Orange County CA. Economic News

The Mortgage Bankers Association recently fought off federal legislation that would have allowed bankruptcy judges to modify residential mortgages. The MBA's victory was a huge success for lenders, but an unfortunate loss for homeowners who have declared bankruptcy. 

Lenders disliked the proposal, since it would have shifted some of the power over mortgages from lenders' loss-mitigation departments to bankruptcy judges, who might have imposed modifications that the lenders wouldn't have liked.

The risk was deemed so serious that the MBA pulled out all the stops to pound the idea into dust. Lawmakers were lobbied, members were mobilized, press releases were issued, and the MBA's Web site featured a "Stop The Bankruptcy Cram Down Resource Center".

Consider "cram down," a bit of MBA-speak that refers to a judicial cut in the interest rate on a borrower's existing loan. The term may be new to some, but in fact dates back to the last real estate downturn. The phrase naturally evokes emotionally charged images of gagging, choking and force-feeding, none of which is relevant to a serious discussion of bankruptcy relief.

Consider also the MBA's claims that mortgage interest rates would rise by as much as 2 percentage points and that lenders would be forced to require bigger down payments and charge higher closing costs if bankruptcy judges had a say. No factual evidence was offered to support these arguments.

In fact, a causal connection between the so-called "cram down" and significantly higher interest rates is a stretch at best, according to an academic paper by Adam J. Levitin, a law professor at Georgetown University. The paper stated that even unlimited loan modifications in bankruptcy courts would have only an insignificant, if any, impact on mortgage interest rates or mortgage markets.

Of course, the MBA also had a promised presidential veto in its pocket and the support of Alphonso Jackson, the now-former secretary of the U.S. Department of Housing and Urban Development. In a speech, Jackson called the proposal "an odd, time-consuming, distant way to help homeowners," and said, seeming with no evidence other than the MBA's say-so, that it would increase interest rates and -- horror of horrors -- benefit lawyers and law firms.

The MBA has supported other measures such as pre-foreclosure counseling, the use of mortgage revenue bonds to refinance subprime loans, and the strictly voluntary Hope Now loan workout program. These measures may be worthwhile, but the cost to lenders is minimal and so far, the results have been modest.

Not surprisingly, consumer groups support an expansion of bankruptcy judges' jurisdiction to encompass residential mortgages. AARP, the AFL-CIO, ACORN and the Center for Responsible Lending are among the groups in favor of this proposal. These groups believe the federal government should put more pressure on lenders to help homeowners who are in danger of foreclosure, and a Congressional Budget Office report said lenders might have more incentive to modify loans if bankruptcy judges had the power to impose such concessions.

The MBA deserves plenty of credit and kudos for the success of its "Stop the Cram Down" effort. The group did exactly what such groups are supposed to do, which is to protect the interests of their own members -- no matter how narrow or parochial those interests may be.

But at the end of the day, the win on this one should have gone to the homeowners. Bankruptcy isn't pretty, and recent changes to the U.S. bankruptcy code have already made the process more onerous. Yet bankruptcy serves a legitimate and important public policy purpose, which is to give people in dire straits a fair and reasonable way out of their extremities. Bankruptcy shouldn't be just another form of Dickensian debtors' prison. It should offer real relief and an opportunity for folks who've experienced hard times to get a fresh start.

As the law stands today, home-loan lenders are a favored class of creditor in the bankruptcy system. In fact, residential owner-occupant mortgages are perhaps the only type of debt that bankruptcy judges aren't allowed to modify. Judges can alter loans backed by cars, boats, farms, manufacturing plants, mobile homes, vacation homes and investment properties.

Of course, there should be limits to bankruptcy judges' power, and the proposed legislation contained plenty of them, perhaps even too many. Relief would have been offered only to homeowners who faced imminent foreclosure, who had a subprime or nontraditional loan such as an interest-only or payment-option adjustable-rate mortgage, and whose income wasn't sufficient for them to afford their mortgage payments. Bankruptcy judges would be required to set commercially reasonable interest rates on modified mortgages and wouldn't have been allowed to reduce loan balances to less than the home's market value.

