Monday, January 7, 2013

Real Estate Market Rolls


Impressive...that is all I can say.

Jim Belote recaps information that I, and perhaps you have seen, from various news outlets in the past week or so. 

A quick read to know that Mortgage Deduction is safe as well as the relief given to home owners going through a short sale or foreclosure.  As Jim notes, this will keep the market improving by removing a costly tax burden to people in these tough situations.

You have to like the news on Phoenix and Las Vegas as well as national 5%+ home value increase.  Yet, note the continued warning on interest rate pressures.  This is bound to be a topic of many reports in the next few months.





 
Keeping you updated on the market! For the week of 
January 7, 2012

MARKET RECAP
It appears Congress and the president have finally reached a compromise on the “fiscal cliff” – the agglomeration of tax increases and spending cuts that were set to take effect in January 2013. The good news is the housing and mortgage markets survived unscathed.

The Mortgage Forgiveness Debt Relief Act remains in force for another year. This means forgiven mortgage debt will remain untaxed. Without this extension, short sales, foreclosures, and loan modifications would have become encumbered with a tax burden. This would have been a serious blow to the recovery. These basic market-clearing mechanisms were vital to the housing recovery in 2012, and will continue to help the recovery along in 2013.

The mortgage interest deduction also remains intact, which means mortgage financing remains a very good low-cost deal. It also means mortgage financing remains a savvy leveraging strategy for purchasing an asset (residential real estate) that is rising in value; thus providing a means to increase returns on invested capital.

In other words, the housing recovery is here to stay, and the latest round of price data supports this conclusion. Trulia reports that asking-price gains accelerated throughout the past year. In the first quarter of 2012, national home prices increased 0.8% quarter over quarter; by the fourth quarter, the pace had increased to 2.3%. Year over year, national home prices were up 5.1%.

Fueling the home-price acceleration was the former left-for-dead Phoenix market, which staged a remarkable resurrection that continues to this day. Home prices in Phoenix were up 25% for the year.

We've frequently written that falling prices will eventually produce more buyer interest, which, in turn, will lead to an eventual recovery. Phoenix is proof this economic maxim works.

Las Vegas also proves the maxim. It seems like it has taken an eternity, but the Las Vegas housing market is on the mend. Home prices in Las Vegas were up 10% year over year in December, building on a price-recovery trend that begin in the second half of 2012. We noted early in 2012 that a recovery in the Las Vegas housing market would likely mean the recovery had become a country-wide phenomenon. This appears the case today.
Home prices around the country remain on the rise, and it's appearing more likely that mortgage rates will be rising too. Over the past couple weeks, rates have been inching higher. What's more, events in the debt market point to even higher rates.

We are speaking specifically of the 10-year U.S. Treasury note – a benchmark for the mortgage-backed security market and the 30-year fixed-rate mortgage. The yield on the 10-year Treasury has moved considerably higher over the past month. In fact, the yield on the 10-year Treasury today is approaching its highest point in nearly four months.

The trend in the 10-year Treasury yield is worth following, because if the job market and economy continue to improve (as we expect), then you can be sure that the yield on the 10-year Treasury note will continue to rise. Should this occur, mortgage lending rates are sure to follow.
 
Economic 
Indicator
Release 
Date and Time
Consensus 
Estimate
Analysis
Consumer Credit
(November)
Tues., Jan. 8,
3:00 pm, ET
$15 Billion (Increase)
Important. Rising credit use reflects rising consumer confidence.
Mortgage Applications
Wed., Jan. 9,
7:00 am, ET
None
Important. Applications are expected to regain pace after the holiday-season lull.
International Trade
(November)
Fri., Jan 11,
8:30 am, ET
$40.2 Billion (Deficit)
Moderately Important. Lower energy prices are reducing the current account deficit.
Import Prices
(December)
Fri., Jan 11,
8:30 am, ET
No Change
Important Prices. Import prices continue to help hold inflation in check.
 
No Such Thing as a Perfect Market
 
No sooner had news on the “fiscal cliff” reached the market when frets and worries turned to the debt ceiling. The federal government hit its legal borrowing limit of $16.4 trillion this past week. Now pundits and professional worriers are fretting over what implications this impasse will have on financial markets and the economy.

No need to fret or worry, because perfection is impossible. Markets will always be encumbered with uncertainty. To wait for perfection is to wait in perpetuity and to never act.

In fact, the best time to act is when the outlook appears most dire and sentiment is decidedly negative. That's when the best values appear. We saw that in the residential real estate market in 2011 and early 2012. Many people who bought a home then are already sitting on a tidy gain today.
We still see value, just not as much of it. Low mortgage lending rates have been an extenuating factor, but we believe if borrowers (and refinanciers) wait much longer the value of that factor will fall should rates rise.
The point we can't emphasis enough is not to wait for perfection, because perfection doesn't (and never will) exist.
 
 
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