MARKET UPDATE

OCTOBER 2011

LOW RATES FOR EVERYONE

There has been much speculation that the Conforming “streamline” refinance may be coming in the near future to help home owners and stimulate the economy. The problem has not been interest rates, but equity. Unlike FHA “streamline” refinances that do not require an appraisal, Conforming loans (those guaranteed by Fannie Mae and Freddie Mac) do require an appraisal.

“Roughly 60% if borrowers in Nevada were underwater in the second quarter, the highest percentage of any state but down from 68% one year ago. It was followed by Arizona at 49% and Florida at 45%.” (housingwire.com) Low home values have eliminated many home owners from being able to take advantage of these historically low interest rates. That may all change soon.

In a recent speech, President Obama announced "We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%.” He went on to say "That's a step that can put more than $2,000 a year in a family's pocket, and give a lift to an economy still burdened by the drop in housing prices."

Last week Federal Reserve Chairman Ben Bernanke announced Operation Twist; a move by the Central Bank to buy $400 billion in long term Treasuries. Bernanke stated “By reducing the supply of longer-term Treasury securities in the market, this action should put downward pressure on longer-term interest rates, including rates on financial assets that investors consider to be close substitutes for longer-term Treasury securities.” After the introduction of Operation Twist, 30 year fixed mortgage rates fell to their lowest point in over 60 years.

Obama’s plan could benefit as many as 25 million borrowers, according to Glenn Hubburd and Chris Mayer, finance and economics professors at Columbia Business School. (cnnfn.com) The plan would have to create a new mortgage product, or revised guidelines of current mortgage products, and eliminate the valuation variable (i.e. appraisal), creating a conforming “streamline” refinance program available now only to borrowers with FHA mortgages.

“The Congressional Budget Office estimates such a program, if enacted, would require the federal government to spend $600 million.” (cnnfn.com)

The benefits may out weight the costs. Much of the money that would be saved on one’s mortgage would be money injected into the economy. Home owners would likely spend the monthly savings, not save it. Also, there are millions of homeowners that are underwater, but current. These homeowners could substantially lower their monthly mortgage payment and may be less likely to simply walk away from the property.

If President Obama’s refinance strategy comes to fruition, it will be for a limited time only and likely will only apply to those homeowners with a loan guaranteed by Fannie Mae or Freddie Mac. If you are interested in more information on this program as it become available, please email me at christiller@brett-tanner.com.

At this time, both Fannie Mae and Freddie Mac allow you to refinance your property up to 125% of the current market value. With good credit an assets, appraisal waivers (no appraisal required) are often granted. Many homeowners have not taken advantage of these programs, because they simply do not realize they even exist.

PHOENIX IS ON FIRE

Phoenix home sales in August were the highest in over 5 years. 9,657 homes were sold in the month of August. The median sales price, a whopping $118,000 (housingwire.com).

NEW HOME SALES DIP

New homes sales nationally dropped once in again in August. The 2.3% drop was better than economists anticipated.

DROWNING IN NEGATIVE EQUITY

“Nearly 11 million properties, roughly 22.5% of all U.S. homes, were worth less than the underlying mortgage in the second quarter, according to CoreLogic. The percentage of properties in negative equity declined slightly from 22.7% the previous quarter and down from 24% one year ago. Another 2.4 million borrowers held less than 5% equity in their home, what analysts call near-negative equity. CoreLogic also showed nearly three-quarters of all underwater borrowers are paying above-market interest on their home loans.” (housingwire.com)

"High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery," said Mark Fleming, CoreLogic chief economist. (housingwire.com)

NATIONAL DEBT REDUCTION AT A GLANCE

Last week, President Obama unveiled a plan to reduce the nation debt by $3 Trillion over the next decade.

Spending cuts: $580 billion ($248 billion coming from cuts to Medicare).
Medicaid: $72 billion
Cuts in other mandatory programs: $250 billion
Includes $33 billion in savings from farm subsidies;
$42.5 billion from federal worker benefit programs, including those for civilian workers and military personnel;
$92.2 billion the administration estimates it can save from "restructuring government operations and reducing government liabilities."
Tax revenue: $1.5 trillion.
Includes $800 billion from letting Bush-era tax cuts to expire for high income households.
Capping Deductions and Limiting Exemptions: $400 billion
Closing Various Tax Loopholes: $300 billion
War savings: $1.1 trillion.
Reduction in spending in Iraq and Afghanistan over the next decade that will result from the planned drawdown of troops and the changing nature of the operations in those countries.
Interest savings: $430 billion.

Obama stated "I will not support any plan that puts all the burden on ordinary Americans.” Obama even introduced the "Buffett Rule" for millionaires -- named after investor Warren Buffett, who has frequently argued that the very rich are not taxed enough.

But the Obama plan has already drawn criticism from Republicans, who have been adamant about not wanting to raise anyone's taxes (cnnfn.com)

Chris Tiller - Realtor The Brett Tanner Team
Keller Williams Realty
4862 E. Baseline Road #103
Mesa, AZ 85206
Phone: 602-561-1346
Fax: 1-888-292-0678
christiller@brett-tanner.com
Website: www.phxrealty.com
Blog: http://tillersreupdate.blogspot.com/
Our team is closing 50 deals per month in Phoenix. Ask me how.