I've been saying for the past year that home prices are finally starting to move upwards. The recent increases (2% - 4% range depending on where you look) is due, in my opinion, to historically low interest rates and some pent up demand. Rates alone have not done it, we've had rates hovering at or near all time lows for a ridiculous period of time now. Even going back in to 2008 and 2009 when they were "all the way up in the mid 4% range," when you stack that up against the average 30 year fixed rate mortgage at 8.661% and paying 1.38% in points, rates have been low for a long time. (Keep in mind, the 8.661% average takes into account the rates we've seen this year which for 2012 the average is 3.7% w/ .72% pts. That is accounted for in the average. If you take out the rates since the Fed began buying mortgage backed securities to manipulate the market and "force" lower interest rates, the number changes to an average of 9.144% on a 30 year fixed paying 1.5% pts up front.)
Lets side track and look at a mortgage today of $200,000 and compare to the averages.
2012 year to date average of 3.715% on a $200,000:
$912.10/mo principal and interest and you'd pay .72% to get that rate, or $1,440.
Pre-Q.E. average on a $200,000 mortgage:
$1,640/mo principal and interest and to get that rate you'd pay 1.5% upfront or $3,000.
So the exact same loan amount today compared to the average over 5 years:
Total Monthly savings: $43,674
Up front savings: $1,560
Total Savings over 5 years: $45,234.
10 year total: $88,908
15 year total: $132,582
Life of Loan: $263,604
That is a STAGGERING figure. Couple that with home prices living in the gutter for a few years and you're talking about buying a home today compared to average market conditions can in essence boost your net worth by somewhere around $75,000 in a 5 to 7 year time frame without you doing anything at all except making the decision to do something.
.....I digress. So back to home prices.....
Part of the recovery in home prices is due in part to the rates but rates have been "there" since 2009. So what is different in 2012 and moving into 2013 that wasn't present in 2009 - 2011? Nothing other than the consumer getting sick of being scared and anxious. You look at the fact that everyone in their late 20's up to around the age 40 are all in a position and probably have been in a position to NEED more square footage. That age group is the group getting married, having children, expanding their family and therefore needing more space. In the first years of the real estate crash, those people had the need but were apprehensive due to the current market and the fact that they were upside down in their existing home. It took about 3 years for the conditions to be right, the heard to be thinned in the lending world, and finally some good advice and strategic financing options to make themselves known and all those people finally said, "enough is enough....I need to do what I need to do for my family and I am sick of being scared." That's the only difference and that, in my opinion is what accounts for this recent and slight uptick in home prices.
These projections for 2013 I think may be conservative but are probably pretty close. I think this is just more of that same pent up demand making it's way to the market place. Now factor this in.....when, not if, but when the labor market as a whole recovers, part of that will be driven by the housing industry. Housing creates jobs and jobs create housing. So when we see the labor market as a whole get just a little traction, housing will tick up yet again. When that happens, it will add fuel to the fire in the labor market which will in turn further spur on housing and the circle back up continues.
Why is all this important? Looking at just the 2013 projections of 3.1% increase in home values, the $250,000 house today would in theory require you pay $257,750 for that same house 12 months from now. If my snowball theory holds up, which I'm confident it will fiscal cliff or not, you should then see a doubling in home values for 2014, so an increase of around 6.2%. That would mean that same house in 24 months would cost roughly $273,730. Now for the heavy stuff.....Because "average rate of appreciation" for a home is somewhere around 4% you may say that doubling is unrealistic. I completely disagree. The average is just that, it's a long term average. So if home prices over the past several years saw a 15%-20% decline across the board, some places much more, then in order to get back to the average, we'll absolutely without a doubt have to have several consecutive years of substantial appreciation just to get back to that rule of thumb average. So I'll project out just one more year....2015 would then see about a 12.4% increase in values. If you think this is unrealistic, remember just a few years back when home prices were doubling in a 3-5 year window. Unsustainable growth for sure but I'm not talking about doubling, I'm simpling projecting a 12.4% gain in this third year. So with this projection, that same house would cost you about $307,600 in 36 months.
