San Jose Mortgage News

Morning television can be “light”, but as far as personal finance interviews go, this Suze Orman segment from The Today Show is loaded with practical financial planning advice.

Titled “What Should You Do First?”, Ms. Orman addressed the real-life, money management conundrums households face, such as:

• Should I pay off credit card bills, or create an emergency cash fund?
• Should I pay off student loan debt, or pay off credit card bills?
• Should I save for a child’s college tuition, or save for my retirement?

In 5 minutes, the segment covers a half-dozen scenarios like the ones above, explaining what to do, and why to do it.

Ms. Orman’s style may not interest you and financial advice is rarely universal, but the piece is worth watching.

Watch the clip on the NBC website.

In June, for the first time since December 2009, the U.S. workforce shrank.

According to the Bureau of Labor Statistics, the economy shed 125,000 jobs last month even as the Unemployment Rate dropped to 9.5 percent. The drop in the Unemployment Rate is being attributed to fewer Americans looking for work.

At first glance, the jobs report looks weak but a deeper look shows something different.

Excluding the 225,000 government Census workers that recently left the workforce, the total number of employed persons actually grew by 83,000 in June. That’s 50,000 more working Americans as compared to May.

And, since the start of the year, the U.S. workforce has grown by 857,000.

Jobs growth is closely tied to economic growth because more working Americans means more disposable income which, in turn, stokes consumer spending. Job growth is better than job loss.

Consumer spending makes up the majority of the U.S. economy so as consumer spending grows, investor mentality tends to shifts toward “return on principal” (i.e. stock markets) from “safety of principal” (i.e. bond markets).

A move like this is often bad for home affordability because falling demand for bonds is tied to higher mortgage rates. In addition, with the growing number of Americans earning a paycheck, demand for homes is likely to increase, thereby helping to push home prices higher.

Overall, therefore, the jobs report should be bad for rate shoppers and home buyers in in San Jose. Except, the markets aren’t reacting that way. For now, mortgage rates are slightly improved since the jobs report’s release.

Perhaps Wall Street is watching the wrong figures, but don’t let that be your loss. If you’re shopping for a mortgage, a home, or both, now may be your best time to make a move; while rates are still low; with home prices down; before traders change their tune.

Because when markets change, it’ll likely happen fast.

Mortgage markets improved last week as economic data revealed a slowing U.S. economy.

Major stock indices fell to 2010 lows in response to a weak jobs report among other data points, forcing worldwide investors into the relative safety of U.S. government-backed bonds.  This category includes mortgage-backed bonds and the extra demand helped to drop rates.

Once again, mortgage rates improved in California and Freddie Mac is reporting new all-time lows on three popular, conforming loan products:

• The 30-year fixed rate mortgage
• The 15-year fixed rate mortgage
• The 5-year adjustable rate mortgage

Low rates mean low payments and you can’t know your options until you ask.

This week, mortgage rates may move slowly. There’s very little data set for release because markets were closed Monday in observance of Independence Day, and because the second calendar week of a month is traditionally data-slow.

Tuesday, a consumer confidence study is published; Thursday, jobless claims plus consumer credit levels hit; and, Friday, we’ll see wholesale inventories.  That’s about it.  None of these reports are particularly important but, in aggregate, the numbers can show whether the economy is expanding or contracting.

In general, evidence of an expanding economy should cause mortgage rates to rise.  In a contracting economy, rates are likely to fall.

Actual mortgage rates will vary by borrower, based on property type, credit score, and home equity, but if you haven’t talked to your loan officer about a refinance into today’s rates, it’s likely worth the time for a phone call.  Once mortgage rates start to reverse higher, they’re expected to reverse quickly.

You’ll want to act before that move occurs..

The Pending Home Sales Index plunged in May 2010, just one month after the expiration of the federal home buyer tax credit program.

The Pending Home Sales Index is now at a record-low level.

A “pending home sale” is an existing home under contract to sell, but not yet closed. According to the National Association of Realtors®, 80 percent of homes under contract close within 60 days.

Because of this timeline, we can expect the summer’s Existing Home Sales to be weak, too. With fewer homes going under contract, fewer homes can close.

On the surface, May’s Pending Home Sales Index looks like terrible news for housing. And, if you’re a seller, it just might be. But, if you’re a buyer, the story reads differently.  Just consider the market conditions. 

