Dubai rattles equity markets, sends mortgage rates even lower
November 29, 2009 by admin
Global markets were sent reeling on Friday as news out of the Middle East sent panic across the equity markets. One of the world’s wealthiest countries has been instrumental in working to rebuild the image of the Middle East as a destination for travel and financial importance. Friday, news that one of the largest development projects Dubai World was in dire financial position sent panic across the markets.
Markets work on the base of confidence and fear. Investors who lose confidence in the market can quickly cause a large selloff as witnessed on Friday with equity markets. The fear was based on the financial impact to both local and international banks which have faced enormous selling pressure over the last twenty four months as they have struggled to deal with the global real estate market. The potential for hundreds of billions of dollars worth of additional exposure was enough to shock the markets. The interconnection of the lending industry in a global economy has proven to be an area that leads to large swings in stock trading when bad news hits the market and clearly this was the case on Friday. The Dubai World development project is one of the world’s largest commercial real estate projects and one that has been financed through a collaboration of banks. The agency that is managing this project has notified its lenders that they would be suspending interest payments for the next six months as they struggle to restructure debts and improve their capital positions. This news definitely shocked the market and led to a large drop in the DOW on a light volume trading day, cut short by a Holiday week.
The drop in the equity market led to a surge of investors in the bond markets. Yields on Treasury Bonds dipped past their six month lows and are now firmly below 3.3%. The renewed interest in bonds has helped fixed mortgage rates again drop another notch. National lenders are offering thirty year fixed rate home loans in the high four percent range for the first time in the past six months, providing yet another window for consumers to refinance their mortgages or lock in a great rate when purchasing a new home. The mortgage industry has seen a steady decline in long term rates for the last thirty days and all signs indicate the low rates should hold through the balance of the years at very attractive levels, helping to fuel home purchases into 2010.
housing continues to shine as rates move lower again
November 25, 2009 by admin
Heading into the holidays, mortgage rates continue moving lower and home sales continue to surge, a welcome recipe for a beleaguered real estate market. This has been a fabulous week of news for the housing markets which are looking for any positive news as it tries to gain momentum into 2010. The headline reports for the week have been a key factor in lifting the stock market to high levels for the year. The stock market has been front page news for the last two months, surpassing the 10,000 point level and bringing with it speculation that the economic recovery would be in full swing next year.
The housing market numbers for October were better than many experts were initially predicting, but should not be a total surprise to anyone who follows the real estate industry. The market has been setting the stage for a move up as the governments homebuyer tax rebate hung in the balance. Consumers were facing a potential $8,000 tax rebate shortfall if they missed on closing prior to the end of November, under previous terms of the new home buyer tax credit. Real estate firms and mortgage companies have been aggressively marketing the deadline for the last two months in hopes of getting buyers on the fence to move forward. The collective efforts were a big win in the past month. Existing home sales surged over ten percent last month, notching their highest percentage increase this year. Today a report on new home sales also surpassed expectations. The new home sales report showed a six percent increase for the month of October, as buyers looked to close out purchases of newly built homes.
The mortgage industry has benefitted greatly from the governments influence on the free markets this year. The push to get buyers moving has been aimed at both stimulus (tax rebates) and subsidization of the MBS markets. Interest rates continue to defy historic market trends and move lower. The yield on the ten year Treasury bond dropped back down to 3.3% this past week, sending fixed rate thirty year home loans down to five percent with major national mortgage lenders. Freddie Mac, today announced rates have dropped to a six month lows, news that could provide further momentum to both home purchasing and refinancing over the next few weeks. The real estate market is still struggling with home foreclosures and bank repos, as they closely align with increased unemployment. Foreclosed properties could gain additional government intervention beyond the Hope for Homeowners and Making Home Affordable programs. The inability for lenders and loan servicers to proactively slow the rate of delinquencies has never been more apparent as one in four homeowners is now over thirty days late with their mortgage payment.
The retail markets will gain center stage for the economy over the next thirty days. Analysts will focus heavily on consumer confidence and retail spending to gauge the economies ability to rebound. The stock market will look to carry momentum into 2010, but will face year end selling pressure from investors who look to lock in tax losses and profits. Housing should continue to accelerate with low interest rates and a renewed tax credit helping push more buyers to purchase housing inventory at depleted price levels.
