January 07, 2011
January 2011 Summit County Real Estate.Net Notices
Garfield County Comp Plan Approved; Down Zoning Included
After years of developing an update to the Garfield County Comprehensive Plan, the Garfield County Planning and Zoning Commission voted 4-3 to approve the Update. P & Z Commissioners, and REALTORS® Cheryl Chandler and Bob Fullerton, along with Sean Martin, voted against the update because the new Comp Plan includes potential down zoning, and the document is mandatory in nature.
Most Comp Plans are advisory and flexible as economic and environmental conditions change. The Policy also changes density in the Colorado River Valley from 2 dwelling units per acre, to 2-6 units per dwelling acre. This means a developer would start with 6 units an acre, and could "work up" to 2 units an acre with incentives. The policy also requires clustering of homes in rural residential areas outside the towns.
GSAR took major issue with all of these inclusions, citing MLS data that showed buyers in Garfield County want bigger plots of land, and that the market is not there for small plots of land with homes close together. The County Commissioners disagreed, stating that County residents were surveyed, and did not want sprawl across the County, that residents would like to maintain the rural character of the County. GSAR is pleased however, because the election of Tom Jankovsky to County Commissioner will fully enable the County Commissioners to do an amendment to the Land Use Code, to make the Comp Plan advisory in nature.
By making the Comp Plan advisory, the Commissioners will have the opportunity to work with developers and not necessarily require clustering and 6 dwelling units per acre. The Planning and Zoning Commission will have a joint meeting with the County Commissioners on February 8th to discuss the Comprehensive Plan.
Now, back to the question of why signs of good - or bad - economic news are particularly important of late. The Fed will be watching the various economic reports very closely over the next few weeks in advance of their next regularly scheduled meeting on November 2-3, as they are considering a second round of Quantitative Easing (QE2) to ensure that our slowing economy does not slow even further. If the economic reports that are ahead are more negative than positive, this will increase the likelihood of more QE... but it’s not a foregone conclusion at this point in the least.
So what does all this have to do with home loan rates? If the economic news continues to be soft and the Fed does go through with another round of QE, Bond prices and home loan rates may initially improve for two reasons. First, if the economic data is weak leading up to an announcement - that soft economic news tends to be bad for Stocks, but good for Bonds and therefore home loan rates. Additionally, Bonds would improve simply because the announcement of QE would include large Bond purchases. But keep in mind that the key word is "initially." Even though Bonds and home loan rates could initially improve, the eventual softening of the Dollar, rising commodity prices, and rise in Stock prices would become a drag on Bonds, which would negatively impact home loan rates.
We’ll see what happens in the coming weeks leading up to the Fed’s next meeting on November 2-3. But last week, meanwhile, the news had a positive impact on Bonds and home loan rates, as they ended the week about .125 to .25 percent better than where they began.
More housing and job news follows this week, but will there be change in an improving direction? We’ll find out with Tuesday’s Existing Home Sales Report, Wednesday’s New Home Sales Report, and Thursday’s Initial and Continuing Jobless Claims 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. Meanwhile, Friday will bring another read on the economy with the Gross Domestic Product Report, which is the broadest measure of economic activity.
Credit Reports: One May Not Be Enough
This summer, Fannie Mae instructed lenders that they should adopt a new policy that would include a second review of an applicant's credit report just prior to closing. Why? The answer is simple: the credit profile of a borrower may have changed between the time of the initial review of the credit report and the time of closing.
How will this impact the home loan?
The potential impact to a borrower who has utilized credit to make significant purchases after the initial credit report could include:
- A delay in closing
- Increase of closing costs and/or interest rate
- A decreased loan amount
- Denial of the loan : That’s right, in the worst-case scenario, a change in credit could even result in a loan being denied - even after an original approval had been granted.
What should homebuyers do (or not do)?
In order to eliminate any possibility of potential problems before closing, anyone in the application process should use credit sparingly and make sure they adhere to the tips provided below by credit expert Linda Ferrari of Credit Resource Corp:
- Don't do anything that causes a red flag to be raised by the scoring system.
- Don't apply for new credit of any kind.
- Don't pay off collections or charge offs.
