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Bellevue Real Estate, Mortgage, and Economy – 9/18/11

Posted on 18 September 2011

Here is the Bellevue Real Estate Report for September 18, 2011:

Rates Move Slightly Higher: A few primary factors have been keeping interest rates back down near historic lows. The underlying factor is what is called a ‘flight to safety’. Mortgage and US Treasury Bonds are considered good places to park money when investors are worried that other investments have too much risk of loses. The news that has dominated the financial markets has been the concerns coming out of Europe that many countries are at risk of becoming insolvent. Investors have become resistant to buying European bonds as they are concerned those countries will go in to default and not pay their debts. These concerns have hit the stock markets which have lost value and not moved back to recent higher levels. Add to this the concern that the US may be heading in to another recession or extremely slow growth and you have the environment where investors want a safe place to park their money for a while. As long as these factors exist and inflation stays low we will likely see these same low interest rates. Yesterday Treasury Secretary Geithner told reporters that a coordinated effort between the Federal Reserve and European Central Banks will be used to avert a major disaster. This relieved some fears and rates moved slightly higher.

Industry News
State of the Economy:
The overriding news this morning is a carry over from yesterday’s comments on Europe that Greece would not be kicked out of the EU because of the potential default and Treasury Sec Geithner saying there is no chance that Europe’s debt problems would lead to what happened when Lehman failed in 2008. Markets took the comments as a positive that Europe would dodge a crisis, one of the key components for historic low US interest rates. This morning the ECB said that, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, it will conduct three U.S. dollar liquidity-providing operations with a maturity of approximately three months. The loans are in addition to the bank’s regular seven-day dollar offerings and will be conducted as fixed-rate tenders with full allotment, the ECB said in a statement. Providing more dollars to Europe’s banks and longer terms is an effort to assure the banks will stay solvent as the debt crisis continues to unfold.

Congressional Budget Office Expects Slow Growth: The CBO is responsible to analyze and report on any financial implication from legislation coming out of Congress. They help give feedback that is neutral and not politically motivated. The CBO is reporting the new Congressional super committee on reducing the deficit. They report that the economy looks gloomy and they expect slow economic growth and high unemployment for the immediate future.

“Actions speak louder than words.” There were certainly important words spoken last week by President Obama. Read on to learn what he said, and what the impact could be on home loan rates.
v:shapes=”_x0000_s1062″>Last Thursday, President Obama proposed a $447 Billion Job Stimulus Plan, which was larger and broader than most had expected. The program calls for tax cuts, state aid, infrastructure spending, on the job training, plus some surprises like tax cuts for small businesses to encourage hiring and a “Helping More Americans Refinance Mortgages” or HARP plan. There are no details to the HARP plan as of yet, as the President has just instructed his team to work with Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) and lenders to develop the plan. I’ll be sure to keep you posted as more details emerge on this plan.

Only time will tell how much of the President’s plan will only be talked about… and how much will be put into action that will make a difference. But one thing is for sure: With 400,000 plus brand new people still filing for first time unemployment benefits every week, action is definitely needed to create jobs. Plus, when you factor in the 3.7 Million people still collecting some sort of benefits, it’s no wonder why consumer confidence and demand is starting to revisit levels seen in the midst of the financial crisis back in 2008. His plan totals out to be about $450B of payroll tax cuts, tax incentives for businesses that hire, infrastructure construction, funds to hire back more teachers. Some of the plan will be acceptable to the opposition, some won’t. Tax cuts for small business and payroll tax cuts for workers are likely to get done; other elements won’t likely see the light of day. Tax cuts account for more than half the dollar value of the president’s latest plan to turn the economy around, and administration officials said they believe that will have the greatest appeal to Republicans in Congress. The President said all of his $450B plan will be completely paid for—-in the future. Most all of his plan is a temporary fix, nothing in it was permanent.

So what could all of this mean for home loan rates? Some of President Obama’s plan does indeed appear to be stimulative in the short run, and anything that helps growth would be bad for Bonds and home loan rates longer-term. However, in the short term, Bonds—including Mortgage Bonds, which home loan rates are tied to—are benefitting from the continued credit crisis in Europe, as investors see our Bonds as a safe haven for their money. The bottom line is that home loan rates remain near historic lows, which makes this a great time to purchase or refinance a home. Again, if I can answer any questions at all for you or your clients, call or email me anytime.

Real Estate Miscellaneous Stats:

Government Proposes Enhancements to The Home Affordable Program: The Home Affordable Refinance Program, or HARP, has helped many people refinance their homes even thought they have lost value. The program has only helped 838000 people where it was designed to help about 4 million. Housing Officials are looking for ways to enhance the program so that more homeowners can take advantage of low interest rates.

Default Notices Surge In August; The number of people who received initial default notices shot up by 33% in August. This is a nine month high and suggests that banks are starting to take swifter action on delinquent borrowers. Banks had slowed foreclosures during a review of practices involving transfer of Title. Many experts point out that a quicker pace of foreclosure will cause a sooner recovery in the Real Estate market. Auction sales had dropped 43% from a year earlier. In King County foreclosure sales had slowed by 36%. Overall, Washington is 23rd on the foreclosure activity.

Loan Program Of The Week. Elite Jumbo Loan:. Guild has it’s own portfolio Jumbo Loan. It allows for lower down payment and lower credit scores than many jumbo products. The program allows 20% down up to a $1.5 million loan amount with a 700 score, for instance. We can go to 25% down on a $1 million loan with a 680 score. The program goes to $3 million and higher depending on qualifications. Underwriting allows for flexibility beyond standard guidelines.
Some Interesting Information:
Summer Time Blues : The S&P 500 is down 8.9% for the summer so far this year. Summer has not been good to the S&P over the last 4 out of 5 years as the index has been down during that time recently. ( Source: BTN Research)
Gas Price Changes Help The Economy: For many people, discretaionary spending goes down when gas prices go up. For every 1 cent decrease in a gallon of gas, Americans save $3.4 million per day. Gas has dropped 16.3 cents since the beginning of summer. That equals a savings to Americans of $55.4 million per day ( Source: AAA, Fortune)
Hurricanes A Stimulus Program? : As Hurricanes go, Irene was not as bad as the worst. It is estimated that damage caused by Irene is worth $7 billion. Hurricane Katrina caused $81 billion in damages. Maybe the remediation will supply jobs to the economy. ( Source: National Hurricane Center)

Loan Program Rate/APR Sample Loan Amount Payment Origination

30 Year Fixed 4.250/4.480% $300,000.00 $1475.82 .500%

5 Year ARM 3.250/ 3.501% $300,000.00 $1305.62 .500%

7 Year ARM 3.500/ 3.866% $300,000.00 $1389.35 .750%

30 Year FHA Fixed 4.250/ 5.787% $350,000.00 $2071.91 .500%

Jumbo 30 Year 4.375/ 4.619% $500,000.00 $2496.33 .750%

Jumbo 5 Year ARM 3.250/ 3.298% $500,000.00 $2176.03 .125%

Jumbo 7 Year ARM 3.750/ 3.799% $500,000.00 $2315.58 .125%

25% Down for Jumbo ARM Pricing. 20% Down payment options available.

Bellevue Real Estate Report