The Weekly Rap! Friday Dec 27th, 2013

Happy Friday All,

I would like to take this time to thank all my readers for your support.  I hope you had a wonderful Christmas (or other) holiday and especially time with your family.  We do not get enough chances to spent quality time with the ones we love.  I wish for you a healthy and happy New Year in 2014.  I’ve had the best years when my “resolutions” were to “be happy and enjoy life.”

I have included my “predictions for 2014” below.

The National Debt is currently: $17,262,807,950,873.00 higher by about 20 BILLION.  I post this so we will be aware of what we are leaving the next generation.

The Dow last traded at 16,472 higher by about 200 points from last week.  The S&P 500 is trading at 1,840.  Gold is trading at $1,214 an ounce, while oil futures at $100.48 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.29/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 3.00%.  30-year Treasury Bond yields last traded at 3.94%.  Rates on 30-year fixed-rate mortgages are about 4.625% this week. MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 99.31 about .50 worse than where we were last Friday at this time.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

Product Corner:  The HELOC is back!  Yes I realize that this is a repeat, but I’m in holiday mode.  The Home Equity Line of Credit virtually vanished back in 2008 when the mortgage/housing meltdown began.  Well it is back and many do not know about it.  It is a 30 year loan with the first 10 years being interest only.  You can pay it down and use it again.  Max loan amount is $350,000 and we can go behind a Conventional or FHA first (417,000) up to 90% CLTV to $833,000 purchase price.  Rate is 1.99% plus Prime (currently 3.25) for fully indexed rate of 5.24%.  This is great for many of the properties listed in the El Dorado Hills area.

I just approved an FHA first (buyer had Short sale almost 3 years ago) at 4.25% with enough lender credit to cover closing costs and impound reserves, and the second of $332,000 on a purchase of $833,000.  That’s 90% on purchase of $833,000.

In economic news this week; the reader’s digest version is as you may have guessed with it being a holiday week, there was very little news to get excited about.  Markets are usually volatile this time of year with many traders taking time off.  Consumers are a bit happier with spending outpacing income but it is the holiday season. We continue to see growth in the economy albeit slow.  Let’s hope for a robust economy in 2014!

Consumer spending rose 0.5% outpacing income growth which rose 0.2% in November. The savings rate fell to 4.2% from 4.5% in October.  Excluding inflation, real disposable incomes rose 0.1% in November after falling 0.2% in October.

A gauge of consumer sentiment rose this month to the highest level since July, led by brighter views on current conditions. The final December reading of the University of Michigan/Thomson Reuters consumer-sentiment index hit 82.5, unchanged from a preliminary reading, up from a final November level of 75.1.  My guess is that consumers were relieved when the D.C. gridlock ended.  Economists watch sentiment levels to get a feel for the direction of consumer spending.  Despite December’s gain, the consumer-sentiment gauge remains below the average level in the year leading up to the recession. Details of UMich’s report show that a gauge of consumers’ views on “current” conditions rose to a final December level of 98.6 from 88 in November, while a barometer of their future “expectations” increased to 72.1 from 66.8.

Consumers aren’t the only ones with rosier views. Last week the Federal Reserve announced that it will soon start to taper its massive asset-purchase program, showing that the Fed Gods feel the economy is healthy enough to pare down the program that was crafted to encourage growth.  Plus they can’t continue to print money indefinitely.  On the slightly positive side, recent data signaled a nice gain for jobs in November, and that workers are increasingly confident in their career prospects.

Orders for big-ticket U.S. goods rebounded last month, and businesses pumped up investment, signaling rising economic confidence.  The Commerce Department reported that orders for durable goods rose 3.5% in November, led by the usually volatile aircraft and other transportation equipment sectors. Excluding transportation, orders for durable goods rose 1.2%, the most since May.  In another key measure, orders for core capital goods, a proxy for business investment, rose 4.5% in November, the most since January. The strong showing signals that corporations are likely to step up investment in 2014.  Durable goods are pricey items designed to last for several years, so growth signals enough confidence in the economy to make such investments. Regional data have also shown recent pick-ups for manufacturing.

On the Real Estate front: Sales of new single-family homes fell 2.1% in November month to an annual rate of 464,000, down from a rate of 474,000 in October, which was the fastest pace since July 2008.  Rising mortgage rates hit home sales a bit over the summer, but buying has rebounded in recent months.  This week’s data on home sales points to a market in which buyers are adjusting to rising mortgage rates and prices, going forward with purchases, though some are scaling back plans when it comes to factors such as size and location. For their part, home builders are increasingly cheery, with a gauge of their views on present sales of single-family homes recently hitting the highest level since 2005, according to the National Association of Home Builders and Wells Fargo. And there’s reason for cheer: Sales of new single-family homes in November were up 17% from a year earlier.

On the Employment front:  New jobless claims dropped by the most in more than a year in the latest week, but the economites cautioned over reading too much into volatile data around the holiday season.  The number of initial claims for unemployment benefits fell by 42,000 in the week that ended Dec. 21 to 338,000.  This is the biggest drop since Nov. 17, 2012.  The data can be especially volatile during the holiday season stretching from Thanksgiving to New Year’s Day.  State unemployment offices are open fewer hours and there are often delays in processing claims. The seasonal ups and downs could last until late January.

Looking forward, from what I am seeing, I expect the sales pace of single-family homes should continue picking up next year, and I would expect the economy to continue to add jobs at a nice pace and for banks to do something to make up for refinancing applications plunging to multi-year lows.  However, there are also headwinds.  New mortgage rules could curb some lending, and federal officials are working on housing-finance reform, adding an element of uncertainty.

OK, here are a few predictions for 2014:  I will always tell you my honest opinion as I think you deserve to be informed of the bad thing that can happen as well as the good.  I think the economy will continue to grow at a snail’s pace, maybe 2.5% to 3.0% for the year, mostly because I do not see anything on the horizon to change it and we are trying to implement a national healthcare plan.

I think Washington will remain a gridlocked as ever and unless they can figure out a way to balance the budget (we are currently adding about 20 BILLION dollars to the national debt EACH WEEK) Economic growth will suffer.

I see a deep correction possibly below 10,000 in the stock market possible early in 2014 mostly due to the fact that the stock market has more than doubled in value over the past 5 years (the Dow hit 6,626 on Mar 6, 2009 and 8,146 on July 10, 2009) while the economy has grown at a measly 2.5%.  And this growth is due to the government pumping billions of dollars into the markets.  There is a great piece illustrating the past 5 years and the burdens to growth at this link from the U.S. Treasury (unbiased as I can get).

I would take a look at your asset allocation (especially in your 401K and retirement plans) and re-balance or balance accordingly. Real Estate is a great investment right now.

I see interest rates possibly rising a bit but nothing to get alarmed about.  After all, we would need to see a rapidly growing economy and/or inflation, and I don’t see either.  The Fed tapering its bond purchases may cause a rift in the market but if the stock market corrects money usually flows into safe investments (bonds) and this should balance anything the Fed is doing.  I thing conventional rates will remain between 4.25% and 5.25% (no disc pts or lender Credit).

You can visit my corporate website at:

Bill Bartok

Mortgage Advisor MLO# 445991

The nicest compliment I can receive is the referral of your family, friends and co-workers.

Thank you!

2 comments on “The Weekly Rap! Friday Dec 27th, 2013

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