Interest rates across the board spiked last week. Depending on who you asked and when, the 30-year fixed-rate mortgage rose as much as one percentage point. Officially, Bankrate.com has the national average at around 5.5%, but its survey was conducted before the full brunt of the increase.
Various explanations were given for the spike in interest rates. Impending inflation was at the forefront, with one particularly animated pundit claiming U.S. inflation could approach Zimbabwe levels. Fact is, most people are already expecting some inflation down the road, so inflation alone was an unlikely reason. A more plausible explanation is that the Treasury Department has been issuing so much debt lately, $101 billion worth last week alone, that it simply swamped demand, so bond prices fell and the interest the Treasury had to pay to attract buyers rose.
At any rate, it's not the end of the world. Over the past 25 years, the 30-year fixed-rate mortgage has averaged around 7.8%. In 2007, the average rate was around 6.3%. And even last year, the average rate was around 6.2%.
The big concern with last week's rate spike is that it could put downward pressure on home prices and sales. It's a legitimate concern, to be sure, given that existing home sales rose again in April to an annual pace of 4.68 million units, with about 45% of April's sales attributable to foreclosures and short sales. Meanwhile, new home sales continue to make positive strides, albeit slight, with sales rising to 352,000 units annually.
The good new is that homes remain affordable, at least when vetting the national numbers, which, admittedly, aren't always applicable to the local scene. That said, the median price for an existing home in April was $170,200, while the median price for a new home was $209,700.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Sunday, May 31, 2009
Saturday, March 14, 2009
Buffalo Grove Townhouse
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Central A/C
Listing information courtesy of Alicia Anderson - Coldwell Banker
Tuesday, February 17, 2009
$8,000 Tax Credit
The proposed $15,000 tax credit to anyone buying a new primary residence is NOT part of the stimulus plan, as everyone had hoped.
However, here are some details on the new $8,000 refundable tax credit and the $7,500 tax credit that it replaces.
1). In the stimulus bill that is likely to become law this week, there is an $8,000 tax credit for first-time homebuyers who purchase a home from January 1, 2009 through December 1, 2009. This is a tax credit, not a deduction. First-time homebuyers reduce their tax bill by the amount of the credit. If they owed $5,000 in taxes, they would receive a refund of $3,000.
2). Single buyers can not make more than $75,000 adjusted gross income per year to claim the full tax credit. Similarly, married couples can only claim the maximum $8,000 if they earn less than $150,000 per year
3). The tax credit is available only to first-time homebuyers. A first-time homebuyer is someone who has not owned a home in the last three years. For example, if you sold a house on May 4, 2006, and you haven't had an ownership stake in a home since then, you are eligible for the tax credit if you close on a home after May 4 this year.
4). If a spouse owned or co-owned a home in the last three years, neither is eligible for the tax credit. This means they aren't eligible for the tax credit if their spouse was previously married to someone else, and that couple owned a home sometime in the last three years.
5). The tax credit is 10 percent of the home's cost, up to $8,000. If married filing separately, each spouse's maximum credit is $4,000.
6). The $8,000 tax credit does NOT have to be repaid if you buy the home in 2009, with this exception: If you buy the house this year, and you sell it within three years, you have to repay the tax credit. You repay it in a lump sum the next time you file a tax return.
7). As of today, if a first-time homebuyer bought a house between April 9, 2008 and Dec. 31, 2008 they still have to repay the $7,500 tax credit over 15 years. This may change....
Eric P. Egeland
RE/MAX UNITED
HomesInBG.com
However, here are some details on the new $8,000 refundable tax credit and the $7,500 tax credit that it replaces.
1). In the stimulus bill that is likely to become law this week, there is an $8,000 tax credit for first-time homebuyers who purchase a home from January 1, 2009 through December 1, 2009. This is a tax credit, not a deduction. First-time homebuyers reduce their tax bill by the amount of the credit. If they owed $5,000 in taxes, they would receive a refund of $3,000.
