Mortgage Business

Why Is China So Important?

20140309-080351.jpgThe past few weeks has seen some major volatility within the stock markets. Some weeks have seen major pullbacks and others we have seen significant bounce-backs. The first ten days of April, the volatility of the markets hit on the downside. One thing which is interesting about this pullback is that it happened as the economy was pulling out of its pause caused by a very cold and harsh winter. For example, the first week in April we saw a stronger employment report and the second week first time claims for unemployment fell to levels not seen for many years.

When stocks drop the analysts are always searching for explanations, yet sometimes there seems to be no logic. One card which keeps coming up in explanations this month is the threat of slower growth in China. So we must ask, why is China so important to us other than it is a huge economy? Certainly at a growth rate of over 7.0%, this is not an economy in trouble. For one thing, the Chinese populace travels overseas to the United States in great numbers — almost two million per year. In 2012, the Chinese spent almost $9 billion in the United States.

Secondly, China helps keep our interest rates low in two ways. Their low cost of manufacturing lowers cost to our consumers. And the profits these manufacturers produce are eventually invested in US Treasuries. Basically, China is helping to finance our Federal budget deficit. More economic growth and lower rates? These are good enough reasons for us to hope that the growth in China continues. And good enough reasons to fret when it appears that the Chinese growth cycle is abating. So, if you are shopping for a home this week and enjoying the fact that rates on home loans are very low — don’t forget to thank the Chinese, as improbable as that may seem.

Weekly Interest Rates OverviewThe Markets. Rates continued to ease in the past week. Freddie Mac announced that for the week ending April 17, 30-year fixed rates decreased to 4.27% from 4.34% the week before. The average for 15-year loans fell to 3.33%. Adjustables were mixed with the average for one-year adjustables increasing to 2.44% and five-year adjustables slipping to 3.03%. A year ago 30-year fixed rates were at 3.41%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans continued to ease this week as housing starts rose 2.8 percent in March but not as much as expected. Also, permits fell 2.4 percent in March to a seasonally adjusted annual rate of 990,000, which followed a slight downward revision of 4,000 permits in February.”&nbs p; 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 April 18, 2014

  Daily Value Monthly Value
  April 17 March
6-month Treasury Security 0.05%  0.08%
1-year Treasury Security 0.11%  0.13%
3-year Treasury Security 0.91%  0.82%
5-year Treasury Security 1.75%  1.64%
10-year Treasury Security 2.73%  2.72%
12-month LIBOR    0.557% (Mar)
12-month MTA    0.124% (Mar)
11th District Cost of Funds    0.709% (Feb)
Prime Rate    3.25%

20140309-080538.jpg   Access to mortgage credit is at its highest level in at least three years, and credit standards are expected to loosen even more this year, according to a newly-released index by the Mortgage Bankers Association. MBA’s index, which tracks credit availability, shows that in March the gauge rose to 114 – the highest reading in the gauge’s three-year history. “I don’t think there’s any question that underwriting has gotten easier or is looser than it was two or three years ago, but it’ s nowhere near where it was in 2005, 2006,” Guy Cecala, publisher Inside Mortgage Finance, told The Wall Street Journal. “We are talking about easing from extremely tight underwriting standards.” Some housing experts have been concerned that new rules for lenders and borrowers this year would tighten credit access. Indeed, 80 percent of bankers said they expected the new regulations to have a “measurable reduction in credit availability,” according to a survey by the American Bankers Association. However, Bob Davis, ABA’s executive vice president, says standards will likely loosen up as lenders adapt to the new rules. “There will be a tendency for some liberalization over the course of the year,” Davis told The Wall Street Journal. After all, lending experts note that the number of refinancing applications has drastically fallen the past year, and more banks likely will be looking to the purchase market to make up for that lost share in income. Source: The Wall Street Journal

Today’s home sellers should focus on curb appeal and home staging above larger-scale home renovations, according to a new survey from Zillow Digs. Zillow asked real estate agents and interior designers nationwide to identify the most valuable home improvements for sellers, and the experts agree that minor improvements like landscaping and painting walls in neutral colors save money and attract buyers faster. Agents agree that sellers should avoid costly projects prior to listing their home, as the increased sale price may not outweigh the time and money spent on the remodel. Instead, agents and designers recommend spending money on minor renovations that will bring the home up to current market standards while also appealing to the broadest number of potential buyers. “Buyers have more homes to choose from this year, compared to last year,” said Amy Bohutinsky, Zillow chief marketing officer and guest judge on NBC’s new reality show American Dream Builders. “And in a crowded market, sellers should prioritize spending time and money on upgrades that have mass appeal. Home buyers don’t want to feel as if they are paying top-dollar for someone else’s decorating style. An inviting exterior and landscape, fresh paint in neutral colors, and clutter-free spaces will always appeal to a broad range of tastes.” Source: Zillow

As much of the United States thaws out from a particularly frigid winter, signs are pointing to a warmer national housing market. Anecdotal evidence from homebuilders, lenders and brokers suggest demand in the residential housing market is picking up, potentially paving the way for a broader acceleration in an economy that has been in a slow-growth mode since pulling out of the financial crisis. Housing is an important part of the economic fabric, contributing about 18 percent to the Gross Domestic Product including private residential investment as well as consumption spending on housing services, according to the National Association of Home Builders. The positive reports from across the country are supported by data from the Mortgage Bankers Association showing that the volume of home-purchase applications has climbed more than 13 percent in the past five weeks, near its highest point in two months. Other positive economic indicators – including better-than-expect ed auto sales and solid private sector hiring in March – also could underpin strengthening consumer sentiment that is critical to gains in the housing market. U.S. consumer confidence, as tracked by the Conference Board, last month hit its highest levels in more than six years. “We also believe that most everything is pointing in the right direction,” said Rex Gordon, vice president of corporate land at The Drees Company, a privately held homebuilder based in Fort Mitchell, Kentucky that sold 1,648 homes last year. At Drees, which sells mostly single-family detached homes in metropolitan areas across the country, foot traffic to its model locations was up about 8 percent in the past four weeks compared with a year ago, Gordon said. “Yes, construction was hit real hard because of the weather, but from a sales standpoint we’ve been encouraged,” Gordon said. “The vibe is good; our sales people are happy. They’re all working with pr ospects all the time.” Source: Reuters

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