- Don't max out or over charge on your credit accounts.
- Don't consolidate debt onto one or two credit cards.
This list is not comprehensive, but it does give you a peek into situations that could create issues and could also be contrary to some ideas you have read previously.
Avon Development Code Completed; VBR Assisted in Language
Last Tuesday, the Avon Town Council voted to approve a long overdue update to the towns Development Code.
Avon REALTORS® and VBR staff attended every Council discussion on the plan from June to the final vote last week. The Vail Board of REALTORS® was able to provide significant comment on the draft code to make it more usable for REALTORS®, land owners, and developers. VBR was able to use NAR's Land Use Initiative and premier Land Use Attorney's to review the Development code from a private property rights perspective.
Perhaps one of the biggest victories for VBR, was the issue of Development Code language making the Comprehensive Plan mandatory. VBR argued in several letters to the Council that the Comprehensive Plan should be advisory in nature, serving as a guideline rather than mandatory, leaving the Council little flexibility to adjust development requirements as economic and environmental situations change. After months of discussion, the town finally acknowledged public input, and made the goals and policies of the Comp Plan advisory, but left the sub plans, which included significant details, mandatory. VBR was also able to get language removed that would have made REALTORS® liable for clients who were not in compliance with the Development Code.
VBR was also able to assist in substantive changes including more detail in the design review guidelines, and clarification of language on special review use deadlines. VBR was also able to get the turnaround time in applications reduced by half. VBR continues to be concerned that the Development Code includes a 10% inclusionary zoning requirement for affordable housing. While 10% is small compared to the County's 50% requirement and Vail's 20% requirement, in principle VBR does not support inclusionary zoning policies because they drive the cost of market rate housing up artificially. VBR has had conversations with Council members outside of Council meetings and believe that the new code is a living document that will be modified.
State Agenda to Revolve Around Budget
CAR's lobbyists has given the Legislative Policy Committee an overview of what to expect in the upcoming session of the State legislature, which begins in January.
With a tight budget, the lobbyists expect that many state agencies will be combined. Agriculture and DOW will be combined, the Division of Local Affairs will go away, Health and Human Services will be combined with Health Care Policy and Finance. K-12 education and higher education will be cut even further. As far as hot topics, CU wants to create a real estate school and would like it to be paid for by adding additional fees onto broker licensing at the DRE. There will be several foreclosure bills.
CAR also believes there will be bills to address some campaign finance reform, particularly focusing on the gluttony of campaign ads run by sources outside the state. On land use regulations, the state will be looking for ways to create fees and provide income to the state budget. CAR is also expecting Urban Renewal Reform, transparency requirements, imminent domain, and some environmental issues, such as xcel indemnity. CAR is not expecting much anti-growth legislation. They also said there will only be water issues if there is no snow. If there is lots of snow this winter, water issues will not arise at the state Capitol.
World’s Largest Bond Fund Manager, Bill Gross, Compares QE2 to a "Ponzi Scheme"Let’s take a look at one of the consequences that may impact consumers looking to purchase or refinance a home in the future.
For months there has been an ever-growing fear that our economy is headed towards deflation, which is when prices on goods and services are falling lower. Deflation is the exact opposite of inflation, which of course occurs when prices climb higher. Remember, inflation is the arch-enemy of Bonds, so fears of inflation negatively impact Bond prices and home loan rates. But fears of deflation are good for Bonds and home loan rates. That’s because the fixed payment that a Bond provides to an investor goes further in a deflationary environment. So, the recent fears of deflation have helped Bond prices move higher and home loan rates move lower.
But last week, future deflation/inflation expectations changed... and investors in the Bond market started betting that the Fed will be successful in "creating inflation" via their Quantitative Easing plans, and will thus avoid continuing down a deflationary road. This was evidenced by the results of last week’s 5-Year Treasury Inflation Protected Securities (TIPS) auction, which saw investors buying TIPS at a premium since they were confident they’d be able to benefit from the increased inflation that should result from the QE2.
