Mortgage Market Conditions and Industry News

INDUSTRY NEWS

2010-04-01T08:21:00.003-07:00

This article reveals the historical population of DRE-licensed agents and brokers working in California, with explanation and forecasting about the future of real estate practice.


Information courtesy of the California Department of Real Estate (DRE)

The agent-to-broker ratio
In a stable market, a natural equilibrium develops in the ratio between brokers and agents. This ratio has historically found balance at the level seen on the above chart between 2000 and 2002; approximately 1 broker for every 2.5 agents. The crossover point on the chart, when the number of agents expanded dramatically, indicated the beginning of a real estate bubble.
As real estate entered its boom phase of the market cycle, new agents arrived en masse with the optimistic belief that extra money could be made in real estate. Rather than just selling properties, they also bought and flipped them, speculating in the market while operating as insiders pulling (or saving) a fee when they, their family members and their friends decided to purchase property they located. As the housing market fully returns to functioning based on economic principles and real estate fundamentals, expect the above chart to show a return to the standard 2.5:1 agent-to-broker ratio.
Will this ratio last? Not likely. Continued federal deregulation of lenders, and the relaxation of rules on lender conduct will ameliorate the marketplace by encouraging increased sales activity, which will eventually lead to another boom. When this happens, agents will begin to multiply once again. It will be up to California’s Department of Real Estate (DRE) to protect society from adverse licensee conduct by tightening up the passing rate of the agent licensing exam, limiting new agents to the most qualified, dedicated and committed.
Whether the DRE will be politically able to do this in the face of opposition from big brokerage offices, which want a flood of agents-for-hire to blanket the market with, is doubtful. Fortunately or unfortunately, demographics point to this return to “excitement” in the field of real estate around the time period of 2017. [For more information on the role of demographics in the future of real estate, see the first tuesday Chart First Time Homebuyers and New Housing]
Agent and broker population, past and future
A more immediate cause for concern is the current precipitous decline of approximately 3000 real estate agents per month (at a rate which forebodes an even greater loss of agents yet to come). This decline coincides with the decline in real estate sales following the collapse of the real estate bubble. In early 2008, 7% (1 in 14) of all single family residences (SFRs) in California stood vacant, owned by speculators—buyers of second homes (which were acquired in large part due to speculative fervor)—or as the REO property of lenders. Many of these speculators were first-time agents who were only suited to function in a real estate market during a boom phase.
With the current batch of entrants (2008-2010) embracing more sustainable, long-term real estate strategies, the “quick-buck” real estate agents are exiting the stage swiftly and in large numbers. With them goes the artificial support they and other flippers gave, and still give, to sales numbers.
The fever to speculate, while not yet entirely vanquished, is likely to remain dormant until 2014. In the interim, builders and existing-home sellers will have to get rational about pricing (per square foot) and listing periods (six months) for non-REO sellers. There will no longer be the sort of high competition between agents that helped push up prices between 2003 and 2006. The return of fundamentals to lending (and open market bond rates) will set a slower pace in the market, and will push prices down well into 2011.
Furthermore, agents accustomed to working with flippers (and earning two sets of brokerage fees in the process) are no longer around to load their friends, relatives, and social contacts with properties. All of these agent interactions contributed to the price “bubble,” and the corresponding influx of purchasers who were neither investing nor buying their principal residence. Such purchasers, all too frequently, were nothing more than long-term tenants at heart, not fit to be homeowners.
Large SFR brokerage operations with branch offices have always depended upon a constant flood of newly-licensed agents to fill their cubbies. This practice was enabled in the past by a high agent turnover rate, as these freshly-minted agents burned through their contacts without developing a viable client base. Brokers and office managers were able to mitigate the loss of agents due to inactivity and turnover by aggressively soliciting new licensees and quickly bringing in replacements.
Real estate educators also got into this loop by placing new licensees with brokers. These list-and-run agents have nearly disappeared from the ranks of the new agents, as the total number of new agents has dropped dramatically—from 5,000 monthly during the peak years of 2004–2007 to a nearly constant rate of 1,100 monthly in 2008 and 2009. [For the annual number of newly licensed agents and brokers, see the first tuesday chart, Newly Licensed Sales and Broker Population]
When viewed in the context of disappearing short-term agents, rather than vanishing home buyers (which has not occurred—only the speculators have vanished), it is plain that the economic reality is forcing brokers operating branch offices to shutter the least productive branches, release the weakest office managers and under-performing agents, and attempt to relocate agents who generate business. However, as in the wake of any crisis, many new optimistic faces in brokerage are appearing as they figure out how a real estate brokerage business can be run to prosper during the recovery. [For more information on which major CA brokers have prospered in the recession, and which have not, see the first tuesday chart, How CA’s Mighty Have Fared]
