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Bellevue Real Estate, Mortgage, and Economy 1/16/11

Posted on 16 January 2012

Here is the Bellevue 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.

Bellevue Real Estate Report