This week brings us the release of five relevant economic releases for the bond market to watch in addition to two relatively important Treasury auctions. There is no relevant data or news expected to be released tomorrow, so look for the stock markets to heavily influence bond trading and mortgage rates until we get to the factual economic reports.
July’s Existing Home Sales will open the week’s data late Tuesday morning. The National Association of Realtors will release this report, giving us a measurement of housing sector strength. It covers approximately 85% of home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts’ forecasts. It is expected to show a decline from June’s sales, meaning the housing sector is still softening. This would be good news for the bond market and mortgage rates because a weak housing sector makes a broader economic recovery difficult.
The Commerce Department will post July’s Durable Goods Orders early Wednesday morning, giving us an important measure of manufacturing sector strength. This data tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much weaker reading than the expected 0.5% rise that is expected would indicate that the manufacturing sector is not as strong as thought. This would be good news for bonds and should lead to lower mortgage rates Wednesday morning.
Also scheduled for release Wednesday is July’s New Home Sales data. This report is the least important release of the week. It will give us another indication of housing sector strength and mortgage credit demand, but only tracks approximately 15% of all home sales. It usually doesn’t have a major impact on bond prices or mortgage rates unless it varies greatly from forecasts.
Friday is another multi-release day with the first revision to the 2nd Quarter Gross Domestic Product (GDP) and the University of Michigan Index of Consumer Sentiment both scheduled for release. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 2.4%. Friday’s revision is expected to show that the GDP actually rose only 1.4%. A larger than expected downward revision should help lower mortgage rates Friday, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates.
August’s revision to the University of Michigan’s Index of Consumer Sentiment is also due Friday morning. It helps us track consumer willingness to spend and is expected to show little change from August’s preliminary reading of 69.6. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future.
Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. The two most important are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of this week’s auctions will be posted 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.
Overall, we will likely see the most activity in rates Tuesday morning, but Wednesday and Thursday are also fairly important. If we manage to get weaker than expected results in the key reports and the auctions go well, we should see mortgage rates close the week lower than tomorrow’s opening levels. But stronger than expected results in the economic reports and disappointing results in the Treasury sales will most likely lead to rates moving higher this week.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
mailto:otiliasullivan@princetoncap.com
Monday’s bond market has opened flat despite modest stock gains. The stock markets are starting the week in positive territory with the Dow up 25 points and the Nasdaq up 8 points. The bond market is nearly unchanged from Friday’s close, which should keep this morning’s mortgage rates close to Friday’s levels.
There is no relevant economic data scheduled for release today, so look for the stock markets to be the cause of any afternoon revision to mortgage rates. If the major stock indexes move upward from current levels, we could see bonds weaken and mortgage rates increase later today. But if stocks move lower by a good margin, we should see mortgage pricing improve this afternoon.
The rest of the week brings us the release of five economic reports for the bond market to digest in addition to another FOMC meeting and two relevant Treasury auctions. It starts tomorrow morning when Employee Productivity and Costs data for the second quarter will be posted. It will give us an indication of employee output. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, but since it is the only data of the day it may influence rates slightly during morning trading. Analysts are currently expecting to see an increase in productivity of only 0.1%. A higher than expected reading could help improve bonds, leading to lower mortgage rates tomorrow.The next FOMC meeting, which is a single day meeting, is tomorrow and will adjourn at 2:15 PM ET. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed’s next move may be and when it will come. If the statement does not give us new information, mortgage rates will probably move little after its release.
The most important data of the week comes Friday when we will get three reports, two of which are highly important to the markets and mortgage rates. Those two reports, July’s Retail Sales and Consumer Price Index, can lead to sizable movement in the markets and mortgage pricing.
Overall, look for the most movement in bond prices and mortgage rates late in the week. Friday will likely turn out to be the most important day with two of the week’s most important releases and three reports scheduled altogether. If we get stronger than expected results in the Retail Sales and CPI releases, we may see mortgage rates spike higher fairly quickly. I suspect the FOMC meeting will not have as much of an influence on mortgage rates as recent meetings have, but the markets can react wildly to a single word or omission of a word in the statement, so we need to be cautious. This is certainly another week that continuous contact with your mortgage professional is highly recommended if you are still floating an interest rate.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
otiliasullivan@princetoncap.com
Wednesday’s bond market has opened in negative territory following modest stock gains. The Dow is currently up 32 points while the Nasdaq has gained 12 points. The bond market is currently down 6/32, which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
There is no relevant economic data scheduled for release today. This leaves the stock markets to influence bond trading and mortgage rates. If the stock markets move higher from current levels, we should see bond prices fall and mortgage rates rise if the move is sizable. However, if the major stock indexes fall from where they are now, the bond market would likely improve, leading to slightly lower mortgage rates this afternoon.
