Blog

What Should You Expect in 2011, Part 2

Fairfax, VA – Forecasts for Inflation, the Housing Market, and Home Loan Rates

What’s ahead for inflation, the housing market, and home loan rates this year? Read on to find out.

Inflation
One of the major topics that we need to watch in the coming months is inflation. The Fed and the markets keep a close eye on inflation because it impacts so many aspects of the economy, including home loan rates. In fact, inflation is considered the archenemy of home loan rates!

Why is this the case? It’s because home loan rates are tied to Mortgage Backed Securities, which are a type of Bond – which means home loan rates improve when Bond prices do. But when inflation – or even just fear of inflation – grows, Bond prices fall, meaning home loan rates rise. That’s because lower Bond prices are needed to give Bond investors juicier yields that will help outpace inflation.

Here’s an analogy to help illustrate this point further. Think of inflation as the ocean and interest rates as a boat. As inflation (or the ocean’s tide) rises, interest rates (or the boat floating atop the ocean) have to rise as well. In other words, interest rates (or boats) must always be higher than inflation (or the ocean) in order to compensate investors.

With that in mind, let’s take a look at what’s going on with inflation and what you should keep an eye on in the coming months.

At the end of 2010, the Fed initiated its second round of Quantitative Easing (QE2), which is the concept of the Fed becoming a buyer of Treasuries and Bonds. They took this step in a bid to stimulate the economy by: creating inflation, lowering the unemployment rate, and raising Stock prices. While those goals may be good for the overall economy, remember that inflation is very unfriendly to Mortgage Bonds and home loan rates.

In the end, as a result of the Fed’s QE2 and other stimulative actions, we predict a 1.5% increase in consumer inflation by the end of 2011. That should still be within the Fed’s comfort zone of 1 – 2%, so inflation should not be too much of a threat this year. However, the unprecedented amount of debt accumulation on the part of the U.S. could spark significant inflation down the road.

Housing Industry
Home prices began to stabilize during 2010, and homes sales showed some signs of encouragement. We expect more of the same in 2011, although there will be some additional headwinds.

After a modestly good start to the year, home prices could actually decline slightly in some areas, particularly depending on the health of the local job market. Another headwind that could weigh on home prices is the overhang of several million distressed properties. The moratorium on foreclosures has ended and all of the major lenders have resumed foreclosure procedures.

At the end of last year, three million homes were in foreclosure activity, with over one million repossessions. Overall, we expect to see accelerated rates of foreclosures in the first quarter until things settle to normal during the second quarter and rest of the year. This could extend the housing downturn a couple of months longer.

That being said, we still expect to see home prices move higher in the year ahead, especially in the latter half of the year.

Home Loan Rate Outlook
Now for the big questions: Where will home loan rates go in 2011? And why?

Let’s start by looking at where we are right now. Although rates are still near historic lows, they have trended higher since early November, and indications are that those unbelievably low home loan rates seen during 2010 may be behind us. In fact, there are only a couple things that would bring back the lows that we saw in early November 2010:

If the Fed’s recent round of Quantitative Easing falls on its face and doesn’t meet its mission of creating inflation, boosting Stock prices, lowering unemployment and creating consumer demand. If that happens, Bond prices could make some gains as the threat of deflation reemerges. But this is a long shot. As the saying goes: “Don’t fight the Fed.” This means that if the Fed wants to raise inflation, it most likely will.

If the financial problems and uncertainties in Europe that we saw in 2010 worsen significantly in 2011. This would drive investors into the safe haven of the U.S. Bond market, which would help Bond prices and therefore home loan rates, but probably only modestly.   Realistically, the economy is improving, and as it does home loan rates will gradually increase over time. We expect rates to stay relatively low during the beginning of the year, but gradually rise higher.

Google Drops Real Estate Listings

Google doesn’t give up on much. But it did with this product.

http://www.inman.com/news/2011/01/26/google-drops-real-estate-listings

Interest Rate Update – January 28, 2011

Interest Rate Update – January 28, 2011

Closing within 5-7 days: LOCK.
Closing within 7-15 days: FLOAT, BUT LOCK LOANS THAT ARE CRITICAL; STILL BEARISH OUTLOOK.
Closing within 15-30 days: FLOAT WITH CAUTION.
Closing within 30+ days: FLOAT WITH CAUTION.
(I realize the advice is redundant, but rates are static so advice doesn’t change)

Fairfax, Virginia: Two very key economic releases at 8:30 this morning. Q4 GDP Gross Domestic Product was expected to be up to 3.6% from +2.6% growth in Q3 2010, the advance report showed growth at 3.2%; the miss occasioned by the biggest drag from inventories in two decades.

Q4 employment cost index was at +0.4% as expected. Those were the headlines but the details revealed better comparisons. Final sales in the fourth quarter increased 7.1%, the best showing in sales since 1984. The employment cost index for all of 2010 at +2.0%, was the second lowest on record at 2.0%, in 2009 the employment cost annual index was up 1.4%. GDP growth in 2010 at +2.9% was the strongest in five years. Household purchases, about 70% of the economy, rose at a 4.4% pace, the most since the first quarter of 2006.

Retailers’ holiday sales in Fairfax and Vienna Virginia jumped 5.5% for the best performance in five years. The report this morning is the first of three that will be released over the next two months before the final GDP hits in March, nevertheless there is little doubt that the economy is recovering at a pace better than what we were expecting, still however, we want to see retail sales data for Jan and Feb for confirmation. That may be a problem though in that Jan will be negatively impacted by many snow storms through the month.

