Personal spending flat in stores, up for homes and mortgages

August 06th, 2010

For the week the overall economic numbers continue to be flat or slightly negative. In the mortgage and housing industries a bit of positive news goes a long way. As you use one of the many free on-line mortgage calculators to plan your home purchase or mortgage refinance, consider what has been happening in the economy that impacts mortgage rates and the housing markets in your planning.

Rates drop…again

Freddie Mac in its Weekly Primary Mortgage Market Survey reports that for the week ending August 5th 30 year fixed rate mortgages at an average cost of 0.70 origination points have dropped again to 4.94 percent. This is the sixth time in the last seven weeks the rate has dropped, and the one week it did not drop it stayed constant. If you are using a refinance calculator to determine your savings in your monthly mortgage payment, you can feel secure in inputting the current historically low mortgage rate.

Purchase applications on the rise

For the third week in a row, the Mortgage Bankers Association has reported an increase in purchase mortgage applications in its Weekly Mortgage Applications Survey. The purchase mortgage application index increased 1.5 percent from the prior week and total applications were up 1.3 percent for the week. Leading the purchase application increase were government applications which climbed 3.4 percent. If this trend continues, expect the existing home sales report for the month of July to reverse the declines in May and June. It appears buyers are coming back to market after the expiration of the IRS first time buyers tax credit. Combined with earlier reports of higher median prices throughout the country, now is the time to work the pre-qualification calculator to determine your purchasing power.

Speaking of home sales, the National Association of Realtors announced pending home sales in June were 2.6 percent from May, which saw a 30 percent decline in pending sales from April. These numbers clearly reflect the vacuum in the residential home market created by the April 30th tax credit deadline. With the number of applications for purchases climbing the last three weeks these numbers should reverse for July.

Home economics: save don’t spend

Reports released this week showed personal incomes flat for the month of June along with spending. Personal savings, however, continues to increase. Americans’ savings accounts are 6.4 percent higher than a year ago and sit at an estimated $725.9 billion, almost as much as the American Recovery and Reinvestment Act, aka the Stimulus Bill, passed in February 2009. Consumers are the driving force in the U.S. economy and as long as they continue to increase savings and not increase spending economic recovery will be slow sledding.

A principal factor in the increase in savings and avoidance of spending the past few months has been continuing negative news for jobs and employment. This week on Thursday the Labor Department reported 479,000 first time filings for unemployment insurance for the week, and on Friday reported the unemployment rate for July held steady at 9.5 percent but a net 133,000 jobs were lost. Job security weighs heavily on the mind, and on the decision to buy a new stove or where to shop for back to school clothes. With the continued negative tracking on employment it is not surprising to see positive gains for personal savings.

Your stake in Fannie got bigger

Fannie Mae reported its best quarter in three years, losing only $1.2 billion in the second quarter. With the losses came Fannie phoning the U.S. Treasury to ask for an additional $1.5 billion in support or bailout money. Good news in Fannie Mae’s report is that loans funded since the beginning of 2009 are experiencing the lowest early delinquency rate in twenty years. Not surprising given the tightening of underwriting standards that both Fannie Mae and Freddie Mac of undergone in the past few years.

You, the taxpayer, have $146 billion invested in Fannie and Freddie with the additional $1.5 billion just transferred over. President Obama has stated that he wants Congress to reform Fannie and Freddie before the end of this Congress in December. Keep an eye on your $146 billion investment as this occurs.

Overall the mortgage markets remain very favorable to those seeking mortgages. Whether refinancing an existing mortgage or purchasing a new home, the mortgage calculators can assist you in planning your future, with historically low mortgage rates.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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