Premier Mortgage Group

RATES FLAT ON MIXED ECONOMIC DATA

STRAIGHT STATS

Mortgage interest rates didn’t move this week while economic reports came in mixed and the stock market was relatively flat. The Dow Jones Industrial Average has held last week’s gains, currently at 10,292. Retail sales increased 1.4%, led by a 7.4% rebound in auto sales, without auto data retail sales increased .2% on expectations of a .4% rise. The Producer Price Index (PPI) rose .3% and Industrial Production rose .1%, despite declines in manufacturing, with both indicators coming in just below forecast. Consumer Price Index (CPI) increased .3%, slightly more than expected. New Housing Starts dropped 10.6%, continuing the slide to a 529,000 annual pace, lower than the forecast of 600,000.

COMMENTARY

As mortgages slip below 5.00%, refi demand will shortly insert a floor. The big news of the week was an all-sector weakening in housing (mercifully for Colorado, NOT all-location). From new-builds to existing delinquencies, everything deteriorated badly in October — so much so that I think the Fed et al will soon revisit ways to help, possibly extending or increasing MBS purchases. The tax credit won’t do it: it takes little suction to pull nearby demand from the future hose, but once that’s in the market it takes larger and larger incentives to pull farther future demand into the present. Also, I think serious parties (Fed, Treasury), know that a “jobs program” will have political effect only. Markets will freeze for Thanksgiving week, then the December 4 employment report will be the next big mover.

Read more commentary by Lou Barnes here: http://www.pmglending.com/loubarnes/creditnews.html

RATES IMPROVE DESPITE STOCK GAINS, TREASURY AUCTIONS

STRAIGHT STATS

Mortgage interest rates improved slightly again this past week despite supply pressures from the auction of $81 billion of Treasury debt and despite the Dow Jones Industrial Average increasing almost 300 points on the week to its current level of 10,299. The auctions were received reasonably well, with stronger demand for the shorter maturity debt. Economic data of note included weekly jobless claims, which fell by 12,000 claims, the eighth week in a row that claims have fallen. The September Trade Deficit was higher than expected, increasing to a deficit of $36.47 billion on expectations that it would be $31.9 billion. The University of Michigan Consumer Sentiment Index was weaker than expected and the October Treasury Budget deficit was larger than expected.

COMMENTARY

All year long, every time we reached today’s 5.00% territory markets were overwhelmed by the unsatisfied refi demand from people with rates north of 5.75%, and rates bounced back up, often explosively. However, each time the bounce has been less high and less violent. We are gradually working off all national demand from the 5.75%-plus group, and that is opening the door to visits below 5.00%, each one longer and longer, just like the last three months’ gradual ratcheting of stability down below 5.25%. Contributing to the chance of crossing 5.00% is the ominous 28% October crater in purchase loan apps in the MBA survey. Purchasers consume net-new mortgage money; most refis are rollovers.
Of course, a new cloud of eager refinancers awaits with rates 5.50-5.75%, and they will blow up any chance at a deeper decline into the fours. I’ve suggested waiting for five-flat since September, but not holding out for a “4″ in front; now, for the first time, holding out for that four makes some sense.

As you may have heard, the legislation to extend and expand the homebuyer tax credit has passed Congress and was signed by President Obama. In addition to extending the deadline for the current $8,000 new homebuyer tax credit to April 30, 2010, an additional $6,500 credit has been introduced for existing homeowners.

KEY FEATURES OF NEW TAX CREDIT

For New Homebuyers

• Maximum $8,000 tax credit (equal to 10% of home price).
• Must purchase by April 30, 2010 and close by July 1, 2010.
• Cannot have owned a primary residence for 3 years prior to purchase (rules vary if there are multiple buyers where one has previously owned, talk to your CPA).
• Income limits of $125,000 for singles and $225,000 for married couples (credit phases out for incomes above these limits).
• Maximum home purchase price of $800,000.
• Purchases by dependents no longer allowed.
• Must attach documentation of purchase to tax return.
• Cannot claim the tax credit if you are purchasing the home from a “close” relative (as defined by the IRS, or from a business you own).
• Tax credit is not available for use as a downpayment (unless you are financing through a state housing finance agency that has a program for this).

For Existing Homeowners

• Up to $6,500
• Must purchase between November 6, 2009 and April 30, 2010, and close by July 1, 2010.
• The homeowner must have lived in their current home as a principal residence consecutively for 5 of the previous 8 years.
• Same income and home price limits as for new homebuyer tax credit.

Filing for the Credit

• Anyone claiming the credit on their 2009 taxes will need to use the new Form 5405, that has not yet been released (as of 1/15/10) – available at the link below
• Anyone claiming the credit on their 2009 returns will need to file paper copies, no e-filing, and will need to provide at least an executed HUD-1 settlement statement (additional paperwork may be required)
• Qualifying purchases in 2010 can be claimed on their 2009 or 2010 taxes
• Amended 2008 returns to claim the credit seem to be having processing delays, but should still be able to use the old Form 5045

You can find answers and some more detailed scenarios for situations with multiple borrowers at the IRS website:
http://www.irs.gov/newsroom/article/0,,id=215791,00.html?portlet=7

We always recommend speaking with your CPA or a tax professional before making a purchase decision based on the tax credit.

RATES IMPROVE SLIGHTLY ON WEAK JOBS REPORT

STRAIGHT STATS

Mortgage interest rates improved slightly this past week supported by a weaker than expected October jobs report. Non-farm payrolls dropped by 190,000 on expectations that payrolls would drop by 175,000. The unemployment rate increased to 10.2, higher than the 9.9% level expected. The unemployment rate is at its highest level since April 1983. On the flip side, though, the job losses from the August and September employment reports were revised lower. Other economic data of note included the October ISM Manufacturing Index, September Construction Spending, September Pending Home Sales, weekly jobless claims, and Q3 Productivity, all of which were better than expected. The October ISM Services Sector Index was slightly weaker than expected.

COMMENTARY

The overwhelming deal in rate-watching next week: the Treasury quarterly “refunding.” Don’t get your hopes up: nobody gets a refund. In ancient jargon, the Treasury “re-funds” itself by selling IOUs at auction, the biggest wad of mortgage-moving long-term bonds once each quarter. On Tuesday, $40 billion of 3-year notes, which won’t matter to us (too short); on Wednesday $25 billion in 10-year notes (which matter a great deal), and on Thursday $16 billion of 30-year bonds (longest matters most).
Nine times out of ten, rates rise before the auctions, and in the same ratio rates fall towards the end of the auction. Look for better rates Wednesday afternoon (the auctions settle just after lunch), and if the 10s rally a lot, into the 3.30s, hang on for Thursday. One time in ten, of course, you blow off your eyebrows.
I think the psychology is switching from inflation worry to deflation awareness, and our best new shot at the 4s is coming up.

Many of our clients and business partners have asked: why aren’t Boulder home prices falling like much of the rest of the country? Of course there are many reasons, but one strong argument is that Boulder and Colorado didn’t go through the same speculative boom that was widespread in the early and middle part of this decade. Take a look at this chart, and you’ll see that many markets were overheating just before the bottom dropped out.