Treasuries and mortgage markets in Fairfax, Virginia were soft into the 8:30 releases, initially weakened more before settling down by 9:00; at 9:00 the 10 yr note -11/32 at 3.43% +4 basis points, mortgage prices down 7/32 (.22 basis points). (see below for 10:00 levels). The economic improvement is increasing the possibility that the six week trading range for the 10 yr and mortgages is going break to higher rates soon. There are two factors that are still holding rates stable; inflation is low and there is nothing out there that suggests it is about to increase, and there is a potential for the equity markets are due for a correction after the huge improvement over the past six months.

The stock indexes opened better at 9:30; DJIA +4 points. The indexes are struggling recently; although improving the equity markets are showing some signs of exhaustion after the very strong rally over the past six months. Most of the optimism that drove stocks higher have now been about completely discounted; the economic rebound has essentially met market expectations. To take the market higher now it will need an infusion of new news and data. Many analysts that remain bullish in the long run are talking about a market correction; a few are looking for as much as 10%. If (when) a correction begins it will support the rate markets on safety moves.

The 10 yr treasury note is still holding in its 25 basis point yield range; mortgages are following along. This week so far the 10 yr note and mortgages are unchanged from last Friday’s closes. So far there isn’t enough momentum to drive the 10 yr note above 3.50%, however recent action is less optimistic. Rallies have been weaker than days when prices fall and yields increase. The rest of the session for the bond and mortgage markets will depend on how stock indexes trade.

 The final economic data point this week; at 9:55 the University of Michigan consumer sentiment index, expected at 73.0 from 72.7. Sentiment came at 74.2; the current conditions index at 81.8 from 79.8 and the 12 month out expectations unchanged at 87.0. No noticeable initial reaction to the report as it was in line with investors thoughts and views on what would be reported.

What’s Ahead For Mortgage Rates This Week : January 24, 2011

What’s Ahead For Mortgage Rates This Week : January 24, 2011

As the body of U.S. economic data continues to show slow, steady improvement, Wall Street is becoming a net-seller of mortgage-backed bonds. As a result, conforming mortgages rates in Virginia are rising. This is why conforming and FHA mortgage rates rose last week in Fairfax and Vienna, Virginia.

Existing home supplies plunged to a 2-year low in December, and unemployment claims dropped more than expected, giving hope for the U.S. economy in 2011. This week, that trend may continue. There’s a lot of news set for release.

The biggest story of the week is Federal Open Market Committee’s 2-day meeting. Scheduled for Tuesday and Wednesday, the FOMC’s meeting is the first of its 8 scheduled meetings this year. In it, the FOMC is expected to vote the Fed Funds Rate unchanged in its target range near 0.000 percent, but it won’t be what the Fed does that’s so important to mortgage markets — it will be what the Fed says.

Wall Street will be watching the FOMC’s post-meeting press release for clues about the economy, and the central banker’s next steps. From what it reads, Wall Street will react. This week is also heavy on housing data in Fairfax and Vienn.

Following up on last week’s Existing Home Sales and Housing Starts figures, this week features 4 additional releases:

1. Case-Shiller Index (Tuesday)
2. Home Price Index (Tuesday)
3. New Home Sales (Wednesday)
4. Pending Home Sales (Thursday)

What Should You Expect in 2011, Part 1

Forecasts for the Economy and Employment – Their Impact on the Housing Market

Fairfax, VA – The economy and housing markets have seen some rough times the last couple of years. But the good news is last year we saw some stabilization in 2010 – and 2011 should continue on the road to recovery.

To help you prepare for the coming year, YOU Magazine has put together a two-part overview of what to look for in 2011. In part one, we look at the big picture and discuss the outlook for the overall economy, the stock market, and the all-important employment market.

Then next month, we’ll dig into what to look for in terms of the housing market, including home prices, the foreclosure crisis, new legislation that impacts the housing industry, and the direction of home loan rates in 2011.

Economic Outlook

Overall, the economy looks to have stabilized from the crisis situation a couple of years ago. Although there are still some global economic concerns in Europe, the U.S. economy appears positioned for continued growth and strengthening.

We see the United States’ Gross Domestic Product (GDP) to finish the year up about 2.5% to 3% from where it ended 2010. This growth won’t happen overnight, however, but instead will start out slow in the first half of the year and pickup steam in the second half.

Much of that growth should come from demand in other countries. Currently, the U.S. only derives about 12% of its GDP from exports. While that equates to a lot of money, it means that the U.S. relies less on exports than many other countries – and it means that there’s room to grow. Already we’ve seen U.S. exports get back on track and they’re primed for growth to countries in places like Asia and Latin America.

This is good news for the U.S. economy as a whole, as well as individuals because it sets the stage for growth while still allowing U.S. consumers to catch their breath. After all, the tough economic climate over the last couple of years has hit U.S. consumers hard and has forced many Americans to reprioritize their family budgets to focus more on their savings.

Stocks Make Their Mark

The stock market had a good year and saw some strong earnings in 2010, continuing its climb out of the financial crisis that began a couple of years ago. With the strong finish to last year, the stage is set for another good year – and we could see the S&P 500 grow another 7% to 10% over the next twelve months.

