Check out Danny Salas and Dan Henry (Steve Williams Realtor) on Real Estate Today Radio! 

Check out Danny Salas and Dan Henry (Steve Williams Realtor) on Real Estate Today Radio and hear why they both agree that it is best to act now instead of waiting for the market to bottom out.

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Interest Rates Continue to Climb

Why Are Rates Skyrocketing?

There are a couple of things occurring.  QEII is taking effect on the market, and deflating the value of the dollar, worldwide.  The U.S. is doing the exact same thing, it has ridiculed other countries of doing, in the past.  Quatitative Easing II is the government’s stimulus program to actually cause inflation (interest rates’ worst nemesis), in order to spur economic life, into an increasingly dead economy.

The second main issue is, again, Europe.  This time, it is Ireland.  Ireland’s financial banking system is at the brink of complete collapse.  Therefore, as we’ve seen in the past with other European Countries, the European Central Bank (ECU) and the International Monetary Fund (IMF), have stepped in and offered a deal to Ireland, that they may not be able to refuse.

Why would Ireland Refuse Help?

Pride!  Simply, put…Pride, Austerity, and higher taxes.  Ireland has the lowest tax rate of any European country.  And the concern is, that if they accept this assistance, they’ll have to raise taxes and perhaps cause the unrest that Greece had to endure, through their financial fiasco.  In economics, austerity is when a government reduces its spending and/or increases user fees to pay back creditors.  Austerity is usually required when a government’s fiscal deficit spending is felt to be unsustainable.

Safe-Haven Treasuries, Not As Safe

Investors Moving Money

During the uncertainty in Europe, investors tend to move their money into the safe-haven of U.S. Bonds, Treasuries, and Mortgage-Backed Securities.  However, with a plan on the table to revitalize Ireland’s financial stability, that safe haven is less attractive, and therefore, money pours out of these places, and into Stocks, Bonds, Gold, Oil, etc.  This causes rates to increase.

Hold Your Horses

Europe is still not out of trouble.  Greece, Portugal, Spain, and Italy, are all beginning to show signs, again, of financial trouble.  Their banking systems may need more bailout help, as they already have experienced.  If this rears its ugly head again, we could see these same investors shuffle money back into the safe-haven of U.S. Bonds and Mortgage-Backed Securities…causing rates to move downwardly again.

Watch Europe Carefully…Rates Could Benefit

Locking In

If you haven’t done so, already.  You’re not working with the right mortgage banker.  However, if you or your client, just had your application taken…I’d hold out and watch what happens with Greece, Portugal, Spain, and Italy.  We may have a small rebound, after suffering HUGE losses, this past two weeks.

Related Must Reads

Past European Troubles
Greece’s 1st Financial Rescue Program
Portugal’s Past Troubles

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Beginning October 8, 2010 PMI Home Insurance raised their maximum LTV (Loan To Value) to 97%.  For most in the industry, it will be a good thing. With a 3% down payment, more potential homebuyers will qualify for loans.

Criteria Outline

To See All of PMI’s Criteria and Rate Changes, Check Out:

www.pmi-us.com

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Rates On The Rise

Government Stimulus Causing Rate Increases

For the most part, you have probably seen mortgage interest rates start to rise over the past few business days.  The new government stimulus program is getting ready to roll out, in November.  This will, most likely, cause interest rates to rise.

Inflation TOO LOW!

The reason sounds simple, however, you generally read that inflation will cause rates to increase.  On the opposite extreme, there is deflation.  I’ve written about this, in the past, however, the government has been announcing that they are very concerned that the level of inflation in the country is uncomfortably low.

What does this mean?

In order for an economy to grow, there must be inflation.  Inflation, in the U.S., is virtually non-existent, and we are now approaching a point where deflation is becoming a major concern, and a real threat to the economy.  The government has stated that they are committed to preventing this from happening, and they are stepping in with a new round of stimulus.

How This Differs From The $1.25 Trillion Stimulus

The initial stimulus program, when the government pumped $1.25 Trillion into buying Mortgage-Backed Securities, to keep interest rates low, was to also enable businesses and consumers to borrow money.  This round of stimulus, launcing in November, is particularly focused on increasing prices at the Wholesale and Retail Level, forcing items to cost more, and therefore, eluding a downward spiraling ecomomic distaster, by preventing deflation from occuring!

Is This Gonna Work?

What is critical for you, as a consumer and professional Realtor to understand, is that inflation is the nemisis of bonds and Mortgage-Backed Securities.  Mortgage-Backed Securities are the determining factor regarding interest rates, and if the government is committed to increasing inflation, then mortgage rates have nowhere to go, but up.

The Writing’s On The Wall

I’ve written before that many times, speculation will have an impact on interest rates, more so than actual economic statistics.  The government stimulus package will start in November, yet we have already seen an increase in over 50 basis points, for a loan’s cost.  That translates to approximately, 1/2 Point on a real estate loan.  And this is just in the past two weeks!

What Should You Do?

