Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

Home sales drop 7.2%

According to the National Association of Realtors (NAR), existing-home sales fell in January but are above year-ago levels.  Economists polled by Thomson Reuters had forecast that completed sales last month rose almost 1% to a seasonally adjusted annual rate of 5.5 million, up from 5.45 million in December.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – dropped 7.2% to a seasonally adjusted annual rate1 of 5.05 million units in January from a revised 5.44 million in December, but remain 11.5% above the 4.53 million-unit level in January 2009.  Total housing inventory at the end of January fell 0.5% to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December. Raw unsold inventory is 9.6% below a year ago, and is at the lowest level since March 2006.

The national median existing-home price for all housing types was $164,700 in January, unchange  d from a year earlier. Distressed homes, which accounted for 38% of sales last month, continue to downwardly distort the median price because they typically are discounted in comparison with traditional homes in the same area.  A parallel NAR practitioner survey4 shows first-time buyers purchased 40% of homes in January, down from 43% in December.

Investors accounted for 17% of transactions in January, up from 15% in December; the remaining sales were to repeat buyers. The survey also shows that buyer traffic increased 9.4% in January.

4.5 FNMA Mortgage Coupon 8-2008 to 2-2010

Remember all the writing I did in the past year about how the Federal Government has been artificially propping up the mortgage markets and keeping interest rates low?

It is all coming to an end … in 37 days!

*HINT* If you click the graph at left, it will open a new window so you can examine it closer. As you can clearly see, the moment the FED announced this program in Nov 2008 mortgage bond pricing improved, which means interest rates went immediately down. You can also see that in the summer of ’09 the improved again when the FED announced it would extend the program through 1st quarter 2010.

In case you don’t remember, since November of 2008, the Federal Reserve Bank of New York has been the single-largest buyer of Mortgage-Backed-Securities (MBS) on the Bond Market. This is where interest rates are determined. It’s all about supply & demand.

Mortgages are packaged and securitized, and major investors buy those MBS securities as investments. The larger the demand, the lower interest rates need to be. If demand falls, then interest rates will need to rise to make the MBS more attractive to investors.

Without this market, banks would not be able to replenish their funds to do more loans. Now you can see how important this is.

Part of the original Stimulus Bill was for the Federal Reserve to purchase over $1trillion in MBS. This has been happening in phases over the last 15mo, and IS the ONLY REASON rates have been this low. In other words, the US government has bought more MBS than all the other buyers combined, making demand strong.

The program was originally scheduled to end Dec 31st, but was extended through March 31st. (see the chart above in summer ’09 when they announced the extension) What will happen then? True market forces will take over. Many experts believe rates will jump rather quickly, and others say gradually. Either way, EVERYONE agrees that rates will go up probably by summer at the latest.

IF YOU ARE BUYING, YOU NEED TO GET YOUR ‘You Know What’ IN GEAR. Is it worth the risk to wait? When all the market data points to a rate increase, and not a decrease, there isn’t a compelling reason to hold back any longer. Same with refi’s. If you wait, you could miss the chance of a lifetime.

Call or email me today. Rates are still fantastic. If you are a first time or move up buyer, you have to call. Time is running out on the Tax Credit!

Note the Red columns for 2009. In December 2009, a record low 23 thousand new homes were sold (NSA); this ties the previous record low set in December 1966.  Sales in December 2008 were at 26 thousand.

Last Week; interest rates spiked on continued better economic data and an increase in the producer price index. Therewere four data points on the manufacturing and business sectors, all of which were improvements from Dec. The NYEmpire State manufacturing index jumped, the Philadelphia Fed business index also stronger. Jan industrial productionup 0.9% and Jan factory usage at 72.6%, the best since Dec 2008; within the factory use data the manufacturingpercentage increased to 69.2% up from 68.4% in Dec. While we continue to believe inflation will not be a serious factorfor the rest of the year, the January producer price index surprised with a gain of 1.4% double what analysts wereexpecting. As noted many times here, although the immediate outlook on inflation is subdued, anytime an inflationreading is stronger than markets expect it sends chills through the spines of fixed income investors and traders. Not allthe selling in the bond market was attributable to better economic data; after months of preparing the bond market for theend of monetary easing, the Fed increased the discount rate to 0.75% frm 0.50%. It in itself is not going to increaselending rates, but it once and for all signals the Fed is finished supporting banks and other recipients of governmentlargesse.

