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HOUSING MARKET UNDER A SECOND OBAMA TERM
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Whether you believe President Obama is this Country's savior, or a socialist born in Kenya, he will be our President for 4 more years. This is a brief look at the pros and cons under the Obama White House and an idea of what the future holds for housing.
PROS:
- Values: Home values and prices are up. Re-sales and new home sales are up; and in some areas they are way up.
- Unemployment: Jobless claims are down, but just barely. As employment numbers get stronger, housing too will improve. This will likely be the number one contributor to a sustainable housing recovery.
- U.S Economy: The U.S. economy grew at a snail's pace of 2.0% in the third quarter; but it too is improving.
- Refinancing: The Obama Administration introduced the HARP programs with much resistance from the Right. The HARP program has allowed hundreds of thousands of underwater home owners refinance to historically low interest rates. The spike in refinancing helps stimulate economic growth, because homeowners that take advantage of lower rates have more capital to spend. Homeowners will also be less likely to default with lower mortgage payments. New bills are currently being proposed to expand the HARP program which will allow more homeowners to participate.
- New home construction at a four year high.
- Federal Reserve's aggressive purchasing of mortgage backed securities has held long term interest rates at historic lows, stimulating refinancing and home purchasing.
- Foreclosures are down, and are now lower than 2007 numbers. Foreclosures continue to fall in most markets.
- Fannie Mae and Freddie Mac will live to see another day; at least for a while. The most outspoken Republicans are calling for the unwinding of Fannie Mae and Freddie Mac. This will likely not happen any time soon under the Obama Administration. Without Government subsidies and backing, interest rates would likely skyrocket and long term 30 year fixed mortgages would disappear.
CONS:
- Dodd-Frank: Regulations as they pertain to mortgages will go into effect in January 2013. These regulations could put a strangle hold on mortgage lending, slowing, or possibly reversing the housing recovery. The rules of the Qualified Residential Mortgage (QRM) will be finalized in January, which will determine what loans are "low risk" and what loans will require the lending institution to retain 5% of the loan amount. If the QRM is too restrictive, lending will become increasingly more difficult.
- Consumer Financial Protection Bureau (CFPB): The CFPB, was created under the Obama Administration to enforce bank rules, conduct bank examinations, monitor and report on markets, and collect and track consumer complaints. The CFPB is here to stay. The CFPB is one of the most powerful Government agencies ever created. The CFPB reports only to the Federal Reserve. The CFPB is headed by one man, Richard Cordray. Many critics want control of the CFPB to go to a panel. Banks and lending institutions are fearful of the CFPB's power, and are cautious to write loans; making the lending process more difficult.
- Taxes: If taxes are to rise for any income class, the economy may suffer, which would put negative pressure on housing. Taxes are likely to increase for the wealthiest Americans. Whether this will cause businesses to hire fewer employees or none at all, is still yet to be seen. The proposed elimination of the mortgage interest deduction if passed could also reduce the number of new buyers.
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PHOENIX HOUSING MARKET APPEARS UNSTOPPABLE
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"Phoenix-area home prices, which have remained consistent for several months, are on the rise again. The median single-family home price in Maricopa and Pinal counties jumped more than 34% year-over-year in October to $157,000 after hovering between $149,000 and $150,000 for four months, according to a report from the W.P. Carey School of Business at Arizona State University." (housingwire.com)
What is Happening Now:
- Delinquent home loans down 49% from peak
- Pending foreclosures down 76% from peak
- Average dollar per square foot up 28% in the last year
- New home sales are up 41% year to date
- Shadow inventory very low at approximately 3,000 units
- Limited inventory (supply), with high demand
Days Inventory by Price Range:
Outlook:
- Low inventory will cause prices to rise.
- Investors will slow down as prices rise.
- Foreclosures will quickly drop to normal levels.
- Short sales will continue but at lower volumes.
- Builders will slowly ramp up production.
- Faster if a solution is found for labor shortages.
(Statistics, Chart and Outlook provided by The Cromford Report - ASU W.P, Carey School of Business)
Note: The shortage of labor is real. During the real estate boom in Arizona, many of the construction jobs were performed by Hispanic workers. Many of those workers were undocumented. SB1070 forced most of those workers out of the State. New home builders currently face a shortage of skilled construction workers. This is a problem not easily fixed.
