The Economy

Home Affordability Set To Worsen On Thursday’s Retail Sales Data

January 11, 2012

Retail Sales Growth (2008-2011)

Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy. Unfortunately for mortgage rate shoppers |*STATE in % STATE**|, it may also lead to higher mortgage rates later this week.

Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.

This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.

The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.

Retail Sales are the largest part of “consumer spending” and consumer spending accounts for the majority of the U.S. economy — up to 70 percent, by some estimates.

As the economy goes, so go mortgage rates.

Remember: today’s ultra-low mortgage rates have been partially fueled by weak economies — both domestic and abroad — going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.

When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.

Last week’s strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in “floating” your mortgage rate may be too great. The safer play is to lock your rate today.

The Retail Sales report will be released at 8:30 AM ET.

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Lock Your Mortgage Rate New Loan Fees Expected Within Days

January 10, 2012

Payroll tax fees for new loansStarting soon, nearly all home buyers and refinancing households throughout California and nationwide will pay higher mortgage loan fees. Congress has made it law.

13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

  • Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
  • The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates in Oceanside , take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Lock today to avoid the big fees. Save yourself money.

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Friday’s Job Report Will Make Mortgage Rates Move

January 5, 2012

Unemployment RateIf you’re floating a mortgage rate, or have yet to lock one in, today may be a good day to call your loan officer. Friday morning, the government releases its Non-Farm Payrolls report at 8:30 AM ET.

The Non-Farm Payrolls report is more commonly called the “jobs report“ and, lately, it’s been Wall Street’s domestic economic metric of choice. As jobs go, so go markets.

In the 12 months beginning November 2007, the economy shed 2.3 million on its way to losing more than 7 million jobs by the end of 2009.

It’s no coincidence that the stock market has been wayward. Jobs are a keystone in the U.S. economy and the connection between jobs and growth is straight-forward :

  1. Workers spend more than non-workers and consumer spending is the economy’s largest single component
  2. Workers pay more taxes to governments and, when governments have money, they build and spend on projects
  3. Additional consumer and government spending creates revenue for businesses which, in turn, hire more workers.

It’s a self-reinforcing cycle. More employees begets more employees.

As a rate shopper in California , this is an important understanding. Job loss was, in part, behind the big drop in mortgage rates since 2007. A weak economy drives investors away from equities and into safer securities such as mortgage bonds (which are backed by the U.S. government).

The excess demand causes mortgage rates to drop and that’s exactly what we’ve seen. Since late-2007, mortgage rates have been in decline.

In the first 11 months of 2011, though, 1.5 million people went back to work; the economy showed signs of shoring up and economic optimism is returning. Mortgage markets have temporarily ceded to the Eurozone, but with one more strong jobs report to close out the year, momentum could tip and stock markets could roll.

If that happens, mortgage rates will rise. Maybe by a lot.

This is why Friday’s Non-Farm Payrolls data is so important. Economists expect that 150,000 new jobs were created in December. If the government’s actual number is larger than that, prepare for higher mortgage rates.

Conversely, if job creation falls short of 150,000, mortgage rates may fall.

If the prospect of rising mortgage rates makes you nervous, remove your nerves from the equation. Call your loan officer and lock your rate ahead of Friday’s Non-Farm Payrolls release.

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Friday’s Jobs Report Represents A Big Risk To Low Mortgage Rates

December 1, 2011

Net new jobs created (2000 - 2011)

Have you been floating a mortgage rate? It may be time to lock.

At 8:30 AM ET Friday, the government’s Bureau of Labor Statistics will release its November Non-Farm Payrolls report. Better known as “the jobs report”, the monthly Non-Farm Payrolls figures provide sector-by-sector employment data, and tally the size of the current U.S. workforce size.

From these two elements, the national Unemployment Rate is derived.

Since topping out at 10.2% in October 2009, the Unemployment Rate has dropped to 9.0%. More than 2.3 million net new jobs have been made in the last 24 months.

Wall Street expect to see 125,000 more jobs added in November.

Depending on how closely the actual Non-Farm Payrolls data meets Wall Street expectations, Carlsbad rate shoppers could find that the mortgage market landscape has shifted beneath them. The jobs report is a mortgage-market catalyst and when its reported value differs from Wall Street expectations, the impact on mortgage rates can be palpable — especially in a recovering economy.

The connection between the jobs market and the mortgage market is straight-forward — as the jobs market goes, so goes the economy.