That said, the corporate earnings may look like they’ve slowed. That’s because of the way that experts compare year-over-year earnings. For example, corporate earnings showed strong improvement coming out of the recession because they were compared to the extreme lows of the year before. However after a strong 2010, the increase in earnings won’t be nearly as dramatic. So while the year-over-year increase may appear to flatten out, the important thing to focus on is that corporate earnings should show solid, steady improvement.

The segments of the market that can look for a strong showing in 2011 include energy stocks, global companies that specialize in high-tech equipment, and even steel producers which should benefit from global sales. Those segments should benefit from strong business spending around the world as the economy improves and companies start to reinvest and expand.

Labor Looks Ahead

The big economic picture is important, but millions of Americans are really focused on the labor market. Will they find a job? Will they keep their job? Those are some of the most important questions families face. And the good news is that for many families the outlook should be better in 2011.

Here’s why. The good news for the overall economy and for corporate earnings in 2010 and heading into 2011 should help the labor market improve. Let’s look at two of the factors that should influence employment in the coming months.

First, many companies have seen higher earnings over the last year but those earnings haven’t translated into more hiring. Instead, companies have been cautiously waiting for signs that the economy was stable – after all, we heard a lot of talk in the past about the possibility of a double-dip recession. In other words, full-time employment was held back by insecurity and fears of the future. Now that most economic reports appear to be on a steady climb out of the recession and confidence is increasing, many companies will be more willing to hire.

Second, during the last couple of years, companies were trying to keep their operations lean and efficient. That means that manufacturing companies worked hard to get the highest level of production possible out of their current work forces or by only hiring temporary or part-time employees. While that may have been a good move when the economy was questionable, it means that production has hit a ceiling.

But now that many retail companies are beginning to restock their shelves, manufacturing companies are seeing higher demand for their products. In order to satisfy that demand and increase manufacturing production, companies will need more people on the factory floor to satisfy demand, which will lead to an uptick in full-time employment.

Based on those factors, watch for the labor market to continue looking better in the coming months, with more noticeable improvements coming in the latter part of the year.

Unfortunately, we’re not completely out of the woods yet in terms of the overall unemployment rate. While hiring will pick up, we need to see a net growth of 200,000 jobs each month just to absorb all of the new people entering the job market – and that’s just to hold steady, so we’ll need to see even better numbers for the unemployment rate to actually drop. Based on that, we won’t see a noticeable drop in the unemployment rate until some time in 2012…and even then it will take a handful of years to bring us back to the lower unemployment rates seen before the recession.

The point is the job market is a work in progress and will take some time, but we will see hiring improve in the coming months – and that should help ease the burden for millions of Americans.

What Does All That Mean to Housing and Home Loan Rates?

Although people tend to talk about the economy, the stock market, and employment separately in the news, the reality is they’re all related. For example, an improving economy leads to better corporate earnings and increased manufacturing demand, which in turn leads to increased hiring.

In addition, all of the aspects discussed above influence the housing market and home loan rates. One of the biggest influences is employment, so improvements in employment will be good for the housing industry. After all, people who are unemployed, under-employed, or are afraid of losing their jobs are less likely to purchase a new home.

In terms of home prices, a more secure employment market can help home prices stabilize, as fewer people are at risk of losing their homes to foreclosure. In addition, as we’ll discuss next month, the improvements in the labor market should open the door for more first-time homebuyers to join the ranks of homeowners.

That said, it’s important to remember that all real estate markets are local…and that means that there can be enormous variations across the country. In areas where employment is struggling, the housing market will continue to struggle as well. However, in many parts of the country where the bottom has been tested and employment is improving, we’ll see the housing market on the mend in 2011.

But home prices and homebuyers aren’t the only aspects of the housing market impacted by the direction of the economy.

As stated above, 2011 should look better than 2010 in many respects. But, good economic news is a double-edged sword, as it can lead to higher rates. That’s right, good economic news can be bad news for home loans rates.

There’s actually a pretty simple explanation for this seemingly strange phenomenon. But, you first need to understand two important financial concepts:

1. Big money managers – who are always in search of higher returns – avoid holding onto cash. So they invest in both Stocks and Bonds.
2. Home loan rates are actually based on the performance of Mortgage Backed Securities (MBS), which are a type of Bond.

When we put those two facts together, we begin to understand the relationship between good economic news and higher home loan rates.

Here’s why: Whenever the economy is on fire and there are good economic reports along with positive economic news, investors tend to put more money into Stocks. That’s because Stocks are more risky, but they generally offer higher returns. To do this, however, investors must remove some of their money from less-risky Bonds. This decreased demand in Bonds causes Bond prices to worsen, which causes home loan rates to rise.

The good news is that home loan rates are still extremely attractive and are still near historic lows…for now. So, if you or someone you know has been thinking about purchasing or refinancing a home, now is the time to get started as we head into 2011.

Interest Rate Update – January 5, 2011

5-7 days: LOCK.
7-15 days: FLOAT, BUT BE CAUTIOUS; WE WILL HOLD TO OUR FLOAT UNTIL FRIDAY’S EMPLOYMENT
REPORT BUT IT ISN’T LOOKING GOOD; CRITICAL DEALS SHOULD BE LOCKED NOW.
15-30 days: FLOAT.
30+ days: FLOAT WITH CAUTION.

