Bellevue Real Estate, Mortgage, and Economy 2/20/12

Posted on 20 February 2012

Here is the Bellevue Real Estate Report for Feb. 20, 2012:

Rates Improve This Week Until Thursday When Rumors of a Greece Agreement Are Coming On Monday: Improving economic data at the end of the week plus speculation that Greece will receive another round of bailouts caused rates to move slightly higher from earlier in the week. The movements equaled about .500 in discount points higher. US and European stock markets have an increasing belief Greece and Europe’s officials will actually get a deal completed at the summit meeting on Monday. Inflation rates in the US continue to creep above the Federal Reserve target which is also putting pressure on interest rates. Many analysts believe the lows in US rates have been achieved; unless Greece defaults or the economic outlook reverses from the positive outlook that is driving stocks higher; interest rates will not fall much.

A tale of three stories. That’s a great way to describe last week’s news, as a string of positive economic reports, news out of Greece, and hints that inflation is heating up all worked together to impact Bonds and home loan rates. Here are the details!
A breakfast buffet of better than expected economic data hit the wires last week. In the housing arena, Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. There was also decent labor market news, as Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 – the lowest level since March 2008! Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.
Remember, strong economic news often cause money to flow out of Bonds and into Stocks, as investors hope to take advantage of gains. That’s partly what caused Bonds (including Mortgage Bonds, to which home loan rates are tied) to worsen late last week.
Also weighing on Bonds and home loan rates was the news that inflation is heating up. Despite the Fed’s claim that inflation is moderating, the Core Consumer Price Index (CPI), which strips out volatile food and energy, rose to its highest levels since October 2008. Meanwhile, as you can see in the chart, the wholesale measuring Core Producer Price Index (PPI) rose double the expectations of 0.2%, coming in at 0.4%. Any hints of inflation can serve to spook Bond investors – causing both Bonds and home loan rates to worsen – as inflation can reduce the value of fixed investments like Bonds. This is one story to keep a close eye on in the weeks ahead.
The drama in Greece is another key story to monitor, as it also impacted Bonds and home loan rates last week. Greece sent the markets into the weekend with assuring messages that a deal for them to avoid default is close, and this sense of optimism weighed on Bonds and home loan rates. Our Bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our Bond Market as a safe haven for their money. Time will tell whether this uncertainty and safe haven trading will continue.
The bottom line is that now is a great time to purchase or refinance, as home loan rates remain near historic lows. Let me know if I can answer any questions at all for you or your clients.
Will Greece get its money to avoid default? That question has been dominating markets since last July, on again-off again for six months with no resolution. The clock is ticking now, Greece has until March 20th to find the funds needed to pay for maturing debt (actual default would occur on March 27th). With all the comments coming from every official in Europe it is very difficult and sometimes confusing trying to follow the events as they unfold, however we believe Greece will get its bailout this go-round, what happens when the next maturities occur another bailout is unlikely. Presently markets in Europe and the US are betting on a deal being completed. Italian Prime Minister Mario Monti, German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos expressed optimism that an agreement on Greece can be reached at a Feb. 20 meeting of euro-area finance ministers.

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:

Feb NAHB housing market index was expected at 26 from 25 in Jan, increased to 29; single family sales at 30 from 25 in Jan, six month out sales index at 34 from 29 in Jan. A better report but no reaction to it in financial markets.

Mortgage applications decreased 1.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 10, 2012. The Refinance Index increased 0.8% from the previous week to its highest level since August 8, 2011. The seasonally adjusted Purchase Index decreased 8.4% from one week earlier. The refinance share of mortgage activity increased to 81.1% of total applications from 80.5% the previous week. This is the highest refinance share since January 20, 2012.

Jan housing starts were in line, up 1.5% to 699K annualized units; single family starts though fell 1.0%. Jan building permits were expected down 0.6% but actually increased 0.7%.
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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