  1. When more people work, consumer spending increases
  2. When consumer spending rises, businesses expand and invest
  3. When businesses expand and invest, more people are put to work

Furthermore, employees and employers both pay taxes to governments. With more tax revenue, governments embark upon new projects which (1) require the hiring of additional workers, and (2) require the purchase and/or repair of additional equipment and supplies. 

Employment can be a self-reinforcing cycle for the economy and that’s why Friday’s jobs report will be so closely watched. If the number of jobs created exceeds the 125,000 expected, mortgage rates will rise on the expectation for a stronger U.S. economy in 2012.

Conversely, if the jobs figures fall short, mortgage rates may fall. 

Mortgage rates continue to hover near all-time lows according to Freddie Mac’s weekly Primary Mortgage Market Survey. The average 30-year fixed rate mortgage is sub-4.000 percent nationwide, with an accompanying fee of 0.7 discount points. 1 discount point is equal to 1 percent of your loan size.

If you’re under contract for a home or looking to refinance, minimize your interest rate risk. Lock ahead of Friday’s Non-Farm Payrolls release.

Get your rate lock in today.

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More Risk To Home Affordability

November 2, 2011

Job growth since 2000

Within the next 48 hours, mortgage rates may get bouncy. The Federal Open Market Committee will adjourn from a 2-day meeting and October’s Non-Farm Payrolls report is due for release.

Of the two market movers, it’s the Non-Farm Payrolls report that may cause the most damage. Rate shoppers would do well to pay attention.

Published monthly, the “jobs report” provides sector-by-sector employment data from the month prior. It’s a product of the Bureau of Labor Statistics and includes the national Unemployment Rate.

In September, the economy added 103,000 jobs, and job creation from the two months prior was shown to be higher by 99,000 jobs higher than originally reported. This was a huge improvement over the initial August release which showed zero new jobs created.

When September’s jobs report was released, mortgage rates spiked. This is because of the correlation between jobs and the U.S. economy. There are a lot of economic “positives” when the U.S. workforce is growing.

  1. Consumer spending increases
  2. Governments start more projects
  3. Businesses make more investment

Each of these items leads to additional hiring, and the cycle continues.

Wall Street expects that 90,000 jobs were created in October 2011. If the actual number of jobs created exceeds this estimate, it will be considered a positive for the economy, and mortgage rates should climb as Wall Street dumps mortgage-backed bonds in favor of equities.

Conversely, if the number of new jobs falls short of 90,000, it will be considered a disappointment, and mortgage rates should rise.

There is a lot of risk in floating a mortgage rate today. The Federal Reserve could make a statement that drives rates higher, and Friday’s job report could do the same. If you’re under contract for a home or planning to refinance, eliminate your interest rate risk.

Lock your mortgage rate today.

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Make Your San Diego Mortgage Rate Strategy

November 1, 2011

Comparing the Fed Funds Rate to Mortgage RatesThe Federal Open Market Committee begins a scheduled, 2-day meeting today, the seventh of its 8 scheduled meetings this year, and the eighth Fed meeting overall.

The FOMC is a 12-person sub-committee within the Federal Reserve. It’s the group responsible for setting the nation’s monetary policy and is led by Federal Reserve Chairman Ben Bernanke.

The FOMC’s most well-known role is as the steward of the Fed Funds Rate. This is the overnight rate at which U.S. banks borrow money from each other. The Fed Funds Rate is a unique, “banking” interest rate, and should not be confused with consumer interest rates, a category which includes ”mortgage rates”.

Mortgage rates are not set by the Federal Reserve.

Rather, mortgage rates are based on the price of mortgage-backed bonds. If mortgage rates correlated to the FOMC’s Fed Funds Rate, the chart at right would be linear.

That said, the FOMC does exert influence on mortgage markets.

After its FOMC meetings, the Federal Reserve issues a press release to the public. In it, the central banker summarizes economic conditions nationwide, highlighting threats to the economy and areas of strength.

When the Federal Reserve’s statement is generally “positive”, mortgage rates tend to rise. This is because a strengthening economy invites investors to assume more risk, spurring equity markets at the expense of all bonds types, including the mortgage-backed kind.

When bond markets lose, mortgage rates rise.

Conversely, when the Fed is generally negative, bond markets gain, pushing mortgage rates lower.

The Fed can also influence mortgage rates via new policy.

