Hood Canal Real Estate, Mortgage, and the Economy 12/15/14

Hood Canal Real Estate, Hood Canal Properties, Hood Canal Homes, Hood Canal Lots, http://www.hoodcanalliving.com

Interest Rates Back Down Below 18 Month Lows:  If you have read this report over the last couple months you have seen us move to 30 year rates at 4.000%. This week the rates moved a small amount lower. Markets have been pushing rates up and down within a narrow range over that time. It has been a bit of a yo-yo ride as markets do not indicate a solid direction from current status. Stock markets moved down from recent historic highs this week which, was a large reason for the move lower in interest rates. Investors are making bets on future direction of the economy as many believe the world economy seems to be at a tipping point. The long run up in the stock markets, slowing Chinese economy, slowing economies in Europe and proposals by many central banks to prevent recession deflation are all factors suggesting there may be a pause in economic recovery. Those investors with this view point take risk out of their portfolios and buy securities that drive down rates. The bright light among many flickering economies is the US. The light may not be shining as bright as history suggests a recovery should be after a major recession but there is positive movement. The Chinese and European slowdowns do not help the US recovery as much of our business activity involves selling to foreign markets. Oil prices are also an indication that investors are predicting slowing world demand caused by slowing growth. Increased supply of oil is a major factor in the drop in price from over $100.00/barrel to $62.00/barrel but does not explain the severity of the drop. The drop in oil prices are causing more confidence among consumers which should be good for the economy. Current interest rate levels suggest rates will move higher from here by a small amount because, that has been the pattern over the last 2 months. If that pattern breaks then we have a new set of factors dominating market movements and a new analysis will be in order.

Industry News

"Up, up and away." Consumer sentiment and retail sales may have soared higher, but both wholesale inflation and oil prices are on the decline. What does all of this mean for the markets and home loan rates? Read on for the breakdown.

Consumer sentiment surged to 93.8 in December, reaching the highest level since January 2007 and the recent recession. In line with that sentiment, consumers also opened their wallets in November, spending money on goods ranging from cars to clothing as the holiday shopping season got underway. Retail Sales rose by 0.7 percent in November, which was the fastest rate in eight months.

One thing helping both consumer sentiment and retail sales of late is the continued decline in prices at the pump. In fact, the International Energy Agency recently cut its outlook for global oil demand growth in 2015. The markets have been especially volatile in recent weeks, and this news only added to the volatility. Despite the choppy trading in both Stocks and Bonds, home loan rates (which are tied to Mortgage Bonds) remain near historic lows.

Also of note, thanks to the decline in oil, the November Producer Price Index showed that inflation declined at the wholesale level. This is Bond-friendly news, since inflation reduces the value of fixed investments like Bonds, meaning this is also good news for home loan rates.

The bottom line is that home loan rates remain near some of their best levels of the year, and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Real Estate Miscellaneous Stats

Lenders Reluctant To Quote Rates To Self-Employed Borrowers: A new Zillow report indicates that self-employed borrowers have a more difficult time identifying lending options. They report that self-employed receive 40% fewer loan quotes primary due to lower credit scores.  "Self-employed borrowers will no doubt face headwinds when trying to get a loan. Low credit scores, coupled with a mountain of paperwork lenders must complete specifically for self-employed borrowers, make them unattractive," said Zillow Vice President of Mortgages Erin Lantz. "So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay their loan, they're often overlooked by lenders. In cases like this, it really pays to shop around." The report goes on to say that self-employed borrowers typically have higher household incomes, Zillow reports that their incomes are 81% higher on average. They also place larger down payments and buy more expensive homes. The down side is they are twice as likely to have credit scores below 680. These factors were the motivation behind RPM’s ‘Tailored Product Line’. There are 4 different products that are targeted at self-employed borrowers. They allow credit scores as low as 660 and loan amounts as high as $4 million. These products offer truly unique solutions to challenges faced by your self-employed clients.

Fannie Mae and Freddy Mac Help Relax Lending Standards: Fannie and Freddie both released new guidelines to lenders on Monday that are intended to clarify what will prevent loan files from being purchased by them. Conforming lenders must underwrite loans to Fannie and Freddy rules in order for them to be eligible for sale. Part of the process for lenders is to predict what will disqualify a loan and that has often been done with a very subjective call on certain borrower parameters. Uncertainty about the potential disqualifications cause many lenders to add ‘overlays’ on top of standard rules in order to prevent having files rejected by the GSE’s. The recent updates by Fannie and Freddy are intended to remove much of the uncertainty by lenders giving them more confidence to approve loans. This is causing a prediction that more borrowers will be approved for loans that have been declined up to this point. I am not sure how this will impact lenders, such as RPM, that are direct sellers and do not currently have overlays on certain products. The bottom line is there is a consensus that qualified borrower are being left out of the market because of poor guidelines and this is being addressed.
Luxury Home Market Strong in Seattle Area:  A recent report showed that sales of $1 million + homes shows Seattle in the top 10.  Much of that strength has come from foreign buyers and investors but data suggests that factor is waning as the sector continues to show strength. Seattle came in at #8 behind the usual high value California markets and Houston. Sales are up over 22% in this sector from last year averaging $1.55 million. All cash sales are plummeting as foreigner sales slow. The strength of this sector is a good sign that the growth is home grown and sustainable due to local economics.
Realty Trac Identifies Potential Bubble Markets: Realty Trac has a report indicating which markets may be a bit overheated and may reverse in value. It analyzed 475 counties which represents 70% of the households. It was based on three early warning signs of a possible home price bubble: If the market was less affordable in October 2014 than its peak price during the 2005 to 2008 housing bubble; if a market was less affordable in October 2014 than its historical affordability average since January 2000; and if a market had a rising foreclosure rate on loans originated in 2014 compared to loans originated in 2013. While 99% of all markets have not returned to the overheated levels before the crash, a full 20% have exceeded their historical affordability averages. Historical averages is home liability is 28% of a median income earner purchasing a median value home. Many of the overheated markets are in areas one would expect. Many California markets are of concern but Texas is showing up as well. In those counties where home prices are approaching or exceeding historical levels, most are still near average affordability due to low interest rates. Boston, a few Texas cities and others are among those markets. Seattle area foreclosure rates are only slightly higher than historical averages. In Seattle the recent price increases would make one might think that they are well on its way to a bubble.  Recent slowdowns suggest buyers have gotten savvier and aren't overbidding at levels we saw a last year.  All three counties in the Seattle metro were more affordable than their historical levels in October. The region did have a slight increase in foreclosure rate in two of the three counties. We have a strong job market with wages that are keeping up with appreciation thanks largely to a growing tech sector. As a result, prices in Seattle are appreciating at an appropriate pace after they slowed from the double digit increases we saw last year.

Hood Canal Real Estate, Hood Canal Properties, Hood Canal Homes, Hood Canal Lots, http://www.hoodcanalliving.com