Money, Debt, Real Estate, and Credit talk with Jeff Underwood

Earlier today, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 10-0 — the third straight meeting after which the FOMC vote was unanimous.

In its press release, the FOMC noted that since its March 2011 meeting, the economic recovery is proceeding “at a moderate pace” and that labor markets conditions are “improving gradually”. Household spending and business investment “continue[s] to expand” but the housing sector remains “depressed”.

Furthermore, the FOMC’s statement discussed the Federal Reserve’s dual mandate of (1) Managing inflation levels, and (2) Fostering maximum employment. The statement acknowledged recent inflation pressures on the economy, but it expects those pressures — because they’re related to oil and food prices — to be “transitory”. Unemployment remains “elevated”.

The FOMC statement also re-affirms the group’s plan to keep the Fed Funds Rate near zero percent “for an extended period” of time, and to keep its $600 billion bond market support package — more commonly called “QE2″ — intact.

The statement’s verbiage suggests that a third support package may be created after QE2 ends in June 2011, depending on the needs of the economy.

Mortgage market reaction to the FOMC statement has been positive thus far. Mortgage rates in Gilbert are unchanged, but leaning lower. And, as always, market sentiment could shift quickly. If you like today’s mortgage rates, consider locking in.

The FOMC’s next scheduled meeting is a 2-day event, June 20-21 2011.

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Jeff Underwood, The Street Economist

The Ugly Truth About Money

The Federal Open Market Committee starts a two-day meeting today, the third of its 8 scheduled meetings this year.

The FOMC is a special, 12-person committee within the Federal Reserve. It’s led by Fed Chairman Ben Bernanke and the group is responsible for voting on our nation’s monetary policy. This includes setting the Fed Funds Rate, the rate at which banks borrow money from each other overnight.

The general public tends to confuse the Fed Funds Rate for “mortgage rates” but, as shown in the chart at top, the two interest rates are very different. There is no direct correlation between the Fed Funds Rate and everyday mortgage rates in Chandler.

Since 1990, the two benchmark rates have been separated by as much as 5.29 percent, and have been as close as 0.52 percent.

Today, the separation between the Fed Funds Rate and the national average for a standard, 30-year fixed rate mortgage is 4.625 percent. This spread will widen — or shrink — beginning 12:30 PM ET Wednesday. That’s when the FOMC adjourns and releases its public statement to the markets.

According to Wall Street, there’s a 100% chance that the FOMC leaves the Fed Funds Rate in its current “target range” of 0.000-0.250 percent, the same range in which it’s been since December 2008. Depending on the verbiage in the press release, plus the comments of Fed Chairman Ben Bernanke in his scheduled, 2:15 PM ET press briefing, mortgage rates aren’t expected to steady as well.

If the Fed projects higher growth in late-2011/early-2012, or hints at new market stimuli, expect mortgage rates to rise on concerns about inflation. Inflation is bad for mortgage rates, in general.

On the other hand, if the Fed indicates that the economy is slowing down, or that it plans to withdraw its existing, $600 billion bond market stimulus, look for mortgage rates to fall.

It’s hard to be a home buyer in the Power Ranch area when the Federal Open Market Committee meets. There’s just so much that can change mortgage rates and rising mortgage rates can affect purchasing power in a flash.

In the 6 months since November 2010, home affordability is off 9%.

So, if you’re shopping for mortgages, or just floating a rate, consider getting locked in before the FOMC issues its press release Wednesday. Once the statement hits, mortgage rates could soar.

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Jeff Underwood, The Street Economist

The Ugly Truth About Money

Mortgage markets improved slightly through last week’s holiday-shortened trading sessions. Better-than-expected housing data led mortgage rates higher Tuesday and Wednesday, but rates retreated Thursday morning in advance of Good Friday.

Markets were closed Thursday afternoon and Friday. They re-open this morning.

Conforming mortgage rates in Arizona ended last week unchanged overall. It’s a strange outcome considering that Standard & Poor’s issued a downgrade on U.S. debt Monday.

In most instances, a debt downgrade would lead investors away from a particular group of securities — in this case, a group that includes mortgage-backed bonds. However, Wall Street reacted in the opposite.

When S&P issued its opinion, however, mortgage bonds rallied.

