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Bellevue Real Estate, Mortgage, and Economy 2/11/12

Posted on 11 February 2012

Here is the Bellevue Real Estate Report for 2/11/12:

Some Hint That Greece May Live Within Their Means Causes Rates To Move Up: Interest rate pricing moved up a small amount this week as it seemed Greece and the EU were close to an agreement. Announcements out of Greece indicated they were agreeable to conditions of further help with their crisis. It all seems like a stall tactic now as sentiments reversed course dramatically today. Rates are up in price for the week. As for lower rates ahead, the 10 year Treasury Bond yr has heavy lifting to do when it moves below 2.00%, there is huge resistance to improvements when it sits at 1.80%. Mortgage rates don’t have much more improvement left at the moment, however there is not much likelihood mortgage rates will increase much either. Long term looking out a few months the trends suggest we could get more rate improvements but that can change quickly.

It’s been said that no news is good news. But last week, the Jobs Report brought some good news for the labor market. Read on for the details…and what they mean for home loan rates.
The headline Jobs Report showed 243,000 jobs created, which was much better than expected. Meanwhile, a whopping 257,000 private jobs were created, also much higher than expected. Upward revisions to November and December added another 60,000 jobs to what was previously reported for those months. And adding to the euphoria was a 0.2% decline in the Unemployment Rate, bringing it to 8.3%…the lowest since February 2009.
Despite all this good news, the report did show a pretty sharp decline in the labor participation rate from 64% to 63.7%. We really need to have more people “participating,” or working to help pay down our debt. Understandably, the demographics of baby boomers retiring does account for some of the decline. But is it the entire 0.3%? And the U-6 Unemployment Rate (which counts all persons marginally attached to the labor force, including those who are employed part-time but would prefer full-time) remains at a lofty 15.1%, with that figure dropping just 0.1% for the month.
And there was other good news to note last week as well: The Commerce Department reported that Personal Incomes rose in December by 0.5%, above expectations and well above the 0.1% reported in November. This marked the largest increase in nine months!
So what does all of this mean for the housing market and home loan rates?
While Bonds and home loan rates did worsen on the good Jobs Report news (remember good economic news often causes money to flow out of Bonds and into Stocks, as investor try to take advantage of gains), home loan rates remain near historic best levels. In addition, the problems in Europe remain…and as uncertainty reemerges, US Bonds (including Mortgage Bonds, to which home loan rates are tied) will benefit.
The takeaway from all of last week’s news is that the pace of improvement in the labor market is choppy and muddled at best. But the trend is improving over time, and this is welcome news for the struggling housing market because as people feel more secure in their jobs, they are more willing to consider making major purchases like a home.
Many have questions and frustrations questioning why there is so much attention to Greece. If Greece defaults the fear is that it will spread through the European Union with other countries teetering on the edge of default. Greece defaulting is seen as a huge problem from Europe’s banks as well as the implications for Europe falling back into deep recession; a domino effect. For all the talk about Greece’s austerity budget, unless Germany and France step up with more financing there is no plan that will end the crisis. Austerity plans are not being welcomed by the Greek public. Demands on their government to lower minimum wage, cut government employment as well as overall spending is being demanded by Germany and other countries before more funds are loaned before a default in March. Today many politicians resigned and the police threatened to arrest EU officials. Many a German flag went up in smoke as well. The markets are concerned that Greece is headed for a messy default and possible exit from the EU.

In this global economy, markets pay a lot of attention to what is occurring in Europe and China; China’s industrial output growth will probably slow this quarter as the world economy cools and the euro area’s crisis worsens, the Ministry of Industry and Information Technology said today. “The global economy is slowing down, Europe’s sovereign-debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said. German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand. Production fell 2.9% from November, when it stagnated, the Economy Ministry in Berlin said today. Economists had expected output to remain unchanged.

Real Estate Miscellaneous Stats:
Mortgage Relief Settlement Reached: It was announced today that 50 States, multiple federal agencies and the 5 largest US banks that have been in negotiations for about a year to finalize terms of a massive $25 billion settlement to rewrite mortgages for struggling homeowners, came to an agreement. Government officials have come to the conclusion that a partial settlement is better than nothing and that they can offer relief to homeowners with non-Fannie Mae and Freddy Mac loans. Up to this point, the Making home Affordable refinance and modification programs have not provided the amount of relief intended. Involved in the negotiations are bank officials, the head of HUD, US Treasury, the White House and all 50 Attorney General offices in the US. Up until today it was reported that AGs from 2 states had not agreed to terms as they are concerned that the banks are being let off the hook to easily for the ‘robo signing’ scandal that left out proper processes for the transfer of Title and created uncertainty as to who actually owned mortgage notes that were in foreclosure. The trade off is promised principle reductions for home owners who do not have access to special refinance programs available on Fannie and Freddy loans. Currently there are an estimated 11million households with homes that are underwater. The $25 billion program will be divided in to $17 billion toward principle reduction of about 1 million eligible loans, $5 billion who were victimized by deceptive practices ( which only comes to $1800.00 for each household ) and $3 billion to pay for refinancing underwater borrowers at 5.250%. This is much higher than current rates but many people with Jumbo loans are currently above 6%. The banks are interested as the deal would remove the exposure to civil litigation over the improper practices of foreclosing on homes they did not technically have a Deed of Trust against. The banks would be required to grant a minimum principle reduction or rate reduction in exchange for government counting all or part of those amounts toward the $17 billion total. Up until this point banks have balked at a program that would keep them accountable to real modifications while taking bail out funds to support their solvency. With this program the banks will have to execute on $17 billion in a certain amount of time. This is said to turn in to actually $32 billion in bank write downs. Fannie and Freddy have refused to participate in a large principle reduction program as it would cost the tax payers and estimated $100 billion after already taking over $300 billion in taxpayer assistance.
Americans still sold on homeownership
A Market Watch Report by Steve Kerch reports that despite price declines, owning a home still ranks high in U.S.
Despite the historic upheaval in Real Estate the last 5 years, Americans are still optimistic about their own housing situation, a new poll shows.
Seventy-eight percent of Americans, identified as likely to vote in the 2012 presidential election, said that owning their own home was one of the most important things in their lives, according to the survey by Lake Research Partners done for the National Association of Home Builders. Survey results show 74% agreed, with 43% strongly agreeing, that owning a home was worth it even with all the ups and downs of the housing market. People are looking at home ownership from a more traditional perspective of stability and family environment rather that investments. Sentiments are shifting toward 401Ks as a better investment than Real Estate but respondents still considered a home a good use of money.
Current homeowners were not discouraged by the pitfalls of paying for and maintaining a house: 96% said they were happy with their decision to own a home and 85% said they were very happy with that decision. The NAHB commissioned the election-year survey in the hopes of backing up its lobbying effort on Capitol Hill with data that could show Congress and the Obama administration that housing is still a valued commodity in the country and that Americans want the government to provide supportive housing policies. Respondents said it is appropriate for the government to be in support of housing. Two-thirds said it was OK for the government to ensure the availability of 30-year mortgages and 75% said it was all right to use the tax code to support homeownership. What about the proposal to cut the mortgage-interest tax deduction as part of the deficit-reduction debate, 65% said they would be less likely to vote for a candidate who supported that position.
Loan Program Of The Month. 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.

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