Illustrating economic jumpstart #fails

Charts courtesy of Andrew T. Levin, International Monetary Fund

To the surprise of many economic analysts, mortgage rates have not begun a Rocky mountain hike to the 5 percent range. Instead, they've even dipped to new 2014 lows, hovering around the low 4 percent level. The truth is, the economic and housing recovery is not as strong as some expected, despite a raging stock market.

Reports released Friday show consumer spending dipped last month as inflation creeps up. This may be a temporary dip as unemployment levels continue falling, but the unemployment charts don't tell the full story.

Andrew Levin, a researcher at the International Monetary Fund, presented a couple of charts (shown above) that demonstrate how GDP growth has not matched unemployment drops. In other words, more well-rounded economic growth will be needed to produce a real shift in the housing market.

Housing market not fully thawed out yet

It's not quite time to declare 2014 the year of the housing comeback. At this point, just breaking even with last year's pace would be welcome. Market analysts had predicted a spring building boom to jumpstart increased investment in housing, but it's been a slow build. Finally, new home sales climbed in April after several months of decline.

It's safe to say that a sharp spike in interest rates in 2013 are closely correlated to the struggle. In addition, rising home values have proved to be a double-edged sword: While improving home equity and loan-to-value rates for existing homeowners, the higher price tags have also kept would-be new homeowners from breaking into the market.

A key weak link in the equation is a lack of participation among first-time homebuyers. A variety of factors, including shifting housing priorities and high debt burden due to student loans, have prevented 20- and 30-somethings from becoming homeowners. The added hurdles of higher credit requirements and income documentation to qualify have made the process that much more difficult to navigate.

That being said, there are still many ways to achieve your homeownership goals. If you can improve your credit and lower your debt-to-income ratio, investing in a house is a great way to build your wealth and increase your long-term financial security. Added government programs such as FHA also help new homeowners get started with lower down payments necessary. Don't hesitate to ask a loan advisor about qualifications so you can buy your dream house!

If the vice president can do it, so can you

Photo courtesy of The Associated Press/Carolyn Kaster 

Reports surfaced this week that Vice President Joe Biden refinanced his personal home mortgage last year, taking advantage of record low interest rates to secure a 3.375 percent rate. Since the home's value is assessed at more than $500,000, this will save him at least $6,000 a year. While we could speculate for days on what Joe Biden might do with an extra six grand, can you imagine what you could do with $6,000 savings a year?

Regardless, it's hard to argue with refinancing to lock in a lower rate and save thousands of dollars over the lifespan of a loan term. As certain Vertex loan advisors would say, it's a "no-brainer." If you can reduce your interest and payments - while covering your closing costs with a lender-paid credit - it makes sense every time.

In other news, Congress members are debating whether to dissolve mortgage giants Fannie Mae and Freddie Mac in an effort to reduce government involvement in the home financing business. Naturally, congressional support is mixed.

As it stands, it appears unlikely the proposed bill will garner enough votes to pass the Senate, but that doesn't mean the idea won't be revived in an altered form. Some fear that eliminating Fannie and Freddie could translate to higher premiums for borrowers under modified lending structures. Others argue it could make the mortgage lending industry more resilient in the face of volatility. Either way, you can probably bank on hearing this issue debated further.

Unemployment drops, Dow continues rise

But that doesn't mean it's picture perfect 

 

Showing more signs of market improvement, the number of U.S. initial jobless claims filed last week dropped to 319,000 and the unemployment rate is down to 6.3 percent. This is in line with a longer-term trend toward gradual market improvement and slowly dropping unemployment rates. The number of initial jobless claims - the first time someone files for unemployment - is at its lowest point since October 2007.

Meanwhile, the Dow closed Friday at a new all-time high for the second week in a row, despite numerous ups and downs throughout the week, partially due to unease from conflict in Ukraine.

These mostly positive signs of growth are not to say there's no reason for concern, however. Federal Reserve chief Janet Yellen has stated she's worried about the 3.5 million Americans who have been unemployed for more than six months, accounting for more than a third of all unemployed.

Still reeling from an unusually harsh winter, new housing permits are lagging and dropped 2.4 percent in March. The housing market is a key sign of overall economic health, and the demand for new housing remains not as high as hoped. Rising home values and slightly higher mortgage rates may be keeping some potential borrowers from breaking ground on new homes.

As long as the economic picture remains uneven or murky, it's safe to assume that Fed officials will keep interest rates as low as possible for as long as they can. With this in mind, it's a good idea to re-evaluate your own financial housing picture and make the most of your home assets.