Archive for the 'Economy' Category
Financial Report ~ June 1st
This will be a new regular feature to give you an update on the markets and how they affect mortgage rates.
Weekly Preview
Last Week: The Treasury markets saw some slight increase in interest rates in another volatile trade. Mortgage rates were essentially unchanged. The week was marked with Treasury selling another $113B of notes and surprising jumps in existing and new home sales (+7.6% and +14.8% respectively). Two reports on consumer confidence and sentiment were a little better than a month ago, but these are less significant than hard market data as both the Conference Board’s consumer confidence report and the U. of Michigan’s consumer sentiment report are mostly emotional readings predicated on how the stock market and interest rate markets are performing. By the end of the week, after continued high market volatility, the stock market ended with not much change from the previous week. The sovereign debt problems in Europe continue to be the dominant concern in the equity markets. Fitch, the rating agency, down-graded Spain’s sovereign debt rating from AAA to AA+, adding to the angst that debt issues may become more strained.
This Week: Expect more market volatility in the equity and interest rate markets. The stock market, based on the key indexes, is still too high given the concerns emanating from Europe and what we see as a slowdown in China’s expansion. The outward driver for US markets is captured in the movement of the euro currency; as it declines against the dollar, US stock markets will be pressured. The euro may find support at $1.20 dollars per one euro (Friday the level was $1.23). No Treasury borrowing this week; the giant this week is the May employment data on Friday (early estimates are an increase of 500K jobs with unemployment at 9.8%). Tuesday a key data point on the manufacturing sector (ISM index). Thursday it’s the ISM services sector report. Expect increased concerns that the US economy will slow based on the previous excessive bullish outlook that had rallied equity markets. No inflation and increasing concerns that the economic outlook is weakening will support low interest rates for many more months.
Trends in Real Estate ~ What to do about Fannie Mae & Freddie Mac
The quasi-government run companies that created what’s referred to as the secondary mortgage market, Fannie Mae and Freddie Mac, are back to Congress with their hands out for more money. Here are the quotes:
WASHINGTON (AP) -Fannie Mae has again asked taxpayers for more money after reporting a first-quarter loss of more than $13 billion.
The mortgage finance company, which was rescued by the government in September 2008, said it needs an additional $8.4 billion from the government to help cover mounting losses. Link.
And
NEW YORK (CNNMoney.com) — Freddie Mac on Wednesday requested another $10.6 billion handout from the federal government. Link.
As a home owner or a person looking to purchase a home what does all this mean to you and why should you care? Well, let’s start with a little history. All the way back when Clinton was President, Congress decided they wanted home ownership in the U.S. to be above 60%. So they mandated a loosening of credit requirements for home buyers through Fannie Mae and Freddie Mac. At first the banks and other lenders didn’t like this as it made their loans on mortgages more risky but they came around and saw a huge potential for profit, especially since Fannie and Freddie were going to buy the mortgages anyway. Thus was the sub-prime mortgage market created.
But that wasn’t all. Fannie and Freddie decided to invent a new kind of security that could be traded like stock. They bundled a great many mortgages together and created mortgage backed securities. A lot of these securities were based on these sub-prime mortgages. So when the sub-prime market bubble burst these mortgages were worthless. Both Fannie and Freddie held most of them while a lot of the securities were being sold on the international market and invested in by central banks, most notably China.
Which leads us to today and having both Fannie and Freddie asking for more money after getting huge bailouts last year. And this is where it gets bad for you as a buyer or seller of a home. The more money Congress borrows to prop up Fannie and Freddie, the less money there is for the American consumer to purchase housing. The less money available for the housing market means higher interest rates. The Federal Reserve is not going to lower rates right now because inflation is creeping up. The interest rates on mortgages, which is largely driven by these mortgage backed securities, will go up as the market price for these securities goes down.
What can be done? Well, first of all both Fannie Mae and Freddie Mac need reforming. I would propose consolidating them as they are for the most part redundant. I would require that they take a one time charge on all bad debt or sell it off in the private market place. I know we as tax payers would have to pay for the loss but at least the bad debt causing the loss wouldn’t be on our books.
Then I would get the government out of the mortgage backed securities business. Our government’s job is to ensure there is a fair marketplace, not to make the marketplace and then be one of the players. I would also put into any financial reform bill that the government could never do this again. Most of the blame for the housing bubble that burst lies squarely at the feet of Congress. This is not a Republican or a Democratic problem as this bubble blew up and burst under both Clinton and Bush.
Finally, the chairman’s pay at Fannie and Freddie should be linked to performance.
April 3, 2009 -Fannie Mae and Freddie Mac, the US Government-controlled mortgage giants, will pay $210 million (£141 billion) in retention bonuses over the next 18 months. Link.
How can they give out $210 million in bonuses and still be asking for handouts from us taxpayers?