Even more troubling for large brokerage operations is the bickering arising over brokers’ fee-splitting arrangements with their agents. The agents are now making fewer sales at prices one-half that of 2005 or less. In the meantime, the brokers are taking in fewer dollars and shouldering the costs of overhead, promotion, and servicing excessive and unmarketable listings. Gradually, the younger and more aggressive agents employed by large brokerage offices will look to become brokers or team up with brokers and other agents in smaller operations, or join a “rent-a-desk” operation, in order to reduce the fee percentage due the broker. These agents too often do not have the business acumen to set up and operate a broker office, even if it is their own one-man operation, but they attempt to do so under the belief, right or wrong, that their current broker is getting too large a share of the fees.
Large brokers may need to retrench or regroup, and develop more efficient operating methods if they are to be competitive and attract long-term clientèle. During the boom, large brokerage offices had the luxury of keeping many low-producing agents on the off-chance they would swoop in on a buyer and bring him in for the office, with its expertise, to close the sale. Now, even with the dearth of newly arriving agents to fill desk space, the non-productive (and even the under-productive) agents may have to be released.
The remaining agents must be trained to ‘fire’ those sellers who have listed with the broker but will not pay for reports needed by the agent and the broker to build a marketing package proper for the demanding inquiries of reluctant buyers. Also, sellers who continue to demand unreasonable prices (the sticky price phenomenon), or who involve themselves in other conduct which keeps the property from selling within a 30- to 60-day marketing period, need to have their listings cancelled.
Blasphemas talk? Not at all if an efficient brokerage operation is what it takes to get into the recovery stage without going broke. Property that looks good from the curb and has a price close to what it can sell for in 30 days will get an offer within 30 days, a standard that will provide for the survival and success of the rational seller, the broker and his agents. In a recessionary market and during the early stages of recovery, time lost hurts everyone, a lesson the intermeddling lawmakers – both state and federal – are beginning to learn from the “extend and pretend” loan modification fiasco.
Brokers who learn to cut overhead and eliminate operating inefficiencies while beefing up their staff during the next few years will be in the best position for the up-tick in the annual sales volume likely to begin by mid 2012 or 2013. Planning ahead will be a defining behavior of the brokers who will still be operating in 2012, and they will have to be well prepared if they are to get in on the action when the federal government and Wall Street turn money loose for the next fiesta.
Demographics for the 25-34 age group will supply increasing numbers of home buyers, as the pool of first time homebuyers enlarges and eventually peaks in 2017. And yes, a hoard of speculators will be right behind them, competing with those homebuyers by withdrawing housing from the market, only to later return it for profit on resale. All this momentum will push the housing market into another boom. Prices will rise just as if there had never been a bust, or the pain caused by that bust’s repercussions.
Looking ahead for smaller brokerages
In the near future, small brokerage offices with fewer than 16 agents will probably continue to recruit agents as they always have. Large brokerages typically use mail-blitzing campaigns and seminars to entice newly licensed agents into their offices. Conversely, smaller offices traditionally recruit from local word-of-mouth contacts. Since brokers maintaining a single office with a staff of agents tend to have several different types of business clientèle and are not focused on just the listing and marketing of SFR properties, more thoughtful entrants into real estate will see the long-term advantages of being around others who work income property, land, and property management.
During real estate recessions, property management departments in small brokerage offices tend to expand to meet the needs of owner-speculators with vacant property who wish to reduce their negative income positions. Also, lenders are going to continue to need agents to inspect the vacant real estate they own (REOs), report on its condition, and eventually sell it.
In fact, property management is probably the most recession-proof area of real estate. In the middle of 2008, 7% of SFR properties in California were vacant. This economic condition bodes well for property management operations conducted by one-office brokers. Many of these owners are speculators that are (by necessity) going to have to rent their properties, and they will most likely do so by employing property management to reduce their negative cash flow so they can continue paying their loans.
Others affected
Real estate schools, whose revenue from licensing and continuing education courses is inextricably tied to the amount of money earned by real estate brokers and agents. The boom during the mid-2000s saw five times as many individuals enrolled in licensing courses as compared to the late 90s. That revenue is all but gone, and has been reduced to 20% of its peak four-year run.
If that is not bad enough for real estate educators, the license renewal rates among sales agents (especially those hit-and-run agents who arrived during the past six years) are dropping to unprecedented percentage levels—below 60% renewal rates. 2010 will likely see the rate of renewal for those agents continue to fall. Many will let their licenses expire, then wait to see if the real estate market picks up during their two-year grace period for late renewal. Most will be disappointed, since some time still remains before the next party boom.
When that boom takes place, some agents will jump back in, but those expiring during the next two or three years will not see any exciting pick-up in the market until after their grace period has run out. It is anticipated that the collective revenue among all real estate related education will drop to roughly 50% of its peak in 2005-2006, and will drop further still for the schools that failed to get and maintain their former share of the license renewal business of enrollments in CE courses. However, the optimistic and resourceful among us generally find a way to succeed.

