Archive for June, 2008
On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.
More commonly called the “jobs report”, today’s 2-page analysis of May 2008 shows that the economy shed jobs and that unemployment surged.
This is terrific news for home affordability.
That may sound counter-intuitive, so let’s dig deeper into the jobs report and what it really tells us about the U.S. economy.
Over the last year, rising food and energy costs have chipped away at household budgets, leaving Americans with two basic choices:
- Spend less on discretionary items like vacations and dining out
- Demand more pay at work so they can vacation and dine out
If Americans choose to spend less, the economy eventually slows down because two-thirds of it is tied to Consumer Spending. This is anti-inflationary.
But, if Americans demand pay raises instead, businesses eventually pass those higher wage costs back to consumers in the form of higher prices.
This is called a “wage-price spiral” and it’s very inflationary.
So, because today’s jobs report showed unemployment surging by a half-percent to 5.5%, Americans really have no choice but to follow the “Spend Less” path — they’re not in a position to demand more pay at work.
Today’s jobs data is good for home affordability because it relieves inflationary pressures in the economy and when inflation is falling, mortgage rates tend to do the same.
Better mortgage rates mean less expensive housing payments.
Source
Employment Situation Summary
BLS.gov, June 6, 2008
(Image courtesy: Wall Street Journal)
Mortgage rates are a big deal when you’re buying a home.
With even the slighest uptick in rates, 30 years of mortgage payments can get substantially more expensive and one of the most substantial threats to mortgage rates is an economic event called inflation.
Inflation’s influence on mortgage rates is so large that markets can get jarred on just the mention of it and that’s exactly what happened Wednesday when Fed Chairman Ben Bernanke uttered “inflation” 55 times in a 5-page speech at Harvard.
The speech started at 2:45 P.M. ET and by 2:53 P.M., the damage was done.
Market players interpreted Bernanke’s remarks to mean that inflation may be worse that previously expected and mortgage rates moved up by 0.125 percent, or $8 per $100,000 borrowed.
This equates to $2,880 in extra payments over 30 years.
If you’re actively shopping for a home loan and rapid rate movements make you nervous, consider locking in your mortgage rate today; rates have been especially jumpy all year and don’t look to smooth out anytime soon.
(Image courtesy: ABC News)
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When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.
The right way includes:
- Completing an acceptable gift letter
- Documenting the withdrawal of funds with receipts
- Documenting the deposit of funds with receipts
The wrong way is to ignore the rules that mortgage lenders clearly spell out for you.
Mortgage lenders watch gifts closely because they want to make sure that the “gift” is not really a loan-in-disguise. If it’s a loan, the total dollar amount must be counted against the home’s total loan-to-value and higher loan-to-values typically increase lender risk.
If it’s a gift, a signed and dated gift letter should accompany the home loan application. An example:
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].
This is a gift — not a loan — and there is no expectation of repayment.
Signed,
[Signature of donor]
For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient’s bank deposit receipt should indicate that a $12,000 deposit was made.
There may be legal and tax liabilities when gifting funds between family members so if you’re unsure about how donating or receiving a gift may impact you, call or email me. If I can’t answer your question, I can certainly refer you to somebody that can.
For your home mortgage needs call Tyler Ford or Todd Abelson; Tucson Leading Home Mortgage Team.
Mortgage approvals don’t last forever.
A conforming mortgage approval from Fannie Mae or Freddie Mac has a shelf-life of 120 days.
After 120 days, the approval expires and a mortgage applicant must re-submit his application for consideration.
In addition, a mortgage approval can “expire” within the 120-day period for other reasons:
- Change of job status or income
- Newly-acquired monthly debt (i.e. car payment, student loan)
- Change in asset levels
If your current mortgage approval (or pre-approval) is dated prior to February 3, 2008, it is now expired and your new approval may be subject to Fannie Mae’s new, more strict, underwriting guidelines.
Mortgage rates rocketed higher last week, stunning active home buyers and mortgage rate shoppers.
Some conforming mortgage rates rose by as much as three-quarters of a percent before Friday’s closing.
Even in a year in which mortgage rates have been extremely volatile, last week’s spike was a large one.
The main driver of last week’s increase was additional evidence that the U.S. economy was never in a recession at all; only that it was “weak”.
From last week:
- New Homes Sales (including cancellations) reported strong
- Durable Goods showed surprising strength
- The Chicago “Business Barometer” showed confidence
All three data points run opposite to what market players believed just six weeks ago and the reversal in mortgage rates is, in part, related to those traders selling out of bonds and moving into something else.
Another part of the shift is weak demand foreign for U.S. treasuries. Lackluster support from buyers drove down prices last week and helped push up yields.
It all adds up to mean that this is a dangerous time to float a mortgage rate and this week shouldn’t be safer than last. Friday is Jobs Reports Day and that always swings a big stick in the mortgage markets.
Until Friday, though, mortgage rates are expected to exhibit the same volatility that they have all year — some days up, some days down and most days by a lot.
Falling oil prices may create some downward pressure this week, but the overall momentum is higher.
(Image courtesy: Wall Street Journal Online)
