Last week’s economic data supported recent reports indicating that housing markets are slowing, The National Association of Home builders/Wells Fargo Home Builders Index (HBI) dropped by 10 points to a reading of 46 for February.
Home builder confidence dropped to its lowest reading in nine months, and fell below the benchmark of 50, which indicates that more builders are pessimistic about current market conditions than not.
Severe weather was blamed for the lower builder confidence reading, which fell below the expected reading of 56.
Regional readings of builder confidence were also lower:
- Northeast: Builder confidence fell from 41 to 33 points. This suggests that weather is a major concern as this area has experienced a series of nasty winter storms.
- South: The HBI reading fell from 50 in January to 46 in February and was the smallest decline among the four regions. Fewer index points lost in the South appears to support builder’s concerns about bad weather in other regions.
- Midwest: Builder confidence dropped from 59 points to a reading of 50.
- West: Builder confidence fell by 14 points to February’s reading of 57. Desirable areas in the West had been leading the nation in home price appreciation. February’s reading may signal an easing of buyer enthusiasm as rapidly rising home prices have reduced affordable options for first-time and moderate income buyers.
Builders also cited concerns over labor and supplies as reasons for lower confidence readings.
Housing Starts Lower, Mortgage Rates Higher
On Wednesday, Housing Starts for January were released. Although analysts predicted a figure of 945,000 housing starts as compared to an upwardly adjusted 1.05 million housing starts in December, only 880,000 housing starts were reported for January.
The Department of Commerce also cited extreme winter weather as a cause for the drop in housing starts, which reached their fastest pace since 2008 in November. There is some good news. Economists said that housing starts delayed during winter could begin during spring.
According to Freddie Mac’s weekly survey, average mortgage rates rose across the board. The rate for a 30-year fixed rate loan rose by 5 basis points to 4.33 percent. The average rate for a 15-year fixed rate mortgage rose by two basis points to 3.35 percent.
The average rate for a 5/1 adjustable rate mortgage moved up by three basis points to an average rate of 3.08 percent. Discount points for all three products were unchanged with readings of 0.70 for 30-year and 15-year fixed rate mortgages and 0.50 percent discount points for 5/1 adjustable rate mortgages.
The Bureau of Labor Statistics reported that weekly jobless claims came in at 336,000 against expectations of 335,000 new jobless claims. The prior week’s reading was for 339,000 new jobless claims. Analysts said that job growth may be slowing after last year’s growth, but also noted that winter weather had slowed hiring in labor sectors such as construction and manufacturing.
Existing home sales fell by 5.10 percent in January according to the National Association of REALTORS®, which reported a seasonally-adjusted annual rate of home sales at 4.62 million sales against expectations of 4.65 million and December’s reading of 4.87 million sales of pre-owned homes. The national average home price rose to $188,900, which was 10.70 percent higher year-over-year.
January’s inventory of available existing homes was 1.9 million homes; this represented a 4.90 month supply of existing homes for sale. Real estate pros prefer to see at least a six month inventory of available homes for sale.
Next week brings a series of economic reports and opportunities for good news. The Case Shiller Home Price Indices, FHFA Home Price Index will be released. Consumer Confidence and the University of Michigan’s Consumer Sentiment report along with New and Pending Home Sales reports round out next week’s scheduled news.
Last week’s economic news was dominated by the first address by the new Fed chairperson, Janet Yellen. Tuesday’s news included the Jobs Openings report for December 2013, which matched November’s reading of 4.0 million jobs available. This information was taken from a gauge of competition for available jobs; in December, competition for job openings fell to its lowest level in five years.
Fed Chair Janet Yellen‘s First Address to House Janet Yellen addressed the House Financial Services Committee for the first time on Tuesday as Chair of the Federal Reserve. Ms. Yellen indicated that she expected “a great deal of continuity” in terms of Federal Open Market Committee (FOMC) monetary policy direction, and noted that markets should expect the FOMC to continue its support of low interest rates.
Chairman Yellen emphasized that the FOMC’s current tapering of its quantitative easing program was expected to continue, but is not on a pre-determined course. If economic conditions change, the Fed’s monetary policy would be adjusted according to such developments.
Mortgage Rates Mixed According To Freddie Mac According to Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS), the average rate for a 30-year fixed rate mortgage rose to 4.28 percent from the prior week’s 4.23 percent. The average rate for 15-year fixed rate mortgage mortgages was unchanged at 3.33 percent. The average rate for a 5/1 adjustable rate mortgage dropped from 3.08 percent to 3.05 percent. Discount points for each category were unchanged at 0.70 percent for fixed rate mortgages and 0.50 percent for 5/1 adjustable rate mortgages.