I am urging you to please contact me right away.  I can provide you updated financing information, on your particular situation, or your buyers’, so you all can make an educated decision on what your next step should be.  I just want to be certain that you are kept up to date on what is happening, and that you understand how the changing rates will impact you today, or in the future.

Related Must Reads

Deflation Concerns, One Year Ago
Rates Were Expected To Go Up A Long Time Ago…When I Was Wrong

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Mortgage rates are hitting record lows and with the prospect of more government stimulus, the expectation is that rates will fall even further.  As of last week the national average for the 30 year fixed rate was 4.21%.  Mortgage applications for last week saw a surprising decline of 8.5% fir purchase applications.  No real explanation has been offered as to the cause of the slowdown however some people speculate that the barrage of news regarding the suspensions of foreclosures may have pushed buyers to the sidelines.  Additionally, some transactions that were started were also halted due to the foreclosure filing mess.  Refinance applications are going strong as they represent 83% of all mortgage applications for the past week.

Economic reports outside of housing continue to show no real direction for the economy.  The positive news reported this week was that inflation on the wholesale and retail levels are not a concern at all.  On the flip side however is that talk is starting to surface that the level of inflation is becoming almost to low which can be an indication that we may enter a deflationary economy.

On the surface some may say, “Hey if prices are going to drop, that is great news for me”.  However what happens in a deflationary economy is that if consumers recognize that prices are falling, then they will start to keep their money in their wallets and wait for lower prices.  If people start to hold off on purchases, then the whole recession cycle starts all over again.

Before anyone reading this begins to panic, it is important for you to know that last month retail sales came in higher than expected.  So at least for right now, consumers are spending money and that concerns about deflation, at least on the consumer level does not exist.

Employment still continues to be a drag on the economy.  First time jobless claims came in higher than expected and actually rose by 13,000 from the previous week.  This is the first increase in jobless claims in a month.  Continuing jobless claims continue to drop and some government officials are trying to leverage this news for political gain.  The truth of the matter is that the only reason why continuing jobless claims are declining is because more and more people are dropping off the unemployment rolls as their benefits run out and that no more extensions are available.

One of the ironic reports this week is Consumer Sentiment.  This report came in worse than expected and showed that people are becoming more concerned about the future of the economy.  The irony is in that Retail Sales continue to improve which is not what one would expect to occur if people are not optimistic.

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Interest Rates are Low helping Mortgages

The housing market started to regain stability in the past two months, after months of sales being in the toilet. Mortgage rates are at extreme lows, which are helping, although unemployment is predicted to remain high in 2011 (above 9% for the third year in a row – the last time this occurred was 1939 to 1941) which will aid in the low demand for houses.

In July, The National Association of Realtors’ index of pending home resale had a 4.5% gain in July and a 4.3% gain in August. However, a year ago these rates were up 18.4%. In the same month (August), three of four regions had gains in contract signings. The South had a 6.7% gain, the West had a 6.4% gain, and the Midwest had a 2.1% gain.

Previously owned homes make up around 90% of the market and in August these sales rose to a rate of 4.13 million.

West Chester Moody’s Analytics Senior economist Aaron Smith described the situation as a stabilizing improvement with “a long way to go”.  He believes the labor market is going to be the most important factor, which is identical to what other experts are forecasting.

Economy

 

Unemployment Continuing its High is Hurting the Market

Unemployment impairs home sales as well as aids housing foreclosures. In August foreclosures hit a record high for the third time within five months. Predictions are that if this problem of joblessness is not dealt with, no market can fully flourish.

Because of this, policy makers of the Federal Reserve may try to counteract with more stimulus.

Progression and prevention of deflation in the economy will be a matter of fiscal relief, believes William Dudley, the President of the Fed Bank of New York.

Very Low Mortgage Rates

Freddie Mac has announced that ending September, a 30-year fixed mortgage average rate had been recorded at 4.32%, a super low. Freddie’s Chief Economist, Lawrence Yun, stated, “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market”.

Homebuyer tax credit with a maximum of $8,000 were required to be signed on April 30 and closed by September 30 so many closed near the beginning of summer.

Solutions Ahead

This horrible economic year is ending on a steady path. However this path is at a low incline.  A huge aid to help reclaim the housing market’s health will be when unemployment finally decreases. Until then, it will only continue to get better at a slow rate.

The Long Haul Ahead

Another idea for growth from William Dudley (Fed Bank of New York) is that sustaining home and stock values, generating mortgages for home buying and refinancing to be less expensive, and decreasing the cost of assets for business can ultimately help our economic situation by lowering long-term interest rates.  This can be done by refreshing purchases of Treasuries or mortgage debt.

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Spain's Troubles Show Signs Of Euro Weakness

Large Spanish Bank Fails

The continued financial troubles, in Europe, keep pushing Mortgage-Backed Securities to areas that I couldn’t even have dreamed of, one month ago.  CajaSur, one of Spain’s largest banks, has FAILED and has been taken over by The Bank of Spain, Spain’s Central Bank.

