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 [...]]]> 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.

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).

“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

To put the declines into perspective, today’s homebuyers are paying over $1,200 less per year on a [...]]]> Interest rates on homes continue their downward trend. GSE Freddie Mac reported that the average 30-year fixed-mortgage rate sank to 3.91% last week, setting an all-time record low. 15-year fixed rates settled in at a historic low at 3.21%.

To put the declines into perspective, today’s homebuyers are paying over $1,200 less per year on a $200,000, 30-year fixed-rate loan than they would have just a year ago today!

The initiative would reportedly allow borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at today’s rates, even if they are in negative equity or have [...]]]> The administration is now considering a new refinance program that would provide millions of homeowners with new, lower interest, lower payment mortgages…

The initiative would reportedly allow borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at today’s rates, even if they are in negative equity or have bad marks on their credit. Two Columbia business professors say such a move would save homeowners an average of $350 a month and pump an extra $118 billion into the economy, the report stated.

This would be wonderful for Sacramento area homeowners that can’t currently qualify a refinance at today’s low rates, and in turn have a positive effect on the local economy as people have more money to spend every month. There really is no negative. Since this would apply to mortgages already backed by Fannie Mae and Freddie Mac there is no additional risk to the government. In fact it will reduce risk to Fannie Mae and Freddie Mac by making it so homeowners can more easily make their monthly mortgage payment. Let’s see how this all plays out in today’s Washington…

This data includes the index published by the Federal Housing Finance Agency and shows that [...]]]> Continued depreciation of property values in 2010 has made housing more undervalued relative to income than ever before. Using the latest Case-Shiller home price index American housing was 21% undervalued when compared with disposable income per-capita.

This data includes the index published by the Federal Housing Finance Agency and shows that housing in the 4^th quarter of 2010 was 15% undervalued as measured against American’s disposable income. The results point to the idea that housing is exceptionally undervalued, and the gap has gotten bigger.

Current low housing prices, coupled with historically low interest rates (the 20 year average is 7% but a minimum down FHA loan can be had for 4.5% today), explains why the monthly mortgage payment on a median priced house bought with a 20% down payment has fallen to an all-time low of 13% of the median income. Real estate costs now appears close to fair value when set against rents according to the numbers (and I have seen plenty of people buy for less than they were paying in rent recently).

These low prices and rates mean there is plenty of scope for housing to perform well in the near to mid-term. Also, the Sacramento market currently has MANY more buyers than there are properties to sell in this low-mid price range, so the demand is there to keep it moving.

Looking at the long term, as I have talked about a number of times recently, a sharp fall in the mortgage delinquency rate throughout 2010 means there will be fewer homes in the foreclosure pipeline, and as current foreclosure pipelines continue to shrink we should see a return to a more normal real estate market in the Sacramento region. This will not happen overnight but with less and less first payment defaults, there will be less and less foreclosures going forward.  

So, with home prices as “undervalued” as any time in history, what are you waiting for?

~Greg

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Just a quick look at last week’s mortgage bond market. Up and down (red is bad) in huge strokes all week long. I hope you see how important it is to work with a mortgage professional that not only has access to this data, but understands how to use it to your advantage. [...]]]>

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Just a quick look at last week’s mortgage bond market. Up and down (red is bad) in huge strokes all week long. I hope you see how important it is to work with a mortgage professional that not only has access to this data, but understands how to use it to your advantage. It could make a huge difference in how much interest you pay over the life of your loan!

Here’s to hoping this week starts off with a bang and we can keep these historically low rates for a little while longer (so far it’s already looking good)!

-Greg