November 23, 2009
November 23, 2009 by admin
The stock market jumped to start a holiday shortened trading week on Monday. Equities cruised to push DOW 500 well above 1,100 and close in on 2009 highs. The market started early with a push in the value of the dollar and then gained further momentum with the release of existing home sale data for the month of October. The market has gained nearly 4,000 points since the low levels of March and it is evident that more cash is coming off of the sidelines and entering into the market. The mortgage industry is breathing another sigh of relief with the better than expected housing numbers. Most experts assumed that October and November would be strong months for home sales as the potential for the new home buyer tax credit to expire would certainly push buyers off of the fence.
The resale housing figures for October were a clear indication that buyers were compelled to take action. Combing the tax rebate and a drop in fixed mortgage rates, the market showed a ten percent increase in home sales, well above consensus expectations. The housing market could carry the momentum through the end of the year and into the first quarter of 2010. Despite the strong rally of equities in November, fixed rate home loans are still near their low levels for the year. Long term thirty year interest rates were at 5.25% or lower with most national mortgage lenders, and fifteen year terms were well below the 5% level. Mortgage rates are not likely to have significant pressure to move higher as long as the Fed commits to supporting the secondary MBS market and that is likely to be the case through early 2010.
The political landscape could be an outlying factor in the markets for the balance of 2009. Health care remains a very controversial topic and one that will continue to gather headlines and debate in all areas of the press. The potential for a reform bill to pass into law could be one of the larger unknown market variables to watch for over the next forty days. The stock market is historically challenging in the month of December as investors begin to analyze their market positions relative to tax consequences, all setting the stage for what should be an interesting balance of the year for the markets. The ten year bond closed back above 3.4% on Monday and the next major hurdle would be crossing 3.5%, the sixty day moving average which could have an impact on interest rates.
November 20, 2009
November 20, 2009 by admin
Stocks finished the week on a down note. The stock market lost a bit of momentum this week, after the S&P 500 passed the 1100 point mark earlier in the week, finishing on Friday at 1091. The month of November is still on pace to be a great month for both stocks and mortgage rates. The housing market is benefitting from yet another dip in long term interest rates as the yield on the ten year treasury bonds has continued to slide lower this month. Friday, the ten year closed at 3.36%, down over fifteen basis points for the month. The anomaly of bond yields going down in a rising equity market has been a great relief to the mortgage industry this year and the trend has carried through this month. Long term interest rates on thirty year fixed rate loans were at 5.125% or lower with most national mortgage lenders and continue to be well below 5% on fifteen year loan terms, November mortgage rates have now hovered near 2009 lows for the entire month.
The market this week struggled with some key economic news that took away some of the trading momentum and brought a bit of economic recovery reality back into view. One of the leading issues the economy has to find a way to address is the continued escalation of home foreclosures. Home foreclosures continue to increase as consumers across the country fall behind with their house payments. The governments approach with streamlined refinances and loan modifications has been slow in helping out struggling borrowers. The escalation in unemployment is a large contributing factor with the rise of home foreclosures, but the simple desire for many to walk away is also a large variable at play.
Housing starts dropped to their lowest level in the past six months, and this seemed to help build some momentum in the doubts of a quick recovery. In fairness, analyzing data from the housing market over the past sixty days will be challenging. The uncertainty associated with the government’s extension of the first time home buyer tax credit (which finally passed earlier in the month) has certainly played a role with both builders and consumers. This factor should work itself out of the equation over the next few months and the residual impact for housing should be beneficial.
The overall consensus from the corporate sector is one of caution. Numerous companies have reported earnings over the past few weeks, which have aided in lifting the overall markets, but attempting to predict a robust future has been challenging for every sector. The investment markets will have to settle for future guidance clarification in the first quarter of 2010 as companies get past the holiday season and have a better feel for consumer confidence. There appears to be limited reason to believe the markets will fluctuate in a large degree higher or lower for the balance of the year, but this is worth watching.
health care proposal nears one billion price tag
November 18, 2009 by admin
The Senate now has before it a new bill covering health care reform with an estimated expense of nearly one billion dollars. President Obama is pushing the legislation hard to finalize and agree on a health care reform bill by the end of the year with hopes to dramatically reduce the number of uninsured Americans and help streamline insurance coverage across the country. The bill before the Senate will be hotly contested by Republicans who appear less than anxious to agree to health care reform that carries with it any form of coverage that is managed by the government. The present bill in front of the Senate includes a national health care option, eliminates the ability for health insurance companies to restrict coverage based on “pre-existing health conditions” and allow consumers to shop for coverage across state lines. A unique aspect of the bill is that it imposes a financial penalty to individuals who elect to not receive coverage. The so called “tax penalty” is aimed at reducing the burden of uninsured on the health care system which is likely to face further concessions as the health care debate moves forward.