Of course, investors aren’t the only ones impacted by this. The media has already been chattering that the Fed has to be careful not to let inflation get out of control in the coming months and years. In fact, just last week, there was a headline explaining how another round of Quantitative Easing brings the risk of "unleashing the 1970s inflation genie." Consumers who are looking to purchase or refinance a house should also take note of that possibility - since even talk of inflation can impact home loan rates negatively. After all, a rise in inflation would be bad for Mortgage Bonds and, as a result, for home loan rates.
The good news is that home loan rates are still near historic lows for the time being. If you or someone you know would like to see how you can benefit from the current situation, call or email me today.
"There is nothing wrong with change, if it is in the right direction." Winston Churchill. And certainly, seeing our economy improve is change in the right direction. But what steps will get us there... and how will those steps impact home loan rates. Here’s what you need to know.
Last Tuesday, the government held a "Future of Housing Finance" conference to discuss changes needed in this area. Most participants agreed that government assistance for housing must be reduced but not eliminated. Bill Gross, from PIMCO and one of the panelists, called for a massive refinancing of certain mortgages backed by Fannie/Freddie/FHA, believing such a move would lift home prices 5% to 10% and provide a $50 Billion stimulus to the economy. I will be watching this situation closely for further developments.
Home sales and the job market - two key aspects to our continued recovery - are also areas we need to see change in an improving direction. Last week, the NAHB Housing Market Index came in a bit worse than expectations and showed housing to be at a 17-month low. It can be argued that the tax credits actually hurt the housing market by not adding any sales, just pushing them up. This has now resulted in a void or softer period in the market, potentially wasting billions of dollars. Housing Starts and Building Permits were also reported lower than expected last week. Clearly, demand for housing has slowed over the past few months, due to the expiration of the Home Buyer Tax Credit and persistently high unemployment.
Put on your seatbelt - it will be an exciting week ahead! As stated above, we’ll see the midterm elections this Tuesday, the FOMC Meeting and following Monetary Policy Statement coming on Wednesday, and the all-important Jobs Report on Friday. On their own - each one would have the ability to create volatility in the financial markets... but having all three in a row certainly spells an exciting and interesting week ahead. I’ll be staying closely tuned - and we’ll break down all the events in next week’s issue.
In addition to those three big events, we’ll see economic reports on Personal Spending, Personal Income, and Personal Consumption Expenditures (PCE) - which measures price changes in consumer goods and services - on Monday.
We’ll also see some important employment news leading up to the official Jobs Report on Friday. First up is the ADP National Employment Report on Wednesday, which measures nonfarm private employment. That will be followed the next day with another round of Initial Jobless Claims. In last week’s report, Initial Jobless Claims were reported at 434,000, which marked the third straight decrease in Claims and the lowest level since early July. That was definitely an improved number... but we can't get too euphoric until we see the Initial Jobless Claims reaching the 400,000 mark and steadily moving lower from there.
And as if that weren’t enough excitement for the week, we’ll see more housing news with Pending Home Sales on Friday. Regardless of what these economic reports say, it’s bound to be a roller coaster ride with all the big news items on tap - call me this week if you have any questions about how home loan rates are moving.
City of Steamboat
Looking At Ways To Help Businesses
Last week, the City of Steamboat held a forum for local businesses to provide input as to how the City can help local businesses during tough economic times survive. Feedback from the businesses included The council hosted a forum Tuesday so the community could discuss what the city can do to help businesses survive. Some ideas suggested were micro loans for businesses; greater support for growing technology industries; a short-term moratorium on city fees related to new construction; a re-examination of city noise ordinances, especially in relation to downtown restaurants and bars; more late-night transportation options and increased partnerships with Colorado Mountain College and Yampa Valley Medical Center. The City Council was pleased with the input from businesses, and while there is no easy fix, the Council will be working to help local businesses thrive. SSBR will be monitoring Council activity to ensure help from the City will benefit the real estate industry.
Steamboat Water Rate Increase Approved; Go Into Effect January 1st
Last week, the Steamboat Springs City Council gave final approval to as much as $70 million dollars in water and wastewater infrastructure improvements for the city of Steamboat. The Council vote was unanimous, and will cause typical water bills to go up 14% in 2011, and waste water bills will go up 8%. Tap fees on new construction will also go up. The rates will be evaluated in 2013 and adjusted at that time.
