Greece still holding Europe and the rest of the world hostage trying to get austerity cuts in order to get another round of funds to avoid defaulting on its debt on March 20th. Over the weekend riots ensued in Greece in rebellion to the draconian cuts needed to trigger the financial package. Overall there isn’t much movement expected in the bond and mortgage markets this week as the 10 yr and mortgages continue in their respective ranges that have been in place since November. Long term rates (10 yr note) cannot be sustained below 2.00%, and cannot climb over 2.05%; mortgage rates confined an even tighter range.

INFO THAT HITS US WHERE WE LIVE… People’s attitudes should surely be altered by new data from the National Association of Home Builders (NAHB). Their survey released on Thursday revealed four record highs hit by home building in 2011. The average size of new homes bumped up to a record 2,522 square feet, a record-high 42% of new homes had at least four bedrooms, 28% had at least three bathrooms and 30% included finished basements, all numbers up substantially over 2010. Countering this, there were a record low 429,000 single-family housing starts for the year.

But there’s hope. The NAHB’s chief economist forecast a 16% increase for new-home sales and single-family starts for 2012. He cited NAHB estimates of a pent-up demand for 2 million homes coming from households that are doubled-up or waiting to buy a home. Another NAHB sponsored survey revealed 78% of Americans likely to vote in the presidential election said owning a home was one of the most important things in their lives. They feel homeownership is about family and remains part of the American dream. Freddie Mac’s chief economist chimed in, “The desire for homeownership long-term is still there.”

Blessings,

INFO THAT HITS US WHERE WE LIVE…“The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low levels until the end of 2014,” according to the Mortgage Bankers Association chief economist. He added, “Longer-term Treasury rates dropped… and mortgage rates for the week were down slightly.”

Freddie Mac’s chief economist felt rates had eased because “fourth-quarter growth in the economy fell short of market projections.” He did see “one bright spot… residential construction spending rebounded in December, rising 0.7%.” For the year, housing starts in fact rose 25%! Maybe that’s why the National Association of Home Builders’ Market Index rose from 14 in September to 25 in January, a 4-year high. Both new and existing homes are now very affordable, with prices at post-recession lows. Yet the home price decline since the end of the recession in mid-2009 has been a modest 3%-7%.

Blessings,

Nothing out of Europe over the weekend on Greece’s debt crisis. Last week officials were saying a deal would be done by last Friday. Nothing was accomplished. Europe’s stocks will traded weaker adding another anchor for the US markets to drag along.

INFO THAT HITS US WHERE WE LIVE…Getting ready for a recovery could be the theme of last week’s housing reports. Pending Home Sales, after hitting a 19-month high in November, dipped a bit for December, yet came in 5.6% above where they were a year ago. The National Association of Realtors chief economist observed, “Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period.”

Thursday saw December New Home Sales drop 2.2%, to a lower-than-expected 307,000 annual rate. Yet sales remain in the narrow range they’ve occupied since May 2010. And the best news was that new home inventories dropped to 157,000, the lowest level on record, since 1963. Unsold new homes under construction and unsold completed new homes are at or near record lows. Experts say this is what’s needed to get ready for a sustained housing recovery. Finally, the FHFA price index for homes bought with conforming mortgages was UP 1% in November.

Blessings,

The FOMC meeting won’t likely have any new policy implications; the Fed will continue to keep the FF rate at 0.0% to 0.25% as Bernanke indicated months ago. We are not looking for another QE from the Fed; Europe for the moment has stabilized somewhat and the US economy is likely to have grown 3.1% in Q4. Europe’s impact on US markets has lessened recently with Italy and Spain able to auction debt at better rates than two months ago. The debt problems however, are far from being over, it will continue to be a factor throughout this year and at times roil US markets. We are looking for flat markets early this week.

INFO THAT HITS US WHERE WE LIVE…Well, we can all make our way with a bit of a smile on our faces, courtesy of the latest Housing Starts numbers. At first blush, the December report seemed disappointing, down 4% for the month. But starts overall are UP 24.9% from a year ago and December’s drop was all from multi-family starts, very volatile month-to-month. Single-family starts were UP 4.4% for the month and UP 11.6% for the year. No wonder the National Association of Home Builders confidence index went to 25, its highest reading since 2007.