The only relevant data scheduled for release tomorrow are weekly unemployment figures from the Labor Department. They will post the number of new claims for unemployment benefits filed last week, giving us a small measurement of employment sector growth. This data usually does not lead to noticeable changes in mortgage rates because the data tracks only a single week’s worth of new claims. Analysts are expecting 455,000 new claims, but it will likely take a fairly large variance for the markets to have much of a reaction to this data. This week’s release may carry a little more significance than usual because there is no other data scheduled for release that day.
Friday brings us the release of July’s Employment report that compiles several key employment readings and is based on an entire month’s worth of data. This is a very important report for the financial and mortgage markets and could lead to sizable changes to mortgage rates. I would not be surprised to see the traders prepare for the report by adjusting portfolios late tomorrow and Thursday. This could lead to some pressure in bonds or possibly improvements if market participants are betting on bad economic news coming. The results on mortgage rates should be fairly minimal and could easily be erased after the report is released Friday morning, but it is worth mentioning.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
mailto:otiliasullivan@princetoncap.com
Monday’s bond market has opened in negative territory following a very strong opening in stocks and a stronger than expected piece of economic news. The stock markets are starting the month off with a rally that has the Dow up 174 points and the Nasdaq up 39 points. The bond market is currently down 10/32, which will likely push this morning’s mortgage rates higher by approximately .125 of a discount point.
The Institute for Supply Management (ISM) posted their manufacturing index for July late this morning. They announced a reading of 55.5 that was a drop from June’s reading but higher than forecasts. This means that manufacturer sentiment did fall last month, however, not by as much as many had thought. Therefore, this data can be considered favorable for stocks and negative for bonds.
June’s Personal Income and Outlays data is the first of two reports scheduled for release tomorrow morning. It report helps us measure consumer ability to spend and current spending habits. If it shows sizable increases, bond selling could lead to higher mortgage rates. Current forecasts are calling for an increase of 0.1% in income and no change in spending. A larger than expected increase in income means consumers have more funds to spend, which is not favorable to bonds because consumer spending makes up two-thirds of the U.S. economy. Ideally, we would like to see declines in spending and income.
Late tomorrow morning, we will get to see June’s Factory Orders data. This report helps us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. It is similar to last week’s Durable Goods Orders report that tracked orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have as big of an impact on the markets as last week’s did. Analysts are expecting to see a decline in new orders of approximately 0.5%. A larger than expected drop would be considered good news for bonds and mortgage pricing.
Overall, I am expecting to see another fairly active week for mortgage rates. There are three more relevant reports scheduled for release this week. The most important day is Friday due to the Employment report being released. The rest of the week is likely to be calmer than Friday unless something unexpected happens, such as a major stock rally or sell-off. Due to the likelihood of seeing noticeable movement in mortgage rates, this is a good week to maintain contact with your mortgage professional.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
mailto:otiliasullivan@princetoncap.com
Wednesday’s bond market has opened relatively flat even though we saw weaker than expected results in this morning’s economic news and a negative open in stocks. The stock markets are posting minor losses with the Dow down 20 points and the Nasdaq down 8 points. The bond market is currently up 2/32, which will likely improve this morning’s mortgage rates by approximately .125 of a discount point.
The Commerce Department gave us this morning’s important economic news with the release of June’s Durable Goods Orders. They announced a decline of 1.0% in new orders for big-ticket items when analysts were expecting to see a 0.7% increase. This data is known to be volatile from month to month, but this is still a sizable difference. Even if larger, more volatile transportation-related orders were excluded, we would have seen a drop of 0.6%. That was also well short of forecasts, indicating that the manufacturing sector may have been weaker than expected last month. Therefore, this data can be considered favorable for the bond market.
The Federal Reserve will release its Beige Book report at 2:00 PM ET this afternoon. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by region throughout the U.S. Since Fed Chairman Ben Bernanke’s testimony to Congress last week gave us a recent update, I don’t think we will see any significant surprises in this report. Therefore, we will likely see little movement in mortgage rates as a result of this report.