A broad look at the housing market shows:

1. Home supplies are rising in most markets
2. Home sales are falling in most markets
3. Mortgage rates are at all-time lows

In other words, in most markets, more sellers are competing for fewer buyers, and the “winning” buyers are financing their homes at the lowest rates in history.

It’s an excellent time to be a home buyer in San Jose.

As 2009 was ending, the “experts” were busy making forecasts about the U.S. economy and what to expect in 2010.

With respect to the housing markets, two predictions were made again and again:

1. Home prices would fall in the first half of 2010
2. Mortgage rates would be higher in 2010

Well, it’s July 1 and the year is half-over.  Both predictions are proving to be incorrect. Home values are rising in most markets and mortgage rates are down. Way down. 

It reminds us that economists are much more skilled with analysis of the past versus predictions of the future.

A pile of data can only get you so far.

Think of San Jose housing market predictions like watching a local weather forecast. A meteorologist can look at the radar and tell you that rain is coming, but it’s never with 100% certainty.  There is always a chance of change.

The housing market is the same way.  Just as the U.S. economy is unpredictable, so are housing prices, and so are mortgage rates. 

Therefore, when you have a personal finance decision to make, evaluate your options based on the information at hand today rather than an educated guess about the future. The future, after all, is subject to change — despite what the experts forecast.

Standard & Poors released its Case-Shiller Index Tuesday.  The index is a monthly home valuation report from select cities and among the private sector’s most popular home pricing models.

In reviewing the April Case-Shiller Index and its accompanying analysis, it appears that the housing market’s rebound is gathering momentum.

In the index’s 20 tracked cities:

• 18 of 20 improved from March to April 2010
• Versus April 2009, home prices are up nearly 4 percent
• The two “down” cities from April — Miami and New York — are off just 0.5% and 1.0% annually, respectively

Furthermore, as another sign of strength, San Diego, a city in which homeowners have lost a lot of equity since 2007, has now shown 12 straight months of home price improvement.

However, the Case-Shiller Index must be kept in context. It’s far from perfect.

For one, the index reports on a 60-day delay; it’s only now showing data from the end of April, when the federal homebuyer tax credit was expiring. Home sales have been weak since then it’s been reported.

And second, the Case-Shiller Index is limited to just 20 cities nationwide. Therefore, the index doesn’t consider every home sale in every American city — it only considers a select few. Many more U.S. homes are excluded from the Case-Shiller Index than are included.

But, despite its flaws, the Case-Shiller Index remains important with respect to economic analysis. Much like the government’s Home Price Index, Case-Shiller helps to identify broader trends in housing that shape government and monetary policy.

All day, every day, conforming and FHA mortgage rates in California are in flux.  Rates move in response to hundreds of factors which exact varying levels of influence.

Among the biggest influences on mortgage rates is inflation.  When inflation is unexpectedly high, mortgage rates tend to rise quickly. Conversely, when inflation is unexpectedly low, rates tend to fall quickly.

But what is inflation?

By definition, inflation is when a currency loses its value; when what used to cost $1.00 now costs $1.10.

As consumers, we recognize inflation by the items we buy on a daily basis becoming more expensive.  However, it’s not that goods are more expensive — it’s that the dollars we’re using to buy them have become worth less.

With respect to mortgage rates, this is a big deal because mortgage rates are directly related to the price of a special type of bond called a mortgage-backed bond.

On Wall Street, mortgage-backed bonds are priced, bought, and sold in U.S. dollars so as inflation renders those dollars less valuable, so it does to mortgage-backed bonds as well. It’s a chain reaction by which mortgage bonds lose value, leading investors sell them, causing bond prices to fall on the excess supply.

And, because mortgage rates move opposite of bond prices, as inflation takes hold, mortgage rates rise.

Lately, inflation has been exceptionally low. The Federal Reserve acknowledged as much in its last statement to the markets, and available data backs that position.  This, after predictions that inflation would be “runaway” in 2010.

The Cost of Living is up just modestly this year and it’s helping mortgage rates stay low. And, so long as it lasts, the cost of owning a home in Cambrian will remain relatively inexpensive.