Homeowners who've been forced into bankruptcy deserve a chance to keep their homes if they can afford to make reasonable mortgage payments, and bankruptcy judges are in a good position to make that call.

As stipulated in the newly passed Economic Stimulus Bill of 2008, FHA announced the  new loan limits for Orange County, CA.  This new FHA loan limit is based on a calculation of 125% times the median price, up to a maximum of $729,750.  Since the median price in Orange County is around $600,000, the new FHA loan limit for Orange County is the maximum allowed.  Below is a table of the loan limits for single family homes, as well as small multi-family housing:  


HUD Secretary, Alphonso Jackson recently announced the new limit increase at the Anaheim Convention Center where HOPE NOW was conducting a national anti-foreclosure campaign. This new $729,750 limit will double the previous FHA loan limit of $362,790, the U.S. Department of Housing and Urban Development (HUD) announced. This limit is good until the end of the year when it reverts back to $362,790, but some feel this deadline will be extended into 2009'.  This new bill will allow FHA to refinance of up to 97% loan to value, but most mortgage lenders will only go up to only 90% loan to value.

This new FHA loan limit will enable many Orange County homeowners to refinance out of their expensive adjustable rate mortgages, even if their property has has gone done in value over the past few years.  Also, the new FHA loan program will allow some homeowners with adjustable rate mortgages to refinance if they are behind on payments.

Another great benefit for Orange County would be home purchasers, is that FHA is much more forgiving of a few negative marks in ones FICO credit rating. in the past 12 months, Conventional lenders have become much more demanding on credit quality. New FHA underwriting will also allow for more flexible income documentation and less time on a given job.

This new FHA loan limits for orange County plus more flexible qualification standards could be a big boost for the slumping Orange County housing market.  Many Orange county residents depend on jumbo loans, anything above the current $417,000 limit. Interest Rates on jumbo loans are more expensive, ten conforming loans (ie: loans below $417,000).  The average rate tis past week for a 30-year fixed conforming loan in Orange County was 5.9 percent with a one-point fee, while the average jumbo rate on a 30-year fixed was 6.9 percent with a one-point fee.

If you would like more information on the new FHA loan limits, or would like a referral to a couple of great local FHA lenders, feel free to call us at: (949) 388-3396, or send us an email at:  Info@OCRealtyGroup.com   We specialize in Short Sale workouts for Orange County homeowner in need.  If you would like to learn more about Short Sale workouts, visit our website at:  www.OCShortSaleCenter.com

President Bush signed the Economic Stimulus Bill into law this past Wednesday, February 13th.   Although the details are not finalized, the department of Housing and Urban Development (HUD) has 30 days to publish the median area home prices, Metropolitan Statistical Areas and mortgage principal obligation limits after the bill became law.  The new Proposed Fannie Mae and Feddie Mac conforming loans are to be based on 125% of the area median home price not to exceed $729,750.  That is great news for Orange County, for the median home price here is approximately $600,000, which means that Orange County conforming loan limit should be around the $729,000  limit.

I expect that this year will be the bottom of this severe market correction.  With the proposed buy-out of Countrywide Mortgage by Bank of America, the recent large decrease in the Fed funds rate, the new Federal program called Project Life Line that helps delay and possibly avoid Foreclosures, and  this new Economic Stimulus Bill raising loan limits,  this should put the brakes on  further price erosion here in Orange County..

The new loan limits will apply to 30 year and 15 year fixed rate, fully amortizing (sorry no interest only) and owner occupied homes only.  They should also apply to high Loan to Value (LTV) FHA loans which should really help to stimulate the local real estate market back to normal health.  Adjustable rate mortgage are being considered but but I would not  count on it. Although the bill has passed the information above is not final.  Changes are set to expire on December 31, 2008, although I would be willing to bet the this Bill is extended like many other Bills in years gone by. 

"Will the recent 3/4 point drop in the Fed Funds Rate help the local Orange County Real Estate market ?"... I've been asked this quetion several times today, and my asnwer is "Yes" and "No"....  May sound like an answer from a political candidate, but let me explain my "have it both ways" answer. 

