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

The summer housing market is heating up.

According to data from the National Association of REALTORS®, the Pending Home Sales Index smashed analyst expectations, jumping 8 percent on a monthly basis in May.

Wall Street calls were for an increase of just 0.5 percent.

It was a surprise result that, coupled with the recent stronger-than-expected New Home Sales and Existing Home Sales readings, has sparked housing market optimism in Arizona and nationwide.

The biggest reason for the optimism is because of what the Pending Home Sales Index measures.

In contrast to “traditional” housing data which reports on how housing performed two months ago, for example, the Pending Home Sales Index is a forward-looking indicator; a predictor of future market activity based on freshly-written contracts between buyers and sellers.

In other words, the Pending Home Sales Index looks ahead — not back. This is reflected in its methodology which states that 80% of homes under contract close within 2 months, and a large percentage of the rest close within Months 3 and 4.

Because May’s Pending Home Sales Index rose sharply, therefore, we can expect similar jumps in the Existing Home Sales figures of June and July.

For housing and home prices, this is a positive but the gains won’t apply to each home equally. The Pending Home Sales Index is still a national report for a market built on local sales. What’s happening on your particular street in your particular neighborhood may not reflect what’s happening somewhere else.

For accurate, real-time data in your local market, ask a real estate agent for statistics. (BringTheBlog)

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets improved again last week on a revised economic outlook for the U.S. economy, and ongoing concerns about Greece and its sovereign debt.

Conforming mortgage rates in Arizona fell last week and now hover near the all-time lows set last November.

Adjustable-rate mortgages are especially low.

There were three big stories last week that will carry forward into this week.

First, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged in its current target range of 0.000-0.250 percent. This was expected. However, the Fed revised its growth estimates for the U.S. economy lower. This was not expected.

Mortgage rates dipped on the news.

Second, Greece moved closer to avoiding insolvency. The nation-state’s parliament must now pass a package of spending cuts and tax increases to appease Eurozone leaders and the IMF. Without passage, though, bankruptcy may be unavoidable.

Worries about Greece’s fate sparked a bond market flight-to-quality. This, too, helped mortgage rates ease.

And, lastly, Thursday, the U.S. and other members of the International Energy Agency chose to release 60 million barrels of oil to the market over the next month. You’ve likely experienced the impact as the gas pump already — gas prices are way down nationwide.

Lower gas prices means fewer inflationary pressures and inflation is the enemy of mortgage rates. Less inflation, lower mortgage rates.

This week, mortgage rates may reverse.

There isn’t much new data due for release — inflation data due Monday, housing data due Wednesday, and a series of confidence reports throughout the week — but there are 3 scheduled treasury auctions that could pull rates up or down.

• Monday : 2-Year Treasury Note auction
• Tuesday : 5-Year Treasury Note auction
• Wednesday : 7-Year Treasury Note auction

If demand is high at any/all of the auctions, mortgage rates should drop. If demand is weak, mortgage rates should rise. (BringTheBlog)

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

On paper, the market for newly-built, single-family homes looks healthy.

Last month, the number of new homes sold on an annualized, seasonally-adjusted basis tallied 319,000. The May reading is the second-highest of the year, and 6 percent above the current 12-month average.

These are strong numbers in isolation. However, after accounting for the dwindling supply of new homes for sale as well, the figures look even stronger.

In May, at the current pace of sales, the complete, national inventory of new homes for sale would have been sold in just 6.2 months.

That’s the quickest pace in a year and a 3-month improvement from a year ago.

To hear it from homebuilders, though, you’d think that sales were crashing.

Homebuilder confidence slipped to a 9-month low this month; builders report slowing foot traffic; and the prospects for the next 6 months appear weak. This is not the portrait painted by HUD’s May New Home Sales report.

Falling supplies and rising demand correlate to higher home prices. Yet, builders are pessimistic for their market. Therefore, despite the economics, psychology may help buyers experience more favorable negotiations, including complimentary upgrades and other builder concessions.

