Utah Mortgage Pro

OIL TOUCHES NEW HIGH

It seems like almost daily now oil is reaching and breaking its previous days records.  For us that means no end in sight to the sky rocketed gas prices.  Who's to blame for this run up??  Every one is pointing fingers at one another, from the producers to the refiners to the distributors to the futures traders and finally to the end users US.  I would say we have dug our own grave on this one...hold on there for a minute before you start sending me hate mail, here me out.  We the people of the United States have become so heavily reliant on oil, and more importantly foreign oil, that we cant function with out it.  Not only can we not function with out it we have shown recently that we can't even trim our usage.  I am guilty as charged on this one.  I am not here to point fingers at everyone else but I do think it is something I need to start coming to grips with and so for me to blog about it and get it on the table may do me some good.  A few years ago when gas was "cheap" I decided I wanted to get my wife the safest car I could find.  I in turn thought safest meant biggest so I went online and bought her a Hummer H2. 

She has loved driving the Hummer with our 2 boys Zayne (in the picture saying hi from the back seat) and Cooper and she has always felt very safe especially during our Utah winters.  Recently our conversations about gas prices have us considering selling the beast and slimming down our fuel waistline if you will by going with a Hybrid or at least a more fuel efficient car. 

BY THE NUMBERS

I am a numbers guy and after running the numbers it doesn't seem like the best move to dump the Hummer right now as we would have to almost pay someone to take it off our hands.  That got me thinking, there had to be another option out there?  And then it was a brother in law that said "you should convert it to Natural Gas".  Like I said I am a numbers guy so I started looking into the numbers and this is what I found.  $12,000 for the conversion...ouch right, well maybe not lets look a little closer.  Up to $2500 tax credit (not write off but credit means cold hard cash) from the Feds, up to $2500 credit from the state of Utah, and up to 1/3rd of the actual cost from a gift or grant from a non-profit clean air organization.  That leaves me holding the bag for somewhere between $3,000 - $6,000 depending on what I get approved for.  At 13,000 miles a year and getting approximately the same gas mileage (11 mpg) it would take me about a year and a half to recoup the cost of the conversion.  All the while I would feel good paying $16 for a fill up that is costing me $80 right now.

THE SOLUTION

I don't know if anyone has the magic answer to this fuel crisis and yes I am calling it a crisis.  More off shore drilling and exploration in Alaska would help (a little) but with demand in countries such as India, China and the former Soviet Union increasing daily we would be kidding ourselves to think that this increase of a couple hundred thousand barrels a day would really solve anything.  Instead I think it is up to us to park the gas guzzlers more, stay closer to home for vacations this year, and take the smaller car more often if you have one in your household.  I will let you know if we make the change to Natural Gas with the Hummer anytime soon, just the thought of a $16 fill up really excites me.

More on Mortgages this week I promise,

Stetson The Mortgage Insider www.utahloantips.com

Post your comments on what some of your solutions might be.

FED HOLDS RATE STEADY

Fed day today and as expected they announced their decision to hold rates steady today at the end of the policy setting session.  The word on the street is that they have adopted a "wait and see mentality", possibly learning a lesson from what some are saying was an over reaction to the market conditions earlier this year when they made multiple emergency rate cuts. 

What does that mean for long term mortgage rates?

Bond traders where initially spooked by an artificial run up of the market after the Fed announcement, so initially bonds took a dive and yields increased but as traders took profits and the market corrected the bonds eased back to opening bell levels and yields were almost unchanged for the day. 

Looking ahead

I hate to put myself out there with any bold predictions as they are sure to be wrong, but I will say that I think that we are headed back down.  It may not last long but my feeling from watching the markets is that there is still some room to go down in July. Check back with me in July to see how I did.

I have been receiving a lot of questions from people to the effect of "is now a good time to buy a home or are interest rates and home values going to drop again?".  My answer to them is always the same.  History is one of the best ways to predict the future.  Historically we are still near all time lows for interest rates (not going to get much better and if it does a refinance is always possible).  As far as home prices going any lower?  That is the million dollar question and it depends fully on the value of the home.  If we are talking luxury homes $500,000+ we may still have a little more softening over the next 6 months.  Under $417,000 its hard to predict what will happen.  I would have to break it down into 2 more categories from there.  Under 417,000 but above $300,000 still show some signs of weakness.  Under $300,000 make your offers today bubba there are some deals to be had and I don't think they are going to last.  If I were in the market to buy a home right now I would certainly be looking for the deal and calculating everything by price per sq foot.  Its a simple calculation that I taught my wife while we were looking for our last house and she did on every home she wanted to show me.  She new I wasn't interested in anything above $90 per square foot and so she wouldn't bother showing me.  She would look at all the new listings every day and do the following calculation $350,000(price of the home) / 4000 sq ft (square footage) = 87.5 per sq ft.  Its a simple calculation that can quickly let you compare multiple homes and give you a solid number to base your decision on.  If the basement is finished you should add $7 to $10 per square foot to make a good comparison. Right now I would be looking for something at $80 a sq ft or better with an unfinished basement and I would not be looking at anything over $85 with a finished basement.

Leave me your comments and happy house hunting.  Call me for your mortgage analysis today.

Stetson (The Insider) www.utahmortgageinsider.com / www.utahloantips.com

Home Prices, Consumer Confidence, State & City Layoffs

I wanted to touch on a few of these topics that are affecting interest rates and the housing market today. 