First of all, here is the "NO" part of the answer.  The Fed Funds Rate has had little correlation with actual 30 Mortgage rates in the past 8 years.  Mortgage rates are most closely tied to 10 year treasuries.  While long term adjustable rate mortgage (ARM) rates are often tied to prime rate, LIBOR and other factors.  Look at the graph below from the year 2000' to the year 2005'.  Around January 2001', the 30 year mortgage rates were around 7% and the Fed Funds Rate was around 6.5%.  1.5 years later, the Fed Funds Rate dropped to about 1.8%, yet 30 mortgage rates were still hanging around 7%...  Then in mid 2004' Fed Fund Rates went from 1% up to 3.5% by the end of 2005', while 30 mortgage rates stayed around 6% during this period of time.

So based upon the past 8 years (and more) of history, I don't see that this recent large  drop in the Fed Funds Rate will do much in lowering Mortgage Rates... which still happen to be very low historically. 

The recent major downturn in real estate prices here in Orange County is the result of two effects - One a natural correction... or a letting off of steam if you will, from the overheated and overextended run-up in prices that took place from about 1998' until early 2006'.   And two, is the result of the record breaking foreclosures and pre-foreclosure sales that are occurring due to the large number of loan defaults.  These defaults are primarily caused by overextended buyers who were given highly leveraged loans with adjustable mortgage loans with artificially low teaser interest rates in the past 1 to 4 years.  A slight drop in long term mortgage rates (if they drop at all due to the Fed Funds Rate), will not be much help to these homeowners in financial distress.    

The "Yes" part of the original question comes into play as follows.  The lowering of the Fed Funds Rate should help to stave off a recession, which should help to prevent future job losses, which should help to prevent future Foreclosures.  Plus this should give the current pool of potential home buyers additional confidence to buy now or soon, if they feel good about their long term local employment.  In addition, the Fed Funds Rate drop also acts as a positive psychological effect in that it is somewhat reassuring to know that the powers of government are making some serious attempts to resolve the current economic troubles.

 

Below is the National Economic Week in Review that may affect the Orange County real estate market.

Fed cuts short-term rates

As was widely expected, the Federal Reserve Board lowered short-term interest rates by 0.25% on Wednesday, to 4.50%. The rate cut was the centerpiece in a busy week of economic news. On the bright side, the U.S. economy expanded at a solid pace in the third quarter, the employment situation appeared healthy, and inflation was largely contained. Meanwhile, consumer confidence slipped, manufacturing growth slowed, and residential construction remained weak. Against this backdrop, crude oil prices touched record highs (near $95 per barrel) and the U.S. dollar hit record lows against the euro and the Canadian dollar. For the week, the S&P 500 Index fell 1.6% to 1,510 (for a year-to-date total return of 8.1%). The yield of the 10-year U.S. Treasury note fell 12 basis points, to 4.29%.

FOMC lowered interest rates by a quarter-point

The Federal Reserve Board's Open Market Committee (FOMC) voted Wednesday to lower the target for the federal funds rate by 0.25%, to 4.50%. The action followed a 0.50% rate cut in September. In the accompanying statement (which is carefully read by analysts), the FOMC suggested a more neutral stance regarding future rate cuts. Economic growth was solid in recent months and inflation has improved during the year, but the FOMC noted that growth will likely slow in the fourth quarter and energy prices could drive inflation higher. The committee said that after this rate cut, "the upside risks to inflation roughly balance the downside risks to growth." The next FOMC meeting is scheduled for December 11.

Unemployment rate unchanged

The unemployment rate for October held steady at 4.7% for the second straight month. Nonfarm payrolls increased by a surprising 166,000, led by gains in professional and business services, health care, and leisure and hospitality. The manufacturing and residential construction sectors posted job losses in October. Average hourly wages increased a modest 0.2% to $17.58, a pace that seems to pose limited inflationary threat.

Consumer confidence hit two-year low

Consumer confidence fell in October for the third consecutive month. The Conference Board's index of consumer confidence declined nearly 4 points to 95.6, the lowest level since October 2005. Consumers were concerned about their present situation, their expectations for the next six months, and the outlook for the job market.

