Market Update Wednesday July 27th, 2011 5:30 pm ET
By John Sauro
Bonds have held up fairly well this week considering the uncertainty regarding the Debt Ceiling debate and Wednesday’s poor 5-Year Note auction. Another thing that keeps U.S. Bonds attractive is the European Debt Crisis. Where else can you put your money?
The technicals indicate Mortgage Rates will move higher in the short term and then move sideways thereafter.
Economic News
Homebuyers Rush to Jumbo Loans as Limits Near Expiration
While Congress wavers on a proposed bill that would fix higher limits for federally insured Jumbo loans, homebuyers for high end properties are moving quickly to lock into Jumbo loans with lower than Jumbo Rates. Last Saturday the Wall Street Journal reported a surge in high-end purchases that could be the highest in five years, mostly because government officials are unlikely to keep limits at $729,750.
The big question is, when loan limits go down who will step up and make loans from $625,000 and up at affordable interest rates. It’s not likely to be the big banks, as they prefer brokering most of their loans to government entities like Fannie Mae.
Home Prices Show Improvement in May
Seasonal gains help S&P/Case-Shiller rise in May from month earlier. The average price of a single-family home rose again in May after the first gain in eight months in April, according to the Standard & Poor’s/Case-Shiller index. The S&P/Case-Shiller 10-city composite index increased 1.1% in May from the prior month and the 20-city index rose 1%.
New Home Sales Fall in June, Prices Rise
Reuters reported New single family –home sales unexpectedly fell in June, but a sharp rise in prices and declining supply suggested the market for new houses was starting to stabilize, showed a government report on Tuesday.
Stabilizing non-distressed home prices, a declining shadow inventory and stronger foreclosure auctions should lead to lower distressed sales and less downward pressure on prices, according to CoreLogic.
Durable Goods Report came in at -2.1% well below the 0.5% rise expected. This report is yet another indicator of a sluggish economy.
Broker or Bank?
It’s quite astonishing how little the general public knows about what has been happening in the lending markets. Every now and then I have a conversation with someone seeking home financing and they believe that the banks will give them the best terms for financing. It’s really naive when you consider the bad publicity the big banks have had over the past three years.
First – let’s remember that the big banks and Wall Street were responsible for the shape the economy is in.
Second – they robbed you and I, the “Taxpayer’ of $700 Billion dollars (the “Stimulus Package”), of which they never made loans with, as was the governments intended use.
Third – the Banks are not required to educate, license or test their loan originator employees as Brokers and small Lenders are.
Fourth – Banks do not disclose all their fees and revenues as Brokers & small Lenders always have.
Fifth – Recent laws and rules make it impossible for Brokers and Small Lenders to take advantage of the consumer. However, Banks are exempt and are taking advantage of the consumer.
Sixth – The Banks are not Banks; rather they are Brokers, as they don’t lend their own money. They sell the loans to Fannie Mae, Freddie Mac and FHA.
Seventh – Therefore, doesn’t it make sense that since the bank is really a broker; why not use a broker that has many more options than those of one bank.
I strongly recommend watching the recently released HBO Movie “Too Big To Fail”.
I was a Contributing Editor for CNBC, Bloomberg and Fox TV during the credit meltdown and will say that the movie is pretty accurate and does a good job of explaining who was responsible for the credit crisis and how it all unfolded, in a way that the average person can understand.
The point is; there are better options available for home financing than using the very banks that are responsible for the Credit Mess, Hi Unemployment, Falling Real Estate Values, and Wiping Out a chunk of your 401k.