In other news, Weekly Jobless Claims were higher last week at 339,000 against a forecast of 330,000 new jobless claims and the prior week’s reading of 331,000 new jobless claims. Analysts cited bad weather and the possibility of slower economic growth as factors, but said that it was too soon to tell if economic growth is slowing down. The University of Michigan’s Consumer Sentiment Index beat expectations with a reading of 81.2 against expectations for a reading of 80.0. February’s reading was unchanged from January.
What‘s Coming Up This week’s economic news includes the NAHB Home Builder’s Housing Market Index on Tuesday. Wednesday’s events include Housing Starts and the minutes from January’s FOMC meeting. In addition to Freddie Mac’s PMMS, Thursday’s scheduled reports include Weekly Jobless Claims, the Consumer Price Index (CPI) and Core CPI. Leading Economic Indicators (LEI) for January will also be released. The National Association of REALTORS® will release data for existing home sales in January on Friday.
To Renovate, Or Not To Renovate
However, the renovation project that is simply a quick montage in your imagination will actually take several months or years and thousands of dollars in real life.
The concept of renovating a “fixer-upper” property is exciting, but the reality is a lot of work and investment. How can you make sure that you are making the right choice for you?
One of the main advantages of buying a fixer-upper property is that you will usually be able to get the property for a much cheaper price. But is it worth it for the amount of time and money you will need to invest in the property?
Here Are Some Questions You Should Be Asking Yourself When Making Your Decision:
- Do you (or your friends and family members) have the skills to be able to perform most of the renovations yourself? If you do the labor yourself, you will be able to save thousands of dollars that you would have spent hiring contractors, which will make the renovation a much more profitable project.
- Are you comfortable with the idea of living in a construction zone, perhaps for several months or more? There will be dust and noise everywhere and you might have to cope without a kitchen or a shower for a while.
- Make sure that you have a thorough inspection of the home performed so that you can see whether the home has a sturdy foundation, good wiring and plumbing, etc. If your inspection reveals any structural issues or water damage, you might be in for more than you bargained for. You need to start with a house that has “good bones”.
- If the home has serious structural, plumbing or wiring problems you should stay away – these repairs are very expensive but “invisible”, so you are unlikely to recoup your costs when you sell the home.
- Add up the estimated costs for renovating the property along with the cost of the home – does it still work out to be a better deal or would you be better off buying a turnkey property – one that doesn’t require repairs.
- What is your strategy for financing the renovations? If your only option is putting it on the credit card, you might want to think twice because this is a very high interest option. ( There are special loans, FHA and otherwise, that can help with such a project.)
Buying a fixer-upper property can be a great investment and can give you the opportunity to transform a run-down old house into the property of your dreams. Make sure, however, you that you consider the choice carefully before making your decision.
Like credit cards or car loans, some mortgages allow borrowers to have co-signers on the loan with them, enhancing their loan application.
However, a co-signer on a mortgage loan doesn’t have the same impact that it might on another loan. Furthermore, it poses serious drawbacks for the co-signer.
What Is A Mortgage Co–Signer?
A mortgage co-signer is a person that isn’t an owner-occupant of the house. However, the co-signer is on the hook for the loan.
Typically, a co-signer is a family member or close friend that wants to help the primary borrower qualify for a mortgage.
To that end, he signs the loan documents along with the primary borrower, taking full responsibility for them.
When a co-signer applies for a mortgage, the lender considers the co-signer’s income and savings along with the borrower’s.
For instance, if a borrower only has $3,000 per month in income but wants to have a mortgage that, when added up with his other payments, works out to a total debt load of $1,800 per month, a lender might not be willing to make the loan.
If the borrower adds a co-signer with $3,000 per month in income and no debt, the lender looks at the $1,800 in payments against the combined income of $6,000, and is much more likely to approve it.
Co-signers can add income, but they can’t mitigate credit problems.
Typically, the lender will look at the least qualified borrower’s credit score when deciding whether or not to make the loan.
This means that a co-signer might not be able to help a borrower who has adequate income but doesn’t have adequate credit.
There Are Risks In Co–Signing For A Mortgage
Co-signing arrangements carry risks for both the borrower and the co-signer.
The co-signer gets all of the downsides of debt without the benefits. He doesn’t get to use or own the house, but he’s responsible for it if the mortgage goes unpaid.
The co-signer’s credit could be ruined and he could be sued (in some states) if the borrower doesn’t pay and he doesn’t step in.