Third-quarter economic growth exceeded expectations

Real gross domestic product (GDP) increased at an annual rate of 3.9% in the third quarter, far surpassing consensus expectations. Strong consumer spending and exports were leading contributors. Meanwhile, continuing weakness in the housing sector and an increase in imports restrained overall GDP growth.

Income held steady, spending growth slowed

Personal income increased 0.4% in September following a 0.4% rise in August. Personal spending increased 0.3% for the month, the slowest growth since June, suggesting that the slumping housing market has slowed—but not stalled—consumer spending. The personal savings rate edged slightly higher, to 0.9%.

Here's the highlights of the Nations economic and financial news for the past week (September 23rd - 28th), as it may effect the local real estate markets here in orange County, CA.

National Home sales down again:

A busy week of economic reports brought mixed news, shaded to the negative side. Both new- and existing-home sales fell in August, and consumers felt less confident than earlier in the summer. Durable-goods orders experienced their biggest drop of the year in August. On a positive note, gross domestic product for the second quarter held steady, personal income rose slightly, and a key inflation figure fell for the first time in nearly a year. For the week, the S&P 500 Index rose 0.1% to 1,527 (and has earned a year-to-date return of 9.8%). The yield of the 10-year U.S. Treasury note fell 6 basis points to 4.57%. 

National Housing market woes continue:

Existing-home sales continued their slide, falling 4.3% in August to an annualized 5.50 million units. The decline was within expectations, however, and house prices appeared to be stabilizing. Sales were slower across the country, with the market overall moving at its slowest pace in five years. The supply of existing homes continued to grow, reaching 10 months of inventory in August, well above the 7.3 months of inventory from a year ago. Condominium sales decelerated at a faster pace than single-family home sales. New-home sales were also at a crawl in August, falling 8.3% to 795,000 annualized units. The sales pace is the slowest in nearly 10 years and was below already gloomy expectations. The West and South regions were hit hardest, experiencing significant declines, while the Northeast and Midwest actually saw large gains in sales. The median price for a new home fell 7.5% from its reading a year ago. Unfortunately, the same trend was true in Orange County, with number of homes sales slightly decreasing from the previous week, continuing the trend for several months.

Consumer confidence remains shaky:

Stock market turbulence and a weaker jobs market had consumers feeling less confident for the second consecutive month. The Conference Board's Index of Consumer Confidence fell to 99.8 in September, after achieving a post-9/11 high as recently as July. All index components were lower, making September's figure the lowest reading in nearly two years. Higher percentages of consumers viewed jobs as being less plentiful and harder to get than at any time since November 2006.

Nonresidential construction boosts spending:

August construction spending rose 0.2%, above expectations of a downturn. Private construction was flat, despite a 1.5% drop-off in residential construction. Nonresidential construction climbed 1.6% for the month. Hotel, office, and commercial building projects all showed solid gains.

Second-quarter GDP holds steady:

The final estimate of real gross domestic product (GDP) for the second quarter measured a 3.8% annual rate, within expectations. Homebuilding sliced more than half a percentage point from overall growth during the period, and consumer spending was down significantly from the first quarter as well. Corporate profits, on the other hand, climbed to a record high and increased their share of GDP overall.

Demand for durable goods falls:

Orders for durable goods, manufactured items expected to last more than a year, plunged 4.9% in August, their largest drop since the beginning of the year. The decline was far greater than expectations and came on the heels of a solid 6.1% gain in July. Nearly all manufacturers took fewer orders during the month, with civilian aircraft demand registering the largest drop-off. Excluding transportation, orders were off 1.8% from July.

Personal income Nationwide posts slight gain:

Strong income from investments boosted personal income 0.3% in August, within expectations. Wages and salaries rose a modest 0.2%, dwarfed by 1% growth in dividend income, which has been strong throughout the year. Personal spending rose 0.6% for the month, largely on the strength of automobile sales, while the saving rate decelerated to 0.7%. The consumer spending deflator, a measure of inflation closely watched by the Federal Reserve, eased 0.1% in August, its first dip in nearly a year.