Some say this is because the downgrade will force Congress to address a rising debt-load; others think a downgrade slows growth which, in turn, slows down inflation. Both scenarios are considered a positive for mortgage bonds. Hence, mortgage rates fell.

This week, momentum could reverse. In addition to a slew of housing and economic data including New Home Sales, Pending Home Sales, and Consumer Confidence data, the Federal Open Market Committee is meeting for the third time this year. And this month, the FOMC is meeting a little differently.

Usually, when the FOMC gets together, it adjourns and releases a press statement to the markets at 2:15 PM ET. This month, though, the FOMC will release its statement at 12:30 PM ET, and then Fed Chairman Ben Bernanke will hold a press briefing at 2:15 PM ET to address the aforementioned statement. He’s expected to add growth forecasts to the official FOMC release, among other items.

Whenever the FOMC meets, mortgage rates can be volatile. This week, with the new press briefing format, that volatility is even more likely.

If you’re floating a mortgage rate or wondering whether to lock, mortgage rates will be at their “calmest” levels of the week Monday and Tuesday. Once Wednesday hits, and the FOMC statements begin, expect for rates to change.

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Jeff Underwood, The Street Economist

The Ugly Truth About Money

Tax Day In America – how about some interesting facts

Would you believe that there once was a tax rate that was set over 90% ?? And, it was even in the United States!!! I will share with you the years in America that had some of the highest marginal tax rates. Join me on this tax day in America as I talk about some interesting facts about our tax system. Did you know that one of our leaders saved over $50Million in taxes just by taking his position with the Administration?? In this episode you will find out who………….. CLICK HERE to check out the Radio Show http://www.blogtalkradio.com/jeffunderwood/2011/04/18/tax-day-in-america-with-jeff-underwood-the-street-economist

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

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Jeff Underwood, The Street Economist

The Ugly Truth About Money

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Mortgage markets improved last week, buoyed by two days of out-sized gains. Mortgage rates bounced off their 8-week highs on much weaker-than-expected inflation data, and debt concerns abroad.

It’s an abrupt change in mortgage rate momentum.

Since the Federal Reserve’s March 2011 meeting, in which the Fed said rising energy costs are “putting upward pressure on inflation“, inflation chatter has figured big for Phoenix  mortgage rates. With each tick higher in gas prices; in every conversation on U.S. debt load; as fruits and vegetables get more expensive at the supermarket, Wall Street’s fears of inflation have grown, and rate shoppers have suffered.

The connection between inflation and mortgage rates is straight-forward. Inflation is the devaluation of the U.S. dollar — the currency in which mortgage bonds are denominated. As the dollar loses values, so do mortgage bonds, therefore, leading mortgage rates to rise, inevitably.

Leading up to last week, concerns peaked and rates did, too. And then, a strange thing happened. The government’s March inflation report showed inflation well under control.

The results surprised Wall Street and the trades that had previously served to pump rate up, last week, ran in reverse.

The biggest gains were made Friday.

This week, inflation takes back-seat to housing data. There’s a lot of it coming.

• Monday : Homebuilder Confidence Index
• Tuesday : Housing Starts and Building Permits
• Wednesday : Existing Home Sales
• Thursday : Housing Market Index

There’s no data due Friday with markets closed for Good Friday.

This is a holiday-shortened week so expect low trading volume to render rates more erratic than typical. If you’re not yet locked in to a mortgage rate with your lender, consider doing it this week.

Stay Informed throughout 2011!
Join  me for an exciting year of fun education on money, debt, real  estate,  credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money

Inflation pressures are mounting in the United States. And, Friday, the Consumer Price Index should prove it.

More commonly called “The Cost of Living Index”, CPI measures cost changes in the typical items bought by American households. Among others, CPI measures goods and service in apparel and recreation; medical care and education; and housing and transportation.

The March CPI data is expected to show an increase in the cost of living for the 17th straight month — a reading that would take CPI to an all-time high.

If you’ve filled your gas tank, sent a child to school, or shopped for groceries, you’re likely not surprised. Household budgets have been squeezed from all angles lately. The dollar’s purchasing power is waning.

This is inflation, defined. And a weaker U.S. dollar is bad for mortgage rates.

