Simple Explanation Of The Federal Reserve Statement (September 13 , 2012)

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Thursday. For the eighth consecutive meeting, the vote was nearly unanimous.

Just one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. 

In its press release, the Federal Reserve noted that the U.S. economy has been expanding "at a moderate pace" in recent months, led by growth in household spending. However, "strains in global financial markets" remain a significant threat to growth in the near-term, a remark made in reference to the Eurozone and its sovereign debt and recession issues.

The Fed's statement also included the following economic observations :

1. Growth in employment has been slow with unemployment elevated
2. Inflation has been subdued, despite rising gas and oil prices
3. Business spending on equipment and structures has slowed

In addition, the Fed addressed the housing market, stating that there have been signs of improvement, "albeit from a depressed level".

The biggest news to come out of the FOMC meeting, though, was the launch of the Fed's third round of quantitative easing (QE3).

QE3 is a program by which the Federal Reserve will purchase $40 billion in mortgage-backed bonds monthly, with no defined "end date" for the program. So long as the Fed believes that the market needs support, it will keep QE3 in place.

In the near-term, QE3 is good for Metro Atlanta rate shoppers and home buyers. With the Fed in line to buy $40 billion in mortgage bonds each month, demand for bonds is expected to remain strong which, all things equal, leads mortgage rates lower.

We're seeing this already today. Mortgage pricing is improving post-FOMC, with rates nearing their lowest levels of the week.

The Fed also used its meeting to announce that it intends to hold the Fed Funds Rate near its target range of 0.000-0.250 percent until mid-2015, at least. At its last meeting, the Fed has marked an end-date of "late-2014".

The FOMC's next scheduled meeting is a two-day event, October 23-24, 2012.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

FOMC Expected To Announce New Stimulus Today

The Federal Open Market Committee ends a 2-day meeting today, the group's sixth of 8 scheduled meetings this year. As a Metro Atlanta home buyer or would-be refinancer, be ready for mortgage rates to change.

The Federal Open Market Committee is a 12-person sub-committee of the Federal Reserve. Led by Fed Chairman Ben Bernanke, it's the group within the Fed tasked with voting on U.S. monetary policy.

The act for which the FOMC is most well-known is its management of the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight. It's one of several interest rates under Federal Reserve management.

"Mortgage rates", however, is not among them.

The Federal Reserve does not set or make mortgage rates -- Wall Street does. Further, there is no historical correlation between the Fed Funds Rate and the average conforming 30-year fixed rate mortgage rate. At times, the two benchmark rates move in the same direction. Other times, they diverge.

They've been apart by as much as 5.29 percent, and have been as near as 0.52 percent.

Today, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage rate is roughly 3.34%. That will change beginning at 12:30 PM ET today. This is the time at which the FOMC adjourns and releases its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, leaving it within its current target range of 0.000-0.250%. How mortgage rates throughout Georgia respond to the Fed, though, will depend on whether the nation's central banker adds new market stimulus in the form of a third round of quantitative easing.

If the Fed adds new stimulus and it's deemed large enough to be propel the economy ahead, stock markets will gain and bond markets should, too. This would lead mortgage rates lower. Conversely, if the size of the stimulus is deemed too small to be effective, mortgage rates will rise. Maybe, by a lot.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

Improving Market Index Climbs To 99

The number of U.S. housing markets showing "measurable and sustained growth" has increased by 19 this month, according to the National Association of Homebuilders' Improving Market Index.

The Improving Market Index is a monthly report meant to identify U.S. markets in which economic growth is occurring broadly -- not just in terms of home prices.

The IMI's conclusions are based on three separately-collected data series, each from a different division of the U.S. government and each tied to specific local economic conditions.

In this way, the Improving Market Index gives a better idea of which markets will outperform averages in the months and years ahead.

The three data series incorporated into the Improving Market Index are :

1. Employment Statistics (from the Bureau of Labor Statistics)
2. Home Price Growth (from Freddie Mac)
3. Single-Family Housing Growth (from the Census Bureau)

The National Association of Homebuilders evaluate the reports for each major metropolitan area and then deems a given one "improving" if two conditions are met. First, all three data series must indicate growth in the current month and, second, at least 6 months have passed since each of the data points' respective "bottoms".