If you have any questions regarding mortgage loans for the purchase or refinance of real estate in Orange County, CA., or if you would like a second quote on a Mortgage loan with very low interest rates and low costs, please feel free to call us at:  949-388-3396 or drop us an email at: Info@SearchOCHomes.com

Predicting the tops or bottoms of any market such as Stocks, Bonds or Real Estate, is educated guess work at best.  But there are usually tell-tale signs that often appear around tops and bottoms that give one a sense of  'seeing the light at the end of a tunnel'.  That may be happening now in the Orange County CA. residential real estate marketplace. 

Tell-tale sign number one, has to do with the subprime lending debacle.   A dismal milestone may soon move into the housing market’s rear view mirror.  Homeowners owing a total of $31.8 billion in subprime adjustable-rate mortgages began paying higher interest rates this  month of September.

That is the highest amount of subprime ARM's due to reset over a one-month period in this housing cycle.  By December resetting subprime ARM's are forecast to drop to $25.2 billion. By the end of 2008, they will have fallen to $3.6 billion.  The reason being is that  lenders have largely stopped making such loans to borrowers with spotty credit histories back at the beginning of this year..

The large volume of interest-rate resets to higher levels, has been the largest factor in the jump in foreclosures in the past 16 months.  In August, foreclosure filings rose 36% from the previous month and were up 115% from last year.  As ARM resets reached it's peak, more homeowners will have trouble meeting payments.

Granted, there will be a delayed affect of anywhere from 6 to 12 months.  Here's why... homeowners who have an interest rate reset increase this month don't automatically stop making payments the next month.  Many will try to hang in there, and some will run out of financial gas in 3, 4 or 6 months, then it takes anywhere from 5 to 8 months for the mortgage banks to foreclosure and put the REO property on the market for sale.... So the negative effect of this months the peak in the mortgage rate resets, probably won't be felt in the market as lower priced bank REO properties for sale, until sometime in the Spring and Summer of 2008'.  While we may see additional weakness in the months ahead one might argue that a record supply of foreclosure homes for sale, combined with a peak in ARM resets, means the housing market is near a bottom. 

The other tell-tale sign, is the very low rate of sales as compared to history.  As we wrote about a month ago and as reported in the OC Register newspaper, the low volume of home sales in Orange County CA. is currently at a 20 year low.  Current sales volume is a bit lower then it was back in 1995 when the real estate market hit bottom here locally, and Orange County declared bankruptcy.  Many large volume markets such as Stocks, Bonds and even Real Estate will tend to fluctuate from extreme highs and extreme lows.  Given that Orange County now has considerable higher population and a greater number of homes then it did in 1995, one would have to conclude that today's low sales numbers can't last much longer and will gradually return to more normal levels.  One of the big difference between Stocks/Bonds and Real Estate, is that the former will make turn around in a matter of months, while Real Estate takes years to correct and adjust.

If you are a potential Buyer waiting on the side lines, you may want to get ready and start to look closely at some of the pricing opportunities coming on the market now in the form of Bank Owned REO properties ans Short Sale foreclosures.  If you would like to receive a list of low priced foreclosures, bank REO's, and short sales as they come on the market for sale, via email, visit our website at: www.OCBargainHomes.com  

It's funny how things often come around full circle.  15 years ago the Zero Down Veteran Administration (V.A.) Loan was about the only loan program available which allowed home buyers to purchase a home with 100% financing... as long as you were a veteran of course.  Starting about 10 years ago, the zero down conventional loan was created and more and more mortgage lenders offered this type of financing.  So for the past 10 years or so, the VA loan was largely ignored by many mortgage brokers in favor of the zero down conventional loan which had fewer qualification restrictions (the main restriction being having Veteran status), and allowed for a higher purchase price.  Well, we have now gone full circle, for the zero down - 100% financing conventional loan is just about extinct. 

Today, the VA loan is one of the few loan programs left that enables prospective home buyers to purchase with 100% financing, with the exception of the Acorn Loan and the CalHFA Loan..  And as fortune would have it, the state of California has teamed up with the Veterans Administration to offer a superior loan product called the CalVet Loan, which provides 3 very exciting zero down payment loan programs.   The other fortuitous event, is that home prices have now dropped about 10% in southern California, which gives many veterans a window of opportunity to purchase a home here in desirable Orange County, CA. using the Cal-Vet loan.  We'll highlight the 3 basic CalVet Loan programs below.