Also today is the first of this week’s two Treasury auctions that may influence mortgage rates. Today’s sale is the 5-year Note auction while tomorrow brings us the 7-year Note sale. Their results will be posted at 1:00 PM ET both days, so any reaction will come during afternoon hours. If investor interest was strong, the bond market may rally and mortgage rates could move lower later today. However, lackluster demand could lead to bond selling and higher mortgage rates.
There is no relevant monthly or quarterly economic data being posted tomorrow. The Labor Department will post weekly unemployment figures early tomorrow morning, but this data usually has a minimal impact on mortgage rates. Since it tracks only a week’s worth of new claims for unemployment benefits, it takes a large variance from forecasts for the bond market to react enough to influence mortgage pricing. Analysts are expecting to see little change from the previous week’s 464,000 new claims.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
mailto:otiliasullivan@princetoncap.com
WEDNESDAY AFTERNOON UPDATE:
The bond market has reacted favorably to Fed Chairman Bernanke’s testimony to the Senate Banking Committee. Mr. Bernanke didn’t say anything that was a major surprise, but did hit some key points that are favorable to bonds and mortgage rates. He said that he expects key short-term rates to remain low for an “extended period,” that the economic recovery will be slower than previously estimated and that the Fed could take further stimulus action of needed. He added that inflation remains lower than earlier forecasts.
All of those points are favorable to long-term securities such as mortgage-related bonds. This is particularly true of the inflation comments because inflation erodes the value of a bond’s future fixed interest payments, making them less attractive to investors.
The stock markets have moved lower with the Dow down 134 points and the Nasdaq down 32 points. The bond market has improved from earlier levels, currently up 14/32. That is enough of a move to improve mortgage rates this afternoon by approximately .125 of a discount point. However, many lenders may opt to reflect this improvement in tomorrow’s rates rather than revising today’s pricing.
Mr. Bernanke will repeat his testimony tomorrow in front of the House Financial Services committee. He is not likely to say anything that would contradict or differ much from today’s prepared statement. The question and answer portion of the proceeding could bring something of a surprise, but it is not of much concern to me.
The Labor Department will give us last week’s unemployment figures early tomorrow morning. They are expected to say that 445,000 new claims for unemployment benefits were filed last week, which would be an increase from the previous week. The higher the number of claims, the better the news for bonds. But since this data tracks only a single week’s worth of claims, it usually has a minimal impact on mortgage rates.
The National Association of Realtors will post June’s Existing Home Sales figures late tomorrow morning. This report gives us a measurement of housing sector strength and mortgage credit demand, but as with all of this week’s data it is not considered highly important. Current forecasts are calling for a decline in sales from May’s totals. A larger than expected drop in sales would be considered good news for bonds and mortgage rates because a weak housing sector will make it difficult for the economy to recover anytime soon. However, unless this data varies greatly from forecasts it probably will not cause much of a change in mortgage rates.
June’s Leading Economic Indicators (LEI) at 10:00 AM will also be posted late tomorrow. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.4% decrease, meaning that we may see noticeable pullback in economic activity over the next few months. A larger decline in the index would be good news for the bond and mortgage markets.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
otiliasullivan@princetoncap.com
This week may be quite interesting for the bond market and mortgage rates. There are only three economic reports scheduled for the financial and mortgage markets to digest and none of them are considered to be of high importance to the markets. But in addition to the minimal economic data, we have two days of semi-annual congressional testimony by Fed Chairman Bernanke. The first day of testimony has the potential to influence changes to mortgage rates more than many of the monthly or quarterly pieces of economic data that we see regularly. Add in the fact that the 10-year Treasury Note again fell below, and closed under the benchmark 3.00% last week and we have bond market yields at a point of potential downward movement or an upward spike. This could be the week that we get that direction decided.
The first economic report of the week comes Tuesday morning with the release of June’s Housing Starts. This data gives us an indication of housing sector strength, but is not considered to be of high importance. Analysts are currently expecting to see a decline in new home construction starts. However, I don’t see this data having much of an impact on mortgage rates Tuesday unless it varies greatly from forecasts.
Fed Chairman Bernanke will speak before the Senate Banking Committee Wednesday and the House Financial Services Committee Thursday mornings at 10:00am ET. His testimony will be broadcast and watched very closely. Analysts and traders will be looking for the status of the economy and his expectations of future growth, particularly inflation concerns that will lead to changes in key short-term interest rates. This should create a great deal of volatility in the markets during the prepared testimony and the question and answer session that follows. If he indicates that inflation may become a point of concern, we will likely see the bond market fall and mortgage rates rise.