For those who still couldn’t put on a happy face, Friday’s data should have done the trick. Existing Home Sales were UP 5% in December, their third consecutive gain, to their highest level since January 2011. The inventory of existing homes is down 21% from last year and the months’ supply dropped to 6.2, the lowest level since April 2006. For all of 2011, sales of single-family homes, townhomes, condos and co-ops rose 1.7%, to 4.26 million units.

Blessings,

Several industry watchers expect mortgage rates to stay low in 2012, especially the first half of the year. But buyers and those looking to refinance shouldn’t drag their feet. Freddie Mac’s chief economist expects rates to rise at least somewhat during the second half of the year. Fannie Mae’s chief economist thinks rates will stay flat most of the year, but may go up a tick the last quarter. And he’s hopeful lenders will work with more buyers with good credit scores.

The Federal Budget and National Debt numbers are so large that it’s often difficult to get a grasp of just exactly how much money is being discussed. Hopefully this short film helps.

Speaking of unsustainable business models, in 2011, 92 banks failed, compared to 157 in 2010 and 140 in 2009. Meanwhile, the number of banks on the FDIC troubled list fell slightly to 844 at the end of 3Q. While that news is good, some analysts believe that there are still over 200 banks that are in dire need of capital and will likely have difficulty raising it, and expect to see more closures this year. But you may have noticed we haven’t seen any Friday bank closures for several weeks.

Now that you’re back, refreshed after another 3-day weekend, here is the link to the CFPB’s mortgage company examination procedures. It is definitely worth a read for compliance folks: MoreRegulatorsThanOriginators. I am waiting for my kids to come to me and say, “Dad, I really want to be an auditor when I grow up.” This (the release of this procedure, not my kids’ statement) is viewed as its first action to implement its nonbank supervision program, and the CFPB will use these in examining all bank and nonbank mortgage originators. The Mortgage Origination Examination Procedures describe the types of information examiners will collect to (i) evaluate policies and procedures, (ii) assess compliance with applicable consumer financial services law, and (iii) identify risks to consumers throughout the mortgage origination process. CFPB mortgage origination exams will focus on specific products and will cover one or more of the following modules: (i) company business model; (ii) advertising and marketing; (iii) loan disclosures and terms; (iv) underwriting, appraisals, and originator compensation; (v) closing; (vi) fair lending; and (vii) privacy.

If you like forecasts, here is one for you: U.S. home mortgage refinancings will decline 40% this year, according to Fannie Mae’s chief economist Doug Duncan. He believes that households will refinance about $540 billion of home loans, down from nearly $900 billion in 2011 and $1 trillion in 2010, and that the current rates won’t change dramatically this year. As we all know, the economy won’t recover without a move in housing and jobs, and Mr. Duncan noted that about a third of the US workforce is worried about job prospects -. And as we all know, low rates can only help so much compared to the influence that underwriting standards and values have on the business. Mr. Duncan has said that the US housing market is just halfway through a 10-year recovery.

Blessings,

Treasury will auction $66B of notes and bonds this week; Tuesday, $32B of 3s, Wednesday, $21B of 10s, and Thursday $13B of 30 yr bonds. The amounts are unchanged from the last few months. Wednesday the Fed will release its details on the economy from the 12 districts; normally not much new in the Book, nevertheless it does get attention from traders and analysts. The economic calendar has retail sales and weekly claims on Thursday and the U. of Michigan consumer sentiment index on Friday—not much data this week. The week remains all about Europe and what comes out of the area. The bond and mortgage markets continue to hold well in narrow ranges with little change in rates; longer term though we expect some increases in rates.

INFO THAT HITS US WHERE WE LIVE…The latest opportunity in real estate came December 28, when the Federal Housing Administration extended the waiver of its “anti-flipping” rule through the end of 2012. This lets homebuyers, who need FHA-insured financing, purchase homes that were bought by the seller in the last 90 days. And it gives investors looking to rehab and flip properties an expanded market, including first-time homebuyers and others without large down payments, who need FHA-backed loans.

The Mortgage Bankers Association (MBA) reported that during 2011, near-record-low mortgage rates drove more homeowners to seek refinancing, moving that MBA index up more than 60%. But demand for purchase loans fell versus 2010, although that year’s activity was boosted by the homebuyer tax credit incentives.