Avon Land Use Code Public Hearing Tuesday
On Tuesday, September 28th, the Avon Town Council will hold a public hearing on the latest iteration of the update to the Avon Development Code. The latest draft with input from the public, was released last week. The Council made several changes to the document based on input from the Vail Board of REALTORS?. Language was taken out that would have made REALTORS? liable for client owner or tenant violations of the land use code, as well as violations at the time of transfer of property. VBR is still reviewing the new 280 page document, but continues to be concerned about the towns insistence that the Comprehensive Plan be a mandatory and restrictive document. VBR, along with others, would like the document to be advisory in nature, allowing for flexibility as economic and environmental changes occur. The public hearing will begin at 5:30 pm on Tuesday in the Avon Council Chambers. REALTORS? are encouraged to attend.
If you've been wondering what Quantitative Easing (QE) actually is, it's the concept of the Fed becoming a buyer of Treasuries and Bonds to try and stimulate the economy. The Fed's goal for this latest round of Quantitative Easing (dubbed QE2) is threefold:
- To create inflation and avoid a deflationary economy
- To lower the unemployment rate
- To boost Stock prices
And while the Fed won't come out and say it outright – as they don't want to be accused of currency manipulation – one of the consequences of QE2 is that the US Dollar will weaken. And this helps make US exports more affordable abroad, as well as make imports appear relatively more expensive. In fact, as the image shows, the Dollar has weakened versus the Euro quite significantly since QE2 began. But this will help large multi-national companies, which have a large influence on the economy and the major Stock market indices. And stimulating our economy towards continued growth is the Fed’s main goal for QE2.
Yet the debate rages on...even now that QE2 has begun...with respected opinions on both sides as to the wisdom of the Fed's policy. German Finance Minister Wolfgang Schauble went so far as to call current US economic policy "clueless." But supporting the Fed's position were last week's tame inflation readings at both the wholesale and consumer levels, via the Producer Price Index and Consumer Price Index Reports. However, with news last week that Ireland’s banking system is in a dire situation, like Greece's earlier this year, opponents of QE2 point to those countries when they speak to the danger of taking on debt, like the Fed is doing again via QE2.
One of the most important things to understand is this: the three goals of QE2, while meant to improve our economy overall and for the long-term, are unfriendly to Bonds and home loan rates. And that was evident last week, as Bond prices and home loan rates ended the week worse than where they began.
In fact, last week legendary investor Warren Buffet said, "I think short-term and long-term Bonds are a very poor investment at the present time." If Mr. Buffet thinks long-term Bonds are a poor investment right now, he is saying home loan rates can't come down much further - and the risk in waiting around for that to potentially happen does not outweigh the potential reward. Give me a call if you want to review your situation, or forward this email to a friend, family member or colleague who might benefit. I'm always happy to talk to your referrals, and provide a complimentary consultation.
Routt County Holding Public Hearings on Transfer of Development Rights (TDR's) Around County
Last year, the Routt County Commissioners began consideration of a Transfer of Development Rights (TDR) program that would allow developers to purchase the development rights away from desirable open space parcels in rural areas and shift them onto parcels already designated for growth — most likely closer to existing towns and the city of Steamboat Springs. The City was so mired in the Steamboat 700 proposal, that the TDR program got little attention, until Steamboat 700 failed. Then eyes turned to the TDR program, which would allow nearly 250 5 acre lots in rural Steamboat and right up to the city boundary. Some are concerned the proposal would go beyond the West Steamboat development, and others are concerned that it would really control sprawl, so the County shelved the idea, until now. The County is seeking public input on how to address TDR, and what is right for the community. Hearings will be held at : 6 pm. Aug. 12 at Yampa Town Hall; 7 pm. Aug. 18 at Oak Creek Town Hall; 6 pm. Aug. 26 at Steamboat Lake State Park headquarters; 6 pm. Sept. 23 in the Commissioners Hearing Room in the Routt County Courthouse
A knife can cut both ways. The same is true with the strong ties between the Chinese and US economies. For example, news came out last week that Chinese factories stepped up production in August, which helped ease concerns of a double-dip recession in US and, as a result, helped move Stocks higher earlier in the week. But additional news regarding China is also impacting the Bond market - and could impact home loan rates in the future, depending on how the events unfold.
