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Rates May be Headed up Soon… But Why?

You’ve heard a lot over the last several months about historically low home loan rates…but lately, you’ve probably been hearing the buzz that interest rates may be heading up in the near future, due to in part the Fed ending their purchases of Mortgage Backed Securities.

All of this begs the question: How and why do rates move… and what is happening right now?

The answer involves a number of factors and can seem complex. But it doesn’t have to be!

To help you understand how interest rates move, take a look at this easy to understand video. You’ll learn what the fed has been doing to keep rates low, as well as the connection between interest rates and Mortgage Backed Securities.

Take a look at the following video for an easy explanation:

How Rates Move - and What it Means Right Now

Jerry Lampert

Olympic Area Manager USN - RETIRED

104 Tremont Street, Port Orchard, WA 98366

Office: 360-874-1239 E-mail: jlampert@repmtg.com

Slow Recovery May Be Leading to Serious Housing Shortages

Even as foreclosures continue to flood some of the worst-hit housing markets in the country, economists are beginning to sound the warning that today’s extremely low levels of new residential production could lead to significant housing shortages, especially among market-rate rental apartments, as household formation rates return to normal.

Before talking about purchasing a house, it’s important to note two things. First - and this is extremely important - the housing market is actually localized. So the outlook in Kitsap County is different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if the Detroit, Michigan job market is feeling a pinch (which it is), the home prices in Detroit, Michigan may be down as well (which they are). But we live in a military falsehood with people coming and going all the time and billions of dollars coming into the PSNS Shipyard and Bangor Sub Base every month.

The housing downturn and economic recession have kept household formation rates at below-normal levels for roughly three year. As the economy moves to higher ground, the housing market will begin to feel the pressure from new households and there will be a surge of demand from echo boomers, who comprise an even larger group than their baby-boomer parents.

NAHB economists project that the industry will need to deliver 16 million homes over the next 10 years to keep pace with demand. As the excess inventory is worked off, which is likely by the end of 2012, the long-run demand for new housing — based on population growth, immigration and the replacement of losses from the housing stock — will average approximately 1.5 million single-family and 300,000 multifamily units annually, or about 1.8 to 1.9 million total starts.

Coming off extremely low levels of construction, starts last month were running at a seasonally adjusted annual rate of 591,000, a level that is far below what will be needed.

When housing starts bottomed out in the first quarter of 2009, they were running at only 27% of average starts during the “normal” production period of 2000 to 2003, according to analysis by NAHB. This year, production is expected to rise to 45% of normal, with a further increase to 67% of normal next year.

NAHB is forecasting 647,000 total housing starts in 2010 and 991,000 in 2011, an indication of expectations for housing to recover at a relatively slow pace. Curtailed credit to build new housing is a major constraint, and the availability of acquisition, development and construction (AD&C) financing is expected to remain exceptionally tight even during the early phases of the housing upturn.

Jerry Lampert

MORTGAGE FORECAST FOR THE WEEK

The financial markets will be closed on Monday in observance of Presidents Day, and in terms of economic reports, there won't be much action until midweek. On Wednesday, we'll get a look at the health of the housing industry with reports on Housing Starts and Building Permits for January. It will be interesting to watch the housing reports over the next several months, as many people are acting to take advantage of currently low home loan rates that may be on the rise soon, as well as the potential of a juicy tax credit. Remember - the Homebuyers Tax Credit is only available on homes purchased with a contract date before April 30th, and the transaction must settle by June 30th.

We'll also get an update on inflation this Thursday, as the Producer Price Index will be released. This index measures price changes for wholesalers, and prefaces the more important Consumer Price Index coming on Friday, which measures changes in the price paid by consumers for goods and services. These reports are both particularly important, as the Fed will be watching very carefully for any signs of inflation. If inflation begins to rise, the Fed will have no choice but to begin to hike rates to fight off the dangers that inflation could pose to our economy.

