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Dan the loanman

Economic news 10-2-13

Tuesday, October 1, 2013 - Article by: Dan the loanman - ArcStone Financial Services - Message

Thank You Congress

Once again, the United States Congress has warded off a major threat to the economy. For the past several months interest rates have been rising in response to the threat of the Federal Reserve Board starting to end one element of their stimulus program. For the past several years, the Fed has implemented an unprecedented program to bring down long-term interest rates by purchasing Treasury and Mortgage Backed Securities. Typically in response to a recession, the Fed lowers short-term borrowing rates but the recession of 2008 was so deep that they had to resort to extreme measures. For one thing, the secondary markets for home loans collapsed and without this targeted stimulus we would have been trying to overcome the subsequent foreclosure crisis within the real estate markets with financing for real estate at higher rates and more difficult to obtain.

Fast forward five years and we can see that the real estate markets are recovering from the crisis. The Federal Reserve Board has shown that they are now ready to ease off the pedal and the bond markets are reacting accordingly. Up steps Congress. When the Federal Reserve Board met two weeks ago, they were considering announcing the first step. But they hesitated. Why? The Fed felt at this point the economy is just not strong enough to take this first step, however small. And they did cite at least one threat to the economic recovery. What was that? A possible government shutdown because it appears Congress will go down to the wire with regard to the deadline to raise the debt limit. Simply stated, if we can't borrow money, we can't fund the government. We understand that Congress is likely to resolve or at least put off the disagreement. But that is not the point. By putting off the decision until the last minute once again they have again created an artificial threat that has caused rates to ease at least temporarily. Thanks, Congress! Meanwhile, this week the employment report will give us an important reading as to whether the Fed should have acted. A strong reading could cause rates to continue their climb while a weak reading could keep us where we are for now -- or even trend lower.

Trulia has released its Summer 2013 Rent vs. Buy Report, revealing whether buying a home is more affordable than renting in America's 100 largest metropolitan areas. Looking at homes for sale and for rent on Trulia between June 1 and Aug.31, 2013, this study compares the average cost of renting and owning for all homes on the market in a metro area, factoring in all cost components including transaction costs, taxes, and opportunity costs. In the last year, the rate for a 30-year fixed-rate loan rose from 3.75 percent to 4.80 percent, raising the cost of buying a home relative to renting. Homeownership is now 35 percent cheaper than renting nationally, down from being 45 percent cheaper one year ago. "While it's hard to believe after the recent spike in rates, it's still more than one-third cheaper to buy a home than to rent," said Jed Kolko, Trulia's chief economist. "Recent rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting. This is because rates remain well below historical norms, and prices are still slightly undervalued, too." Source: NAMP Daily

Sales of new single-family homes bounced back in August, helping to offset a large decrease in July after borrowers pulled back from higher rates, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New-home sales rose 7.9 percent in August following July's 14.1 percent decline, a sign that higher interest rates haven't put a long-lasting damper on home-buying activity, says Rick Judson, chairman of the National Association of Home Builders. "Consumers are adjusting to the reality of today's higher rates following a period of record-setting lows, and today's sales report provides evidence of that," Judson says. "We expect to see more buyers coming back to the market as the psychological effects of the rate gains continue to wear off -- particularly since, even after the recent spike, mortgage rates remain exceptionally favorable on a historic basis." August's new-home sales figure, which is at a seasonally adjusted annual rate of 421, 000, is 12.6 percent higher than a year ago. But that's still only about halfway to what most economists consider a sustainable level in a normal economy, notes David Crowe, NAHB's chief economist. Inventory levels rose for the seventh consecutive month in August, with the number of new homes for sale rising 3.6 percent from July. Meanwhile, NAR's Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.6 percent in August to 107.7. That's down from a reading of 109.4 in July, but still 5.8 percent above August 2012. An index of 100 is considered an average level of contract activity. NAR Chief Economist Lawrence Yun said the drop was not unexpected. "Sharply rising interest rates in the spring motivated buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month," Yun said. "Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead." Source: The NAR and Associated Press

Home staging professionals discovered a unique way of marketing themselves in the fluctuating real estate environment by reminding home sellers that properties sell much faster after undergoing a professional facelift. The Real Estate Staging Association has the figures to back this up. In a recent study conducted by the trade association, 89 vacant occupied and un-staged homes were listed. These homes spent an average of 166 days on the market. However, when these exact same homes were professionally staged and relisted, they only spent an average of 32 days on the market -- a 73% decrease in time spent on the market. "Every home can use staging," said Shell Brodnax, CEO of RESA. "Even investors are coming in. They are buying those properties, they're fixing the things that need to be fixed and they're paying for staging," she added. According to Brodnax, staging is an effective tool no matter what the housing market looks like. In a slow market, staging can make a house stand out and sell. However, in a hot housing market, where things are more competitive, those properties are getting attention and often bringing in multiple offers, said Brodnax. Additional research done by the association showed that when 359 homes underwent staging before hitting the market, the homes received a first offer within 26 days after the staging. Of these homes, 69 received multiple offers. When a seller invests in staging before they list their home, the home will sell 87% faster, RESA studies proved. Brodnax noted that staging has gained momentum over the past 10 years as the market has continued to change. "It's just really becoming more known -- staging is a must," said Brodnax. "Ten years ago, stagers were really struggling to get people to listen to them... staging now is a no brainer." Audra Slinkey, president of Home Staging Resource, said homes that aren't staged may still sell fairly quickly, but they may not sell for as much money as they could were they professionally staged. "Homes that are not being staged... it's like leaving money on the table," said Slinkey. According to Slinkey, the average cost of staging is approximately 1-3% of the value of the home. However, the return on investment can be as much as 8-10% back. "It's a small cost and work on the sell side, but it's a win," said Slinkey. "You improve upon a product and the demand and price goes up." Source: HousingWire

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