Sunday, the U.S. government assumed control of Fannie Mae and Freddie Mac.
The papers have done a terrific job talking about the political perspective of the takeover, and the economic perspective of the takeover, but very few people have addressed the key news for homeowners.
Mortgage rates are plummeting.
The reason why mortgage rates are falling post-takeover is because of Fannie Mae and Freddie Mac's collective role in the U.S. mortgage market.
- They guarantee about half of the nation's $12.1 trillion in mortgages
- They purchased and securitized four-fifths of the nation's home loans as recently as six months ago
See, earlier this year, Wall Street punished Fannie Mae and Freddie Mac for their weak balance sheets and large numbers of delinquencies. This led to Wall Street to raise the borrowing costs for the two firms across the board which, in turn, led to higher mortgage rates for Americans.
But today, with their balance sheets backed by the U.S. government, Fannie and Freddie are now viewed as "safe" by the eyes of Wall Street.
This has lowered their borrowing costs, pushing down mortgage rates for the four-fifths of the country that is currently channeling their home loans through Fannie or Freddie.
(Image courtesy: The New York Times)
On the first Friday of every month, the government releases its Non-Farm Payrolls report.
More commonly called the "jobs report", the two-page analysis examines the nooks and crannies of the U.S. economy to see which industries are hiring and which are firing.
The August jobs report was released this morning and it shows that the U.S. economy shed 81,000 jobs in August.
This marks the eighth straight month in which payrolls declined and puts the annual job loss total at 605,000. The Unemployment Rate jumped to 6.1% -- its highest level in 5 years.
For American workers, this is bad news. But, for American home buyers, the news couldn't be better.
Mortgage rates are improved this morning on the weak jobs data.
If this seems counter-intuitive, remember that earlier this year, lingering concerns about inflation in the U.S. economy caused mortgage rates to rise to their highest levels in more than 5 years.
Lately, however, those fears are subsiding and as today's jobs report shows worse-than-expected weakness, it's one more reason for markets to put inflation concerns to rest. With fewer Americans working, there are fewer dollars are available to propel the economy forward, after all.
So, today's jobs data is good for mortgage rates because it reduces inflationary pressures on the economy and as inflation levels fall, mortgage rates tend to do the same.
Lower rates mean more affordable housing payments each month.
(Image courtesy: USA Today, The Wall Street Journal)
A home inspection is a complete, top-to-bottom, visual check-up of the structure and systems of a house.
It is meant to be an objective determination of a home's condition.
A home inspection usually takes 3-6 hours to complete, depending on the size of the home.
During the inspection process, the inspector will examine all of the following components of a home:
- Home exterior including doors, decks, and vegetation
- Heating and cooling systems for leaks and efficiency
- Electrical systems for safety and soundness of design
- Plumbing systems for venting, distribution, and drainage
In addition, the inspector will review the roofing system, the home's interior, and several other parts of the property.
A home inspection may be ordered by a home owner or by a home buyer.
For a home owner, an inspection can detail a home's shortcomings and provide a roadmap for repairs. This can help a person prepare his home for sale because "major issues" can be addressed in advance of listing.
For a home buyer, a home inspection physically reviews a home under contract, identifying structural flaws that may impact the home's desirability. This is essential for the negotiation process because no home is "perfect" -- even new ones!
A home inspection highlights potential long-term trouble spots and the likelihood for expensive home repairs. This is why real estate professionals often recommend inspecting a home immediately after signing a purchase contract.
To find a qualified home inspector in your area, ask your real estate agent for a referral, or visit the American Society of Home Inspectors Web site.
Source
American Society of Home Inspectors
Frequently Asked Questions on Home Inspections
http://www.homeinspector.org
(Image courtesy: Anderson Home Inspections)
Mortgage rates are hugely important to household budgets.
Lower mortgage rates free up household cash for spending and long- and short-term saving.
Higher mortgage rates, of course, do the opposite.
Unfortunately, it's impossible to predict the future of mortgage rates with any bit of certainty. This is because there are countless influences on mortgage markets, ranging from the obvious to the obscure.
