May 28, 2010
May 2010 Summit County Real Estate.Net Notices
CAR expressed concerns regarding the exclusion of TIF under certain circumstances, and conveyed our desire to see the bill amended further.
Attempts to amend the bill to exempt projects that only use sales tax increment and not property tax increment were thwarted at every turn. Urban renewal is one of few tools we have in Colorado to spur economic development and job creation, and there are some concerns that the bill may hurt economic development efforts in the state.
Colorado's party caucuses were held on March 16, marking the first major milestone leading up to the 2010 election. Precinct caucuses are meetings organized by Colorado's political parties to begin the process of selecting candidates and policy positions.
The caucuses begin the process of selecting delegates for the party assemblies in May. Candidates need 30 percent of the delegate's vote at the assembly to appear on the primary ballot; however, candidates who fail to receive 30 percent can still petition to be on the primary ballot..
The markets continue to be focused on - and influenced by - Greece's ongoing financial saga. Stocks took a hit last Thursday when Greece's budget deficit was reported to be worse than previously thought, causing uncertainty and anxiety in the markets. The next day, the saga continued when Greek Prime Minister George Papandreou asked the European Union and International Monetary Fund to activate their huge $45 Billion Euro aid package. That news helped relieve some of the uncertainty in the markets, but this story is far from over. Greece will need to take some dramatic measures to bring their budget deficit to a significantly lower level.
The $45 Billion Euro bailout for Greece wasn't the only whopping figure in the news last week. Here at home, the U.S. Treasury Department announced that it will unload $129 Billion of debt this week in 5-year Treasury Inflation Protected Securities and 2-, 5- and 7-year Notes. The massive amount of debt supply being loaded into the markets just keeps on coming - and it's getting larger. The Treasury auctions have more than doubled since the 2nd quarter of 2008...and this doesn't even include the regularly scheduled T-Bill auctions each week or the monthly 30-year Bond auctions. This week's huge amount of supply could prevent Bond prices - and home loan rates - from improving when it hits the markets.
Speaking of more supply...the Fed announced last week that it may start trimming its balance sheet by selling some of its Mortgage Backed Securities assets as early as the 3rd or 4th quarter of this year. Remember, the Fed recently ended its purchase program in which it purchased $1.25 Trillion in Mortgage Backed Securities to help lower home loan rates and stabilize the housing sector. Since the program ended, the market has been very volatile. Despite the fluctuations, rates remain good overall, but once the Fed starts to sell some of their huge holdings, rates will likely rise as even more supply comes into the market.
Overall, rates ended the week slightly worse than where they started, but still at very attractive levels. That makes now a crucial time to take advantage of the opportunities that exist - including the Homebuyers Tax Credit, which is about to expire!
THERE'S LESS THAN ONE WEEK LEFT BEFORE THE HOMEBUYERS TAX CREDIT EXPIRES ON APRIL 30!
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending April 23rd) in which the 30-yr fixed-rate mortgage (FRM) avg. 5.07. Last year at this time, the 30-yr FRM avg 4.80%.
The 15-year FRM this week avg 4.39%. A year ago at this time, the 15-year FRM avg 4.48%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.03%. A year ago, the 5-year ARM avg 4.08%.
The one-year Treasury-indexed ARM avg 4.22%. At this time last year, the 1-year ARM avg 4.82%.
HB 1107 - Urban Renewal Area Ag Lands by Rep. Randy Fischer (D-Fort Collins) and Sen. Morgan Carroll (D-Aurora) passed through the Senate last week, and will soon move to the Governor's desk for signature.
HB 1107 prohibits the inclusion of agricultural land in urban renewal areas unless the land is (a) a brownfield site; (b) 2/3 contiguous to "urban level development", (c) an enclave surrounded by "urban level development", or (d) all of the taxing entities located within the urban renewal area agree to the inclusion of the agricultural land. The bill also changes the valuation of the base on agricultural land for TIF (tax-increment financing) purposes. The TIF base for Ag land will be now be set by determining the market value rather than the assessed value of the Ag land.
The Senate State Affairs Committee amended HB 1107 by adding an additional, very narrow, exemption for projects that create primary manufacturing jobs. The amendment will allow the inclusion of Ag land in urban renewal areas that are expanded to include additional Ag land that is contiguous to a current urban renewal area and the property is owned by the same owner as the land in the current urban renewal area, which land will be developed to create primary manufacturing jobs. The amendment ensures that the two Vestas projects, one in Brighton and one in Pueblo, will go forward as planned.
HB 1017 – Voluntary Agreement Affecting Rent Private Residential Property by Rep. Daniel Kagan (D-Denver) and Sen. Betty Boyd (D-Lakewood) attempts to define "interest" so that the local government can impose a rent control restriction through a deed restriction or covenant, or similar instrument. This would give local governments considerable leverage over owners/developers during a project's approval by compelling the owner/developer to sign a deed restriction with a rent control provision, which would grant the government the power to enforce that restriction.
The bill passed the Senate Health and Human Services Committee this week, despite discussions on amendments that would not allow the bill to be used as a hammer. While the bill's proponents claim that the bill is strictly voluntary, they have resisted attempts to clarify that in the bill by adding language stating that the granting of a permit or other form of land use approval shall not constitute lawful consideration for an agreement.
Thursday's mysterious event, characterized as a "near-panic", may have been caused in part by a wave of electronically submitted sell orders being executed at a mind-boggling pace. Remember, a majority of trading in the markets is done by computer. With Stock prices down significantly, many computer triggers for sell orders were hit. These triggers began executing sell orders at "market price." With the enormous flood of market sell orders coming in, bidders pulled back, so there were very few bids to satisfy the sell orders. In such situations, the computer will keep seeking out the next available bidder in an effort to fill the order...no matter how low that bid is. One extreme example was the trading of Accenture (NYSE: ACN) stock, which went from $40 down to $0.14 (yes, 14 cents), then came all the way back to close at $41.09.
The Bond market, which generally has an inverse relationship to Stocks, responded to these tug-of-war pressures and events with exaggerated ups and downs.
This kind of tug-of-war makes the market very volatile - and underscores why it is more important than ever to work with a true mortgage professional who understands the market.
In the end, strong domestic economic data, like Friday's better than expected official Jobs Report, was overshadowed by the drama in Europe and received less fanfare than it deserved.
According to the Labor Department, 290,000 jobs were created in April, well ahead of estimates for 187,000 new job creations. The increase was the biggest rise since March 2006. Overall, non-farm payroll employment has expanded by 573,000 since December, with the vast majority of the growth occurring during the last two months.
Despite the job growth, the Unemployment Rate ticked up from 9.7% to 9.9%. The main reason was an increase in the labor force of 805,000. That's because unemployed individuals who do not look for a job for four weeks are removed from the labor force. When those people move back into job search mode, they are counted again - which can cause the Unemployment Rate to rise even when more jobs are being created.
U.S. Senate Race
Senator Michael Bennet, who was appointed to the position in January 2009, is being challenged by former Speaker of the House Andrew Romanoff for the Democratic primary. Romanoff pulled in 50.9% of the vote, compared to Bennet's 41.7%. Both candidates viewed the results favorably.
In the Republican caucus, former Lt. Governor Jane Norton and Weld County District Attorney Ken Buck were neck-and-neck, with 37.7% and 37.9% of the vote, respectively. Norton has been the assumed candidate for the Senate seat, but the caucus results could certainly shake up that presumption.
The results for the Republican candidate for governor had a much wider margin. Former Congressman Scott McInnis pulled in over 20% more of the vote than Evergreen businessman Dan Maes, with 61% compared to Maes 39%. The eventual winner will face Democratic candidate Denver Mayor John Hickenlooper in the general election. Hickenlooper is running unopposed in the primary.
There's a lot of news on tap for this week, starting off right away Monday with the Empire State Index, Industrial Production and Capacity Utilization. These reports will give us a look at the manufacturing sector - and any bad news could certainly shake up the markets.
We'll also see an update on the health of the new construction sector of the housing market, with reports on Building Permits and Housing Starts coming on Tuesday.
Perhaps the biggest news of the week will be the inflation news carried in the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. Hints of inflation fears have the potential to negatively impact the markets - and can quickly drive Bond prices lower and home loan rates higher. The news from these reports will be even more interesting, since they come just after the Fed's Monetary Policy and Fed Funds Rate decision on Tuesday...and many members of the Fed have lately been expressing their growing concerns about inflation. The Policy Statement following the Fed meeting is always dissected carefully - but with the rising fears of the inflation genie escaping the bottle, this Statement takes on even more significance.
Right-to-Float Debate Reemerges
In a surprising move this afternoon, HB 1188 sponsor Rep. Kathleen Curry (I-Gunnison) asked the House to reject a Senate amendment that turned the so-called "right-to-float" bill into a study, and instead refer it to conference committee for further debate. The motion passed with 41 votes. Had the House approved Senate amendments, it would have been sent directly to the Governor's office. There is no word yet on which members will be assigned to the conference committee.
HB 1188 seeks to clarify the navigation rights of white water rafters when traversing private properties and would have expanded the traditional use of these waterways by commercial rafting companies. The peaceful use and enjoyment of one's own property, and control of access, are fundamental to private property rights. CAR expressed heavy concerns to lawmakers that the bill would infringe upon such rights without just compensation and was pleased that the bill was modified into a study last month. We will continue to keep you apprised of any new developments.
Update on Warranty of Habitability
SB 185 by Senate President Brandon Shaffer (D-Boulder) and Rep. Mike Merrifield (D-Colorado Springs) managed to pass an unrecorded Second Reading vote in the Senate early last week but continues to languish on the Senate Calendar for final approval.
Forecast for the week of April 26th
After a busy week of economic reports last week, this week doesn't slow up at all. On tap is a look at how consumers feel about the slowly recovering economy with the Consumer Confidence report on Tuesday and the Consumer Sentiment Index on Friday. In the prior reports, Consumer Confidence came in higher than expectations, while Consumer Sentiment dropped. The markets will be watching both these reports for indications of how consumers feel about the job market and their finances.