Here’s what’s happening. There have been numerous accusations that China has kept their currency artificially low, in an effort to fuel their exports. Some American businesses remark that this is an unfair competitive advantage, and call for tariffs to be levied against Chinese goods. It would appear that a stronger Chinese Yuan would help to resolve this problem... but remember there can be some nasty unintended consequences, due to the relationship between Chinese currency and our Bond prices. The way that the Chinese keep their currency weak against the Dollar is by buying massive amounts of our Bonds, including Mortgage Backed Securities. And their heavy buying has helped keep home loan rates low. So strengthening the Yuan would require fewer purchases of our Bonds and Mortgage Backed Securities - and that would be negative for home loan rates.
Preserve the economic vitality of the community where you work and live by helping to defeat Amendments 60 and 61 and Proposition 101 on this November's ballot.
REALTORS(R) like you work every day to build better communities for Colorado families. You understand how vital good infrastructure and schools are to maintaining property values and bringing investment and jobs into a community. These three ballot measures threaten the work you do.
1. Amendment 60 would cripple our schools and other vital services. Schools would lose a billion dollars in funding each year. Hollow language in the amendment promises that the state would make up the funding, but you and I know that the state does not have the revenue to do this. Bottom line-- Amendment 60 will hurt children and Colorado communities.
2. Amendment 61 would eliminate any practical means for state or local governments to make capital improvements. They could not even float bonds. This means no new schools, fire stations, water projects, airports, prisons, highways and other essential capital projects. Bottom line-- Amendment 61 will push investment out of our state along with the jobs and economic vitality that go with t it because governments will not be able to build and improve vital services and infrastructure.
3. Proposition 101 would eliminate a major funding source for road and bridge construction across Colorado. Both state highway and local transportation projects would be cut. The Colorado Department of Transportation estimates that a quarter of its annual revenue- about $277 million would be lost. Bottom line-- Proposition 101 will severely impact transportation needs in every Colorado community.
You will be making an important investment in your business by providing the resources to defeat harmful ballot measures like these and elect Pro-REALTOR(R) candidates in this fall's election.
Working together, Colorado REALTORS(R) have a powerful voice in the November election. Please make sure we have the resources to be heard fully.
After a relatively slow schedule of economic reports last week, we’ll see some big reports over the next few days with the potential to really move the markets.
We’ll start off right away Monday morning with the Retail Sales report for October as well as a dose of manufacturing news in the Empire State Index, which looks at New York State’s manufacturing sector, and is a good gauge of manufacturing overall. On Thursday, we’ll also see the Philadelphia Fed Index, which is another important manufacturing report. Those two indices have the potential to impact the market, since they indicate the health of the manufacturing sector in the US.
Even more big news is headed our way on Tuesday with the Producer Price Index (PPI), which measures inflation at the wholesale level. Then, the very next day on Wednesday morning, we’ll see the Consumer Price Index (CPI) with a look at inflation at the consumer level. In light of last week’s news and the information described above, it will be important to see what these reports reveal - since inflation is the archenemy of Bonds and home loan rates.
Wednesday will bring more housing industry news with reports on the number of Housing Starts and Building Permits in October.
The week of reports caps off on Thursday with the Initial Jobless Claims report. Last week’s report indicated that Initial Jobless Claims fell in the latest week to the lowest reading since July. Continuing Jobless Claims also moved lower. While those numbers showed modest improvements and are steps in the right direction, there is still a lot of wood to chop where jobs are concerned.
Some of the charts that monitor Bond activity can look complex - but they tell quite a story! In the chart below, pay attention to the downward trend for Bond prices (which means an upward trend for home loan rates) since November 3rd, which was when the Fed announced their QE2 plans. This chart shows us that Mortgage Bonds have traded sharply lower since the Fed Meeting and official QE2 announcement. Again, home loan rates are still at historically low levels for the time being, which means there’s still time to purchase or refinance a home and take advantage of the great rates.