Some obvious influences include:
- The strength of the U.S. dollar
- The rate of inflation in the U.S. economy
- The relative performance of the U.S. housing market
And some of the obscure influences include policy decisions by the Bank of Canada, or political unrest in Nigeria.
But despite the challenge of making accurate mortgage rate predictions, we shouldn't stop looking at trends for clues. The graph at top shows one such trend.
Starting in January, as oil prices rose, mortgage rates followed them higher. Then, as oil started its descent in mid-July, mortgage rates began to fall, too.
The relationship between oil prices and mortgage rates is not one-to-one and, most likely, the similarities are there because both oil prices and mortgage rates are pegged to the ever-stronger U.S. dollar.
As the dollar gets stronger, it's pushing oil prices and mortgage rates down, and improving household cash flow for home buyers and other people in want of a new home loan.
(Image courtesy: The New York Times)
With Labor Day behind and Cold and Flu Season approaching, consider taking a high-tech approach to staying germ-free at home and at work.
The Zadro Nano UV Disinfectant Light looks like a clamshell mobile phone but acts like a high-power germ killer.
With one wave of your hand, intense ultra-violet radiation emanates from the wand, safely killing 99.9 percent of bacteria and viruses on any surface in any location. It's the same type of UV light that hospitals often use to sterilize surgical rooms.
Some practical places to use the disinfectant light include:
- On phones, keyboards and copiers in the office
- On the subway, bus and train
- In public restrooms, airplanes, and hotel rooms
Of course, around the home works, too.
The handheld Zadro device costs $80. It's available at Amazon.com and other retailers.
As we get closer to Labor Day, volume on Wall Street is dwindling as market players get a head start on their long weekend.
Today could be a difficult day to shop for mortgage rates and that can impact home affordabilility.
Expect volatility.
This is because mortgage rates are based on the price of mortgage bonds and, on Wall Street, bonds trade a lot like stocks.
There has to be a buyer and a seller at a specific price to make a deal.
With so many traders on vacation today, though, there are fewer opportunities to match buyers and sellers. This can cause mortgage prices rise or fall faster than on a "normal" day, directly leading to mortgage rate volatility.
Each 0.125% mortgage rate increase is an extra $96 cost per $100,000 borrowed on a principal + interest home loan.
For a light-volume trading day, there is a lot of information for markets to digest:
By themselves, each of these points can move markets. Together, however -- and aided by Labor Day -- they can move markets a lot.
Mortgage bond pricing is fluid, changing every minute of every day. Today, those changes will be exaggerated and, as an example, in the first 30 minutes of trading, mortgage rate pricing swung from rate improvement to rate deterioration in a flash.
Three years to the week after Hurricane Katrina caused $81.2 million in damages, Tropical Storm Gustav is charting a similar Gulf of Mexico path.
Memories of Katrina are making oil traders nervous. The 2005 storm shut down 30 platforms and 9 refineries. And, this week, oil prices are up nearly 4 percent on fears that the market, once again, may be disrupted by storm.
Mortgage rates are edging higher on the news.
The link between oil prices and mortgage rates is not a direct one, but it's worth paying attention to.
Rising oil prices strain business and consumer budgets, creating inflationary pressures on the economy. And at no time was this relationship more evident than in May and June of this year. As oil prices reached new, all-time highs almost daily, Americans felt the impact each time they opened their wallets -- the Cost of Living inflation gauge reached a 17-year high in July 2008.
Inflation is the enemy of mortgage rates so as inflation rises, mortgage rates tend to rise, too.
And this is one reason why mortgage rates are ticking higher this morning -- there is an overriding fear that Gustav will strengthen into a full-fledged Hurricane before making landfall, causing damage to oil refineries and shipping ports around the Gulf of Mexico.
Damage reduces oil supplies and that causes oil prices to rise. It's basic supply and demand.
Gustav is expected to make landfall Monday or Tuesday. If the storm continues on its path, we may see mortgage rates continue to trend higher. If the storm dissipates, rates should reverse.