This Week; Treasury will be back to the table to borrow another $118B of notes; $44B of 2s, $42B of 5s, and $32B of 7yr notes. On top of that Treasury will auction $8B of 30 yr inflation indexed bonds on Monday. Jan housing statistics thisweek with new and existing home sales, both expected to have increased from Dec. The Dec Case/Shiller home priceindex also out, it attracts attention from a wider national perspective but home price levels are indigenous to each marketarea so other than a indication it has little relevance unless you live in one of the 20 large market areas it specificallydetails. And there is more; two consumer sentiment indexes (the Conference Board’s consumer confidence index and theU. of Michigan consumer sentiment index). Rounding out the week, the Feb Chicago purchasing mgrs index and thesecond look at Q4 GDP, the preliminary read is expected to be unchanged at +5.7%. Interest rates are headed higher, ina choppy pattern but up. The path won’t be straight up and we do not expect rates to increase more than another 50basis points for mortgages or the 10 yr note through the rest of the year. As for any potential for a sizeable decline inrates; it will take a solid break in the equity markets which at this point doesn’t seem likely.

Summary: This week, there’s a lot of economic data set for release.

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

Any better than expected news on any of headlines above will be bad news for mortgage rates. If you were waiting for the right time to lock, it might have been 2 weeks ago.  We lost all of January’s gains.  If you are in the market for a home loan, consider locking in to protect against futher deterioration.  Need help, give me a call or email.

Mortgage rates will rise in response to yesterday’s Fed action.

If you’re in the process of shopping for a mortgage or buying a home, the longer you wait to commit, the higher your mortgage rate will likely be.  Call or send me an email and I will send you a rate quote based on what the market is doing today.

Rates are changing very quickly and every day counts.

The Federal Reserve said yesterday it is raising the rate it charges banks that borrow from the central bank when they run short of funds by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions.

Don’t everyone panic here, because the move is largely symbolic – banks do little borrowing at the discount window and the discount rate has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy.

But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two last years of  financial firefight.  The Fed also shortened the term of some discount window loans an  d raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks.

The central bank said Thursday’s increase should “encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds” and added that it will “assess over time whether further increases in the spread are appropriate.”  It added: “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”

Housing Advocates Pan Anti-Foreclosure Program’s Results

By Mary Kane 12/10/09 1:54 PM

Julio Angulo was evicted from his Virginia home last December. (American News Project)

It was last December when Julio Angulo ignored the bitter cold and sat on a rusted patio chair in the front yard of his foreclosed home in suburban Manassas, Va. He sighed, resting his hand on his knee. He stared despondently at the sky. His lender had foreclosed on his house in July. He had just been evicted.

Angulo, then 55 years old, had nowhere to go. His wife and two children already had returned to El Salvador. He had refused during the summer to accept a cash-for-keys transaction, in which he could turn the house over to the lender in exchange for a cash payment. Instead, he remained, alone, in the three bedroom townhouse, in a modest working-class neighborhood called Georgetown South, until a Prince William County Sheriff’s Deputy knocked on the door on Dec. 1, 2008 for the foreclosure eviction.

A house painter, Angulo couldn’t afford the market rents of $1,500 a month for apartments elsewhere in the neighborhood. Most of Prince William County’s shelters also were full that day.

A year later, Angulo is gone. A legal resident of the United States, he joined his family in his native El Salvador, to let a knee injury heal, and to recover from his lost dream of owning a home. With nowhere to go immediately after the eviction, he luckily ran into a neighbor that night who offered to rent him a room for two weeks. He went to a public health clinic, to see a doctor about the arthritis in his injured knee. Then he left for El Salvador.

The house he paid $280,000 for in July of 2005 sold for $69,900 on March 16, 2009, according to local real estate agent Keith Elliott Jr. Real estate investors bought it.

And a year later, the hopes of those who thought the government could come up with a plan to stop foreclosures and help keep people like Angulo in their houses seem in tatters as well.  The Obama administration’s signature effort remains its $75 billion Making Home Affordable program, which was set up to aid as many as 4 million homeowners. But Making Home Affordable has in most ways been a crushing disappointment, housing advocates say.

At the beginning of this year lenders on their own were doing far more permanent loan modifications than the government has been able to accomplish since rolling out its program in April, noted Diane Thompson, an attorney with the National Consumer Law Center. Private lenders were completing 120,000 permanent loan modifications per month during the first quarter of this year. Under the Obama administration’s initiative, some 650,000 homeowners have entered into trial loan modifications, but only about 10,000 permanent loan modifications had been completed by the end of October, a Congressional oversight panel reported on Wednesday. Treasury Department figures released Thursday showed that only 31,382 permanent loan modifications had been completed under the government program as of Nov. 30.