Poll Says Voters Support Ballot Initiative Prop 101
According to a survey released by pollster Floyd Ciruli, if the election were held today, Proposition 101 would pass. He polled 500 registered voters and 51 percent said they would vote in favor of the measure, which would lower car taxes and fees as well as state income tax. Many people don?t know that the money raised by the taxes and fees included in 101 will negatively impact schools, county funding for roads and bridges and of course the State, which is already struggling to balance its budget. If 101 passes, it will reduce the State?s income tax rate from 4.63 to 4.5 and then 3.5 percent. CAR is spending $150,000 to help educate Coloradoans on the peril that could come if ballot initiatives 60, 61, and 101 are approved by the voters.
SAR/SCBA Hosting Fall Candidate Forum; Judge Mark Thompson To Moderate
SAR and the Summit County Builders Association will host its fall candidate forum on Monday, October 11th at 5:00 pm. at the Beaver Run Resort in Breckenridge. Newly appointed 5th Judicial Circuit Judge Mark Thompson will moderate the forum, which will include debate with the candidates for SD-16 and HD-56, as well as the county assessor's race. Unopposed County Commissioner candidate Dan Gibbs, and Sheriff John Minor will also attend. The event will include a discussion on the Summit School District's mill levy ballot initative. The event is open to the public! Be sure to bring your friends and family. Appetizers and a cash bar will be from 5-5:30, and the forum will be from 5:30-8:30 pm. Mark it on your calendar!
REALTORS® Provide Input on New Castle Sign Code
The Town of New Castle has been busy working to make their sign code more flexible for business owners and encourage creativity in the use of signs to promote businesses to local shoppers and to travelers on I-70.
Last week, GSAR provided input to the New Castle Planning and Zoning Commission on the sign code update as they pertain to real estate signs. GSAR indicated the code did not include language specific to open house signs. The town agreed and added language that would allow three directional open house signs to a home holding an open house.
The P & Z policy requires that no signs be placed in right of ways, and that the REALTOR® gain permission from the property owner to place signs on their property. While P & Z has no intent to allow REALTORS® to place signs in right of ways, GSAR intends to ask the Town Council, who holds the final approval on the sign code when they receive the code in January.
Right now, the headline numbers in the US show little inflation overall... but we are already seeing significant inflation in particular items like commodities, food, and oil - which are being driven by a weak US Dollar, and increasing demand from emerging countries like China and India. In addition, the global market reacted late last week to higher-than-expected inflation in China. This is important to us because Bonds and home loan rates hate inflation, no matter where the whiff of it comes from.
Here’s why. Think of inflation as a hot air balloon and rates as the basket under that balloon. As the balloon (or inflation) rises, the basket (or rates) must rise as well.
So, if inflation moves higher in China, their government has to raise rates to fight inflation. And if rates move higher in China, global investors seeking the highest yield will move away from the relatively meager returns seen in US Bonds - and move their Bond buying money into juicier yields found abroad.
There are so many opinions by so many smart people on both sides of the inflation argument, but right now it is all about what the Bond market thinks. And the recent market action shows just how quickly sentiment in the market can change. Remember, it was just a few weeks ago that fears and whispers of deflation helped the Bond market - and home loan rates - improve.
Now with the Fed intent on avoiding deflation and in fact creating inflation through another round of Quantitative Easing (or QE2), the entire Bond market - including Mortgage Bonds - have began to react negatively. Remember, Quantitative Easing is the concept of the Fed becoming a buyer of Treasuries and Bonds, in a bid to stimulate the economy by:
- Creating inflation
- Lowering the unemployment rate
- Raising Stock prices
While those goals may be good for the overall economy, we need to remember that all three are very unfriendly to Mortgage Bonds and home loan rates.
The good news is, despite ending the week worse than where they started, home loan rates are still near historic lows for the time being. If you or someone you know is looking to take advantage of low rates, now is the time.