This morning’s ADP December jobs report really hit the bond market hard, 100,000 jobs expected but 297,000 jobs reported. It was a huge surprise but likely a little overstated with five weeks in the data instead of four and the holiday temp hiring. While it may be overstated, it does reflect that employment got better in Dec than what had been thought. Friday’s U.S. Bureau of Labor Statistics – BLS “official” report on jobs may not meet the ADP numbers but is now believed to be better than the 142K non-farm payearolls that had been the forecast.

Interest rates had one day of little volatility yesterday after weeks of wide swings, today it was back to big moves. The yield on the 10 year note jumped from 3.33% yesterday to 4.48% today, mortgage rates increased 10 basis points. While the headline was the ADP report, the Dec ISM services sector data this morning was also better than estimates and expectations, the overall index was expected at 55.7 from 55.0 in Nov, it jumped to 57.1 and new orders component also increased as did the prices paid index from 63.2 to 70.0, most was energy costs but other prices also increased adding to inflation fears.

The 10 year note and mortgages remain in their respective month long ranges but the news today increases the bearishness that has marked interest rates since early Nov. If the employment data on Friday offers another better than thought increase in jobs the 10 year and mortgage rates are likely to continue to increase. As we have noted recently, although rates have slowed their climb from the recent swift increase all of our technical systems have remained bearish.

Tomorrow weekly jobless claims will provide another look at the labor markets; unemployment claims declined 34,000 last week to move below the critical 400,000 to 388K, tomorrow claims are thought to have increased 17,000 back to 405,000. Continuing claims are expected to fall to 4.07 million from 4.128 million last week. Unemployment filings may still be distorted with the four day week again last week.

Not a huge reaction to the jobs report this morning in the equity markets; all three key indexes ended better extending the month long rally but were rather subdued compared to the bond market.

The outlook for interest rates continues to be for rates to increase, as long as economic data continues to beat market expectations and fears of inflation continue the path for rates is up.

An Affordable Mortgage Program for Underserved Markets

An Affordable Mortgage for Underserved Markets

MyCommunityMortgage® (MCM) is a conventional, community lending mortgage that offers underwriting flexibilities to qualified borrowers who meet specific income criteria or properties that meet geographic location eligibility criteria (FannieNeighbors®).

MCM also permits additional eligibility-based options: Community Solutions™ for public safety, education, military and health care professionals, and Community HomeChoice™ for individuals with disabilities.

Key Features

• Low mortgage insurance (with no additional loan-level price adjustment [Loan Level Pricing Adjustment (LLPA])
• 18% mortgage insurance coverage for 97% LOAN TO VALUE – LTV. LTV is the reverse of equity. 97% is the same as 3% equity or 3% down payment.
• 6-16% coverage for other LOAN TO VALUEs above 80%
• 40-year term mortgages
• LOAN TO VALUEs to 97% for one-unit properties (LOAN TO VALUEs up to 95% for manually underwritten loans)
• Available for two- to four-unit owner-occupied properties (LOAN TO VALUE up to 95% – 5% down payment)
• Flexibility on credit histories, nontraditional credit accepted (LOAN TO VALUE up to 95% – 5% down payment)

Interest Rate Update – January 4, 2011

ECONOMIC OUTLOOK.

 5-7 days: LOCK.
7-15 days: FLOAT, BUT BE CAUTIOUS; NOT LIKELY RATES WILL DECLINE MUCH WITH BULLISH
15-30 days: FLOAT.
30+ days: FLOAT WITH CAUTION.

Treasuries opened flat this morning, mortgages bonds are up 4/32 (.12 BP – basis points) at 9:00. Mortgage bonds are still trading in a 25 basis point yield range. The Dow Jones Industrial Average DJIA opening firmer again as most are now believing the economy will continue to improve this year. Technically, the 10 yr note still is unable to close below its 20 day average on the yield chart, but mortgages are performing better, now above its 20 day and possibly going to test the 200 day average.

Smaller U.S. companies are rallying the most since 2003 relative to the Standard & Poor’s 500 Index. That small companies are outpacing larger firms is a bet that the economy will strengthen and spur a third year of gains for investors. The Russell 2000 Index, comprised of stocks with a median market value of $528.5 million, rose 25% in 2010, beating the S&P 500 by 13%. Some analysts believe small companies are doing better because most of their sales are coming from US consumers rather than globally.

The Johnson Redbook retail sales for the week ending 1/1/11 showed yr/yr same-store sales rose 3.5% in the week, below the prior week but right in line with trend and pointing to a very positive 0.4% gain vs November. This latter reading points to a solid gain for the government’s December ex-auto ex-gas category in what would be substantial evidence of consumer strength. The sales report is supporting a better open in the equity markets.

The DJIA opened +20 at 9:30, the 10 yr note -3/32 and mortgage prices +4/32 (.12 basis points). Support in the interest rate markets may be coming from the view that stocks are currently over-valued even though the indexes continue to increase. We still hold a slight bearish outlook for the rate markets, although the market isn’t as negative as it was in early December. Nevertheless, as long as the outlook remains positive for the economy it is unlikely that interest rates will decline much if at all.  

The only data point today; November factory orders, were expected down 0.2%; as reported orders increased 0.7% from -0.7% in October (revised from -0.9%), ex transportation orders up 2.4%. The inventory to dales ratio at 1.28 months. Yet another data point stronger than expected. There was little immediate reaction to the report although rates have edged higher since 9:30.

