Wednesday, December 30, 2015

A Review Of 2015

Today’s newsletter is more of a state of the union for the housing market and overall economic review now that the year is coming to a close.

For starters home values for 2015 will have appreciated approximately 5.4 – 6.3% depending on which index you focus on.  The Case-Shiller Home Value Index shows that home prices in the 20 major cities in the United States are up 5.4% from the same time last year.  The FHFA Housing Index indicates that home prices are up 6.3 percent from the same time last year.  This index measure single family sales.

Overall price appreciation seems to be heating up as of late as housing inventory continues to remain tight.  The exciting news for 2016 is that many analysts along with Fannie Mae, Freddie Mac, and the National Association of Realtors, all seem to be in agreement that purchase volume should increase in 2016.  More home sellers are expected to place their homes on the market now that more people are in positive equity positions than a year ago.

Mortgage rates, despite the Fed’s recent increase of 1/4%, have remained virtually unchanged.  Low mortgage rates will continue to make home ownership affordable.  It has been a while since we have seen this, but recently a number of articles have been written about how homeownership remains more affordable than renting in many areas.  This can be a catalyst to bring more first time buyers into the market.

The biggest challenge to many first time homebuyers is the ability to save for a down payment.  The good news is that more and more we are seeing the return of low down payment mortgage programs which will reduce at least one barrier to entry for home purchasers.

Student debt continues to remain a challenge for Millennials and even though the down payment requirements are dropping, affording student debt payments along with a mortgage can may prove problematic for some first time buyers.

The labor market, despite all of the celebration about low unemployment, remains challenging for college graduates.  The level of underemployment for graduates for the last 2 years remains very high.  There are plenty of low wage jobs available however graduates attempting to enter the workforce on a career path are finding landing that first job quite tough.

Consumer confidence appears to be on the upswing finishing out the year.  Although the official holiday sales numbers are not out yet, some early reports from the credit card companies indicate a vast improvement in sales from last year.  Mastercard reported that they have seen retail sales jump 7.9 percent from last year.  It is expected that Visa and American Express will show similar increases. 

The biggest challenge facing retail is what the future holds for brick and mortar retailers.  Online shopping has exploded this year and the retail stores are seeing a significant decline in foot traffic.  This has been a trend over the last few years however 2015 appears to show a more dramatic decline.

Next week begins business for 2016.  I look forward to keeping you abreast of all that is happening.

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Sunday, December 27, 2015

Purchase, Refi Apps Both up Ahead of Holiday Season

There was, as expected only a minimal immediate impact on either mortgage rates or mortgage application volume in the few days following the Federal Open Market Committee's (FOMC's) long anticipated action hiking the fed fund rate. Rates were up slightly for fixed rate products but applications for both purchases and refinanced increased from the previous week.

The Mortgage Bankers Association's (MBA's) Market Composite Index, a measure of application volume, rose 7.3 percent on a seasonally adjusted basis during the week ended December 18 compared to the volume during the week ended December 11. On an unadjusted basis the index rose 7.0 percent.

There were gains for both refinancing and purchase applications with the former rising 11 percent and the latterup 4 percent from the previous week on a seasonally adjusted basis. The Purchase Index was 2 percent higher on an unadjusted basis week-over-week and 37 percent higher than during the same week in 2014. Read On....

Wednesday, December 23, 2015

2015 Johnson Family Dubstep Christmas Light Show

Started in 2013, our show is not your traditional light show! There are no inflatables, characters, blow molds, or other "traditional" elements. Even the music is not traditional Christmas music; it is a custom sound track composed of Dubstep, EDM, hip hop, movie clips and even our children! The result is an exciting show that feels like a dance party! Even the lights are not traditional, we use Pixels which are similar to what you would see in a stadium Jumbotron. Each pixel can be controlled individually and set to any color and intensity. This means many more effects than what can be done with Christmas lights! The show embodies the spirit of DIY and cutting edge technology with all custom built elements, kit based controllers, and both custom and open source software. We hope you like our show, thanks for visiting!