If you’re a buyer in today’s market, it’s a reason to consider the new home market. There may be good value once you know where to look.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Take a look at our incredible real estate marketing system.

Jeff Underwood and The Underwood Team
AmeriFirst Financial, Inc. BK#0013635
www.UnderwoodHomeLoans.com

Meet our professional mortgage team.

Jeff Underwood and The Underwood Team
AmeriFirst Financial, Inc. BK#0013635
www.UnderwoodHomeLoans.com

Mortgage markets improved last week as Wall Street managed news on both sides of the economic coin. There were several instances of higher-than-expected inflation — an event that tends to lead rates higher — but weak domestic jobs data and a soft manufacturing report suppressed the damage.

Rates were also held low by ongoing issues in Greece.

In Greece, the government is currently struggling to meet its debt obligations — despite a restructuring of existing debt negotiated in 2010.

Without a plan for its new debt, though, Greece will likely to default on what it owes.  Eurozone and international banking leaders have failed to reach consensus on the situation, and now the citizens of Greece are in a state of social unrest.

The uncertainly surrounding the nation-state spurred a bond market flight-to-quality last week. That, too, helped to keep rates low.

Last week, mortgage rates fell for the sixth week out of nine, a streak that’s dropped conforming mortgage rates in Gilbert to their lowest levels of the year.

This week, that could change.

Wednesday, the Federal Open Market Committee adjourns from a 2-day meeting and anytime the Fed meets, there’s a good chance that mortgage rates will move. The FOMC makes the nation’s monetary policy.

The meeting adjourns at 12:30 PM ET and Fed Chairman Ben Bernanke will follow with a press conference at 2:15 PM ET. The press conference is meant to give context to the FOMC’s decision, and allow for back-and-forth with the press corps. Wall Street will watch closely, too, for signals of the Fed’s next action(s).

In addition, this week will see the results of May’s Existing Home Sales report and New Home Sales report. Both are considered important to the housing market, and to the economy overall.

If you’re still floating a mortgage rate, falling mortgage rates have helped you. There’s not much room for rates to fall further, however. Consider calling your loan officer and locking something in.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets moved in feverish fashion last week, changing with extreme frequency, and eventually ending slightly worse on the week. Conforming mortgage rates fell to a 6-month low Wednesday but, by Friday, they had retreated higher.

Last week marked just the second time in 8 weeks that rates in Gilbert increased. During that span, Freddie Mac reports that mortgage rates have dropped 42 basis points, or 0.42%.

That equates to a monthly savings of $25.24 per $100,000 borrowed.

One reason why mortgage rates have been dropping is that the economy is growing more slowly than projected. In a speech last week, Federal Reserve Chairman Ben Bernanke described the U.S. recovery as “frustratingly slow”. In a separate speech, another Federal Reserve President, William Dudley, categorized the recovery as “subpar”.

Economic weakness tends to promote a low mortgage rate environment as equity markets sell off and investors seek safety of principal. Indeed, the Dow Jones Industrial Average fell for the 6th straight week, its longest losing streak since 2002.

Mortgage rates were also helped by ongoing uncertainty in Greece. The nation remains at-risk for default, and that’s spurring a bond market to flight-to-quality which benefits the U.S. mortgage market, too.

This week, mortgage rates may reverse their recent slide. There isn’t much data due for release, but the numbers that will hit the wires have the ability to move markets — especially the inflation-linked figures.

• Tuesday : Producer Price Index, Retail Sales
• Wednesday : Consumer Price Index
• Thursday : Housing Starts
• Friday : Consumer Sentiment

If you’ve been looking at mortgage rates for a purchase or refinance, now may be a good time to lock. FHA and conforming rates are at their lowest levels since December 2010.

