This commentary is one that i read regularly. I hope this benefits you as much as it has benefitted me.
MBA – Mortgage applications up
The Weekly Mortgage Applications Survey, released by the Mortgage Bankers Association (MBA) for the week ending September 18, 2009, increased 12.8% on a seasonally adjusted basis from one week earlier, (a holiday shortened week), and on an unadjusted basis increased 24.6% compared with the previous week and 14.0% compared with the same week one year earlier. The Refinance Index increased 17.4% from the previous week asthe 30-year fixed rate dipped below 5%. The Government Purchase Index is at the highest level ever recorded in the survey and the share of purchase applications that were government-insured was 45.7 percent, the highest share since November 1990. The four week moving average for the seasonally adjusted Market Index is up 4.3%, and the four week moving average is up 0.7 percent for the seasonally adjusted Purchase Index, and the Refinance Index is up 6.8 percent. Refinances share of mortgage activity increased from 61.0 percent the previous week to 63.8 percent of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 6.7 percent from 6.0 percent of total applications from the previous week.
Equifax — Mortgage Delinquencies Still Climbing
According to the Equifax consumer credit trends report for August 2009, delinquency rates for prime and sub-prime mortgages increased nearly every month since March of 2009, for sub-prime borrowers. 30-day plus unit delinquencies for prime mortgages jumped to 6.51% in August compared to 5.89% in March, and the 30-day plus unit delinquencies of sub-prime mortgages increased to 36.35% in August from 33.61% in March. Dollar rates for prime 30-plus day delinquencies bumped to 7.58%, up from 6.98% in March, and the dollar rates for sub-prime 30-plus day delinquencies rose to 36.35% in August from 33.61% in March. Definitions of “sub-prime” vary from one source to the next and from one state to the next. However, The definition of prime and sub-prime mortgages used for the above data refers to the credit score of the borrower, not the type of loan originated, a spokesperson for Equifax said. Borrowers with an Equifax credit score below 620 are considered sub-prime. Those above 620 are considered prime.
JPMorgan bullish on housing
JPMorgan has taken a negative stance on the future of housing for three and a half years, but according to a report by JPMorgan analyst Michael Rehaut, it now sees the housing market past its trough and driving toward recovery over the next 24 months. Rehaut said he is impressed by the current rally in homebuilder stocks, but pointed out that the surge is well below recoveries that followed prior recessions. The top six builders’ stocks fell 86% from an ‘05 peak and gained 105% from the low in March, compared to the 55% and 66% losses during recessions in 1982 and 1990 and the respective rallies of 171% and 486%, according to the report. Housing starts remain down 29.6% from August 2008, according to a study by the US Department of Housing and Urban Development (HUD), but according to Brad Hunter, the chief economist at Metrostudy, despite the slowdown in completions, housing starts are approaching a bottom if they have not already reached one.
Geithner – “Consumer Financial Protection Agency”
Treasury Secretary Timothy Geithner will tell a key Congressional committee today that financial reform legislation needs to include a consumer protection agency and enhanced regulatory authority over too-big-to-fail firms. He calls this the “Consumer Financial Protection Agency,” and suggests that it should have broad rule making and supervisory power of firms offering services and products to the public. According to CNBC, the testimony reads, “Consumer protection cannot be reformed without addressing these structural problems…Our proposal will address them directly. It will consolidate fragmented consumer authorities into one agency.” Committee chairman Barney Frank, for his part, (D-Mass.) is working on an alternative version of the consumer agency bill outlined by the White House in June. Frank sent a memo to Democratic panel members Tuesday highlighting the key differences in the so-called discussion draft. With all due respect, can’t anyone find something else for Mr. Frank to do…something that doesn’t involve burning money and wrecking national finances and that kind of thing?
Rates will likely stay low
Federal Reserve Chairman Ben Bernanke and Fed policymakers will almost certainly leave interest rates at a record low and probably will keep other economic supports in place when they announce in the afternoon that the recession is over and that America’s economic and financial climate is improving. They’ll probably also slip in the usual caveat: rising unemployment and hard-to-get-credit will make for a plodding rebound. “We’re kind of in an economic purgatory right now. We’re in a recovery but it won’t feel like one to Main Street,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “There’s still a lot for the Fed to do to foster a lasting economic recovery.” The housing market has been propped up by the Fed’s mortgage-buying program, but Fed policymakers have to walk a fine line between leaving programs intact long enough to support the recovery, but not too long as to unleash inflation later on.
For now inflation isn’t a problem with factories still operating well below capacity, a weak job market allowing employers to avoid wage increases, and cautious shoppers making companies wary of raising costs. Rates on 30-year home loans dropped to 5.04 percent last week, compared with 5.78 percent a year earlier, but the housing sector’s health remains precarious as foreclosures continue to mount.
Now on to our real estate educational section…
What’s Safer – Short Sales or Your Pension Plan?
They told you it would be safely set aside for when you needed it most; Guaranteed by the backing of Good Old Uncle Sam via the Pension Benefit Guaranty Corporation…another quasi-government entity that is ready to petition for their very own version of a big bail-out. You spent the best years of your life waiting for that money to mature only to learn it may not be there after all…or even if it is, you may be required to pay more in taxes, have access to fewer benefits or fight against the ravages of inflation. So, what is really safer…short sales or your pension plan? Let’s examine the facts to find out why relying upon a pension may not pay off in the long run.
1. The PBGC – Pension Benefit Guaranty Corporation – has been underfunded each and every year since 2002. Remember, this is the main entity responsible for “making good” on pension plans when a corporation goes bankrupt. Unfortunately, the downturn in the economy has resulted in the largest single short-fall in the history of the PBGC…in addition to the multi-year deficiency. In fact, experts predict it is a matter of months before the PBGC will be forced to petition congress for financial support. Can you count on them to be there when you need it?
High income earners are at even greater risk…if the PBGC is forced to take over your pension plan it already has a cap in place limiting payments to only $54,000 per year to anyone 65 or older – no matter what your original pension might have been!
2. Companies are cutting back, filing bankruptcy and attempting to reduce long-term obligations in any way possible just to remain afloat. Take a look at General Motors. How long can you count on your company to remain viable in a rapidly changing global economy in the midst of a total melt-down? Are you willing to bet your golden years on their ability to remain profitable for ten years? Twenty years? Longer?
3. Too many eggs in one basket. Earning a living is getting harder every day so why place all your eggs in one basket? It’s bad enough to lose an income but even worse to face unemployment lines and a loss of a pension plan should your company meet with an early demise. Remember, even if they stay in business but simply restructure debt, it could potentially impact your financial future.
On the other hand, short sales are directly under your control. They do not rely upon big bail-outs, government intervention or even the whims of investors other than those you deal with directly. Short sale real estate allows you the opportunity to diversify outside of your company by retaining access to an income stream outside of that associated with your place of employment…but without taking on more time away from home.
Finally, short sales are able to fit your needs now…not ten, twenty or even thirty years or more into the future. If your situation changes – sell. Need additional write-off’s…hold for awhile. The choices and versatility afforded by short sales are nearly endless compared to dealing with a pension plan where the rules of the game can change before you are able to act on new information.
See you at the top!
Chris McLaughlin