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HOUSING MARKET CONTINUES REBOUND
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In the third quarter of 2012, home prices posted the biggest gain in over two years. That is over three times greater than the previous quarter. (cnnfn.com)
(Chart provided by cnnfn.com)
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FEDERAL HOUSING ADMINISTRATION IS BROKE / FEES INCREASE
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"The government agency's capital cushion plummeted to -$16.3 billion at the end of fiscal 2012, according to a study prepared annually by an independent actuary. FHA is scheduled to present the assessment, along with its annual report to Congress, on Friday." The Department of Housing and Urban Development (HUD), which oversees FHA, stated that there is a 5% chance that the agency will go broke in the next seven years. - (housingwire.com)
In an attempt to raise more capital, FHA will again increase the monthly mortgage insurance from 1.25% to 1.35%. In a more radical move, FHA proposed to keep the monthly mortgage insurance in place for the life of the loan. Currently the monthly mortgage insurance will drop off after five years if the loan amount has been paid down to 78% of the original loan amount. These changes are set to take effect in the first quarter of 2013.
Is FHA in the process of pricing itself to extinction? Conventional loans (Fannie Mae and Freddie Mac) will likely increase market share in 2013.
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MORTGAGE INTEREST DEDUCTION ON THE CHOPPING BLOCK
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With the U.S. rapidly approaching the "Fiscal Cliff," drastic changes are being called for to increase revenue and reduce spending. One component may be to eliminate the mortgage interest deduction which costs the U.S. Government approximately $100 billion per year.
"[Getting rid of it] would throw the housing sector into turmoil ... and chill the market just as it is trying to recover," said Jerry Howard, CEO of the National Association of Home Builders. It tends to benefit upper middle class families the most, according to the Tax Policy Center. For those earning more than $250,000 a year, the annual tax savings run about $5,460. For those with annual incomes of less than $40,000 a year, the average savings is just $91, according to the center. - (cnnfn.com)
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G-FEE INCREASE PASSES HOUSE
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The G-Fee is a fee charged to deliver loans to Fannie Mae and Freddie Mac and is used to offset risk. The G-Fee is built into interest rates charged to consumers obtaining new mortgages. Congress is now hijacking the G-Fee and using it to pay for other programs, such as the unfunded tax extensions.
The US House of Representatives just passed House Bill 6429 which is designed to provide 55,000 visas for foreign workers. The increase of the G-Fee would cover immigration related expenses.
The Bill now moves to the Senate for vote.
What else can we get homeowners to pay for? The G-Fee was never intended to fund programs not related to housing.
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PRINCIPLE REDUCTION FOR HARP REFINANCES
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Geneva Financial, LLC is now approved with the Arizona Department of Housing to offer the HARP 2.0 Principle Reduction Program. Homeowners that qualify can receive up to $100K from the State of Arizona to help them reduce debt and qualify for a HARP 2.0 loan.
General Qualifications:
- Loan must be owned by Fannie or Freddie and have been delivered prior to 06/01/2009.
- Property cannot have been previously refinanced on a HARP loan.
- Household may not have gross income of more than 150% of the area median income.
- Eligible properties may not have an outstanding mortgage(s) in excess of 150% of purchase price.
- Primary residence only.
- Current loan to value or combined loan to value must be more than 120%.
- Principal reduction target of 100% loan to value after HARP 2.0 refinance.
- The principle reduction will be in the form of an unsecured forgivable loan.
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RATE WATCH
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If your current interest rate is 4.25% or higher, you may want to consider refinancing.
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MORTGAGE TYPE
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INTEREST RATE
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APR
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30 YEAR FIXED
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3.250%
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3.378%
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15 YEAR FIXED
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2.625%
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2.720%
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5/1 ARM
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2.375%
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2.765%
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Interest rates as of 12/03/2012. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to value not to exceed 80%. 720+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote. Published rates do not apply to HARP loans.
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LENDING TURN TIMES
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Conventional Purchase: <30 Days
Government Purchase: <30 Days
Conventional Refinance: 30-45 Days
Government Refinance: 30 Days
HARP Refinance: 45-120 Days
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Abe Neilson
Mortgage Loan Originator
Cell: 480-258-0011
Email: abe@genevafi.com
Web: www.genevafi.com
1018 E Guadalupe Road, Tempe, AZ 85283
AZ: BK-0910215, CA: 603G564, CO: 42056, ID: MBL6976, NV: 3195, OR: ML4799, WA: 510-MB-49323
PENDING: FLORIDA
NMLS License: 42056 / LO NMLS License:684423
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