MARKET COMMENTARY

2010-04-01T08:15:00.000-07:00

Wednesday’s bond market has opened in positive territory after this morning’s economic news didn’t surprise anyone. The stock markets are showing early losses with the Dow down 37 points and the Nasdaq down 3 points. The bond market is currently up 9/32, which should improve this morning’s mortgage rates by approximately .125 - .250 of a discount point.

The Commerce Department gave us today’s only relevant economic data when they released February’s Factory Orders late this morning. They announced an increase in new orders of 0.6%, but also revised January’s orders higher than previously announced. So, this data can be considered fairly neutral or slightly favorably to bonds and mortgage rates.
The Institute for Supply Management (ISM) will release their manufacturing index late Thursday morning. This index gives us an important measurement of manufacturer sentiment by surveying trade executives and is one of the more important of this week’s data. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened. This month’s report is expected to show a reading of 57.0, which would be a small increase from February’s reading of 56.5. This means that analysts think business sentiment remained fairly close to last month’s level.
Also being posted tomorrow are weekly unemployment figures from last week. The Labor Department will release the number of new claims filed last week for unemployment benefits, giving us a small reading of labor market strength or weakness. They are expected to announce that 440,000 new claims were filed. This would be a slight decline from the previous week, but unless we see a much larger or small total, this data likely will have little impact on the bond market or mortgage rates. That is because it tracks only a single week’s worth of claims and we have monthly results being posted Friday morning.
We also can’t forget about Friday’s unique circumstances. It is Good Friday and recognized as a holiday, so the stock markets will be closed. However, the bond market will be open until noon ET Friday before closing for the holiday. In addition, we have a highly significant piece of data being posted at 8:30 AM ET Friday when the Labor Department will release March’s Employment report. This makes it very likely that we will see plenty of movement in bonds and mortgage rates before the bond market closes at noon. It also means that we can expect to see more volatility Monday morning when the stock markets have an opportunity to react to Friday’s data, which also will influence bond trading. It will be interesting to see what transpires those days, especially if Friday’s report reveals surprising results.

Today's Market Commentary

2010-01-29T12:49:00.001-08:00

Friday’s bond market has opened down again following stronger than expected results from some key economic data. The stock markets are showing early gains with the Dow up 62 points and the Nasdaq up 14 points. The bond market is currently down 6/32, but we will likely see little change in this morning’s mortgage rates compared to yesterday’s morning pricing due to strength in bonds late yesterday. This morning’s potential increase in rates will be offset by the late gains of yesterday.

Today’s most important report was the initial reading of the 4th Quarter Gross Domestic Product (GDP). It revealed a 5.7% annual rate of growth during the last quarter of 2009. This was much better than expected and the fastest pace in six years, indicating that the economy is likely growing at a faster pace than many had thought. That creates a negative for bonds because once the economy begins to gain momentum, inflations concerns will rise in the markets. Since inflation is the number one nemesis of the bond market, bonds tend to suffer when inflation is strengthening, leading to higher mortgage rates.
Preventing a sizable sell-off in bonds was a much lower than expected inflation reading within the data. That inflation reading came in half of forecasts, meaning that inflation isn’t a concern yet. However, many experienced traders and analysts firmly believe that it will follow shortly if economic activity continues to grow at a pace similar to what today’s GDP reading showed. Therefore, we have seen some selling in bonds, but considering the headline GDP reading, we should be content with this morning’s trading.
The second piece of data that came out this morning was the 4th Quarter Employment Cost Index (ECI). It revealed a 0.5% increase in employer costs for wages and benefits. While this was higher than expected, it really has not had much of an impact on bond trading or mortgage rates because the GDP news is bigger news.
And to cap off today’s relevant economic data was a higher than expected revision to the University of Michigan’s Index of Consumer Sentiment for January. This index measures consumer confidence, which is thought to indicate consumer willingness to spend. The 74.4 reading indicates that consumers were more optimistic about their own financial situation this month than many had thought. Strengthening confidence usually translates into more consumer spending, fueling economic growth. However, this report doesn’t carry enough power to heavily influence the markets, especially following the initial GDP reading for the quarter.
Next week brings us several important economic reports for the markets to digest. The first two come Monday morning with the release of December’s Personal Income and Outlays data and January’s ISM manufacturing index. The week ends with the almighty Employment report on Friday. There is not much to be concerned with in between, but the week will likely be an active one for the markets and mortgage rates. Look for more details on next week’s events in Sunday’s weekly preview.

