Marc's Mortgage Matter's

Time flies. This year we have 4 unusual dates: 1/1/11, 1/11/11, 11/1/11 and 11/11/11. Is it a coincidence that you can take the last 2 digits of the year you were born, plus the age you will be this year and it will equal to 111? (Maybe this is another Fed regulation.)

Depending upon where you are in the country, a little furry prognosticator may or may not have give you hope for an early Spring. In either case, the promise of a milder tomorrow remains just a hope at this point, and we must deal with present conditions, regardless.

Much is the case with the economy. Certain hopeful signs and promises are or have been emerging, but the best days lie ahead for at least the moment. Interest rates have been known to bounce in fits and starts in such a climate; the suggestion of tomorrow's improvement is a component of the rally in stocks and the corresponding rise in mortgage rates over the past couple of months.

Like the snows which enveloped a wide swath of the country this week, we have been seeing over time an accumulation of improving economic news, some of which suggests that the economic gears are starting to become more fully engaged, with a more robust recovery set to bloom before too much more time has passed.

In the so-called household survey, you are essentially asked: "Do you have a job?" If the answer is "no", there is a subsequent question: "Are you looking for work?" If the answer is "yes", you are counted unemployed. If "no", you aren't. At this time, it is reasonable to expect either an upward revision to new hires and/or a sizable (and perhaps above forecast) number of new hires in the next month or two. At the same time, is is reasonable to expect that initial claims will find a more true pattern when folks can reliably get to their local unemployment office.

Those with jobs are being asked to push more out the door and are complying. Worker Productivity rose by 2.6% in the fourth quarter of 2010, a solid gain and up by 0.2% from the 3rd quarter, but below those seen earlier in the year. Hourly compensation went up by 1.9% for the period, which means that the cost of labor per unit produced declined by 0.6%. That decline helps insure profits, or more likely is being used to help offset rising raw materials costs. In short, if you got a job you're working so much harder and likely making less, yuck!

With tight lending conditions still in place, adding new debt continues to be more of a challenge than it was a few years ago. However, standards are continuing to loosen, at least from the top down. The latest Senior Loan Officer opinion survey revealed a continuation of a now five-quarter trend of easing standards for large Commercial & Industrial borrowers. More liquid lending conditions haven't yet trickled down to consumers to any great degree, where standards for residential mortgages remained largely unchanged at firm levels for the past four quarters. With Fannie, Freddie and FHA underwriting standards dominating the terms of mortgage lending, there won't be much loosening reported here unless or until these firms make changes. With GSE reform just coming into view, it would be unlikely to see that happen anytime soon.

Of course, tight lending standards, fiscal crises and rough-and-tumble market conditions make it unsurprising to see a decline in Construction Spending. The 2.5% decline in outlays for December was across the board, driven down by a 4.1% decline in residential outlays, a 0.5% slip in commercial spending and a 2.8% did in public works projects. The housing market remains a trouble spot for the economy, there is ample commercial space virtually everywhere, and state and local governments are in a retrenchment mode with ARRA ("stimulus") funds starting to run dry.

The highest-frequency gauge of consumer moods flared back near the highest levels of the recovery to date. The weekly ABC News/Washington Post poll of Consumer Comfort rose by three ticks to minus 41 during the week ending January 30, and along with other indicators point to an improving outlook as we close out the last six (or fewer, or more) weeks of winter.

Housing will eventually join the fray, but probably not for a while, and will likely be greeted with mortgage rates approaching what might be considered normal, somewhere around an average 6% for 30-year conforming loan rates. However, there are probably many months to go before that comes to pass. In the meanwhile an improving economy is making investors more interested in riskier investments with greater potential (i.e. the stock market) at the expense of safe-haven ones. As such, stock prices are rising and bond yields are following, and mortgage rates follow bond yields to a greater or lesser degree.

That should be the case as we wander into next week, with mortgage rates currently around 5%, and expected to move a little higher, probably a handful of basis points, perhaps as much as ten. If you are on the fence, and have yet to make a move, call me as rates have really gone up, really!

Biting the bullet on expenses:

The President ordered the cabinet to cut a whopping $100 million from the $3.5 trillion federal budget!
I'm so impressed by this sacrifice that I have decided to do the same thing with my personal budget. I spend about $2,000 a month on buffets, groceries, medicine, bills, etc., but it's time to get out the budget cutting ax, go line by line through my expenses, and go to work.
I'm going to cut my spending at exactly the same ratio -1/35,000 of my total budget. After doing the math, it looks like instead of spending $2,000 a month; I'm going to have to cut that number by six cents!
Yes, I'm going to have to get by with $1999.94, but that's what sacrifice is all about. I'll just have to do without some things, that are, frankly, luxury items.