Moving forward, there remains a great deal of work to be done before any health care bill is passed. There is a large political division between Democrats and Republicans on the need for including a government backed insurance options. This single item could delay any health care reform for the foreseeable future as Republicans are likely to angle for additional political concessions in debating this bill. The present Senate bill is almost two hundred billion dollars less than the health care reform bill introduced in the House over the last thirty days. The two proposed bills carry price tags above the Presidents plan to keep health care reform under nine hundred billion dollars over the next ten years while trying to rebalance the budget. The likelihood that a bill could be signed without universal coverage through a government agency remains a possibility, but only one that would include dramatic concessions of current insurance carriers and regulations to significantly increase competition. The government has countered that a federal option is the only remedy to bring down insurance premiums that have risen in excess of thirty percent over the past five years. While this hypothesis may be true, it seems to overlook the underlying increases from pharmaceutical companies that have contributed to the large price increases. This is certainly a complex issue that will require numerous sacrifices to achieve a new universal health care solution.
November 17, 2009
November 17, 2009 by admin
November is turning out to be a fabulous month for the markets. The DOW has surged past 10,000 and is poised to finish the year on a high note. The momentum from a strong October has carried through and investors are upping their wagers that the economy will make a remarkable comeback into 2010, despite lagging job growth. The strong push from equities has had zero impact on pushing up long term mortgage rates. The market paradox comes at a great time for new home buyers and home owners who have not taken advantage of a mortgage refinance. Yields on the ten year bond have dropped almost twenty basis points over the past thirty days and are once again closing in on the 3.3% level. The drop in bond yields has helped bring long term rates lower for thirty and fifteen year mortgage loans. Most national mortgage lenders are offering thirty year loans at 5.125% or lower and fifteen year loan terms continue to offer rates well into the four percent range.
The market will soon enter a lull in economic and earnings as investors and economists take aim at the holiday shopping season. The next 40 days will be extremely critical for retailers to try and salvage their years on a positive note. The fourth quarter can make or break retail companies as witnessed from years past when companies who have posted disappointing holiday sales figures have struggled to stay in business. Today, two of the nations largest retail organizations (Target and The Home Depot) provided updated earnings and forecast sales for the balance of the year. The companies remain cautiously optimistic that the consumer is regaining confidence and beginning to show signs of renewed appetite to spend. This news was another signal that there is growing confidence in the overall economy.
The homebuilding industry received great news last week when the government agreed to extend the first time home buyer tax credit, as well as a new credit aimed at move up home buyers. The new construction industry has been struggling to pull itself out of a downward spiral over the last three years as the markets struggled with lending and buyers pulled back due to the economy. Analysts remain divided on the near term prospects for the building industry, citing concerns that the government is creating another housing bubble with the additional extension of the tax credits. Further citing the FOMC role in keeping mortgage interest rates at record low levels, it is fair to say the government has a strong influence in trying to stabilize real estate sales and prices across the country. The next twelve months will be critical for a number of major national builders that have posted losses into the billions of dollars as they struggle to rebalance their business models during these challenging times. Today, a survey from the NAHB showed builder confidence at a subdued level. This should not be a surprise as home builders saw a downtick in sales in the month of September. This report could jump next month with the rebate extension and a solid month of sales.
FHA loans could face further underwriting changes
November 15, 2009 by admin
Home buyers have turned to FHA mortgage loans at record percentages in 2009, as limited loan options put the FHA in a crucial role in keeping the real estate markets solvent. The secondary mortgage market has gained limited traction over the past year as investors are still reluctant to purchase pre packaged loan portfolios outside of guidelines endorsed by Fannie Mae, Freddie Mac or FHA. The lack of demand for mortgage backed loan securities has put the financing obligation of the real estate industry squarely at the feet of the U.S. government. The Federal Reserve has played a significant role in the mortgage industry this year. The commitment by the Federal Reserve to purchase mortgage backed loan securities in December and March of this year spurred a dramatic drop in mortgage interest rates, allowing home buyers and home owners to refinance and purchase with record low interest rates.
FHA mortgage loans allow home buyers to purchase with minimal down payments (less than 5%), are more forgiving of a borrowers credit score and offer streamlined refinance options to home owners without a home appraisal. The friendlier underwriting guidelines offered by FHA have led to a surge of volume in FHA mortgage loans over the past twelve months. The surge in volume directly reflects the lack of alternative finance options for borrowers in the mortgage industry and the importance of having competition in the finance industry.
