Big Ben says "Loosen the Guidelines"--Hear hear!

As an Atlanta closing attorney, we are on the front lines of the real estate and mortgage business and see 'what's really going on'. In lieu of continuing to generically (is that a word?) blame this all on "Wall Street" (which did contribute to this mess a few years back) let's take a look at one of the major reasons why we are STILL not seeing a solid real estate recovery--tight guidelines! (and appraisals--try googling HVCC if you want more info about well-intended legislation with unintended consequences) We see it all the time-people with good jobs, credit and income who cannot get a loan. With mortgage rates hitting an all-time low of 4.44% it's an awesome time to buy or refinance! Click on THIS LINK for a video from THINK BIG work small. Cheers, Bo

Recovery?

So where are we now? Yes, the tax credit has expired and we're close to the end of the original closing date of June 30, though there are rumblings that the 'close by' date may be extended into September. That can help the mortgage guys 'catch up' and get the loans closed, but it doesn't do much to really 'create' business. One reminder-if you have a qualified military client, the tax credit still applies (thru April 2011).

We still have a mixed bag as it relates to real estate. Georgia is number 6 in terms of homes having 'negative equity' (commonly called 'underwater', where the loans on the home are higher than the current value of the home). The US rate was reportedly 23.7% in May (11.3M out of 47.7M mortgages) vs. GA's 28.7% (457,652 of 1.6M). The top 5 states were Nevada, Arizona, Florida, Michigan and California. Similar numbers are reported for foreclosure listings in the 1st quarter with Florida and California making up 29% of that total. If you add the next 5 states (TX, GA, AZ, IL, MI) that total rises to 52% of all foreclosures reported! The worst may be over, but there are still high numbers being reported for homeowners being over 30 days late. Why is this trend so strong? Most foreclosures should currently (emphasis on should) be due to typical 'life events' versus people being stuck with bad loans. Unemployment is reason #1, along with other 'common' factors such as divorce, illness and a new trend of people 'walking away' from underwater mortgages. One soapbox issue is the fact that many mortgage companies will not talk to a homeowner UNLESS they are delinquent. Yes, if you are paying on time and you're underwater, I am hearing that the banks (esp. the monster-mega-banks) will not consider a modification of any sort until the borrower is at least 3 months behind. That is a sad commentary for people who are trying to do the right thing as well as keep their home! But I digress...

The final issue that's dragging us down remains the job market. In May, employment increased. Good news? Not so much. Most of the improvement came from the government hiring 411,000 temporary census workers--the private sector only hired 41,000 for the month. Likewise, businesses are still relying on temp workers so there is still a good deal of uncertainty out there. One 'odd good sign is the amount of people quitting their jobs (told you it was odd!). The reasoning is this-if someone quits, they feel that they can find something better (i.e. they are not trapped in their current position b/c there is no alternative). SO you can make the argument that finally there are some 'greener pastures' for people to try.

I love listening to "Big Ben" (Fed Chief Ben Bernanke), especially when he's feeling positive about the economy as a whole. He noted that the European crisis will have only a "modest" impact on our recovery (don't we hope) and that we are "on track to continue to expand through this year and next." He did warn of a "slow reduction" in the unemployment figures and also seemed to hint that the Fed will not raise rates until next year. However, he warned about our record budget deficits, noting that if they are not reduced, it will hurt our economy in the long run, possibly leading to higher interest rates (homes, cars, etc.) and more expensive debt payments for Uncle Sam. His "happy" comment? At some point "things will come apart" if not. Oh goodie... SO, as we individually tighten our belts, our government has been warned to do the same--let's hope they listen! Cheers, Bo

Time is up! (and time to move to ATL!)

