Monday, March 8, 2010

Mortgage News -- Updated 3/8/2010

Source: Peter Pham, Private Mortgage Advisors


People are talking. The Fed's have been know to be very accommodative to the markets sentiment. As we learned with Chairman Greenspan, surprising the market, good or bad can lead to wild speculation and mood swings in the markets behavior. The "market" assumed last fall that rates would be rising in 12 to 18 months. This is still within line of the expectations. This article from the Washington Post summarizes where economist predict rates will go in the next six months.

Most U.S. business economists expect the Federal Reserve to raise benchmark interest rates within six months by between a quarter and a half percentage point, according to a survey released on Monday.

A majority of economists in the National Association of Business Economists' semiannual survey found the Fed's current stance of rates near zero percent is appropriate. A growing number, however, believe the U.S. central bank's policy's are too simulative, according to a poll of 203 members taken February 4-22.

"A majority believes that a rise in interest rates is both likely and appropriate in the next several months," said NABE President Lynn Reaser.

The Fed has said continued high rates of unemployment and low inflation warrant holding rates exceptionally low for an extended period. Still, reports show the economy is recovering gradually, and some policy makers believe the Fed should begin to prepare markets for the beginning of the process of tightening financial conditions.

Economic News

Employment and consumer spending are important indicators as the market looks for signs of recovery.

Employment losses have steadily declined over the past six months. In fact, private sector jobs (ex-construction) have risen over the past two months. There is a cyclical recovery in private sector jobs while the structural problems in real estate limit the recovery. Job gains have also appeared in manufacturing sectors such as machinery, primary metals and electrical equipment. Meanwhile the index of hours worked has risen over the last three months, consistent with sustained economic growth. Combining hours worked and average hourly earnings, our income proxy has broken into positive growth territory. This suggests positive income and therefore spending gains in the months ahead.

Retail sales continue to post respectable gains, considering the continued drag on household spending power due to high unemployment and slowing wage growth. Consumer balance sheets, while healing, remain severely impaired from continued high debt levels and reduced wealth, while access to affordable bank credit remains difficult for many. Still there appears to be real pent-up demand for necessities like clothes since many consumers delayed purchases of these items during the worst of the recession last spring. Moreover, stabilizing employment and steady stock market gains have helped more fence sitters to go ahead with their purchase plans, especially among the higher income bracket households. We expect February retail sales to advance another 0.2 percent following a 0.5 percent increase in January. Retail sales less autos could advance even more, rising 0.6 percent in February.

First Time Homebuyers Tax Credit

The first-time homebuyer tax credit of up to $8,000 and the move-up homebuyer tax credit of up to $6,500 expire at the end of April. The home has to be under contract by the end of April, and the deal has to close by the end of June. The maximum home price is $800,000 according to the link below. As a reminder for clients who want to take advantage of the tax credit before it expires, I have provided the link with answers for your clients.

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