Here Comes Another Employment Report
In a few days, we shall see the release of another monthly jobs report which will end a week of massive data releases. These releases include private sector payroll growth for July, personal income and spending for June and the first reading of economic growth for the second quarter. As important as all of these releases are, they pale in importance to the jobs report which has had a great effect upon the markets each month thus far this year. This has been especially true with regard to the release's effect upon interest rates. Positive releases at the beginning of the year caused rates to start creeping up. A disappointing release for March caused rates to ease back, however this process was reversed one month later when March's numbers were revised.
The past two months have seen positive reports and it is no coincidence that rates have continued their climb--with a spike after the July release. Rates have eased back a bit from that point and analysts are busy trying to determine what the next report will bring to the markets. What do we believe? Eventually, employment gains of close to 200,000 per month should become a common place event and it will take even larger numbers to move the markets significantly. Does that mean that we have already reached this point and any number well below 200,000 will be seen as a disappointment which may cause rates to decrease and the stock market to fall back? We will find out the answer to this question in only a few days. Keep in mind that each month contains a revision of the previous month's numbers and these revisions can affect the analysis as well.
With housing inventories so low, why aren’t homebuilders jumping in by ramping up production to meet demand? A new housing report by Arizona State University suggests that homebuilders are methodically holding back their inventories and keeping the rate of new-home building low, despite population growth projections. “New-home builders don’t appear too anxious to help meet the demand,” says Michael Orr, a real estate expert at ASU’s W.P. Carey School of Business. A few years ago, during the housing bubble, homebuilding outpaced population growth. But builders are taking the opposite approach this time around. In an environment with tight underwriting for loans, builders are exercising some caution and restraint. “They are trying to make sure they don’t overbuild like they did before the housing crisis, and they want to keep prices moving up,” Orr says. For example, Orr notes that in the Phoenix area, new-home sales rates are less than one-third of what is needed to keep pace with the projected population growth. He added that, with limited supply, builders are able to increase prices for new homes. Those in the building industry have cited labor shortages, tight underwriting standards, and the rise in lot prices as a reason building hasn’t kept pace. Source: Phoenix Business Journal
“Boomerang buyers”—former home owners who have gone through a short sale, foreclosure, or bankruptcy in the past few years and are saving up for a down payment to purchase a home again—are coming back. They're expected to flood markets in some of the hardest hit areas for short sales and foreclosures in the coming years. For example, boomerang buyers are predicted to account for nearly one in every five home sales in the metro Phoenix area this year—double the projected U.S. rate. Rising rents and the desire to own again now that the economy is more stable are driving many boomerang buyers to re-enter the market. They also want to jump in before interest rates and home prices climb too much higher. But how soon they can jump back in will depend on the type of loan they had as a previous home owner. For example, boomerang buyers who had FHA loans may need to wait only three years if they can prove that a hardship, such as job loss or death of a wage earner, led to their foreclosure or short sale. Borrowers have typically been required to wait five to seven years to qualify for another loan, but mortgage giants have begun to change their rules to allow home owners who underwent a foreclosure or short sale to qualify sooner. Those who underwent a short sale will likely qualify the soonest. However, not all lenders are participating, so borrowers will need to shop around. Freddie Mac’s wait time is usually four years following a short sale or deed-in-lieu, and seven years after a foreclosure. Fannie Mae may require a seven-year wait for a foreclosure, but only a two-year wait following a short sale as long as the borrower can provide a 20 percent down payment. Source: The Examiner
It’s a crucial question for many first-time and moderate-income buyers in rebounding markets across the country: Where do we find the loans with the lowest down payment and lowest monthly costs? The answers are changing. True zero-down alternatives are rare and tend to be tightly restricted. If you’re a veteran or active military, a VA-guaranteed home loan might be ideal since it requires no down payment. The same is true for certain rural housing loans administered by the Department of Agriculture, but purchases must be in designated areas outside large population centers. Some state housing finance agency programs may also be helpful, but they often come with income limits and other requirements. For most shoppers looking for mini down payments, there are much larger, less restrictive sources. The Federal Housing Administration is probably the traditional favorite since it requires just 3.5 percent down. But beware: In the wake of a series of insurance premium increases and a highly controversial move to make premiums non-cancellable for the life of the loan for most new borrowers, FHA no longer rules the low-cost roost. Fannie Mae, the giant federal mortgage investor, may now do better. And for some applicants, so might Freddie Mac, Fannie’s smaller competitor. Here’s the head-to-head: Say you want to buy a $180,000 house but you don’t have much cash for a down payment. If you go with a 3.5 percent FHA loan, you would need to come up with $6,300. If you select Fannie’s 3 percent loan, it’s $5,400. Important for buyers who plan to hold on to their home for years, Fannie’s insurance charges disappear when the principal balance on the loan reaches 78 percent of the purchase price of the home — knocking $123.68 off the monthly bill. FHA’s insurance fees of $195.41 a month, by contrast, are a drag until you pay off the loan. FHA had previously allowed cancellation, but that changed June 3, when the agency revoked the privilege for most new borrowers. There are some noteworthy restrictions to the Fannie program that might stand in the way of some buyers, however. There are income limits pegged to median incomes in the metropolitan area where the house is located. Fannie generally requires higher credit scores. FHA also allows borrowers to use gift funds as part of their down payments, but the Fannie program requires the full down payment to come from the borrowers’ own resources such as savings accounts. Source: The Washington Post, Ken Harney, Nations Housing
