of the Economy:
Last Week in Review

It’s been said that “slow and steady wins the race.” And when it comes to the Jobs Report for November, it seems that the labor market continues to improve at a gradual pace. Read on for the details…and what they mean for home loan rates.
There was good news, as the headline number for job creations in November came in at 120,000, with 140,000 private jobs offsetting government losses. What’s more, some upward revisions to the two previous readings added 72,000 more jobs than had been reported.
Perhaps even more important, Hourly Earnings grew by just 0.1% – a number that suggests no threat of wage-based inflation. Remember, inflation is the arch enemy of Bonds and home loan rates because when inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would mean home loan rates move higher. So the Hourly Earnings number was good news for Bonds and home loan rates.
Catching the markets by surprise was a rather sharp decline in the unemployment rate to 8.6%, the lowest unemployment rate we’ve since March of 2009. While this is good news on the one hand, part of the decline stems from the fact that 315,000 people were removed from the workforce because they totally gave up looking for work. And with 13.3 million Americans still out of work, more improvement is certainly needed here.
Similarly, the labor participation rate (which is currently hovering at a 30-year low at 64) needs to move above 66 or it will be difficult for the economy to grow fast enough to lower our budget deficit. In fact, last week Bond ratings firm Fitch issued a stern warning to the US, saying that our AAA rating will be in jeopardy if we don’t soon do something to rein in our own ever-growing budget deficit.
It is good news that we’re seeing some slow and steady improvement in the labor market…and coupling this with other recent positive economic signals, means we are not near a recession at the moment. But our economic health remains fragile, and any external shock from Europe could easily disrupt the economic improvement we are seeing.
The bottom line is that the uncertainty out of Europe – and the prospect of additional Mortgage Bond buying (QE3) from the Fed – should continue to support Bonds and home loan rates as they will benefit from investors looking for a safe haven for their money. However, it is also unlikely that Bonds and home loan rates will improve much further. Inflation, while not yet a problem, is still elevated…and if it continues to creep higher, this will limit any improvement home loan rates may see. With home loan rates still near historic lows, now remains a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
A lot of talk these days that the US economy is improving, most of it comes from those that have a vested interest in touting any bullish view. The economy is stagnant at best; not too hot but not too cool either. Every data point recently is taken as the final word, and every negative data point these days is largely discounted. With Europe teetering on a serious crisis there is actually no real strong consensus that the economy is improving. The market is telling us that this is the view point; huge swings in stock indexes but in the wider perspective no directional change. Everyone is in a state of mass uncertainty and until Europe can find any solution to their debt crisis nothing will change. Wrap a big red Christmas ribbon around it; with the housing market in depression and unemployment not likely to decline much, the outlook for the US is not good, not bad either. Over the last couple of weeks the safety moves into US treasuries has ebbed substantially. We can argue that the US economy won’t improve much based on the housing market and the high level of unemployment, however trading in the equity markets implies investors are increasingly more optimistic about the future. Either way one sees it the reality is that no one is sure, that has lead to huge wings in the indexes and has contributed to keeping interest rates from falling further.

Real Estate Miscellaneous Stats:
FHA Reserves In Trouble: The FHA reported on 11/15/2011 that it’s reserve account has dwindled to ¼ of 1% of the $1.1 trillion worth of mortgage loans that it insures. The account is supposed to be maintained at 2% of all insured loans.
Sept Case/Shiller home price index was a little better than expected, down 0.6% for the 20 city and -0.4% for the 10 city price, forecasts were for a decline of 3.0% on the 20 city. Year over Year the 20 city prices were down 3.6% while the 10 city down 3.3%. For some areas this was disappointing as spring and summer surveys showed some strength in values. For many areas this indicates a recovery is not coming soon. We are not losing value like we did in 2007 and 2008 but weaker values is not what we hoped for at this point in time. The Standard & Poor’s/Case-Shiller index released Tuesday showed prices dropped in September from August in 17 of the 20 cities tracked. That was the first decline after five straight months where at least half of the cities in the survey showed monthly gains. In the Seattle metropolitan area, which includes King, Snohomish and Pierce counties, September prices were down 1.1 percent from August, the second monthly decline after five straight months of increases. Just five other cities saw bigger monthly drops: Atlanta, San Francisco, Tampa, Chicago and Las Vegas. Seattle-area home prices were down 6.5 percent from September 2010, according to Case-Shiller.