Now for the second piece of the puzzle. A recovery in the labor market as a whole will mean that we'll see and hear talk about inflation. It's inevitable. We've been printing money like it's going out of style for the last 4 years and this will have serious consequences and repercussions when it does come calling. One of those will be a substantial increase in rates......
So humor me a second. Our $250k house, lets assume a 10% down payment today and a rate/fee structure at the 2012 average.
$225,000 loan amt at 3.715% = $1030/mo principal and interest and $1620 upfront.
$25,000 down + $1620 fee = $26,620 out of pocket.
Balance in 5 years: $202,673
That same house 3 years from now using interest rates 2000. (About where we should expect to be if this plays out as I have it above.)
$307,600 sales price
$276,840 loan amount at 8.05% = $2040/mo principal and interest and $2,768 upfront.
$30,600 down + $2768 fee = $33,368 out of pocket.
Balance in 5 years: $263,191
Over 5 years, the savings on buying now verses buying in 3 years:
$1,010/mo x 60 months = $60,600 in monthly savings
Down payment and fee differential = $6,748
Mortgage debt differential = $60,518.
Total 5 year benefit: $127,866
So the question is simple.....Is your current housing situation as it needs to be or have you been saying, "maybe we'll wait for the market to come back a little first....."
Waiting could cost you $127,866 in the first 5 years after you buy if you wait. Just sayin.
Call me and lets work up a plan to release some of that pent up housing demand that is already making itself known. It only makes sense!
Thursday, December 27, 2012
Monday, December 17, 2012
Saturday, December 8, 2012
Saturday, November 3, 2012
Big News
I'm really excited about two BIG updates coming out of Mortgage Network Columbia.
First and most importantly, Clay Henry will be starting on Monday as a "soon to be loan officer" once we get his licensing taken care of and get him trained to take care of our borrowers the way our borrowers have come to expect when they deal with Mortgage Network. I think Clay is going to be awesome and I know he'll do a fantastic job.
Second, you can now start the detailed loan process online! You'll create a user name and password and you'll have an online account with Mortgage Network. We are confident that this will make what was already a smooth and easy process that much better for our borrowers. The link to begin the loan process online is below.
These are huge updates from our end and as we continue to try and improve the experience and process for you, our borrowers, know that we truly appreciate your feedback and suggestions on what you would like to see coming from Mortgage Network in 2013.
Closing out a great year as we approach the last sprint of 2012 and I only expect bigger, better, and more exciting things in 2013!
Link to begin the loan process online:
https://webapp.mortgagenetwork.com/BorrowerSite/ManageData1003/StartProcess.aspx?LO=11507
First and most importantly, Clay Henry will be starting on Monday as a "soon to be loan officer" once we get his licensing taken care of and get him trained to take care of our borrowers the way our borrowers have come to expect when they deal with Mortgage Network. I think Clay is going to be awesome and I know he'll do a fantastic job.
Second, you can now start the detailed loan process online! You'll create a user name and password and you'll have an online account with Mortgage Network. We are confident that this will make what was already a smooth and easy process that much better for our borrowers. The link to begin the loan process online is below.
These are huge updates from our end and as we continue to try and improve the experience and process for you, our borrowers, know that we truly appreciate your feedback and suggestions on what you would like to see coming from Mortgage Network in 2013.
Closing out a great year as we approach the last sprint of 2012 and I only expect bigger, better, and more exciting things in 2013!
Link to begin the loan process online:
https://webapp.mortgagenetwork.com/BorrowerSite/ManageData1003/StartProcess.aspx?LO=11507
Saturday, October 6, 2012
Thursday, October 4, 2012
Saturday, September 29, 2012
Friday, September 14, 2012
We've Moved!!
Our new office address: 1122 Lady Street, Suite 820
Columbia, SC 29201
Come by and see us soon!
Columbia, SC 29201
Come by and see us soon!
Friday, September 7, 2012
Friday, August 24, 2012
Understanding Mortgage Rates
The good people at Mortgage News Daily have put together a great little crash course in mortgage backed securities. It may help you decipher some of my posts and understand what drives the offered mortgage interest rates to consumers and how to best use that information to secure the financing that best suits you for the purchase or refinancing of your home.
First part of a four part series that I will try to get up and on the blog over the next week or so. Hope you find some value in the info!