Economic Recovery

The National Association for Business Economics (NABE) has pronounced a few existing figures, to the market, today.  They are claiming that the U.S. Economy will grow at an unanticipated rate of 3.2%, compared to the expected 3.1%.  Some good news on the employment front, was that they expect unemployment to drop to 8.5% by the end of 2011.  These numbers aren’t as hopeful as our government’s numbers, however, they are probably more realistic.  They also pin-pointed the economic recovery date to June of 2009.

US Treasury Auction

Starting tomorrow, the U.S. Treasury will auction off $42 Billion of 2-Year Notes.  Wednesday will see $40 Billion of 5-Year Notes, and Thursday will show another $31 Billion of 7-Year Notes.  These auctions can cause wild market reaction, however, with Europe’s troubles on the wing, who knows what can happen!

It Doesn't Get Much Better Than This!

Locking Advice

With a ton of economic information and the auctions, for this week, I would be comfortable Locking!  With the completely unexpected values of Mortgage-Backed Securities, I would take advantage.

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Political Chess Game Could Damn Financially Troubled Europe

Will ECB Package Rescue?

Is the $1 Trillion European Central Bank (ECB) Rescue Package too little, too late?  The world is trying to figure that out.  It’s election time in Europe, and many feel as though the funds were held up, until after the election in Germany.  So, this political strategy may have damned Greece, and other European Countries, by the stalling too long.  Investors are trying to figure out the consequences of the delay, and how, or even if, the financial band-aid will fix the problem.  As investors ponder, money flows in and out of world economies widely effecting Stocks and Bonds.

$16 Billion 30-Year Note Auction

The uncertainty in Europe may benefit today’s Note Auction.  We’ll have to wait and see.  If the feeling is that the rescue package is too little, too late, than interest rates, in America, will benefit.  So much uncertainty!

Initial Jobless Claims

The number of Americans filing for unemployment benefits moved to 444,000.  Just slightly higher than the 440,000 expected, bringing the total unemployment recipients to 4.63 Million, not taking into consideration the 5.13 Million people receiving Emergency Unemployment Compensation.  I’m sorry folks, but until these numbers start looking better, expect housing to grow at a more modest pace.  Low rates are great, however, jobs will benefit real estate, more than lower rates.

Initial Jobless Claims Higher Than Expected

Locking Advice

We’re back in CAREFUL float mode!  It, again, doesn’t get much better than this, however, we’ll have to watch the Auction Results, closely, and carefully!

Related Must Reads

European Fix
Why Be Leery Of Yesterday’s Auction Success: A Look Into Why 30-Year Notes Are Harder To Auction
Interesting Side Note On Unemployment: How The Numbers Are Squewed

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Rates On The Rise

3-Year Notes Fare So-So

The 3-Year Treasury Note Auction fared only so well, yesterday.  And the market is poised for another adequate auction of the 10-Year Note Auction, scheduled for today.  Remember, the longer the term of that note, the harder to sell it at reasonably low rates.

European News

Spain announced that they have a financial strategy to narrow their budget deficit, and Germany reported a Gross Domestic Product report that was unexpected.  This caused Stocks to rise, all over the world, at the expense of bonds, and therefore, interest rates.

John Paulson Speaks

Hedge Fund Manger, John Paulson, the man who made billions of dollars calling the collapse of the housing market, in 2007, has indicated that he sees housing prices rise 3-5% this year, and 10-12% next year.  This is huge news, as he’s called a lot of other shots, too, and even if he’s fractionally correct, and housing prices only rise 1.5%, if someone buys a home for $100,000 and puts 10% down ($10,000), in one year, they will have gained $1,500 on that $10,000.  A 15% gain on your investment, is pretty darn good these days!

Treasury Auctions Are Somewhat Disappointing

Locking Advice

We moved to a locking status, as news from Europe continues to be positive, which is taking the sails out of US Treasury Auctions and Bonds offerings.

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More Volatility Coming From Europe

European Fix

The European Central Bank (ECU) and The International Monetary Fund (IMF) announced that they will be lending 750 Billion Euro ($955 Billion) to European Countries to help stabilize the Euro and restore confidence in European countries’ debts.  They have also agreed to start purchasing the debt, as well as government Bonds, of struggling countries like Spain, Portugal, Ireland, and you guessed it…Greece.

Eerily Similar To US

This strategy sounds awfully familiar to the United States Troubled Asset Relief Program (TARP), and $1.25 Trillion Mortgage-Backed Security Purchase Program.  Seems as though these tactics have, so far, worked for the United States, and therefore, Europe is interested in their temporary relief benefits, as well.  What is alarming is that these programs can be quite inflation causing, when the government unloads this massive debt in the future.  That’s all anyone needs, is hyper-inflation, all over the world…

Treasury Auctions

Tomorrow, the Treasury will start it’s auction of $38 Billion in 3-Year Treasury Notes, followed by Wednesday’s $24 Billion in 10-Year Notes, and finally Thursday’s auction of $16 Billion in 30-Year Treasury Notes.

Europe's Influx of Cash

Locking Advice

Careful Floating, as the Stock Market and Bond Market determine what the IMF and ECB’s influx of funds will do to these markets

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