HOME PRICES

Home prices nationally posted a 15.3% decline.  The S&P Case Shiller 20 City Home Price Index fell to a record low of 15.3% on a year over year basis for April and was down 1.4% from March. The only glimmer of hope is that the pace of the decline has slowed some what and there were even two city's in the index which posted small gains, Cleveland, OH (2.9%) and Charlotte, NC (.02%).  Although Salt Lake City is not included in the index we did somehow post a 3.5% gain during the first quarter of 2008 in the median price of a home which increased to $225,700.  Anything under $275,000 seems to still be selling very well, it is when you cross that threshold that you see homes sitting longer and longer.

CONSUMER CONFIDENCE

A key measure of consumer confidence dropped in June to its 5th lowest level of all time as Americans grew more concerned about their jobs and more pessimistic about the economy. 

Pierre Ellis, an economist at consulting firm Decision Economics in New York said Tuesday's report indicates a "soured mood" among consumers. The danger, he said, is that if consumers' lack of confidence translates into fewer dollars spent.

"Consumers will be much more cautious now if they don't know what the job market will look like, especially in terms of buying a car, or buying a house. To put money down to buy something big involves confidence," Ellis said.

STATE & CITY LAYOFFS

45,000 & Counting is the number of state and city employees that have lost their jobs recently due to job cuts relating to budget deficits.  Bank, Airline, Automaker employees are no longer alone in the fight to find new jobs, now they are being joined by more and more state and city employees.

The city of Vallejo, Calif. filed for bankruptcy last month due to a ballooning budget deficit from soaring employee costs and declining tax revenue. Labor contracts with the city's unions were part of the problem but the city's plunging real estate market also was a factor.  Foreclosures are on the rise and for that reason cities across the nation are seeing depleting income from their tax bases.  High labor costs and ill-planned budgets were the kindling that is now fueling the fire caused by these failing tax bases.  I am going to keep an eye on this sector, I think this is a new kink in the spokes for economists in an already unstable job front, they might not have seen this one coming.

These 3 items will keep pressure on the bond market today which "should" keep rates in check.  Or we may even see a slight improvement.  All eyes will be on what the FED says tomorrow in their FED DAY meeting.  FED DAY is huge in the mortgage industry as the stock market and bond market will usually swing one way or the other depending on what the FED decides to do with the FED rate.  Analysts are expecting the FED to keep the rate steady tomorrow, any variance from this will send huge waves through the markets so stay tuned.

Stetson (The Mortgage Insider) www.utahmortgageinsider.com

What's up these days?? Well lets see, Rates...Wheat...Oil...just to name a few

Today I wanted to post a little bit about interest rates and how they are being affected by INFLATION.  It seems that people are fleeing long term bonds as INFLATION fears keep creeping in.  As investors pull there money out of US Bonds yields spring up because yields and prices of bonds move in opposite directions, if I have thoroughly confused you then try to think of it this way, when lots of investors are buying bonds (normally in shaky economic times) the prices of those bonds increase just like a popular stock would, the difference between stocks and bonds is that with bonds the yields actually decrease during those times thereby curbing the amount of people purchasing them and thereby keeping the supply and demand intact.  We are certainly in uncertain economic times right now, you have half of the so called experts and economic gurus calling this a recession and you have the other half fighting that term like the Laker's are trying to fight off the Celtics, in either case we know what is inevitable, none the less they both agree that the short term outlook is bleak at best.  So why then are interest rates going up when we are in the midst of all of this uncertainty and I just said that bonds rally in times like this making prices go up and yields go DOWN??? This is where the thief in the night called INFLATION climbs in to all of our savings accounts and robs us blind.  Bond investors are a different breed, not to much rattles them in the markets after all they are investing in arguably the safest investment known to man, but there is 1 word that rocks them to there core INFLATION.  You see one of the only things that can effect their "guaranteed returns" is cost, cost of gas, cost of food, cost of coffee at the corner store where they pick up their copy of the Wall Street Journal.  If all these costs INFLATE rapidly then they are in essence losing money every day as their "guaranteed" buying power is turning to dust in the wind.  So even though we are in some tumultuous times economically that INFLATIONword is the trump card!  All Big Ben Bernarke has to do is even so much as think the word INFLATION and I swear everyone of them hit the sell button on their trading domes so fast your head would spin therefore dropping the bottom out of the prices and increasing the yields (remember prices and yields move in opposite directions).  Long term debt (mortgage loans) are directly affected by bond yields.  As the bond yields go up, mortgage rates almost instantly follow.  The exception to this close following is when bond yields dip mortgage rates seem to lag behind for days.  The old analogy of taking the 'elevator up and stairs down' seems to apply nicely. 

As recently as 2 weeks ago the 30 year bond was yielding 4.57% currently right now as I type this post it is sitting at 4.77% almost a quarter point higher, just a couple months ago that same bond was yielding just 4.22%, a full half a point lower.  Sadly rates have climbed over a half of a percent in just the last 2 months.

Todays 30 year fixed rate with 20% equity and a 720+ fico is between 6.25-6.50% depending on the lender.  I closed a loan in April at 5.625% on a 30 year fixed (thats .625% lower in just over 2 months).  The reality is that the markets are volatile, inflation mixed with a weakening US Dollar and sky rocketing oil are to blame, not to mention a horribly mismanaged credit market for the last 5 years that is trying to work its self out right now.

Buckle up, grab some popcorn because we are in for some interesting times here in the next few months as inflation forces the hand of the Federal Reserve to raise the federal reserve's interest rates (We will talk about the difference between the Fed Rate and our mortgage rates in an upcoming post) all the while our housing market continues to shutter at every new report that comes down the pipe.  Questions, Comments, Ideas anyone, Did you find this helpful??? Post your comments.

 

Stetson "The Mortgage Insider"