Maturity
It appears that this economic recovery will have characteristics that will be unlike any other we have experienced in the past. We are not expecting the economy to "roar" back because consumers will not be spending as they have in the past. The scars of lost equity, foreclosures and unemployment run deep. Savings rates are expected to continue to be higher than they have been in the past and consumers will not go on buying binges. For lack of a better term, we will call this a more "mature" economy. The next question is this type of recovery good news or bad? The answer is that it will be a bit of both.
For example, with a more mature economy, the unemployment rate will not drop as fast nor will home prices start to skyrocket again. On the other hand, in theory, a mature economy will be less subject to severe downturns like we have just experienced. A slow growth rate is more sustainable in the long-run because it is likely to be accompanied by lower inflation rates. The real issue is our government debt. The severe downturn has caused our debt to skyrocket and this trend will continue for some time. In the past, we have paid our debt back through an expanding economy. A slow-growth economy will not make as much of a dent in the deficits. Therefore, the government, like consumers, will have to curtail spending. That will be an interesting challenge with so much of our spending tied to interest owed, defense expenditures and entitlement programs such as social security which will come under increased budgetary pressure due to a continually aging population.
The Markets. Rates fell again slightly in the past week. Freddie Mac announced that for the week ending March 11, 30-year fixed rates averaged 4.95%, down from 4.97% the week before. The average for 15-year fixed fell slightly to 4.32%. Adjustables were down more substantially with the average for one-year adjustables falling to 4.22% and five-year adjustables falling to 4.05%. A year ago 30-year fixed rates were at 5.03%.“During a light week of mixed economic reports, rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Pending existing home sales fell 7.6 percent in January, well below the market consensus of a 1 percent gain. Meanwhile, the economy lost only 36,000 jobs in February, fewer than market forecasts, and the unemployment rate held steady at 9.7 percent. In addition, revisions added a net 35,000 workers to January and December combined.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes. Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated March 12, 2010
|
Daily Value |
Monthly Value |
|
|
March 11 |
February |
|
|
6-month Treasury Security |
0.22% |
0.18% |
|
1-year Treasury Security |
0.40% |
0.35% |
|
3-year Treasury Security |
1.50% |
1.40% |
|
5-year Treasury Security |
2.43% |
2.36% |
|
10-year Treasury Security |
3.73% |
3.69% |
|
12-month LIBOR |
0.852% (Feb) |
|
|
12-month MTA |
0.441% (Feb) |
|
|
11th District Cost of Funds |
1.786% (Jan) |
|
|
Prime Rate |
3.25% |
The jumbo loan market is starting to thaw, making it easier for move-up buyers to borrow. Rates on jumbo loans of more than $729,750 in highest-priced markets rose during the financial crisis and lending standards tightened to the point where borrowers couldn’t refinance or get a new loan. In the last couple of weeks, the average rate on a 30-year fixed-rate jumbo fell to 5.79 percent, a five-year low, according to rate tracker Informa Research Services. Rates are even lower on hybrid adjustables. The availability of these loans suggests that banks are feeling more confident since Fannie Mae, Freddie Mac, and the Federal Housing Administration do not insure them. Source: Los Angeles Times
According to John Migliaccio, director of research for MetLife’s Mature Market organization, more than 78 million baby boomers, born between 1946 to 1964, will reach age 55 over the next 10 years. He and other trend spotters believe this dominant group of home owners will lead the industry out of its slump. Baby Boomers approaching retirement continue to be interested in buying into active-adult communities, but their moves are slowed due to a decline in the value of both their retirement savings and their current homes. To encourage seniors to find a way, 51 percent of builders of active-adult housing cut prices in the third quarter of 2009 – often as much as 25 percent or more – according to a survey by the National Association of Home Builders. Practitioners point out that new isn’t always best. Buying an existing home in an active adult community can be a particularly good deal because these communities have extensive amenities, including golf courses and gyms. Some new construction projects on which builders have trimmed prices are not nearly as well equipped. Source: Investor’s Business Daily
US home prices climbed 5% in February from a year ago, despite an incoming wave of REOs according to the Clear Capital Home Data Index. Prices grew on a yearly basis for the first two months of 2010. The 5% uptick in February bested the 2.3% yearly increase in January. However, prices remained unchanged on a rolling quarterly basis. “If the increase in demand that preceded the end of the last tax credit is any indication, home prices may dip only slightly into negative territory before getting an added boost before the April tax credit deadline,” said Alex Villacorta, senior statistician at Clear Capital. Prices in Providence, Rhode Island climbed 6.1% from the previous three months, the highest increase of any metropolitan statistical area (MSA). California had five of the 15 highest performing markets as Los Angeles prices gained 2.2% over the rolling quarter. In 11 of the top 15 markets REO saturation increased by an average of 1.3%. “We observed an expected increase in REO saturation this month as the flow of foreclosures continued to come into the market, while traditional non-distressed sales wait to be listed in the spring and summer months,” added Villacorta. The price gains in the early months of 2010 contrast sharply with 2009, when credit lines were cinched, investments dropped in value and financial institutions facing failure dumped REOs onto the market, according to the report. Source: Housing Wire
On Your Team,
Kurt Galitski
The Kurt Real Estate Group
Vice President, Weichman Realtors
877-957-6677
