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 Well, now things get very interesting… For months we have heard an argument that the right thing to do, the plausible thing to do, the only responsible thing to do in Europe is to tighten the belts of the economy. We’ve seen austerity moves applauded by economists while, in the streets – especially of Greece – people rioted, expressing their condemnation of the policies.
The idea is simple and compelling, and it turns on what happens in the credit markets. You’re deeply in debt; the likelihood of pulling yourself out of debt is getting smaller by the minute; and you appeal to your creditors’ good will (and their flagging belief that you’ll make it through the next scheduled debt payment successfully) by saying, “See! We just cut the expense of our governmental programs again. We just eliminated a whole bunch of government workers. We just trimmed pension expenses. We’re acting responsibly. Our economy is righting itself.”
Trouble is, the economy remains as wobbly as a ship whose bow just ran into an iceberg. But here’s the really dangerous part: People on both sides of the argument hold to their positions religiously, not rationally, and doing so means that their positions only harden and narrow over time.
The fact is, both sides are right, in part. Surely the size of government has to be cut down and we all could use a dose of austerity.
Surely, at the same time, the excessive amounts of money that are wasted in vain attempts to warm our national economy only make matters worse, digging us deeper into debt.
Now, if you think that puts us somewhere between a rock and a hard place, you’re doubtless correct. It demands that the U.S.S. Economy be guided by a profoundly wise and sensitive vision. In the midst of a national election, though? – well, pardon my skepticism. The fact is, there are no easy answers here. But our eyes should be on the most likely ways to grow our economy (as is equally true in Europe), and not just on the best ways to defeat the other political party.
(I feel like I’m shouting at the storm here, of course. But perhaps we can, at the least, gain some perspective on what we’re likely to experience in the coming months.)
The French election of this past weekend and its aftermath will very likely teach us a great deal about what to expect in the coming months – and, perhaps, years. The backlash against political conservatism bears some of the hallmarks of the “Occupy” movement – similar grievances against the wealthy, in any case. And it’s reasonably predictable that any number of powder kegs sit ready for matches to light their fuses in the coming months. The Arab Spring could become a European Summer.
At the same time, though, we may see further glimpses of an improving national economic climate – with growing American oil production changing the face of international trade, with more manufacturing coming back to American soil, and even with new housing ideas stimulating the real estate market.
Many things will by vying for our attention – not the least, a constant chorus of analysts who claim that we’re headed for disaster. My guess is we aren’t. But I suspect it will be helpful to watch Europe closely in the coming weeks… Very closely.
In the meantime as the analysts grouse about last Friday’s employment report (detailing the tepid growth of jobs in April), what are we to do with the excellent report last Thursday telling us that the number of new claims for unemployment insurance fell back to the mid-360,000 level? Could it be that the economy is still in the midst of the awkward process of transitioning into greater strength?
Time will tell. But it’s bound to be three steps forward/two back for probably months to come. If so, remember that it could be a lot worse (or do you too find that hard to forget?).
Finally, we’re seeing the balance tip in the financial press, with forecasts of a good—or at least tepid—selling season this spring.
But I’m sure you all know what it’s like when you’re driving a country road for the first time and it widens from nearly a one-lane experience of fright to a broad two-lane ‘highway’ that locals take at about 70 miles per hour. Then, suddenly and unexpectedly, the road goes from smooth concrete to asphalt to gravel, and you pull to the side, wondering what’s up ahead and whether you’ll survive it.
So it is with the economy today, at least where real estate is involved.
Many observers, whose words we find scattered through the financial press, are breaking out the champagne. Derek Kravitz and Alex Veiga, both of whom write prolifically for the Associated Press, recently had this to say, for example: “Five years after the U.S. housing bust sent sales and prices plunging, the spring home-buying season is pointing to a long-awaited recovery. Reduced prices, record-low mortgage rates, higher rents and an improving job market appears to be emboldening many would-be buyers. Open houses are drawing crowds. A wave of foreclosures is leading investors to grab bargain-priced homes.”
Which is all pretty great—smooth driving on a newly-cemented road—but the patches of unimproved gravel continue to intrude on our progress and make the driving feel dangerous.
The most recent completed sales computations, given the apparent improvement in related indicators—especially jobs—were disappointing. For sales completed in March, existing home sales fell off 2.6%, while new home sales were off by 7.1%. Even pending sales brought little solace, since newly-signed contracts dropped by 0.5% in February. (The index for March will be released tomorrow, on Thursday, April 26.)
