Pages

Sunday, January 1, 2012

Predictions For 2012

The New Year is here. Of course, now we are inundated with predictions regarding what will happen in the coming year. If you read 100 predictions, you would get 100 different scenarios. For example, in October Fannie Mae predicted that rates on home loans would fall in the first half of next year, while Freddie Mac forecasted an increase in rates. In addition, Fannie Mae Chief Economist Doug Duncan rated the chance of a recession at 40% next year while Freddie Mac predicts that economic growth will likely strengthen to about 2.5% in 2012. More recently, a survey of 20 top economists conducted by CNN/Money predicted the risk of a recession next year at only 20% next year. This survey expected the fourth quarter growth rate to be the strongest of the year with over a 3.0% growth rate, but grow to slow to an annual rate of 2.4% next year.
Slow growth next year but no new recession? Sounds like a replay of this year. Our advice? Don't get lost in predictions. Most of the time they are a reflection of what already has happened. Right now we have very positive trends with increased consumer confidence confirmed by the Conference Board's survey released last week. The two month increase was the largest such bounce since March of 1991 and brought the level of confidence to where it was this spring. The real question is, will these trends continue into next year or do we fall back into our "starts and stops" pattern of economic recovery? If you want a clue to that question, watch the employment trends. A stronger, permanent recovery only comes with an improving employment sector and the reading on employment this Friday will be an important indication in this regard.

The Markets. Fixed rate loans ended the year near record lows. Freddie Mac announced that for the week ending December 29, 30-year fixed rates averaged 3.95%, up from 3.91% the previous week. The average for 15-year loans rose slightly to 3.24%. Adjustable rates were also up slightly, with the average for one-year adjustables increasing one tick to 2.78% and five-year adjustables increasing slightly to 2.88%. A year ago 30-year fixed rates were at 4.86%, almost a full percent higher from this week. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, "Rates on home loans ended the year hovering near historic lows in an already affordable housing market. For instance, the seasonally-adjusted S&P/Case-Shiller® 20-City Composite home price index in October was the lowest seen since March 2003. It's not surprising then that over 5 percent of households in December plan to purchase a home over the next six months, the highest share since May, according to The Conference Board." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated December 30, 2011


Daily Value
Monthly Value


Dec 29
November

6-month Treasury Security
0.07%
 0.05%

1-year Treasury Security
0.12%
 0.11%

3-year Treasury Security
0.41%
 0.39%

5-year Treasury Security
0.88%
 0.91%

10-year Treasury Security
1.91%
 2.01%

12-month LIBOR

 0.993% (Nov)

12-month MTA

 0.196% (Nov)

11th District Cost of Funds

 1.218% (Oct)

Prime Rate

 3.25%

 Rising rents are forcing renters to outspend home owners on housing costs, according to a recent study. Since 2005, home owners’ housing expenses have climbed from 31.9 percent of their household budget to 33.2 percent. On the other hand, in that same time period, renters’ expenses have jumped from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing Trends. In the last 26 years, home owners have increased the amount they spend on household expenses by 12 percent while renters have increased it by 22 percent, according to the study. Earlier this month, Capital Economics economists noted that for the first time in 30 years the median monthly home loan payment is about the same -- or less -- than the median rental payment. Yet, with the bleak job market, home ownership rates continue to fall in many parts of the country, particularly among younger generations. CoreLogic found in its report that the home ownership rate for the 25-to-34 age group dropped from 51.6 percent in 1980 to 42 percent in 2010. For the 35-to-44 age group, home ownership rates fell from 71.2 percent to 62.3 percent over that period. Source: RISMedia

The federal flood insurance program has been extended until May 31, 2012 under another short-term consolidated appropriations bill (H.R. 2055) passed by the House and Senate and signed into law by President Obama on Dec. 23. Had the appropriations bill not passed, the National Flood Insurance Program’s authority to issue new or renewal flood insurance policies would have expired at midnight on Dec. 23.  Source: The Insurance Journal
Vacation homes are offering plenty of good deals at the moment. In many second-home hot spots, prices are still close to five-year lows. For example, single-home prices in second-home hotspot Napa, Calif., are down 47 percent from their peak in 2006, according to Fiserv. If you have a buyer looking to cash in on vacation- or second-home values, an article at CNNMoney.com recently offered the following tips:
Is it rentable? Even for buyers who aren't planning to rent it out, they may still want to consider the rental aspects of the property, particularly since a home's rental potential can affect its resale value, says Catherine Jeffrey, a real estate professional in Fredericksburg, Texas. Buyers will want to check with the homeowners association or township to ensure that short-term rentals are allowed.
How do you plan to use the home? Your loan rate will depend on how you use the property. For example, if buyers intend to use the property primarily as a second home, they will pay about the same mortgage rate as a primary residence, says HSH Associates vice president Keith Gumbinger. However, if they plan to get rental income from the property, the property will be treated as an investment, which means they may need to pay as much as 25 percent for the down payment and pay up to one percentage point more in interest, Gumbinger says.
Are you eligible for the tax benefits? If the owners rent the house out for two weeks or less, they won't have to report income to the IRS, and they'll still be able to deduct property taxes and interest, experts say. Rick Shapiro, a CPA in West Hartford, suggests home owners talk with a tax expert to find out what tax benefits they are eligible for. Source: CNNMoney.com