Finances

During a week packed with economic data, Europe and the Fed took center stage in influencing mortgage rates. Uncertainty about the economic outlook caused a flight to relatively safer investments, and mortgage rates ended the week a little lower.

In June, stronger than expected economic data caused investors to raise their growth outlook, which was negative for mortgage rates. Last week’s disappointing jobs report removed much of the optimism and raised the level of uncertainty this week. Other factors also contributed to the increased uncertainty. Investors grew significantly more concerned about the debt problems in Europe, particularly in Italy. There was also a lack of progress in the US debt limit talks. The desire for safer assets was evident this week in improved mortgage-backed securities (MBS) prices, strong demand for the Treasury auctions, and higher gold prices.

When the FOMC Minutes from the June 22 Fed meeting were released on Tuesday, investors were surprised to see that Fed officials were open to the idea of additional Treasury bond purchases to boost the economy. Following the June 30 conclusion of the second round of bond buying, investors believed that a third round would be extremely unlikely. In his testimony to Congress, Fed Chief Bernanke elaborated that Fed officials want to keep all options open, including further stimulus, depending on the strength of the economy. Bernanke noted that the economy would have to falter significantly from its expected pace of growth for the Fed to add stimulus. What investors took from the Minutes and the testimony is that in the event of a downturn the Fed may be quicker to provide additional stimulus than previously thought.

The biggest economic event next week will be Tuesday’s FOMC meeting. Investors will be looking for an update on the Fed’s plans for the quantitative easing program. The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic growth, is scheduled for Thursday. Housing Starts will be released on Wednesday. Import Prices, Empire State, Leading Indicators, and Philly Fed will round out a busy week.

May the 18^th brings the FHA MIP rate increase to 1.15 percent of the loan amount for 30-year fixed-rate loans. ALSO, as many of you know, the Obama Administration proposed the eventual dissolution of GSE’s (Government Sponsored Enterprises) Fannie and Freddie.  The shift of mortgage credit would go to the private sector/markets [where it belongs].

Larger Down payment requirements is part of this proposal. Without government backing and bail outs, you can believe that things are going to get tougher not easier when it comes to getting loans. But this simply brings us back to the old days when you were expected to put down 20% on a mortgage. It is called having SKIN in the GAME. The HOME BUYER now has a sizable financial investment in their home and will be less likely to walk away from it.

MANY are crying, the chicken-littles are screaming the sky is falling, and the endless self proclaimed prophets and the all knowing wizards of OZ are predicting the end of, well I guess the housing market, home ownership and…oh yea, the end of the world.

This is just plain silly to me. And SHOULD be to anyone around 35 years old or more. You see, it seems that it is human nature to forget where we came from. History is ALWAYS forgotten and our memories are VERY short. Take a SHORT walk down memory lane with me

Mortgage interest rates have been at “HISTORIC LOWS” for almost a decade now. So long in fact, that many homebuyers and homeowners don’t realize or have “forgotten” that rates haven’t always been this low.

Fixed mortgage rates in the 4-percent range were unheard of until 2010. Rates in the 5-percent range were unknown prior to 2003.

Understand that  prior to 2003, “higher” mortgage interest rates were the norm. In the early 1970s, rates hovered in the 7-percent range and spiked up above 9- percent in late 1975, 1976 and most of 1978. 1979 and throughout the 1980s, mortgage rates rarely dropped below 10-percent.

FRM – Fixed Rate Mortgage

In 1981, mortgage interest rates hit the stratospheric high of 18-percent. Imagine getting a home loan with an interest rate of 16 percent AND thinking that was LOW! At that rate, the monthly payment on a loan would be far more painful than a typical mortgage payment today.

During the 1990s, mortgage rates ranged from 7 to 9 percent for many years. It was only in 2000 that rates began to fall. They held at less than 9 percent in 2000, less than 8 percent in 2001 and less than 7 percent in 2003.

While these small changes may be a big pill to swallow for those who have only known the real estate market of the past few years, this is the only way that private investors are going to play this game. They don’t want the kind of risks that will allow them to fail like Fannie & Freddie and so many, many others have. Who knows what they will require when it comes to appraisals….Could get very interesting!

So what does this mean for all of us in the Real Estate market? Well, it looks like more tough times for those who can’t adapt to change.  It is nothing but smooth seas and clear skies for those who can adapt and make their business thrive it whatever the current market conditions are. It doesn’t matter if it is a New Build or an Existing Home, Buyers market or Sellers market, a market is a market!!!

So keep your wits about you, have a positive mental attitude, CHANGE and ADAPT with the market and above all STAY INFORMED!