Market getting better, but still not good enough

Yellen: Not time to raise rates yet

While some economic indicators such as recent falling unemployment rates signal market improvement, Fed chief Janet Yellen maintains that it's not enough to start raising interest rates.

Despite forecasts of a resurgent housing market in 2014, the reality is that sharply rising home prices, high debt and stagnant wages have prevented a full-blown housing recovery. By late June, the Mortgage Brokers Association flipped its predictions of a housing boom on its head and now instead forecasts a decline by the end of the year. A sluggish housing market reveals there are still chinks in the U.S. economic armor.

As has been previously mentioned on this blog, a big chunk of typical first-time homebuyers are missing: 20- and 30-somethings. With student loan debt at all-time highs and a shortage of well-paying jobs, millennials today are putting off buying homes - either out of desire or necessity. Due to this combination of factors, first-time homebuyers remain well below historic "average" levels, market analysts say.

However, if you are looking to buy your first home or just a new home, don't give up! There are many mortgage programs that can help you finance your home, and remember that at Vertex, we can utilize a lender-paid credit to cover all, or nearly all, of your closing costs. This is a feature that sets Vertex apart from other mortgage brokers. Please contact one of our licensed Loan Officers to get more information on what kind of new home you can afford.

Learn to speak the 'mortgagese' lingo

For a first-time homebuyer, navigating the mortgage process can be difficult enough - especially if you've never heard of half the terms thrown around by your real estate agent or loan officer. They want your bank statements, credit history, W-2s and 1040 tax returns, and that's not even getting into your DTI, LTV, PMI and PITI.

But once you understand the terminology used to determine your loan approval, you will be more empowered to make the best choice for you. As a brief refresher for the acronyms mentioned above, get familiar with the following terms:

• DTI: Your debt-to-income ratio is a critical number that can make or break your loan eligibility. As of January 2014, the DTI rate is generally capped at monthly debt payments making up a maximum of 43% of your monthly income. If your DTI exceeds 43 percent, you will likely need to focus on reducing your overall debt before refinancing or purchasing a new home.
• LTV: Your loan-to-value ratio is another important figure determining what interest rates you can qualify for and even what loan programs you may want to sign up for. As a general rule, a loan amount totaling 80 percent or less of your home's value is a goal to strive for. If you don't have 20 percent equity in what your home is worth, you can look into programs such as FHA to qualify for a mortgage. Vertex Loan Officers can see if you're qualified for VA, FHA, Conventional and other loan programs.
• PMI: Private mortgage insurance is often used for borrowers whose LTV is greater than 80 percent. In many cases, you can still qualify for a loan if you're willing to pay an additional monthly mortgage insurance on top of your base mortgage payment. Once you've paid down the loan enough and gained more equity, you can refinance to get rid of PMI payments. (Hint: Vertex LOs would be happy to help you refinance and eliminate your PMI!)
• PITI: The basis of all mortgage payment calculations combines your principal, interest, taxes and insurance. Your lender will want assurance that you can safely cover the PITI payment each month given your monthly income and assets presented, in case you lose some of that income. Paying your property taxes and homeowner's insurance is mandatory and can be "escrowed," or rolled into your monthly mortgage payment, or paid separately.

For more definitions of common mortgage forms - also including GFE, TIL and RESPA - check out this slide show: http://realestate.msn.com/17-mortgage-terms-defined#1. As always, if you have questions on what any of this or other terminology means, feel free to contact a Loan Advisor or Processor at Vertex.

U.S. jobs market surges ahead

Graph courtesy of CNN.com

 

The May jobs report released Friday was full of promising news: An additional 217,000 jobs were added to the market and unemployment stayed steady at 6.3 percent. More importantly, job growth tallies show that all 8.7 million jobs lost during the recession have been replaced - although not necessarily the same type of jobs.

While this doesn't cover every economic benchmark, it's a sign of positive changes nonetheless. The stock market responded well to the jobs report and has continued to rally and reach new record highs with consistent frequency.

Despite the steady job gains, however, analysts point out that growth still has not matched population growth and thus, more improvement is needed for real market strength. Because of this fact and a few other sticking points, mortgage interest rates remain at very low levels.

If the economy continues picking up speed over the coming months, interest rates could start creeping up again. If you missed out on the opportunity to lock in a low interest rate in the past year, it is an excellent time to "strike while the iron's hot" and take advantage of today's very competitive rates. Call a Vertex loan officer to get more info at 877-939-0339.

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.