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June 2, 2009
In the past few weeks, we have pointed out how tough the government’s job is with regard to keeping rates down. You just can’t be spending trillions of dollars and then expect that the bond market will not have trouble absorbing the supply. A few months ago the Feds were talking about even lower rates. We said that would be difficult and to expect periods of volatility this year. Well, last week was a perfect example of this. Rates on long-term bonds skyrocketed and then fell back. What does this mean for the markets? If the economy is indeed poised to start rebounding, then rates of 4.0% on long-term bonds should not hurt the economy. Rising rates on home loans are another matter. The Fed has kept rates on real estate loans down by purchasing mortgage backed securities. The spread between mortgages and Treasuries have narrowed to the point that any future increases in bond yields will also affect home loan rates. The real estate market is much too fragile right now to absorb higher rates. We have already seen how a poorly performing real estate market can affect the general economy. So the Fed must try, try, try to halt rising rates at least for now. Of course as we have pointed out, the Fed can’t control long-term rates any better than we can predict the future.
Current Indices For Adjustable Rate Mortgages
As countries worldwide face declining real estate sales, a growing number are easing restrictions that prevent foreign ownership of property. For instance, Beijing suspended a one-year residency requirement for foreign nationals who want to buy a home. In March, the Cayman Islands lowered transfer taxes from 7.5 percent to 5 percent on waterfront properties, and the Cayman Islands Real Estate Brokers Association announced that it would rebate 20 percent of commissions on sales to foreigners. Michigan-based developer David Johnson, who is building Oil Nut Bay in Virgin Gorda, is benefiting from a new 90-day automatic approval for a landholder license. Johnson says his willingness to hire Virgin Gorda residents in senior management positions was one of the things that persuaded the island’s government to make the change. Source: The Wall Street Journal Housing affordability is reaching record levels with nearly 73 percent of all homes sold in the first three months of 2009 considered affordable. That’s the highest percentage ever reported by the 18-year-old, quarterly Housing Opportunity Index, compiled by the National Association of Home Builders and Wells Fargo Bank. To be considered affordable, a family making the national median household income of $64,000 must be able to devote no more than 28 percent of their income toward housing costs. Source: CNN/Money
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We Are Not Trying To Predict The Future
The Markets. Rates on home loans rose last week. Freddie Mac announced that for the week ending May 28, 30-year fixed rates averaged 4.91%, up from 4.82% the week before. The average for 15-year rose to 4.53%. Adjustables were mixed with the average for one-year adjustables decreasing to 4.69% and five-year adjustables rising to 4.82%. A year ago 30-year fixed rates were at 6.08%. "Fixed mortgages followed long-term bond yields higher this week as financial markets try to discern the state of the economy," said Frank Nothaft, Freddie Mac vice president and chief economist. "Consumer confidence rose again in May and represented the largest two-month rally since records began in 1967. According to the National Association for Business Economics, the consensus of a recent survey of 45 professional forecasters called for the recession to end in the second half of this year, but the recovery is to be more moderate than the previous survey. Housing continues to be a drag on the economy, however. Although single-family existing home sales rose 2.5 percent in April, inventories of homes for sale also rose to 9.6 months from 9.0 in March, according to the National Association of Realtors."
The Department of Housing and Urban Development issued guidance that opens the door for FHA-approved lenders to provide short-term loans, with restrictions, to borrowers who are eligible for the $8,000 first-time home buyer tax credit. Borrowers must still come up with the required minimum 3.5% down payment using their own funds. But after that, they can use the short-term liens to increase their down payments, cover their closing costs or buy-down their mortgage rate. Calling the tax credit advance "another step towards accelerating the housing market," HUD secretary Shaun Donovan told the National Association of Home Builders’ annual spring board meeting in Washington that the initiative is a "real win for everyone." The NAHB estimates the advance will lead to 160,000 more sales — 101,000 to first-time buyers and 59,000 to move-up buyers who are selling their current residences to first-timers. Tax credit loans made by state and local housing finance agencies, government agencies and certain nonprofit groups can be used to cover the minimum 3.5%. However, non-profits that receive fees from sellers cannot provide downpayment assistance under this program. HUD didn’t want to do anything that would allow "these seller-funded schemes back in," a senior HUD official said. The department has issued a mortgagee letter (2009-15) with guidance on acceptable interest rates and fees. "We are putting in place the necessary safeguards and consumer protections, and if monitored the right way, tax credit loans can be used efficiently and safely," secretary Donovan said. Source: National Mortgage News 