Meet Bellevue

Bellevue Real Estate, Mortgage, and Economy 11/12/11

Posted on 12 November 2011

Here is the Bellevue 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.

Bellevue Real Estate Report