Friday, December 18, 2015

Interest Rates Rise For The First Time In 9 Years

By now you have heard that the Fed has raised interest rates for the first time in over 9 years.  The Fed, as do so many analysts and experts, believe that the economy is finally strong enough to begin the very slow journey to return to a more normal monetary policy.  The stock market reacted positively to this news and the reality is that everyone expected the interest rate increase to occur in December.

The nation’s biggest banks did not waste any time in taking a deliberate step to alienate their clients.  Within minutes of the Fed’s rate announcement, the big banks moved very quickly to increase their prime lending rate by the same .25 basis points that the Fed raised their rates.  However, the alienating part is that the banks were very quick to let their customers know that they would NOT be increasing the interest rates they pay depositors. Simply put, the banks are now earning an additional ¼% on all of the home equity loans, as well as any other loans tied to prime rate, but their cost of doing business did not change a single cent.  The increase in interest rate without returning anything to depositors is pure profit with zero expense.  That is an extra ¼% on trillions (with a T) of dollars in extra profit.

In the housing market builders are reporting strong growth however they are noticing a slowing in activity.  The weakness in this sector seems to be that the national real estate market is light on first time buyers.  Although all of the employment reports show so many more people getting jobs, there is very little reported in the news about how a large number of Millennials continue to remain underemployed.  Yes, they may have jobs, but the combination of not earning enough money to purchase a home, along with the overall generation’s lack of desire to own a home, is putting some downward pressure on new construction.

The big headline in housing was that housing permits surged 11.0 percent in November.  I am not a naysayer but so many industry newsletters reported this incredible increase.  However only if you dug into the numbers just a little bit you would have learned that the Multi-family component of the index soared 27 percent and the single family portion rose only 1.1 percent.  This once again shows the lack of first time buyers is keeping the single family market from any type of rapid growth and confirms that more people, especially the Millennial’s, are focused on renting rather than purchasing.

Mortgage applications for the week ending December 11th showed little change.  According to the Mortgage Bankers Association of American purchase applications declined 3.0 percent and refinances ticked upward by 1.0 percent.  The good news is that mortgage rates continue to remain low and that the Fed increase on Wednesday had virtually no impact on mortgage rates.

All of next week’s potential market moving reports are:

·        Tuesday December 22nd – GDP & Existing Home Sales
·        Wednesday December 23rd - MBA Applications, Durable Goods Orders, New Home Sales
·        Thursday December 24th - Jobless Claims
·        Friday December 25th – Markets Closed

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070

Monday, December 14, 2015

Housing And Jobs Reasons To Be Thankful

Home prices and job creations were on the up and up earlier this season.

Home Prices Sparkle and Shine
In housing news, year-over-year home price gains continued to shine, according to CoreLogic, a leading provider of consumer, financial and property information. Home prices, including distressed sales, rose 6.4 percent in September 2015 compared to September 2014. This followed a sparkling August 2014 to August 2015 increase that also was well above 6 percent. CoreLogic forecasts prices will continue to rise through this time next year, although the percent increase is not expected to be quite as high.

Jobs Creation Rebounds
The October Jobs Report shined with 271,000 jobs created, well above expectations. The unemployment rate also dropped to 5 percent.

After a disappointing September Jobs Report and other mixed economic data, the Fed had left the benchmark Federal Funds Rate unchanged at its September and October meetings. However, if strong employment numbers continue, that may be just what the Fed needs to take action at its meeting later this month.

Why is this important to homebuyers? The Fed Funds Rate is the rate banks use when lending money to each other overnight. When the Fed does increase the Fed Funds Rate, it's possible home loan and other consumer rates may rise as well, depending on the markets and other economic conditions.

The Fed will continue to monitor employment trends and other economic data over the next few weeks to watch for signals of a strengthening economy.

For now, home loan rates are still in attractive territory. If you have any questions about housing and home loans, please don't hesitate to contact me. Enjoy this month's issue of YOU Magazine.

Friday, December 11, 2015

No Significant Market Moving News

The week did not have much in the way of significant market moving news however the stock market, which was mostly on the down side for the week, moved north on Thursday to bring some relief for investors.  The market has been reacting to global concerns and an economic slowdown in China.

Consumers are loving the fact that gas prices are dropping almost daily.  Oil is under $37.00 a barrel and gas is the lowest we have seen in many years.  There is a glut of oil available throughout the globe as demand is down.  Here in the U.S., despite the low gas prices, consumers seem to be pocketing the savings rather than spending it.