At 2:00 this afternoon the Federal Open Market Committee – FOMC minutes from the December meeting will be released. how the members debated the impact of QE 2 and what the Federal Reserve expects to do will get attention but not likely to have much impact on the markets.  

Later this afternoon December auto and truck sales. 9.2 million total is expected.

The minutes from the Dec FOMC meeting were not particularly revealing except the Federal Reserve appears to be chasing its own tail. One of the comments in the minutes that got attention was the Federal Reserve’s explanation for why interest rates increased when QE 2 began, instead of declining as the Federal Reserve wanted. The Federal Reserve’s response is that the markets had already discounted the easing move prior to it actually being ratified. True enough, rates were falling prior to the Nov 4th $600B announcement—-buy the rumor, sell the fact. The Federal Reserve also blamed hedging of MBS risk for some of the spike in rates and investors revising down the amount of QE, the agreement to extend the tax cuts and cut SS contributions were also given as reasons for the rate hike. I may have missed it, but I didn’t see any comment from the Federal Reserve that its drive to increase inflation was a factor which in our opinion was one big reason for the quick spike higher in rates. One other reason for increasing rates; the budget deficit isn’t shrinking but expanding with the tax cut extensions and the cut in SS contribution. The minutes said that rates didn’t increase more than they did was due to QE 2; some Federal Reserve spinning? One major takeaway from the minutes to consider; the Federal Reserve said the economic recovery is moving slowly but better than what the Federal Reserve had expected. 

The minutes were generally positive on economic growth; better consumer confidence, household wealth better because equity prices were stronger than the decline in home values, investments in equipment and software better, consumer prices trending lower. No labor cost pressures, consumer credit still weak but flattening (the FOMC failed to point out that consumer credit is declining primarily because the Federal Reserve put student loans in the category of credit cards, otherwise consumer credit has crumbled), consumer spending getting better, revised data on personal income improved, increasing labor demand, exports better.

On balance, the FOMC minutes took some wind out of the bond and mortgage markets this afternoon; prices slipped a little on the view that the Federal Reserve would not add to the QE 2 with a QE 3. The pullback in prices for treasuries and mortgages was minor but enough to keep the bearish technical’s from being tested. The rate markets have moved from heavily bearish near term to neutral now; the 10 yr and mortgages stuck in a narrow ranges after the spike in Nov and Dec. Not a bad thing, markets need to settle after the recent high levels of volatility.

Tomorrow at 7:00 the weekly MBA mortgage applications report. At 8:15 the Dec ADP private jobs estimate (+100K). At 10:00 Dec ISM services sector index (55.7 from 55.0); the ISM manufacturing index on Monday was fractionally lower than what had been expected.

How does gold and crude oil fall into the interest rate mix? Gold and crude oil fell hard today with the dollar firmer and very overbought markets. Gold down over $41.00 crude down over $2.00. (see below)

 PRICES @ 4:00 PM

10 yr note: 94.04 +2/32 3.33% -0.5%

5 yr note: 100.18 unchanged 2.01% unchanged

2 Yr note: 100.10 -1/32 0.62% +2 basis points

30 yr bond: 97.11 -6/32 4.41% +1 basis points

Libor Rates: 1 mo 0.260%; 3 mo 0.302%; 6 mo 0.455%; 1 yr 0.780%

30 yr FNMA 4.0 Jan: 99.17 +1/32 (.03 basis points) (-3/32 (.09 basis points) from 9:30)

Housing Inventory Snapshot December 28, 2010

Housing Inventory Snapshot December 28, 2010   Average List Price Median List Price Average Days On Market District of Columbia (DC), DC Single Family under $1M $367,934 $315,000 126 Single Family over $1M $3,180,091 $2,295,000 149 Condo/Townhome under $600K $286,070 $269,900 125 Condo/Townhome over $600K $1,351,996 $939,500 140 Arlington County, VA Single Family under $1M $660,087 $648,000 98 Single Family over $1M $1,586,074 $1,425,000 114 Condo/Townhome under $600K $333,547 $335,000 103 Condo/Townhome over $600K $1,099,527 $799,900 121 Fairfax County, VA Single Family under $1M $586,366 $549,900 108 Single Family over $1M $1,981,648 $1,550,000 191 Condo/Townhome under $600K $288,436 $279,900 98 Condo/Townhome over $600K $854,836 $708,600 103 Alexandria City, VA Single Family under $1M $621,054 $599,999 108 Single Family over $1M $1,595,538 $1,290,000 154 Condo/Townhome under $600K $300,031 $284,950 105 Condo/Townhome over $600K $927,048 $799,900 113 Fairfax City, VA Single Family under $500K $400,091 $399,000 92 Single Family over $500K $846,039 $810,000 127 Condo/Townhome under $300K $204,416 $199,900 102 Condo/Townhome over $300K $472,806 $419,999 99 Manassas City, VA Single Family under $325K $246,376 $249,900 86 Single Family over $325K $386,674 $369,990 116 Condo/Townhome under $170K $127,035 $129,900 86 Condo/Townhome over $170K $227,390 $215,000 93 Manassas Park City, VA Single Family under $300K $189,216 $184,000 88 Single Family over $300K $511,334 $399,900 95 Condo/Townhome under $300K $165,989 $161,000 162 Condo/Townhome over $300K N/A** N/A** N/A** Prince William County, VA Single Family under $500K $316,918 $319,900 115 Single Family over $500K $755,508 $653,900 214 Condo/Townhome under $300K $189,775 $183,900 102 Condo/Townhome over $300K $381,340 $334,979 134 Spotsylvania County, VA Single Family under $500K $250,652 $229,990 155 Single Family over $500K $840,617 $749,000 254 Condo/Townhome under $300K N/A** N/A** N/A** Condo/Townhome over $300K N/A** N/A** N/A** Stafford County, VA Single Family under $500K $302,665 $290,000 138 Single Family over $500K $718,730 $575,000 215 Condo/Townhome under $200K $151,651 $150,000 117 Condo/Townhome over $200K $251,078 $249,000 79 Falls Church City, VA Single Family under $500K $418,946 $415,000 72 Single Family over $500K $806,757 $675,000 103 Condo/Townhome under $300K $201,969 $205,000 106 Condo/Townhome over $300K $443,168 $367,500 117 Fauquier County, VA Single Family under $500K $302,988 $299,900 167 Single Family over $500K $1,677,464 $849,900 283 Condo/Townhome under $300K $173,754 $165,000 120 Condo/Townhome over $300K N/A** N/A** N/A**