According to the June 2008 Case-Shiller Home Price Index, home prices in 15 of the 20 largest U.S. real estate markets either improved, or showed growth from the month prior.
This is the fourth straight month in which that happened which means that a national housing recovery may already be underway.
Now, it's worth stating that all real estate is local and that there's no such thing as a "national real estate market", but for home buyers looking to to maximize their negotiation power to get the best possible "deal", spotting trends like this before the media does is a good thing.
So far, only Bloomberg and a few others have chosen to highlight the positives from the otherwise-negative Case-Shiller report. By contrast, most publishers are focusing on annual home price figures which show a hefty drop of 15.9 percent.
We shouldn't dismiss annual trends because they're helpful in the theoretical sense, but for real, live home buyers trying to identify trends and market bottoms, it's the month-to-month data that matters most.
After looking at 4 consecutive months of Case-Shiller data, the month-to-month data appears to show that home prices have stabilized in most major markets. And, in some, they've already started to recover from their lows.
Source
U.S. House-Price Slide Eases, S&P/Case-Shiller Shows
Courtney Schlisserman
Bloomberg.com, August 26, 2008
When a homeowner buys a new home, he has 3 options of what to do with his current residence:
- Sell the home, paying off the mortgage in full
- Keep the home as a second/vacation home
- Convert the home to an investment property
The most common action plan is the first one -- sell the home and pay off the mortgage. However, with home prices poised to rebound, some savvy homeowners are trying to avoid "selling low".
Unfortunately -- as of August 1, 2008 -- waiting out the market won't be so easy.
Burned by foreclosures and wary of risk, Fannie Mae issued new conforming mortgage guidelines that specifically apply to home buyers planning to convert an existing primary residence into a second home or investment property.
Among the highlights of Fannie Mae's changes:
Selling the primary residence
If the new home being purchased closes prior to the existing home's sale, both payments must be used to qualify the buyer for the new mortgage.
Converting to a second home
If the home has less than 30 percent equity in it, the home buyer must show 6 months of PITI reserves for both properties to qualify for the new mortgage.
Converting to an investment property
If the home has less than 30 percent equity, its rental income may not be used to help the buyer qualify for the new mortgage.
If it seems like mortgage rules are getting strict, that's because they are. And they're expected to get tougher, too. With each foreclosure and high-profile bank collapse, mortgage lenders tighten up their guidelines just a bit, freezing out the "fringe" borrower from access to mortgage money.
Mortgage rates may rise through 2009, or they may fall. We don't know. But what we do know is that borrowing money to buy a home will be tougher.
If you plan to buy a home in the next 12 months, consider moving up your timeframe or -- at least -- planning ahead. Understanding the mortgage rules and how they can change may be the difference between getting approved for a home loan, or getting turned down.
As compact fluorescent bulbs gain favor across the country, it's important to remember that they contain mercury and mercury is harmful to humans.
Because even though CFLs contain small amounts of mercury -- less than 4 milligrams per bulb -- it's still enough mercury to cause brain damage.
If you're interested, this 4-minute video from the University of Calgary shows how mercury damages neurons in the brain.
But don't let the presence of mercury stop you from using CFLs -- they are much more positive than negative if you exercise good care.
The Environment Protection Agency provides some basic handling tips:
- CFLs are made from glass. Therefore, screw and unscrew the bulb using the base and not the bulb.
- Never force a CFL into a light socket.
- When the bulb burns out, take it to a specially-designated recycling center in your area. Do not throw out a CFL with the "normal" trash.
In addition, the EPA drafted guidelines for dealing with broken bulbs within a household. Among the recommendations: Don't wash your mercury-covered clothing, and don't vacuum up the poison. This is somewhat counter-intuitive for most people.
The EPA's review of CFL safety is 3 pages long and can be viewed on its Web site.
CFLs are more expensive than traditional bulbs but offer long-term savings in both energy and environment costs. And, with common sense care, CFLs pose no household health risks.