Understanding MBS, Part I
First part of a four part series that I will try to get up and on the blog over the next week or so. Hope you find some value in the info!
Understanding MBS, Part I
Friday, August 3, 2012
Tuesday, July 24, 2012
Sunday, July 15, 2012
Friday, July 6, 2012
Wednesday, June 27, 2012
Tuesday, June 26, 2012
Wednesday, June 20, 2012
Tuesday, June 19, 2012
Thursday, May 31, 2012
Thursday, May 24, 2012
Thursday, May 17, 2012
5/17 Update
Look for lower rates tomorrow but we are walking on thin ice.....this is unsustainable upward movement (lower rates) and could result in a over-correction in the very near future. Lock em all and feel good.....get greedy and you will get burned! 
Friday, May 11, 2012
Sunday, May 6, 2012
Sunday, April 29, 2012
Saturday, April 28, 2012
Monday, April 23, 2012
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Friday, April 6, 2012
Mortgage rates may have struck bottom at last
Mortgage rates may have struck bottom at last
Click the link above for the full story but....
This is basically what I have been saying since October of 2011 but perhaps coming from a 3rd party will make it make hit home. We are on the way up long term, there is NO DOUBT ABOUT THAT.
What we will see this year will look something like this: Increase ....increase....increase....DECREASE....increase...increase.... and so on. The "windows of brief decline" are the opportunities that you have to hit. The ONLY way to hit those while they are open is to start the process and then we hold until that window opens. If you wait for the dips, you will without question miss them because they are VERY short lived and chances are you won't find out about them even being there until after the fact. (Go back and read my prior posts about reported/advertised rate vs. actual offered market rate.) If you are already in process and hit a holding pattern, then we can grab while it's there because I monitor the market and I make sure my borrowers get in under the closing window. Let's talk, put a plan in place, and then we'll strike when the chance presents itself.
Click the link above for the full story but....
This is basically what I have been saying since October of 2011 but perhaps coming from a 3rd party will make it make hit home. We are on the way up long term, there is NO DOUBT ABOUT THAT.
What we will see this year will look something like this: Increase ....increase....increase....DECREASE....increase...increase.... and so on. The "windows of brief decline" are the opportunities that you have to hit. The ONLY way to hit those while they are open is to start the process and then we hold until that window opens. If you wait for the dips, you will without question miss them because they are VERY short lived and chances are you won't find out about them even being there until after the fact. (Go back and read my prior posts about reported/advertised rate vs. actual offered market rate.) If you are already in process and hit a holding pattern, then we can grab while it's there because I monitor the market and I make sure my borrowers get in under the closing window. Let's talk, put a plan in place, and then we'll strike when the chance presents itself.
Thursday, March 29, 2012
Saturday, March 17, 2012
This Week from Kiplinger.com
Always good insight.....for more go to www.kiplinger.com.
For the week ending 3/16/2012:
For the week ending 3/16/2012:
On the overall economy-
Expect retail sales to grow by 6% this year, building on solid job creation and stronger-than-expected store sales in January and February. That’s a bit slower than last year, but in keeping with the slowly expanding economy. Gasoline prices are still a bit of a wild card, of course, but a strong start to the year, thanks in part to the unseasonably mild weather, is encouraging to retailers. With firms hiring more workers these days, they’ll soon need more offices to put them in. Strong employment gains in the service sector are reviving demand for office space, though the supply will remain at high levels until next year. For now, tenants still have good bargaining power, but the window is closing. The national vacancy rate, now 17.3%, will decline to about 16% by year-end. Office rents are firming fastest in Midtown Manhattan and San Francisco. Washington, D.C., is strong, too, but the city has added 2.9 million square feet of new space in the past 12 months, which softened rates a bit late last year. Among other cities on the rebound: Seattle; Raleigh, N.C.; Houston, Dallas and Austin, Texas; Denver; Salt Lake City. All have a strong tech or energy presence.
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
Home prices are on the rise in most states. In 38 states, prices are above early-2011 lows. In 30 of them…more than two quarters of growth. But the national average hasn’t hit bottom. Over the next few months, it’ll drop another 2% or so before finally starting to head up later this year.
