Weekly Talking Points for the week ending June 3.

From the guys over at Mortgage Coach, as always, full of great information and perspective.


Studying the data this week, the thing that stuck to my mind like chewing gum to the bottom of a school boy’s desk was this: There are now 175,000 newly-constructed homes on the market. Astonishingly, that’s the lowest number since 1963.

Still, new home sales in April rose by 7.3%. The industry has apparently reached the point where minimal of supply for sale is slightly exceeded by minimal demand. Underwhelmed by this news, Bloomberg’s online service called new homes “arguably the weakest sector of the whole economy.”

Sales of existing homes meantime slipped by 0.8% in April, while market inventory jumped to enough homes for 9.2 months at the current rate of sales. (That was 8.3 months in March.)

Welcome to “the darkest hour before the dawn,” to quote The Economist. It is very difficult to get cheery over the data released this past week. The Pending Home Sales Index, compiled from reports of the newly-signed home purchase contracts over the month, did a swan dive in April, falling 11.6%. Worst-hit was the South, with a 17% decline, but most analysts were quick to note that the South has also been hit hard by tornadoes and continuing weather problems.

Lawrence Yun, chief economist of the National Association of Realtors? (which computes the Pending Home Sales Index) offered the following soft-spoken reflections: “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months. The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”

Until this month, he has been grumbling the real estate sales are being minimized by overly restrictive lending policies and overly conservative appraisals. While he may be right, the fact remains that we are becalmed at the moment, our economic sails flapping for lack of wind. The weather, weak economy and unemployment are all side issues, not the cause of slow real estate sales.

Of course, it’s not just the real estate sector that is relatively motionless. Last Thursday, we had the first estimate of Gross Domestic Product growth in this year’s first quarter. Though many analysts expected about 2.2%, the report floated 1.8% as the rate of growth, weak even in a recovered economy—but in our stage of trying to regain a reasonable rate of economic growth, this figure is rather pathetic.

The only real silver lining here is the attractiveness of mortgage rates, though far too few are willing (or able) to step up and apply for a loan. It is as if we’re all thirsty and there’s water in plain view—but it’s ocean water, and we’re becalmed.

Taking the position that things are likely to improve feels a bit like wearing a 3-piece suit to one of my stepson’s rock concerts and declaring that a fashion change is on its way…but I do believe these are the hardest days to keep our chins up.

I just wish there were more indication of approaching economic improvement—a little breeze in our sails. At the least, nearly anyone who wants to arrange financing and can qualify in today’s market should do so. Rates won’t be falling more than an occasional basis point further for the time being, and they are reasonably likely to turn quickly when they move in a new direction.

by: Bill Fisher

Liquidating an Asset so you can do a Cash Purchase? Read this First.

Liquidating Assets? You Have Other Options!

If you are considering liquidating assets from a traditional retirement account for your housing needs, read this document first! Low mortgage rates can save you tens of thousands of dollars in taxes and lost opportunity cost. Consider this example: $100,000 net funds needed for down payment or cash purchase $133,333 gross withdrawal required if you are in a 25% income tax bracket Withdraw $133,333, pay taxes and walk away with $100,000 $138,889 gross withdrawal required you are in a 28% income tax bracket $149,254 gross withdrawal required you are in a 33% income tax bracket $153,846 gross withdrawal required you are in a 33% income tax bracket Instead, borrow $100,000 @ 5% and keep your $133,000 - $153,000 invested Avoid drawing down retirement accounts after loss Participate in market gains after bear market After all, if you avoid paying 5% interest on the $100,000 mortgage, you would actually be losing 5% interest (or more) on $133,000-$153,000 that you withdrew from the retirement account. This is called the "opportunity cost" of money. The $100,000 mortgage would cost you interest, but the $133,000-$153,000 withdrawal would also cost you "lost interest", or, interest that you could be earning if you would have kept those funds invested: Opportunity Cost Mortgage Interest Cost Funds Needed $100,000 $100,000 Funds Used (25% tax bracket) $133,000 $100,000 Opportunity Cost % 5% - Opportunity Cost $ $6,650 - After-tax Mortgage Cost % - 3.75% After-tax Mortgage Cost $ - $3,750 Savings - $2,900 / year