Today I became a Zillow Mortgage All-Star

2010-01-27T16:56:00.000-08:00

Homebuyer beware: the real estate game lacks fair play

2010-01-27T08:44:00.000-08:00

Consider a game of musical chairs, where the chairs represent single-family residences (SFRs). In this game, the music plays and everyone dances around, looking for a chair to snap up at the right moment. But there is a nasty twist. Some players are grabbing chairs before the music stops, taking them into another room where they remain unused, along with other chairs that never even made it to the game. When the music stops, many players are left standing. Only a few were able to make a mad dash and snap up a chair within reach.
This is the current climate for SFR real estate in California. Many future homeowners are left standing around looking for a home, but there is little inventory to be had for those intending to actually put the property to use.
There are five categories of players that purchase SFRs in the California multiple listing service (MLS) market:

homebuyers, the primary players, who are committed long-term and have agreed to occupy a property;
investors, fundamental long-term players, who purchase one-to-four unit SFRs to hold as income producing investments, and a profit on ultimate resale during retirement;
building contractors, who are involved in renovation, adding value to uninhabitable property in order to profit on the resale;
local government agencies, that buy up the foreclosed and vacant properties under a federal program designed to renovate a property in order to maintain neighborhoods and avoid vacant nuisances which depress neighborhood values and attract crime; and
speculators, (also known as dealers, flippers, hit-and-run artists, sandwichers and momentum traders) who are short-term passive owners, who do not renovate or improve but treat the property as inventory to be sold for a quick profit.

Homebuyers and investors are the first and best users of single family residences, whether free standing structures or multiple unit condo structures.
A homebuyer gets the best direct use out of an SFR property. They own and occupy the property; it fulfills their need for long-term shelter. Their ownership means a direct investment in their home which they will maintain, improve and generally engage in actions to raise property values in the neighborhood in which they live.
But California is a state where only about 55% of all residences (SFRs and condos) are owner-occupied, compared to nearly 80% owner-occupancy in the central part of the nation. The rate is lower in California for a variety of reasons, one being California’s economically mobile environment.
Thus investors who buy-to-let are a necessary part of the California real estate market. Investors purchase the other half of California’s residential properties, which includes large numbers of SFRs, to operate and maintain the properties for annual rental income. They are also interested in long-term gains from the return of their investment on a resale.
The inherent benefits for investors in the one-to-four unit residential real estate market are explained in an article published by the Federal Reserve Bank of Boston “The Myth of the Irresponsible Investor: Analysis of Southern New England’s Small Multifamily Properties.”
Their research comparing New England area investors and owner-occupants of small multifamily (SMF) properties (duplexes, triplexes or fourplex) showed that:

investors have better credit than owner-occupants;
investors use subprime mortgages to purchase SMF properties less frequently than owner-occupants;
investors in SMF properties received fewer notice of defaults (NOD) than owner-occupants; and
investors in SMF properties who do receive an NOD, receive them later in ownership than do owner-occupants.

The investor is distinguished from a speculator whose only desire is to flip the property as soon as possible after acquisition, and who pays little or no attention to maintenance in order to maximize quick profits.
Crowding out the homebuyer
Currently three chair thieves play in the real estate market game: speculators, government agencies and building contractors. These players are pulling properties off the market, holding the properties until they can resell them on their profitable re-entry into the market (or in the case of government agencies, a total recoup of their investment).
The purchase of homes by these secondary players limits the available inventory for homebuyers, a condition known as crowding out the homebuyer. Traditionally, this has been viewed as a problem by government agencies and the Federal Housing Administration (FHA).
However, the effort to keep SFRs available primarily to homebuyers has been set aside for two reasons:

in light of the foreclosure crisis, strong motives exist to get real estate owned (REO) properties into the hands of any private ownership, no matter the type; and
due to the real estate bubble, political stomach is gone for creating incentives for life-long tenants to become homeowners, and thus other players are presently the favored buyers of REOs.

Government agencies have shifted their efforts away from the homebuyer in the name of reducing neighborhood nuisance, crime and depressed property values. Some government agencies (like Riverside County) have taken to development schemes in order to keep REOs well-kept, but are invariably pulling these properties away from property users.
In the same vein, Fannie Mae’s First Look program gives priority to potential owner-occupants as buyers of foreclosed property during the first 15 days an REO is on the market. But this priority is insufficient, and will only serve to frustrate homebuyers involved in a financing process that consistently takes more than 15 days to negotiate a contract with a lender. Speculators on the other hand are ready with cash on hand to swoop in on the 16th day and contract to make the purchase while ignoring due diligence contingencies.