The first program is a CalVet loan plan geared towards low income Cal Vet home buyers.  Of course, here in Orange County, the CalVet administration considers anyone individual making less then $$103,000 per year as a low income buyer, and any family making less then $121,000 per year as a low income family.  That allows many Veterans wishing to  to purchase a home in Orange ?county to qualify.  The exciting part is the this loan offers 5.25% fixed interest rate amortized over 30 years.  And it allows for a maximum purchase price of $521,000.  Also, one can have a credit rating as low as a 580 FICO score, and debt to income ratios as high as 55%.  That's one great loan program made available to a very deserving group of individuals.

The second loan program we'll highlight is one made available to Vietnam Vets.  This program has all of the great advantages as the above with the low 580 FICO score cut-off, and the high debt ratio with zero down.  But there is not maximum income restrictions and the interest rate is 5.5% fixed over 30 years.  Again, a fantastic opportunity for Vietnam Vets.

The 3rd loan plan is the basic Cal-Vet loan which again offers zero down - 100% financing for home purchase.  Plus the FICO score can be as low as 580, with 55% debt ratios.  The interest rate of this program is 6.55% fixed over 30 years with purchasing power up to $521,000.  (The rates, terms and conditions specified in this article are subject to change at anytime due to market conditions and CalVet guidelines)

You may ask, what can I buy in the desirable and high priced Orange County CA. real estate market ?  Well you would be surprised today as to what you can buy.  For example, today there are a total of 1,267 detached single family homes (SFR) available for sale throughout Orange County, CA.  Plus, there are 4,051 attached condos for sale with 2 bedrooms or more.  That's are large selection of homes and condos to choose from.

If you would like more information about CalVet Loans here in Orange County, CA. please feel free to call us anytime at:  949-388-3396 or email us at:  Info@OCCalVetLoan.com .  Also, if you would like a list of all homes or condos for sale, that you could purchase using one of these Cal Vet loans, just contact as above.  If you would like to search on the Internet for all homes and condos for sale in Orange County, just visit our website at:  Orange County Homes for Sale

Last week the Orange County register published an article about OC home sales still sliding using homes sales data from DataQuick.   This article included a graph (shown at right) that showed the number of homes sold and closed per month for the past 20 years.  This graph shows that last month (July 2007’) was the lowest level of sales in DataQuicks 20 year recording history.  And last months rate of sales was a bit lower then the lowest monthly total in 1995, which was the lowest years total during the real estate crunch in the early and mid 1990’s.  I see some good news in these numbers though, and it's not just because I'm an internal optimist.  Here's why. 

First, there are many more people living in Orange County CA. today then there were in 1995.. by about 300,000 to 400,000 people I estimate (See below graph) … California actually had a net negative population growth for several years during the mid 1990’s, but not today.  Also there are more homes in existence today then in 1995.  Not a whole lot more though, since available buildable land has been scarce for several decades.  (By the way, the number of homes built during these years has not kept pace with population growth.)   We now have a stronger job market today then in 1995. The overall economy in Orange County was much worse in 1995, and Orange County, CA actually went bankrupt in 1995, which happens to be the very same year containing the second lowest rate of sales month in the past 20 years.  


Another interesting observation.  Back in 1995, (the lowest rate of sales for the past 20 years) was the very same year when prices hit bottom in Orange County, and prices started to slowly rise in 1996 and beyond.  Am I going out on a limb and claiming that this year will also be the bottom of the pricing cycle (many areas throughout Orange County have already seen price decreases by 10% to 15%).  No, I'm not ready to go that far out on the limb, but if we haven't yet hit bottom in this pricing correction, then my hunch is that we are very close to the bottom. 

On the contrary side, the availability of easy Mortgage money over the last 3 years (zero down, with Stated Income with not so good FICO scores) no doubt artificially swelled the number of available buyers which drove up demand for homes which helped to move  home prices even higher.   Since the Mortgage industry has/is now correcting for this past error, and those loans no longer exist, there will be a period of time when the number of  potential Buyers are down below historic averages during this Mortgage finance correction. 