All too often you hear the phrase "For A Limited Time" tossed out in marketing. As noted in last month's email, time may be running out for these incredibly low rates due to TODAY's end of the Fed's $1.25T (yes, Trillion) program to purchase mortgage-backed securities (MBS). The program provided liquidity for Freddie and Fannie, keeping rates low and reducing financing costs. Low point? 4.71% for a 30-year fixed in December! But "what now" since the Fed is ending this program? I predicted a larger jump in rates but I have to retract based on what I've recently read (either way I hope rates remain low!). Estimates from Freddie/Fannie expect a rise of less than a quarter point in the next 3 months (a rise of about $30/month payment on a $250K loan). Why so 'low'? Right now the investment 'spread' for US Treasuries is low but higher for MBS so they are attractive to money managers, banks and pension funds (I also read that China is not buying as many Treasuries so be aware that the USA could face higher interest rates to finance our ever-increasing budget deficits, but I digress). In essence, the private industry players are stepping in to fill the void left by the Fed so rates should remain lower, though the (estimated) average will be just over 5% and under 5.25% (for reference, the average for the past decade was 6.2%). Note-the Fed is poised to 'jump back in the market' if there is a significant 'run-up' in rates.
So rates should be 'okay' but are we out of the woods yet? Well, we don't know what will happen after April 30th when the tax credits expire (actually, July 1 will be the true barometer as you MUST be under contract by 4/30 and you MUST close by 6/30 to get the final tax credit). Robert Shiller (of the S&P/Case-Shiller index) said "You don't make addicts go cold turkey. The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house." All I can say, try being a seller! Talk about a bad mood... or why not try to buy a short-sale? THAT'S truly 'bad mood' material!
Let's talk about ATL now. No less than the New York Times (albeit in blog form) noted "Don't count Atlanta out." Harvard Economics Professor Edward L. Glaeser notes that ATL has had its ups (#2 in population growth of 1.13M people from 2000-2008) and downs (annual building permits dropped like a rock from 2005-2009, highest of any other metropolitan area) but we have many things going for us. Click on the link to read the article but John Adams has a companion article that sums up his 3 maj or factors for our future success: ATL is dominant in the region, with no real rivals; we have a 'business-friendly' political environment; we have a highly skilled population (nearly 43% of adults have college degrees vs. 27% nationwide). Not only that, a recent KPMG study ranked ATL the second most cost-competitive 'large city'. They used a matrix of 26 cost components such as labor, taxes, real estate and utilities as it relates to 17 industries based on a 10-year time period. Tampa was #1, with a cost index of 96.0 (100.0 being the national baseline) and ATL was 96.3. Our ranking was based on our competitive business costs (office leasing, transportation, labor, employee benefits and corporate tax rate). Miami, Baltimore, and Dallas round out the top 5. LA, NYC and SF were the three most expensive.
SO tell your friends it's time to relocate to ATL! Buy now, save now, and pop some bubbly along the way!

How Interest Rates Move Video

Watch this video to learn "How Interest Rates Move". It's 7 minutes long but it gives you a great understanding of how rates work AND notes why rates will be jumping up soon AND why you want to get into the refinance process NOW or you'll be sorry! Don't delay, watch this as soon as possible! Cheers, Bo

Latest newsletter: "Everything's Coming Up Roses"

Suddenly everyone is an optimist! Don't get me wrong, I am truly hopeful that our economy is out of the dumps. As you already know from my emails and blogs, I have always been a huge cheerleader for our economy. We have seen so many reports that match Ben Bernanke's earlier predictions for a 3rd or 4th quarter recovery. On Tuesday we heard that metro ATL home prices increased in June, gaining ground for the 1st time in 25 months! The downside is that prices are still down 14% from 2008 and over 20% from the peak in 2007. The National Association of Realtors paints a rosy picture as well showing July sales rising 7.2%, beating estimates. Likewise new home sales were up 9.6%. So the monster that caused this recession (housing!) may be growing weak.
So why am I nervous? Well, those first-time buyer credits expire in December. Realistically (with all the issues related to getting credit approved and appraised values) you need to be under contract in early October to close by the end of November. What will happen when those credit expire? Likewise, unemployment may top 11% in Georgia per local reports--figures show unemployment rose in 26 states and fell in 17. Finally, what if the government stops spending (or if investors stop buying our bonds)? One word: Inflation. We are definitely in a better position right now, but we're not out of the woods yet. Drive past local strip malls and you'll see a lot of "For Lease" signs. While single-family housing is picking up, commercial properties (and their loans) may be the next problem facing our economy. I may not have b een excited about economics while sitting in my college classes, but I can certainly now say that economics are no longer boring!