Five states are a drag on the market: Ariz., Calif., Fla., Mich. and Nev., a handful that suffered the greatest declines from peak prices and are home to 46% of all foreclosures in the country.
What’s the key to a speedier recovery? How a state handles foreclosures. In 24 states, judicial reviews clog the pipeline. Those where a judge must sign off on the deals have 2.6 times as many homes being foreclosed on…many blighted and vacant…depressing the value of neighboring real estate. In states with no reviews, three times as many foreclosure sales occurred in Jan.
Where turnaround times are shorter…Home prices are starting to tick higher. In Del., where the time between delinquency and foreclosure averages 106 days, home prices rose by 0.6% in the fourth quarter of last year. The pipeline is even shorter in Texas…a mere 90 days. Prices there climbed 1.2% in the fourth quarter of 2011. In N.Y., however, where judicial reviews stretch the typical foreclosure to a whopping 1,019 days, prices fell 1% that quarter. Even where the overhang of foreclosures is huge, there’s a big difference. Compare what’s happening in Fla. and Ariz. It takes an average of 806 days to complete foreclosure in the Sunshine State, which requires a judge’s approval.
In the Grand Canyon State, which doesn’t, it takes less than 200 days. As a result, Ariz.’s market is turning the corner. Phoenix home prices, for example, gained 2.7% in the fourth quarter of 2011, after plunging a staggering 55% from the 2006 peak. In Fla., where prices plummeted by a similar percentage, the trend is still down.
Fla. is trying to cut the damaging delays with legislation to let lien holders request an expedited process. But it appears the move will be put off until next year. Other states are headed in the opposite direction, imposing requirements for mediation between homeowners and lenders, adding more months to delays.
Nationally, there’s some movement to help clear excess inventory. Lenders’ recent agreement with state attorneys general will provide relief for about 500,000 homeowners, keeping many of them from going into foreclosure. And a pilot program at Fannie Mae to sell off foreclosed homes in bulk
will help. Look for Fannie to expand it and for other mortgage holders to follow suit. Still, the number of foreclosures nationwide will continue to climb this year.
Sunday, March 11, 2012
Monday, March 5, 2012
Planning on a FHA loan to purchase?
FHA loans have been an effective way for buyers with little down payment to take advantage of the opportunity in the housing market. With low fixed rates and depressed home prices, first time buyers have who don't have a house to sell have really been in position to maximize long term gains to thier overall net worth.
The FHA tool isn't going away but it is getting ready to get more expensive. On April 1 of this year, the FHA funding fee, also known as the MIP, is increasing from the current factor of 1.0% of the loan amount to a factor of 1.75% of the loan amount. This will increase a buyers loan by .75% since the MIP is rolled into the amount financed. Also increasing on April 1 is the monthly MI. Currently at a factor of 1.15%, it will increase by 10bp to 1.25%.
To flesh this and to show the cost increase for a buyer that will result, we need to look at things as they are now. (Taxes and insurance are a constant so I have left them out of the example.):
On a $100,000 purchase price with 3.5% down payment on FHA financing, the loan amount would be $96,500 and MIP would be $965. That would be a total loan amount of $97,465. Currently the monthly MI is 1.15% factor, so $92.48/mo in this example. Using a 4% interest rate for our example this would mean a principal and interest payment of $465.31/mo + the monthly mortgage insurance of $92.48 for a total of $557.79.
After April 1, this exact same loan looks like this:
$100,000 purchase price, 3.5% down payment gives us a base loan amount of $96,500. New MIP at 1.75% is $1,688.75 for a total loan amount of $98,189. Same rate of 4% on a 30 yr fixed FHA gives us a monthly payment of $468.77. Monthly MI at a factor now of 1.25% is $100.52/mo. So principal and interest + monthly MI gives us a total payment of $569.29/mo.
$11.50/mo difference in payment. Doesn't sound like a lot but that's just a $100k purchase price home. The FHA option has been attractive for anyone buying homes as much as $275,000 (maxing out the FHA loan limit here in Columbia.) So lets look at the same example on a $250k home.