We'll also hear from the Fed this week with the Fed's Monetary Policy and Fed Funds Rate decision on Wednesday. With future inflation concerns on the minds of some Fed members, it will be interesting to see if the Fed continues to use the now famous statement, "rates will stay exceptionally low for an extended period."
The weekly Initial Jobless Claims report comes out Thursday, and after a worse-than-expected report last week, the markets will be tuned in closely to this week's update.
Finally, the week ends on a busy note. Friday, we'll get a look at labor costs with the Employment Cost Index, the manufacturing industry with the Chicago PMI, and goods and services in the US with the Gross Domestic Product report.
In addition to these reports, the Treasury Department will auction off the $129 Billion of debt mentioned above. That breaks down to auctions of $11 Billion in 5-year TIPS on Monday, $44 Billion in 2-year Notes on Tuesday, $42 Billion in 5-year Notes on Wednesday and $32 Billion in 7-year Notes on Thursday. That's a whopping amount of supply, and it could move the markets depending on how it's received.
Warranty of Habitability
SB 185 – Warranty of Habitability by Senate President Brandon Shaffer (D-Boulder) and Rep. Mike Merrifield (D-Colorado Springs) passed the Senate Judiciary Committee on a party-line vote. The bill makes changes to the warranty of habitability that is implied into every residential rental agreement, including eliminating the requirement that written notice be provided prior to a breach of the warranty and other changes to the conditions that constitute a breach. Additionally, it provides a new right of action for tenants and includes a punitive provision of treble damages.
The bill was introduced to the surprise of the real estate community, who participated in a taxpayer-funded task force resulting in reform legislation adopted just two years ago, and which took effect less than 18 months ago.
Last week CAR issued a statewide Call for Action urging opposition to these measures - they will soon be heard on the Senate floor.
If you have yet to do so, Take Action Now!
SAVE, SPEND, AND BUDGET WISELY
Last week, it was reported that Personal Spending rose the most in five months, as the economy is starting to pull out of the recession. At the same time, however, the Personal Savings rate fell to 2.7%, the lowest level since September 2008. These numbers represent how individuals struggle to balance spending with saving. In the end, it's important for everyone to save, spend, and budget wisely. Check out this week's video Save, Spend and Budget Wisely from Kiplinger.com to learn "Why Budgets Make Sense."
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending May 7th) in which the 30-yr fixed-rate mortgage (FRM) avg. 5.00. Last year at this time, the 30-yr FRM avg 4.84%.
The 15-year FRM this week avg 4.36%. A year ago at this time, the 15-year FRM avg 4.51%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 3.97%. A year ago, the 5-year ARM avg 4.90%.
The one-year Treasury-indexed ARM avg 4.07%. At this time last year, the 1-year ARM avg 4.78%.
Forecast for the week of May 10th
The markets will open on the heels of Friday's late night meeting of euro zone countries. There, leaders signed off on a support package for Greece, pledged to take steps to stem the spread of a "systemic" debt crisis and scheduled an emergency Sunday meeting of all 27 European Union finance ministers in hopes of quelling more turmoil on Monday.
It will be interesting to see how emerging details of their plan to create a European stabilization mechanism will affect the markets in the days ahead.
On the economic report front, this week will start out slowly. In fact, the first major economic report will be Wednesday's Balance of Trade reports on exports and imports. Remember, a negative balance of trade - or a deficit - occurs when imports surpass exports. Rising deficits can be reflective of increased consumption, which can be a sign of a strengthening economy. On Thursday, we will get another look at Initial Jobless Claims, which came in slightly above expectations last week but was still 7,000 lower than the previous week. The markets will be watching this report to see if the trend lower continues.
The week caps off on Friday with a host of reports on Industrial Production, Capacity Utilization, Consumer Sentiment and the big report on April's Retail Sales.
In addition to these reports, and the continuing European saga, this week's Treasury Department auctions may also affect the markets. The government will auction $38 Billion in 3-Year T-Notes on Tuesday, $24 Billion in 10-Years on Wednesday, and $16 Billion in 30-Year Bonds on Thursday.
Generic (“garbage”) exceptions not allowed
A generic exception on a title commitment is defined as any overly broad exception that is not a standard or preprinted exception. Generic exceptions are sometimes referred to as “garbage” exceptions. A generic exception does not refer to a specific recorded document (e.g., “Any and all roads, easements, rights of way, etc.”). These types of exceptions are only permitted in cases where the proposed insured on a commitment has made a written request for a policy form that makes use of them. For practical purposes, it is expected that generic exceptions will only be used for refinance and junior lien transactions. Very few purchase transactions (i.e., owners’ policies) will make use of these exceptions. Aside from the standard or preprinted exceptions, all exceptions on a title commitment or policy must refer to the specific recording information on the document. If a document is not recorded, the title entity should reference any identifiable information on the document. The identifiable information may include dates, names of parties, case numbers, and similar defining information. Again, providing book-and-page exceptions is the industry standard for reputable title insurance companies already, and Realtors, in line with keeping their fiduciary duties to buyers and sellers, generally steer clear of generic exceptions on owners’ policies. The new rules codify the standard for the purpose of offering additional protections to the consumer.
When a title insurance company collects money from clients or third parties, all money belonging to others must be deposited in a bank account that is separate from any other funds. This includes portions of premiums that will be sent to an underwriter, earnest money, loan proceeds, escrows, etc. This account must be labeled or named “fiduciary account,” “trust account,” “escrow account,” or another similar name that identifies the account as one to be used solely for holding these funds. A title entity is prohibited from mixing these funds with any others. A title entity is also prohibited from using the funds for any purpose other than what is set forth in writing for a specific transaction. A title entity may deposit fiduciary funds (money belonging to others) into a sweep account or any type of account that uses that money as an investment or revenue generator. The title entity must get written authorization from the owner of that money before depositing it into the account. Not getting written authorization, or getting it after the money is in the account, will be viewed as a violation of the Regulation. A title entity may earn interest on fiduciary funds as long as a disclosure is provided to all parties that interest has been or will be earned. The disclosure may be given at any time up to and including closing. There are additional rules for title insurance agencies that receive earnest money without written instructions.
Resort Market Characteristics:
1. A Record Decrease in Sales of Condominiums: The Fannie Mae and Freddie Mac guidelines have blocked buyers, who need financing, from purchasing properties, even when well-qualified. Not only does this affect Second-home and investment purchasers, but also primary “local” residents.
2. First Time Homebuyer Tax Credit Driving Interest In Condo Purchases. Many “locals” are trying to secure the first time homebuyers tax credit and these condos are the only units that fit within their price parameters.
3. Qualified Buyers: Due to its high cost characteristics the resort marketplace attracts second home buyers of substantial means. Most of these buyers are typically fiscally responsible and represent ideal customers for sellers and lenders. These prime borrowers should not be prevented from acquiring property utilizing leverage if they so desire, because of owner occupancy or unit rental GSE requirements that are irrelevant to their ability to service their loans. Similarly, the economic stimulus that such transactions lend to our marketplace is unnecessarily turned away at the time when it is most needed.
4. Few Foreclosures: Because of the high cost characteristics and qualified buyers as mentioned above, our resort markets are holding strong against foreclosures. Loans in resort condo markets perform better than traditional housing loans and resort areas are not seeing more than 2% foreclosure rate. GSE’s are concerned about foreclosure, as it relates to the entire U.S. Housing Market. FHFA needs to differentiate resort condo markets from traditional lending markets.
5. Economic Dependence: Resort markets depend on efficient condominium marketplaces so that such developments
a. address the need for various price points required to attract a broad base of residents and second home owners that are critical to a healthy resort economy, and
b. provide homes located near jobs for permanent residents at price points more suited to the prevailing wage rate than those of single family homes.
6. Rental Opportunities are Positive: Knowing that many condominium buyers in resort communities are well qualified as described above, but part time residents, the opportunity to rent units only adds to the financial security the buyer can present to a lender.
7. Rental Opportunities are Necessary: Small and large condo projects represent hundreds of millions of dollars of investment in our communities. To disallow these projects the ability to utilize conforming loans to help close for sale unit transactions could severely impact their chances for success. This could in turn prolong the development cycle or even prevent it from starting, and therefore increase the length of the economic downturn resort markets are experiencing. This is especially impactful when considering the ripple effects of construction and real estate wages spent in our communities that would have been earned sooner (and which may not be earned at all if projects can not complete due to lack of sales) with quicker build-out and absorption of projects.
As an example, the City of Ketchum, Idaho has recently approved construction of two major hotel projects and is presently considering and will likely approve the development of two more, all of which contain as part of their development strategy for sale units many of which will also be available for rent. In addition, two of these projects will contain separate, stand alone, for sale units that will be physically separated from the hotel buildings but which, under the guidelines may be considered part of a “for rent” project. The price point of this type of product will likely result in a requirement for substantial down payments in order to utilize conforming loans, further strengthening the lender’s position and arguing against the need for lending criteria other than the borrower’s ability to repay.
8. Local Lenders Recognize the Value of Resort Market Buyers: Local lenders are equally frustrated by the GSE requirements that prevent them from selling their condominium loans to the secondary markets. They know that many prospective buyers are very well qualified for the purchases they are contemplating, but they are prevented from closing a loan due to regulations that do not relate to the customer’s ability to repay it. The fact that some local lenders are creating significantly sized investment funds to make portfolio loans in resort markets that will necessarily stay on their books is irrefutable evidence that these local lending experts realize that current GSE regulations go too far and prevent otherwise attractive borrowers from becoming active in resort marketplaces.
9. Home Ownership Irony: One of the few silver linings of the storm clouds brought on by the recession is the devaluation of real estate in virtually all markets that has made the goal of home ownership more of a reality for those who have been fortunate enough to maintain their pre-recession employment and wage levels. In resort markets, condominiums represent the product type that best suits many of our permanent residents from a pricing and/or lifestyle perspective; residents that make up the fabric of our communities and work the jobs that help our communities to prosper. To deny them what may be the best opportunity in their lives to enter the housing market because of guidelines that are unrelated to their ability to repay the loan is clearly policy that needs to change.