Building contractors engage in rehabilitation and renovation activities, with the goal of improving the property and then selling it. Unlike speculators, they do not merely wait for the market to increase the price — they add value to the property. Their rehab work can be invaluable in those REO situations where the previous owners damaged the property beyond the scope of an ordinary homebuyer’s repair skills and sweat equity investment.
Contribution of wealth (money) and human capital (labor) to the real estate itself is the participation which provides a long-term benefit to the real estate market. The first and best users of property are the homebuyers and investors. Government agencies and developers can and do act as constructive third-parties when they add value to the real estate through renovations and improvements. But their participation should be limited, and secondary to homebuyers and investors. On top of current over-interference by government agencies and building contractors, inventory is too controlled by lenders and spread too thin to accommodate the two primary SFR users.
Speculators are the only players whose contribution to the real estate market is in no way constructive, and only serves to siphon funds from those who use or add value to the real estate market.
The zero-sum game
Speculators are passive players in the real estate market, never spending any time or effort on their property acquisitions. A speculator’s only interest is the market place momentum. They sit removed from their property, looking for a profit-window in order to market the property to a buyer at a higher price. The property is regarded as inventory to be taken off the shelf at the right market-moment and sold at the highest price possible.
The property is not a speculator’s concern, but only the profit made on the spread between their low purchase and high sell. Thus, speculation shifts wealth out of the pockets of both the seller who sold low and the buyer who bought high. Implicitly, speculation pulls money (wealth) out of the market and into the pocket of the speculator, who then moves on, seeking the next market to sponge from. Nothing is contributed to the property, as with the developers or the government agencies. Nor is any sweat equity accrued, as with a diligent homeowner.
Thus, speculators add nothing to the value of real estate: no sweat equity, no enhancement through efficient management. No capital investment of any sort (either human capital or accumulated wealth) is added to California’s inventory of privately-held real estate.
By adding nothing, speculators are involved in a zero-sum game since the profit they skim is exactly equal to the amount of money their conduct takes from the pockets of sellers and buyers. Sellers and buyers are left that much poorer (or less rich) than they should have been as the speculator slips in with quick cash to pull a juicy profit by sandwiching himself into the market’s short-term momentum.
Thinning out the secondary players
Speculators need to be harnessed and muzzled with adverse tax consequences for short-term ownership, strict code enforcement of ill-maintained or vacant properties, hazard insurance underwriting restrictions, significant downpayment requirements, increased mortgage rates as a speculator premium or a bar from access to the SFR market.
There are those who would like to see speculators thrive. Without speculators, providers of transactional services will lose redundant fees pulled out of multiple transactions on a property as it goes through the hands of the speculator.
The Federal Reserve Bank (The Fed) of Boston outlined various ways the state, local and even the federal government can help the real estate market reduce the appearance of speculators in the real estate market in a paper titled “Challenges of the Small Rental Property Sector.” The paper focuses on relieving the pressure of speculators in the small rental property sector.
The Fed of Boston argues that the government must defend owner-occupied properties. To keep these properties affordable for owner-occupied management means speculators must be kept out. Some possible tools for protecting owner-occupied SMF properties include:

avoiding complaint-driven code enforcement;
government-enacted programs targeting SMF properties for subsidies and assistance, since larger government-subsidized housing crowds out the market;
removing restrictive local zoning; and
providing for affordable financing of SMF properties.

Other tools for keeping speculators out of the SMF properties market include the carrot and the stick methods of enforcement.
Financial incentives for long-term investment (the carrot method) are broken up into two categories:

multi-tiered building and safety codes for SMF properties; and
technical assistance and training for SMF managers.

The state must change building and safety codes, allowing a multi-tiered code for SMF properties which:

gives priority to structural problems and safety, but allows time for owners to raise capital to fund corrections;
allows older SMF properties to be grandfathered into new codes, as long as this does not allow any major risks to the tenants; and
allows property owners themselves to make repairs rather than a licensed contractor.

Additionally, owner-occupants of SMF properties are more likely to make long-term investment in their properties if they are provided with technical assistance and training which:

promotes long-term maintenance practices and preservation;
educates regarding marketing, fair housing, tax facts and business budgeting; and
creates financial incentives for taking courses.

Effective and precise regulation by the government (the stick method) is the second tool in blocking speculators from the market. Severe sanctions should be created for speculators who purchase and fail to comply with code standards in order to flip the property for nominal cost.
Some of these suggestions by The Fed of Boston may have some promise, and some are just pipe dreams. But the government does need to use both “carrots” and “sticks” in order to discourage and thin out the secondary players in the real estate market. The health and stability of the market rests in homebuyers and investors as the primary users of real estate. Brokers, the gatekeepers of the real estate market, must not ignore these fundamentals, as a matter of their own long-term best interests.