Currently: $250,000 purchase price After 4/1/12: $250,000
$241,250 base loan $241,250
$2,412.50 up front mip $4,221.89
$243,662.50 total loan amount $245,471.89
$1,163.28/mo principal and interest $1,171.92/mo
$231.20/mo mortgage insurance $251.20/mo
$1,394.48/mo payment (w/out tax/insurance) $1,423.12/mo
$28.64/mo higher payment over just 5 years is almost $1800 out of pocket. Plus you would owe more against the home because the initial loan amount was $1808 higher. Since most first time buyers will be potential move up buyers in 5 years, these two factors alone can increase costs by about $3,700 over those first 5 years.
Does this mean don't buy? Not at all. Does this mean don't use FHA? No, not at all. What it means is that it is yet again, that much more important that you are using an actual mortgage planner and not an application taker. This has been the focus of so much of what I have been putting out there over the last year+ and each little "tweak of the market" or change in guides only highlights this importance that much more. It means that a slightly more in depth look is going to be required to make sure that the financing you have chosen is the financing that best fits your plans, and best fits your goals, and not just because it was the easiest box for a loan officer to fit you in.
You are a unique individual with your own set of needs, goals, objectives, and that requires just a little more sophisticated approach than "low down payment = FHA....next..."
Set up an appointment with me via email or give me a call, we can figure out what does and doesn't make sense and this is just another reason why it's important that our conversation takes place before we start looking for a home.
The FHA tool isn't going away but it is getting ready to get more expensive. On April 1 of this year, the FHA funding fee, also known as the MIP, is increasing from the current factor of 1.0% of the loan amount to a factor of 1.75% of the loan amount. This will increase a buyers loan by .75% since the MIP is rolled into the amount financed. Also increasing on April 1 is the monthly MI. Currently at a factor of 1.15%, it will increase by 10bp to 1.25%.
To flesh this and to show the cost increase for a buyer that will result, we need to look at things as they are now. (Taxes and insurance are a constant so I have left them out of the example.):
On a $100,000 purchase price with 3.5% down payment on FHA financing, the loan amount would be $96,500 and MIP would be $965. That would be a total loan amount of $97,465. Currently the monthly MI is 1.15% factor, so $92.48/mo in this example. Using a 4% interest rate for our example this would mean a principal and interest payment of $465.31/mo + the monthly mortgage insurance of $92.48 for a total of $557.79.
After April 1, this exact same loan looks like this:
$100,000 purchase price, 3.5% down payment gives us a base loan amount of $96,500. New MIP at 1.75% is $1,688.75 for a total loan amount of $98,189. Same rate of 4% on a 30 yr fixed FHA gives us a monthly payment of $468.77. Monthly MI at a factor now of 1.25% is $100.52/mo. So principal and interest + monthly MI gives us a total payment of $569.29/mo.
$11.50/mo difference in payment. Doesn't sound like a lot but that's just a $100k purchase price home. The FHA option has been attractive for anyone buying homes as much as $275,000 (maxing out the FHA loan limit here in Columbia.) So lets look at the same example on a $250k home.
Currently: $250,000 purchase price After 4/1/12: $250,000
$241,250 base loan $241,250
$2,412.50 up front mip $4,221.89
$243,662.50 total loan amount $245,471.89
$1,163.28/mo principal and interest $1,171.92/mo
$231.20/mo mortgage insurance $251.20/mo
$1,394.48/mo payment (w/out tax/insurance) $1,423.12/mo
$28.64/mo higher payment over just 5 years is almost $1800 out of pocket. Plus you would owe more against the home because the initial loan amount was $1808 higher. Since most first time buyers will be potential move up buyers in 5 years, these two factors alone can increase costs by about $3,700 over those first 5 years.
Does this mean don't buy? Not at all. Does this mean don't use FHA? No, not at all. What it means is that it is yet again, that much more important that you are using an actual mortgage planner and not an application taker. This has been the focus of so much of what I have been putting out there over the last year+ and each little "tweak of the market" or change in guides only highlights this importance that much more. It means that a slightly more in depth look is going to be required to make sure that the financing you have chosen is the financing that best fits your plans, and best fits your goals, and not just because it was the easiest box for a loan officer to fit you in.
You are a unique individual with your own set of needs, goals, objectives, and that requires just a little more sophisticated approach than "low down payment = FHA....next..."