At its last meeting, the FOMC launched a new, $400-billion round of mortgage-market stimulus known as Operation Twist. The added mortgage-bond support led mortgage rates lower post-FOMC meeting.

The Fed may expand Operation Twist as soon as Wednesday afternoon. It may also take no such steps at all. Unfortunately, there are few clues about what the Federal Reserve may do next, if anything at all. As a result, mortgage rates will be a moving target for the next 36 hours. First, they’ll be volatile before of the Fed’s statement. Then, they’ll be volatile after the Fed’s statement.

Even if the Fed does nothing, mortgage rates will change so your safest play is to lock a mortgage rate ahead of Wednesday’s 2:15 PM ET adjournment.

There too much risk in floating.

: Federal Reserve, Home Buying Tips, Mortgage Rates, Mortgages, The Economy
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Foreclosure Rate Drops For The 12th Straight Month

October 18, 2011

Foreclosures by state September 2011Foreclosure activity continues to slow throughout the United States.

According to data from RealtyTrac, a national foreclosure-tracking firm, the number of foreclosure filings dipped below 215,000 in September 2011, a 6 percent decrease from August.

A “foreclosure filing” is defined as any foreclosure-related action including Notice of Default, Scheduled Auction, or Bank Repossession.

September marks the 12th straight month in which foreclosure filings fell year-over-year.

There are several reasons why foreclosure filings are down, including an increase in the amount of time it takes banks to move a foreclosure through its pipeline. It now takes a nationwide average of 336 days from the date of initial default notice to bank repossession.

Some states work quicker than others, however, because of a combination of state law and personnel.

Homes in New York take an average of 986 days to foreclose, for example, the longest in the country. Homes in Texas foreclose the quickest, registering just 86 days.

As in prior months, bank repossessions remain concentrated by state. Just 6 states accounted for half of the country’s REO last month:

  • California : 16.6 percent
  • Georgia : 8.5 percent
  • Florida : 8.3 percent
  • Texas : 6.2 percent
  • Michigan : 6.1 percent
  • Illinois : 5.2 percent

Collectively, these 6 states represent just 36 percent of the nation’s population.

By contrast, the bottom 6 states were home to just 192 repossessions last month — 0.3% of the national total. Those 6 states were Alaska, Wyoming, District of Columbia, North Dakota, South Dakota, and Vermont.

For San Diego home buyers, shopping for San Diego foreclosures can be an excellent way to get “a deal”. Foreclosed homes typically sell at discounts as compared to “non-foreclosed” homes, but are often sold “as-is”. This means that San Diego homes listed for sale may be defective or out-of-code.

Before placing a bid on a San Diego foreclosure home, make sure that you’re represented by an experienced San Diego real estate professional.

: Carlsbad Real Estate, Housing Analysis, Oceanside Real Estate, Real Estate News, San Diego Real Estate, Statistics, The Economy
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Retail Sales Expected To Rise

October 13, 2011

Retail Sales 2008-2011

The American Consumer is alive and well, it seems.

Friday morning, the Census Bureau will release its Retail Sales figures for September. The report is expected to show an increase in gross receipts for the 15th straight month with analysts predicting a 0.6 percent increase from August.

The projected increase represents the largest jump in Retail Sales in six months and would likely lead mortgage rates higher for buyers nationwide.

The connection between Retail Sales and mortgage rates is fairly straight-forward. Retail Sales are the majority component of “consumer spending” and consumer spending represents the majority of the U.S. economy — up to 70 percent, by some estimates.

And, as the economy goes, so go mortgage rates.

10 months ago, mortgage rates shot forward to start the year. This is because expectations were high for a strong economic rebound. Conforming and FHA rates crossed 5 percent at the time and were headed toward six.

By mid-April, though, it was clear that economic data was falling short of predictions. As a result, mortgage rates declined, kicking off the 2011 Refi Boom. Then, by August, on ongoing economic softness, mortgage rates fell further, making new all-time lows.

Expectations for a recovery have returned. Rates are now rising.

Last week’s strong jobs report sparked hope for the U.S. economy and investors have been voting with their dollars. Mortgage rates are now up 7 consecutive days and Friday’s Retail Sales report could cement the trend.

If you’re shopping mortgage rates today, there’s risk in “floating”. You may want to lock your rate before Friday’s Retail Sales report drives rates even higher.

The Retail Sales report will be released at 8:30 AM ET.

: Real Estate News, San Diego Real Estate, The Economy
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