Economic Calender

2010-01-27T08:36:00.000-08:00

Economic Calendar
Date	(GMT)	Event	Actual	Cons.	Previous
January 01	00:00	New Year's Day
January 04	15:00	Construction Spending (MoM)	-0.6%	-0.2%	-0.5%
January 04	15:00	ISM Manufacturing	55.9	54.2	53.6
January 05	15:00	Factory Orders	1.1%	0.5%	0.8%
January 05	15:00	Pending Home Sales (MoM)	-16.0%	-2.0%	3.9%
January 05	21:30	API Crude Oil Inventories	-2.3M		1.7M
January 05	22:00	ABC/Washington Post Consumer Confidence	-41	-44	-44
January 06	12:00	MBA Mortgage Applications	-22.8%		-10.7%
January 06	12:05	MBA Mortgage Applications	0.5%		-22.8%
January 06	13:15	ADP Employment Change	-84K	-63K	-169K
January 06	15:00	ISM Non-Manufacturing	50.1	50.5	48.7
January 06	15:30	EIA Crude Oil Stocks change	1.3M		-1.5M
January 06	19:00	FOMC Minutes
January 07	13:30	Continuing Jobless Claims	4807K	4983K	4981K
January 07	13:30	Initial Jobless Claims	433K	449K	433K
January 08	13:30	Average Hourly Earnings (MoM)	0.2%	0.2%	0.2%
January 08	13:30	Average Hourly Earnings (YoY)	2.2%	2.1%	2.3%
January 08	13:30	Average Weekly Hours	33.2	33.2	33.2
January 08	13:30	Nonfarm Payrolls	-85K	-2K	4K
January 08	13:30	Unemployment Rate	10%	10%	10%
January 08	15:00	Wholesale Inventories	1.5%	-0.5%	0.6%
January 08	20:00	Consumer Credit	-$17.5B	-$5.0B	-$3.5B
January 11	17:45	Fed's Lockhart speech
January 12	13:30	Trade Balance	-$36.4B	-$34.9B	-$33.2B
January 12	21:30	API Crude Oil Inventories	1.2M		-2.3M
January 12	22:00	ABC/Washington Post Consumer Confidence	-47		-41
January 13	12:00	MBA Mortgage Applications	14.3%		0.5%
January 13	15:30	EIA Crude Oil Stocks change	3.7M	1.4M	1.3M
January 13	19:00	Fed's Beige Book
January 13	19:00	Monthly Budget Statement	-91.9B	-84.9B	-120.3B
January 14	13:30	Continuing Jobless Claims	4617K	4800K	4807K
January 14	13:30	Import Price Index (MoM)	0.0%	0.0%	1.6%
January 14	13:30	Import Price Index (YoY)	8.6%	8.6%	3.7%
January 14	13:30	Initial Jobless Claims	446K	437K	433K
January 14	13:30	Retail Sales (MoM)	-0.3%	0.4%	1.8%
January 14	13:30	Retail Sales ex Autos (MoM)	-0.2%	0.4%	1.9%
January 14	15:00	Business Inventories	0.4%	0.1%	0.4%
January 15	13:30	Consumer Price Index (MoM)	0.1%	0.1%	0.4%
January 15	13:30	Consumer Price Index (YoY)	2.7%	2.8%	1.8%
January 15	13:30	Consumer Price Index Ex Food & Energy (MoM)	0.1%	0.1%	0.0%
January 15	13:30	Consumer Price Index Ex Food & Energy (YoY)	1.8%	1.8%	1.7%
January 15	13:30	NY Empire State Manufacturing Index	15.92	11.40	2.55
January 15	14:15	Capacity Utilization	72.0%	71.9%	71.5%
January 15	14:15	Industrial Production (MoM)	0.6%	0.6%	0.6%
January 15	14:55	Reuters/Michigan Consumer Sentiment Index	72.8	74.0	72.5
January 18	00:00	Martin L. King's Birthday
January 19	14:00	Net Long-term TIC Flows	$126.8B	$30.3B	$19.3B
January 19	14:00	Total Net TIC Flows	$26.6B		-$25.4B
January 19	18:00	NAHB Housing Market Index	15	17	16
January 19	22:00	ABC/Washington Post Consumer Confidence	-49		-47
January 20	12:00	MBA Mortgage Applications	9.1%		14.3%
January 20	13:30	Building Permits (MoM)	0.65M	0.59M	0.59M
January 20	13:30	Housing Starts (YoY)	0.56M	0.58M	0.58M
January 20	13:30	Producer Price Index (MoM)	0.2%	0.1%	1.8%
January 20	13:30	Producer Price Index (YoY)	4.4%	4.5%	2.4%
January 20	13:30	Producer Price Index ex Food & Energy (MoM)	0.0%	0.1%	0.5%
January 20	13:30	Producer Price Index ex Food & Energy (YoY)	0.9%	1.0%	1.2%
January 20	21:30	API Crude Oil Inventories	-1.8M		1.2M
January 21	13:30	Continuing Jobless Claims	4599K	4600K	4617K
January 21	13:30	Initial Jobless Claims	482K	441K	446K
January 21	15:00	Leading Indicators (MoM)	1.1%	0.7%	1.0%
January 21	15:00	Philadelphia Fed Manufacturing Survey	15.2	18.2	22.5
January 21	16:00	EIA Crude Oil Stocks change	-0.4M	2.2M	3.7M
January 25	15:00	Existing Home Sales	5.45M	5.78M	6.54M
January 25	15:00	Existing Home Sales (MoM)	-16.7%		7.4%
January 26	14:00	S&P/Case-Shiller Home Price Indices	-5.3%	-4.9%	-7.3%
January 26	15:00	Consumer Confidence	55.9	53.6	53.6
January 26	15:00	Housing Price Index (MoM)	0.7%	0.5%	0.6%
January 26	15:00	Richmond Fed Manufacturing Index	-2	0	-4
January 26	21:30	API Crude Oil Inventories	-2.2M		-1.8M
January 26	22:00	ABC/Washington Post Consumer Confidence	-48	-45	-49
January 27	12:00	MBA Mortgage Applications	-10.9%		9.1%
January 27	15:00	New Home Sales	342K	372K	370K
January 27	15:00	Treasury's Geithner Speech
January 27	15:30	EIA Crude Oil Stocks change	-3.9M	1.6M	-0.4M
January 27	19:15	Fed Interest Rate Decision		0.25%	0.25%
January 28	13:30	Continuing Jobless Claims			4599K
January 28	13:30	Durable Goods Orders		2.1%	0.2%
January 28	13:30	Durable Goods Orders ex Transportation			2%
January 28	13:30	Initial Jobless Claims		451K	482K
January 29	13:30	Employment Cost Index		0.4%	0.4%
January 29	13:30	Gross Domestic Product Annualized		4.5%	2.2%
January 29	13:30	Real Personal Consumption Expenditures (QoQ)			2.6%
January 29	14:45	Chicago Purchasing Managers' Index		57.2	60.0
January 29	14:55	Reuters/Michigan Consumer Sentiment Index		73.2	72.5