For the borrower, having a co-signer may an additional level of pressure to make payments since defaulting on the loan will hurt him and his co-signer.
Residential Construction Spending Up
Last week’s mortgage and housing-related reports began with Construction Spending for December, with a reading of 0.10 percent or a seasonally adjusted $930.5 billion. December’s reading fell short of an expected increase of 0.40 percent.
Spending for private sector projects rose by 1.00 percent; of this amount, residential construction spending increased by 2.60 percent and private sector spending for non-residential construction fell by -0.70 percent.
Although construction spending posted a fractional gain, the good news is that construction spending is currently dominated by residential construction and that due to inclement winter weather, any gain in construction spending during December could be considered positive.
Jobs and Unemployment Data Mixed
Employment related reports dominated the week’s economic reports. The ADP employment report for January indicated that only 175,000 new private sector jobs were added for the lowest reading in five months.
December saw 227,000 new jobs. Severe weather conditions were the cause of lower than expected jobs growth. Month-to-month job reports can be unpredictable, but quarterly results provided positive information as the three month period ended in January 2014 saw average monthly job growth of 230,000 jobs as compared to an average reading of 220,000 jobs added during the same period a year ago.
New Jobless Claims came in at 331,000, significantly less than the prior week’s reading of 351,000 new jobless claims, and also lower than the forecast reading of 337,000 new jobless claims. Analysts said that these readings supported gradual improvement in the economy.
The Bureau of Labor Statistics (BLS) released its Non-Farm Payrolls report for January, which indicated that 113,000 new jobs were added during the first month of 2014.
This reading was better than December’s reported 75,000 jobs added, and suggested to economists that bad weather was not the underlying cause of the dip in jobs growth. Healthcare and government sectors cut jobs in January.
With lower job growth, a higher unemployment rate would seem likely, but the national unemployment rate dropped to 6.60 percent from last week’s reading of 6.70 percent.
The Federal Reserve’s FOMC Committee has established a benchmark reading of 6.50 percent as one of the economic indicators it uses in decisions concerning federal stimulus programs.
Readings for labor and unemployment are important for the overall economy and housing markets; consumers worried about jobs that they might lose or jobs they cannot find likely won’t be buying homes in the near term.
Mortgage Rates Drop
According to last week’s Freddie Mac’s Primary Mortgage Market Survey, average mortgage rates dropped across the board. The reported rate for a 30-year fixed rate mortgage was 3.23 percent, down from the prior week’s 3.32 percent. Discount points were unchanged at 0.70 percent.
The rate for a 15-year fixed rate mortgage fell by seven basis points to 3.33 percent. Discount points ticked upward from 0.60 to 0.70 percent. The rate for a 5/1 adjustable rate mortgage fell by four basis points to 3.08 percent with discount points unchanged.
What‘s Coming Up This Week
This week’s scheduled economic news includes Weekly Jobless claims, Freddie Mac’s report on average mortgage rates, along with retail sales and retail sales except automotive sales.
The University of Michigan Consumer Sentiment report will be released Friday.
From the Orange County Register, by Jeff Collins, February 4, 2014
“Orange County house prices rose faster in 2013 than in any year since 2004, CoreLogic reported Tuesday.
A new report from the Irvine-based real estate tracker shows single-family home prices jumped 19.7 percent during the 12 months through December.
That’s the highest year-ending appreciation rate for the county since December 2004, when CoreLogic recorded gains of 22.9 percent.
On the other hand, appreciation rates have moderated somewhat since this past year’s peak of 23 percent annual gains in August, and they are forecast to drop back into the single digits this year.
“We expect the rising prices to attract more sellers, unlocking this pent-up supply, which will have a moderating effect on prices in 2014,” CoreLogic chief economist Mark Fleming said.
Soaring demand and bidding wars drove up home prices last year. Low numbers of homes were offered for sale, while at the same time investors were buying heavily and renewed confidence in the market boosted home buying among owner-occupants.
CoreLogic bases its report on paired sales of single-family homes, comparing each home’s sale price to its previous sale price. The process is considered more reliable than other pricing methods since it is less influenced by last year’s big drop in foreclosures and short sales and rising sales of pricier homes.
Elsewhere in the region, year-ending appreciation rates hit 22 percent in the Inland Empire and 19.1 percent in Los Angeles County, CoreLogic figures show.
Nationwide, house prices increased 11 percent in December from December 2012 levels. That’s the highest national rate of annual increases since 2005. Nevada had the nation’s highest appreciation rate at 23.9 percent.” ( End of Jeff’s article.)