Sept pending home sales, contracts signed but not yet closed, was thought to be +0.1%. NAR reported pending sales jumped 10.4%; yr.yr pending sales +9.6%. More positive news.
Loan Program Of The Week. New Portfolio Jumbo Loan: Guild Mortgage has just entered in to an agreement with a Jumbo Loan provider that offers some of the most flexible underwriting and creative provisions for loan approval. Here are a few bullet points:
• Loan Amounts Up to $5,000,000.00 and $10,000,000.00 on a case by case basis.
• True portfolio product with flexible underwriting policy. We just approved a loan that was declined with other portfolio lenders because of income problems.
• Asset Depletion can be used to supplement income. This can be done even if a client does not have a history of depleting assets on their tax returns. Income calculations from this source are based on age of the borrower. 4001K funds can only be used if the borrower is of retirement age.
• Pledged Assets can be used to reduce down payment. This allows the borrower to keep their assets invested. This can allow down payments as low as 10%. Pledge cannot come from a 401K, IRA or annuities.
This loan can be very helpful for high net worth borrowers that may not show a lot of income on their tax returns.

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy 11/20/11

Here is the Hood Canal Real Estate Report for November 20, 2011:

Interest Rates Move Within A Tight Range: This week is still all about what comes from Europe as it continues to tilt at windmills unable financially to step up and cover the troubled countries that hang on the cliff of default. Italy made a positive step last week with Berlusconi agreeing to step down and a new leader in place (Monti), a financial guy, to form a technocratic government ( no politicians) to work out a budget that will save the country from defaulting. Italy is so big and carries more debt than the European Union and European Central Bank can handle so, there is still a tremendous amount of anxiety that all of these autonomous nations can come together on an agreement that will undoubtedly be painful for all involved. Interest rates spiked in Italy to an unsustainable level and Spain is not far behind. At the same time there is encouraging economic news in the US. Unemployment numbers continue to improve, inflation remains under control, housing starts are better, mortgage delinquencies dropped and overall sentiment is improving. This is keeping interest rates from improving. Many are concerned that interest rates are running out of steam at the present levels. The 10 yr note hasn’t been able to move below 2.00% and hold it; recent turmoil in Europe that isn’t lessening but becoming worse hasn’t generated the kind of safe haven moves into treasuries the last few weeks. Mortgage rates also finding resistance at present prices and yields. Although buying has slowed there isn’t much to suggest interest rates should increase either; the 10 yr is comfortable between 2.10% and 2.00% while mortgage rates are stable at present rates.
As long as the 10 yr fails to break 2.00% the opportunity for lower mortgage rates is absent. MBS markets have been flat for over two weeks as has the 10 year Treasury Note. Investors still hold somewhat of a negative bias as a safe haven against the ever changing situation in Europe but for the last week or so there has been no additional bad news to drive rates down. No shocks but no actual progress that is aimed at the banks in Europe that are in as bad, if not worse, shape than US banks found themselves in 2008 when Lehman failed and the sub prime bubble exploded. US banks were extremely leveraged just as Europe’s banks are now.