Making Home Affordable’s loan modification effort is known as HAMP, or the Home Affordable Modification Program. The small number of permanent loan modifications so far is due in part to a new program getting established, and to the fact that borrowers in the government program have to complete three-month temporary trial loan modifications first, in order to qualify for permanent ones. Getting the permanent trial modification isn’t automatic — trial program borrowers must submit paperwork documenting their incomes to convert to permanent loan modifications, and they must make three months of payments under their trial agreements.

Treasury expects some 375,000 trial modifications to be finished by the end of this year, but it’s not clear how many will become permanent. Updated numbers are expected this week. But none of this fully explains the glaring lack of progress so far, Thompson said.

“We’re more than nine months into the program, and trial modifications account for only about 11 percent of all the seriously delinquent loans, and permanent modifications aren’t even on the radar screen,” Thompson said. “The HAMP servicer participation agreements do not provide for any penalties, other than termination from the program, for the failure to make modifications.  Until those agreements are revised, the administration has little recourse other than public shame to compel servicers to make loan modifications. Meanwhile, the number of homes seriously delinquent and in foreclosure continues to rise every quarter.”

This is hardly what Thompson expected, just a year ago.

“It’s been very distressing,” she said.

In testimony submitted to the House Financial Services Committee on Tuesday, officials from JP Morgan Chase reported that of every 100 homeowners who sought to have their loans reworked under the government’s program, just 15 have or will end up with, a permanent loan modification.

Thompson and others who follow loan modifications said they were aware from the beginning that the government program couldn’t prevent all foreclosures, especially as job losses mounted and even prime borrowers fell behind on their payments. Experts also knew there would be some slowdown under the administration’s new program, as servicers worked to convert temporary loan modifications into permanent ones.

Servicers and borrowers are pointing the finger at each other over the lack of more permanent loan modifications. Servicers contend borrowers aren’t coming up with the necessary paperwork, such as documenting their incomes, that is required for permanent loan modifications. But housing counselors say just the opposite — that borrowers supply servicers with pay stubs and other paperwork, only to have their servicers lose them, or sit on them so long they aren’t current.

Thompson said there are even bigger problems with the program that leave her feeling very differently about the effort today, compared to her optimism when it was first announced.

“I don’t yet see any of the work on HAMP by the administration addressing the core problems in the program–a lack of accountability and transparency–so I am not optimistic, although I do believe that some of the incremental changes to the program are helpful and may help tens of thousands of people,” she said. “The problem is that we need to help millions, not tens of thousands.”

Alan White, a Valparaiso University law professor who studies loan modifications, was even more blunt:

“If we don’t see more permanent mods soon,” he said, “it will look like the HAMP program is a failure. We’ve seen a net reduction in permanent loan modifications. That’s not good.”

The failure to get more permanent loan modifications done “should be considered a breach of contract” by servicers and lenders that have accepted taxpayer bailout money and are eligible for financial incentives from the government for reworking loans, White said.

He and others never expected things to end up like this. In November 2008, mortgage giants Fannie Mae and Freddie Mac announced a foreclosure moratorium for the holidays, beginning in Thanksgiving, to allow the government to work out the details of streamlined loan modification efforts. Hopes were high that many borrowers would stay in their homes.

In Angulo’s case, the help was too late. He was evicted regardless, because the policy applied only to new foreclosures, not those already in the pipeline.
Fannie Mae announced last month a new policy to allow qualified owners facing foreclosure to rent back their homes for as long as a year. But Angulo most likely would not have qualified for that help, either, had it been available a year ago, since he couldn’t afford market rents in the area, a requirement of the program.

Angulo had covered his mortgage by renting out some of the bedrooms. In the spring of 2008, his renters left and the monthly payment on his adjustable rate mortgage also jumped from $1,400 to $2,600. As a house painter, he earned $500 a week.

Angulo said at the time that he tried to contact his lender, Aurora Loan Services, a subsidiary of Lehman Bros. that specialized in Alt-A and interest-only loans. But the servicer wouldn’t help him, he said.

Since his eviction, his old neighborhood isn’t the only location were housing values have fallen. In November, Zillow, an online real estate service, reported that year over year housing values nationwide had declined for the 11th consecutive quarter.