First time jobless claims rose for the first time in weeks up to 282,000.  This is an increase of 13,000 from the prior week and could possibly point to a softening in the labor market.  One week is not enough to make a judgement on a labor trend but it is worth keeping an eye on in the coming weeks.  We are entering holiday time so the real indicators of what is happening in the labor force will be seen in January.

The Mortgage Bankers Association of America reported that applications for purchase loans ending for the week of December 4thwere essentially flat.  Refinances increased 4.0 percent from the prior week.  Compared to last year purchase applications are up a whopping 29.0 percent.  There continues to be a shortage of inventory which is keeping sales from being even higher than they currently are.

Mortgage rates continue to remain within a narrow range day to day.  The recent increase in mortgage rates appears to be more due to the fact that reality has set in that the Fed is going to raise rates next week and bond traders and investors are already factoring in the increase.

In a recent interview Zillow’s Chief Economist Svenja Gudell stated that 2016 should be a great year for purchasing a home.  There were a few reasons given for the anticipated improvement in the housing market.

One reason is that home price appreciation is anticipated to level off at around 3.5 %.  This could give buyers who have been stuck behind the rising prices a chance to get in to the market.  It is also expected that more homes will hit the market once homeowners realize that waiting to sell will likely not put much more money in their pockets.

Although next week’s economic reports include a return to housing, the biggest and most anticipated news for next week will be the Fed decision on interest rates.  It is highly likely that the Fed will raise rates by ¼%.  This will be the first rate hike for the Fed in about 10 years.

All of next week’s potential market moving reports are:

·        Tuesday December 15th – Consumer Price Index & Housing Market Index
·        Wednesday December 16th - MBA Applications, Housing Starts, FOMC Announcement
·        Thursday December 17th - Jobless Claims

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Tuesday, December 8, 2015

Merriment on Main

Getting ready for the 2015 "Merriment on Main" celebration in downtown Vacaville, CA

Saturday, December 5, 2015

A Flat Trend In Sales

The National Association of Realtors reported that pending home sales has been softer than expected.  For the month of October sales rose only 0.2 percent.  From the same time last year sales are up 3.9 percent which continues to indicate a somewhat flat trend in this sector of the market.

The Northeast led the country with  an increase of 4.5 percent.  The year-on-year increase is 6.8 percent. The West followed the Northeast with a rise in pending sales of 1.7 percent.  The highlight from this region is that sales are up 10.4 percent from the same time last year.

Low supply continues to be the reason for lackluster growth in pending home sales.  The shortage of inventory is putting significant upward pressure on home prices in some markets which is beginning to price first time homebuyers out of the market.

The Mortgage Bankers Association of American reported that applications for purchase loans moved sharply higher by 8.0 percent for the week ending November 27th.   Applications are up a staggering 30 percent from the same time last year.  It appears that buyers are finally acknowledging that mortgage rates are likely to rise and they are locking in their interest rates before the Fed increases rates at their Fed policy meeting in December.  Although it is not guaranteed the Fed will raise rates, all indications are that the Fed will bump up rates for the first time in almost 10 years.

First time jobless claims continue to remain low and at what is considered very healthy levels.  Claims for the week ending November 28th were reported at 269,000.  This is an increase of 9,000 from the prior week but still far below what is considered the line for concern of 300k.

On Wednesday the ADP Employment Report, which projects what the labor department will report for employment on Friday, will be stronger than most analysts expect.  The consensus for the ADP report was for job data to show 183,000 jobs were added to the economy last month.  The ADP report states their estimate at a 217,000 jump in employment which far exceeds expert predictions.

The November report on employment was released on Friday morning at 8:30AM.  The latest labor department report shows that the economy added 211,000 jobs which is 21,000 more than expected and just shy of the ADP report.   The national unemployment rate remained the same at 5.0 percent.  The hourly wage rate increase 0.2 percent which was in line with expectations.

Today’s report is believed to virtually assure that the Fed will raise interest rates at the FOMC meeting taking place in a week and half.