Interest Rate Update – January 3, 2011

If closing is in:

5-7 days: LOCK

7-15 days: FLOAT, BUT BE CAUTIOUS; NOT LIKELY RATES WILL DECLINE MUCH WITH BULLISH ECONOMIC OUTLOOK

15-30 days: FLOAT

30+ days: FLOAT WITH CAUTION
<><><><><><><><><><><><><>

Last Friday in thin trading the bond and mortgage markets had a nice end of the year with good price gains (lower interest rates), this morning with the new year under way the bond and mortgage markets started with selling taking most all of Friday’s rally back (higher interest rates).  Now that the holidays are behind us the markets are working back to normal with most all investors and traders back on the job. The last two weeks of December were marked with high volatility in the rate markets, after all was done the bond market was about unchanged in the period.

The equity (stock) markets started strong this morning continuing the increasing view that 2011 will be economically better than 2010. At 8:45 the Dow Jones Industrial Average DJIA index traded +84 with the other two key indexes also strong. Stocks also rose on Europe’s benchmark gauge to its biggest advance in almost two weeks. European manufacturing expanded more than initially estimated in December. China’s purchasing managers’ index fell for the first time in five months, suggesting efforts to, cool the economy are working.  Markets in Australia, Japan, New Zealand, Thailand, China and Vietnam were closed today.

Two economic reports at 10:00 this morning; November construction spending expected up 0.2% increased 0.4%. The December  ISM manufacturing index hit at 57.0 from 56.6, expected at 57.3. The sub components were mixed; new orders increased to 60.9 from 56.6, prices paid increased to 72.5 from 69.5 and employment declined to 55.7 from 57.5. The initial reaction wasn’t much but the bond and mortgage markets got a minor boost while the DJIA dipped a couple of points; both markets were little impacted. On the indexes any reading over 50 is considered expansion, under 50 contraction; the higher the index the stronger.

This week’s economic calendar:

         Tuesday;

                 10:00 am Nov factory orders (-0.2%)
                 2:00 pm FOMC minutes from Dec 15th meeting
                 3:00 pm Dec auto and truck sales (3.7 mil autos, 5.3 mil trucks)

       Wednesday;

                7:00 am weekly MBA mortgage applications
                 8:15 am ADP private jobs report for Dec (+100K)
                 10:00 am Dec ISM services sector index (55.7 from 55.0 in Nov)

       Thursday;

              8:30 am weekly jobless claims (+17K to 405K; con’t claims 4.07 mil from 4.128 mil)

       Friday;

              8:30 am December employment report (non-farm jobs +132K, private non-farm jobs +142K,      unemployment rate 9.8% unchanged
             3:00 pm November consumer credit (-$2.5B)

The overwhelming consensus as the year begins is that the equity markets will have strong gains, commodity prices will continue to increase with some talk that crude oil will climb over $100.00, and money will continue to exit fixed income treasuries in favor of stocks. As noted previously we are more skeptical about the economic outlook than the consensus. The economy will do OK but we expect consumers won’t meet the lofty expectations on spending with the housing sector remaining soft and unemployment staying high through most of the year. Every year at the start the outlook is optimistic; let’s wait and see what consumers do in January and February. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won’t meet the expectations currently out there.

The Republicans are now in control of the House and have more strength in the Senateop. How the two political parties get along and confront health care, the federal debt limit, spending cuts in the next couple of months will set the tone for the next couple of years.

Bank Of America resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6B to settle claims that it sold loans based on faulty information. The fourth-quarter results would include a $2B impairment charge and a $3B provision. The bank faced $12.9B in unresolved put back demands on soured mortgages, with about half related to government-sponsored entities. The stock is rallying this morning in the settlement

Interest Rate Info – December 30 2010

Movements in the economy, good or bad, up or down, move interest rates up and down through out each trading day.  Jobless claims is one of the reports that moves interest rates up or down. Today’s jobless claims number came in significantly lower than expected. Jobless claims came in at 388,000 lower than the expected mark of 416,000 and beneath the floor number of 400,000.  Yesterday interest rates were all over the map as the traders on Wall Street tried to figure out where the economy is headed. Three economic activity numbers will be released today. The Weekly jobless claims number, the Chicago Purchasing Managers survey and the pending home sales numbers.