10. Lack of Liquidity Depresses Prices Even Further: The lack of lending liquidity caused by these regulations, which are difficult or impossible to meet in resort markets, has the result of driving already depressed prices even lower. Fewer buyers (resulting from the lack of available financing) mean less competition for properties, accentuating the same effect. With this devaluation beyond what would have otherwise occurred, depressed sale prices may result in an increase in the number of transactions where there is a shortfall relative to existing financing. Additionally, cash buyers become even more powerful with the ability to push values down even more drastically.
11. Home Owners Associations (“HOA”) Representatives Can Not Respond: The complexity of the regulations, the requirement that questions on HOA certifications be answered precisely, and the ramifications of incorrectly completed forms has placed an unrealistic educational requirement upon the marketplace. If professional management does not exist, where the expectation exists that such professionals will self-police themselves relative to understanding the requirements that the GSE regulations place upon them, well intentioned wrong answers to questions can derail transactions that should otherwise be made.
It is incumbent upon regulators to provide clear, concise, standardized regulations with explanations of potential pitfalls (for ex. clarifying the definition of owner occupied – how many days of use annually qualify the unit as such?) so that HOA managers need not rely solely on real estate professionals, who may be deemed to have a conflict of interest in helping to complete the forms, to be the sole providers of this education. Whereas cooperation has generally been the norm in REALTOR®/HOA relationships in the past, the importance of obtaining accurate HOA certifications has created a disharmonious environment between HOAs, lenders and REALTORS® where none needs to exist.
12. Home Owners Associations Are Reacting Negatively: Some HOA’s are reacting to the GSE guidelines by changing original doc’s to disallow short term rentals completely so that financing can be obtained. This is backfiring, or will, when investment buyers will not seek properties in these HOA’s, because they cannot be rented.
13. Home Valuation Code of Conduct (“HVCC”) Appraisal Concerns: Overlaid on the GSE lending regulation issues is the ongoing problem of inexperienced, unknowledgeable appraisers being allowed into our market as a result of the HVCC legislation. We are still suffering from appraisals that are incorrect mainly due to out-of-market appraisers’ lack of understanding of valuation principles specific to our County, and as a result, their utilization of incorrect comparables in establishing value. With HR 3126 still under debate in Washington, a near term solution to this problem needs to be developed as soon as possible.
Problematic GSE Guidelines:
WMRA and its members have identified the following regulations and policy procedures to be the nexus of GSE condo mortgage lending issues:
1. FNMA and FHLMC/large bank regulations:
- Require 70% owner occupancy.
- Do not allow nightly rentals of condos.
- Do not allow front desks.
- Allow underwriters to do a web-based internet search to determine whether project engages in nightly rentals. These searches can include inaccurate or dated information that are not verified.
- Restrict lending for projects that do not have individual gas or electric meters or services.
- Do not allow lending in projects where “lodge” is included in the name.
- Require 40-50% down payment.
2. Pre-Loan Sale Requirement Catch 22: Requiring project owners to sell 51% of the units in a new project before conforming loans are allowed severely restricts owners' ability to close those required sales or line up pre-sales, putting additional pressure on the viability of the project. Depending on the style of project, this will also significantly reduce the universe of potential buyers for the units required to meet the restriction; so the restriction prevents buyers from being considered who would allow the requirement to be satisfied, a true Catch-22! As we have previously stated, many buyers in resort markets are very well qualified and should be measured on their ability to repay loans, not on whether or not sufficient cash buyers exist to purchase over half of the available units.
3. Overlays: Overlays put on by large banks selling to FNMA and FHLMC only create further restrictions and confusion to the guideline requirements.
4. Denial: When denial occurs, it is generally within the week of closing and often one day prior to closing. In these situations, it means the Seller has taken the condo off the market for 45 days, and the buyer is out the cost of an appraisal and an inspection. The paperwork, time and energy expended by all parties involved is also lost. If underwriters are required to “google” the property, this should be done at the beginning of the process.
5. No Appeals Process: There are many unique resort properties that do not fit into conventional guidelines. The definitions of townhomes, and condos are different in every development across the county.
6. Lack of definition: It is very unclear as to what can and what cannot qualify. This creates confusion for lenders, REALTORS® and the public at large. We need clear and concise definitions on qualifications.
7. Conflict between federal agency requirements: Fannie recently denied approval of a condo project solely because the project included a few ADA units as required by the Americans With Disabilities Act. These units were intended for owners with guests who needed ADA compliant property. Fannie denied the project, indicating the ADA units were a “non-incidental business use”. The lending agency was concerned these units would be rented out as a nightly rental.
Clarification on Federal Issues:
CAR has recently received numerous emails over the past several weeks which misrepresent a number of facts regarding federal legislation:
Healthcare Insurance Reform
Emails are circulating that the national healthcare legislation included a 3.8% real estate transfer or sales tax – this is untrue. The so-called “Medicare” tax places a 3.8% tax on unearned net investment income for those who report an adjusted gross income over $200,000 for an individual or $250,000 for a joint filing. Of important note, the tax on the net capital gains resulting from the sale of real estate will remain exempted up to $250,000/individual and $500,000/joint. NAR Summary
American Clean Energy Act (“Cap and Trade Bill”)
Emails claim that provisions within the national energy legislation (H.R. 2454) will require a seller to obtain a “license” prior to selling their home. As a matter of clarification, the onerous labeling requirements for existing homes and buildings were removed from the bill when it was in the House thanks to an amendment ran by one of Colorado's own, Congressman Ed Perlmutter. H.R. 2454 is currently in the U.S. Senate. NAR Summary
Clarification on National Energy Legislation
CAR has received numerous emails over the past week with regard to energy labeling requirements within the American Clean Energy Act. As a matter of clarification, the onerous labeling requirements for existing homes and buildings were removed from the bill when it was in the House thanks to an amendment ran by one of Colorado's own, Congressman Ed Perlmutter. The bill is currently in the U.S. Senate. NAR Update
On to State Issues...
CAR Legislation Headed to Governor's Office
HB1288 - Commercial Real Estate Brokers' Commission Security Act by Rep. B.J. Nikkel (R-Loveland) and Sen. Suzanne Williams (D-Aurora) - received final approval from the legislature on Monday, April 5 and is headed to the Governor's office. CAR has issued a Call for Action urging the Governor's support. If you have yet to respond, please Take Action Now!
Rent Control Update
As introduced, HB 1017 by Rep. Daniel Kagan (D-Englewood) and Sen. Betty Boyd (D-Lakewood) sought to expand the scope of voluntary agreements between municipalities and private developers for affordable housing units beyond what is afforded under current law.
The bill was recently amended to clarify that the legislation involves only voluntary agreements between a property owner and a local government and that an application for a development permit may not be denied if the applicant declines to enter into an agreement to limit rent on their property.
Although CAR still believes legislation to permit voluntary agreements is unnecessary, we are pleased with the amendments. CAR will continue to monitor any efforts to impose involuntary forms of rent control and will protect the property owner's right to freely own, preserve and convey their property.
State Budget Update
Much of the discussion over the past several weeks at the legislature has been directed at the Annual budget (also known as the Long Bill). Although fewer amendments have been made to this year's version than has been the case in previous years, the development of the $18.2 billion budget for Fiscal Year 2010-11 has been a long and painful process - several sobering economic forecasts along the way forced the Joint Budget Committee to look for additional cuts prior to introducing the bill into the legislature.
Although federal stimulus funds have helped to ease the pain from sharp revenue decreases, Colorado will face additional shortfalls in FY 2011-12 as those dollars begin to run out.
Mortgage Company Registration Bill is Amended
Following the placement of Colorado Division of Real Estate (DRE) Director Erin Toll onto administrative leave, and her subsequent whistleblower complaint, a House bill was amended in the Senate to modify the duties of the Division Director's office.
HB 1141 - Mortgage Company Registration by Speaker Terrance Carroll (D-Denver) and Sen. Lois Tochtrop (D-Thornton) - was amended to place the decision-making for the Division of Real Estate's finances, rule-making, and investigation and discipline of mortgage brokers under a five-person board and the Executive Director of the Department of Regulatory Agencies. Those duties have been at sole discretion of the DRE Director since the regulation of mortgage brokers was implemented two years ago. The proposed board would be comprised of three industry representatives and two consumer advocates.
The bill is still awaiting final approval in the Senate.
Last week brought a bit of welcome good news on the housing front. The Pending Home Sales number came in with a surprising 8.2% boost in February. Although the report is only a prediction of sales that will close in a month or two, it's a good sign for the housing market...not to mention that it's very good news for those homebuyers who are now under contract in time to take advantage of the Homebuyer Tax Credit before the deadline! Remember, contracts must be in place by the end of this month - April 30th - in order to qualify for the tax credit.
But indeed, the health of housing will be influenced by the labor market - and a lot of work remains to be done in that area of the economy. The national Unemployment Rate remains at 9.7%, but has moved below the 10.1% rate seen in October.
Although the employment picture overall still needs to see some real improvement, there's still good reason to believe that housing will continue to stabilize over the next year, and then begin to move modestly higher. With home loan rates having improved this past week - buyers still have a chance to get into a great home loan rate...and get the Homebuyers Tax Credit before the deadline of April 30th.
TAX TIME IS A GREAT TIME TO EDUCATE KIDS ABOUT MONEY AND FINANCIAL DECISIONS. FOR A LIST OF MONEY SKILLS EVERY CHILD SHOULD MASTER, CHECK OUT THE SPECIAL INDUSTRY ESSENTIALS VIDEO VIEW ARTICLE AND VIDEO BELOW. IN ADDITION, BE SURE TO CHECK OUT THIS WEEK’S FORECAST.
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending April 9th) in which the 30-yr fixed-rate mortgage (FRM) avg. 5.21. Last year at this time, the 30-yr FRM avg 4.92%.