Next week’s potential market moving reports are:

·        Tuesday December 8th – Labor Department’s Job Openings and Labor Turnover Survey
·        Wednesday December 9th - MBA Applications
·        Thursday December 10th - Jobless Claims
·        Friday December 11th – Retail Sales & Producer Price Index

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Wednesday, December 2, 2015

Home Equity 101

Want to pay off high-interest debt in one fell swoop? Searching for ways to pay for a basement renovation, a bathroom upgrade, or a new tile roof? Since you probably don't have that kind of money stuffed under your mattress, a natural place to look for more funds is in your single biggest asset: your home.
But before you tap into those funds, you need to know exactly what you're getting into. Putting your home at risk isn't for the uninformed or undisciplined.

Saturday, November 28, 2015

When Is the Right Time to Sell?

For years, making a killing in real estate was easy. All you had to do was to hold on to your home. People doubled, tripled, and quadrupled their money just by living in hot areas of the country.
We all know what happened next. A few lucky people cashed out at just the right time. As for the rest -- we're still dealing with the aftermath of their stories. And many people are wondering: Did I miss the right time to sell.
A unique asset
First, remember that your home isn't like other investments. When housing prices are up, your four walls and a roof may be the best investment you've ever made, but pocketing the profit is just half of the process. There are property taxes to consider and school systems to research; commutes to be calculated and condo fees to be factored in.
And guess what? If your house is worth a lot, odds are any house you're interested in moving into also has a hefty price tag. You can always find a rental, which isn't a bad option -- if you successfully time both the top and the bottom of the real estate market.
Home, sweet investmentAs a homeowner, you'll find it easy to think of your home as a piece of your overall portfolio. You're the CEO of 1412 Maple Lane. Make the most out of this piece of your portfolio by making sure you aren't overpaying for your mortgage, and that you are making necessary upgrades to extend the life of your home -- and enhance your time there.
In fact, you should approach the housing market -- your housing market -- with the attitude of a buy-and-hold investor. Long-term buyers know that they will most likely be rewarded, despite the market's day-to-day ups and downs. Time in the market is a lot easier than market timing.
Granted, things change. It's pretty rare these days for people to live in the same area for their entire lives. Depending on where you move, you might find yourself in a totally different real estate market, with different price levels and available features. But if you're lucky, you'll always be able to at least maintain your standard of living when moving from house to house -- thereby enjoying the slow but steady profits that rising housing prices have given homeowners over the decades.
Hot or notWhatever history tells us about this time period, remember that a home is where you live. Its value in your asset mix is more than a number on a piece of paper. But you already know that. And, honestly, after a weekend of watching homes being razed, refurbished, tricked out, flipped, and traded up on cable TV, we can't blame you for wondering whether you should have dumped your house at the peak and rented a place until everything cratered.
But while hindsight may be perfect, we don't have a crystal ball. And with your home, it's an all-or-nothing proposition. You can't just take a portion of your profits -- say, sell the third half-bathroom with the bad '80s wallpaper and the seldom-used dining room and unfinished basement.
So if you want to make a killing in real estate over the years, the right time to sell is never. By moving only when your needs change, you spend less on costs such as listing fees and mortgage loan charges -- and you benefit from the slow appreciation that real estate has offered over time.

Wednesday, November 25, 2015

Today Marks The End This Week

Although the markets will be open on Friday after Thanksgiving, today tends to represent the end of anything significant that may occur in the markets for the week.  All the major weekly economic reports are released, and as is typical as of late, we have a mixed bag of good and not so good news.  Leading into the holiday tomorrow, let me get the not so stellar news out of the way up front so we can finish on a high note. 

The Mortgage Bankers Association of American reported that with the slightly rising interest rates, mortgage applications declined for the previous week.  Purchase loan applications dropped a slight 1.0 percent while refinances, which are always more sensitive to rate movements, declined 5.0 percent.  These declines are minor and within normal week to week variances.

Existing home sales are not a point of strength for housing or the economy.  October sales declined 3.4 percent to a slightly lower annualized rate of 5.36 million homes.  From the same time last year sales are only up 3.9 percent which is the lowest spread we have seen since January.

