Mortgage Business

What a Week of News!


If it was the weather we would have called it the perfect storm. Last week we had a confluence of economic news which rarely is seen in a five day period. We started the week with the release of the index of pending sales. This measure has taken on new significance this spring since both existing and new home sales have languished because of the weather. Pending sales give us a peek at the future. On Tuesday the monthly consumer confidence index was released as the Federal Reserve Board started their meeting. Wednesday things really heated up with the release of the ADP private payroll report, the Fed made their announcement at the conclusion of their meeting and the preliminary estimate of the first quarter’s economic growth was also announced.

Thursday brought the weekly first time claims for unemployment, personal income and spending for March and the PMI manufacturing index. We ended the week with a bang with the release of factory orders and the monthly jobs report. So the next question is–how did the data come out? The answer to that is not so simple. We started with an increase in pending home sales, but sales are still slower than they were last year. The economic growth of 0.1% for the first quarter was disappointing, but many seem to think that the number will be revised later and definitely was affected by the weather which is a temporary factor. On Wednesday, the Fed’s optimistic statement about the economy seemed to bear out this hypothesis regarding the slow first quarter.

On Thursday the reports on personal spending and manufacturing came out on the positive side while first time claims for unemployment rose unexpectedly. In other words, we were left with a mixed bag coming into the release of the employment report which put us solidly in the plus column. Not only were there almost 300,000 jobs created in March, but the previous months were revised upwards by almost 100,000 jobs and the unemployment rate moved down to 6.3%, the lowest since September 2008. Keep in mind that the precipitous drop in the unemployment rate was at least partially due to workers leaving the labor force which means that there is still a long way to go until we solve the long-term unemployment issue and explains why the markets did not respond “euphorically” to the news. But certainly, the news this week was positive on balance and shows we are headed in the right direction after a pause for a long and cold winter.

Weekly Interest Rates OverviewThe Markets. Rates eased slightly last week in advance of the release of the employment report. Freddie Mac announced that for the week ending May 1, 30-year fixed rates decreased to 4.29% from 4.33% the week before. The average for 15-year loans fell marginally to 3.38%. Adjustables rose slightly in the past week with the average for one-year adjustables increasing to 2.45% and five-year adjustables rising to 3.05%. A year ago 30-year fixed rates were at 3.35%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were down slightly following the release of real GDP estimates for the first quarter of the year which rose 0.1 percent and fell well short of market expectations. Meanwhile, the pending home sales index rose in March ending eight consecutive months of decline and the S&P/Case-Shiller® 20-city composite house price index rose 12.9 percent over the 12-months ending in February 2014.” 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 May 2, 2014

  Daily Value Monthly Value
  May 1 March
6-month Treasury Security 0.05%  0.08%
1-year Treasury Security 0.10%  0.13%
3-year Treasury Security 0.86%  0.82%
5-year Treasury Security 1.66%  1.64%
10-year Treasury Security 2.63%  2.72%
12-month LIBOR    0.557% (Mar)
12-month MTA    0.124% (Mar)
11th District Cost of Funds    0.701% (Mar)
Prime Rate    3.25%