The 15-year FRM this week avg 4.52%. A year ago at this time, the 15-year FRM avg 4.54%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.25%. A year ago, the 5-year ARM avg 4.93%.
The one-year Treasury-indexed ARM avg 4.14%. At this time last year, the 1-year ARM avg 4.83%.
Forecast for the week of April 12th
After a relatively slow economic report week, the calendar picks up again during the week ahead. On Wednesday, we'll see more news about the labor market when the ADP National Employment Report is released with new data on the employment front. Then on Thursday, we'll see another round of Initial Jobless Claims. After last week's increase in new unemployment claims, you can bet the markets will be waiting to see how this report comes in.
Wednesday brings an update on the all-important topic of inflation when the Consumer Price Index is released. The Fed still officially feels that inflation is not a present concern - but some Fed members have expressed their opinions that upcoming monetary decisions should be made with a "data-dependent" eye. This means that the upcoming data - like the Consumer Price Index - will be analyzed very carefully.
We'll also see updates on the manufacturing sector of the economy, with reports on Industrial Production and Capacity Utilization as well as the Philadelphia Fed Index on Thursday.
Finally, Friday brings another dose of news on the health of the housing industry, with reports on the number of Housing Starts and Building Permits recorded during March
Breckenridge Council Will Consider Home Size Limitations This Week
After months of public hearings and a working task force, the Breckenridge Town Council will consider a policy tuesday night that will limit home sizes in specific subdvisions in Breckenridge. The policy applies to homes which do not have a platted building or disturbance envelope and lie within one of the following subdivisions:
Brooks Hill, Breck South, Christie Heights, Gold Flake, Gold King Placer, Highland Filings 1-4 (only those which do not have platted envelopes), Peaks, Penn Lode, Snowflake, Sunbeam Estates, Sunrise Point, Trafalgar, Trappers Glen, Tyra, Warriors Mark, Warriors Mark West, Weisshorn, and Yingling and Mickles.
A Floor Area Ratio (F.A.R.) was selected by the Task Force to relate a home size to the lot size. In this case, the F.A.R. would dictate the amount of square footage that can be built, depending on the size of the lot. The F.A.R. would be calculated by dividing the lot size square footage by the Home square footage.
IRS Warns Against Fraud in Claiming Homebuyer Tax Credit
The IRS has released IR-2009-69 noting that at least one tax return preparer has been convicted of fraud in falsely claiming the first-time homebuyer tax credit on behalf of the taxpayer. The release does not describe the nature of the fraud, but the release serves as a reminder of the consequences of any fraudulent claim. The individual who has been convicted of fraud faces up to three years in prison and a fine of up to $250,000. The IRS has updated its computer screening capacity in order to identify fraudulent claims. To date, the IRS has 24 criminal fraud investigations pending related to the tax credit.
NAR Supports Potential FTC Rule on Unfair or Deceptive Practices by Non-bank Financial Companies
On July 30, 2009, the National Association of REALTORS? (NAR) President, Charles McMillan called on the Federal Trade Commission (FTC) to promulgate a rule to prevent unfair or deceptive acts or practices with respect to mortgage lending activities engaged in by non-bank financial companies. Mr. McMillan's letter was in response to a FTC advance notice of proposed rulemaking (ANPR) on mortgage acts and practices. The ANPR addresses activities that occur throughout the life-cycle of a mortgage loan, including mortgage loan advertising and marketing, origination, appraisals, and servicing.
NAR has a strong stake in preventing abusive lending practices and supports the principal that stakeholders involved with mortgage lending activities should act in "good faith and with fair dealings" in a transaction and treat all parties honestly. Consistent with this, NAR supports the FTC's efforts and has supported similar efforts in the past. NAR previously supported the efforts of the federal banking agencies and their state counterparts to address abusive lending practices by issuing the Interagency Guidance on Nontraditional Mortgage Product Risks and the Statement on Subprime Mortgage Lending (Guidelines).
In the letter, NAR urges the FTC to adopt regulations applicable to mortgage lending activities engaged in by non-bank financial companies such as non-bank mortgage lenders, brokers, appraisers, or servicers. In the letter, Mr. McMillan said "Too many homeowners and home buyers today are the victims of failure of the free maGrket, the full scope and impact of which remain unclear, even today." NAR believes that a rule, as it applies to mortgage lending, should include general principles, with specific examples to guide those subject to the rule of the practices to apply and those to avoid. Codifying the FTC principles for non-bank financial companies will provide a level playing field for the mortgage industry and protect consumers across the board.
Visit by NAR Chief Deputy Lobbyist Jamie Gregory
The National Association of REALTOR® Chief Deputy Lobbyist Jamie Gregory, made a special visit to the 4 mountain boards to discuss legislative and regulatory action in Washington, DC pertaining to the mortgage industry, health care, and energy reform. It was also an opportunity for local REALTORS® to express their views on national issues as they relate to the mountain region.
PSF Fundraiser With The Aspen Board of REALTORS®
GSAR co-hosted a successful Political Survival Fund (PSF) fundraiser with the Aspen Board of REALTORS® at The Barn at the River Valley Ranch in Carbondale. The event was attended by numerous special guests, Including CAR President Amy Dorsey, President-elect George Harvey, CAR CEO Bob Golden and CAR VP for Public Policy Rachel Nance. Local elected officials included Aspen City Council members and Pitkin County Commissioners, as well as Garfield County Commissioners John Martin and Mike Samson. State Senator Al White also attended the event. The event, put together by REALTORS® from both Boards, enabled GSAR to meet its PSF fundraising goal for the year. REALTOR® members who organized the fundraiser: Bob Fullerton, Roaring Fork Properties, Glenwood Springs, & Cheryl Chandler, Cheryl & Co, Rifle.
There is a lot of ‘buzz’ about this new document that we are required to use as of January 1, 2010. Good and bad. The purpose of it is to allow the consumer to ‘shop’ for a loan. We all have to fill in the blanks using the same form which should help borrowers to compare effectively. And we have to stand behind the numbers we provide within a 10% tolerance for most items, 0% tolerance in some instances. For many of us, this is not a scary proposition since we have always fairly represented the costs to buy a home anyway.
In my opinion, where this form fails is in the timing. The new GFE 2010 (as it is called) requires a lender to offer a rate including how long that rate is available (usually hours), a window of 10 business days in which the costs quoted are valid, and categories of costs which are composite totals of several individual fees. The idea is to give the consumer 10 days to ‘shop’ for a loan. The problem with this is that the GFE is not offered to the consumer UNTIL A PROPERTY IS SPECIFICALLY IDENTIFIED. When does that happen? When a contract is written. And the typical contract is for closing in 30-45 calendar days. So what is happening is the consumer must now focus on ‘shopping’ for the loan during the hectic weeks of offering, negotiating, inspecting, reading documents, planning for a mover, etc. Now add the search for a lender to the stress. This reminds me of how things were done 20 years ago; I don’t see this as a real help to the consumer. Additionally, the GFE 2010 only discusses costs; there is no mention of total payment obligation or cash needed.
Because it is more logical to research, interview lenders, and determine affordability prior to writing a contract, a consumer should be provided with something to show the breakdown of the costs, the payment pieces, and the cash required for a transaction. Many, if not all, lenders are now using a worksheet. We call ours an Initial Fee Worksheet. It is not a Good Faith Estimate in the new sense of the words. It is simply a document to assist the buyer with concrete details. A reputable lender will use the Worksheet data when creating the Good Faith Estimate 2010 and correlate the line items on the Worksheet to the composite line items on the GFE 2010.
So when you are suggesting to a client that they get prequalified for a mortgage prior to writing a contract, tell them to be sure to ask for an Initial Fee Worksheet, not a Good Faith Estimate. Why? Because a lender will not issue a GFE 2010 until all 6 factors are present for the primary reason that once a GFE 2010 is issued, the lender is bound by the cost quotes. The fact that a subsequent contract might not match the GFE 2010 is irrelevant; the lender is still bound if the client has accepted the lender’s offer. Example – client says they are not buying a home in an area that has transfer taxes and a GFE 2010 is offered and accepted. THEN the contract is received and they did buy in a town that has a 1% transfer tax. The contract does not constitute a Changed Circumstance (times when we can modify the GFE 2010) so the lender would be responsible for paying the 1% tax.
We can still qualify and approve buyers prior to a contract. Then when the property is identified, we issue the GFE 2010 and if the client wishes to shop, they can use the GFE 2010 to do so. Of course, if we have done our job well, we hope they simply say ‘Let’s Do This!’
Being a Successful Landlord
These days, some homeowners are choosing to rent out all or part of their home to help pay for their mortgage costs. But being a successful landlord is more than just sitting back and collecting the rent. Here are some tips to help if you ever choose to become a landlord.
Charge a Fair Price: All real estate is local, and the best and quickest way to success is to know your marketplace and what you can expect to charge for a fair rent in your area. Some things you can do to determine a fair price include studying local classified ads, scouring the Internet, and finding out what neighbors are charging for rent.
Write the Right Ad: Getting the right tenant is even more important than picking the right price to charge. Attract the right tenants with ad phrases such as "good credit and references," "no pets," "no smokers," etc.
Create a Thorough Application Process: Be sure to require proof of identity, past addresses and landlord contact information, employment information, and references. Also, ask questions like how many people will be living with the applicant and how long they plan to rent.
Check References EVERY Time: Call their previous landlords and ask if the rent was paid on time. Find out how the property was left when they vacated. Were the tenants loud and troublesome? Did they complain a lot? Did they report small repairs in a timely manner? It's easier to avoid a bad tenant now than to try and evict one later.
A Final Creative Idea: Before signing the deal, make an unexpected visit to your prospective tenants' current apartment or residence. You will get a good look at how they keep their home as it is likely to be the way they keep yours.
And Always Ask the Experts: Be sure to check with your tax professional to make sure you file your taxes correctly and to see if there are any rebates or other benefits you qualify for.