Lack of inventory remains the biggest factor for the less than stellar sales numbers.  Supply is at 4.8 months which is less than the 5.2 months at the same time last year.  Inventory supply of 6 months is considered balanced for the market.  If we talk straight numbers, supply is down 100,000 homes from the same time last year.

Let’s talk good news now.  Prices of homes showed a lot of life in September rising 0.6 percent according the Case-Shiller Home Value Index.  Prices are up 5.5 percent from a year ago and the spread has increased slightly.  These are the strongest numbers since last summer.  All 20 cities measured by the index showed price appreciation.  It is believed that the continuing price appreciation will drive more sellers into the market in the coming months which will help to balance out demand and supply.

Piggybacking on the Case-Shiller report, the FHFA House Price Index reinforced the positive movement in home values.  The FHFA reported that price appreciation for September increased 0.8 percent.  Home values are 5.7 above the same time last year.  FHFA covers single family housing data where Case-Shiller focuses on both single family and multi-family real estate transactions.

Lastly, first time jobless claims fell to 260,000 for the week ending November 21st.  This is near the 42 year low for claims.  Strength in the labor market should bode well for housing in the coming months.

Next week’s potential market moving reports are:

·        Monday November 30th – Pending Home Sales
·        Tuesday December 1st – ISM Manufacturing Index & Construction Spending
·        Wednesday December 2nd – MBA Applications & ADP Employment Report
·        Thursday December 3rd – Jobless Claims & Factory Orders
·        Friday December 4th – National Employment Situation

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Sunday, November 22, 2015

The Stock Market Continues To Rise

The overall stock market continues to rise despite the recent decline in travel related stocks due to the terrorist attack in France.  The Dow Jones Industrial Average is up 500 points for the week through Thursday.

Mortgage rates have retreated from their recent high’s and borrowing seems to be picking up steam.  The Mortgage Bankers Association reported that for the week ending November 13th that purchase applications jumped 12.0 percent and refinance apps rose 2.0 percent.

Surprisingly the November Housing Market Index showed signs of weakness.  In recent months the index, which is reported by The National Association of Home Builders and measures how builders rate overall economic and housing market conditions, has been quite strong.  Most analysts did not expect a reversal in the trend.  Good news within the report however is that builders have been seeing an increase in buyer traffic.  It seems that the decline in builder sentiment is that first time buyers continue to remain largely absent from the housing market.

Housing starts for the month of October declined significantly led by an 11.0 percent drop in multi-family construction.  Starts for this sector spiked in September which coincided with the springtime jump in permits.  Single family home starts dropped a much smaller 2.4 percent which seems to be much more in line with typical month to month movements for this area of the housing market.

The Federal Open Market Committee released their minutes from the last meeting.  To no-one’s surprise the indications remained that the Fed is leaning towards the first rate hike in ten years at the December policy meeting.  The Fed continues to continues to be non-committal on a rate hike and always include language in their commentary that states that conditions in the market will be the determining factor to a decision on rate policy.

Reinforcing the likelihood that the Fed will raise rates in December is the past week’s first time jobless claims report.  The report for the week of November 14th continues to show claims at a healthy level of 271,000, which is 29,000 below the baseline of 300K, which seems to be the point where concern for employment can change.

Inflation on the wholesale and retail level continues to remain low.  The most recent CPI report showed a 0.2 percent rise in prices at the consumer level.

Next week’s potential market moving reports are:

·        Monday November 23rd – Existing Home Sales
·        Tuesday November 24th – GDP, S&P Case-Shiller HPI, and Consumer Confidence
·        Wednesday November 25th – Durable Goods Orders, Jobless Claims, FHFA House Price Index, New Home Sales, and Consumer Sentiment
·        Thursday November 26th – Thanksgiving – All Markets Closed

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Thursday, November 19, 2015

How Much Home Can You Afford?