The IMI ignore short-term spurts, in other words, and attempts to identify those areas showing long-term, sustainable growth. For relocating home buyers, "improving" cities may also offer better long-term employment and income opportunities. 

33 states are represented in the September Improving Market Index, as well as the District of Columbia. 31 new areas were added to the list as compared to August and just 12 dropped off.

The newly-added areas include Sacramento, California; Jacksonville, Florida; and Waco, Texas. Cities falling off the list for September include Dover, Delaware.

The complete Improving Markets Index is available for download at the NAHB website. For a better gauge of what's happening in Metro Atlanta on a local level, however, please contact me.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

Simple Tips To Keep Your FICO High

For today's home buyers and refinancing households, the value of "good credit" has never been higher.

Mortgage approvals hinge on your FICO score, as does your final mortgage pricing.

If you're shopping for a home in Georgia, therefore, or contemplating a refinance, be aware of how everyday credit behaviors can affect your FICO. Even small events can make a big impact.

Here are some common-sense steps to help improve your credit score.

First, keep a "cushion" on your credit cards.

30 percent of your credit score is linked to "Amount Owed" and a big part of Amount Owed is a raw calculation of (1) What you owe in dollar terms, against (2) How much credit you have at your disposal. The credit bureaus want to see at least 70% of your credit "available". 

If you can keep your cards at least 70% available, your credit scores should improve.

For example, if all of your credit cards give you access to a combined $50,000 and you are using $10,000 of that available credit, you have 80% of your credit available to you and this is "good".

Raise your balances to $30,000 and this is "bad".

Second, don't make major purchases on credit prior to making a mortgage application. This includes opening a store charge card to save 10 percent or more on a washer/dryer set, for example; or for any other appliance or furniture piece.

The reasons why are two-fold. One, store charge cards are often opened with a limit matching your initial charge, rendering them 100% utilized. This is bad for a FICO, as discussed above. And, two, opening a new charge cards has a negative FICO impact anyway.

Charge cards are associated with high default rates. 

Third, make all of your monthly payments on time -- even the ones in dispute. You may not want to pay that $80 wireless phone bill, for example; the one that you think you owe, but remember that Payment History accounts for 35% of your credit score. Even one late payment -- or payment in collection -- and your credit score can drop.

It's often less expensive to pay a bill in dispute than to be relegated to a higher mortgage rate. The payment is dispute is remedied today. The payment on that mortgage rate lasts for 30 years.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

What's Ahead For Mortgage Rates This Week : September 10, 2012

Mortgage markets worsened slightly in last week's holiday-shortened week. As expected, Wall Street took its cues from Europe and from the U.S. jobs market, and mortgage rates moved across a wide range.

Home buyers in Metro Atlanta and would-be refinancing households were greeted with wildly varying mortgage rates, depending on which day they loan-shopped.

According to Freddie Mac's weekly mortgage rate survey, 30-year fixed rate mortgage rates averaged 3.55% nationwide last week, with an accompanying 0.7 discount points.

That is, until Thursday's meeting of the European Central Bank. 

The ECB is similar to the Federal Reserve in that, among its primary functions, it provides liquidity to banking systems in times of crisis. Thursday, the European Central Bank intervened with force.

To aid Spain and Italy, the third- and fourth-largest Eurozone economies, the European Central Board launched a bond-buying program meant to reduce speculation that the two nations -- and the Euro itself -- would fail.

The move calmed investors and sparked a broad equities market rally.

U.S. mortgage rates did not fare so well, however, climbing as much as 0.25% and leaving that "Freddie Mac mortgage rate" in the dust. If you tried to lock a loan Thursday, you may have been greeted with a rate nearing 4.000 percent.

Fortunately, those rising rates were short-lived.

Friday morning, the U.S. Bureau of Labor Statistics released its August Non-Farm Payrolls report and mortgage rates dropped. Far fewer jobs were created in the U.S. than was expected. 96,000 net new jobs were made in July. Wall Street had expected 130,000. This increases the likelihood of new Fed-led stimulus -- perhaps as soon as this week.

