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April 04, 2010

April 2010 Summit County Real Estate.Net Notices

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The Fed has told us repeatedly that their massive purchasing program of Mortgage Backed Securities is just about over - and this translates to home loan rates rising in the near future.

The amounts of Mortgage Backed Securities the Fed is purchasing are slowly dwindling, as the program is set to wrap up by March 31st, and are clearly trying to ration out the remaining portion. Last week, the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about 3 out of every 4 home loans during the past year. When such a large buyer leaves the market, it is very likely that prices will worsen.

This is very important because as the Fed has less money to last through the remaining months of the program, their ability to keep home loan rates low via their purchasing power will wane. And those who can take advantage of currently low home loan rates do not wait, as the clock on these historically low rates is ticking

Also last week, Fed Chairman Ben Bernanke provided a speech on a number of topics, perhaps the most important of these being switching the Fed's benchmark from the commonly watched and monitored Fed Funds Rate, to a new benchmark of "interest paid on excess reserves". Banks are required to keep money on reserve with the Fed and may, from time to time, have an excess in those reserves, which the Fed can pay interest on.

Since the Fed Funds Rate is only a "target rate", banks can still lend money to other bank overnight at their own negotiated rate. Sometimes near the end of the trading day, banks have been lending their excess reserves out overnight for a rate that differs from the Fed Funds Rate, but is higher than interest on those reserves from The Fed.  This undermines the Fed's ability to set a reliable benchmark. 

The Fed wants to fix this by using the amount of interest they pay as the new benchmark, since the Fed has total control of this rate, which should be right at or just under the Fed Funds Rate. 

There is one major take-away from this discussion - it appears that the Fed is getting their ducks in a row as they prepare to push interest rates higher. And when they do increase rates, the Fed does not want any obstacles that may undermine their plan.

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Gunnison Resident Announces He's Running Against State Rep. Kathleen Curry

Gunnison lawyer Luke Korkowski has announced he will run against State rep Kathleen Curry. Curry recently announced she was changing her political affiliation from democrat to independent. Korkowski is relatively unknown, having never served in public office. The House District 61 seat covers part of eastern Garfield County, including Glenwood Springs, and parts of Gunnison, Pitkin, and Eagle Counties. Korkowski wants the seat? to return Colorado to a sound financial footing and to bring jobs back to our state.? The election is in November.

GSAR To Provide Candidate Questionnaires for Local Elections

Carbondale, Silt, New Castle and Parachute will all hold Council elections in April. GSAR will submit questionnaires to candidates in all of the local elections this spring. The questionnaire will include questions important to the real estate industry. GSAR will provide the results of the questionnaires to GSAR members for voting purposes. The questionnaires will be sent to the members well before the mail-in balloting process begins.

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In Freddie Mac Primary Mortgage Mkt Survey (for the week ending January 16) in which the 30-yr fixed-rate mortgage (FRM) avg. 4.96%. Last year at this time, the 30-year FRM avg 5.69%. The 30-year FRM has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971 .

The 15-year FRM this week avg 4.65%, up from last week when it avg 4.62%. A year ago at this time, the 15-year FRM avg 5.21%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) avg 5.25%. A year ago, the 5-year ARM avg 5.40%. The 5-year ARM has not been lower since the week ending September 8, 2005, when it avg 5.24%.

One-year Treasury-indexed ARMs avg 4.89%. At this time last year, the 1-year ARM avg 5.26%.

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Spotlight on PSF...

In a new monthly column, the Mountain Government Affairs Report will be posting local boards monthly PSF fundraising totals and their 2010 goals. PSF is the REALTORS Political Survival Fund, which aims to support candidates at the local, state and federal levels who are supportive of real estate industry issues. PSF does not support candidates based on political affiliation, but based on their positions on industry issues. In the last election cycle, NAR supported 52% democratic candidates and 48% republican candidates. Your PSF contributions also go towards very important issues facing our local boards. Funds are set aside for our local boards to use to fight or advocate issues in our local areas. Those funds are also used for candidate forums to educate our members on where the local candidates are on REALTOR issues. CAR recommends that, as a REALTOR?, your fair-share donation be $99 per year. This donation can be split up into several payments. Contact your board office to find out how to do it!

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Rate Review

In Freddie Mac Primary Mortgage Mkt Survey (for the week ending February 12th) in which the 30-yr fixed-rate mortgage (FRM) avg. 4.97%.  Last year at this time, the 30-yr FRM avg 5.16%.

The 15-year FRM this week avg 4.34%. A year ago at this time, the 15-year FRM avg 4.81%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.19%. A year ago, the 5-year ARM avg 5.23%.

The one-year Treasury-indexed ARM avg 4.33%. At this time last year, the 1-year ARM avg 4.94%.

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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.

Bond prices fell early last week due to weak results from the Treasury auctions, but were able to rally towards the end of the week. When Bond prices are moving higher, home loan rates are improving - so we will be watching out to see if the current ground can be held. If you have any questions about how home loan rates move - and if an opportunity exists that would benefit you - please don't hesitate to call or email us.

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Healthcare reform was certainly on everyone's mind last week. But what does this mean for the markets and home loan rates?

Traders have been watching the debate closely, and it's possible that passage of the Healthcare Bill could have a negative impact on the Stock market. If this is the case, there could in turn be a positive outcome for Bonds and home loan rates.

But that's not the only action traders were keeping an eye on last week. Tuesday's meeting of the Federal Open Market Committee offered little surprise, with no change to the Fed Funds Rate, which is the rate banks charge each other for lending overnight, or the language describing that the Fed Funds Rate would remain "exceptionally low for an extended period of time."

While there is growing and well-warranted concern that continuing to keep rates low will lead to inflation down the road...and remember, inflation is the arch enemy of bonds and home loan rates...it does appear that inflation is subdued at present. Last week's reports showed that the Producer Price Index (PPI), which gauges inflation at the wholesale level, was reported well below expectations and at the largest monthly decline since July 2009. Meanwhile, the Consumer Price Index (CPI), which measures inflation at the consumer level, came in just below expectations for February.

And there were additional headlines last week on other possible action that could impact Bonds and home loan rates negatively. Both Fitch Ratings and Moody's have stated that the US has moved substantially closer to losing its AAA credit rating. This would be a very bad turn of events, as it would cost the US a lot more money in interest payments, by way of higher rates, to attract new investors to buy our Bonds. And higher rates on Treasuries would influence home loan rates higher as well.  

Bonds were able to improve above important technical levels in the middle of the week, but were unable to hang on to these improvements. As a result, Bonds and home loan rates ended the week about the same as where they began.

Rate Review

In Freddie Mac Primary Mortgage Mkt Survey (for the week ending March 19th) in which the 30-yr fixed-rate mortgage (FRM) avg. 4.96%.  Last year at this time, the 30-yr FRM avg 4.98%.

The 15-year FRM this week avg 4.33%. A year ago at this time, the 15-year FRM avg 4.61%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.09%. A year ago, the 5-year ARM avg 4.98%.

The one-year Treasury-indexed ARM avg 4.12%. At this time last year, the 1-year ARM avg 4.91%.

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