Some people choose to be landlords, while others have it thrust upon them due to market conditions. Either way, taking the steps mentioned here will help make the experience more successful for everyone involved.
So how do consumers feel about the economy? Last week, we got a look at two different reports...and both indicated that consumers don't share the rosy outlook of politicians and the media. Consumer Confidence was reported at 46.0, which was much lower than expectations of 55.0. In addition, the University of Michigan reported that Consumer Sentiment also fell in February. Both reports pointed to ongoing concerns over employment as a major reason for the drop in consumer attitudes about the economy.
To help make ends meet during the recession, some consumers have turned to earning cash as a landlord. If you or someone you know is considering doing the same, read the view article below for important advice to help make sure you're successful!
This will be a big week of news, starting off right away Monday morning with reports on Personal Income and Personal Spending. We'll also get a look at the Core Personal Consumption Expenditure (PCE), which is the Fed's favorite gauge of inflation.
As if that weren't enough news for one day, we'll also see the Institute for Supply Management Index on Monday. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector, so the markets will be paying attention to this report.
Toward the end of the week, we'll get another look at employment and housing with the reports on Initial Jobless Claims and Pending Home Sales on Thursday.
Finally, the week ends with a bang when the official Jobs Report is released. This report includes the latest government data on job losses and the unemployment rate, as well as the average work week and hourly earnings. With the ongoing concerns over the struggling job market, it will be important to get a current read on the situation.
House Approves Amendments to the Foreclosure Protection Act
As reported earlier this month, CAR is running legislation which seeks to make positive changes to the Colorado Foreclosure Protection Act. We are pleased to report that HB-1133, by Rep. Tom Massey (R-Poncha Springs), passed unanimously out of the House on Tuesday.
Among the proposed changes: clarifying the definition of "Equity Purchaser;" exempting transactions that use the Short Sale Addendum; modifying the definition of a "Residence in Foreclosure" as it pertains to the Equity Purchaser provisions of the Act; and modifying the requirement to use the native language of non-English speaking home owners in the Foreclosure Contract to Buy and Sell.
These amendments are a result of collaboration between the Colorado Association of REALTORS®, the Attorney General's office, Division of Real Estate, Public Trustees, and various real estate attorneys.
CAR believes these changes will provide sellers the protections they need, while eliminating the chilling effect the Act has had on many potential transactions of distressed properties. The bill has been assigned to Judiciary Committee in the Senate.
ISSUES AROUND THE MOUNTAINS.....
Steamboat Approves Open House Signs
The Steamboat Springs City Council has approved an ordinance that will allow changes to the city's sign code including the size of "for sale" signs, allowance of directional open house signs, and allowance of the placement of central posts that will include flyers for real estate listings at entrances to multi-plexes. The ordinance goes into effect on Friday, March 12, 2010. SSBR will be sending out a special government affairs alert outlining the new rules this week.. Look for it in your inbox! Many thanks to the sign committee who worked hard to make sure the ordinance addressed REALTOR® needs and concerns.
Breckenridge to Extend Open House Sign Ordinance Tuesday
Tomorrow night the town of Breckenridge will give approval to extend the open house sign ordinance an additional year. The strict ordinance was approved in March of 2009, and was set to sunset after one year. Because of REALTOR® commitment to the sign policy and ensuring few violations, the town has agreed to extend the ordinance for an additional year to “keep things fresh” and ensure REALTOR® don’t get too comfortable with the policy. The ordinance will expire March 11, 2011
CAR POSITION STATEMENT
ID Theft Disposal of Records Bill Dies in Committee HB 1056 by Rep. Jerry Frangas (D-Denver) and Sen. Morgan Carroll (D-Aurora) sought to require every public and private entity in the state that uses paper or electronic documents or records during the course of business that contain personal identifying information to destroy those documents or records prior to disposing of them.
Each entity that did not dispose of documents and records in the prescribed manner set forth by the law would have been subject up to a $500 fine per document or record.
Although it was a well intentioned effort to address consumer protection, HB 1056 would have opened the door to a host of liability issues for businesses, including REALTORS®, as well as commercial property owners.
CAR believes it is of the utmost importance to maintain prudent business practices, but expressed concern over a lack of clarity in the bill, especially given the severity of the proposed penalties. The bill died on Thursday in the House Judiciary Committee.
Balancing Plan Submitted by Governor
In order to re-balance the FY 2010-11 budget, Governor Ritter submitted a $340 million proposal to the Joint Budget Committee this week. The November budget proposal closed a $1 billion shortfall for the next fiscal year, and revenues have continued to decline. A total of $2.2 billion in shortfalls have been closed in the current FY 2009-10 budget.
The proposals for cutting current year spending protect higher education, which has taken the brunt of budget cuts since the recession began, and further protects K-12 education by transferring $135 million from the General Fund into the State Education Fund in order to keep it from becoming insolvent in FY 2010-11.
Additionally, most state agency operating expenses will be reduced by 5 percent, anticipated to save $1.4 million. In the Department of Health Care Policy and Financing, $21.6 million is expected in savings from lower-than-projected caseloads of 14,600 clients.
The submitted plan is comprised of more than 30 separate items.
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Educate and elect policy makers who support REALTOR® issues; and Improve the Quality of Life in your community and the marketability of property in your neighborhood. Your support of PSF is critical to our legislative success - Invest to your profession today! This is the most vital piece of insurance your business will ever have.
**Your contributions are voluntary and may be used for political purposes. You may refuse to contribute without affecting your membership rights. 30% of your contribution may be used by RPAC to support federal candidates and other federal grassroots activities. A portion may also be used by the PSC to support state and local candidates and issues and other grassroots activities. Your contributions are not deductible for federal income tax purposes.
Regulation of Appraisal Management Companies
In compliance with federal law, Colorado currently requires the licensing of real estate appraisers. In order to promote enhanced consumer protection, recently adopted federal guidelines now require mortgage lenders to use entities known as appraisal management companies (AMCs), which hire licensed real estate appraisers, to value property for lending purposes. AMCs are not currently subject to regulation under Colorado law.
SB 077, by Sen. Rollie Heath (D-Boulder) and Rep. Mark Ferrandino (D-Denver) authorizes the Board of Real Estate Appraisers within the Division of Real Estate to regulate AMCs, including those that are bank owned. Among other things, the bill details prohibited acts for AMCs and gives the division the authority to investigate registrants and take disciplinary actions, including imposing fines.
CAR supports the legislation as it is a prudent and much-needed step to ensure increased certainty in the home-buying process. Although the federal HVCC regulations are a much larger problem with regard to appraisals, SB 077 addresses an immediate need in our state. The bill is expected for its first hearing on February 16th in the Senate Business, Labor and Technology Committee.
"OPINION HAS CAUSED MORE TROUBLE ON THIS LITTLE EARTH THAN PLAGUES..." Voltaire.
And lately, there have been a lot of opinions about inflation being voiced from Fed officials, respected economists, and the media. But what does all this talk really mean for our economy and home loan rates? Here's what you need to know.
On Friday, the Consumer Price Index (CPI), which measures the prices US consumers pay, came in lower than expected for January. The chart below shows the year-over-year headline CPI at 2.6%, below expectations of 2.8%. What's more, when volatile food and energy are removed from the equation, the "Core" Consumer Price Index was actually negative - and the last time that happened was 28 years ago.
So, if the CPI Report shows that inflation is currently non-existent, why are so many people expressing concern? The reality is that the factors which are currently restraining inflation pressures could easily swing the other way.
In fact, Kansas City Fed President Thomas Hoenig recently said, "Fiscal policy is on an unsustainable course. The US Government must make adjustments in its spending and tax programs. It is that simple. If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis." And part of the crisis Mr. Hoenig is warning of is the possibility of hyperinflation, which occurs when prices rise so quickly that a currency becomes worthless.
Hoenig recently reminded us that he has a framed picture of a 500,000 German mark bill in his office...which would have purchased a home in 1921, but due to sudden inflation, wouldn't purchase a loaf of bread just two years later. Adding to the inflation talk, recent Produce Price Index Reports, which measure inflation at the wholesale level, have shown a trend higher in wholesale inflation. January's report, for example, was significantly higher than expected, due to rising energy costs.
Also chiming in with an opinion, Philadelphia Fed President Charles Plosser made some interesting comments regarding monetary policy and sales of assets that the Fed currently owns. Mr. Plosser stated that the Fed should begin to sell off their stockpile of Mortgage Backed Securities (MBS) as the economic recovery gains strength. With the Fed MBS buying program ending soon, and the Fed now potentially turning into a seller of MBS, Bond prices and home loan rates will very likely worsen over time. (More on this in the special "Video View" below...don't miss it!)
Two important deadlines are on the horizon: the Fed will stop buying Mortgage Backed Securities at the end of March (which means home loan rates may soon be on the rise), and the Homebuyer's Tax Credit is due to expire on April 30. If you or any of your friends, family members, neighbors or colleagues want to learn more about how you can benefit from the current situation, give us a call or email – we would be happy to explain more about the opportunity at hand.
Contentious Steamboat Referendum To Be Decided Tonight
While towns across resort communities are busy this week taking a first look at city and town council candidates for the April elections, the City of Steamboat is preparing to count the mail-in ballots of perhaps one of the most contentious issues in decades in the city. The issue at hand is whether to approve a planned development, called Steamboat 700, and let it move ahead with construction. The city council approved the project last fall, but agreed the issue should go to the voters if enough signatures could be obtained for a ballot initiative to go to the voters. The signatures were received, and the fall and winter have been spent with heated debates over growth in Steamboat. Some want the development, which is set to include 2,000 homes and 380,000 square feet of commercial space, over a 20- to 30-year time frame for development, on a 487-acre site just west of current city limits. Others argue against because of high property taxes, traffic mitigation problems, water issues and affordable housing requirements. Mail in ballots must be received by tomorrow afternoon to be included in the official county. City officials have said the counting won't begin until Tuesday evening.