They say it takes two to tango…. And Stocks and Bonds continue to battle for investing dollars and trade in seesaw fashion. What’s causing this dance in the markets? Read on for details.
First, there was more pessimistic news out of Europe last week, as German leader Angela Merkel said that Europe is going through its toughest times since World War II, plagued by political unrest and a severe debt crisis. Reports showed there was a slowing in manufacturing to the point where recession fears have now gripped Europe.
Here lies another enormous problem for Europe: One way–and probably the biggest way–to lower government deficits, is to grow your way out and elevate Gross Domestic Product (GDP). However, many of the Southern Europe economies are on the brink of recession, which will make lowering the deficit through economic growth impossible.
So what does all of this mean for home loan rates here in the United States?
The problems in Europe should continue to support the US Dollar and US Bonds (including Mortgage Bonds, on which home loan rates are based) to some degree, as investors will view our Bonds as a safe haven for their money. Yet, if we continue to see better-than-expected economic data here like we did last week, this will offset the continued uncertainty surrounding the European crisis. And this is part of the reason that the Bond markets and home loan rates saw limited gains last week.
Some of the good news last week included tamer than expected wholesale inflation in the form of the Producer Price Index (PPI) and improved New York Manufacturing. Also, as you can see from the chart, the year-over-year headline Consumer Price Index (CPI) was down from the previous reading, which is good news for people concerned about inflation. However, the closely watched Core CPI rose by 0.1%, and though this was inline with estimates, it did push the year-over-year rate to 2.1% from 2%…a touch above the Fed’s comfort zone.
The bottom line is that home loan rates are still near historic lows, which means now remains a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
Europe Update for this last week: Italian bonds and stocks erased early gains and declined as Monti met with leaders of the country’s political parties to discuss Cabinet nominees. The yield on Italy’s benchmark 10-year bond rose 19 basis points to 6.64% this morning. The professor, as Monti is known, already faces resistance to appointing some politicians to his so-called technical Cabinet. Europe is a dead man walking when it comes to dealing with the debt crisis; even if the ECB wanted to pump funds to Italy, it doesn’t have enough to make a dent in the debt. Germany and France will not pony up anymore funds as their citizens resist the financial stress it would out on each country. The inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade. The EU’s gross domestic product increased 0.2% from the previous three months, when it rose at the same pace, according to EU data. The euro weakened as the cost of insuring French bonds climbed to a record and Spanish yields rose at an auction. Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday. Monti wants a technocratic government without politicians, politicians in Italy refusing to go along. French and Italian interest rates increased today. Germany and Britain exchanging words over Britain’s refusal to go along with a tax on financial transactions. 25% of Britain’s lawmakers are calling for a referendum vote to exit the EU. Germany has been at the forefront of calls for a European transaction tax, a levy Britain is only willing to countenance if the U.S. and Asian nations join in to prevent financial services from deserting London’s financial center. The European Commission has proposed a plan that it says would raise 57 billion euros ($77B) a year. Now France and Germany squabbling; Germany’s Angela Merkel rejected French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. ECB itself has also resisted calls to provide more support. Mario Draghi, the Italian who took over as president of the central bank this month, said Nov. 3 that backstopping government borrowing lies outside the ECB’s responsibility. The spread between French and German 10-year yields widened to as much as 204 basis points today as France sold 6.98 billion euros ($9.38 billion) of notes. Spanish bonds sank, driving 10- year yields to the highest since the euro was introduced in 1999, as borrowing costs climbed to the most in at least seven years at an auction of securities.

Real Estate Miscellaneous Stats:
Foreclosure Rates Rise But Delinquencies Drop: The national readings for the 3rd quarter of the year are encouraging even though foreclosure rates are higher. Most observers expected foreclosure rates to rise as banks got past the legal issues connected with the “Robo Signing” scandal. Many of the largest banks postponed their planned foreclosures for a large portion of 2011 while they worked through their exposure to litigation. Much of these increases were concentrated in the hardest hit area of the nation. The good news is the delinquency rate for mortgages dropped to levels not seen since 2008. The Mortgage Banker’s Association released their delinquency survey and it seems that the foreclosure trend may be changing course. The foreclosure start rate rose from .96% of all mortgages in the 2nd quarter to 1.09% in the 3rd. This is down from 1.34% during the same time last year. At the end of the 3rd quarter 4.43% of all mortgages were somewhere in the foreclosure process as compared with 4.39% at the same time last year. The good data was in delinquency rates. Delinquency rates include all mortgages where the payment is more than 30 days past due and are not in foreclosure. This includes loans where homeowners have not made payments for over a year. That rate was 7.99% in the 3rd quarter which is down from 8.14% last quarter and 9.13% last year. Even more encouraging is the 30 day delinquency rate is the lowest since the 2nd quarter of 2007 when the mortgage melt down began. The delinquency rate is still too high but a trend in the right direction is a welcome development. MBA officials predict that, at the current pace of distressed sales, it will be another 3- 4 years before we have a normal inventory of foreclosed properties. These same officials point out that 52% of all foreclosures are concentrated in 5 states. It is possible that many areas will recover more quickly than these hardest hit markets.
Housing Starts Encourage the Markets: October housing starts and permits were expected to be down 8.0% but came in much better as reported -0.3% at 628K. September starts were revised lower to +7.7% fr0m +15.0%. Single family starts up 3.9% while multi-family starts -8.3%. Permits were up 10.9% to 653K the best since March 2010.
Jumbo Loan Strategic Default Risk: Moody’s released a recently completed study of the risk associated with high dollar loans. These are loans that are above the standard conforming limit for Fannie Mae and Freddy Mac as well as above the temporary high balance conforming limit. These loans are portfolio loans originated and held by various financial institutions. In its study of mortgage backed bond portfolios, Moody’s found that about 50% had a negative equity position. Credit Rating Agency Fair Issac Corp, also has reported that strategic defaults on these loans is a growing problem. There are currently about 12 million mortgage borrowers who have negative equity and Fair Issac says that 30% of all foreclosures are strategic defaults. A strategic default is where a borrower can afford to make the payment but do not find it beneficial to do so. Many lenders are now using a new Fair Issac tool to predict which lenders are more at risk of walking away from their home. With the prospects of recovering lost equity being many years away in some markets, homeonwers are taking a long look at their options.