The decision by the HUD to explore underwriting changes to the FHA mortgage comes at a critical time for the industry. The dramatic increase in home foreclosures across the country has been a devastating blow to the mortgage industry, and one in which FHA has not been immune. Publically traded companies Fannie Mae & Freddie Mac have turned to the government for billions of dollars in capital, as their loan losses have surged, they require additional capital injections in order to continue financing new loans. Speculation that FHA will need a large capital injection has been growing for months. The department of HUD has reported that one out of every ten FHA mortgages that were written prior to 2009 has gone into foreclosure. These figures closely follow a national trend that has seen home foreclosures increase every month for the past two years. Foreclosures have been key in forcing banks and lenders to collapse during the economic recession as lenders with large portfolios of mortgage loans have struggled with raising adequate levels of capital to counteract the rise in loan defaults. Many experts are predicting home foreclosures will continue to increase over the next twelve months as unemployment has continued to increase, forcing many home owners to simply walk away from properties severely underwater.
The timing of underwriting changes by FHA could not be worse for the real estate industry. Fresh off a political win with the extension of the home buyer tax credit, which has been expanded to cover move up buyers, the housing market could finally be gaining some sales momentum. FHA’s financial problems are likely from their legacy loans, and not loans that are based on today’s underwriting guidelines. The governments slow response to proactively work with home owners to modify or refinance their mortgage was a mistake of epic proportions. A decision by FHA to further restrict the supply of mortgage lending in a tough market will only prolong the challenges of the real estate industry. This reactive approach is likely to be targeted at first time buyers and potential buyers with less than stellar credit or limited down payments. The lack of alternative finance options from Fannie Mae, Freddie Mac or the private market should be closely monitored with any potential changes that FHA proposes.
November 11, 2009
November 11, 2009 by admin
November has started with another solid run by the DOW. The stock market passed its high mark of the year today, after the third straight day of solid gains. The recent rally in the equity markets has not significantly altered fixed rate home loans. This abnormality is great news for home owners who are still exploring home refinancing as well as potential home buyers looking to close before the end of the year. The improvement in the DOW and equity markets recently does not appear to be pulling investors away from bonds as the yield on the ten year Treasury bond has held firm over the last week and closed at 3.45% on Wednesday. Long term thirty year mortgage rates are available between five and five and a quarter percent with most national mortgage lenders for thirty year loan terms and still well below five percent for shorter term financing.
To date, the markets have been relatively unharmed by the continued decline of the jobs market and the national unemployment rate hovering above ten percent for the first time in the past twenty years. This news has been shelved by investors focusing on other growth stories in the economy and an overall belief that better days are in the future. The divide between Wall Street and Main Street is continuing to grow larger, as illustrated by this weeks edition of Time Magazine. There is a growing disconnect between the middle class and the administration that has been slow to deliver job growth in many hard hit areas of the country.
The housing market has received several doses of good news this week. On Monday, a report tracking pending home sales showed a six percent increase for the month of September, likely a signal of borrowers rushing to lock in properties prior to the expiration of the first time homebuyer credit originally scheduled to end at the end of the month. The ending of the home buying tax credit has been a lightening rod for mortgage and real estate lobbyists who have argued that this credit has been instrumental in assisting over 300,000 purchases in 2009 alone. The good news is the lobbyists have done their job and Congress has agreed to extend and expand the homebuyer credit into 2010, now scheduled to end in April of 2010. The new homebuyer tax credit will also be extended to qualified existing home owners who are looking to move up and purchase new properties. Move up buyers who have lived in their existing properties for over five years are now eligible for a tax credit up to $6500 to help them purchase a new property.
The tax credits could help to finally help the housing markets turn the corner. The government programs aimed at helping home owners refinance or modify their mortgage loans through the making home affordable program have been received with mixed reviews of success at best, the same can not be said for the first time home buyer tax credit which has directly aided in bringing first time buyers back into the market and helping to rebalance the supply/demand markets of real estate.
Close your FHA streamline refinance before the end of the year
November 8, 2009 by admin
Homeowners with financing through the FHA and HUD should act quickly if they plan to try to refinance their mortgage and avoid upcoming guideline changes. The Department of Housing Urban and Development (HUD) which oversees the FHA loan program announced in September they would be modifying guidelines with FHA loan underwriting at the beginning of the new year. The announcement comes during a critical time for the mortgage and housing markets. Over the last twelve months FHA mortgages have become extremely popular and have helped fill a major void in the industry in helping to finance first time home buyers and refinance home owners with limited home equity.
