Seattle Real Estate News

“THERE ARE NO SECRETS IN LIFE, JUST HIDDEN TRUTHS THAT LIE BENEATH THE SURFACE.” From the Showtime TV hit, “Dexter”. The highly anticipated Jobs Report arrived last Friday morning, showing 85,000 jobs lost during December…and while this was a bit worse than expected, the report also carried some good news, in that the prior month’s revisions showed that November actually had a final tabulation of job gains for the month, for the first time since December 2007. Additionally, the Unemployment Rate remained stable at 10%. While this all seems to indicate some level of improvement in the labor market – you do have to look beneath the surface to clearly understand the present realities for the labor market.

Let’s start with the headline number of 85,000 jobs lost. This comes from what is called the “business survey”, which uses many estimation tools, including the birth-death ratio of businesses, i.e. how many businesses were created or closed. The mechanics in coming up with the business survey allow the information to be gathered rapidly, but it also makes the information far less than accurate. On the other hand, there is also a “household survey”, where a sampling of households receive actual phone calls. Although the household number is not used by the Labor Department for their headline numbers of job losses or creations, some deem it to be a bit more accurate. The household survey paints a bit of a darker – but perhaps more realistic – picture, showing a whopping 589,000 jobs lost. But let’s dig deeper still.

The Labor Department does use the household survey to calculate the Unemployment Rate – and remember, it stayed stable at 10% – but the calculation is determined by how many people are presently in the workforce. And the household survey indicated that last month, 661,000 people left the workforce.

Whoa – what does “leaving the workforce” mean? And where exactly are they going? Let’s take a closer look to understand.

The Labor Department’s definition of this is a “discouraged worker”, who has not looked for a job during the past four weeks. Based on this definition, there are a few contributing factors that would help us understand why this would indicate such a large number of people “exiting the workforce.” And remember, more people exiting the workforce means less people counted as unemployed, and this number alone last month would have contributed to almost a half percent increase in the rate of unemployment from 10% to almost 10.5%.

So let’s talk about these contributing factors. First, frigid temperatures and piles of snow during December played a role in keeping job seekers home. Add to that the holiday season, as well as travel for family gatherings and vacations during this time, also contributing to pushing off the job search. And perhaps most importantly playing a role are the extended unemployment benefits – up to 99 weeks worth – which could also play into the decision to not seek work. Put this all together, and it might clarify the large so-called exodus from the workforce, which masks the true Unemployment Rate.

Overall – the job picture is still weak, at best. Census hiring in the next few months – although temporary – should boost job creations, which in turn may lead to upside Job Report surprises. This could lead to some tough days ahead for Bonds and home loan rates – count

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Did you know that all residents of the US have the right to obtain one free credit report from each of the three credit bureaus per year? Since your credit score is more important than ever due to today’s tightening credit standards, it’s the perfect opportunity to take advantage of this benefit.

But Beware…

Although you see commercials offering free credit reports, many companies actually charge a fee or require enrollment to qualify for the free report. That’s why one of your best resources is www.annualcreditreport.com for a free report of your credit history. This report of your credit history can help you check the accuracy of the information in your report. However, it does NOT include your credit score. If you want to know your number, you can pay an add-on fee from the service or simply contact me for help determining your actual score.

Stagger Your Reports

Remember, you are only entitled to receive one free report from each bureau per year, so consider staggering the requests. For example, make a note on your calendar to order a report from TransUnion® one month, then one from Equifax® a few months later, and finally one from Experian® a few months after that. In essence, this will allow you to order three credit reports per year…and provide you the ability to monitor your credit throughout the year.

The Making Home Affordable Program is part of the Obama Administration’s plan to stimulate the housing market and the economy. This program offers two potential solutions for borrowers: refinancing mortgage loans through the Home Affordable Refinance Program (HARP) and modifying mortgage loans through the Home Affordable Modification Program (HAMP).

Home Affordable Refinance Program (HARP) Requirements:

Homeowners who own a one- to four-unit home, have not been 30 days late making a mortgage payment in the past 12 months and whose loan is owned or guaranteed by either Freddie Mac or Fannie Mae may qualify for this program. In addition, to be eligible for the HARP program, the first mortgage (including any refinancing costs) cannot exceed 125 percent of the current market value of the home.

Home Affordable Modification Program (HAMP) Requirements:

This program is designed to help homeowners who are struggling to make their payments because of employment cutbacks, medical bills or other change in income. To qualify for this program, homeowners must own a one- to four-unit home as their primary residence and have an unpaid principal balance that is equal to or less than:

1. Unit: $729,750
2. Units: $934,200
3. Units: $1,129,250
4. Units: $1,403,400

The mortgage must have originated on or before January 1, 2009 and the payment must be at least 31 percent of the homeowners’ gross monthly income. Homeowners also need to be able to present documentation of financial hardship in order to qualify for modification.

For more information or to apply for these programs, visit www.makinghome-affordable.gov or call the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE.

Last Tuesday the Case-Shiller Home Price Index for 20 cities came in UP a seasonally adjusted 0.4% for October. This was the fifth consecutive monthly increase for the index. Year-over-year, prices are still down 7.3%, but that’s a less steep rate of decline than we’ve been seeing.

It looks like home prices could be stabilizing, though well below their peaks in most markets. This price decline, plus the dramatic drop in mortgage rates, have made homes more affordable than they’ve been in a long time. A writer for the Wall Street Journal compared home price index values, mortgage rates and average weekly earnings going back to 1987. The finding? On average, housing is as affordable now as it was in the mid-1990’s, when homes were a real steal. Of course, this conclusion is based on average prices, so affordability may be greater or less in individual markets.