Tuesdays Market News

2010-01-26T17:36:00.000-08:00

Tuesday’s bond market has opened in positive territory despite stronger than expected results form this morning’s important economic news and stock market gains. The major stock indexes have rebounded from early opening losses to move into positive ground. The Dow is currently up 58 points while the Nasdaq has gained 10 points. The bond market is currently up 4/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point.

The Conference Board released their Consumer Confidence Index (CCI) for January late this morning. They reported a reading of 55.9 that exceeded forecasts by over two points. This can be considered negative news for bonds because it indicates that consumers may be more willing to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely. But fortunately mortgage shoppers, the data seems to have had little influence on this morning’s bond trading and mortgage pricing.

December’s New Home Sales report will be posted late tomorrow morning. It is expected to show an increase in sales of newly constructed homes, but is not important enough to heavily influence mortgage pricing.

Also tomorrow is the 5-year Note auction. Results of the sale will be posted at 1:00 PM ET. This sale doesn’t directly impact mortgage rates, but it will gives us a measurement of investor interest in U.S. securities. If the demand for the sale was strong, the broader bond market will likely react positively, making an improvement to mortgage rates possible. However, a poor demand could lead to bond selling and higher mortgage rates tomorrow afternoon.

Today begins the 2-day FOMC meeting that will adjourn at 2:15 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed’s next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, so I don’t believe that this meeting will have the influence they usually do.

It appears that tomorrow afternoon will be more active than tomorrow morning for the bond market and mortgage rates. The morning data is not very important since it covers only approximately 15% of all homes sold in the U.S. The 5-year Treasury Note auction is not the most important of the sales that we track. But it does carry the potential to influence the bond market enough to impact mortgage pricing. And that takes us to the FOMC results that can cause more movement in the markets than both of the other events combined. So, I would not be surprised to see the most movement in mortgage rates to come during afternoon hours.

Weekly Update

2010-01-26T08:31:00.000-08:00

This week's new articles on California real estate :
Cramdowns, cramdowns, cramdowns!
The New York Times reports housing prices in the U.S. flatlined in October, 2009 despite . . . . Read More »
Federal government: give up the comedy routine and get to work
The Making Home Affordable program created by the current administration has made matters worse for . . . . Read More »
The delinquent release of the risk-based pricing notice
In the past, when a loan applicant did not have sufficient or strong enough credit to borrow, his loan was . . . . Read More »
What's good enough for the goose...
In a recent speech, Mortgage Bankers Association president and chief executive officer John Courson urged homeowners to . . . . Read More »
Fannie Mae reveals owner-occupant preferential program
Fannie Mae unveiled its First Look program for buyer-occupants . . . . Read More »

MARKET UPDATE

2010-01-19T07:48:00.000-08:00

This week's new articles on California real estate:

Do not be caught unprepared: new licensing requirements for mortgage brokers
The Legislative Watch reviews Senate Bill (SB) 36, which subjects residential loan originators to additional regulation by the DRE . . . . Read More »

Wells Fargo: 'leading the way' in cramdowns?
After acquiring $117.3 billion dollars worth of option adjustable rate mortgages (ARMs) in its acquisition of Wachovia last year, banking giant Wells Fargo is now . . . . Read More »

The House rejects "cramdown" measure: more foreclosures on the way
The US House of Representatives votes 188-241 to reject a measure that would have given bankruptcy judges the ability to . . . . Read More »

Analysts see unemployment peaking this month
The UCLA Anderson School of Management predict California's unemployment will top out in December of 2009 at . . . . Read More »

Wait for revised IRS Form 5405 to claim extended housing tax credit
The IRS will be releasing a new version of Form 5405, the First-Time Homebuyer Credit Form, for homebuyers looking to . . . . Read More »

Weekly Mortgage Market Update for last week

2009-06-15T20:32:00.000-07:00

Over the weekend my daughter and a friend had a lemonade stand on the street. They weren’t selling much lemonade for 50 cents a cup, so they decided to increase the price to 75 cents a cup. I told them that is not how economics works. My daughter replied, “The price of a postage stamp went up to 44 cents a few weeks ago, and the Postal Service said they had to raise the price because fewer and fewer people are using the mail these days. Dad, that's government thinking: ‘Hey, nobody's buying our product. Let's raise the price.’”