As you can see in the chart below, Mortgage Bonds were able to rally last week on weak housing numbers and the struggling jobs market, resulting in improved home loan rates. I'll be watching carefully in the week ahead to see if Bonds and home loan rates can build on their positive momentum.
The next meeting of the Colorado Association of Real Estate Investors is Weds, Feb 24th from 7:00 to 9:00 PM at the Marriott Hotel Lone Tree (Park Meadows).
"Foreclosure Investing in Colorado"
Presented by Attorney William Bronchick
Learn the ins and outs of the foreclosure process in Colorado.
Attorney William Bronchick will show you how to comply with the laws and profit along the way - legaly and ethically.
Topics of disucussion include:
* The foreclosure timelines in Colorado
* How to comply with the Foreclosure Protection Act
* Short Sales
* Profiting from overleveraged properties
And much more!
Admission is free for CAREI members. Guests may attend by paying a small admission fee ($20) at the door. No advance registration or RSVP is required.
CAREI is an "A+" rated member of the Better Business Bureau and a member of Tom Martino's exclusive Referral List.
April will certainly roar out with a big week of news, beginning with Monday's Personal Income and Personal Spending Reports. We'll also get a look at the Core Personal Consumption Expenditure (PCE), which is the Fed's favorite gauge of inflation. Rest assured the Fed will be watching this report closely!
The Labor Market will also be in the spotlight, first with Thursday's Initial Jobless Claims Report. Last week's Initial Jobless Claims were reported lower than expectations and at the lowest reading in 6 weeks. The numbers show modest improvements and are somewhat encouraging.
Hopefully, Friday's official Jobs Report from the Labor Department for March will also be encouraging. Last month's report showed that 36,000 jobs were lost in February, which was better than the 68,000+ job losses that were expected. However, while the Unemployment Rate remained stable at 9.7%, a deeper look beyond the headlines of the report showed what many consider to be the Real Unemployment Rate to be near 17%...which includes discouraged workers who are no longer seeking employment, as well as "underemployed" folks who have taken part time or low paying jobs, just to be bringing some money in the door. The bottom line is that real improvement is needed in the labor market for our economy to continue to recover.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And with the Fed MBS buying program ending...there will likely be more volatility for home loan rates in store.
As you can see in the chart below, Bonds worsened last week, causing home loan rates to rise - and rates always go up much faster than they move lower. I'll be watching closely to see what happens this week as March comes to a close - and please get in touch if I can be of any assistance in answering your questions on rates and current opportunities.
Only 1 Month Left to Qualify...
Don't Miss Out on the Tax Credit!
Last November, the government expanded and extended the new Homebuyers Tax Credit. According to the program, first-time homebuyers are eligible for a tax credit of 10% of the purchase price of the home, with a maximum credit of $8,000. And some current homeowners looking to purchase a home can receive a credit up to $6,500.
Although military personnel may qualify for a special extension, the vast majority of homeowners must have contracts in effect no later than April 30, 2010 and must close no later than June 30, 2010 to qualify for the credit.
That means...you only have one month to get your paperwork going to qualify for this credit before it goes away!
Here is a brief overview of the Homebuyers Tax Credit - and its benefits.
The benefit of a tax credit is that it's a dollar-for-dollar benefit, rather than a "tax deduction" or reduction in tax liability that would save just $1,000 to $1,500 when all was said and done.
So, if a first-time homebuyer who qualified for the entire benefit were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Even Better... It's Refundable!
Remember, because it's a tax credit, it's refundable! That means a homebuyer can receive a check for the credit if he or she has little or no income tax liability.
For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
What Are the Income Caps?
Single tax filers with earnings of $125,000 or less are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers with earnings of $145,000 and above are ineligible.
Joint filers with earnings of $225,000 or less are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers with earnings of $245,000 and above are ineligible.
What's the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
Remember, the Homebuyer Tax Credit program includes a number of details and qualifications.
Forecast for the week of March 22nd
This week's economic calendar may seem slow after the wave of economic news last week. But there are still some big items on tap, starting off right away Monday morning when the Pending Home Sales report gives us a look at the health of the housing industry.
Tuesday brings us the Meeting Minutes from the latest Fed Meeting. Although we already know what the Fed's policy announcement was, the markets will be looking at the discussion contained in the Meeting Minutes as an indication of what Fed members are thinking and what they may do in the future.
On Thursday we'll get another look at Initial Jobless Claims. Last week, Initial Jobless Claims were reported basically in line with expectations and down from the previous week's number, and Continuing Jobless Claims declined as well. With those numbers and last week's official Jobs Report in mind, the market will be watching to see if the labor market can continue to make positive strides.
Finally, in addition to those reports, the Treasury Department will auction off $82 Billion in Treasuries. And since most of those will be longer maturities that compete with Mortgage Backed Securities, the auctions could add volatility to the markets depending on how they are received.
Economic Calendar for the Week of January 05 January 09
Date ET Economic Report For Estimate Actual Prior Impact Wed. January 07 10:30 Crude Inventories 1/02 NA -465K Moderate Thu. January 08 08:30 Jobless Claims (Initial) 1/03 NA 492K Moderate Fri. January 09 08:30 Non-farm Payrolls Dec -475K -533K HIGH Fri. January 09 08:30 Average Work Week Dec 33.5 33.5 HIGH Fri. January 09 08:30 Hourly Earnings Dec 0.2% 0.4% HIGH Fri. January 09 08:30 Unemployment Rate Dec 7.0% 6.7% HIGH
More than 450,000 REALTORS? have responded to NAR's most recent Call for Action regarding the extension of the Homebuyer Tax Credit, making it the most successful campaign ever. The effort was supported by a flurry of activity last week, with dozens of REALTORS? and NAR officials flying to Washington to meet with their members of Congress. An Amendment to extend and expand the tax credit was placed in a bill this week, and barring any changes early next week, is expected to be headed for its first vote in the Senate. Once the Senate acts, the tax credit must still go to the House of Representatives for action. NAR is looking for members to keep the pressure on our members of Congress.
If you have not yet Taken Action, please do so by clicking on the link below. To-date, only 12% of Colorado REALTORS? have responded - Help us increase that number!
Steamboat 700 Forum Draws Full House; Disagreement
With the mail-in ballots on their way to local voters, the Steamboat 700 ballot issue is becoming increasingly divisive. During the next few weeks, local voters will decide the fate of the Steamboat 700 development, which is set to include 2,000 homes and 380,000 square feet of commercial space, over a 20- to 30-year time frame for development, on a 487-acre site just west of current city limits. The development is spurned by opposition groups over traffic mitigation, water, and the affordable housing component of the development. The "Let's Vote Committee", which opposes annexation, and the "Good For Steamboat Committee" both include REALTOR? members voiced their views at a forum last week on the issue. Much of the debate focused on affordable housing and water costs. The current plan requires developers to give the city 15 acres for affordable housing and place a real estate transfer fee, of 1.2 percent of the total sale price, on all sales within the annexation. 0.5 percent, of the 1.2 percent would go toward an affordable housing fund. The city could build 400 affordable homes on those acres, however, a draft attainability program requires 30 percent of about 480 additional homes to be marketed for one year to buyers or households earning 120 percent to 200 percent of the area median income. Opponents argued that 400 homes is too dense on 15 acres, and that the transfer fee will take 20-30 years to be fully realized. On water costs, developers would be required to pay for all water and wastewater infrastructure within the annexation. Tap fees would be paid by homeowners for infrastructure expansion outside of the development. Steamboat 700 also would pay the city $960,000 to improve the city?s existing water rights on the Elk River. Supporters feel the water costs are reasonable, arguing if the development was in Vail, nothing affordable could be built, while opponents feel the City should have required higher water payments from the developer. The voting, along with the fate of Steamboat 700, ends March 9th.
Breckenridge Begins Approval Process Of Open House Sign Extension This Week
At its last Town Council meeting,the Breckenridge Town Council and staff told SAR they have been very pleased, and surprised, at the commitment of REALTORS? to comply with the Breckenridge Open House Sign ordinance over the past year. The Council is unanimously poised to extend the ordinance for another year to allow uniform open house signs in Breckenridge at it Council meeting Tuesday night. The Council chose to extend the ordinance for another year, and asked SAR to continue educating its membership on the details of the ordinance. Breckenridge has one of the most strict open house sign policies in the mountain region. The policy requires uniform signs in a burgundy color, and has specific requirements as to where the signs may be placed in town. The Council will have its first vote on the extension Tuesday night.
Lights Out on Extension of Deadline To Comply With Lighting Ordinance in Avon
Despite an effort to extend the deadline for Avon residents to comply with the "Dark Sky" Lighting ordinance, the town has voted down the effort. The amendment to the ordinance would have delayed the town's enforcement of the ordinance. The ordinance which was enacted in November of 2004, required that residents and business owners update exterior lighting to ensure the town of Avon was void of light pollution. The ordinance inlcuded a five-year grace period, which expired last November. The town will continue working with citizens to ensure their compliance to the policy.
Just days before Sunday's "spring forward" into Daylight Savings Time, the retail sector looked to be unfreezing and showing at least a little spring in its step.
Retail Sales for February were reported last Friday at 0.3%, which was better than the previous month's reading and much better than the -0.2% expected. Despite the good news, however, we need to keep in mind that it will be subject to future revisions - just like we saw in Friday's report, in which last month's decent 0.5% reading was revised sharply lower to just 0.1%.
The better-than-expected Retail Sales was good news for the economy, but it could also lead to inflation trouble ahead. Remember, inflation is the archenemy of Bonds. Just last week, fears of inflation in China pressured Bonds around the globe. And here in the US, a number of Fed members have already mentioned inflation as an increasing concern.
And it isn't just Fed officials who have been warning against inflation; investors around the globe are having increased doubts. Massive debt and massive balance sheet expansion - combined with near zero interest rates for a long period of time - will no doubt conjure a recipe for inflation.