Mortgage markets improved last week in response to mostly negative data about the U.S. economy, and the Federal Reserve’s acknowledgement that Eurozone financial ills could cross the Atlantic.

Conforming and FHA mortgage rates fell last week, extending a rate rally that dates to early-April.  Mortgage rates have fallen to several, new, all-time lows during this period and last week was no different.

The best rates of last week hit Thursday morning.

This week, mortgage rates should be volatile, and may rise, too.  There’s a bevy of data due for release, and market volume will be light with the long weekend looming.

Monday, the Personal Consumptions Expenditures Price Index is published. More commonly known as “PCE”, the index is the Federal Reserve’s preferred inflation gauge. When inflation is running higher than expected, mortgage rates tend to rise.

Conversely, when inflation is running lower than expected, mortgage rates tend to fall.

Tuesday, the Case-Shiller Index will be released for April’s home prices, along with two consumer confidence reports.  As with PCE, strength tends to lead mortgage rates higher and weakness draws them lower.

Thursday, the National Association of REALTORS® releases its Pending Home Sales Index for May and the Department of Labor releases initial and continuing jobless claims number.

Then, Friday, the Bureau of Labor Statistics publishes June’s jobs report, including the Unemployment Rate.  This number is always a market-mover, but with the long vacation weekend looming, it’s expected that Friday’s volume will be light on Wall Street, creating extra volatility. 

Mortgage rates may be erratic, in other words.

If you’ve been shopping for mortgages, you’ve been rewarded with falling rates. However, will rates cutting new lows almost weekly and expected to reverse soon, it may be a good time to lock up your savings.

Talk to your loan officer ASAP about locking in your rate.

One month after the federal homebuyer tax credit’s official expiration, the New Home Sales report turned in its worst showing ever.

In May 2010, for the first time in 11 months, the inventory of unsold new homes crossed the 8-month marker, posting an 8.5 month supply overall.

Additionally, new homes sales volume fell to 300,000 units nationwide — a drop of 32% and its lowest level since the Commerce Department started tracking data in 1963.

Now, universally, the press is referring to the May New Home Sales report as “poor“.  A closer look, however, shows that may not be the case.

For one, we have to keep New Home Sales in perspective as a percentage of overall home sales. Yes, there were just 300,000 new homes sold in May, but there were also 5.66 million “existing” homes sold.

New Home Sales, therefore, accounted for just 5 percent of the total housing market — a very small percentage.

Another reason why the weak New Home Sales data isn’t so awful is that, when New Home Sales stall, it actually benefits home buyers.  Excess supply puts a strain on sellers which, in turn, gives buyers a tremendous amount of leverage in negotiation.

When home inventories are high, builders are more apt to appease their customers in hopes of making a sale.  For San Jose home buyers, this can result in buying a better product at a lower price.

Especially with builder confidence plummeting.

Since February 2009, housing has shown steady gains. There’s been both peaks and valleys across units, inventories, and prices, but overall, the market is improving.  May’s New Home Sales data shows how now may an opportune time to “buy new”.

Existing Home Sales dropped in May for the first time in 3 months but still managed to post its second-highest since November 2009, buoyed by the expiring federal tax credit program.

An “existing home” is a home that cannot be considered new construction; a resale of an existing home.  Existing Home Sales fell 2.2 percent in May.

The press is calling the drop in sales “unexpected” and disappointing, but a deeper look at the data shows the news isn’t as bad as it first appears.

First, on a regional basis, sales were mostly solid. Only the Northeast region posted a loss. The West even managed a gain.

• Northeast : -18.3 percent
• Midwest : 0.0 percent
• South : +0.5 percent
• West : +4.9 percent

Second, the supply of homes for sale dropped to 8.3 in May and, because home prices are based on supply and demand, this is a positive for pricing.

By comparison, in 2008, the average existing home inventory was 10.4 months.

And, lastly, in May, first-time home buyers represented 46 percent of all buyers. The number was likely buoyed by the tax credit program but that doesn’t damper the fact that first-time buyers provide a support floor for the housing market. 

First-time buyers in San Jose enable “existing owners” to move-up to bigger homes, which, in turn, trickles up to the mid-size and jumbo markets.

Analysts expected more from May’s numbers and that may explain why the reaction to the data is generally negative.  However, in many cities, home resales did just fine.