The dangerous measure eliminates a major funding source for road and bridge construction across the state. The annual vehicle registration fee would be cut to an arbitrary $10 ? no longer based on vehicle size or weight. The registration fee hasn?t been that low since 1919 when the state had only a handful of paved roads. Road budgets would be cut by hundreds of millions of dollars, meaning more potholes and crumbling bridges. Not only would state highway projects be cut, but local projects would be as well, since cities and counties receive a major portion of their road funding from this fee. The Specific Ownership Tax on cars would be reduced to $2 on new cars and $1 on used cars. This revenue actually helps fund school districts and other local government priorities. Local revenue would be cut by some $500 million annually. The state income tax also would be reduced incrementally to 3.5 percent. This would eliminate a quarter of the state?s revenue from income tax when state budget already has been severely impacted by the recession. Such a drastic reduction would mean even more cuts in critical state services.
CAR believes that as a REALTOR, you are a respected member of your local community and it's critical that you help lead the effort in sharing the message of our local and state associations with other industry and community leaders.
Deficit Reduction Plan Includes End Of Mortgage Interest Deduction
A leaked draft of the Debt Reduction Plan, created by President Obama's commission co-chaired by Irskine Bowles and Alan Simpson, includes language that would cut the Mortgage Interest Deduction (MID).
While few details have come out, the full report is due to be released December 1st. NAR is expecting that their efforts will focus on the protecting the MID during the next session of Congress. While the high cost deduction is a moving target, NAR and REALTORS® nationwide, know that cutting the MID will only further cause the housing market to dry up. Without the deduction, many homeowners will lose any incentive to purchase a home.
NAR Holding Meetings On Condo Financing
The National Association of REALTORS(R) has been raising the current concerns regarding condo financing in a variety of venues over the summer. At the request of Ron Phipps, 2010 NAR President-elect, meetings have been scheduled with the five big national banks, at which the issue of condo financing will be raised. NAR also raised this issue with FHA and Fannie and Freddie, and will do so again when they meet with FHA Commissioner Dave Stevens on Sept. 21. NAR is also planning to convene a condo financing webinar later in September or early October to discuss these issues with experts. NAR believes raising awareness with the big banks and lenders is the first step in resolving a number of the issues with condo financing.
"I CAN NO LONGER STAND HERE WAITING FOR YOU TO DECIDE..." Those lyrics from the band Chicago’s 1980’s hit sum up the sentiments of many market analysts and traders after last week’s back and forth statements from Fed officials about the possibility of another round of Quantitative Easing... otherwise known as "QE2".
As we stated last week, many analysts have been feeling that QE2 was very likely, if we continue to see weak economic reports. But comments made by a number of Fed officials throughout the week indicated that QE2 may still be up in the air. For example, Atlanta Federal Reserve President Dennis Lockhart stated, "there is growing sentiment that further accommodation through large asset purchases is coming... but at this point in time, it's not a foregone conclusion that we need to go there." Those comments were followed by other similar comments from other Fed officials, including Philadelphia Fed President Charles Plosser, who doesn't support any further Bond buying. Additionally, Boston Fed President Eric Rosengren said that monetary stimulus will depend on economic data, while Minnesota Fed President Narayana Kocherlakota says new asset buying would have a more muted impact than prior purchases. This would indicate that at least a few Fed members are hesitant ab out a big QE2 package.
On the flip side, however, New York Fed President William Dudley said on Friday that the Fed is almost certain to lend support through Quantitative Easing in order to ensure that a slowing economy does not fall further. He gave an example of how a $500 Billion purchase plan might impact interest rates, stating that it would have a similar impact to a Fed rate cut of .50 to .75%... and although this was just an example, the fact that he mentioned a specific number was not lost on Traders. Mr. Dudley went on to say that he feels a double dip recession is not an issue, but rather the focus is on how the economy can grow faster than its current pace.
Those comments are important because the markets figured that QE2 would be a lock, unless the Fed sees stronger-than-expected economic data before its November 3rd meeting... specifically, employment data. But last week the analysts and investors were faced with uncertainty around the issue and were left sifting through comments to try to predict what the Fed will do. And that uncertainty caused traders to shift money back out of Bonds at different times last week.