Set up an appointment with me via email or give me a call, we can figure out what does and doesn't make sense and this is just another reason why it's important that our conversation takes place before we start looking for a home.
Wednesday, February 29, 2012
Sunday, February 26, 2012
Monday, February 20, 2012
Friday, February 17, 2012
CORRECTION: 9th, not 8th, closing of the week.
Congrats to Shawn and Staci, just bought their first home! 
Saturday, February 11, 2012
Tuesday, February 7, 2012
Credit Scoring, Part I
Click the below link to view the first of four posts related to your credit score. Call or email if you have any specific questions and I will be happy to help.
As always, scheduling an appointment to start the application process is always free and who knows, you may end up saving thousands of dollars on a refinance or perhaps buying a home with square footage to meet your needs at a huge discount. Either way, taking advantage of the current housing and interest rate environment can help you position yourself to build true wealth over the long term. It's free to talk and the payoff can be huge!
Credit Scoring, Part I
As always, scheduling an appointment to start the application process is always free and who knows, you may end up saving thousands of dollars on a refinance or perhaps buying a home with square footage to meet your needs at a huge discount. Either way, taking advantage of the current housing and interest rate environment can help you position yourself to build true wealth over the long term. It's free to talk and the payoff can be huge!
Credit Scoring, Part I
Thursday, February 2, 2012
Strategy Heading into Tomorrow's Jobs Report
The jobs report released each month on the first Friday of that month is always a crucial report to us in the mortgage world. It is an indicator for so many different pieces of the economic puzzle and can have a big impact on mortgage rates. When things are good, companies are hiring, stocks will rally and bonds will suffer pushing rates up. If things are the opposite of that, stocks will fall, bonds will rally and rates will drop. That's the simple explanation. More jobs means more people making money, means higher risk of inflation and that will make rates rise. The opposite is always true.
The reason that release of the information itself is critical and what we consider a "high risk event" is that before the hard data, there are estimates that have been made and those numbers are "baked into" to pricing already. For example, the projections for tomorrow are calling for 155,000 new jobs created. That is already factored into pricing. If the official release tomorrow morning is a number lower than that, then there will be an immediate and fairly sizable swing in the markets because investors had been operating on an assumption that proved wrong. So a number short of expectations and a downward revision to prior months would push rates downward as bonds would see a flight to safety from investors. A number higher, and you'll see rates rise as the stock market sees money flowing in.
Now to why tomorrow is maybe even bigger than recent months. See the above chart....we're already trading up at layers of resistance that will make it difficult for bonds to go up much more. (Or to say it another way, it will make it difficult for rates to drop much more.) We're at the top of the range and at all time highs for Mortgage Backed Securities. The fact that we're at the top of the range also means that a number better than expected could potentially see two factors go to work. One is as explained above and the normal flow of money out of bonds and into stocks. This will cause rates to rise of course. The second factor that comes with being at the top of the range is that markets may tend to overreact and what would be a "leveling out" or cooling off period for bonds could multiply the effect of the positive report meaning that a .25% jump in rates might end up being a full .5% or more jump in rates. I'm not saying that will happen, I'm just saying it wouldn't shock me if it did.
So tomorrows report means basically this: the payoff if things are worse MIGHT be an additional .125% drop in rates but most likely it would be rates remaining unchanged since the move further is already difficult thanks to that layer of resistance. The penalty if the report exceeds expectations is .25%, .375%, .5% increase in rates so the risk is substantial and the reward is minimal.
So here is what I'm doing with my borrowers.....We've been floating all day to see what gains we can get. After the close of the market, I am going to lock all loans that I have closing over the next 30 days because there is no point in putting my borrowers in a position of unnecessary risk. Longer term, prices could improve but there is no guarantee until we bust through this resistance.
Bottom line; whether you are purchasing or refinancing, locking a rate today is given unless you are 60 days or more away from your scheduled closing. Call and get those apps in ASAP so you can shield yourself from a potentially crazy day tomorrow that will certainly cause a lot of unnecessary stress if you float into tomorrow morning.
This is EXACTLY why you shop for the right Loan Officer, or better yet, the right Certified Mortgage Planner and you NEVER shop on rate......get a quote today and see if it holds up by mid morning tomorrow. My guess is that it won't.
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