20140309-080538.jpgThe economy may be growing at a frustratingly slow pace, but one piece of it is booming: American homeowners’ equity holdings — the market value of their houses minus their home loans — soared by nearly $2.1 trillion last year to $10 trillion. Thanks to rising prices and equity levels, about 4 million owners around the country last year were able to climb out of the financial tar pit of the housing bust — negative equity. Negative equity gums up people’s lives and the real estate marketplace as a whole. It makes it difficult or impossible for many owners to refinance out of a higher-cost loan into a more affordable one. It makes it painful to sell — you’ve got to bring cash to the table to pay off what you still owe the bank. So you’re likely to spend less, invest less, and you’re probably not going to buy another house. Nor will potential new buyers be able to purchase yours. So when 4 million owners manage to transition out of negative equity into positive territory, that’s significant news not just for them personally, but for the economy overall. Two statistical studies released recently offered a glimpse of where the country is in terms of homeowner equity, seven years after real estate began to tumble and crash. The first was the Federal Reserve’s quarterly “flow of funds” report. Among many other segments of the economy it toted up, the Fed found that homeowner equity has rebounded to its highest level in eight years — though it’s still not quite back to the $12 trillion it was during the hyperinflationary high point of the housing boom in 2005. The second study, from real estate analytics firm CoreLogic, focused on the flip side — the impressive shrinkage of negative equity. According to researchers, nearly 43 million owners with mortgage debt have positive equity. Roughly 6.5 million owners are still in negative equity positions, however, down from more than 10 million a year ago and 12 million in 2009. Source: Ken Harney, The Nation’s Housing 

The words that real estate professionals choose to describe a property in listing ads could potentially result in the home selling for a premium, suggests an analysis that looks at listing descriptions and their effect on sales price and probability of sale. For example, property descriptor words in listing ads, like granite countertops and wood-burning fireplace, can help net higher sales prices. Researcher Bennie Waller, a professor of finance and real estate at Longwood University in Farmville, Va., found that each property characteristic mentioned in a listing increases the sale price by just under 1 percent and its probability of selling by, on average, 9.2 percent. “That means a listing with 15 additional property characteristics sells for roughly a 13.5 percent price premium,” says Waller, who excluded standard features in his analysis, such as bedrooms. Waller and his co-authors examined more than 16,300 transactions between March 2000 and February 2009 from a south central Virginia MLS. The study also found positive opinion words can also help boost the sales price. For example, words such as “beautiful” or “fabulous” could help increase the price by 0.9 percent, the study suggests. In other words, 10 positive words could bump up the sales price by potentially 9 percent, according to the study. “You have one or two seconds to capture the buyer or buyer’s agent’s attention, and you need to sell [your home] as effectively and efficiently as possible,” Waller says. “You need to carefully choose your vernacular, but at the same time, not become verbose. There can be some puffing, but too much of it will encourage the buyer to look elsewhere.” Source: The Wall Street Journal  Urban living doesn’t appeal just to the young and hip. Developers of senior housing are starting to test the allure of walkable communities with access to city amenities. Some are including densely populated areas as they scout for new sites, a different approach in a field long dominated by an all-inclusive, cruise ship model, where multi-acre suburban communities make everything available behind their gates. Demographic changes are driving the search, as some developers look for new ways to satisfy the demands of a new crop of cost-conscious seniors, who seek a more independent retirement. And demand for specialized senior housing could be about to rebound strongly after waning during the years of the housing crisis. Most seniors must first sell a home to pay for the move. “What they’re looking for and what’s out there, it doesn’t mesh today,” said Ryan Frederick, the founder of Baltimore-based Point Forward Solutions, which provides consulting services to senior housing companies across the country. “New models are going to have to be formed.” The over-65 population is expected to reach 54.8 million by 2020, up 36 percent from the start of the decade, according to U.S. Census estimates. Despite the demographic boom, an Urban Land Institute study about the senior housing market released in 2012 described an industry “virtually in crisis.” After the housing crash, move-ins slowed and occupancy rates sank, as seniors who might otherwise have moved hung on to their homes while waiting for prices to rise. The median age when people move to senior living centers has crept upward, to about 84 from the late 70s, driven by cost-consciousness, better health and changing preferences, according to the report. More urban alternatives could help meet the desires of people who need some help, but not the range of services from independent living to nursing care offered in a traditional continuing care retirement community, Frederick said. New generations of seniors also want to live close to younger family members or remain in their hometowns, rather than pick up for Florida, said Cynthia Shonaiya, a principal at Baltimore de sign firm Hord Coplan Macht, who specializes in senior living and has worked with The Shelter Group, a developer and property manager. Source: The Baltimore Sun  

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