In Georgetown South, since last December, the highest priced home that has been sold went for $120,000, and it most likely resulted from an investor flip, Elliott said. In Prince William County overall, the first-time homebuyer tax credit helped boost sales of bank-owned foreclosed properties – but that doesn’t mean the local housing market has recovered, he said.

“Banks are probably planning on trickling out these additional foreclosures slowly while the market continues to improve,” he said. “How big is the shadow market? Honestly, I think it’s anybody’s guess. The banks could be sitting on a whole bunch just waiting to trickle them out a few at a time.”

As neighborhoods like Georgetown South continue to absorb the effects of a collapsed housing market, NCLC’s Thompson noted that growing foreclosures are spreading damage throughout the economy, hurting neighborhood property values, and cutting into state and local tax revenues.

That’s why Julio Angulo’s story is much more than just the eviction of another former homeowner on a cold December day, a year ago.

“This isn’t just about homeowners who need help,” Thompson said. “Unless officials take forceful action on foreclosures, things will only get worse. I never thought, at this point, that foreclosures still would not be effectively addressed by the administration. If we don’t get foreclosures under control, and soon, they’re going to drag down the whole economy.”

Angulo, for his part, promised to call if he ever could make his way back to Virginia, to try again to find work, and to buy another home.

He hasn’t been heard from since he left.

This article was to include new Treasury Department loan modification figures released Thursday.

Read Mary Kane’s December 2008 article about Julio Angulo’s eviction here.

Press Release for Portland, OR Farmers’ Market. Can’t wait for all that local, organically grown produce!!! Not to mention are the artisan stuff.  Summer is right around the corner! yeah!

Portland Farmers Market Growing for 2010 Season

Portland Farmers Market doubles footprint at Saturday PSU Market and opens two new farmers’ markets at Pioneer Courthouse Square and NW 23rd Avenue.

Portland, Ore., January 28, 2010 – Portland Farmers Market, the nonprofit 501(c)6 organization operated by a small staff and numerous volunteers, today announced the opening of two new farmers’ market locations as well as the expansion of the Portland Farmers Market – Saturday at PSU. Beginning this summer, the organization will launch and operate farmers markets at Pioneer Courthouse Square and NW 23rd Avenue. The Saturday PSU market will stretch from SW Montgomery Street to SW Hall Street, doubling the footprint of the popular market.

“Portland Farmers Market wants to build a strong regional food system by ensuring that every city resident has access to high quality, nutritious, locally grown and produced food and appreciates its value in strengthening our local economy,” said Ann Forsthoefel, executive director of Portland Farmers Market.

She added, “We are three huge steps closer to realizing that goal by expanding our Saturday PSU market and opening these two new locations in two of the most vibrant, visited areas of the city.”

More than 450 farmers and food artisans have applied to become vendors at Portland Farmers Market’s six farmers’ market locations for the 2010 season. This is a record number of applications second only to the 2009 season, which is recognized as one of the most successful years for Portland Farmers Market, an independently run organization which receives no ongoing support or funding from government agencies.

Portland Farmers Market – Saturday at PSU: Now Offering More Room to Roam

The Portland Farmers Market – Saturday at PSU, set to open for its 19th season on Saturday, March 20, 2010 – the first day of spring – will expand to include the block directly south of its existing location. Although the Saturday PSU farmers’ market location will double in size, the staff doesn’t plan to double the number of vendor booths. Instead, vendor booths will line up along the perimeter of the South Park Blocks, eliminating the majority of the inner ring of vendors’ stalls formerly packed into the previous market footprint.

Already ranked as one of the world’s best farmers’ markets, the expansion will allow the more than 170 vendors and 16,000 shoppers more space to shop for farm-fresh produce, baked goods, meats, cheeses, seafood and more.

“It’s hard to accommodate 16,000 shoppers hungry for great local produce and specialty foods into one city block during a six-hour time span! The expansion of our Saturday PSU market location will allow for better foot traffic flow and make our visitors’ shopping experience even more enjoyable,” said Jaret Foster, senior market manager of Portland Farmers Market.

Portland’s Living Room Will Become Portland’s Kitchen and Dining Room

Starting the first day of summer, the Rose City’s living room will transform into Portland Farmers Market at

Pioneer Courthouse Square, made possible by Portland’s own Alpha Broadcasting. Every Monday from June 21 to October 25, 2010, more than 32 local farmers and food artisans will take root in the heart of downtown Portland from 10 a.m. to 2 p.m. The more than 26,000 people passing by the Square every Monday will be able enjoy lunch and shop for dinner for 19 consecutive weeks.