When is the best time to add insult to injury? When you're signing someone's cast. What some may feel is along the same lines, do you remember how the former Countrywide Financial president formed PennyMac Mortgage last year to buy troubled home loans and related securities? And how people in the business cried foul: “First they originate the stuff, then give the mortgage business a bad name, and now they’re buying their loans back at 10 cents on the dollar?” Well, soon you may be able to buy stock in them. On Friday they filed with the SEC to sell as much as $750 million in stock to the public. PennyMac Mortgage Investment Trust would make some of its investments under a federal plan to offer financing to buyers of toxic mortgage assets from banks, the filing says.

Flagstar reminded their customers that “FHA has extended the temporary property flipping waiver that allows lenders and the property disposition firms they hire (or with whom they are affiliated) to sell properties on which they’ve foreclosed without regard to FHA’s 90-day seasoning requirement. The waiver is in effect for loans with purchase agreements signed by the borrower and seller on or before May 10, 2010. Individuals or entities that purchase foreclosed homes are not exempt from the 90-day seasoning requirement. When the property seller is not exempt from FHA’s seasoning requirement, the borrowers may not execute the purchase agreement before the 91st day after the seller acquired the property. FHA requires a second appraisal when a property is being sold within 180 days of the seller’s

acquisition date and the sales price is more than 100% greater than the seller’s acquisition cost. This applies to all FHA purchases, including transactions where the seller is permanently or temporarily exempt from FHA’s 90-day seasoning requirement.” For additional information, refer to the FHA Mortgage Letter 2006-14 – Property Flipping Prohibition Amendment.

Flagstar also changed the pricing on all table-funded government loans with properties located in North or South Carolina to reflect a hit of 10 basis points.

Lastly, on June 5^th Flagstar will limit eligible manufactured home transactions to rate and term refinances of loans currently serviced by Flagstar Bank. Purchase, cash-out refinance transactions; or rate/term refinances of non-Flagstar serviced loans will be ineligible. This change applies to all products where a manufactured home is an eligible property type. Pipeline loans outside of these guidelines must be locked prior to Friday, June 5^th.

AgFirst announced that they will not be able to purchase loans originated under the DU ReFi Plus program when the previous loan has active Mortgage Insurance (MI) and is NOT currently being serviced by AgFirst. Per AgFirst, “The MI companies have not yet clearly defined operational procedures for the transfer of the MI from one servicer to another. The servicer that originates the refinance (AgFirst) would be held responsible for the transfer of the MI to the new loan. With the uncertainty in procedure and the absence of uniformity, the risk is too great.”

Union Bank of California, where many brokers have turned for jumbo product, reminded their brokers that their investment property financing, for purchase or no cash out refinance, has no restrictions on the number of properties owned or financed. “Union Bank will finance up to 3 investment properties for the same borrower Loan amounts up to: 1 unit $750,000, 2 units $1,100,000, 3 and 4 units $1,500,000. Available on all programs, Interest Only or amortizing, including the Two Step Mortgage.”

Franklin American came out with their High Balance conforming loan limits originated under Fannie Mae’s Temporary High-Cost Area Loan Limits. An Addendum to the Conforming Fixed Rate provides underwriting criteria and loan parameters as allowed by FAMC. As with other investors, the list can be seen at http://www.fhfa.gov/webfiles/2082/HighCostLoanLimits2009_ARRA.xls Underwriting by FAMC is required on loans for lenders with delegated underwriting authority less than $650,000, and on all loans having loan amounts > $650,000 regardless of lenders delegated authority. Lenders should refer to their most recent FAMC approval letter to confirm their delegated underwriting loan limits.

So here we are, on a Tuesday that every year feels like a Monday. We have Treasury auctions today, tomorrow, and Thursday. Today we also have a series of “soft” economic releases: S&P/Case-Shiller housing index, Consumer Confidence, Richmond Fed, and so forth. Tomorrow and Thursday we’ll see Existing Home Sales and New Home Sales. Durable Good comes out Thursday, and on Friday we finish the week with GDP and the Chicago Purchasing Managers Index. Prior to this we find the 10-yr at 3.41% and mortgage security prices better by a shade.

Ps. If you are currently in the market for a refinance or purchase, please visit my website at www.123BestRateGuaranteed.com. Here you will find numerous tools as well as the ability to get a qoute.