Pending home sales is significant because more home being purchased mean more trips to Home Depot, Sears and other stores to furnish the home.  The Chicago PMI number measures manufacturing activity in the Mid-West.  And the jobless claims tracks the contraction or expansion of the job market.

Interest Rate Info – December 29, 2010

Fairfax, Virginia: There was no driving news overnight and there is no economic data today; the only thing of importance is the last of the three auctions today, the $29 billion auction of 7 year notes at 1:00 PM. The markets were slammed hard yesterday when the results of the 5 year auction were released. With the demand being very weak, interest rates were pushed higher as investors went looking for higher yields elsewhere.  Having auctions the last week of the year is always a problem with most large potential bidders done for the year. Recent Treasury auctions have been more touchy with investors of all types wanting more yield to continue to fund the US increasing budget deficits. The farther out the curve the more yield is required, today’s 7 year may be set up well however, given the spike up in rates yesterday.

The underlying outlook remains bearish for interest rates with the consensus outlook for 2011 being a stronger economic growth year. Even though the 2011 outlook for both Fairfax, Virginia and  Vienna Virginia is not as glowing as most believe, as long as that is the so-called consensus interest rates will continue to find it an uphill climb for lower rates. China raised rates for the second time in three months, GDP growth is expected at 3.5% to 4.0% in 2011, the Fed is desirous of a higher inflation rate, and after strong Christmas spending by consumers many believe the consumer is back. Our take; the consumer isn’t back, consumer spending will not meet current expectations, the housing sector will continue to be very soft through 2011 with more foreclosures.

With the strong belief that the US will improve in 2011 inflation fears will continue to push rates up until evidence changes. Inflation in Germany, Europe’s largest economy, unexpectedly accelerated in December as prices surged in the final month of the year. The inflation rate increased to 1.9% from 1.6% in November. That’s the highest since October 2008. Economists expected an unchanged reading. Consumer prices jumped 1.2%, the biggest monthly gain since December 2002.

Market Recap – Week Ending Thursday, December 23, 2010

Fairfax Virginia: There were few surprises from the economic news released this week. The economic data generally was very close to the consensus forecasts, and activity levels were low during the holiday season. While daily volatility remained high, mortgage rates ended the week nearly unchanged from last week.

After reaching record lows in early November, mortgage rates have since increased, although they remain at historically low levels. The rise in mortgage rates in Fairfax Virginia and Vienna Virginia can be attributed primarily to a good thing, increasing expectations for future economic growth. The trend in most economic measures over the last few months has generally shown improvement, and the passage of the tax deal last week is expected to provide an additional boost. A growing economy creates jobs and increases the demand for homes, but it also leads to higher inflation, which is negative for mortgage rates. As a general rule, improvement in consumer confidence and the economy overall typically cause interest rates to move up.

The housing sector data released during the week was positive. November Existing Home Sales rose 6% from October, and inventories of unsold existing homes fell 4% to a 9.5-month supply. November New Home Sales also increased 6% from October.

As usual, the Economic Calendar will be light during the final week of the year. Consumer Confidence will be released on Tuesday. The Chicago Purchasing Manager’s Index (national manufacturing index) will come out on Thursday. Pending Home Sales, a leading indicator for the housing market, is also scheduled for Thursday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. Mortgage markets will close early on Friday in observance of the New Years holiday.

The week is centered on Treasury auctions with $99 billion of notes to be auctioned. Today, (Monday) $35 billion of 2 yr notes, Tuesday $35 billion of 5 yr notes and Wednesday $29 billion of 7 yr notes are to be auctioned off. The bond and mortgage markets likely will be soft (not much activity) this week with the auctions, recently Treasury auctions have not met with the strong demand that had been the case for the past year or so.

On Christmas day China surprisingly increased their rates by 25 basis points to combat rising inflation.   The surprise was the timing, not the increase. China’s economy has increased 5.1% in year over year numbers. What does this mean? Inflation is heating up in China and could spread to other parts of the world economy. The world markets were expecting China to move their rates, as the country tries to cool off their economy.  The angst comes from the timing of the hike because the global markets are in holiday mode.

Home (of Your Own) for the Holidays?

Now May Be the Perfect Time to Buy

Fairfax, Virginia: There’s no place like home for creating memories. And no place like home for the holidays. While it may sound a bit crazy to add this to your shopping list…this holiday season could be the very best time in history to give yourself the gift of a new home.

While there are a number of advantages to purchasing a home Fairfax or Vienna Virginia there is a confluence of factors that make this year’s season a bit more special than past years.

Rates at Historic Lows
Interest rates have been dancing around the all-time-low mark for some time. But did you know that rates hit the lowest ever in October?  This season, FHA, VA and conventional interest rates in Fairfax and Vienna, Virginia are about 0.5 percent lower over this time last year – which translates to a payment savings of approximately $60 per month on a $200,000 mortgage for qualified borrowers.

Today’s lower rates give you an increase in buying power. Rates have already begun to move higher since November 4th, following the announcement of Quantitative Easing 2 by Fed Chairman, Ben Bernanke. As rates increase, your buying power will diminish.