“The Square is recognized as the most visited site in Oregon’s most visited city and the ideal community

gathering place. It’s the perfect location for a farmers market!” added Forsthoefel.

Location, Location, Location: NW 23rd Avenue

Noted as one of the prime retail locations in the city, Portland Farmers Market will also open the Portland

Farmers Market at NW 23rd Avenue, on the southeast corner of NW 23rd Avenue and NW Savier Street in a lot generously donated by Con-way Inc. Portland Farmers Market is currently working with the NW Portland community to determine the ideal day and time for this new market. Neighborhood residents will find the bounty of the region right at their doorsteps from June through September.

Forsthoefel shared, “The support and enthusiasm we have received from the NW community has been

tremendous. We are delighted to collaborate with Con-way Inc. in order to bring fresh food to this vibrant area of NW Portland that clearly values the importance of supporting local farmers and food artisans.”

The new locations add to Portland Farmers Market’s three other weekly locations:

• Portland Farmers Market – Wednesday at Shemanski Park, located in the South Park Blocks between SW Park and Salmon
• Portland Farmers Market – Sunday at King Elementary Schoo
• Portland Farmers Market – Thursday at Hinson Church (formerly called Eastbank).

About Portland Farmers Market

Founded in 1992, Portland Farmers Market operates vibrant farmers markets that contribute to the success of local food growers and producers, strengthen the food economy and serve as community gathering places. The local 501(c)6 nonprofit employs five full-time and four part-time employees who manage six weekly farmers’ markets in the Portland area from March until December. The independently-run organization receives no ongoing support from government agencies. More than 26,000 shoppers purchase farm-fresh produce, baked goods, meats, cheeses, seafood and other specialty foods from more than 250 vendors at the height of the season. In addition to operating markets, Portland Farmers Market also serves as an incubator for emerging businesses, a leader of the local food movement, a source of education, a culinary focal point in the community, a cultural destination complete with musical entertainment, and a billboard for Portland’s sustainability movement. To learn more about how Portland Farmers Market aims to grow, nourish and inspire the community, become a Twitter follower, Facebook fan and visit www.portlandfarmersmarket.org.

Last Week:  interest rates on treasuries increased, the 10 yr note yield jumped 12 basis points,, mortgage rates however remained generally unchanged.  The week brought the Greece deficit into full focus early in the week generating a little safe haven buying in treasuries but it didn’t las long as markets quickly realized the European Union would put a plan ion place to keep Greece from defaulting on its debt.  Spain and Portugal are also being observed closely as their financial conditions are not much better than in Greece.

The take away from the revelations that sovereign deb among many  nations is still on the edge of breaking down; not what markets need now as the debate about recover is heating up.  Las week had very little economic releases from which to measure economic conditions.  The week’s major headline was the quarterly refunding by Treasury; it sold $81 billion of 3 yr notes, 10 10 yr notes and 30 yr bonds.  The 10 and 30 yr auctions were not up to recent standards of strong bidding, but were not failures.  China’s decision to increase their bank reserves by 50 basis points was met with concern in the US that Asian countries may try to slow growth rates that have escalated to increase concerns over inflation.

This Week:  unlike las week there are a number of economic report that will draw attention; no Treasury borrowing buy on Thursday treasury will announce the following week’s borrowing, 2 yr notes, 5 yr notes and 7 yr notes will be sold.  Wednesday Jan housing starts and permits, starts will likely be up while we expect permits to have declined after a big jump in Dec.

Most of the economic data this week will be on the manufacturing and business sectors with industrial production and factory use for Jan and the key Philadelphia Fed Business index expected to be a little better.  Interest rates remain tethered to a narrow range for mortgages, moving in a 10 basis point yield range; all focus is on the equity markets with a growing outlook of a major correction coming.  That said, the equity markets have been looking for a correction for the past month but so far… nothing.  A day or two of selling then a day or tow of rallies keeping the key indexes from and serious declines.  It is overdue, we expect the stock market will deliver a huge decline but as long as traders see any decline as a buying opportunity, no bis sell-off is likely.

Market Moving News for this week:

1. Housing Starts and Building Permits (Wednesday)
2. The release of the last month’s FOMC Minutes (Wednesday)
3. Business and consumer inflation figures (Thursday and Friday)

The chart above is a graphical representation of the foreclosures that have been filed in our state of Oregon by county.  At first it doesn’t appear all that bad, however this is for just the month of January. Take a look at the chart below and tell my what you see?

