Snoqualmie Pass Real Estate, Mortgage, and Economy - 3/16/14

Snoqualmie Pass Real Estate, Mortgage, and Economy - 3/16/14

Interest Rates Move Lower As Overseas Fears Spook Markets: Interest rates move back to levels of over a week ago as growth in China slows and Russia stages more troops around Crimea as it’s parliament votes to succeed from Ukraine. The stock market lost over 200 points on Thursday and this influenced rates to move lower. Rates typically move lower when there are concerns in the stock markets. Tame inflation reports from last week also encouraged rates to move lower. All of these economic readings are translated in to speculation by the markets of what it means regarding the Federal Reserve taper initiatives. Consensus seems to be that the taper will be slow with these current economic conditions.

Industry News "No matter how long the winter, spring is sure to follow." Proverb. This winter certainly has been a long one for much of the nation, with many hoping spring makes a quick arrival. As temperatures slowly begin to thaw, recent economic reports reflect an economy in bloom. After falling for two months, Retail Sales rose by 0.3 percent in February, above expectations, as consumers purchased a variety of goods despite the harsh winter weather. This is important because Retail Sales make up about one-third of consumer spending, which is the main driver behind economic growth. If consumer spending can continue to expand, economic growth could go beyond the recent 2 percent levels we have seen the past few years. This will be good news for our economy. The labor market also showed signs of life last week, as Initial Jobless Claims fell to 315,000, the lowest level since the end of November. And there was good news on the housing front, as RealtyTrac reported that foreclosure filings in February declined by 10 percent from January, and are down a whopping 27 percent from the same period last year. What does this mean for home loan rates? Typically, good economic news benefits Stocks at the expense of Bonds, as investors try to take advantage of gains. However, fears of an economic slowdown in China and tensions in the Ukraine helped Mortgage Bonds improve due to safe haven trading. And as home loan rates are tied to Mortgage Bonds, this was good news for rates as well. In addition, it's important to remember that the Fed is now purchasing $35 billion in Treasuries and $30 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. The Fed is meeting again this week, and additional tapering could be announced on Wednesday. This decision is sure to impact the markets and home loan rates, and it's an important story to monitor. The bottom line is that home loan rates remain attractive compared to historical levels, and now remains a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

 Real Estate Miscellaneous Stats

 

US Congress Proposes Dramatic Changes with Fannie Mae and Freddy Mac. The US Senate is pending consideration of the Johnson-Crapo bill which removes US Government guarantees of Fannie and Freddy securities. Up until the Great Recession, Fannie and Freddy have operated as private corporations with private shareholders to whom they answer for profits and operation. They were to answer to government oversight, because of the government’s guarantees, which could cause unwarranted risk taking by the agencies. In spite of repeated warnings by the Bush Administration in the early 2000’s, of Fannie’s risk taking, irresponsible risk taking is what required the government to take over the Agencies and fund their deficits. A refusal by Congress to exercise serious oversight ( thank you Barney Frank…my favorite object of derision ) and a failure of regulatory agencies to reign in crazy Wall Street mortgage products caused a wholesale meltdown that engulfed Fannie and Freddy. What seems to be missing in the knee jerk reaction from Congress is an appreciation that Fannie and Freddy had an amazing track record of success over a 80 year history. The housing sector has been a huge part of the US economy that does not exist in countries that do not have analogous entities. Why would we end an arrangement that has had such a large factor in creating household wealth? The name of this bill seems to be appropriate to me. In spite of my conservative leanings, the agencies seem to me to have been a great success story with their only failure coming when Congress did not do their job. Also lost in the discussion is that Fannie and Freddy have paid back the funds required by the tax payer to pay back their bailout. Here is a piece from a service I subscribe to that seems well balanced to me. The recent bill coming out of the Senate on a plan to terminate Fannie and Freddie, while still a lot of the details are unknown. This morning Cantor Fitzgerald put out a comment that is worth considering. “The primary role of Fannie Mae and Freddie Mac is to issue mortgage bonds. We seem to have forgotten that. Yes, the government-sponsored enterprises became used as tools of housing policy, but let's not confuse that with mortgage finance. But confused I think we are. The reason I bring this up is that after reviewing what little information is available on the Johnson-Crapo bill coming soon in the Senate, the most glaring omission is information of how the mortgage bond markets will operate after winding down the government-sponsored enterprises. Oh, there is down payment guidance. And there are private insurance investment standards there, as well. It earned the support of trade groups, but has investors worried. Why? What hardly gets a mention, and to me is the most glaring, is how the To-Be-Announced market will function in the absence of the two bond dealers that fill this highly liquid $10 trillion space. What's happening here is a reinforcement of the need to stop using secondary mortgage market issuers as tools for housing policy. This is likely why the Johnson-Crapo bill calls for an elimination of affordable housing goals. If this works, the multifamily asset class introduction into risk-sharing deals would increase financing for renters.
Compass Point earlier gave the Johnson-Crapo bill a less than 5% shot of becoming law. Rep. Maxine Waters applauded the bipartisan support, but also give it an even lower chance. "Without a reasonable proposal that can be supported by a broader coalition of the House, housing finance reform is going nowhere this year," Waters said in an email. It's just as well; TBA investors still need better answers.” (March 12, 2014 By. Jacob Gaffney)

Applications for home mortgages, including both new purchases and refinancing’s, are at the lowest levels in more than a decade. The common understanding is to blame rising interest rates for the decline of new loan applications but, there is more involved. Factors such as a weak job market, stagnant consumer income and excessive regulation are more important. Industry experts report that banks are exiting mortgage lending and loan servicing businesses. This is in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending. "Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks," Victoria Finkle writes in American Banker. "The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far." Those fears are well founded. The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. This dramatic drop in mortgage applications is causing huge layoffs and realignments among mortgage companies. There have been many purchases of private mortgage businesses already this year. Many of these companies do not have the financial resources to operate in the environment of lower originations. You will continue to see more sales or alignments of mortgage banking firms. For those companies with financial challenges you will see rate pricing increases. This is causing a lot of movement of originators as their environments have changed. Expect a lot more of this activity in the coming months.

December Case/Shiller home index increased 13.4%% year over year, in line with estimates;  On a month to month basis sales were down 0.1% contradicting forecasts of +0.6%.  This is the second month in a row that sales were down. These numbers were not affected by the tough winter weather as December numbers didn't have much impact but was the holiday season when sales usually slow. The report also included quarterly figures for the market nationally. Prices for all of the U.S. climbed 11.3% in the fourth quarter from the same period in 2012; almost identical to an 11.2 percent gain in the 4^th quarter which ended in September. Home prices adjusted for seasonal variations increased 0.8% in December from the prior month after climbing 0.9% in November. Overall the data isn't encouraging when seen through the eye of Jan existing home sales that declined 5.1%.  The new homes sales were an encouraging surprise. 

Seattle Area Home Prices Slip in December but Total 2013 Numbers Are Strong:   Average home prices in King, Snohomish and Pierce counties moved lower by .5% in December after going down .1% in November. Total price increases for 2013 came in at 12.4% which is the largest increase since 2005. Officials for the index suggest that increased values and rates are slowing sales as homes are less affordable now than one year ago. Even though appreciation rates will be slower they are expected to be stong with the 10 year outlook showing an average of 3%. Good news for regular buyers from the experts is investors will be less active.

  Snoqualmie Pass Real Estate, Mortgage, and Economy - 3/16/14