Month: November 2012

With the short week last week, it was a relatively quiet news week. Wednesday saw a “cornucopia” of economic news released to little fanfare, as attention remains fixed on the fiscal cliff negotiation. We have written a holistic guide to the fiscal cliff, including background information and its possible effect on real estate and mortgage rates. You can read the entire article HERE.

For our column here, we will republish the section on mortgage rates. To stay informed on the economy, real estate, and mortgage rates as the fiscal cliff approaches, make sure check in with our website for daily updates, or tune into our radio show Mortgage Matters on KVEC 920 every Saturday morning from 10 a.m. to 12 noon.

How will the fiscal cliff affect Mortgage Rates?

Typically during a down market, mortgage rates fall. This time, says Central Coast Lending owner Jason Grote, we may be around the lowest levels we will get.

“I don’t think that rates will move in the short term as we near the cliff. The market is very good at anticipating and pricing in expectations, and I have to believe that either way we are already padded for the outcome.”

We have seen some small improvements since the headlines shifted focus from the November 6 election to the fiscal cliff. You can follow along on our Mortgage Rate Tracker, but here are the three noteworthy improvements:

• 30-year fixed, 3.250 percent rate: has dropped about 0.030 percent in price, which is 3/8 of a point.
• 30-year high balance, 3.375 percent rate: has dropped just 1/8 of a point in price.
• 30-year USDA, 3.250 percent rate: has dropped 3/8 of a point in price.

The 15-year fixed, Jumbo, VA, and FHA programs have remained mostly unchanged.

A plunge over the fiscal cliff would likely cause rates to fall even further – breaking significantly through already record-low rates.

“If we go over the cliff, rates would have to fall,” said Grote. ”The impact to GPD and overall impact to the economy will be a sharp decline. This will mean once again that bond yields will experience downward pressure as investors make the familiar flight to quality.”

“In the event that bipartisan agreement is reached I think that we will see rates increase a bit,” said Grote.

Goldman Sachs said that it expected the S&P 500 to fall about 8 percent in the lead up to the fiscal cliff, but if the dilemma is resolved, it sees the potential for significant strength in equities. The note said that it could see the S&P 500 recovering for a 16 rise from current levels by the end of 2013. Grote agrees with the analysis.

“The compromise would be a demonstration of great bipartisan cooperation and give a breath of hope to the international investment community, this means a real bright future and strong growth potential for America’s economy. That renewed hope would certainly drive the stock market up and a corresponding upward pressure on interest rates.”

Last time the U.S. government dealt with federal debt, it primarily kicked the can down the road, which is partially why we are dealing with the Fiscal Cliff dilemma today. For the economy to show any lasting strength, it will be necessary to create a lasting blueprint for success.

“I think the key here is the whether the solution is watered down and another short term band aid or if it’s a sounds plan with lasting benefit,” said Grote. “The more watered down, the less impact we should expect in general.”

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Happy holidays! Sorry to be like all those stores who pull out their Christmas decorations come November 1, but we would like to announce a steep mortgage rate cut ahead of the coming holiday season. After all, lower mortgage rates + refinance = savings… and savings mean you can get that pesky holiday shopping out of the way at all of these stores proclaiming “holiday” discounts.

Mortgage rates in San Luis Obispo County have steadily dropped over the past few months, and with prices as good as they are, we feel comfortable publishing rates that are between 1/4 and 3/8 of a point lower than we have been.* Here are a few examples:

• 30-year fixed: 3.000 percent (3.121 percent APR)
• 15-year fixed: 2.375 percent (2.558 percent APR)
• 30-year FHA: 3.000 percent (3.993 percent APR)

You can see the rest of our mortgage rates for November 19 (there are 10 loan programs listed) HERE.

In the wider world, markets continue to be held hostage by Fiscal Cliff speculation. As we wrote here last week:

Stocks had their worst week since June, as markets turned their focus from the election to the upcoming “fiscal cliff” dilemma that you will begin to see headlines about every day.