The question is this: Once inflation rears its ugly head...will the Fed have the courage and the will to kill the monster by tightening policy, amidst enormous political pressure not to do so? The next Fed meeting is taking place this week, and the Policy Statement released on Tuesday will garner intense scrutiny.
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending March 19th) in which the 30-yr fixed-rate mortgage (FRM) avg. 5.08. Last year at this time, the 30-yr FRM avg 4.78%.
The 15-year FRM this week avg 4.39%. A year ago at this time, the 15-year FRM avg 4.52%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.10%. A year ago, the 5-year ARM avg 4.92%.
The one-year Treasury-indexed ARM avg 4.05%. At this time last year, the 1-year ARM avg 4.75%.
Last week's Jobs Report showed that there are millions of people who would love to be working full time...or even working at all. The labor market continues to struggle, though it has shown improvement from its worst levels.
The Jobs Report for February showed 36,000 jobs lost in February, which was better than the 68,000+ job losses that were expected. Adding to the positive tone of the report were upward revisions to the prior two month's reports showing 35,000 fewer jobs lost. However - helping the numbers were 15,000 temporary census worker hires made by the government. Without these, actual job losses would have exceeded 50,000 for February.
Additionally, the Unemployment Rate remained at 9.7%, better than expectations of a rise to 9.8%. But a deeper look beyond the headlines of the report showed what many consider to be the Real Unemployment Rate to be at 16.8%, a rise from last month's 16.5%.
This rate includes both discouraged workers - those who are no longer seeking work at this time - and those who are working part-time that would rather be "workin' nine to five" with full time employment, but are forced to accept part time out of necessity to earn whatever they can. And just last month, another nearly 500,000 people accepted part time work, citing economic reasons for doing so.
In related news, Productivity rose by 6.9% during the Fourth quarter of 2009, up from the previous reading of 6.2%. This is an encouraging report, because during an economic recovery, it is normal to see a pick up in productivity before seeing fresh job creations. Think about it - companies may start to see their business pick up, but before making the commitment of hiring new workers, they will squeeze more productivity out of their present staff. Job creations may be coming - but it appears that the labor market recovery will be slow going.
Bonds attempted to rally through the week, but ultimately, improvements in Stocks and positive economic news caused Bonds and home loan rates to end the week around the same levels as where they began.
Tresi Houpt To Run For Re-election As Garfield County Commissioner
Ending speculation about whether or not she would run for re-election, Garfield County Commissioner Tresi Houpt announced she will run for re-election to her seat. Houpt, controversial in her liberal views of oil and gas drilling, also holds a seat on the Colorado Oil and Gas Conservation Commission (COGCC). Some wondered whether she would focus on her role in that capacity. Houpt is often viewed as anti-oil and gas drilling, focusing on protection of the environment and wildlife.
Two Candidates Announces Run for Mayor of Carbondale
Carbondale town trustee Ed Cortez thinks he's ready to serve as Mayor and has announced his election bid for the seat. Cortez's announcement comes on the heels of the announcement by Patch Bernot, also a Town Trustee. Cortez is stressing the need to focus on the towns economic future, and the need for an economic plan, while Bernot is focusing on the need for consistency on the Town Board.
Weekely Interest Rate Update
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending March 19th) in which the 30-yr fixed-rate mortgage (FRM) avg. 5.08. Last year at this time, the 30-yr FRM avg 4.78%.
The 15-year FRM this week avg 4.39%. A year ago at this time, the 15-year FRM avg 4.52%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 4.10%. A year ago, the 5-year ARM avg 4.92%.
The one-year Treasury-indexed ARM avg 4.05%. At this time last year, the 1-year ARM avg 4.75%.
Volatility for home loan rates has already begun.
The Fed did what they set out to do - purchasing $1.25 Trillion in Mortgage Backed Securities, and succeeding in their plan to lower home loan rates and help stabilize the housing sector. And even though they stretched out the length of the program slightly - in order to soften the impact of the end of the program - the training wheels are now off, the safety net is gone, and home loan rates have already moved higher. In fact - as the Fed will now gradually become a seller of their massive holdings of Mortgage Backed Securities - rates are very likely to continue to move higher still.
Even after home loan rates took a jump higher last week, they still remain at reasonably low levels - which makes right now a crucial time to take advantage of the opportunities that exist, including the Homebuyers Tax Credit which is down to its last month. To take advantage of the generous credit, purchase contracts must be signed by the end of April. If you or someone you know has questions about this credit - please don't wait to get in touch with us.
Adding to last week's volatility, the official Jobs Report was released last Friday - and according to the report, 162,000 jobs were created in March, making it the biggest one-month increase in three years. Additionally, there were upward revisions to January and February, which brought the last two months' net job losses to near zero.
While it was good to see some positive numbers, we're not exactly out of the woods just yet, as there were some concerning aspects of this Jobs Report. For example, Average Hourly Earnings actually fell 0.1% in March. This could be viewed as a negative sign, indicating that there's no pressure on companies to pay workers more to retain them. It also shows continued temporary hiring at a lower pay scale.
The official Unemployment Rate remained steady at 9.7%, but when factoring in the "underemployed", including people who accepted part-time work because full-time work is simply not available, the rate of unemployment overall rose from 16.8% to 16.9%. This is a big number that continues to weigh on the labor market.
Looking for Frisco, Silverthorne REALTORS To Run For Open Seats This Year
SAR is looking for Frisco and Silverthorne REALTORS to run for Town Council. With two, arguably three, Council members already favorable to the real estate and building industries in Frisco, our industry would have a Frisco Town Council actually in support of our industry if we can win a seat. In Silverthorne, one seat is term-limited and several seats are up for grabs. This is an intersting time to serve on the Silverthorne Council with Home Depot and Lowe's stores hoping to come to the Town. If you are interested in running for a seat, or know of someone who might be interested, please contact Sarah Thorsteinson, Mountain REALTOR? Government Affairs Director at email@example.com.
SAR To Host Council Candidate Forum March 10th
On Wednesday March 10th, the Summit Association of REALTORS will host a town council candidate forum for the towns of Breckenridge, Dillon, Frisco and Silverthorne. The forum will be from 5-9 at the Holiday Inn in Frisco. Wine, Beer and Appetizers will be provided. A cocktail/"meet the candidates" hour from 5-6 will preceed the forum, which begins at 6 pm. More details to come...
River Outfitting Bill Violates Private Property Rights
HB1188, sponsored by Rep. Kathleen Curry(I-Gunnison), and co-sponsored by Rep. Christine Scanlan (D-Frisco) creates a new right of trespass for commercial rafting businesses, and constitutes a taking of private property rights. Some proponents claim present law is unclear; however, it has been established that rafters, and other recreational water users, may pass through private property as long as they do not touch or otherwise use the private land. The bill asserts that old English common law somehow creates a blanket "right of navigation" is incorrect. Section 2-4-211, C.R.S. does not say anything pertaining to a right of navigation. Furthermore, Old English law was riparian in origin, which has never been recognized by most Western states, including Colorado. CAR believes the bill language is itself unclear in a few specific areas. The bill permits "incidental contact" but provides no definition of incidental contact with land. Neither does the bill explain what constitutes "minimum possible use". Those terms are too subjective, and do not provide stakeholders or authorities with a clear understanding about whether or not a rafting company is complying with the law. Since the bill is written for a particular group, CAR has concerns about what type of precedent will be set for other recreational users. The bill specifically precludes other recreational users, but the potential clearly exists for other groups to assert inclusion in this new right of trespass because of precedent here. The peaceful use and enjoyment of one's own property, and control of access, are fundamental to recognized private property rights. Some private land may be attractive to rafters, but their desires do not justify and must not overrule landowners' more fundamental rights.
The bill is being lobbied heavily by river outfitting groups, and some local Chambers of Commerce in support of the bill. Opposition to the bill includes the COlorado Association of REALTORS, The Cattlemen's, the Farm Bureau, Dairy Council, Club 20, and other groups. The bill passed out of the House very quickly and is now in the Senate, where Senate Leaders have promised to take a more measured approach to the bill.
Effort to Zero Out Colorado Tourism Funding Fizzles Out
On high alert last week, the Vail Board of REALTORS (VBR) got word that State Representative Randy Fischer was attempting to zero out funding for Colorado tourism as an effort to balance the state budget, and divert funds to water projects. While the effort only got 4 votes in committee, the Governor's Office of Economic Development and International Trade was very concerned Fischer was going to offer an amendment to a supplemental appropriations bill on second reading on the House floor. VBR immediately contacted Eagle County Rep. Christine Scanlan for her position, and alerted the Colorado Association of REALTORS to the effort. CAR was quickly able to determine Rep. Fischer did not offer the amendment last week. VBR was concerned that elimination of tourism funding would hurt tourism in the mountain resort ski areas. The Senate will be debating supplemental bills this week, and while not expected, VBR is monitoring any activity that would cut funding for tourism.
The Empire State Manufacturing Index came in higher than expected and up from January's reading. The report also showed business activity picking up and business leaders forecasting better economic conditions in the coming months. In addition, Housing Starts for January came in better than expected and at the highest level since July, thanks in large part to the extension of the Homebuyer Tax Credit.
Bond prices were unable to improve after falling below an important technical level this week, and as a result, home loan rates ended the week worse than where they began.
While it's hard to say what opinions might be uttered this week, there will definitely be plenty of news in store.
We'll get a look at the housing market with Wednesday's New Home Sales Report and Friday's Existing Home Sales Report. It will be interesting to see if these reports are looking more positive, as many buyers are working to take advantage of the Homebuyer's Tax Credit before it expires this spring. If you want to learn more about this Tax Credit and how it might help you or someone you know - don't hesitate to get in touch with me, I can share all the details and important timelines.
Also this week, we'll get several reads on the health of the economy with Thursday's Durable Goods Report - which gives us an update on consumer and business buying behavior on big ticket items that last for an extended period of time - and Friday's Gross Domestic Product Report, which is the broadest measure of economic activity.