So will we see higher interest rates in our near future? Absolutely! If you are a buyer who missed out on the tax credit, now is not the time to be sheepish on real estate. Prices of homes are at an all time low and interest rates are rising and will continue to rise. You need to strike now to lock in what are still attractive rates.
If you are thinking of selling your home, I know this is a tough market. You probably are not going to get what you thought you would a few years ago — but how much harder will your home be to sell if interest rates keep going up?
If you have any questions about mortgages or buying and selling your home please give me a call at 253-225-2158 or go here.
Buyers & Sellers ~ High-End Homeowners Falling Into Foreclosure Trap
It’s hard to say it is a trap when you could see this coming for some time. An article I read on CNBC today talks about the trend of high end homes going to foreclosure or short sale. I’ve seen this in Gig Harbor since late last year. They correctly attribute this trend to the fact that luxury home owners could try to wait out the rough economy and now some cannot wait any longer.
Author Joseph Pisani also notes that lenders are much more willing to work with a luxury home owner on a loan modification or on a short sale than to take a high priced home back. Yet still, since last year, luxury home foreclosures have risen 121% and are likely to rise even further into 2011 according to prominent housing economists.
This chart shows that recently we have seen the trend in Pierce County of high priced homes entering the foreclosure market. Another chart below shows the number of homes in the Gig Harbor/Key Peninsula and North Tacoma areas for sale vs. sold and pending sales. This explains why banks are very reluctant to take back a high end home. For this chart I started with homes $500,000 or more.
So what does this mean if you are sitting on a luxury home in Gig Harbor and need to get out? First, as I advise all my clients and potential clients, talk to your lender. They may be able to work out a lower interest rate or payment plan that would keep you in the home. If that is not possible then you need to enlist the help of a REALTOR with short sale experience and one with a trained team of negotiators to work for you. This approach is the most successful way to get out from under a mortgage on which you are upside down.
Secondly, to sell a high end home, you have to do more to market it widely. Sticking a sign in the yard and even putting the home in a slick magazine doesn’t get it done anymore. Your home has to be on the internet and being seen all over the world. The smaller the market for a house, the more territory the marketing has to cover. I know where most of the buyers for luxury homes in Gig Harbor and North Tacoma come from, so I focus my marketing on where the buyers are. Most real estate agents don’t do this. If you are working with someone who doesn’t understand the new media model of marketing, not only can you expect to be on the market longer, but you are exposing yourself to the danger of foreclosure.
Over the last couple of years, a majority of my business has been in short sales. I have at my disposal an excellent team of negotiators who have worked with all major lenders. If you have a question on selling your home at a short sale please give me a call at 253-225-2158 or contact me here.
Real Estate Trends ~ Top 20 Most Stressed Counties
Recently Yahoo! News published the Associated Presses list of the 20 Most stressed Counties.The Index measures Unemployment, Foreclosure and Bankruptcy. The most stressed counties were mainly in California with a few from Nevada and Michigan. Here was the list of the top 20:
- Imperial County, Calif., 31.27
- Merced County, Calif., 28.29
- Lyon County, Nev., 27.96
- San Benito County, Calif., 27.26
- Sutter County, Calif., 26.41
- Yuba County, Calif., 25.8
- Stanislaus County, Calif., 25.46
- Iosco County, Mich., 24.89
- San Joaquin County, Calif., 24.78
- Nye County, Nevada., 24.19
- Lapeer County, Mich., 24.03
- Cheboygan County, Mich., 23.89
- Luna County, N.M., 23.82
- Lake County, Calif., 23.78
- Kern County, Calif., 23.62
- Tulare County, Calif., 23.17
- Madera County, Calif., 23.04
- Fresno County, Calif., 22.72
- Clark County, Nevada, 22.65
- Boone County, Ill., 22.59
Where does Pierce County rank? Pierce County has a stress index of 13.65. This index is based on a 10.8% Unemployment rate, 1.77% Foreclosure rate and 1.45% Bankruptcy rate. The stress index rate of 13.65 is a drop of .34% from February to March. Pierce County’s index is higher than King – 9.76, Thurston – 10.49 or Kitsap – 10.37. So you are asking me if you are a home seller or buyer what does this mean for me?
Well I guess we could look to California and say that’s where as a Pierce County home seller, you need to have your house marketed. Californians make up most of the top ten emigrants to our area and are leaving the state in droves. Housing prices in California have stabilized and the market is picking up much like here. So when they leave California as many are doing, Pierce County and especially Gig Harbor is very attractive. We offer much more for your housing dollar than what is available in California. We offer two major cities within commutable distance and the natural beauty of Western Washington.
As a buyer this is still your market. Interest rates remain low for now and housing prices are still at pre-2005 levels. If you thought because the tax credit is gone you are out of the market, you should think again. The home sellers I work with are taking this into account when negotiating selling price in order to get their home sold.
If you have any questions about buying or selling your home please give me a call at 253-225-2158 or go here.