 

If you use cash from a non-traditional retirement account, you might not need to pay taxes when you use the money. However, a mortgage could still make sense in that situation. The bottom line is that you need to compare the after-tax cost of the mortgage with the after-tax rate of return you could otherwise be receiving on the money. It is always advisable to consult with licensed financial and tax professionals when evaluating strategies that impact your tax and financial situation. It is also advisable to consult with a Certified Mortgage Planning SpecialistTM(CMPS®) when navigating today's turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your mortgage options! Contact me for more information! Clint Hammond, CMPS® Mortgage Network, Inc. 7011 Garners Ferry Road Columbia, SC 29209 803-771-6933 direct 803-771-6944 fax chammond@mortgagenetwork.com http://www.clint-hammond.com

Weekly talking points

Gold has worked its way back above $1500 an ounce, ending last week at $1508.90. Silver, on the other hand, which used to be hovering around $50 an ounce, can’t seem to work its way above about $35. And oil dropped nearly 1% to 112.39.

What I want to suggest here is that the inflation hypothesis may not be quite as strong as many advocates have been suggesting. Yes, gold is strong—but it’s primarily because of its status as an “alternative currency” in a time when major currencies may be weakened by one or more of many problems, not least of which is the apparent impossibility of making Greece whole again. (The financing of its sovereign debt is now costing the country nearly 17%.) Oil and silver are sitting on their heels, meantime.

I am just not satisfied with the argument that we have an either/or situation here. Either inflation or something like deflation. Either we should all be hiding from inflation in a cave somewhere with our wealth in the form of gold or we should join Bill Gross with our wealth in the form of Treasury bonds (because we agree they will be hurt the least by the forces of deflation).

I’m not sure I can get away with this, but I’m playing with another hypothesis—that both the Inflationistas and the Deflationistas are right…to a degree. Thus, they are also wrong…to a degree. The prices of a large number of items—oil, gold, raw metals, food—continue to rise. The prices of a large number of other items—houses, high tech items, furniture, department store goods—continue to decline. The key here is that emerging countries, many of which are in the midst of a major battle with speeding economies (and thus, with inflation) are driving up the first set of prices. The second set of prices has no such support and hasn’t found its post-recession legs yet.

But guess what? Housing may soon seem to be the key force in this up-and-down, inflation-vs.-recession economic game. The final stages of its recovery have been very effectively held off by the remnants of the foreclosure fiasco (which are definitely still with us) and the utter confusion among lenders regarding how to qualify buyers who will bring solid profits. It has been—and still is—a mess.

But there may be a light (still rather distant) at the end of this twisting and turning tunnel. No less than the editors of The Economist announced in their most recent newsweekly: “But there are signs this may be the darkest hour just before the dawn. House-ownership is beginning to look more affordable by many measures.”

Now, The Economist isn’t exactly Fast Eddie’s Cut-Rate Economic Forecast Service. It’s the real thing. The magazine notes that “the ratio of house prices to rents has returned to its pre-bubble level”; vacancies among rentals are way down and rents are up; the credit markets have begun to heal themselves, with foreclosures declining (albeit very gradually) and interest rates closing in again on their record lows; and a series of monthly improvements to the number of job formations.

To this, I would add that the worst foreclosure data is weighing heavily on national data. About 24% of recent foreclosures, after all, have been in Florida. It is not that difficult to find areas that have really lightened up, but you have to look past Florida’s figures to find them.

If The Economist is correct—and I’m willing to put my own money on their assertions—then it will still take some time for real estate indicators to look very good. It will take a while for the press to shake its habit of lamenting the slow real estate market, for the public to realize they’d better buy now if they want to catch the best rates, and for those who make these decisions in the corner offices of lending institutions to start designing loans that can attract a much larger share of the creditworthy borrowers out there. But all of this could happen more quickly than seems possible. I for one am ready.

by: Bill Fisher

Week in Review

The Great Indicator, the 10-year Treasury note, for the second week held all of its straight-line gains since early April, from 3.60% to 3.15%.
   