Christmas Eve, the Treasury lifted the limit on the money it can put into Fannie Mae and Freddie Mac to keep their net worth positive over the next three years. Some economists point out that Fannie and Freddie could now replace the Fed as a big buyer of mortgage-backed securities to help keep mortgage rates down after March 31. That would be great, but nothing is certain. Smart buyers are taking advantage of TODAY’S low mortgage rates AND the expanded tax credit that requires a signed contract by April 30 and a closing by June 30!

Review of Last Week

SLIDING INTO 2010… The stock market was up for three out of the four days of trading last week, but New Year’s Eve saw a 120-point drop in the Dow, which left it and the other major indexes sliding down ever so slightly for the week. But for the year, the indexes were decidedly up, coming off the bottom stock prices hit last March. And there were other positive economic indicators to lift our spirits going into 2010.

Tuesday, Consumer Confidence for December came in at 52.9, continuing its upward move from the prior month’s 50.6 reading. This Conference Board survey showed consumers more optimistic, based on their expectations the economy will keep improving over the next six months. Wednesday, the Chicago PMI (Purchasing Managers Index) for November registered 60.0, way better than expected, reflecting continued growth in manufacturing in another key region of the country.

All this encouraging news was followed Thursday with Initial Unemployment Claims coming in at 432,000, well below consensus estimates and the lowest number we’ve seen in a year and a half! Continuing Claims also keep shrinking, now drifting into 4 million territory. Employment has always been closely tied to the health of the housing market, so positive moves like these should be noted by all interested parties.

For the week, the Dow was down just 0.9%, to 10428.05; the S&P 500 was down 1.0%, to 1115.10; while the Nasdaq was down 0.7%, to 2269.15.

The bond market, which closed early on Thursday, experienced a volatile week. When all was said and done, the FNMA 30-year 4.5% bond we watch ended the week up just 3 basis points, closing at $99.84. Mortgage rates still remain at historically low levels.

This Week’s Forecast

WAITING ON THE JOBS NUMBERS… The end of this week delivers the all-important Employment Report for December. A key element will of course be the Unemployment Rate. We might see a tick up from last month’s drop to 10%. While we await this news, the main focus for folks like us will be Pending Home Sales on Tuesday. ISM indexes will take the measure of Manufacturing on Monday and Service businesses come Wednesday.

The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of January 4 – January 8
Date Time (ET) Release For Consensus Prior Impact
Jan 4 10:00 ISM Manufacturing Dec 54.0 53.6 HIGH
Jan 5 10:00 Pending Home Sales Nov –3.0% 3.7% Moderate
Jan 6 10:00 ISM Services Dec 50.5 48.7 Moderate
Jan 6 10:30 Crude Inventories 12/31 NA –1.54M Moderate
Jan 7 08:30 Initial Unemployment Claims 01/02 445K 432K Moderate
Jan 7 08:30 Continuing Unemployment Claims 12/26 5.040K 4.981M Moderate
Jan 7 10:30 Crude Inventories 12/31 NA –1.54M Moderate
Jan 8 08:30 Average Workweek Dec 33.2 33.2 HIGH
Jan 8 08:30 Hourly Earnings Dec 0.2% 0.1% HIGH
Jan 8 08:30 Nonfarm Payrolls Dec 0 –11K HIGH
Jan 8 08:30 Unemployment Rate Dec 10.1% 10.0% HIGH

Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. Some economists are beginning to feel the Fed will start hiking rates this Spring. But the vast majority of observers — 83% — still feel the Fed will hold to its commitment to keep rates low for an extended period. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jan 27 0%–0.25%
Mar 16 0%–0.25%
Apr 28 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Jan 27 1%
Mar 16 7%
Apr 28 17%

Top 7 Reasons to Buy Your First Home Today

1. Free Money. The $8,000 tax credit for first time home buyers is valid before December 1, 2009. This is a special tax credit from the government that you don’t have to pay back, as long as you stay in the home for at least 36 months.

2. Affordability. Based on recent property declines and current interest rates, home affordability has not been higher since it was first tracked over 40 years ago. Your grandparents couldn’t have received a better interest rate than you can today.

3. Tax Breaks. The IRS allows you to deduct the interest you pay on your mortgage, your property taxes and, in many cases for those who qualify, some of the costs to buy your home and mortgage insurance. Owning a home is a great way to lower your tax bill.

4. Build Wealth. Unlike paying rent, with each mortgage payment you make, you build equity and you decrease your income tax liability. Owning a home is still the best long-term investment.

5. Appreciation. As home prices have fallen precipitously in today’s tough economy, the basis for realizing appreciation in future years is very strong. Historically, even with other periods of declining value, home prices have exceeded consumer inflation. From 1972 through 2005, home prices increased on average 6.5%, according to the National Association of Realtors®.

6. Stability. Knowing you can establish roots and raise a family in one location, free of the desires or needs of your landlord to sell the property you are living in. This is something no other investment provides. You can’t live in a stock, and you can’t raise your kids in a bond.

7. Independence. Enjoy the freedom to do what you want to your home. After all, it’s yours to do what you wish. And, with any improvements you make, you have the ability to benefit from your investment. Try that with an apartment!
Mortgage Interest Rates for Fixed Rate Mortgages*