We usually see the most movement in rates during the first day of this testimony as the Chairman’s prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day’s appearance.
The National Association of Realtors will post June’s Existing Home Sales figures during late morning hours Thursday. This report gives us a measurement of housing sector strength and mortgage credit demand, but as with all of this week’s data it is not considered highly important. Current forecasts are calling for a decline in sales from May’s totals. A larger than expected drop in sales would be considered good news for bonds and mortgage rates because a weak housing sector would make it difficult for the economy to recover anytime soon. However, unless this data varies greatly from forecasts it probably will not cause much of a change in mortgage rates.
June’s Leading Economic Indicators (LEI) at 10:00 AM will also be posted late Thursday. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.4% decrease, meaning that we may see noticeable pullback in economic activity over the next few months. A larger decline in the index would be good news for the bond and mortgage markets.
Overall, this is a moderately significant week for the bond market and mortgage rates. If we get weaker than expected economic results and Chairman Bernanke’s words do not negatively surprise the markets, we may see mortgage rates move lower for the week. However, if Mr. Bernanke’s testimony raises concerns about rapid economic growth or inflation, rates may move higher on the week. I suspect we will see them move noticeably from current levels, which could be the base for more movement in the same direction over the next couple of weeks. Therefore, even though there is not a large number of relevant reports scheduled for release, don’t underestimate the importance of this particularly week. This is especially true if still floating an interest rate.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
otiliasullivan@princetoncap.com
Although the housing market has come a long way over the past year, the recovery is still very fragile. As one of our Bay Area managers put it, the market takes one or two steps forward, and then one back. This is often what often happens in an economic recovery after the initial burst of improvement. Rarely do recoveries go in a straight line, as much as we’d like them to. Federal tax credits certainly helped bring the market off the bottom, but with their expiration the question many economists are pondering is what – if anything – is needed to make sure the market doesn’t fall back into a double-dip.
One of the foremost economists the U.S., Wharton finance professor Dr. Jeremy Siegel, has suggested antidotes that I found interesting – four stimulus measures that he believes can bring our economy and housing market back to health:
• Urge the Fed to buy mortgage backed securities backed by high-grade “jumbo” mortgages and other consumer and business loans;
• Reduce the interest the Federal Reserve pays to banks on reserves to zero from 0.25%;
• Create a credit to businesses to hire new workers while also cutting jobless benefits;
• Delay for one year the hefty tax increases that are now scheduled for 2011.
The Federal Reserve’s purchase of more than $1 trillion of conforming mortgages (those under $417,000, and $729,000 in much of Bay Area) has helped keep those rates low and undoubtedly helped stabilize the housing market. The 30-year fixed rate mortgage hit another record low this week, falling to 4.57 percent, according to Freddie Mac. But the market for higher priced homes has suffered, Siegel said, as the premiums that lenders have charged for “jumbo loans” has jumped markedly.
“In some cases these mortgages are not available at any rate,” he said. “The paralysis of the higher priced housing market hurts the whole industry since it prevents owners of these homes, such as empty-nesters, from downsizing. The Fed, by providing a liquid market for jumbo mortgages as well as other high-yielding credit card and auto loans, will encourage banks to lend in these markets.”
On the fiscal side of the equation, Siegel believes the government can help the private sector create jobs by providing an incentive to employers to add new workers to their payroll by issuing a tax credit to firms who hire. “This credit can be paid by withdrawing some of the extremely generous unemployment benefits that the government has provided to the unemployed in this economic downturn,” he said. “We’ve had cash for clunkers, cash for homebuyers, and cash for appliances. Let’s now have cash for jobs.”
Siegel’s final recommendation is to defer most, if not all, of the tax hikes that will take effect in 2011. “Boosting income is the best way to raise consumption,” he said, arguing that imposing tax increases while the economy is still struggling is a dangerous move. He suggested that Congress and President Obama should consider keeping the tax rates for capital gains and dividend income at current levels for at least another year.
“Even without the further government stimulus, our economy will recover,” Siegel said. “But the government can provide a welcome shot in the arm by encouraging banks to lend and firms to hire, and by deferring big tax increases,” he said. “It’s time for the president and the Fed to take initiative to insure our recovery doesn’t stall out.”