Another factor keeping the Sales numbers down to there lowest level in the past 20 years, is there is a lot of  'Doom and Gloom' in the press on TV, Newspapers and the Web, which to a certain degree becomes a self fulfilling prophecy.  All things considered, I just don’t think this low sales volume can last much longer, and I would expect the rate of sales to return to the 3,000 to 4,000 per month level in Orange County (or even higher) in the not to distant future (3 to 6 months).

Here is a summary of this past weeks (June 25th - June 29th, 2007) economic and financial news for the nation as it may effect the local real estate markets here  in Orange County, CA. 

• Existing home sales slipped 0.3% in May to an annual rate of 5.99 million, mostly as expected. Though sales are stabilized somewhat right now, swelling inventories combined with tighter credit standards promise to curb demand for housing through the rest of the year.  Similar trends currently exist now in south Orange County.  The rate of sales has held steady, but seeing a rise in inventory levels.
• Consumer confidence fell to 103.9% in June from 108.5% in May. Despite the drop this month the level of the index suggests that consumers remain fairly optimistic although they rated the present situation lower as expectation for the future declined. Confidence levels face downside risk going forward due to high gas prices, higher interest rates, slumping home prices and sluggish job creation.
• New home sales fell 1.6% in May to an annualized rate of 915k compared to an expected rate of 925k. Moreover, April sales were downwardly revised to 930k from 981k. Over the past year, new home sales have declined 15.8%. The trend in new home sales has flattened out at a fairly low level in the past several months without expectation of a rebound anytime soon as builders work through excess inventories.
• The MBA mortgage applications index fell by 3.9% to 618.6% for the week that ended June 22. This was the fourth decline in the past five weeks as higher mortgage rates take their toll on application volumes. Both purchase and refinance activity declined. Nevertheless, mortgage applications in total remain 16.8% above their year ago level.
• As widely expected, the FOMC opted to hold the target for the fed funds rate steady at 5.25% at their policy meeting today. This was the eighth straight meeting policymakers have left rates alone. Moreover, there were only minimal changes to the post-meeting statement. The Fed recognized moderate economic growth in the first half of this year, thus confirming a rebound in Q2 after a weak first quarter even amidst the ongoing correction in the housing market. The Committee also acknowledged that core inflation improved modestly but want to see more evidence of easing inflationary pressures. They reiterated that the current high level of resource utilization poses an upside risk to inflation. The Fed maintained that inflation continues to be the predominant risk to the economy and that future policy adjustment will remain dependent upon incoming economic data.
• Mortgage rates eased for the second week in a row as financial markets digested more weak housing market data. New and existing home sales reported earlier in the week showed weakened demand, lower prices and higher inventories. 30-year fixed rate mortgages averaged 6.67% this week compared to 6.69% last week according to Freddie Mac's mortgage market survey.
• Construction spending increased 0.9% in May, led by a sharp 2.7% increase in the non-residential sector. Residential construction spending remained weak, falling 0.8% in May in its fifteenth straight decline.

If you have any questions regarding mortgage loans for the purchase or refinance of a home or condo here in Orange County, CA., or if you would like a second quote on a Mortgage loan with very low interest rates and low costs, please feel free to call us at:  949-388-3396 or drop us an email at:  Info@SearchOCHomes.com

Here is the economic and financial news from this past week that may impact the local real estate market here in Orange County, CA.  

• The June NAHB Housing Market Index fell by two points to 28 from the previous month, the lowest since February, 1991. Homebuilders rated current sales and sales six months from now lower, while foot traffic through model home homes decreased. The dip indicates a slip in builder confidence, fueled in part by sub-prime related problems, coupled with a growing inventory. The low level of the index suggests that weakness in residential construction will continue.


• The June NAHB Housing Market Index fell by two points to 28 from the previous month, the lowest since February, 1991. Homebuilders rated current sales and sales six months from now lower, while foot traffic through model home homes decreased. The dip indicates a slip in builder confidence, fueled in part by sub-prime related problems, coupled with a growing inventory. The low level of the index suggests that weakness in residential construction will continue.


