Housing Starts Better Than Expected; Core Consumer Prices Drop

Housing Starts Better Than Expected

The real estate market is showing continued signs of recovery with housing starts beating forecasts, growing 590,000 in January, a 2.8% increase over December’s 560,000.  In related news, building permits were very close to market expectations as they came in at 620,000 in January.  The market had forecast 630,000.

What is significant about both of these reports is that they show some very light construction volumes which is great for sellers.  Adding additional inventory too soon in our housing cycle could stall our recent strength.  Also, it important to note that the new construction is now based upon need and not just speculation.

Core Consumer Prices Drop

Prices paid by consumers for core items excluding the volatile food and energy sectors, dropped to their lowest levels in 28 years. The Labor Department reported that this core measure of inflation fell 0.1 percent, the first decline since December 1982.

As consumers pay less for items, it helps with their own personal financial outlook.  The better they feel about the economy, the more stable the housing industry.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost 85 basis points last week which caused 30 year fixed rates to rise for both government and conventional loans.  This is on top of the prior week’s decrease of 58 basis points.  That brings total loss for mortgage backed securities over the past two weeks to 143 basis points which pushed 30 year mortgage rates to their highest levels since early January.  Meanwhile, the news and media outlets were all reporting that mortgage rates dropped!  They were simply reporting the results of a Freddie Mac average interest rate survey that was over a week old before it was released.  Obviously, this can be very confusing for consumers.  News outlets simply are not plugged into live data like I am.  Make sure you call me for the real story on mortgage rate movements.

Fed Comments Push Mortgage Rates Higher

While investors began the week watching for fresh information about Greece and China, the Fed stole the spotlight on Wednesday with news that was unfavorable for mortgage markets, and mortgage rates ended the week moderately higher.

The Fed currently has significant influence on mortgage rates. Over the last year, the Fed pushed mortgage rates lower by purchasing over $1 trillion in mortgage-backed securities (MBS). Wednesday, the Fed’s Plosser suggested that the Fed should begin selling those MBS “sooner rather than later.” Later that day, the Fed released the detailed minutes from the January 27 Fed meeting. The minutes revealed that “several” Fed officials favored starting the sale of the Fed’s MBS portfolio “in the near future.” Investors were not expecting that Fed MBS sales would begin any time soon. Quite simply, adding to the supply of MBS being sold means that yields would need to move higher to attract buyers. Since mortgage rates are largely determined by MBS yields, mortgage rates rose after the news.

Thursday, the Fed announced an increase in the discount rate, the emergency rate at which banks borrow money from the Fed. The Fed made clear that this in no way reflected a change in broader monetary policy or its economic outlook. This was simply a return to more normal levels for one Fed tool now that the financial crisis has eased. As a result, there was very little impact on mortgage rates. According to Fed officials, a move to begin to tighten overall monetary policy, which almost certainly would cause a significant reaction, is still expected to be at least several months away. The inflation data released this week continued to show low levels of current inflation, providing little pressure for the Fed to rush to take action.

Also Notable:

• January Core CPI inflation increased at a tame 1.6% annual rate
• January Housing Starts increased 3% to the highest level in six months
• The Treasury will auction $118 billion in 2-yr, 5-yr, and 7-yr securities next week
• The Fed purchased $11 billion in agency MBS, with about $55 billion more to go

Week Ahead

Next week, New Home Sales will be released on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. Friday will be the biggest day for economic data with Existing Home Sales, Preliminary GDP, and the Chicago PMI manufacturing index. Consumer Sentiment and Consumer Confidence will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Finally, Fed Chief Bernanke is scheduled to speak on Wednesday.

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• Exclusive Leads & Aggressive Pay Structure
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Our tremendous growth has created a need for additional Real Estate & Mortgage Consultants. This exciting position within the industry will challenge your sales abilities and deliver extensive financial rewards. We also provide HIGH COMMISSIONS & INCENTIVE PROGRAMS and monthly, quarterly, and yearly bonuses based solely on performance.

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To You Commercial Realtors: Development Loans!

Development Loan Options!

Possibly the most needed loan in the marketplace today is the development loan.  Letting people know you have it slams you with leads and deals because- so few people are doing it.