From the chart above we can see that Oregon is ranked 9th.  The media would have you believe this problem is a lot more national… from the chart it’s obvious that it’s not. Nevada, Arizona, California and Florida make up a full 50% of the foreclosure data. 40 states are under the average!

So, this makes a unique problem but also creates opportunity.  Foreclosures are selling like mad across the country and right here in Oregon.  Our higher foreclosure rate has let to some unique buying opportunities.  If you want to buy a foreclosure, here are some sites that can get you started.

• HUDForeclosed.com offers free access to homes
• Foreclclosure.com offers free access to homes
• RealTrac offers free access to homes

Once you have found a list of home you like contact your real estate agent.  As a side note, you are going to want a competent agent.  Negotiating these types of purchases  are not normal so you need an agent with the right experience.  If you need help finding someone, I can get you a few referrals.

I am very familiar with Short Sales, REO (bank owned) and Foreclosures and can arrange for mortgage financing if you are not in the fortunate position to pay cash.  My rates are competitive and we can still close fast even with all the new regulations.

IT’S HUGE!

It’s a good time to look at the 15-year fixed rate mortgages.

As compared to 30-year fixed rates, the relative discount for “going 15″ is big. Interest rate spreads between the benchmark borrowing products haven’t been this high since 2004.

But there’s more to it than just the rates.  The 15-year and 30-year fixed rate mortgages each have their benefits and, because of that, interest rates can be sometimes irrelevant.

For example, assuming a $250,000 mortgage at today’s rates, the lifetime interest costs on a 15-year mortgage are $142,000* less than a comparable 30-year fixed rate mortgage.  That’s pretty significant, but is that the whole story?

The associated 15-year fixed mortgage’s monthly payment registers 41 percent higher than the same 30-year’s.   Big payments like that can break a family’s budget — no matter how low the rate.  Of course, the bigger the loan, the bigger the difference.

Furthermore, low rates don’t matter much with respect to mortgage planning.  There’s a few sounds reasons you may want to pass over the 15-year in favor of a 30:

1. The 15-year mortgage’s tax benefits are relatively tiny
2. There’s opportunity cost in rapidly converting liquid cash into illiquid home equity (opportunity would be, could you earn more on the money than it costs you in interest)
3. In the event of an emergency, you still have to make the larger, 15-year payment (probably one of the biggest drawbacks)

Low rates are tempting, though, and when the spread between the 15-year fixed and 30-year fixed is as big as it is today, the arguments made above lose their weight.  The ultimate test is a gut check.  Does having your mortgage paid off sooner with less interest ‘sit right’ with you?  If it does, no amount of number crunching it going to deter you.

One thing to remember is that mortgage rates change everyday and the delta from product-to-product is far from linear.   The chart at top proves it.   So, if you’re not buying a home for another few months, don’t settle in on a strategy just yet.

Know your options, until you are ready to buy that new home.

For help with your mortgage planning needs, feel free to call or send me an email.

*Based on $250,000 borrowed at 5% over 30 years compared to $250,000 at 4.375% over 15 years.

Consumer Sentiment has been on the rise since last February and it’s something to which home buyers should pay attention. 

The affordability of your next home may hinge on consumer confidence.

As the economy recovers from a near-the-brink recession, many of the elements of a full recovery are in place.  Business investment is returning, household spending is expanding, and financial systems are gaining strength. 

Consumer confidence is at a 2-year high.

What’s missing from the recovery, though, is jobs growth.  Another net 20,000 jobs were lost in January. Data like that hinders economic growth.

That said, twenty-thousand jobs lost is a much better figure than the several hundred thousand that were shed per month throughout early-2009, but it’s still a net negative number.  Not only does household income drop when Americans lose jobs but so does the average American’s confidence in his or her own economic future.

This is one reason why jobs growth is so closely watched by Wall Street — jobs are linked to higher confidence levels which, in turn, is believed to spur consumer spending.

Consumer spending represents 70% of the U.S. economy.

As confidence rises, it could be good news for the economy, but bad news for home buyers. More spending expands the economy and, all things equal, that leads mortgage rates higher. 

Same for home prices. More confidence means more buyers which, in turn, squeezes the supply-and-demand curve in favor of sellers.

Later this morning, the University of Michigan will release its February Consumer Sentiment survey. If the reading is higher-than-expected, prepare for mortgage rates to rise and home affordability to worsen.