This Week’s Market Commentary

This week brings us the release of five reports that are considered relevant to mortgage rates but some of the data is considered to be very important and one is arguably the single most important data we see each month.

We also have two Treasury auctions that have the potential to swing bond trading enough to change mortgage rates. There are events that are relevant to mortgage rates, or at least have the potential to be, each day of the week, so we can expect to see a fair amount of volatility in the markets and possibly mortgage rates the next few days.

The first is February’s Personal Income & Outlays report early this morning. This data helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market because of the influence that consumer spending- related information has on the financial markets.

If a consumer’s income is rising, they are more likely to make additional purchases in the near future. This raises inflation concerns, adds fuel for economic growth and has a negative effect on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in income and a 0.5% rise in spending. Smaller than expected increases would be ideal for mortgage shoppers.

March’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This index gives us an indication of consumers’ willingness to spend. Bond traders watch this data closely because consumer spending makes up two-thirds of our economy. If this report shows that confidence is falling, it would indicate that consumers are more apt to delay making large purchases. If the report reveals that confidence looks to be growing, we may see bond traders sell, pushing mortgage rates higher Tuesday morning. It is expected to show a decline from February’s 70.4 reading to 65.0 for March.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate remained at 8.9% and that approximately 185,000 payrolls were added during the month. A higher unemployment rate and a smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weakness in the employment sector of the economy.

The Institute for Supply Management (ISM) will release their manufacturing index late Friday morning. This index gives us an important measurement of manufacturer sentiment by surveying trade executives and is one of the more important of this week’s data. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened.

This month’s report is expected to show a reading of 61.2, which would be a small decline from February’s reading of 61.4. This means that analysts think business sentiment remained fairly close to last month’s level. That would be neutral news for the bond market and mortgage rates. A noticeable decline would be favorable for rates while an increase would be negative.

In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Tuesday and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.

Overall, I expect to see the most movement in rates either Tuesday or Friday. Friday is the most important day of the week with the employment numbers and ISM index being released, but we will likely see a fair amount of movement in rates Tuesday also. I am expecting tomorrow or Wednesday to be the calmest day of the week, but we should still see some changes to rates those days. In general, it will probably be a pretty active week for mortgage pricing. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.

FHA Loans Could Undergo Changes

With its extremely low down payment, the Federal Housing Agency (FHA) loan is the primary method for financing for homebuyers across the country. According to a recent Wall Street Journal article, the FHA loan will be undergoing some changes that could have a major effect on affordability.

 

“About 56% of mortgages for a home purchase were FHA-insured in 2009, up from 6% in 2007,” reported the WSJ. According to the Mortgage Bankers Association, up to 80% of those who received an FHA loan were first-time homebuyers.

Currently these loans can be for up to  $729,750 in high-cost markets, but the Obama administration is recommending that these high limits expire in October. $625,500 would be the new high limit.

More changes to the FHA program are seen on the horizon. “On April 18, the annual mortgage-insurance premium on new FHA loans is set to rise by a quarter of a percentage point on 30- and 15-year mortgages,” states the article. In addition, some predict that the standard 3.5% down payment could soon rise to 5%.

What do you think about these expected changes to the program and the impact it might have on the market?

Home Equity Lines of Credit and Your Credit Score - What You Need to Know and Do

Credit reports have always been important, but they’ve grown even more important in recent years. Now more than ever, you need to make sure you understand what’s on your credit report - and you need to know what steps you can take to improve your score.

For example, did you know that a Home Equity Line of Credit (HELOC) can impact your credit score quite dramatically... and sometimes unfairly... depending on how it is reported?

Here’s What You Need to Know... and Do!

First, you need to know that HELOC’s are commonly reported by the three credit bureaus as revolving accounts. In reality however, they do not fall under the typical revolving terms, even though they are set up in the same way as a revolving account. That’s because HELOC’s are secured by an asset.

Here’s the Good News...

The Fair Credit Reporting act requires reporting agencies to report true and accurate information. So when a HELOC is reported as a revolving account, you can actually send a letter to the three credit bureaus asking them to change the type of account from "Revolving" to "Line of Credit" or "Other."