• Housing starts fell 2.1% to an annual rate of 1.47 million in May, about in line with expectations. This was the first decline in the past four months as starts fell 24.4% over the past year. Again, weakness was led by the single family sector. Permit issuance, often used as a proxy for future starts activity, gained 3.0% in May to 1.50 million. There has been some stabilization in construction starts over the last few months however; the correction in the housing market is not expected to bottom out until late this year.


• The MBA reported last week that 0.58% of loans entered the foreclosure process in the first quarter compared to 0.54% in Q406 and 0.41% in the first quarter of last year. Softening home prices are exacerbating the problem as many looking to refinance are unable to and instead face costly resets of low introductory rates. Rising foreclosures will put more homes on the market at a time of already high levels of inventories. The MBA's chief economists predicted that delinquencies would continue to rise, peaking later in the year.  Foreclosures in Orange County have increased as well.


• The MBA mortgage applications index fell 3.4% to 643.7% for the week that ended June 15. Both purchase and refinance application volumes declined as mortgage rates jumped by the most in over three years. Nevertheless, overall application activity remains 13.4% higher than year ago levels.


• Mortgage rates eased this week in Orange County on the heels recent, softer housing market reports. The concern is that the drag from the housing sector will become more of an issue in the broader economy. 30-year fixed rate mortgages averaged 6.69% this week compared to 6.74% last week according to Freddie Mac's mortgage market survey. Housing shaved 0.8 percentage points off of Q1 GDP and 1.2 percentage points from the second half of last year.

If you have any questions regarding mortgage loans for the purchase of a home or condo here in Orange County, CA., or if you would like a second quote on a Mortgage loan with very low interest rates and low costs, please feel free to call us at:  949-388-3396 or drop us an email at:  Info@SearchOCHomes.com

Here are the highlights of last weeks (June 4th to June 10th) national and regional economic, financial and real estate news, that may  effect the local real estate markets here in Orange County: 

• Fed funds futures expect the Fed to remain on hold through the remainder of this year. But the options market of fed fund futures at the Chicago Board of Trade indicate a 41% chance of a 25 basis point rate hike this year according to data compiled by Bloomberg. That would raise the target for the fed funds rate to 5.50% from 5.25% currently.


• Fed Chairman Ben Bernanke reiterated the Fed's outlook for moderate economic growth with hopefully, easing inflationary pressures. He went on to say that the ongoing slowdown in the housing sector could go on for longer than expected and remain a drag on economic growth. The Chairman expects foreclosures and delinquencies to continue to rise this year and next as many with adjustable rates find it difficult to refinance amid higher interest rates and lower home prices. However, he said he saw no major spillovers from housing to other sectors of the economy.


• The National Association of Realtors cut their forecasts for home sales and home prices again this month for the third month in a row as the correction in the housing market impacts the current spring selling season. The NAR predicts that the median price for an existing home will drop 1.3% this year while new home prices are expected to decline 2.3%. Sales of existing homes are expected to fall to 6.18 million, down 4.6% from 2006 and off 1.7% from estimates in May. New home sales are expected to come in at 860,000 down 18% from last year.


• The MBA mortgage applications index declined 1.7% to 625.3% for the week that ended June 1. Higher mortgage rates continue to cut into mortgage application volume. The purchase index rose 1.5% to maintain a high and steady pace while the refinance index plunged 6.3%. Despite the drop, refinancing activity remains strong but higher rates pose a downside risk going forward.


• Mortgage rates surged last week on strong job growth and wage increases. Higher labor costs could be passed through to consumer goods thus stoking inflationary pressures. 30-year fixed rate mortgages averaged 6.53% this week compared to 6.42% last week according to Freddie Mac's mortgage market survey.

If you have any questions regarding mortgage loans for the purchase of a home or condo here in Orange County, CA., or if you would like a second quote on a Mortgage loan with very low interest rates and low costs, please feel free to call us at:  949-388-3396 or drop us an email at:  Info@SearchOCHomes.com