American are a little less upbeat about economic prospects . Event the Economic Optimism Indes fell 2.2 points to 53.5 for the week. 50 is neutral, so we are still in the good news range.
In response to the increasingly slow housing market, mortgage companies are adjusting their businesses and layoffs are increasing.
Interestingly, according to the National Association of Realtors, existing-home sales, finishing the third-best year on record, are projected for 2006 at 6.47 million, a decline of 8.6 percent. In 2007, they’re expected to rise steadily from the current cyclical low and reach an annual total of 6.40 million, which would be 1.0 percent lower than this year’s total.
Also worth noting, Congress recently passed a new tax deduction that allows low- and moderate-income homebuyers to deduct mortgage insurance premiums from their federal taxes if they make less than $100,000.
Surprisingly, construction spending is up and Master Card purchases are on an increase. Reports show that the U.S. grew at a 3.9 percent pace in the third quarter. Even though home building activity is plunging, exports grew at the fastest rate in nearly 4 years. All this good economic news while inflation seems tame.
Oh yeah, did we mention the quarter percent rate cut? The Fed cut .25 basis point off the rate to make it 4.5%.
Further housing weakness will be triggered by a credit crunch was predicted by UCLA Anderson Forecast in a recent Investment Business Daily article.
UCLA Anderson Forecast predicted growth to rise and a fed funds rate to 4.5% from 5.25% and they see at least two, if not three, Fed rate cuts keeping economic growth this year in positive territory. Lower mortgage rates are on the horizon.
With a 8 1/2 month backlog of housing inventory, a drop in mortgage interest rates would rev up a few engines. The National Association of Realtors said that pending home sales rose 0.7%, a gain that came despite bad weather and the impact from subprime mortgage problems.
Nationwide, one in every 92 households is in foreclosure with Nevada having the highest foreclosure rate! According to RealtyTrac, more than 1.2 million foreclosure fillings were reported in the U.S. last year. Foreclosures could rise as some 1.5 trillion in adjustable-rage mortgage get repriced this year. Couple that with declining home prices and increase property taxes and one can be whistling some sour notes.
Home prices fell in 17 out of 20 cities in November compared with October 2006 data according to a recent MacroMarkets and Standard and Poors report. Although home prices in some cities did rise, nation wide there is no sign of the downtrend in real estate prices slowing down.
Property tax rates continue to skyrocket in many areas because of weak-kneed elected officials not reigning in expenses or living within town budgets. Many municipalities are soft on curbing excesses or cutting budgets. Rising property tax payments make many homeowners budgets too tight and they are not able to keep up.
Many banks have promoted hybrid and adjustable mortgage loans some with no and others with low down payments. With delinquent mortgage payments and foreclosures far above year-ago levels, indications are that hard financial times are gaining on many. Ballooning interest rates often surprise those who hold an adjustable-rate or sub-prime mortgage and when it is time to refinance, many are left with no option but foreclosure.
Some banks were, in some cases, even selling houses and forgiving debt. Do some of these banks feel some culpability for some creative loans they have saddled the homebuyer with? If they studied their customers' financial profile, they might never have made those loans. Do these banks fear scrutiny given the strong likelihood that their customers mortgage interest rate would be higher and unaffordable upon the refinance period? It's not unreasonable to expect mortgage rates to return to that double-digit territory as the economy cycles through a downturn.
A hybrid mortgage may be an appropriate choice if one plans to live in their house only for three or four more years. The first years of a hybrid loan are generally charged at a lower rate than traditional fixed-rate loans and if one plans to move and sell the home in a few years, it makes sense. If, for some reason, one don’t sell the home, they’re gambling using any form of a hybrid mortgage loan since it converts to an adjustable rate.
Hard times and rising payments make for tight budgets. If one wants predictability and the security of paying the same interest rate for the life of the loan, a fixed-rate mortgage is the smart choice. Rates are still low, by historical comparisons and given many economic forecasts of a weaker dollar and predictions for higher interest rates, locking in a fixed rate will reward one with peace of mind.