This way, the account will not be rated by the scoring system using the "Balance to Limit" ratio scenario - which can drop a credit score by as much as 75 points if the HELOC is maxed out to the limit of the available credit line.

A Final Word of Advice

If you do decide to send a letter, you should send it as a Certified Letter, along with a copy of the HELOC agreement. You may have to send the letters more than once, but persistence is the key to accomplishing a positive result with the bureaus.

This article was adapted from information provided by national credit expert Linda Ferrari, author of "THE BIG SCORE: Getting It and Keeping It, Buying Power for Life." Learn more and check out her credit resources at http://www.lindaferrari.com/

New Statistics on Rent-Buy Ratio

Deutsche Bank released a study showing that renting a home costs U.S. households more than paying a mortgage for the first time in at least two decades. The rent-buy ratio, or rent as a percentage of after-tax mortgage payments, is based on figures that Deutsche Bank compiled from NAR and the REIS information service. Rent amounted to 100.2% of home-loan costs in last year's fourth quarter, the highest level since calculations began in 1991.

Looks like it is a good time to buy!

To Own or To Rent?

Purchasing a home requires a thoughtful decision. For some, leaving a rented apartment is difficult due to its financial flexibility; however choosing homeownership can be financially rewarding.

Here are some things to keep in mind when considering buying a home:

Undecided?

Don’t Wait Until It’s Too Late

Buyers sitting on the fence while waiting for the “prices to go down” will miss out on long-term appreciation gains and possible tax advantages.

A Smart Investment

Renting does not provide equity benefits. Make your money work for you by building equity in your own home and benefiting from possible tax advantages* as a homeowner.

Good News!

High Inventory

There is currently a greater selection of homes for sale on the market. Sellers are motivated and many homes are priced to move! That means you have a better chance of finding the home that best fits your lifestyle and needs.

Motivated Sellers

Because the market is moving more slowly, some sellers may be highly motivated to participate in special financing programs such as buying down the interest rate on your loan. This makes homeownership much more affordable than you think.

Finding the Right Loan For You

A loan consultant can provide you with a wide selection of mortgage options that have payment structures to best suit your individual needs. As a full service mortgage banker and broker, Princeton Capital can offer many loan options along with competitive pricing. They have greater control in the decision making process from start to finish, so your loan can close faster with more flexible terms.

Tips for Buying a New Home

There are many pitfalls you can avoid when you are in the market to buy a new home. Here are just a few tips and strategies to help you prepare for success:

 

Know your credit score.

You may be able to get a better mortgage rate and more favorable loan terms by restructuring some of your balances on credit cards, car loans, etc. Mortgage professionals help you correct errors on your credit report and determine which balances to restructure or pay off in order to improve your credit score.

Know how much you can spend and determine how much you can afford. Mortgage professionals can help you:

• Finance your home based on your monthly payment comfort level
• Determine how much cash to use as your down payment and where to get these funds
• Understand your before and after-tax monthly payments
• Restructure some other debt you may have to free up more monthly cash flow that enables you to improve your home buying budget

Don’t get caught in the “pre-approval” / “pre-qualification” trap.

It is always better to get a full approval / loan commitment from a mortgage professional before you even start looking for a home. Many mortgage brokers and lenders will give you a “pre-approval” or “pre-qualification”, but these are often meaningless. What you really need is a bona fide commitment from a mortgage lender that you are in fact approved for financing. Many real estate transactions have been ruined because buyers, sellers and Realtors have counted on “pre-approval” letters that proved meaningless.

Determine whether to rent or buy a home based on timeframe, budget and local market conditions.

Mortgage professionals help you run the numbers to determine if it is better for you to rent or buy a home based on your individual circumstances.

Develop a strategy for financing your closing costs, home improvements and furniture expenses.

A home purchase is a significant financial commitment. Mortgage professionals help you understand the costs involved in home ownership and help you develop a financial strategy for dealing with these costs ahead of time.

Evaluate the mortgage products that will work best in your situation.

Remember, it is far better to find a mortgage professional who can help you implement the best strategy with competitive interest rates than for you to shop for the lowest rate with the wrong strategy.

What Google’s New Algorithm Means for Real Estate

A couple of weeks ago Google rolled out a new algorithm used to calculate what shows up highest in their search engine results, and it is having a dramatic effect on real estate in particular.