There are a few mitigating circumstances. For example, there was a striking annual decline of 2.5% in the number of existing homes on the market. And the new home sales looked especially weak because of upward revisions to the number of sales in prior months—40,000 in February, 11,000 in January. Still, these don’t appear to be the sorts of dazzling numbers that would usher in a certain and sustainable recovery.
If I may climb aboard another metaphor, we should recall that the real estate market—like an ocean liner—takes a lot of time to turn around and often brings to mind the surprises that greeted the Titanic, the unsinkable ship, long ago. Our progress toward a truly sustainable market, therefore, is almost always attended by some fits and starts.
But this is not a bad thing for everyone. Certainly, there are those of us who have about run out of the ability to keep holding our breaths, waiting for the ‘All Clear’ signal. Actually, I suspect this economy will continue to generate concerns and uncertainties for many months to come, if not until the cows come home.
Meanwhile, the good part. There is still time, brothers and sisters. We don’t have to rush into the market with our checkbooks in our back pockets, pens at the ready, trying to grab a great deal and good financing before they’re gone. What we have here is a window of opportunity when nearly all the ingredients have come together—even the amount of time needed to engineer a solid transaction. This will surely pass, so the time to act on all of this is now.
And there’s something to watch very closely. Even major financial houses are beginning to see that investing time and energy into streamlining the ‘short sale’ process can potentially save them a lot of money over the cost of disposing of a property in a foreclosure. If they can make this work…if the market moves in favor of short sales (there were apparently more of them in January than foreclosure sales for the first time ever)… we may eliminate the heavy, dark clouds with which imminent foreclosures continue to threaten the real estate recovery.
I puzzled over a bit of seemingly self-negating information Tuesday. Housing starts in the month of March declined by a striking 5.8%. This takes some of the wind out of our sails. Obviously, we don’t get to continue moving toward a sustainable recovery on a straight, easy-to-negotiate path, it’s a little more complicated than that.
This should not surprise us, even if it shakes us up a bit. The other possibility, of course, is that we’re not moving securely down the recovery trail at all, and the remaining gloomsters who see us – particularly the real estate market – dropping off the edge of the earth sometime soon are giving each other high-fives because of their seeming sagacity.
Pay no mind – not even to the wonderful Nouriel Roubini. We are still headed in the right direction, for the most part. After all, the seemingly self-negating portion of this indicator was that, while March starts fell by 5.8%, builders bought up 4.5% more housing permits than they did in February.
Does this mean that builders are less sanguine about today’s market but, at the same time, a bit more optimistic about the future of the market – say, three plus months in the future???
It very well may. And it would serve us well to remain aware of the fact that large construction firms, lenders and real estate brokers are readying themselves for sizable growth in real estate sales – not tomorrow, but not too long after tomorrow either. We read a lot about how things will be visibly improved in 2013, we’ll see… In the meantime we ready ourselves for the possibility.
Actually, last week’s was a tepid serving of economic indicators, at best. Even the fact that the Freddie Mac average fixed rate for 30-year mortgages fell to within one basis point of its all-time low of 3.87% barely elicited a smile on the face of the markets.
One little piece of information, though, seemed to me extremely relevant – and under-reported: This past January saw more short sales close nationally than foreclosures. Stay with me on this.
The number of foreclosures on the market has tightened up a bit. The people at DataQuick, who watch this sort of thing, warned us not to get too excited because there is still a mountain of foreclosures to process. The lenders, they said, are just pausing for a time – then watch out! Foreclosures everywhere we look!
But here’s how it’s actually working. Lenders are finally discovering that they can process short sales in less time and at significantly less cost than foreclosures. Consequently, they’re putting fewer foreclosures on the market. Consequently, market inventory of distress properties has declined. And consequently, fewer homes are selling each month. Nowhere is this more true that the Roseville and greater Sacramento market, where real estate inventories are near all time lows.
However, more homes are selling as short sales, which – if done right – makes everyone a lot happier and costs less to accomplish. Good deal! We may at last be in the first stages of developing short sale systems that are truly efficient and cost-effective.
And these short sales may just prove to be the first version of a new generation of mortgages that meet the needs of individuals more precisely, and are far less likely to be hit by defaults.