Loan Program Of The Week. New Portfolio Jumbo Loan: Guild Mortgage has just entered in to an agreement with a Jumbo Loan provider that offers some of the most flexible underwriting and creative provisions for loan approval. Here are a few bullet points:
• Loan Amounts Up to $5,000,000.00 and $10,000,000.00 on a case by case basis.
• True portfolio product with flexible underwriting policy. We just approved a loan that was declined with other portfolio lenders because of income problems.
• Asset Depletion can be used to supplement income. This can be done even if a client does not have a history of depleting assets on their tax retuBellevue Real Estate Reportrns. Income calculations from this source are based on age of the borrower. 4001K funds can only be used if the borrower is of retirement age.
• Pledged Assets can be used to reduce down payment. This allows the borrower to keep their assets invested. This can allow down payments as low as 10%. Pledge cannot come from a 401K, IRA or annuities.
This loan can be very helpful for high net worth borrowers that may not show a lot of income on their tax returns.

Hood Canal Real Estate Report

Hood Canal Real Estate, Mortgage, and Economy 11/12/11

Here is the Hood Canal Real Estate Report for Nov 11, 2011:

Interest Rates Move Slightly Higher This Week: Europe continues to control US markets; yesterday there was a passing thought that Italy’s debt problems would deal a serious blow to the country with its interest rates at record highs since the EU began. Yesterday another passing thought that the EU would eventually be restructured based on comments from French President Sarkozy that a two tier EU may be the best thing eventually. Yesterday the stock market dropped 389 points, the 10 yr note yield fell 12 basis points to close under 2.00% at 1.96%. That was yesterday; like it has been the last few weeks, one day its doom and gloom, the next not as bad. No one actually knows what will happen tomorrow; therein lies the difficulty in attempting to assess the situation on a day to day basis. Italy’s $2.6 trillion of debt is the world’s fourth-largest, behind the U.S., Japan and Germany, and more than that of Greece, Spain, Portugal and Ireland combined. Relative to gross domestic product, it is the highest in Europe after Greece, standing at about 120%. There is some encouragement today as reports are coming that Berlusconi is ready to resign and Italy will install a technocrat to solve their debt problems.