Talks between the White House and Congress began last Friday, and representatives said everything positive: there are a few fundamental agreements as to how this should get done. Among the agreements: the government will not allow the U.S. to fall over the “fiscal cliff.”

Today, stocks jumped on optimism that a deal could get done, as the Dow rose over 200 points. A brief refresher on the fiscal cliff for those of you who don’t yet know:

The fiscal cliff is a combination of expiring tax cuts and mandated cuts in government spending.  Inaction would cause about $500 billion in spending to disappear from the economy, which some predict would slide the U.S. back into recession.

Housing continues to be a bright point for the economy. U.S. Employment, on the other hand, had an alarming report come in on Thursday – a  78,000 jump in jobless claims for the week ending November 10. This can be partially explained by damage resulting from Hurricane Sandy, but still suggests an underlying weakness.

To follow the data as it is released, as well as updates on the fiscal cliff progress, make sure to check in with our website throughout the week. The Central Coast Lending newsroom covers the latest local and national real estate, mortgage, and economic developments.

*APR is subject to increase and terms subject to change. APRs may very depending on loan details such as points, loan amount and loan-to-value, your credit, property type and occupancy. Closed rate and APR assume a rate and term refinance of a single family detached owner-occupied primary residence, loan amount $417,000 ($561,200 for high balance), and a minimum FICO score of 760. Situations vary based on applicant.

Banks and bond markets were closed Monday in observation of Veteran’s Day. Stock markets opened with a brief morning surge, but the three major U.S. stock indexes (Dow, S&P 500 and Nasdaq) moved slightly below opening levels as the day progressed.

Last week, stocks had their worst week since June, as markets turned their focus from the election to the upcoming “fiscal cliff” dilemma that you will begin to see headlines about every day.

Mortgage rates dropped along with stocks, as investors moved from volatile stocks into the relative safety of U.S. government debt. When Treasury prices increase (dropping yields), mortgage rates drop.

With banks closed today, rates will remain at Friday’s low levels. We can expect mortgage rates to remain low during the Fiscal Cliff discussions. Volatility and danger in stocks usually ends up by pushing investors into U.S. Treasuries, thus (ultimately) putting downward pressure on mortgage rates.

We will take a much closer look at the fiscal cliff, including its effect on mortgage rates, in the coming weeks. For now, the basics:

The fiscal cliff is a combination of automatic government spending cuts and tax cuts and deductions due to expire at the end of the year. Congress has until December 31 to put together a “debt deal” that will go towards reducing the deficit in order to avoid the automatic spending cuts.

Should no action be taken, the combination of tax increases and spending reduction could cause the U.S. to sink quickly into another recession. We saw one estimate that the “cliff” could take $607 billion from the economy (from tax increases and spending cuts). According to one estimate, it would take unemployment back up to 9.0 percent.

The real estate market is watching this problem closely as well. The Mortgage Forgiveness Debt Relief Act was passed in 2007 to relieve the tax burden on struggling homeowners that participate in a short sale or mortgage debt reduction program. Without the tax deduction, homeowners would be taxed for “forgiven” debt. In a short sale, for example, the bank allows the homeowner to sell the property for less than the mortgage is worth. For example, the homeowner might sell for $280,000 when the property is worth $320,000. The original law counted that $40,000 discount as taxable income. The Mortgage Forgiveness Debt Relief Act took that tax burden off the books.

We profiled the San Luis Obispo Real Estate market on Friday and concluded that the market has shown some real signs of recovery. If the Debt Relief act were to expire, the market would be negatively effected, possibly sending home prices back down to the bottom as foreclosure activity ramps up again.

Let’s hope that Congress shows support for the housing market and passes an extension for the Mortgage Forgiveness Debt Relief Act.

A recent study by a Brokerage showed the following:

– Trulia had only 81 percent of listings on the market.
– Zillow had 79 percent of listings.
– 36% of Zillow listings were shown active but were no longer for sale.
– The same was true for 37% of Trulia listings.

A site using IDX (like SloCountyHomes.com) had 100% of the listings.