Lastly, of course, a more efficient use of short sales is surely the best way to establish the floor of today’s real estate values and to get distress sales off the back of our real estate market. The overall local economy, as well as that of the entire nation, would benefit greatly from that.
We’ll see, but so far, this looks like good news and quacks like good news. It must be good news, therefore….
Let’s talk about gasoline for a few moments. Surprisingly, doing so may afford some insight into other subjects, maybe even the level of interest rates.
The place to start, I suspect, is here: We have heard a lot of whoppers about how the current high price of gasoline at the pump either was engineered by Obama or was the result of Obama’s lack of obvious oil-price-easing activities. In short, it’s because of what Obama did (or, as the case may be, it resulted from all Obama didn’t do).
Most economists look at this argument and respond with a very obvious point. Obama couldn’t cause gas prices to rise if he wanted to. Sadly, he isn’t much more proficient at making gas prices fall, either.
There is a belief, however (“Drill, Baby, Drill”) that Obama could bring prices down if he found ways to encourage greater gas production in America. An obvious problem here is that we have not only already increased our production – largely because of technology that unlocks the oil heretofore bound up in shale deposits in a vast number of locations beneath the American soil (note for example, North Dakota) – but we even graduated to the status of net oil exporter (that’s right, we export more oil than we import) this past year.
It was assumed that the price of oil would decline if we seemed to have enough of it. But no. The price of oil is determined by “the international market,” and thus it depends on the level of demand for oil across the world, and the key there is whether OPEC wants to boost the price of oil or to bring it down.
A grocery store, after all, can lower the price at which it sells hot dogs. But when an international chain of supermarkets sets the price higher, the grocery story may gain several new fans, but the price of its hot dogs will eventually move to the price established in the international markets.
This has raised the question of why OPEC countries are so “greedy” – why they don’t just accept a lower price when the profits they are making by producing it for a few bucks a barrel and selling it for over $100 are outrageous (the same, of course, can be asked of American oil companies. The Saudis, among others, have no lock of greediness)?
In any case, there is an obvious answer… If you are the Crown Prince of Saudi Arabia, for example, and the only things your country has for its people – like food, like the essentials of living, as well as the luxuries – are imported, not grown or manufactured at home and those imports are paid for with oil money, you want to manage your national resource with great (and greedy) care. Otherwise, you will end up thrown out of office and into the same dustheap of history where Mubarak and Gaddafi and others find themselves.
As Bibal Qabalan noted in NPR’s Planet Money, every gallon of gas we buy has an unspecified but costly tax within it. “Like it or not, the bill for keeping the Persian Gulf monarchies in power is now being footed by every American. Every time we fuel our car we send an extra 35 cents per gallon, or roughly $6 per fill up, to the Save the King Foundation. Since oil goes into everything we buy from food to plastics, this adds about $1,500 annually to the expenditures of the average American family.”
Is it a political issue, therefore? Absolutely. But neither Obama nor any other American politician can do much about it – except throw his and her support behind our own energy program, and get us into electric cars, still a somewhat dubious proposition, especially in the short term.
The Saudis don’t want to make us overly angry. So they also work to keep oil prices from rising too high – whatever that might prove to be. Studies have shown that, even as oil prices rise still further, “Americans may protest loudly, but their economic behavior indicates a remarkable indifference to the price of oil.”
And what might this have to do with interest rates? It just fits into a similar category. Interest rates, particularly today, are established in world markets. They depend on how well the euro happens to be faring, the psychology of certain fiscal and political problems – from Greece to Spain to Iran to Brazil – and other matters. To gain some understanding of why rates are going where they’re going, we have to dig very, very deep. And we’re still likely to come up with little to no gain – either in understanding or in profit… And so it is at this moment.
“I understand that on April 1, 2012 the FHA Interest rate will increase?”
 No one can tell for sure what interest rates on any loan, FHA included, will be on any day. Interest rates for pretty much every type of loan fluctuates daily (sometimes more than once a day).
You may be referring to the FHA Mortgage Insurance premium… This is changing on April 9th and is going to increase; a.) The Up Front portion of FHA’s mortgage insurance premium by 0.75%. The Up Front MIP is generally financed into the loan, spread out over the entire term of the loan, and doesn’t have much of an effect on one’s payment, but it will increase most people’s loans by a least a few bucks. b.) the Annual or Monthly MIP is also going to increase by 0.10-0.15% depending on their loan scenario, and by another 0.25% for those with loan amounts that exceed $625,500.