 

According to Google, 11.8% of search queries are significantly different after this not-so-subtle change in the formula.

What does this have to do with real estate? Real estate searches typically benefit most from what are referred to as “long tail searches” – searches with phrases, such as “homes for sale in San Mateo near downtown.”

Now these long-tail search queries will be treated differently by Google’s algorithm, though exactly how this will play out is unclear at this point. Real estate is an industry particularly affected by this change due to the nature of online searches regarding it, which tend to be pretty specific.

According to a recent press release, Google implemented the changes to their system in order to hamper content-farm sites (internet spam sites looking to gain traffic that lack quality content).

“This update is designed to reduce rankings for low-quality sites—sites which are low-value add for users, copy content from other websites or sites that are just not very useful. At the same time, it will provide better rankings for high-quality sites—sites with original content and information such as research, in-depth reports, thoughtful analysis and so on,” stated the official Google release.

The major takeaway from this is that paid-for SEO (search engine optimization) is becoming less reliable, especially in the real estate field, and creating quality content is the most important thing with online marketing.

7 Things You Should NOT Do When Applying for a Home Loan

This is a list of things to steer clear of when you are seeking to obtain financing for a home. If you do any of these things, please contact your loan officer immediately.

Even if  you have been pre-qualified, we can help you re-qualify.

1. Don’t buy or lease an auto!

Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.

2. Don’t move assets from one bank account to another!

These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.

3. Don’t change jobs!

A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.

4. Don’t buy new furniture or major appliances for your “new home”!

If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet the closing costs.

5. Don’t run a credit report on yourself!

This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.

6. Don’t attempt to consolidate bills before speaking with your lender!

The loan officer can advise you if this needs to be done.

7. Don’t pack or ship information needed for the loan application!

Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.

This Week's Market Commentary

This week brings us the release of three economic releases for the bond and mortgage markets to digest along with 10-year Treasury Note and 30-year Bond auctions.

All of the data will be posted the latter part of the week. Only one of the three reports is considered to be of high importance to the markets, so several days will likely be influenced more by stock trading and other factors than the economic news of the day.

January’s Goods and Services Trade Balance is the week’s first economic data. It comes early Thursday morning and gives us the size of the U.S. trade deficit. It is the week’s least important piece of news and likely will not influence mortgage rates much. Current forecasts are calling for a $41.5 billion trade deficit during January, but we will need to see a large variance from this estimate for the news to influence bond trading enough to affect mortgage pricing.

There will be two reports posted Friday morning. The first is at 8:30 AM and is the most important of the week. This is when the Commerce Department will post February’s Retail Sales data. It is extremely important to the financial markets because it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month’s report is expected to show an increase in sales of approximately 1.0%. If Friday’s release reveals a larger than expected increase, the bond market will likely fall and mortgage rates will move higher as it would indicate economic growth. If it reveals a much smaller than expected increase, I expect to see bond prices rise and mortgage rates improve Friday morning.

Also on tap Friday is the University of Michigan’s Index of Consumer Sentiment for March at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates.

If the index rises, indicating that confidence is rising and spending will likely follow, we may see mortgage rates move higher late Friday morning. It is expected to show a reading of 76.5, which is would be a noticeable decline from February’s final reading 77.5.

Overall, it will likely be another active week in the mortgage market. Friday will probably be the most important day of the week with the Retail Sales report due, while the calmest day could be tomorrow or Tuesday, depending on the stock markets.

photo credit: Dave Dugdale

Credit Score Resources

Do you know your FICO credit score?  If you are looking to purchase a home, be sure to look into your credit score well in advance.

 

Today’s market is competitive, with more cash buyers investing in property and multiple-offer transactions. Are you in the 700 range? 600 range?  You will need some time to find out your score and work on improving it if need be. Check out the below sources to help you assess your credit situation.

