Orange, CA (PRWEB) May 07, 2014
Beginning in January 2014, the Federal Reserve cut back its bond-buying stimulus plan by $10 billion each consecutive month, from the former $85 billion per month that it had previously spent since 2012. If all goes as planned with the cut back, the Fed will completely eliminate the bond-buying stimulus plan by October 2014. The fact that the Federal Reserve decided to continue cutting back on the stimulus plan rather than stop to re-evaluate indicates their strong faith in the United States economy, despite the government report stating that, “the economy grew at only 0.1% annual rate in the 1st quarter, but the Fed pinned its hopes on other recent data that has suggested activity is bounding back.”
The financial crisis of 2008 caused the central banks to expand their balance sheet to over trillions of dollars. In November of 2008, the Fed began buying $600 billion in mortgage-backed securities. By June of 2010 the Fed withheld the debt of banks, mortgage-backed securities, and Treasury notes reaching $2.1 trillion. A lack of economic growth prompted the Fed to purchase $30 billion in Treasury notes per month. This marked the first round of quantitative easing. The second round of quantitative easing took place in 2011 when the Fed purchased $600 billion in Treasury securities. The third round of quantitative easing, announced in 2012, launched a $40 billion program per month. In December of the same year, the $40 billion was increased to $85 billion per month. In 2013, Ben Bernanke, chairman of the Federal Reserve, announced that the plan could wrap-up by mid 2014.
Today, the national unemployment rate remains high while wages are not growing in proportion to inflated costs of food, gas, and homes. Low interest rates on homes are crucial to highlight purchasing power for Americans. The next round of data detailing unemployment, income levels, gross domestic product, and overall economic growth will also determine the current direction of the economy. Also, many attribute the slow housing market to the harsh winter conditions experienced by most Americans in the end of 2013 up until the second quarter of 2014. The next round of data should also assist to help economists determine whether or not a rough winter did in fact have a direct negative impact on the economy, or if the American economy is incredibly weak, as the weather is getting much better throughout the country and spring is meant to be the housing market’s busiest season.
During March 2014, the housing market experienced its wins and losses. The overall national sales of new homes tumbled 14.5% to it’s lowest since July 2013 as home prices soared due to the scarcity of homes for sale. This makes March 2014 the slowest month in 20 months according to Bloomberg (April 26th, 2014, http://www.heraldnet.com/article/20140426/BIZ/140429282). However, the National Association of Realtors seasonally adjusted index of pending sales rose 3.4% from February to reach 97.4%. Bloomberg contends that investors are holding back on their purchases of homes and traditional buyers are not filling in the void that they left behind, demonstrating the weakness of the market. Listings are overpriced for the traditional homebuyer. Lastly, the article included that average mortgage down payments have been low compared with the levels before the housing boom.
Other factors that might be affecting the housing market right now include lack of education on the subject. Survey Research from OmniTel including a sample of 1055 Americans over 18 years of age documented lack of knowledge on how to purchase a home with their financial situation as well as what current market conditions mean for home buying right now (April 24th, 2014, http://www.washingtonpost.com/realestate/mortgages-are-easier-to-obtain-than-many-prospective-home-buyers-mightexpect/2014/04/24/50ad8580-c970-11e3-95f7-7ecdde72d2ea_story.html). The survey included that many believe that they need almost perfect credit scores to obtain a mortgage in the range of 770 and up. This is not the case. Broadview Mortgage works with clients of various credit ranges, credit-worthy or not, and assists less-than-perfect clients to get where they should be to acquire a home loan. Typically a credit score of 640 is required, but if homebuyers work with loan officers to hike up their (lower) credit scores and eliminate outstanding debts, home ownership is a possibility.
The survey also revealed a common misunderstanding of how much money needs to be used towards down payments and closing costs. The more the better, but if 10%, 20% down is simply not realistic for you, there are down payment assistance programs that have been created to help with this exact situation. Broadview Mortgage has down payment assistance programs that may require as little as $1,500 down, which is even less than a down payment on a car. Each program varies and they are attainable to clients based on specific qualifications. To explore our down payment assistance programs, click here.
Despite a very fragile economy, the housing market is on a (slow) mend. Mortgages at the nation’s largest banks had improved during 2013. Homeowners now have a higher home retention rate as many homes have already been repossessed or refinanced throughout the years following the beginning of the mortgage crisis. Buying a home also continues to beat out renting even in these market conditions. Zillow research contends that in around half of United States metropolitan areas, it takes roughly 2 years for homeowners to gain equity in buying (April 29th, 2014, http://www.zillow.com/research/buy-rent-breakeven-2014-q1-6774/?utm_content=11174824&utm_campaign=CJ&utm_medium=referral&utm_source=6146840). It is always recommended, however, that owning a home is most appropriate for a person planning on living in that home for five or more years. The study accounted for all of the costs associated with obtaining a mortgage such as down payment, closing costs, mortgage payments as well as with leasing an apartment or home such as monthly rent, taxes, insurance, utilities, and maintenance. Riverside, CA depicted the shortest break-even rate of less than one year, so if you are in the market to buy in Riverside, CA the time is right!
Despite the Fed’s cut back on the stimulus plan, interest rates have remained surprisingly low. The objective of the Federal Reserve’s stimulus plan is to keep interest rates ‘artificially low’ and increase the purchasing power of the traditional borrower. The idea was that once the Fed cut back on the quantitative easing plan, interest rates would soar. However, the economic data released regarding the gross domestic product, unemployment rate, fears of inflation, etc. as mentioned before has caused interest rates to remain low, which has proved predictions on the direction of interest rates wrong. California mortgage rates this week remain at 4.07%, down a full four basis points from last week’s rate of 4.11%. Back in January of 2014, economists predicted interest rates to continue to increase throughout the year, but last week’s data and activity threw that theory a curveball. The moral of the story is, the housing market is volatile and unpredictable even to the most experienced, well-respected economists.
Interest rates, however, have been at ‘historic lows’ according to data taken over the past thirty years. Interest rates spiked as high as over 18% in 1982, and now we witness them at 4.07% with plenty of reservations. The reason being is that rates are not everything. Currently, many homes placed on the market have been overpriced, and buyers simply won’t pay such prices when they don’t believe that the homes are worth that amount, nor do they believe that home values will continue to rise. As buyers stand reluctant to buy, homes begin going stale on the market, creating a scarcity in supply as potential sellers are reluctant to even put their homes on the market with the lethargic rate of purchases being made. Despite a wide spectrum of factors in the economy and in the housing market, the Federal Reserve believes it’s time to allow the American economy to spread its wings and fly after a brutal financial crisis.
Broadview Mortgage values the opportunity to educate consumers to understand which direction that their current or future mortgage is taking them in. If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.williams(at)broadviewmortgage(dot)com . If you would like a quick pre-approval click here, and for assistance with down payment or buyer assistance, click here. You are also always free to give us a call toll free at (855) 692-7623.
Since 1988, Broadview Mortgage has distinguished itself through honest business relationships with clients, loyalty to employees, and commitment to empowering and educating those communities. Broadview Mortgage is a mortgage banker and direct lender made up of loan officers with years of experience in the firm and sheer excellence in customer service. The firm works to explore several financial solutions from which it’s clients may choose. Business is initiated and conducted on a word-of-mouth basis. Broadview Mortgage is a delegated underwriter for the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Federal National Mortgage Association (FNMA). Broadview is also approved to participate in several state, county and city programs for First Time Home Buyers.