This is going to increase every FHA borrower, that has their FHA case number pulled after April 9th, monthly payment by a bit. Quite a bit in some cases. But FHA is doing this to keep the fund solvent and ensure that FHA loans are always available for those that need them. They are still the best loan for many people and will be the only loan for many people for quite a while.
Sincerely,
Greg
Innerwork Mortgage
Roseville, CA
Roseville Fire Chief Marcus Reed’s first week on the job was full of new faces, moving to a new city and getting to know a new department.
LINK
 Carbon Monoxide detectors? Maybe you know all about them, maybe you know little more about them than you have heard from the recent radio commercials trying to sell you one, or maybe this is the first time you heard of them? Well, a newly implemented bill in California is making them requirements in pretty much all of our homes, whether we own or rent (landlords are required to install them in their rental properties), and it’s a good thing…
A Roseville family may have been saved by a carbon monoxide detector they recently installed after the alarm alerted them to the killer gas last week in their home on Vernon Oaks Drive.
When the Roseville Fire Department arrived they found all eight members of the household in their front yard. It was then determined that the detector was doing its job as there were lethal levels of the gas in the house. PG&E determined the cause of the gas leak was a fireplace that was not adequately vented. Luckily no one suffered any symptoms of any kind.
Roseville Police’s press release on carbon monoxide and carbon monoxide detectors here…
http://www.roseville.ca.us/civica/filebank/blobdload.asp?BlobID=19806
If you’re unemployed and in danger of going into default on your mortgage the nation’s Government Sponsored Enterprises (GSE’s), Fannie Mae & Freddie Mac, are making some important changes to their foreclosure and forbearance (when the bank suspends collection of payments for a period of time, kind of like a timeout on making payments) policies.
 The new rules will direct mortgage servicers (who you make your payment to) go through a forbearance process when the homeowner has lost their job before moving into foreclosure territory. Under the new rules these services have automatic authority to grant homeowners on unemployment a full six months forbearance and can go to the GSE’s for approval of another six months if the homeowner’s unemployment income lasts for longer than six months.
That’s adding up to a year to get back on track before any sort of foreclosure process begins!
There are some exceptions to the new rules however. The house must be a primary residence, not an investment or second home. And the mortgage must be backed by one of the GSE’s themselves, not FHA or VA, and not a private/portfolio loan held by the bank themselves.
That covers the basics. But, of course, there are some more details that might affect you. If you have any questions, please ask! I’m always here to help…
Greg
Check out this great and fun report from the “boys in the hoods”, Brent Gove and Rob Lewis of Keller Williams Roseville. I didn’t know anything about the Roseville Sports Center and I’ve lived in Roseville for almost 25 years… Now I want to go climb that wall!
(click the video to watch)
Home sales in the Sacramento region rose yet again last month, beating the rest of the state (which also rose with us, only not as much). Over 2,400 homes sold across the region in November, up just shy of 12% year over year.
 It was the fifth month in a row of over 10% gains in sales volume, with sales in Sacramento County up just shy of 13% in November alone. Placer County, less hardly hit by the downturn had been leading the way in previous months saw homes sale increase by only half a percent. A small bump but a continuing trend upward.
Most of the demand across the board was for moderately priced homes with volume being in the $200,000 and under range. Homes in the $200-300,000 range stayed about the same while sales of homes costing over $300,000 actually slowed a bit.
Foreclosure rates are still higher than we want them to be (I’d like it to be at 0) however you’ll remember in previous posts that the number today is not what matters, it’s actually almost meaningless when it comes to predicting future distressed sales, the number we need to look at is actually how many homeowners are defaulting on their mortgage payments, a number that is dropping more and more every month.
The “news” knows that what sells is fear, scary doom and gloom is what gets the most readers and hits to their website. And, while the picture is not the prettiest, it’s a lot prettier than it was in the not to distant past and much prettier still than the pictures the promoters of fear want to sell you.
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Well, now things get very interesting… For months we have heard an argument that the right thing to do, the plausible thing to do, the only responsible thing to do in Europe is to tighten the belts of the economy. We’ve seen austerity moves applauded by economists while, in the streets – especially of Greece – people rioted, expressing their condemnation of the policies. 