Going forward, rates have much more room to rise than to fall.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

It’s a fact: It’s more expensive to live in some cities than others. Beyond just the costs of buying a home, different cities also carry a different Cost of Living. For households relocating from Arizona and  across state lines, the change in “life costs” can be jarring.

Depending on where you live, everyday expenses — from groceries to gasoline — make a different-sized dent in a household budget. And now you can see in numbers by how much your expenses might change.

Visit Bankrate.com’s Cost of Living Comparison Calculator.

The Cost of Living Comparison calculator is as basic as it is thorough. The calculator asks just 3 questions —  (1) Where do you live now, (2) To what city are you moving, and (3) What is your salary — and uses your answers to produce a detailed, 60-item cost comparison between the two towns.

The city-to-city cost comparisons include:

• Dry Cleaning Costs
• Total Energy Costs
• Beauty Salon Costs
• Movie Costs
• Dentist Visit Costs

The list also features a mortgage rate comparison, and a comparison of local home prices.

The Cost of Living calculator is based on data from the ACCRA. On the ACCRA website, a similar report sells for $5. At Bankrate.com, the information is free.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

If you live in a high-cost area, keep an eye on your calendar. Effective October 1, 2011, temporary conforming loan limits will be lowered nationwide. Perhaps by as much as 14 percent.

These limits range up to $729,750 currently.

“Temporary loan limits” were enacted as part of the government’s 2008 economic stimulus package. At the time, the financial sector was entering its crisis and private mortgage lending had all but disappeared. Financing was scarce for both homeowners and home buyers for whom loan sizes exceeded Fannie Mae and Freddie Mac’s national $417,000 limit — even for those with excellent credit and income.

The issue was exacerbated in places like New York City where local home prices routinely topped $1 million. Buyers unable or unwilling to bring a substantial downpayment to closing (i.e. $600,000 or more) found themselves without financing.

The February 2008 package addressed this issue, using a math formula to change loan limits in Phoenix and nationwide. The government assigned to each U.S. metropolitan area a temporary, new loan size limit equal to 25% greater than its respective median home sale price, not to fall below $417,000, and not to exceed $729,750.

Then, later that same year, the Housing and Recovery Act made “high-cost areas” permanent, but with a reduced 15% increase to median home prices, and loan sizes not to exceed $625,500.

These new limits take effect October 1, 2011 — one day after the temporary limits expire.

If you live in a high-cost area, therefore, take note. Mortgage rates may be low, but the amount of loan for which you qualify may be less than you expect, and you may find yourself ineligible.

Whether you’re planning a refinance or a purchase, keep an eye on the calendar.

The complete list of high-cost areas is available online.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Hurt by foul weather and a soft market, the Pending Home Sales Index plunged 12 percent in April.

The monthly index is published by the National Association of REALTORS® and measures the number of homes on which new contracts have been written.

It’s the association’s lone “forward-looking” report; meant to predict future, closed home sales. 80% of homes under contract close within 2 months.

Therefore, if the April Pending Home Sales Index is accurate, we should expect home sales to decline through June and July.

On a regional basis, “pending homes” varied. The Northeast Region posted growth. None others did.

• Northeast Region: +1.7% from March
• Midwest Region : -10.4% from March
• South Region : -17.2% from March
• West Region : -8.9% from March

But even regional data remains too broad to be useful to everyday buyers and sellers in the Chandler market. Housing is local and that means that each block, of each street, in each city has its own market and economy. Grouping 9 states into a single “region” is neither helpful nor relevant.

That said, we can’t ignore the data in its entirety.

Housing is believed to be a key component in the nation’s economic recovery. Fewer home sales will retard growth, and slower growth leads mortgage rates down.

Home Affordability hit record-highs last quarter, and should do the same in this one. Homes now sell at discounts to prior prices and mortgage financing is cheap. Buyers tend to be drawn to favorable markets such as this, and that will pressure home prices higher.

If you’re in the market for a home today, conditions look good. Talk to your real estate agent to gauge your options.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money