When the calendar flips to a new year, analysts and economists like to make predictions for the year ahead.
So, today, with the year half-complete, it’s an opportune time to check back to see how the experts’ predictions are faring (so far).
If you’ll remember, when 2011 closed, the housing market was showing its first signs of a reboot. Home sales were strong, home supplies were nearing bull market levels, and buyer activity was strong.
Homebuilder confidence was at its highest point in 2 years and single-family housing starts had made its biggest one-month gain since 2009.
In addition, 30-year fixed rate mortgage rates had just broke below the 4 percent barrier and looked poised to stay there.
There was a lot about which to be optimistic in January 2012.
Yet, there were obstacles for the economy. The Eurozone’s sovereign debt issues remained in limbo, oil prices were spiking, and the Unemployment Rate remained high — three credible threats to growth.
At the time, analyst predictions for the economy occupied both ends of the spectrum, and everywhere in between.
As another example, American Banker said mortgage rates would rise in 2012. The LA Times, however, said just the opposite. And, the problem with these predictions is that each party can make such a sound defense of their respective positions that it’s easy to forget that a prediction is really just an opinion.
Nobody can know what the future holds.
A lot has changed since those predictions were made :
- Job growth slowed sharply after a strong Q1 2012
- Oil costs dropped rapidly beginning in early-May
- Spain and Italy have joined Greece as potential sovereign debt trouble-zones
Now, none of this was known — or expected — at the start of the year yet each has made a material change in the direction of both the housing and mortgage markets.
Today, home prices remain low and 30-year fixed rate mortgage rates now average 3.56% nationwide. Home affordability is higher than it’s been at any time in recorded history and, at least for now, low downpayment mortgage products remain readily available.
The experts never saw it coming.
6 months from now, the markets may be different. We can’t know for sure. All we can know is that today is great time to be a home buyer in Plano. Home prices and mortgage rates are favorable.
Friday morning, the Bureau of Labor Statistics will release its Non-Farm Payrolls report. More commonly called “the jobs report”, Non-Farm Payrolls is a monthly market-mover.
Depending on the strength — or weakness — of the data, mortgage rates will change. Perhaps sharply. Unfortunately, we can’t know in which direction.
If you’re actively shopping for a mortgage in Plano , therefore, today may be a prudent day to lock a mortgage.
The job report’s connection to mortgage rates is straight-forward. As the number of U.S. citizens earning paychecks increases, reverberations are felt through the economy.
First, higher levels of income are tied to higher levels of consumer spending and consumer spending accounts for the majority of the U.S. economy. More working citizens, therefore, builds a larger overall economic base.
Next, as the overall economic base grows, businesses produce and sell more goods, necessitating the hiring of additional personnel and the purchase of more raw materials — both positives for the economy.
And, lastly, as more paychecks are written, more taxes are paid to local, state and federal governments. These taxes are often used to fund projects and purchase goods and services which, in turn, grow the economy as well.
Tying it all together, the health of the U.S. economy is a major factor is setting day-to-day mortgage rates across Texas. This is why rate shoppers face risk with tomorrow’s Non-Farm Payrolls report.
Between 2008 and 2009, the economy shed 7 million jobs. It has since recovered 3.9 million of them and, Friday, analysts expect to see another 100,000 jobs created in June. If the actual number of jobs created exceeds this estimate, look for mortgage rates to rise.
If the actual number of jobs created falls short of 100,000, mortgage rates may fall.
The government releases Non-Farm Payrolls data at 8:30 AM ET Friday.
For the second straight year, the jobs market looks to be slowing into the summer.
Last Friday, in its monthly Non-Farm Payrolls report for May 2012, the Bureau of Labor Statistics reported 69,000 net new jobs created, plus a one-tick rise in the national Unemployment Rate to 8.2%.
2012 is shaping up like 2011, it appears.
Last year, between May and August, the jobs market was decidedly worse as compared to the rest of the year, adding just 80,000 jobs on average per month as compared to 190,000 new jobs created on average during each of the other 8 months.
This year, a similar slowdown may be in store.
Although the May jobs report marks the 20th consecutive month during which the U.S. economy added new jobs, the reported figure fell well short of analyst expectations, which called for 150,000 net new jobs last month.
In addition, it was found that the previously-reported tallies for new jobs created in March and April were overstated by a total of forty-seven thousand jobs. This lowered the overall net new jobs created last month to 22,000.
Mortgage rates in Plano are falling on the news.
Since the jobs report’s release, 30-year fixed rate mortgage rates have dropped below Freddie Mac’s reported 3.75% mortgage rate for borrowers willing to pay 0.7 discount points plus closing costs; and, the 15-year fixed rate mortgage has dropped farther below 3.00%.
The weaker-than-expected data has moved Wall Street investors away from stock markets in favor of the relative safety of bond markets, a market which includes the one for mortgage-backed bonds. When mortgage-backed bonds are in demand like this, it helps to push down mortgage rates nationwide.
That’s exactly what we’re seeing.
Mortgage rates are expected to make new lows this week, in part, because of U.S. employment weakness. Should this year’s jobs market rebound like in 2011, though, look for mortgage rates to climb back shortly.
Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy.
Unfortunately for mortgage rate shoppers in Texas, it may also lead to higher mortgage rates later this week.
Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.
This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.
The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.
Retail Sales are the largest part of “consumer spending” and consumer spending accounts for the majority of the U.S. economy — up to 70 percent, by some estimates.
As the economy goes, so go mortgage rates.
Remember: today’s ultra-low mortgage rates have been partially fueled by weak economies — both domestic and abroad — going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.
When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.
Last week’s strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in “floating” your mortgage rate may be too great. The safer play is to lock your rate today.
The Retail Sales report will be released at 8:30 AM ET.
If you’ve been shopping for a home or for mortgage, take action now!
Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — say what?
Let me repeat that. Starting soon, nearly all home buyers and refinancing households nationwide will pay higher mortgage loan fees. Congress has made it law.
As if the housing industry has not had a rough enough time, home buyers will pay higher fees — to make-up for the tax loss created by “Tax Relief”. Again, confusing — what does one have to do with the other?
13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.
FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.
The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.
That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.
To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA, aka Healthy, Wealthy and Wise (not!).
They have been ordered to collect new fees on each new mortgage they back, and forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.
The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.
And here we go — according to the law :
- Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
- The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans
The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required.
This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.
So, if you’ve been shopping for a home or for mortgage, take action now! Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.
Lock today to avoid the big fees. Save yourself money.
Seriously, don’t let this sneak up on you. If you’re on the fence about buying or refinancing, take action now! If you want to know which lender has done a good job for our clients, call me now!
Norma Wall, Broker – 214-212-6770