2). Single buyers can not make more than $75,000 adjusted gross income per year to claim the full tax credit. Similarly, married couples can only claim the maximum $8,000 if they earn less than $150,000 per year
3). The tax credit is available only to first-time homebuyers. A first-time homebuyer is someone who has not owned a home in the last three years. For example, if you sold a house on May 4, 2006, and you haven't had an ownership stake in a home since then, you are eligible for the tax credit if you close on a home after May 4 this year.
4). If a spouse owned or co-owned a home in the last three years, neither is eligible for the tax credit. This means they aren't eligible for the tax credit if their spouse was previously married to someone else, and that couple owned a home sometime in the last three years.
5). The tax credit is 10 percent of the home's cost, up to $8,000. If married filing separately, each spouse's maximum credit is $4,000.
6). The $8,000 tax credit does NOT have to be repaid if you buy the home in 2009, with this exception: If you buy the house this year, and you sell it within three years, you have to repay the tax credit. You repay it in a lump sum the next time you file a tax return.
7). As of today, if a first-time homebuyer bought a house between April 9, 2008 and Dec. 31, 2008 they still have to repay the $7,500 tax credit over 15 years. This may change....
Eric P. Egeland
RE/MAX UNITED
HomesInBG.com
Tuesday, February 10, 2009
Market Recap
If a retailer wants to stimulate sales, what does he do? He lowers prices. It's a simple, yet powerful, principle of economics that we've been proselytizing over the past two months, and for good reason, it works. To wit: The National Association of Realtors (NAR) reported that its index of pending home sales, which measures contracts signed but not closed, rose 6.3% to 87.7 in December. Year-over-year, the pending-home-sales index was up 17.5% in the West and 1.6% in the South. Even more encouraging, the index's numbers reflect the most favorable combination of home prices, mortgage interest rates, and family income since tracking started in 1970.
Lower mortgage prices have contributed greatly to improving housing affordability. The prime 30-year fixed-rated mortgage has been floating below 6% for the past three months. But the mortgage market's contribution could diminish in the near term. Recent news that the federal government is seeking ways to lower mortgage-rates further sounds like a positive, but could actually be doing more harm than good. Yes, lower rates are a good thing (and we understand the NAR supports intervention to push rates lower), but if people are always anticipating lower rates, they hesitate to act today. Let's not forget that mortgage rates in the 5% range are darn-good rates, and even those can be readily refinanced if the feds succeed in pushing rates down.
While housing prices and mortgages have trended lower, unemployment has trended higher. Jobs, or the lack thereof, is the monkey wrench that could conceivably grind the housing-recovery gears to a halt (operative word being “conceivably”). On that front, there was much media teeth-gnashing and lamenting last week because the unemployment rate rose to 7.6% on 598,000 lost jobs in January.
How did the financial markets react to the “dire” unemployment news? The Dow Jones Industrial Average surged ahead 150 points in the first hour of trading. Like we stated last week, many economists view the recent job cuts as a bottoming of the recession, not an omen of things to come. It appears the stock market shares the same view.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Lower mortgage prices have contributed greatly to improving housing affordability. The prime 30-year fixed-rated mortgage has been floating below 6% for the past three months. But the mortgage market's contribution could diminish in the near term. Recent news that the federal government is seeking ways to lower mortgage-rates further sounds like a positive, but could actually be doing more harm than good. Yes, lower rates are a good thing (and we understand the NAR supports intervention to push rates lower), but if people are always anticipating lower rates, they hesitate to act today. Let's not forget that mortgage rates in the 5% range are darn-good rates, and even those can be readily refinanced if the feds succeed in pushing rates down.
While housing prices and mortgages have trended lower, unemployment has trended higher. Jobs, or the lack thereof, is the monkey wrench that could conceivably grind the housing-recovery gears to a halt (operative word being “conceivably”). On that front, there was much media teeth-gnashing and lamenting last week because the unemployment rate rose to 7.6% on 598,000 lost jobs in January.
How did the financial markets react to the “dire” unemployment news? The Dow Jones Industrial Average surged ahead 150 points in the first hour of trading. Like we stated last week, many economists view the recent job cuts as a bottoming of the recession, not an omen of things to come. It appears the stock market shares the same view.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Sunday, November 16, 2008
Sunday, October 5, 2008
Credit Markets
No one can overstate the need to unfreeze the credit markets. Home prices dropped in 24 of 25 U.S. metropolitan areas in July, led by declines in Las Vegas and the coastal cities of California , as foreclosures depressed prices and accounted for a fifth of all sales. Foreclosed houses tend to sell at a discount of about 20% to owner-maintained houses; these discounts are weighing on prices throughout the country.