Taking out a mortgage is probably the biggest hassle facing prospective homeowners. The bank asks you all sorts of nosy questions about your income and savings, and after you've poured your heart out and shared all your money secrets, they might not even lend you as much as you need. The nerve!
Of course, they do have a point. Put yourself in the bank's shoes: If you were going to lend people money, what would you want to know about them? Of course you'd want to know whether:
  1. They make enough money to pay you back.
  2. They've been trustworthy in the past.
  3. They have something of value to trade, should they be unable to pay you back.
Congratulations: In financial parlance, you've just been introduced to the concepts of income, credit worthiness, and collateral -- the three main factors that go into the lending decision. Let's look at each one, and how they affect what you can afford.
Do you make enough to pay the lender back?Your lender will want to know not only how much money you have, but also how much you will likely make over the next 30 years. Also, what are your other debts? Do you owe money for college loansor credit card charges? Do you have any other assets? Things like stocks and mutual funds, or personal property like a boat or a car, are also considered in figuring out how much a bank will lend you.
Ideally, you'll want to come up with at least 20% of the value of your new home as a down payment, to avoid things like mortgage insurance payments (also called private mortgage insurance, or PMI). But you probably qualify for plenty of financing arrangements that will get you into a new home for as little as 3% of the asking price.
The lender will also plug your income numbers into a couple of formulas: the front-end ratio (having to do with your mortgage payments) and the back-end ratio (having to do with your debt).
For instance, let's say your gross income is $4,000 a month, and you have $400 a month in debt payments. A common rule of thumb is that they'll allow you to pay around 30% of your gross income toward your mortgage payment every month. This is known as the front-end ratio. In this example, 30% of $4,000 is $1,200 a month -- so, they'll reason, you can afford put $1,200 toward your mortgage payment.
Your debt ratio, or back-end ratio, on the other hand, is $400/$4,000, or 10%. That's not bad. They don't want more than around 40% of your gross income going to total debt -- mortgage, credit card interest, and other payments -- and in this case, your payments add up to 39%. (These ratios can vary somewhat; the ones given here are just examples).
Have you been trustworthy in the past?
Potential mates aren't the only ones curious about your past. Your lender wants to know your history, too, before deciding whether or not to commit. Your credit report -- a nifty little compilation of your personal financial history -- will reveal whether you have a track record of paying your bills on time. Before you even start shopping around for a loan, pull your reports from the major credit reporting bureaus by going to the website. If you see anything unsavory, clean it up to make yourself more attractive to lenders.
Do you have any collateral?The house you buy will generally be considered collateral for your mortgage. As a result, in case you can't repay the loan, the bank can decide to do something really nasty: foreclose on the mortgage and repossess the house. You will find yourself out on the street -- with your dog, your La-Z-Boy, your collection of unpublished poetry, a couple of suitcases, and your toiletries kit. Your house now belongs to the bank, and it is unlikely that anyone will ever loan you money again. Hot tip: Avoid this scenario at all costs.

Now, let's discuss your needsHow much you make, your creditworthiness, and how much collateral you have are all questions from the bank's point of view, because the amount of house you can afford is largely a question of how big a loan you can afford. Now, let's look at a few things from your point of view.

Your timelineTo determine whether you should buy a new home, think about how long you're planning to stay in it. It generally doesn't make economic sense to buy if you're only planning to stay there for a couple of years. Since you'll be paying fees to buy and then sell your house, it would have to appreciate in value very quickly while you're living there to make the entire deal financially worthwhile.
Your comfort zoneBefore you borrow $100,000, $200,000, or whatever you need for your mortgage, figure out whether you can really afford it. Just because the bank will loan it to you doesn't mean that you'll be able to pay it back -- at least, not without cutting into other goals that may be a priority for you. Are you planning to have a big family? Would you rather spend money on travel or spoiling the grandkids?
Remember, your house payment is just one piece of your financial puzzle. Carefully consider what you might need to give up to make that house a reality, and ask yourself whether you're really willing to do it.

