Home Purchasing Power Jumps To New Highs

July 10, 2012 by

Purchasing power grows in Q2 2012

With mortgage rates down to all-time lows, you can buy a lot more home for your money. Home affordability is at an all-time high.

According to last week’s Freddie Mac mortgage rate survey, the average 30-year fixed rate mortgage has dropped to 3.62% nationwide. This is down from 4.08% in March, and down from 4.60% from one year ago.

Mortgage rates are “on sale”.

Falling mortgage rates can make one of two changes to the way a home buyer looks at properties. They can either make a given home’s monthly housing payment that much more affordable to a buyer, or they can expand that buyer’s home purchasing power to a higher, maximum price point.

Since July 2011, that maximum price point increase has been significant.

Assuming a principal + interest payment of $1,000 per month and a 30-year loan term, a category that includes 30-year fixed rate mortgages and most adjustable-rate mortgages, here’s a maximum loan size comparison of the last 12 months : 

  • July 2011 : A payment of $1,000 affords a maximum loan size of $197,130
  • July 2012 : A payment of $1,000 affords a maximum loan size of $219,409

With an increase in maximum loan size of more than $22,000 in just 12 months, it’s no wonder that multiple-offer situations are becoming more common — today’s buyers know that low home prices and low mortgage rates are combining to make home buying more affordable than at any time in recent history.

However, the buyer-friendly environment can’t last forever.

First, home prices have started to rise nationwide. Demand for homes has outpaced home supply in many U.S. markets and that leads home prices higher. Second, low mortgage rates can’t last forever.

A recovering economy will lift mortgage rates back above 4 percent, a scenario that will hit home affordability hard.

Home-buying conditions are optimal this season. If you’re in the market for a new home, talk to your real estate agent and loan officer about maximizing your home purchasing power.

Filed Under: Personal Finance Tagged With: , ,

Mortgage Rate Risk Ahead Of Friday Morning’s Jobs Report

July 5, 2012 by

Non-Farm Payrolls Since July 2010

Friday morning, the Bureau of Labor Statistics will release its Non-Farm Payrolls report. More commonly called “the jobs report”, Non-Farm Payrolls is a monthly market-mover.

Depending on the strength — or weakness — of the data, mortgage rates will change. Perhaps sharply. Unfortunately, we can’t know in which direction.

If you’re actively shopping for a mortgage , therefore, today may be a prudent day to lock a mortgage.

The job report’s connection to mortgage rates is straight-forward. As the number of U.S. citizens earning paychecks increases, reverberations are felt through the economy.

First, higher levels of income are tied to higher levels of consumer spending and consumer spending accounts for the majority of the U.S. economy. More working citizens, therefore, builds a larger overall economic base.

Next, as the overall economic base grows, businesses produce and sell more goods, necessitating the hiring of additional personnel and the purchase of more raw materials — both positives for the economy.

And, lastly, as more paychecks are written, more taxes are paid to local, state and federal governments. These taxes are often used to fund projects and purchase goods and services which, in turn, grow the economy as well.

Tying it all together, the health of the U.S. economy is a major factor is setting day-to-day mortgage rates. This is why rate shoppers face risk with tomorrow’s Non-Farm Payrolls report.

Between 2008 and 2009, the economy shed 7 million jobs. It has since recovered 3.9 million of them and, Friday, analysts expect to see another 100,000 jobs created in June. If the actual number of jobs created exceeds this estimate, look for mortgage rates to rise. 

If the actual number of jobs created falls short of 100,000, mortgage rates may fall.

The government releases Non-Farm Payrolls data at 8:30 AM ET Friday.

Filed Under: The Economy Tagged With: , ,

A Simple Explanation Of The Federal Reserve Statement (June 20, 2012)

June 20, 2012 by

Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the fifth consecutive meeting, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. 

In its press release, the Federal Reserve noted that the U.S. economy has been “expanding moderately” this year. Beyond the next few quarters, the Fed expects growth to “pick up very gradually”. 

In addition, the Fed re-acknowledged that “strains in global financial markets” continue to pose “significant downside risks” to the U.S. economic outlook. This statement is a repeat from the FOMC’s April press release and is in reference to the sovereign debt concerns of Greece, Spain and Italy, plus the potential for a broader European economic slowdown.

The Fed’s statement also included the following economic observations :

  1. The housing sector remains “depressed”
  2. Labor conditions have “slowed in recent months”
  3. Household spending is “rising at a somewhat slower pace” than earlier this year

With respect to inflation, the Fed said that pressures have declined, led by falling oil and gasoline prices. Longer-term inflation expectations remain stable.

The biggest news of the FOMC meeting is that the Federal Reserve will be extending its “Operation Twist” program. The program sells shorter-term securities on the Federal Reserve’s balance sheet and uses the proceeds to purchase longer-term securities. This move puts “downward pressure on longer-term interest rates” and makes “broader financial conditions more accommodative.”

The Fed also pledged to keep the Fed Funds Rate at “exceptionally low” levels at least through late-2014.

Mortgage markets are muted post-FOMC. There has been no real change in rates, although that may change later in the day, or weel. Mortgage rates remain at all-time lows.

The FOMC’s next scheduled meeting is a two-day event slated for July 31-August 1, 2012.

Filed Under: Federal Reserve Tagged With: , ,