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Posted by: Bruce & Sandy Soli | November 14, 2009

Economic Update From Steve Peterson 11/09

Today’s mortgage rates (conforming 30 year fixed rates) are 4.75% with one point or 5.0% with no points.  These rates assume that the property is owner occupied or a second home, that the borrower has excellent credit and that the down payment is at least 20% for a single family dwelling or 25% for a condo or attached PUD.

Real estate markets were already starting to circle their wagons, but Congress rode in like the Cavalry with new legislation in hand. It offers $8,000 to first-time homebuyers (those who have not owned their personal residence at any time in the three-year period preceding their current home purchase) and also offers $6,500 to “move-up” buyers (those who have owned their home for a consecutive five years out of the eight years preceding their current home purchase). Why the assistance to “move-up” buyers? Studies showed that, again expectations, the first-time buyers’ tax credit program did NOT have a trickle up effect. It was not stimulating sales and purchases of higher-priced homes. Thus, the new bill attempts to recreate the provable success of the program for first-timers with a program for second- and third-timers.

This is wonderful news for the real estate market and industry. Given that studies have shown how much the first-time buyer program resulted in increased sales, we can justifiably expect sales to rise to higher levels again for the spring selling season. Some nay-sayers have argued that the program will just borrower buyers and sellers from the second half of the year and put their transactions into the first half, but really—is this so bad? In the process, the market will be firming a great deal more and the benefits that accrue to the entire economy when the real estate market improves will become more and more evident. That furniture store down the street may keep its doors open because of this legislation. Thousands of construction workers may hold on to their jobs or find new ones. And the foreclosure property across the street may sell at last.

Warm regards,

Steve Peterson

Branch Manager

Sierra Pacific Mortgage

Office: 888-232-7687

Cell: 775-219-7151


November 12, 2009


Gold $1100.00/ounce [up]

Crude Oil (Brent) $76.63/brl [down]

U.S. Dollar to…

    Euro .6686 [down]

    Japanese Yen 89.82 [down]

6-mo Treasury Bill Yield 0.15%

10-yr Treasury Note Yield 3.46%

[6-mo unchanged, 10-yr up 2 bps]

11th Dist Cost of Funds 1.272%[-]

30-yr Fixed-rate Mortgage 5.36%

15-yr Fixed-rate Mortgage 4.82%

1-yr ARM 4.58%

[HSH averages rates: 30-yr unchanged,15-yr up 2 bps; 1-yr ARM down 19 bps]

Mortgage Bankers Association Mortgage Applications Index

week ending 10/30  Overall 608.3 (up 8.2%; down 12.3% the week prior)  Purchase Money Loans 250.3 (down 1.8%; down 5.2% the week prior)  Refinancing Loans 2693.7 (up 14.5%; down 16.2% the week prior)

Jobless Claims 11/1  512,000 – prior week 530,000 – continuing claims fell to 5.749 m

Productivity Third Quarter Nonfarm productivity up 9.5% annualized, biggest rise in 6 years – unit labor costs fell 5.2%

Employment Report Oct Payroll employment down 190,000 – unemployment rate up to 10.2%

Weekly Commentary

“The National Association of Realtors®…commended the U.S. Senate and House of Representatives for passing a bill that includes an extension and expansion of the current home buyer tax credit as an important step in ensuring a real estate and economic recovery.” [National Association of Realtors® (NAR)]

We had been seeing a falling off of real estate sales volume, especially as indicated by declining numbers of mortgage applications. But just when the economic analysts were warming up to the phrase, “I told you so,” Congress not only extended the $8,000 first-time buyer tax credit, it also initiated a $6500 tax credit for “move-up” buyers who have owned their personal residence a consecutive five years within the eight-year period prior to buying their home now.

This sends the analysts back to their drawing boards. Most were arguing that the $8,000 tax credit had been remarkably successful at motivating potential buyers into the real estate market and that the end of the program would mean a severe decline in the number of home sales. This, many said, will prove that the real estate market recovery is dependent on government support and can’t stand on its own two legs. (Ironically, one of the arguments floated by a few dour analysts against the extension of the tax credit program was that it would help people who would have bought a home anyway.)

Proponents of the tax credit’s extension admit that the real estate market hasn’t fully gained its ability to walk without the government’s training wheels, but assert that an extension of the program—particularly with the “move-up” buyers’ eligibility for help—will allow the market to regain enough strength to recover on its own without yet more help. They also point out, rightly, that the real estate market recovery provides crucial support to the recovery of the overall economy.

The maximum income for buyers who wish to qualify for the credit has been raised to $225,000 combined for marrieds, and $125,000 for singles. The maximum home price is $800,000. And the purchase contract must be signed by April 30, 2010, with resulting transactions closing by no later than June 30, 2010. It will surely be a far better spring sales season than it would have been without this legislation.

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