The Federal Open Market Committee meets for the 6th of eight times this year later this week; a 2-day get-together scheduled for September 12-13. The Fed may announce a new round of market stimulus. If it does, mortgage rates should fall. If it doesn't, mortgage rates may rise.

Other news affecting potential housing payments this week includes the release of key inflation data Thursday and Friday, and Friday's Retail Sales data.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

Coming Next Week : New, Mandatory Loan Fees For All Conforming Mortgages

Beginning as soon as next week, new, mandatory mortgage fees will push mortgage rates higher throughout Metro Atlanta and nationwide. Fannie Mae and Freddie Mac are raising their respective "guarantee fees".

Guarantee fees are fees that mortgage-backed securities providers charge to lenders for mortgage-related services including the bundling, selling and reporting of mortgage-backed bonds. 

Guarantee fees are also used to insure providers against credit-related losses.

As announced by the Federal Housing Finance Agency, effective for all conforming loans delivered to Fannie Mae or Freddie Mac, beginning November 1, 2012, guarantee fees will be raised by an average of 10 basis points per loan.

Conforming mortgages already average close to 30 basis points in guarantee fee per loan.

This is the second time this year that the FHFA has raised guarantee fees, with the most recent increase translating into an approximate 50-basis point worsening in consumer mortgage pricing. That today's home buyers and refinancing households will soon pay higher loan closing costs as a result.

To use a real-life example, Freddie Mac reported that the average 30-year fixed rate mortgage was 3.55% nationwide this week for borrowers willing to pay an accompanying 0.7 discount points. 

Once the new g-fee is implemented, the discount points change : 

• Prior to guarantee fee increase : 3.55% with 0.7 discount points
• Post guarantee fee increase : 3.55% with 1.2 discount points

Post-increase, in other words, an identical Freddie Mac loan requires an extra half-point to get to closing, or $500 in additional closing costs per $100,000 borrowed.

These fees will soon appear on rate sheets, if they haven't already.

Lenders know that it can take up to 60 days to lock a loan, approve it, fund it, then package it for delivery. Loans locked today, therefore, will likely be delivered to Fannie Mae or Freddie Mac after the November 1, 2012 deadline. As a result, mortgage pricing will soon include the effects of the g-fees.

Perhaps as soon as this morning.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...

Case-Shiller Index Shows Huge Home Price Gain

Home prices continue to rise nationwide. 

According to the Standard & Poor's Case-Shiller Index, home prices rose 6.9% between the first and second quarter of 2012, the largest quarter-to-quarter gain since the home-value tracker's 1987 inception and another signal that the housing market is in recovery.

The private-sector metric's results are similar to what the government's Home Price Index showed for June, too -- values rising quickly. In addition, for the second straight month, each of the Case-Shiller Index's 20 tracked markets showed month-to-month improvement.

June would have marked three straight months if not for Detroit's value-setback in April.

The top performing markets in June, as tracked by the Case-Shiller Index were :

1. Detroit, Michigan : 6.0 percent gain
2. Minneapolis, Minnesota : 4.8 percent gain
3. Chicago, Illinois : 4.6 percent gain

However, it should be noted that the Case-Shiller Index pulls from a limited sample set. It does not include condominiums or multi-unit homes in its findings, nor does it account for new construction. These exclusions make a material impact on the results of both Minneapolis and Chicago, as examples. Both cities feature a large concentration of condos.

Overall, though, the June data looks sound. Said a spokesman for the Case-Shiller Index, "The market may have finally turned around."

Furthermore, home buyers nationwide can corroborate what the Case-Shiller Index has uncovered. Falling home inventory and rising home demand have helped to move home prices higher in many U.S. markets.

Low mortgage rates make new homes affordable and rising rents are turning the Rent vs Buy equation on its head. In July, according to the National Association of REALTORS®, first-time home buyers accounted for 34% of all home resales.  This trend is expected to continue into 2013.

As compared to one year ago, today's home buyers have 8% more purchasing power and, with rising home prices, they're going to need it.

For more information about the Atlanta area real estate market, please email me at ed@edshort.com or call me at 404.918.2500.

~ Ed Short, Atlanta REALTOR®

Start spreading the news...