In addition to those reports, we'll get our weekly look at employment through the Initial Jobless Claims data. Last week's report showed some encouraging signs, but there is still a long way to go before we'll see stabilization in the Unemployment Rate and some meaningful job creation. At the moment, 6.3 Million people remain unemployed for over six months - an increase of 5 million since the start of the recession in December of 2007. To reach the White House's projection of a 6% unemployment rate by 2015, the US would need to create 225,000 jobs per month, every month, for the next five years. But that kind of long term job growth has never been seen before. The year 2006, was the only year in US history that had job gains average over 225,000. But that was for just a single year - doing it for five years may be too much of a stretch.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bond prices and home loan rates improve, while strong economic news normally has the opposite result.

Jerry Lampert

Olympic Area Manager USN - RETIRED

104 Tremont Street, Port Orchard, WA 98366

Office: 360-874-1239 E-mail: jlampert@repmtg.com

Mortgage Demand Picks Up Ahead of Expected Rise in Rates

Mortgage rates held steady last week near what might turn out to be the most aggressive levels of 2010. Mortgage backed securities prices did not move too high or too low without quickly correcting, not much progress was made in any direction yesterday or for the last few weeks for that matter.

Early last week, the Mortgage Bankers Association released their weekly Mortgage Applications Index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. More home purchases can lead to more construction jobs and increased purchases of items to build a home. Furthermore, in a low mortgage rate environment, an increasing trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

Mortgage Rates continue to hover around 5 percent, quite low by historical standards, but are well above the record lows seen in 2009. “I expect that rates will rise over the next few months as the Federal Reserve winds down its MBS purchase program, and this will likely lead to a decline in refinance volume." If you have been waiting to refinance or to buy, get out there and start the process before you miss the boat of the 5% interest rates.

Jerry Lampert

Olympic Area Manager USN - RETIRED

104 Tremont Street, Port Orchard, WA 98366

Office: 360-874-1239 E-mail: jlampert@repmtg.co m

Top 10 Human Medications Poisonous to Pets

From a January 7, 2010 article on Veterinary Practice News comes a warning for pet lovers about pets being poisoned by medications intended for humans. Justine A. Lee, DVM, DACVECC, associate director of veterinary services at Pet Poison Helpline reports that when it comes to pets being poisoned by medications, "they are unfortunately very, very common.”

Surprising to most people is that human medications are the most common type of poisoning that animals are exposed to. On the American Society for the Prevention of Cruelty to Animals (ASPCA) website is listed the Top 10 Pet Poisons of 2008. The first item on the list is "human medications". The ASPCA notes that, "For several years, human medications have been number one on the ASPCA’s list of common hazards."

The Veterinary Practice News article was more specific and listed the types of medications that are most commonly ingested by animals. These are:

1. NSAIDs (e.g. Advil, Aleve and Motrin)
2. Acetaminophen (e.g. Tylenol)
3. Antidepressants (e.g. Effexor, Cymbalta, Prozac, Lexapro)
4. ADD/ADHD medications (e.g. Concerta, Adderall, Ritalin)
5. Benzodiazepines and sleep aids (e.g. Xanax, Klonopin, Ambien, Lunesta)
6. Birth control (e.g. estrogen, estradiol, progesterone)
7. ACE Inhibitors (e.g. Zestril, Altace)
8. Beta-blockers (e.g. Tenormin, Toprol, Coreg)
9. Thyroid hormones (e.g. Armour desiccated thyroid, Synthroid)
10. Cholesterol lowering agents (e.g. Lipitor, Zocor, Crestor)

The ASPCA reported that they receive over 50,000 calls per year on pets being poisoned by medications. They warn that, 'Pets often snatch pill vials from counters and nightstands or gobble up medications accidentally dropped on the floor."

It Still Makes Sense To Buy Verse Rent

Nearly a full third of households are still renting. If your friends, family or even you are still renting, you could be paying a hefty price.

Before talking about purchasing a house, it’s important to note two things. First—and this is extremely important—the housing market is actually localized. So the outlook in Kitsap County is different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if the Detroit, Michigan job market is feeling a pinch (which it is), the home prices in Detroit, Michigan may be down as well (which they are). But we live in a military falsehood with people coming and going all the time and billions of dollars coming into the PSNS Shipyard and Bangor Sub Base every month.

But with all those factors under consideration, it still makes sense to buy instead of rent. In fact, renting may be costing you a bundle.

Let's look at an example…

If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what… all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With convenient zero to small down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used towards home ownership.

Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment—including property taxes and insurance—of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!

But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.

Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.