Home Prices at All-Time-Lows In Fairfax and Vienna Virginia
Once school begins, the real estate market tends to slow down and by the holidays, it is at a snail’s pace. The lack of buyer demand is reflected in home prices as sellers become anxious. Homes are more affordable now than at any other point in time since 1970 according to the National Association of Realtors’ housing affordability index. And as the holidays approach sellers may reduce prices further or offer additional incentives.

Lawrence Yun, chief economist for the National Association of Realtors, said home sales still remain subpar. He explained, “The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty.”

Sellers In Fairfax and Vienna Virginia Are Motivated
With the current economic slowdown many sellers are willing to negotiate – not just on price, but also may be more open to entertain requests for other concessions such as appliances, or paying closing costs. In addition, they may be eager to get the home sold prior to the holidays to avoid scheduling their holiday plans around viewings by prospective buyers. This may give you extra bargaining power.

Once home prices stabilize and begin to improve, these same sellers will be less willing to bargain. As Warren Buffet has said, “Be fearful when others are greedy and greedy when others are fearful.” Once the market begins to improve, sellers may become greedy as buyers panic to secure home purchases as prices start to climb.

Plenty to Choose From In Fairfax and Vienna Virginia
While real estate is local, most markets remain saturated with inventory. Being in the buyers’ shoes right now is akin to being a kid at Christmas – all the choices make it a bit overwhelming.

If you’re serious about buying a home, the first step is to define what you are looking for in a home and at what price…and then get qualified! Once you find a house you love, be willing to negotiate a fair deal and grab it. Waiting around for things to improve from here could cause you to lose the opportunity on that “perfect home.” It’s important to remember you are not looking solely for the best deal…but the best home.

Tax Advantages Of Buying A Home In Fairfax and Vienna Virginia
Buying a home can give you a tax break. Here’s how: Mortgage interest (including points) and real estate taxes are tax deductible. That doesn’t sound very sexy, but it adds up. Since most of what you pay for your mortgage in the first year is interest, on a $200,000 mortgage at 4.25%, you get to deduct about $700 a monthin interest. That reduces your taxable income by about $8,400 a year. If you’re in the 25% tax bracket, that deduction is worthabout $175 a month.

To see the benefit, you can either wait for a big payout after you file your income-tax return, or adjust your withholdingsand keep your hard earned money. Your employer’s benefits department can help you with this.

Closing on a home purchase in Fairfax and Vienna Virginia before the end of the year may provide you some additional tax deductions for the current year. You may be able to deduct any money you pay for points to reduce the interest rate on your loan. Consult your tax advisor to see how the mortgage interest deduction applies in your situation.

Getting Started
Buying a home during the holidays could benefit your wallet for years to come, and there may not be a better time than now. If you are thinking of purchasing a home during this holiday season, get started now and call me to discuss your options.

Bonds Started Lower Again Today

The 10 yr note overnight it 3.39% +7 basis points from Friday’s close, a little improvement by 9:00, at 3.36%. Mortgage prices at 9:00 down 6/32 (.18 basis points) from Friday’s close. Looks more and more likely that the 10 yr may eventually drive to 3.50%. The exit from fixed income investments at those low yields is not over although we believe the near term remains excessively overdone. Still looking for a bounce but it is clear now that to see that it is going to take some kind of disappointment in the economic data being reported this week, meanwhile the trend is firmly higher for rates and it is not appropriate to bet on when a bounce will occur.  

The biggest news of the week will be tomorrow’s Fed Meeting, which will include the Interest Rate Decision and Policy Statement. The statement and sentiment that is revealed tomorrow most likely will determine the movement of interest rates in the next quarter. The research that I have read, indicates a very small chance of any rate change by the Federal Reserve.   

The Federal Reserve is likely to issue comments for the continuation for Quantitative Easing Part 2, as there are signs the economy is still fragile. 

The unknown is the Federal Reserve’s view on the fast rise in interest rates over the past month. The Federal Reserve has to be concerned if rates rise too much too quickly, as this could spell another fall in the housing market. It seems it is time for the Federal Reserve to provide the Bond traders and investors, through some language in the Policy Statement; with warm and fuzzy feelings about the increase in US debt.

No economic releases today but the rest of the week has a lot to consider. Today the Federal Open Market Committee FOMC meeting begins with the statement coming tomorrow afternoon at 2:15. No supply this week from Treasury; today the Federal Reserve is scheduled to buy Treasuries dated 06/30/16 – 11/30/17. China did not increase interest rates as many were fearful they would based on inflation fears . China is making efforts to slow their inflation rate which is now at 6.0%, that and the Fed’s desire to get the US inflation higher is dealing a blow to US rates. Inflation fears and the increasingly better economic outlook with tax cuts, payroll tax cuts, tuition credits and the extension of emergency unemployment benefits are combining to paint a smiley face on the economic future. A huge leap of faith, nevertheless it is what investors are increasingly expecting. The Senate is sure to pass the bill put together by Obama and Republicans, the House however is fighting it with many Democrats resisting the plan because it keeps the tax cuts for “the wealthy”. Over the weekend the House was decorating the Tree, and not the National Christmas Tree, adding pork to the bill to bribe some of the dissenters. Subsidies for ethanol, wind farms and a few other ornaments; it isn’t possible for Congress to pass a bill on its merits without hanging pork on it.

« Previous Page — Next Page »