Despite the Fed mumbling about reversing extraordinary ease, some decade ahead, despite all sorts of positive media spin, despite LinkedIn’s post-IPO value of $10 billion (649 times earnings), global investors are buying US Treasurys for safety.
   
Low-fee Mortgages touched 4.625% for the first time in six months, refi applications up, purchase ones sinking 3% last week. April housing starts fell 10.6% and permits 4%, both versus expectations for gains. Sales of existing homes fell .8% from March, as reported from NAR’s highly questionable, seasonally adjusted lipstick factory.
   
Industrial production was flat in April, but distorted by parts-supply interruption in Japan. Although the Philly Fed index crumped from 18.5 in April to near-breakeven 3.9 in May, manufacturing is still a bright spot.
   
This week’s Baghdad Bob Prize to the Mortgage Bankers’ Association economist Jay Brinkman. After announcing no improvement in 1st quarter mortgage delinquencies, he said, “Outlook is good. Market is on the mend.” American troops are not in Baghdad (camera pans around corner, to US M-1s under the crossed swords... Boom!). They are not there at all (Boom!).
   
We have certainly foreclosed through a lot of the weakest households and worst loans. But, what will happen to the next at-risk layers, given widespread price declines resuming, foreclosure dumping, and limited credit for absorption?
   
Next, a tale in two parts, sovereign debt in the US and in Europe. All kinds of people now ask, anxiously, if Congress will fail to raise the debt limit. A few hope we won’t. One local real estate proprietor last week, nice man, frustrated, clueless: “They have enough money.”
   
Of all the devils whom you consult at 3:00AM, parading across your bedroom ceiling, drop that one. The debt-limit hostage crisis dates at least to 1982. Republicans will use the lever as best they can, a Democratic-controlled government paralyzed, both parties afraid of the public -- and then will extend the limit.
   
Here we have one Treasury, one tax code, one banking system, and a rather large but single-issuer national debt. Treasury (and mortgage) yields are falling partly from successful QE2, partly from economic slowdown, but at the moment in largest part because Europe is making another run at falling apart.
   
The immediate catalyst: the European Central Bank said yesterday that in the event of any restructuring of Greek debt, even something as mild (and useless) as extending maturities, the ECB would no longer accept Greek bonds as collateral. In addition to the $340 billion in direct debt (largely held by German and French Banks), the ECB has floated $126 billion to support Greek banks. Greek 10-year debt reached 16.5% overnight, and 2-year 25.1%.
   
The strong in Europe have demanded Greek austerity to protect the banks of the strong, but Greece has reached economic and political exhaustion. We may be a weekend away from a New Drachma trading at 30 cents on the euro, or some can-kicking longer time. The ECB’s panicked threat to pull the plug on Greek banks says shorter is more likely than longer.
   
In the grand scheme, Greece does not matter. However, dominoes do. The rest of Club Med and the whole European banking system are all lined up.
   
Here, take heart. A Euro-crater would slow the global economy, but cash would race to the dollar and Treasurys. All currency collapses in a hundred years have helped us.
   
Draw any lesson you wish about profligate living beyond means, and about financial pretense, but do not assume that Euro-default means the same for us. One nation, one Treasury, one tax-collector, one budget -- we won’t like the sacrifice, we don’t know which party’s ideas will prevail, and the fix will neither be tidy nor final, but we are not headed down Europe’s road to default. We have structure, means and will.



by: Lou Barnes

Must Have Information.

4 Questions your Lender ABSOLUTELY MUST answer correctly.

1)    What are mortgage interest rates based on? 

2)      What is the next Economic Report or event that could cause interest rate movement?

3)      When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates? 

4)      Do you have access to live, real time, mortgage bond quotes? 

5 Truths About Mortgage Financing.

First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS.  But you didn’t really need me to tell you that, did you?  Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook.  Is there a prepayment penalty?  If the rate seems incredible, are there extra fees?  What is the length of the lock-in?  If fees are discounted, is it built into a higher interest rate? 