Meanwhile, here in the Bay Area, the housing market in many areas has shown signs of cooling in recent weeks – perhaps the normal summer slowdown as more buyers are off on vacation. Additionally, the urgency among buyers is no longer there with the expiration of the federal tax credit deadline. Still, as always, market conditions vary city by city and even neighborhood by neighborhood. Some of our communities are still experiencing increased sales activity and even multiple offers on attractive properties, while other areas are seeing a definite slowdown of late.
Below is a market-by-market report from our local offices:
North Bay — The Greenbrae office reports that sales and inventory have slowed recently, probably due to the slow holiday week. But agents seem to be gearing up for a strong close to the month with new listings and renewed buyer interest. Inventory is increasing and sales have tapered off as well, according to our Northern Marin office. In Southern Marin, properties perceived as good deals continue to move quickly. A fixer/tear down in a good Mill Valley neighborhood listed at $565,000 received nine offers, the best of which was ratified with a 10 day close, all cash, well over the list price. Sausalito saw a number of new sales in the last few weeks of properties that had been on for a while at $1,399,000, then had a reduction of $100,000 got them all in escrow (still below the reduced price, but the reduced price provided motivation to at least bring in offers). Meanwhile in Santa Rosa, there are multiple offers on properties below 500k and a slow down above 500k. Buyers and sellers are slow to make decisions and quick to change them. Inventory is decreasing in Sebastopol, while sales are holding steady. It is taking price reductions to attract buyers in the high-end of the market.
San Francisco — The market has slowed down as of late, according to our Lombard office. After a good June, it has been a very slow start to July with growing inventory, slow sales, and slow open house traffic. Things are steady in the upper Market Street area. The number of listings coming to market are increasing and agents say the phones are ringing with more buyers asking for private showing – good sign.
SF Peninsula — June sales were significantly better than May in Burlingame, which hopefully reflects higher consumer confidence. In Hillsborough, there are currently 86 active listings and 26 pending sales – a significant increase in sales over the last month. Entry-level buyers are swooping in and snapping up properties listed in the $1.5 – $2.5 million “entry level” market. When you compare the minimum half acre lots, the award winning school systems and the community prestige, now could be the greatest time to buy in Hillsborough. Across the hills in Half Moon Bay, there has been slower real estate traffic these past couple of weeks with the 4th of July holiday. Very little activity over the $1m range but brisk in the $600k – $800k price range. Still needs to be the best condition, best location, and best list price. Under $1 million market in Menlo Park is doing very well and $1-2 million will move if everything lines up. There is some life but very, very picky buyers. Homes need to be good new construction or the Taj Majal to get a big number in Menlo now. Buyers will make an offer and simply walk away if the seller does not come back with something reasonable. In Palo Alto, more than half of the homes are sitting on the market, perhaps overpriced. The other half, if well priced, gets multiple offers – as many as 20 offers – as much as 20% to 30% over list price. A very contrasting market. Inventory in the high-end is extremely low in Palo Alto, while it is building in outlying areas like Atherton & Woodside. The Woodside high end segment has slowed sharply with lots of properties on the market. In Redwood City, the necessity to purchase in a timely manner seems to have slowed down. Buyers are taking their time to make a final decision. But properties that show well, have a good location and are priced at fair market value are still drawing buyers.
East Bay – The last two weeks of June were busy, according to the Berkley office, with agents writing offers and many getting accepted in multiple offer situations. Inventory is declining while sales have remained steady. The Previews luxury segment has gradually picked up as well. The Orinda office reports sales and inventory holding steady. Open home attendance has slowed due to summer holidays. In Castro Valley, open houses continue to be well attended, although the local market has slowed. Even so, there is no shortage of buyers for the listings which, if well priced, continue to go pending within days or weeks of hitting the market, always with backups. We continue to see great bargains in Hayward, San Leandro, and Oakland, especially. Still a great market for the first time buyer. The Fremont market is becoming more challenging over all, with sales dipping. Buyers are more hesitant to write offers due to economic concerns. The Livermore market has seen a 5% reduction in active inventory and a 3.5% decline in total pending sales. Agents are working harder than ever, as they have to write multiple offers for buyers to get one accepted with a number falling out of escrow. Our Pleasanton office reports that buyers still out looking but they are waiting for the right priced homes before making offers. Inventory is lower in Pleasanton than in Livermore.