HUD has been greatly impacted by the downturn in home values and the surge in property foreclosures. FHA mortgage defaults have jumped to their highest levels in the past twenty years, fueling speculation that HUD would need to turn to the government for a capital injection to help keep the FHA mortgage program solvent. To date, this has been only a source for speculation, but following the continued losses of Fannie Mae and Freddie Mac it’s not hard to imagine that this division of HUD has significant financial challenges. FHA loans presently have the lowest requirements for down payments (3.5%) and are more lenient with credit scoring than conventional home loans, these two factors are major reasons why FHA has gained so much market share in 2009
The pending changes for the FHA mortgage program are going to make it more difficult for homeowners to refinance their existing FHA mortgage loans. Lenders across the country have targeted homeowners with existing FHA mortgage loans with aggressive marketing materials as FHA guidelines typically will allow for a borrower to refinance their mortgage without a home appraisal. This process is called a streamline refinance. The elimination of required home appraisals allow for FHA streamlined loans to close at a significantly higher rate than traditional conventional loans that required home appraisals. It is important to note that borrowers with conventional home loans are not eligible to streamline refinance into a FHA mortgage loan. Streamline home loans are a great avenue for home owners to refinance and lower their monthly house payments and interest rates, with little or no out of pocket expenses. The process is very simple and straightforward and requires half of the normal underwriting time to close. The simplicity of the streamline refinance has helped millions of home owners refinance and save money, who normally would not qualify due to their homes mortgage amount exceeding the present home value. The streamline refinance eliminates this obstacle.
The streamline process for FHA is going to tighten some loopholes in the present process. Including placing seasoning guidelines (the length of time a mortgage is in place prior to being eligible for refinance). These guideline changes have the potential to impact a mortgage refinance for current eligible homewonwers with FHA mortgage loans. The opportunity lock in a great rate and reduce the interest for the life of the loan could be jeopardized if a borrower does not close before the end of the year. Homeowners with FHA mortgage loans should at a minimum contact their existing lenders or FHA approved loan provider and review their present loan scenario to ensure they are in the best possible loan.
November 6, 2009
November 6, 2009 by admin
The month of November started on a great note for equity markets, jumping over three percent for the week and setting the stage for what promises to be an interesting end to the year. The market reacted favorably to most of the weeks economics reports, as investors gleaned to the idea of better earning potential for the market into 2010 and a belief that the worst of the economic news is in the rear view mirror.
Today, the October non farms payroll report was released. The national unemployment rate is now over ten percent, its highest level in the past ten years as over 190,000 jobs were lost last month. The total number of displaced workers is well over fifteen percent, as the non farms payroll report does not consider workers who have given up on looking for a job. The employment market continues to be the most challenging part of the economy as challenges in creating meaningful job growth are a large issue with the state of the economy.
Fannie Mae and Freddie Mac both announced their quarterly earnings today, and Fannie Mae sent up another warning signal regarding the health of the housing markets. The company notified the government that they would seek and additional fifteen billion dollars of capital. Both companies continue to post losses in the billions of dollars as the impact of home foreclosures on the market has not been remedied and their portfolios continue to come under pressure from a declining housing market. The companies struggling financial positions post a significant challenge to the government as the lenders are presently financing over fifty percent of the nations secondary mortgage marketplace. To date, there has been no improvement with outside investors moving back into the securitization markets, leaving Fannie Mae and Freddie Mac to assume the financing burden for billions of new mortgages. The companies have significantly tightened their underwriting guidelines for new borrowers and are working with the administration to speed up assistance to struggling homeowners through the Making Home Affordable Program.
The strong showing by the equity markets has trickled through to mortgage rates. Fixed mortgage rates have edged up in the month of November, as the yield on the ten year bond is now above the 3.5% level. Long term rates for thirty year loans are at 5.25% or higher with most national mortgage lenders and rates for fifteen year term loans are moving into the upper 4% range. Mortgage rates have proven resilient to broad changes in the equities markets to date, but the sensitivity level could increase moving forward as investors anticipate the FOMC’s exit strategy and the impact to long term mortgage rates. This week, the FOMC again pledged support in the near term for the mortgage market, but clearly have laid the groundwork for a desire to exit out of their present role. The long term prospect for mortgage rates remains concerning as the lack of demand from investors could drive up rates sharply when the FOMC winds down their support. This will be an area that the government as well as investors closely monitor in the future.