Day 22 of 365 Things to Do in Gig Harbor ~ Harbor Greens
Harbor Greens Grocery was one of the top requests for a 365 Things to Do in Gig Harbor video. I was graciously hosted by owners Scott and Chad, who let me wander the store making a movie. The main reason Harbor Greens is in Gig Harbor is because we had no Trader Joe’s or Metropolitan or Tacoma Boys, and we sorely needed a store like this. The freshest of produce, a great butcher and a fantastic selection of wine all contribute to make Harbor Greens a Gig Harbor success story. They also were the first to embrace our friends over at 7 Seas Brewery as they were the first to stock their new cans.
If you haven’t been to Harbor Greens, it is located near the Pt. Fosdick and Artondale neighborhoods and you owe it to yourself to go shopping there. Thy also have a fantastic deli counter and you can grab something to take home or eat right there in the store. Next Friday we will visit Scott and Chad’s other business right next door, the Forza Wine Bar. Until then, enjoy this video of Harbor Greens!
If you have questions about a home located in the neighborhoods close to Harbor Greens, or if you are thinking of selling your home, please call me at 253-225-2158 or go here.
Thanks to Scott Turchin and his fine Reggae song, Jah Creation! Jah Mon!
Day 21 of 365 Things to Do in Gig Harbor ~ Gig Harbor Chiropractic
I was invited by fan Julie Hoefer to check out Gig Harbor Chiropractic’s 3rd Annual Patient Appreciation Party and my neck is soooooo glad I did. There were free massages, pet adjustments and great food for everyone. Dr. Greg Messer and his wife Dr. Keri Messer decided to relocate their practice from Seattle to Gig Harbor because of the healthiness of our area and our family orientation. Congratulations to Drs. Messer and their staff for serving Gig Harbor for three years.
Here is the video of the visit, enjoy!
If you have questions about any service or business in Gig Harbor and especially about the Narrows neighborhood where Gig Harbor Chiropractic is located, please call me at 253-225-2158 or go here.
Also thanks to Matthew Jameson and his song Something Better.
Trends in Real Estate ~ Going Green
In response to growing consumer demand for green homes and building practices, the National Association of Realtors® has introduced a new Green designation for Realtors®. While I don’t have this designation yet, I have studied the subject for some time. To be green in real estate can be broken into two subjects: building green and going green in an existing building. 
This article will be about how to make your existing listing green. Melissa Tracey states in her article: Is Your Listing Green? that there are five components to a green home:
- Design and size: Good site design and just large enough, as opposed to larger is better.
- Community connectivity: Located close to work, school, recreation and other basics.
- Energy and water efficiency: At least 15 percent or more efficient than others.
- Material selections: Use of some recycled and/or reclaimed products.
- Indoor air quality: Limiting use of materials with potential toxic effects and increased ventilation.
Trends in Real Estate ~ Interest Rates
Perhaps the second most popular question I get from people after they ask how’s business is “Where do you see interest rates going?”. Well, contrary to what most believe, the answer is that interest rates are fairly simple to figure out. Unfortunately the media has portrayed them as some sort of magical formula that only a few esoteric old men know and you are better off not asking about.
But the truth is, the interest rates for mortgages are mainly determined in the securitized mortgage market. Basically a mortgage backed security is one that has been bundled with other mortgages into a security similar to a stock. These securities are then traded and have a market value depending on the risk of the debt. So an A+ mortgage would be bundled with other A+ mortgages and have a market price higher than a B+ mortgage security.
Buyers & Seller’s Tips ~ Why Do Short Sales Fail
In real estate we are constantly getting continuing education, and it is probably safe to say that the topic of Short Sales is currently the most common educational offering. Short sales are very difficult and complicated and sometimes they just don’t make sense. Stop me if you have heard this one: I don’t understand why the bank would foreclose since they will lose a lot of money if they foreclose and at least they get something if it sells at a short sale.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300. So why wouldn’t lenders do almost anything to avoid a foreclosure?
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we’ll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor’s share of the costs should be higher as they absorb increased tax levels.
Still the question is, why is a short sale so difficult? The answer usually lies with the listing broker and the home owner. That may be a surprise to you. Most blame the lenders for being slow, for hiring minimum wage people to help with the processing and for just not caring. But as the figures above show, even if they don’t stand to lose all of the $77,935 the bank only wants to foreclose as a last resort.
Spring brings U.S. housing renewal as aid ends
(Reuters) – Spring could signal a rebirth for the long suffering U.S. housing market even as the economy’s weakest link is stripped of government life support.
House sales will be stoked by buyers sprinting to cash in on a federal tax credit program before it expires in April. Signs the U.S. economy has begun to create jobs could also lift business.
Make no mistake, the recovery will be arduous due to high unemployment and foreclosures. But the sector is unlikely to nosedive once the government removes safety nets designed to elevate housing from its worst crash since the Depression, industry experts say.
“The doctor is pulling off the life support system hoping that the patient’s heart beats on its own,” said James Angel, associate finance professor at Georgetown University’s McDonough School of Business in Washington.
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