Silicon Valley – It was very quiet over the fourth of July holiday weekend, according to our Cupertino office. But with buyers, sellers and agents getting back to business this week, it could translate into increased activity. One third of the sales continue to be multiple offers. With school out and vacations underway, the Los Altos office reports open houses and tours are slower with fewer in attendance. In the Previews luxury market, sales have been slow above $1.9M and very slow above $3M. Meanwhile in Los Gatos, inventory and sales are holding steady. Agents are seeing an increase in multiple offers due to a lack of inventory in certain areas and historically low interest rates. The Previews market is steadily improving. In San Jose, the Almaden market seems to be steady while sales are picking up again in the Willow Glen area with fewer REOs coming on the market. Our Saratoga office reports that properties there that are priced well and are in good locations commonly sell within two weeks. While the over $2 million market is lagging, the $1.5 to $2 million market is very active.
South County – Sales activity in the South County seems to be slowing with the summer months. Our Morgan Hill office reports that the buying public is confused (and rightfully so.) One week the media reports are positive, the next negative. Interest rates are incredibly low, but it is difficult to obtain an appraisal at sales price. Buyers are eager, but inventory remains limited. Lending guidelines seem to be a big hurdle for most buyers. The conclusion is that the market is recovering, but as many have predicted, the recovery will be a long, slow process – not suited for the “faint of heart”.
Monterey Peninsula – Our Carmel area offices are reporting more high-end sales in last two months. While short sales are still too common and REO’s becoming rare for lack of inventory, they are seeing a pick-up in “regular” sales in the higher-end properties, mostly with all cash. Our local offices just reported two sales that both closed in one week, which is unusual these days, at $8 million and $3.3 million, respectively.
If I were to generalize, I would say the current Bay Area real estate market is a study of contrasts. On the one hand, we have well-located, impeccable condition, and very attractively priced homes receiving multiple offers, often within the first few weeks. On the other hand, we have the balance of the inventory experiencing inadequate number of showing appointments, and then price reductions. Of course every seller is hoping to enter the market with the perfect economic balance of a reasonable staging expense with a prudent and wise list price. It seems you know when you’ve hit that balance within the first 10 days or so. The market speaks to you.
WASHINGTON — Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.
The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.
The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:
A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
Besides providing a tax benefit to first-time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit can avoid refund delays by attaching documentation covering the five-consecutive-year period:
Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
Property tax records or
Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.
More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.
This week brings us the release of five economic reports for the markets to digest, but four of them are considered to be important and one of those four is arguably the most influential report we see each month. There is relevant data being released each day except Wednesday, so it will likely be an active week for mortgage rates.
May’s Personal Income and Outlays data will be posted early tomorrow morning. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.5% in income and a 0.1% rise in the spending portion of the report. Smaller than expected increases should be good news for the bond market and mortgage rates.
June’s Consumer Confidence Index (CCI) is the second report of the week. It will be posted late Tuesday morning. It is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are likely more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 62.0, down from last month’s 63.3 reading.
The Institute of Supply Management (ISM) will release their manufacturing index for June late Thursday morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 59.0. That would indicate that manufacturers felt business worsened from the previous month, when we saw a 59.7 reading. Good news for bonds and mortgage rates would be a weaker than expected reading.
The remaining two reports will be released Friday morning. The Labor Department will post June’s unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, a large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate rise 0.1% to 9.8%, with 100,000 jobs lost and a 0.1% rise in earnings.
The Commerce Department will post May’s Factory Orders data late Friday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week’s report covers both durable and non-durable goods. It usually doesn’t have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts because it measures manufacturing sector strength. Current expectations are showing a 0.7% decline in new orders from April’s levels. A larger decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Friday. However, the employment data is much more important to the markets than this report is.
Overall, Tuesday and Thursday’s data should bring some volatility in trading and mortgage rates, but Friday’s Employment report is definitely the most important of the week. Its impact can single-handedly lead to an improvement or increase in mortgage rates for the week. Next Monday is when the Independence Day holiday will be recognized. There is no early close for the bond market Friday ahead of it, but it will probably be a light afternoon in trading as traders head home for the long weekend. This could lead to additional volatility during morning trading, particularly with the Employment report being posted. So, I strongly recommend that you maintain contact with your mortgage professional if still floating an interest rate.
Otilia Sullivan
101 Parkshore Blvd Suite 100 | Folsom, CA 95630
Ph: (916) 985-0900 • Fax: 866-248-2647
otiliasullivan@princetoncap.com