Industry News
State of the Economy:
Last Week in Review

“Should I stay or should I go now?” The Clash. And last week, Greece’s Prime Minister George Papandreou announced his resignation, a move seen as a way for new government to step in and implement the Euro rescue plan, thereby securing the financing necessary for Greece to avoid default. But that’s not the only news story making headlines last week. Read on for the details…and what they could mean for home loan rates.
The European crisis that has been lingering for 18 months continues to develop…and it’s not over yet. Lucas Papademos was named as interim Prime Minister of Greece. During his eight years with Greece’s Central Bank, he helped the country achieve very strong economic growth rates. But let’s not cue the sunset, happy music, and production credits just yet. Greece continues to be a very volatile situation, and continued uncertainty could once again push investors back into the US Dollar and US Bonds…helping home loan rates in the process.
In addition, as the soap opera in Greece continues, eyes have turned squarely towards Italy, whose Bonds yields have spiked on growing concern it is the next Greece. Italy is not in the same dire situation as Greece yet, but their economy is far larger–the world’s 7th largest, in fact–and a debt crisis in that region will be much more difficult to contain. To add to the Italian uncertainty, Italy’s Prime Minister Silvio Berlusconi is under heavy pressure to resign for a variety of scandalous reasons.
Here at home, another story to watch came on the words from Fed Chairman Ben Bernanke, who stated that the Fed has “considerable latitude” to choose its long-term inflation goal. Although Bernanke didn’t elaborate on specifics, the gist of his comment is that the Fed may tolerate higher inflation for a period of time in an attempt to help the economy recover and improve the employment sector.
Remember, the Fed is charged with a dual mandate of (1) controlling inflation as well as (2) supporting job creation. While inflation remains close to the Fed’s target range, unemployment is nowhere near where the Fed would want to see it, which is between 5% and 6%. So it appears the Fed may make decisions in the future to improve employment, possibly at the slight expense to inflation.
This is important because inflation is the archenemy of Bonds and home loan rates. So any increase in inflation could negatively impact home loan rates.
The bottom line is that now remains a great time to purchase or refinance a home, as home loan rates are still near historic lows. Let me know if I can answer any questions at all for you or your clients.
The G-20 meeting in France where leaders met seems like a waste of time and expense. Two things agreed upon; that Italy agreed to IMF and EU monitoring its progress on reforms; secondly the IMF said it will increase from $300B to $350B in special drawing rights. It took a lot of twisting to get the IMF to increase drawings rights by a measly $50B. Leaders of the 20 countries are refusing to put any money in the pot; reflecting frustration with Europe’s failure to end a crisis with Greece’s government edging towards collapse and Italy facing intensifying pressure to restore fiscal order.

Greece abandoned a referendum on the euro area’s latest bailout plan, reducing the risk of a disorderly default. Greek Prime Minister Papandreou faces a confidence vote in parliament today that will determine whether he stays on or calls an election. Papandreou yesterday abandoned his planned referendum on the country’s bailout after a warning from German Chancellor Angela Merkel that a no vote would cost Greece its membership of the 17-nation currency.

Real Estate Miscellaneous Stats:
King County Home Affordability Hits Record High: It was not too long ago that the Greater King County area was the least affordable in the nation. Affordability is measured by comparing average median home values to average median incomes. Washington State University runs the Washington Center for Real Estate Research. They calculate their own index and have announced that affordability is the best it has been since 1994. They have given this area a ‘127’ score which means the average family earns 27% more than necessary to afford a median priced home. This has been realized due to falling home prices and historic low interest rates. For many people this could mean that owning is cheaper than renting.

Tri- Copunty Area Sees Reduction in Foreclosure Activity: Ask any expert what it will take for the Real Estate market to rebound and they will likely tell you that unemployment needs to go down and distressed properties need to stop diluting the market. Bucking a national trend the King/ Snohomish/ and Pierce county areas showed significant downturn in foreclosure activity. October numbers were down 33% from September and 77% from the same time last year as related to ‘Notices of Default’ which is the warning issued to homeowners at risk.
Loan Program Of The Week. Government Loan Programs: The most flexible loan programs available concerning qualifications are FHA and VA loans. These loan programs allow for much lower credit scores and more negative history. There are limitations on many credit issues such as foreclosure and bankruptcy that can be explained with a consultation. There are many situations where borrower circumstances can be explained and compensated for with these loans where a conventional loan will not accommodate them. One of the most common is working around bankruptcy when the circumstances that caused the issue were beyond the borrower’s control, were temporary in nature, and no longer exist. This is subject to underwriter review and approval. Guild is unique in that they will allow a credit score down to 600 for these programs. Particular credit items on a report can be a problem so complete credit history is subject to review. Down payment is also favorable with FHA requiring 3.5% down up to certain loan amounts and VA can be $0.00 down based on eligibility. Call with questions about these programs.

Hood Canal Real Estate Report

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