You see, to a bank, especially in this environment, a construction loan is a huge risk.  No income or cash flow for 1-3 years and you hope there are no delays, etc.  Most of the bad loans on a banks books right now are construction loans gone awry.  Construction loans go immediately to the high risk portion of a bank’s balance sheet and hurts their ratio of good loans to bad loans that they are being graded on by the FDIC when they come in to audit them.  In other words, to a bank, there is NO reason to do a construction loan, it can only hurt the bank.  It is in this area that I have probably worked harder than any other finding good sources for my guys.  And we have OPTIONS for development loans right now, for example we have:

-normal construction loans to 65% Loan to Cost (LTC) for most commercial projects up to $10 Million

-hotel construction loans to 70% LTC in major metro markets to $8 Million

-a hedge fund that can do mega-strong development loans above $10 Million and with a combination of debt, equity and mezzanine, can get up over 80% LTC

-a trade program that is sourced and vetted and can net a project $40 Million for $10 Million on deposit that never leaves the clients control.   I have all the proof of that transaction-something no one else seems to be able to get on trade platform loans-proof!

–FHA construction financing up to 90% LTC from $2 million to $50 million

-and of course, SBA build-out money nationwide

Exciting stuff.  The kind of stuff that can make you hundreds of thousands of dollars this year.  It has taken me over 1 year to find these sources, and I have them available for you and your clients.  Give me a call today at 888-650-9966 Ext.100 for more info on any of these products or to run a scenario by me.

Together, we can have an INCREDIBLE 2010!  Have an awesome week and talk to you soon!

Mike McDevitt

P.S. Remember, I have many options for development and construction money that you probably will not get from any local banks.  Give me a call TODAY to discuss at 888.650.9966 Ext.100.  Be blessed!

Foreclosure Rates Fall; Initial Jobless Claims Fall

Foreclosure Rates Fall

In another sign of an improving housing market, the number of Americans receiving foreclosure notices was down 9.7% last month.

While there continues to be a lot of media hype about foreclosures, it is important to note that 408 out of every 409 homes are not in foreclosure!  Foreclosures will continue to be a significant source of inventory entering the market in 2010 but at diminished levels from 2009.

Initial Jobless Claims Fall

Initial Jobless Claims are the number of people filing for new unemployment benefits.  Every Thursday the weekly numbers are released and closely watched by the financial markets.

This Thursday Initial Jobless Claims fell 43,000 from the previous week to 440K and was one of the lowest readings since 2008.  This report comes on the heels of last week’s surprising decline in the Unemployment Rate from 10.0% down to 9.7%.  The housing market is directly impacted by employment levels.  While we certainly still have a long way to go, this is a good sign.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) lost 59 basis points last week which caused 30 year fixed rates to rise for both government and conventional loans.  We saw our best rates on Monday but had lost all of our gains by Wednesday.  We had very mild to poor results in both the 10 year Treasury and the 30 year Treasury auctions.  MBS and therefore mortgage rates react inversely to positive domestic and international news.  The combination of stronger than expected Initial Jobless Claims and the global expectations that Greece and the European Union will hammer out a solution to their debt problems helped to push mortgage rates upward.

Several Indicators Point to Stronger Housing:

Pending sales of previously owned U.S. homes moved upward in December, according to the National Association of Realtors.  Their index showed that pending home sales based upon signed contracts that were not yet closed increased 1% in December.

According to a Reuters/University of Michigan survey, 85% of homeowners no longer expect a decline in their home values.  This sentiment has improved steadily over the past year.  With fewer homeowners expecting further pricing declines, this explains why sellers are less likely to lower their prices from their original asking price.

Unemployment fell unexpectedly.  The national unemployment rate fell from 10.0% to 9.7% and the private sector lost only 20,000 jobs which is the lowest level in some time.  As employment levels stabilize and consumers feel better about their prospects, housing demand always increases.

US Economy Points to Good Housing Market:

We have had very strong housing markets with 30 year fixed mortgage rates in the 7’s and very poor housing markets with mortgage rates below 5.  Regardless of interest rates, tax credits, or home prices, the number one factor that determines the level of demand for housing is Consumer Confidence.  When consumers feel good about their future they are simply more likely to purchase a home.

So, it is great news when the Reuters/University of Michigan’s Consumer Confidence readings hit their best levels since January 2008.  The reading was 74.4 and showed “that consumers are convinced that the worst is over”.

Consumers are not alone in their sentiment.  The GDP for the 4th quarter was just released and it showed that our economy grew at a blistering rate of 5.7%.  Which was more than double the 3rd quarter level of 2.2%.  This was the best GDP numbers in more than six years.