Tuesday's Consumer Confidence Report and Thursday's Initial Jobless Claims Report will also be important to watch. Last week's Initial Jobless Claims and Continuing Claims numbers were higher than expected, showing that the labor market is still struggling. The bottom line is that while some of the recent economic reports have had encouraging signs, the economy needs to create jobs and regain consumer confidence before any positive opinions on the economy will become reality.
And as if it won't be a week jam packed full of opinions already, Fed Chairman Ben Bernanke will be weighing in with some thoughts of his own, as he testifies before Congress on Wednesday and Thursday.
"LIKE SLUGGISH WATERS THROUGH A MARSH..."
The poet Sir Walter Scott wasn't talking about the economic recovery, but his words paint a pretty vivid picture...and after last week's economic reports, perhaps a pretty accurate one on the state of the recovery.
Last week's Gross Domestic Product (GDP) report showed that the economy grew 5.9% in the 4th quarter of 2009, which was in line with expectations and the best GDP reading in more than 6 years - which on the surface, sounds like a great number. However, the gains came from rebuilding of inventory and very modest business spending - not from consumer spending. The biggest component of GDP is consumer spending and the revised number on that front came in lower than expected, and far worse than the 3rd Quarter of 2009, when the government's Cash for Clunkers program temporarily boosted sales.
On the housing front, Existing Home Sales for January were reported at 5.05 Million units, which was less than expectation of 5.44 Million. As you can see from the chart below, Existing Home Sales have now declined for two consecutive months. New Home Sales for January were also reported below expectations last week.
Odds are that inclement weather affected the housing market negatively in January - since people are less likely to go house hunting in the midst of snowstorms and freezing temperatures. But in any case, last week's data demonstrated that the housing market remains a bit lethargic.
The good news is that today's affordable home prices and amount of supply on the market - not to mention low rates and the government's Homebuyers Tax Credit - present tremendous opportunities for homebuyers who are looking for a great deal.
FORECAST FOR THIS WEEK
Last week may have been a slow one when it comes to economic reports, but the week ahead is full of action, beginning with Tuesday's Producer Price Index (PPI) Report, which measures inflation at the wholesale level. More inflation news immediately follows with Wednesday's Consumer Price Index (CPI) Report. Remember that inflation erodes the value of the fixed income that a Bond provides, so any signs of inflation can cause Bond prices and home loan rates to worsen.
Wednesday will also bring a read on the housing market with the Housing Starts and Building Permits Report, as well as the Interest Rate Decision and Policy Statement from the Fed, following the end of their regularly scheduled Federal Open Market Committee meeting. A change in rates isn't expected - but any comments about inflation in the Policy Statement could rattle Bonds and home loan rates.
Also important this week is a look at the manufacturing sector, via Tuesday's Empire State Index and Thursday's Philadelphia Fed Report. Manufacturing reports have been all over the boards lately, but a marked improvement in either of these reports could cause Stocks to move higher, and in turn, hurt Bonds and home loan rates. Also in store for Thursday is another look at the weekly Initial Jobless Claims Report. Last week's Continuing Jobless Claims fell to the lowest level since February, and while at first blush this decline would appear to be a good thing, it is likely that the numbers are reflective of people accepting part time or seasonal work that won't last after the holidays.
District Attorney Mark Hurlbert To Run For Dan Gibbs Senate Seat
5th Judicical District District Attorney Mark Hurlbert (R) has announced he will run for the state senate seat (SD-16) given up by Dan Gibbs (D-Breck). Gibbs is running for Summit County Commissioner. Hurlbert is running against Tim Leonard of Evergreen in the republican primary. Democrats have yet to announce a candidate, but leading dems say there is a lot of interest.
Avon To Vote On Fee Reduction For Zoning & Building Permits
Tuesday night, the Avon Town Council will consider a resolution that will provide an extension of a 100% fee reduction for zoning and building permit aplications. Last year, the Council reduced building & zoning permit fees to nothing for August 1, 2009 to February 12, 2010. Planning staff is recommending that the resolution be denied, citing that the fee reductions did not produce intended results, and that the construction industry ws not jump started. According to planning staff, only $2100 in fees were waived during that period. The town manager feels that the fees should not be waived further because it will put further pressure on a very tight general fund.
Glenwood Springs to Allow Open House Signs
After 9 months of consideration, the Glenwood Springs City Council will hold its final vote on the new open house sign policy on Thursday. The policy will allow 2 directional open house signs and 1 on site. The ordinance will sunset after 1 year, and will require REALTORS? to self-police violations by fellow REALTORS. The Council will review the policy after one year to determine whether there has been a proliferation of signs in violation, and whether the ordinance should be made permanent. REALTORS? should not use open house signs until the ordinance goes into effect in early January. The ordinance as approved, along with FAQ's will be sent to the GSAR membership.
THEY SAY THAT MARCH COMES IN LIKE A LION AND GOES OUT LIKE A LAMB...
But this year, the exact reverse is true when it comes to home loan rates - for quite a few reasons, including the end of the Federal Reserve acting as a large buyer of Mortgage Backed Securities (MBS). The "demand" created by their fifteen-month program has helped Bond prices stay high and home loan rates stay low.
But the Fed's MBS purchase program will end on March 31st. The Fed has confirmed this several times, including during last week's testimony by Fed Chairman Ben Bernanke. What's more, the Fed will likely change sides entirely, and actually become a seller of MBS, since their balance sheet hangs heavy with MBS holdings. However, once the Fed begins selling MBS and puts more supply into the market - at the same time as entirely removing their past demand as buyers - this will pressure Bond prices lower and push home loan rates higher.
If you or someone you know would like to learn more about how you can take advantage of today's low-rate environment, or the Homebuyer Tax Credit which is due to expire on April 30 (see the below View article for more details), just call or email me. Additionally, consider forwarding this issue to a friend, family member, neighbor or coworker who might benefit from the information.
In other news, the final reading on 2009's Fourth Quarter Gross Domestic Product (GDP) roared in at 5.6%. While this was the best quarterly performance in six years, the economy shrank 2.4% during 2009, the worst single-year performance since 1946.
However, last week's housing news arrived with a bit of a whimper. While Existing Home Sales for February were reported in line with expectations, the inventory number swelled to the highest inventory level since last August. In addition, New Home Sales fell slightly in February - the fourth straight monthly drop - to yet another record low. On the new construction front - this may be due in part to buyers feeling a new home purchase may not close in time to take advantage of the Homebuyers Tax Credit before it expires on April 30th...but the bottom line is that the real fix for housing will depend on a stronger labor market.
Weak auction results and the approaching end of the Fed's MBS purchase program contributed to a volatile week in the markets, causing Bonds to fall below important technical levels. As a result, Bonds and home loan rates ended the week worse than where they began.
THERE'S JUST ONE MONTH LEFT BEFORE THE HOMEBUYERS TAX CREDIT EXPIRES ON APRIL 30!
The action during Sunday's healthcare vote will almost certainly impact the markets in the coming week, and there is also a full slate of economic reports to watch for. First up, there will be a double-dose of housing news with Tuesday's Existing Home Sales Report and Wednesday's New Home Sales Report.
Also, on Wednesday we'll get a read on the health of the economy with the Durable Goods Report, which gives us an update on consumer and business buying behavior on big ticket items that last for an extended period of time. Friday will bring another read on the economy with the Gross Domestic Product Report, which is the broadest measure of economic activity.
Not to be missed will be Thursday's weekly Initial Jobless Claims Report. While last week's initial claims were essentially inline with expectations, the ugly component of the report was the 5,888,048 people collecting EUC (Emergency Unemployment Compensation) benefits. This is a whopping 360,000 person increase from the prior week. Unfortunately, the labor market continues to be very weak.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
Despite midweek volatility, Bonds and home loan rates ended the week very near where they began. With all the action in store, We w'll be watching closely to see in what direction the markets and rates move this week. As always, please feel free to call or email to get more information on what the current rate climate means to you.
HUD Extends Comment Period On Seller Financing (from NAR)
On February 12, 2010, NAR President Vicki Cox Golder submitted a letter to Shaun Donovan, Secretary of Housing and Urban Development, on HUD's proposed rule to implement the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (the SAFE Act). The SAFE Act requires states to establish loan originator licensing requirements that meet minimum standards. The rule establishes minimum requirements for state licensing, the procedures HUD will use to determine whether a state is in compliance, the actions HUD will take if a state is not in compliance, and HUD's enforcement authority if it operates the system for non-compliant states.
NAR urges HUD to exempt all seller financing from the licensing requirements. If HUD refuses to accept this comment, NAR urges it to make the proposed exemption for seller financing of a residence by the owner much more flexible by expanding it to apply to other sellers who occasionally provide financing for property they own. The exemption for the sale of a residence should also be expanded to include sale of an inherited residence by heirs and the sale of a former residence. NAR also asks HUD to clarify that the payment by a lender of a real estate commission for the sale of a lender-owned property does not make the real estate broker or agent a loan originator subject to SAFE Act licensing.
So What Does the Fed Do on a Daily Basis?
The main responsibilities of the Fed include:
Researching US national and regional economies
Providing financial services to depository institutions, the US government, and foreign official institutions Supervising and regulating banking institutions to ensure the safety of the nation's financial system and protect the credit rights of consumers Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy (i.e. hiking or cutting the Fed Funds Rate, as they did recently) in pursuit of maximum employment, stable prices, and moderate long-term interest rates Communicating information about the economy via publications, speeches, seminars and websites
But the communication method that typically grabs the attention of most individuals is the statement given by Federal Chairman Ben Bernanke, following the eight formal meetings that take place about every six weeks throughout the year. At these meetings, the Fed has the opportunity to make changes to the Federal Funds Rate, and make their decision by reviewing economic and financial conditions. They can also make adjustments to the Fed Funds Rate outside of these meetings, but rarely do so because they don't want to deliver a surprise that could rattle the financial markets.
Overall, the Fed's main responsibility is to keep the economy growing at a steady pace by keeping inflation stable and rates moderate. When inflation is low and stable, businesses and households can spend, knowing that their purchasing power can remain strong.