Second, YOU GET WHAT YOU PAY FOR.  If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder.  Best case, expect very little advice, experience and personal service.  Worst case, expect that you may not close at all.  All too often, you don’t know until it’s too late that cheapest isn’t BEST.  But if you want the cheapest quote – head on out to the Internet, and I wish you good luck.  Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience.  Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run.  This is the largest financial transaction most people will make in their lifetime.  That being said – I am not the cheapest.  Of course my rates and costs are very competitive, but I have also invested in the systems and team I need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS.  When looking at estimates, don’t simply look at the bottom line.  You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls.  And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since there are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line!  APR?  Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND.  This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm.  On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate.  Either of these balances might be right for you, or perhaps somewhere in between.  It all depends on what your financial goals are.  A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY.  This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis.  For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison.  You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, my advice to you is to be smart.  Ask questions.  Get answers.

As you can imagine, I wouldn’t be encouraging you to shop around if I weren’t pretty confident that Ican give you a great value and serve you the very best.

Please call me with any further questions you may have at this time – I am ready to work for your best interest!

This week in review and a strong case to buy now.

Financial markets have been on hold for the past week as a result of across the board uncertainty  about the US and global economies. We've seen mortgage rates slide almost 1/2% over the course of the last month and movement that big is in and of itself reason to avoid the "wait and see if things go lower" approach. Further downward movement in rates (or upward movement in price of mortgage bonds) would require some new fuel. (Weaker than expected economic data, Europe being repossessed.....etc., some additional catalyst would be needed to further push mortgage rates down.

We'll see where things go but I'm locking loans right now at rates that make it hard to argue against moving forward with a transaction be it a refinance if you haven't already, a first time home purchase, or making the jump to more square footage that you either already need but have been hesitant to pull the trigger on or on the upgrade you know you will need in the next few years. I can assure you a lot of people out there will be making an upgrade purchase 3 years down the road and will say to themselves "I REALLY should have done this in 2011 when rates were so low and this house I'm buying for $300,000 could have been had at $260,000...would have saved a lot of money...." I promise that will be frequently uttered in the coming years.
Big booms are always followed by big busts.....just look at the last few years. The flip side of that is also true though, busts are always followed by a smaller boom. It's the way the market does and always has worked. So that said, if we've seen a 14% drop (pulling that out of the air, all markets are unique to themselves so it's pointless to put a factually accurate number on it, this is more for example.) But lets say home prices are down 14% over the last 2 years, the inevitable flip side will be a period of rapid appreciation to "catch back up to" the average. It will happen, that's for sure. What isn't sure is the "when" part of that. To take that one step further, the recovery of housing will be coupled with and caused by a recovery in the overall economy and more importantly with a recovery in the unemployment numbers. Economic rebound + more people working + more money being made = More money being spent. That leads inevitably to inflation concerns and therefore to increased interest rates. So to summarize this point, not only in my scenario of the "2014 Home buyer making the upgrade purchase" will they be paying a sales price based on a hyper-appreciation market to balance out with our recent decline, the very nature of why that will be will also mean an interest rate of 7% as opposed to 4.75%.....so the money will be more expensive and it will require more of it. Do that math and you'll see a number larger than most peoples salary in the form of short term savings. With college to pay for, retirement to plan for, whatever your case is, I can't think of anyone I know that would prefer to spend exponentially larger amounts of money when they have the option not to.

Sometimes it makes so much sense, that no one seems to get it!

Plan your mortgage around a strategy, don't shop for rates.

How important is interest rate? How important is amortization period? How important is principal reduction with your mortgage?

See below........

Bottom line is this, is rate important? Yes, always. Is the most important? Nope, I might consider it 3rd or 4th most important factor in shopping for a home loan. Proper game planning is A-#1 on the list. Level of service and reliablity is 2nd and I would put out of pocket and upfront costs at the third spot with Rate maybe coming in 4th. (I could make an argument for product being number 4 and rate being 5.....)

Point is this and it's pretty simple: A low rate is worthless if the loan doesn't close or the loan closes at this low rate but is contradictory to your desired financial outcome.