The connection between the U.S. dollar and mortgage rates is direct. When inflation pressures rise, mortgage rates in Gilbert tend to rise, too, because mortgage rates are based on the price of mortgage-backed bonds — a security bought, sold and paid in U.S. dollars

Inflation, in other words, renders mortgage bonds less valuable to investors, all things equal, so investors sell them as inflation pressures grow. More sellers leads to lower prices which, in turn, causes mortgage rates to rise.

It’s why March’s Cost of Living data is so important to rate shoppers and home buyers in San Tan Ranch. Higher levels of CPI can harm home affordability, and stretch your household budget uncomfortably.

As Memorial Day approaches, gas prices are projected to spike, offering little relief from the inflationary pressures in the economy. It’s one reason why mortgage rates should trend higher over the next few months.

If you’re wondering whether to lock or float your mortgage rate, consider locking in. At least today’s rates are a sure thing. Tomorrow’s rates could be much higher.

Join me for my latest episode of The Ugly Money Show on iTunes or on http://www.BlogTalkRadio.com/JeffUnderwood. And on Facebook at Facebook.com/TheUglyTruthAboutMoney

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money

After this week ends, the FHA is raising mortgage insurance premiums on its new Gilbert borrowers. It’s the FHA’s third such increase in the last 12 months.

Beginning with FHA Case Numbers assigned April 18, 2011, mortgage insurance premiums will be higher by 25 basis points per year, or 0.25%.

Against a $200,000 loan size, the MIP increase adds $500 to an FHA-insured borrower’s annual cost of homeownership. All new FHA loans are subject to the increase — purchases and refinances.

Existing FHA-insured homeowners across Arizona are unaffected. Premiums do not rise for loans already made.

The FHA is increasing its mortgage insurance rates because, as a group, the FHA is insuring a much larger percentage of the U.S. housing market.

In 2006, the FHA held a 4 percent market share. By 2010, that share ballooned to 19 percent and, today, it’s estimated to be even higher.

In its official statement, the FHA says that the quarter-point MIP bump will “significantly strengthen” its reserves which are depleted because of delinquencies and defaults. By law, the FHA’s capital reserves must meet certain levels.

Therefore, to meet these requirements, the FHA is rolling out its new mortgage insurance premium schedule:

• 15-year loan term, loan-to-value > 90% : 0.50% MIP per year
• 15-year loan term, loan-to-value <= 90% : 0.25% MIP per year
• 30-year loan term, loan-to-value > 95% : 1.15% MIP per year
• 30-year loan term, loan-to-value <= 95% : 1.10% MIP per year

In order to calculate what your FHA monthly mortgage insurance premium would be, multiply your beginning loan size by your insurance premium in the chart above, then divide by 12.

The FHA also charges a 1 percent, up-front mortgage insurance premium at closing. That figure remains unchanged.

Join me for my latest episode of The Ugly Money Show on iTunes or on http://www.BlogTalkRadio.com/JeffUnderwood. And on Facebook at Facebook.com/TheUglyTruthAboutMoney

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money

Mortgage markets worsened last week as energy costs remained high, and jobs data looked strong. The safe haven buying that characterized the March mortgage market has subsided.

it’s driving mortgage rates higher across Arizona.

Conforming and FHA mortgage rates rolled back 8 weeks worth of improvements last week and are now back to mid-February levels. The rise in rates is hurting refinance activity and home affordability.

The biggest story from last week figures to carry forward into this one — the Federal Reserve’s take on inflation.

In the minutes from its March meeting, the FOMC was shown to have discussed the possibility of raising the Fed Funds Rate ahead of schedule, and to be watching near-inflation closely. Both developments are in response to a growing economy with rising price pressures.

Mortgage rate shoppers should take note.

Inflation is a mortgage-rate killer. When inflation is present in the economy, all things equal, mortgage rates rise. Sometimes by a lot. And, usually, just the expectation of inflation is all it takes to make mortgage rates jump.

That’s what we saw last week.

This week, keep a close watch on new inflation-related data set for release. This includes Tuesday’s Retail Sales data, Wednesday’s Producer Price Index, and Thursday’s Consumer Price Index. Each release can potentially move mortgage rates although, if recent trends are an indication, expect for rates to rise.