Meanwhile, the market for commercial paper, short-term borrowing by businesses, has nearly frozen to a standstill. Even giants like General Electric are suffering. The industrial giant had to sell $3 billion worth of preferred stock to investing legend Warren Buffet and had to place an additional $12 billion of stock in the equity markets to maintain its triple-A bond rating.
To get credit flowing again, banks have to start lending to each other at lower rates. When banks charge each other a higher premium to borrow, the cost trickles down to the consumer. One indicator of how willing banks are to lend to each other is the "TED Spread," which measures the difference between the three-month LIBOR (London Inter-bank rate) and the three-month Treasury rate. The higher the spread, the greater the aversion to risk. Last Tuesday, the spread surged to 3.5%, its highest level in more than 25 years.
The fact is the $700 billion rescue package is the icebreaker for our frozen credit markets. Sure, the prospect of re-floating a few free-wheeling fat cats and funding a few pork-barrel projects appeals to no one, but the prospect of cutting off our nose to spite our face isn't very appealing either. We might not like it, but Congress did the right thing.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Meanwhile, the market for commercial paper, short-term borrowing by businesses, has nearly frozen to a standstill. Even giants like General Electric are suffering. The industrial giant had to sell $3 billion worth of preferred stock to investing legend Warren Buffet and had to place an additional $12 billion of stock in the equity markets to maintain its triple-A bond rating.
To get credit flowing again, banks have to start lending to each other at lower rates. When banks charge each other a higher premium to borrow, the cost trickles down to the consumer. One indicator of how willing banks are to lend to each other is the "TED Spread," which measures the difference between the three-month LIBOR (London Inter-bank rate) and the three-month Treasury rate. The higher the spread, the greater the aversion to risk. Last Tuesday, the spread surged to 3.5%, its highest level in more than 25 years.
The fact is the $700 billion rescue package is the icebreaker for our frozen credit markets. Sure, the prospect of re-floating a few free-wheeling fat cats and funding a few pork-barrel projects appeals to no one, but the prospect of cutting off our nose to spite our face isn't very appealing either. We might not like it, but Congress did the right thing.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Monday, August 25, 2008
Time to Nationalize Fannie & Freddie?
Fannie Mae’s and Freddie Mac’s impact on the mortgage market can’t be understated. Both borrow huge sums of money to buy mortgages. Their demand is a major force in setting the overall rate on standard mortgages, particularly now that many other sources of financing have evaporated. And even though both companies have recently been purchasing larger amounts of mortgages, rates on mortgage loans have stayed relatively high.
If the government believes cheaper borrowing costs are central to a housing recovery, it will have to do something to get mortgage rates to decline in line with Treasury rates. One guaranteed way to lower the spread between Treasury and mortgage rates is for the government to take over Fannie and Freddie. A takeover would lower Fannie’s and Freddie’s borrowing costs, which, in turn, would lower mortgage rates.
More competition from the private sector is another, though less timely, solution. Nationalizing Fannie and Freddie would drop mortgage rates immediately, to be sure, but few private firms would be able to match Fannie’s and Freddie’s borrowing costs. That would mean less innovation and fewer mortgage options for borrowers, and that could hurt the housing and mortgage markets in the long run.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
If the government believes cheaper borrowing costs are central to a housing recovery, it will have to do something to get mortgage rates to decline in line with Treasury rates. One guaranteed way to lower the spread between Treasury and mortgage rates is for the government to take over Fannie and Freddie. A takeover would lower Fannie’s and Freddie’s borrowing costs, which, in turn, would lower mortgage rates.
More competition from the private sector is another, though less timely, solution. Nationalizing Fannie and Freddie would drop mortgage rates immediately, to be sure, but few private firms would be able to match Fannie’s and Freddie’s borrowing costs. That would mean less innovation and fewer mortgage options for borrowers, and that could hurt the housing and mortgage markets in the long run.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
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