Monday, November 16, 2015

How To Make The Most From Refinancing

For most homeowners, mortgage payments dwarf all other living expenses. When an opportunity comes to reduce those payments, many jump at it. Some homeowners, however, jump a little tooquickly. When you're bombarded by ads from mortgage lenders day after day, it's easy to understand why.
Focusing solely on how much you can save from refinancing is tempting. Yet research done in the early 2000s by economists from Harvard, Brown, FleetBoston Financial, and the National Bureau of Economic Research suggests that this common decision-making process for whether to refinance is too simplistic. By using a more sophisticated model, they argue that waiting for bigger savings is better for most borrowers in the long run.
Turning down free moneyIn evaluating the benefits of refinancing, financial planners often compare the expected reduction in monthly payments against the costs associated with refinancing. When the amount saved exceeds the costs by more than a tiny amount, planners will often recommend that homeowners replace their current mortgage.
It's hard to argue against saving money. But by focusing on how much you can save, the paper concludes that a surprisingly large number of mortgage borrowers -- nearly a third -- save less than they could by refinancing too early. These results fly in the face of those who say that many borrowers wait too long before they refinance their mortgages, even when interest rates have dropped substantially.
Weighing the costsThe analysis hinges on the reality that refinancing costs money. If you could refinance for free, you could grab a few extra dollars every time interest rates experienced a small dip. But when you consider mortgage application fees, title insurance premiums, and other closing costs, you can't afford to refinance every day.
Because of that, the authors argue, you should be very careful when you decide to pull the trigger. For instance, if you could save $25 a month now, deciding to refinance may mean giving up the possibility of saving $50 or $100 a month if rates continue to fall. And although the paper cites many personal-finance experts who advise against trying to time mortgage rates in this way, the authors maintain that only by treating the refinancing option as a rational economic decision can you make the most from your mortgage.
Analyzing a number of factors, including the size of your mortgage, the length of time you'll stay in your home, and the volatility of interest rates, the paper concludes that the optimal time to refinance for those who intend to stay in their homes indefinitely is when rates have fallen 1%-2% from your existing mortgage. For those planning to move in the near future, rates may have to fall even further before it makes sense to refinance.
Look before you leapThis analysis of refinancing options serves as a reminder that many financial decisions are more complicated than they seem at first. It's smart to look for savings anywhere you can. But by jumping at the first opportunity to save small amounts, you could give up the chance to reap bigger savings later. 

Friday, November 13, 2015

In A Week That Started Out Very Calm

In a week that started out very calm with investors, it quickly turned to panic on Wednesday and Thursday with the Dow dropping a combined 310 points for both days.  Driving the market declines are concerns over commodities pricing.

Energy companies are getting hit hard with investors due to big concerns relating to the price of oil.  In the last few days the price of crude has dropped significantly with the price of a barrel closing at $41.75 on Thursday.  Stockpiles of oil supplies have been unexpectedly high which can be an indicator that consumers might be starting to pull back on spending. 

Investors are already concerned that the Fed is going to raise interest rates at the December policy meeting.  If the increase in oil reserves is a real indication that consumers are beginning to get skittish about spending, a rise in interest rates may add further slowing pressure on the economy.

There continues to be a lot of conjecture about what the Fed will do with interest rates at the December policy meeting.  However, the most recent comments, from not only Fed Chair Janet Yellen, but other high-ranking board members, indicate that the odds of a December rate increase are very high.

After seeing the new lending disclosures implemented in October create wild swings in mortgage application activity, it seems that things are settling down.  For the week ending November 11th, and for the second straight week, mortgage application volume showed little change.  Applications for purchase loans remained flat and refinances declined 0.2 percent.  Even this past Friday’s stronger than expected employment report seemed to have little effect on rates.

One thing that is surprising to so many mortgage professionals is that even though that it appears highly likely that the Fed is going to raise rates in December, it does not seem to be creating any urgency for purchasers or homeowners to apply and lock in today’s rates.

First time jobless claims remain unchanged at 276,000.  This is the highest reading in two months but seems to be having little impact on investor behavior.  Friday’s better than expected labor report continues to have investors focused on the Fed’s next move.  Although an important report, first time jobless claims is not considered a main economic indicator used by the Fed to set monetary policy.

The one thing that is all but guaranteed when it comes to Fed policy is that the Fed is committed to very slow change.  The Fed knows they need to be very cautious in any change to monetary policy.  The long-term goal of the Fed is to normalize monetary policy however they are committed to not implementing change that will shock the economic system and derail consumer spending.

Next week’s potential market moving reports are:

·        Tuesday November 17th – Consumer Price Index, Industrial Production & Housing Market Index
·        Wednesday November 18th – Housing Starts & FOMC Minutes
·        Thursday November 19th - First Time Jobless Claims

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.