Mortgage rates in Gilbert remain historically low. If you’re shopping for a mortgage, consider locking as soon as you can.

Join me for my latest episode of The Ugly Money Show on iTunes or on http://www.BlogTalkRadio.com/JeffUnderwood. And on Facebook at Facebook.com/TheUglyTruthAboutMoney

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money

Mortgage rates may be a function of free markets, but real estate taxes are a function of government. And, depending on where you live, your annual real estate tax bill could be high, low, or practically non-existent.

Compiling data from the 2009 American Community Survey, the Tax Foundation, a non-partisan educational organization in Washington D.C., published property taxes paid by owner-occupied households, county-by-county.

The report shows huge disparity in annual property taxes by region, and by state.

As a percentage of home valuation, Southeast homeowners tend to pay the fewest property taxes overall, while Northeast homeowners tend to pay the most. But statistics like that aren’t especially helpful. What’s more useful is to know how local real estate taxes stack up as compared to local, median household incomes.

Not surprisingly, real estate taxes are least affordable to homeowners in the New York Metro area. The 10 U.S. counties with the highest tax-to-income ratios physically surround New York City’s 5 boroughs. The areas with the lowest tax-to-income, by contrast, are predominantly in southern Louisiana.

A sampling from the Tax Foundation list, here is how select counties rank in terms of taxes as a percentage of median income:

• #1 : Passaic County (NJ) : 9.7% of median income
• #6 : Nassau County (NY) : 8.6% of median income
• #15 : Lake County (IL) : 7.2% of median income
• #18 : Cheshire County (NH) : 7.1% of median income
• #70 : Travis County (TX) : 5.0% of median income
• #90 : Marin County (CA) : 4.6% of median income
• #110 : Middlesex County (MA) : 4.4% of median income
• #181 : Sarasota County (FL) : 3.9% of median income
• #481 : Douglas County (CO) : 2.4% of median income
• #716 : Maui County (HI) : 1.3% of median income

The U.S. national average is 3.0 percent.

The complete, sortable list of U.S. counties is available at the Tax Foundation website. For specific tax information in your neighborhood or block, talk with a real estate agent.

Join me for my latest episode of The Ugly Money Show on iTunes or on http://www.BlogTalkRadio.com/JeffUnderwood. And on Facebook at Facebook.com/TheUglyTruthAboutMoney

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Federal Reserve released its March 15 meeting minutes Tuesday. The notes revealed a Federal Reserve split between optimism and caution for the U.S. economy.

The minutes’ official name is “Fed Minutes”. It’s a periodic publication, published 3 weeks after each meeting of the Federal Open Market Committee. The FOMC meets 8 times annually, so the Fed Minutes is published 8 times annually, too.

The Fed Minutes is similar to the meeting minutes released after a condo board gets together, or after a meeting of the Board of Directors at a large corporation. The minutes give a detailed account of the important conversations and debates that occurred among the attendees.

At the Federal Reserve, those conversations are deep and, as such, the minutes are long; much longer than the more well-known, post-meeting press release anyway.

Whereas the press release is measured in paragraphs, the minutes are measured in pages.

Here is some of what the Fed discussed last month:

• On inflation : Pressures are rising, but largely because of food costs and oil costs.
• On housing : The market remains “depressed” with large inventory and weak demand.
• On stimulus : The Fed will keep its $600 billion bond plan in place.

In addition, there was talk about ending the Federal Reserve’s accommodative monetary policy (i.e. the near-zero percent Fed Funds Rate). The FOMC’s voting members unanimously elected to leave the Fed Funds Rate near 0.000 percent last month, but there was talk of raising the benchmark rate later this year.

Conforming and FHA mortgage rates in Chandler are mostly unchanged since the Fed Minutes release.

Join me for my latest episode of The Ugly Money Show on iTunes or on http://www.BlogTalkRadio.com/JeffUnderwood. And on Facebook at Facebook.com/TheUglyTruthAboutMoney

Stay Informed throughout 2011!
Join me for an exciting year of fun education on money, debt, real estate, credit, mortgage, the economy, and how they all work together!

Jeff Underwood, The Street Economist
The Ugly Truth About Money