Four Good Sources of Credit Information

Here are four websites worth visiting, if you want to learn more about your credit reports and scores:

1. www.myfico.com — This site is owned by the company that created the credit-scoring model used by most lenders. The education tab is especially useful.  Take a look at the forum where you can post questions.
2. www.annualcreditreport.com — This website is jointly owned by the three credit-reporting companies (TransUnion, Equifax and Experian). This is where you should go to request your free reports. This is the only site that is regulated by the Federal Trade Commission.
3. www.ftc.gov/freereports — This website is useful to find out why a “free” credit report is offered, but then they try to “charge” you for additional things.  This is a marketing practice in wide use and this website can tell you more about it.
4. www.bankrate.com — This site offers credit tips and it explains the mortgage process. You can compare rates, use a myriad of calculators and check out their “news and advise” tab for pertinent news information each week.

The four sites listed above will help you get started on your home buying adventure.

What quantitative easing means to you

By BRENT BLAUSTEIN,
ARGUS-COURIER REAL ESTATE COLUMNIST

Published: Thursday, December 9, 2010 at 3:00 a.m.

In the statement released after its November meeting, the Federal Reserve announced that it will purchase an additional $600 billion of longer-term treasury securities by the end of the second quarter of 2011 in what is known as another round of quantitative easing.

 

That means, including treasury purchases from reinvesting proceeds of mortgage payments, the Fed will purchase $850 to $900 billion in securities through June 2011, which equals about $110 billion per month.

Quantitative easing is the concept of the Fed becoming a heavy buyer of treasuries and bonds. This is done to artificially cause those security prices to move higher under the increased demand. That demand should, in turn, cause interest rates to move lower in the hopes of stimulating the economy.

While that sounds easy enough, it’s not an exact science. In fact, not too long ago, Fed chairman Ben Bernanke noted that the Fed has much less experience in judging the economic effects of more QE versus their more traditional monetary policy actions. He went on to say that this “makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public.” More recently, Bernanke compared the Fed’s handling of the next round of QE2 to a golfer with a new putter, stating that the golfer has to tap lightly at first and try to figure out how to use it properly. Those words don’t exactly inspire confidence in the Fed’s ability to get QE2 right.

Even if the Fed does get it right, we have to keep in mind that QE has drawbacks and unintended consequences. For example, another round of it will continue to load the U.S. with debt. Additionally, QE2 would likely lead to a weaker U.S. dollar. While a weaker dollar may make our exports more attractive to foreign buyers, it could ultimately drive rates higher.

That brings us to another potential result of the Fed’s purchases: inflation. Recently, a news story explained how another round of QE brings the risk of “unleashing the 1970s inflation genie.” Consumers who are looking to purchase or refinance a house should take note of that possibility — even talk of inflation can impact home loan rates negatively. After all, a rise in inflation would be bad for mortgage bonds and, as a result, for home loan rates.

For months there has been an ever-growing fear that our economy is headed towards deflation. After all, the talk of QE, however, those fears have receded and even turned into talk of inflation. But how do concerns over inflation and deflation really impact home loan rates?

Let’s start by clarifying the terms. Deflation is when prices on goods and services fall lower. Inflation, on the other hand, occurs when prices climb higher.

Now, when we consider those ideas in terms of home loan rates, we see that fears of deflation are good for Bonds and home loan rates. That’s because the fixed payment that a bond provides to an investor goes further in a deflationary environment. So, the recent fears of deflation have helped Bond prices move higher and home loan rates move lower.

But the exact opposite is also true — meaning that fears of inflation negatively impact bond prices and home loan rates.

So, all the talk about QE and potential inflation (as discussed above) is ultimately bad for bonds and home loan rates.

The point is — this story is far from over. The Fed may have announced its plan for QE2, but now we have to wait and see how it may benefit the economy as a whole, or negatively impact home loan rates.

(Brent Blaustein is a loan agent with Princeton Capital. He can be reached at 769-4327.)

Financial Fitness

This article about being financially fit has great advice for small, inexpensive ways to save more money over time with your home.

Several tips that stand out are:

1. Be fire ready – Check that your fire extinguishers are functioning and easily available, and check your smoke detectors as well.

2. Prevent shocks – Outlets near water, such as in the bathroom or kitchen, should have a ground fault circuit to prevent shocks and electrocution. An inexpensive tool can alleviate this worry.

The major takeaway from this is that by making small investments in your home, you save yourself more in the long-run and protect the value of your property.

Full article here.