Blessings,

This week is employment week; Friday Dec employment data is expected to show the unemployment at 8.7% up 0.1% frm Nov; non-farm jobs +150K and private job growth at +170K. The stock market will likely set the tone for interest rates, Monday should be an up day for the key indexes with bond and mortgage prices weaker as traders unwind those insurance trades through the holidays. Another reminder; the 10 yr has exhibited difficulty holding below 2.00%; it is more likely rates will increase a little than decline this week.

INFO THAT HITS US WHERE WE LIVE…It’s good to show your best face to the world as the new year begins (see Business Tip of the Week, below) and that just got easier to do. Last week’s Pending Home Sales index from the National Association of Realtors (NAR) went UP 7.3% in November, hitting its highest level since April 2010! And that earlier reading was artificially boosted, as buyers rushed to beat the deadline for last year’s home buyer tax credit.

The NAR’s chief economist commented, “Housing affordability conditions are at a record high and there is pent-up demand from buyers who’ve been on the sidelines…. The sustained rise in contract activity suggests that closed existing-home sales…should continue to improve in the months ahead.” The S&P Case-Shiller index for October showed minor price drops in 19 of the 20 surveyed metro areas, but the index was UP 1.9% from its post-crisis low in March 2011.

Happy New Year,

In line with that, Housing Starts were UP 9.3% for November and UP 24.3% versus a year ago, while Building Permits were UP 5.7% for the month. November New Home Sales came in Friday UP 1.6%, with the supply dropping to 6 months, its lowest level since early 2006! The numbers of unsold new homes under construction and unsold completed new homes are also at or near record lows. The FHFA price index for homes financed by conforming mortgages was down just 0.2% in October and is down only 2.8% versus a year ago.

FHA lenders had reason for cheer and mirth at the end of last week. “In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting FHA Commissioner Carol Galante will extend FHA’s temporary waiver of the anti-flipping regulations.” With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but this rule is waived through December 31, 2012, unless otherwise extended or withdrawn by FHA. “All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions: All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value. The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Happy New Year

Also this week Treasury will auction $99B of 2 yr, 5 yr and 7 yr notes beginning Monday through Wednesday. Add in the holidays coming on and Europe’s continual fumbling, the markets may present volatility with many traders and investors closing down for the year. Last week the 10 yr note yield fell 25 basis points on continuing safe haven moves against Europe’s mess; mortgages are following but way behind, the move to lower interest rates is mostly confined to the Treasury markets.

INFO THAT HITS US WHERE WE LIVE…The famous President’s sage advice from a century ago is still the appropriate approach to today’s housing market. In the midst of all the media noise, it’s always good to check what we do have and where we really are. For example, the Census Bureau reported that although the median sale price of new homes in October was down 15% over the last five years, it’s actually up 26% over the last ten. More evidence that housing still is a good investment over the long term.

A recent economic forecast from the National Association of Realtors (NAR) reports existing home sales are expected to grow by 1.2% this year and 5.1% in 2012. And although the median existing home price is predicted to dip about 4% this year, it should recover and go UP 2.6% in 2012. Sales should also jump to 5.22 million units from this year’s projected 4.97 million.

Merry Christmas and Blessings Abound,

For economic news this week we have zip today, aside from continued gyrations from Europe (which will be with us for months and years). Tomorrow we can look forward to Retail Sales, if that is the correct term, and Wednesday is some import/export price data. Thursday is Jobless Claims, Personal Income and Consumption, the Producer Price Index (remember in the old days when inflation mattered?) and an Empire State Manufacturing number. Friday is the Consumer Price Index. (Things will be pretty quiet after that with many heading off for holiday vacations.) Rates are a shade better today with the 10-yr down to 2.02% and MBS prices about .125 better.

INFO THAT HITS US WHERE WE LIVE…The housing recovery may be proceeding slowly, but things are definitely not at a standstill. Earlier this year, an industry rent vs. buy index found it is more affordable to buy than rent a two-bedroom home in 72% of America’s 50 biggest cities. In fact, renting was less expensive than buying only in New York, Kansas City, San Francisco and Seattle. And in 10 of the cities where renting was relatively affordable versus ownership, people felt buying may still be a financially sound long-term decision.

A recent consumer study showed people are getting the message. With home prices now at such affordable levels, 62% of those surveyed said buying in today’s market is a good investment over the next 10 years. The most popular advice people would give to anyone thinking of purchasing a home is to avoid buying more house than they can afford. Good advice indeed.

Merry Christmas and Blessings Abound,