December 29, 2009
Good News is Bad, Bad News is Good
We are ending the year with some strange statistics to chew on. In a quiet week, we received some disparate news. First, the GDP economic growth figures for the third quarter were revised downward again. The growth rate is now at 2.8% down from the 3.5% initially reported. While this seems to be bad news, apparently much of the total revision was because businesses pared inventories. Lower inventories are actually good for the recovery in the long run. This means as sales pick up, manufacturers must gear up to meet demand.
On the other side of the coin, existing home sales rose a sizzling 7.4% in November after rising 10.0% in October. The real estate markets continue their recovery from the deep slump we endured last year. The problem is these sales were mostly due to the tax credit which was supposed to expire at the end of November. We definitely “borrowed” some sales from future months and even from new homes that take longer to close and we are likely to see the sales figures quiet down in the next few months despite the fact that the tax credit was extended. Expect the next feeding frenzy to come in the spring as buyers take a break for the Holidays. So the bad news can be considered good and the good news should be tempered as well. Even though the economic growth figures have moderated for the third quarter, the sizzling real estate market and improving job market should carry us to another positive quarter as we end the year. Two positive quarters are exactly what we need heading into the new year.
The Markets. Rates continued rising in the past week. Freddie Mac announced that for the week ending December 24, 30-year fixed rates averaged 5.05%, up from 4.94% the week before. The average for 15-year fixed rose to 4.45%. Adjustables rose but only slightly with the average for one-year adjustables rising to 4.38% and five-year adjustables increasing to 4.40%. A year ago 30-year fixed rates were at 5.14%. “Although rates for 30-year fixed-rate loans are above 5 percent this week for the first time since the end of October, they are still around 0.5 percentage points below this year’s peak set in mid-June,” said Frank Nothaft, Freddie Mac vice president and chief economist. “ARM rates increased by a lesser amount as the market consensus calls for no rate hikes by the Federal Reserve in the immediate future. Meanwhile, the housing market continues to show improvement. Total existing home sales jumped 7.4 percent in November to an annualized pace of 6.54 million units, which was the most since February 2007. Moreover, the number of unsold existing homes was the lowest since December 2006 and the number of unsold new homes was the least since April 1971, which may leave future room for new construction.” 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 December 24, 2009
Daily Value Monthly Value
Dec 22 November
6-month Treasury Security 0.18% 0.15%
1-year Treasury Security 0.41% 0.31%
3-year Treasury Security 1.48% 1.32%
5-year Treasury Security 2.49% 2.23%
10-year Treasury Security 3.76% 3.40%
12-month LIBOR 1.098% (Nov)
12-month MTA 0.481% (Nov)
11th District Cost of Funds 1.259% (Oct)
Prime Rate 3.25%
Of the more than 113 million occupied homes covered in the US Census Bureau’s 2008 American Community Survey, 15.6% have more than $2,000 in monthly housing costs. The survey provides a statistical snapshot of the characteristics of the US population in 2008, including the finances of housing consumers. The data collected by Census Bureau officials determines where more than $400 billion goes to state and local governments each year. The Census surveyed roughly 250,000 addresses for the foundation of the data. The total number of family households increased from 2007 by approximately 72,000 units, according to the survey. California homeowners had the highest monthly median housing costs in the country at $2,384. New Jersey narrowly trailed with $2,360. Hawaii, with $2,265, and the District of Columbia, at $2,218, followed. California led all states with 53.3% of the state’s home owners spending 30% of their household’s monthly income on housing costs. Hawaii came in second with 49.3% and Florida was third with 49.1%. Minnesota led the nation with 74.7% of its occupied housing units that are owner-occupied. Michigan and West Virginia rounded out the top three with 74% and 73.7%, respectively. At the bottom was the District of Columbia with 43.4%, New York with 53.3% and California with 57%. Source: HousingWire
While obstacles to short sales remain, real estate practitioners say the process is becoming more efficient. Rather than waiting six months or more to push through a deal, agents say banks are more willing to negotiate prices up front. “My gut feeling is that short sales seem to be the preferred avenue for distressed property now,” says Cindi Hagley of San Ramon, Calif.-based Windermere Welcome Home. “It’s cheaper for [banks] to do a short sale than go all the way to foreclosure.” The short-sale process has become more manageable now that banks are willing to pre-approve prices, reach out to underwater borrowers who have listed their homes for sale, implement Web-based systems that manage the short sale process, and add staff dedicated to short sales. Additionally, the U.S. Treasury is set to implement a streamlined short sales framework and offer incentive payments of $1,500 to home owners and $1,000 to both loan servicers and second-lien holders. Borrowers also prefer short sales because Fannie Mae requires them to wait only two years to own another home or even less than that if they were not delinquent. By contrast, those who lost their homes to foreclosure have to wait five years. Source: San Francisco Chronicle
People who live in warm, sunny states where the living is easy are happier than people who live where the weather, prices, air quality, and congestion aren’t so agreeable, according to comparison of statistics compiled by the Centers for Disease Control and Prevention. The study asked participants: “How satisfied are you with your life?” The results showed that the happiest state is Louisiana; rounding out the top five are Hawaii, Florida, Tennessee, and Arizona. New York State is at the bottom of the happiness scale. California ranks 46. Economists Andrew J. Oswald of the University of Warwick in England and Stephen Wu of Hamilton College in Clinton, N.Y., published these finding in Friday’s edition of Science magazine. Oswald says the happiest people tend to live in states that do well in quality-of-life studies, and people who live in states where there are long commutes, congestion, and high prices are more likely to be unhappy. Source: Associated Press