Amendment 61 eliminates Colorado's ability to build or expand its schools, roads, hospitals, college buildings, light rail, water and sewer systems, prisonsin fact, any of its capital infrastructure. The amendment would severely limit even prohibit what it calls government borrowing. Proponents are trying to mislead voters by using words like government borrowing when, in reality, they are trying to do away with state and local bonding. Bonding is a prudent form of financing that governments have relied on for decades. Bonding makes it possible to build schools in your neighborhood, fire stations, water projects, prisons, airports, health facilities, highways, transit, colleges the list goes on and on. Amendment 61 would make it very difficult even impossible for the state and local governments to issue bonds. The state would be prohibited from using financial instruments like revenue anticipation notes and certificates of participation. The state has used these tools for decades to even out cash flow throughout the year. Not being able to use these tools will impede the states ability to provide services even meet payroll during times of the year when revenue is low. The amendment also would require that after bonds have been repaid, any taxes used for repayment must be lowered even if those taxes werent raised in the first place. Instead of attracting investment, Colorado will be an investment-flight state. Once companies bypass Colorado with jobs and capital investment, we risk losing existing companies to other states.
Mountain Districts SD-16 and HD-61 Races To Be Decided This Week
Two State races, House District 61, which includes the eastern portion of Garfield County, and State Senate District 16, which includes counties all the way from Summit to Boulder, will be decided this week- nearly 2 weeks after Election Day.
State House District 61, is currently held by democrat turned independent Kathleen Curry. Curry changed her party affiliation too late to be on the ballot, so she launched a write in campaign. The race became a 3 way race with republican Luke Korkowski, Democrat Roger Wilson, and Curry. As of election night, Wilson was the presumed winner, with nearly 500 votes ahead of Curry. However, Curry got a federal ruling that the "under votes" for Curry, votes where people had written her name, but not checked the box, should be counted, because voter intent was clear. The local counties have been busy counting the "under votes", and a final tally could come on Wednesday.
In Summit County, Senate District 16, held by popular local Dan Gibbs, the race is still too close to call. With the candidates less than 500 votes apart on election night, both candidates, Democrat Jeanne Nicholson, and Republican Tim Leonard have chosen to wait until the provisional ballots have all been counted. Nicholson, the Democrat, is the presumed winner. Provisional ballots should have a final county by Friday, November 19th.
In other big news last week, the Federal Reserve Board made their much anticipated announcement regarding another round of "Quantitative Easing" or QE2, where the Fed will participate in purchasing Treasury Securities in a bid to keep the economic recovery on track. On Wednesday, the Fed announced that they intend to purchase $600 Billion in Treasuries, starting now and continuing through mid-2011, which equates to about $75 Billion in purchases per month. So how will this impact home loan rates ahead?
We need to be mindful that the Fed initiated QE2 for three reasons. One, to help lower interest rates in order to spur consumer and business spending... which in turn will create inflation. Two, to help lower the unemployment rate via an economic boost. And three, to help push Stock prices higher. And all three of these factors will cause headwinds for Bonds and home loan rates down the road.
As the Fed gets to work on putting their latest plan into effect - we can be sure that inflation readings in various economic reports will likely be more highly scrutinized by the markets. Upcoming reports will reveal whether the Fed will be successful in their quest to fight deflation, and create a level of Goldilocks inflation that is not too hot, not too cool... but juuuust right. Ultimately, if inflation expectations creep higher, interest rates for long-term Bonds - like Mortgage Bonds - will rise as well.
One thing is certain, the volatility we saw in the markets last week is sure to continue. If you have any questions about how you can take advantage of today’s historic low rates, please contact us, and let’s evaluate your current situation. And feel free to forward this email to any friends, family members, or colleagues who may have questions as well – We are always pleased to talk with anyone you’d refer our way.
After all last week’s big news, Traders will continue to digest all the happenings... and will have a somewhat quiet economic news week ahead, including the Bond Market being closed on Thursday in honor of Veteran's Day
There are no major economic reports until Wednesday, which will bring another look at employment with the Initial and Continuing Jobless Claims Report. Last week’s Initial Jobless Claims were 457,000, above the 445,000 that was expected, while Continuing Jobless Claims fell 42,000 to 4.34 Million. Initial Jobless Claims have been stuck to that mid-400’s level like a magnet for a very long time - and a real, sustained movement below 400,000 is needed in order for the market to feel confident that labor is recovering.
Also this week we’ll get a read on Consumer Sentiment on Friday - always an important number, but particularly of note for retailers, especially as we head into the holiday shopping season.