Chicago Real Estate and Mortgage News

Interest rates rose slightly last week, as last week's economic news, that would typically have been good for mortgage rates, was offset by the announcement of a record setting treasury bond auction and positive earnings news in the stock market. But was that news really positive? Additionally, this week there was some positive movements on extending the first time homebuyer tax credit and on the HVCC (Home Valuation Code of Conduct). The week ahead will be chock full of economic news covering the full gamut* from consumer confidence to housing to 3rd Quarter economic growth to inflation. Could be an interesting week for mortgage rates!

*(what's a gamut, anyway? - see the answer at the bottom of the update!)

Last Week's Economic News - Tuesday brought good news on inflation, as the Producer Price Index showed a decrease of 0.6% in September, well below the 0.0% increase that was expected and much lower than the +1.7% increase from August. Also, the "core" Producer Price Index, excluding food and energy costs, came in at -0.1%, lower than in August and lower than expected. Housing Starts also were a negative surprise for the markets. There were 590,000 new homes started in September. This was up slightly from August's number of 587,000, but the markets were expecting 610,000. At the same time, building permits for new homes came in at 573,000, lower than the anticipated 590,000 and the 587,000 from the week before. Thursday brought a surprise in the employment picture, as it was reported that 531,000 people filed first time claims for unemployment last week. That was higher than the week before, and much higher than what the markets were anticipating. One tidbit of good news on Thursday was that the Index of Leading Economic Indicators showed an increase for the sixth month in a row. The LEI is an indicator of future economic growth. Finally, Friday's news on existing home sales was very exciting for us in the real estate industry, as there were 5.57 Million home sales reported, higher than the 5.35 Million that were expected and the 5.10 Million that were sold the previous month. However, included in the report was the fact that last month's sales were made up of 45% First Time Homebuyers, as they rushed to take advantage of the $8,000 tax credit. More on that later!

Treasury Bond Auction Announcement - Weighing heavily on the treasury and mortgage bond markets last week was the announcement that $123 Billion in U.S. Treasury Securities will be auctioned off this week. That's a record amount, and comes at a time that the government is winding down its purchase of treasury and mortgage bonds. What does this mean? With the government decreasing the amount that they are purchasing, interest rates may have to rise to attract investors into those bonds. Possibly worse than the amount of bonds being sold is the fact that this will only tide us over for two weeks, before there will be another large auction. We will be watching the results of this week's auctions to see what kind of demand there is in the marketplace. Strong demand would lead to lower rates, while weak demand would certainly push rates higher.

First Time Homebuyer Tax Credit - There is more and more talk out of Washington that the first time homebuyer tax credit is going to be extended in some form, prior to its expiration on November 30. Three of the most talked about option are - 1) a 9 - 12 month extension of the current program, 2) an increase of the credit, for first time homebuyers only, or 3) increasing the credit, the income limits or making it for ALL home buyers, not just first timers. This past week, the Senate Banking Committee Chairman - Chris Dodd endorsed the idea of extending and expanding the tax credit this week. This came even in the wake of news released by the IRS of some fairly widespread abuse of the tax credit from taxpayers that claimed the credit when they really didn't have it coming. More than 19,000 people have claimed the credit despite not purchasing anything. 70,000 claimed it, although they didn't meet the definition of first time buyer. And 582 individuals under 18 claimed it, including some 4 year olds! All told, there have been 1.4 million taxpayers claiming nearly $10 Billion in credits.

Stock market news - We are in the middle of earnings season in the stock market. This is the quarterly period where companies report their earnings or losses for the quarter that just ended. In this current round, there have been a lot of companies reporting earnings that are better than expected. These positive reports have helped the stock market to continue its upward climb. When money flows into the stock market, it often is at the expense of the bond market, which pushes rates up. The problem with this scenario is that some of those stocks that are improving on better than expected earnings numbers are earning more by laying off employees, so these so called positive improvements are being gained at the expense of jobs, and not real improvement in the economy. Realistically - you can only cut so many jobs and so many costs so far. While Wall Street and stocks appear to be doing well, and the media starts to get on the band wagon, we have to proceed with caution. You can't simultaneously grow the ranks of unemployment and then grow your business hoping for increased sales to those same people who are without jobs. Sorry for the editorial!

Is the end of the HVCC near? The Home Valuation Code of Conduct that has been blamed for some of the decrease in home prices since its inception in March could be meeting an untimely death, as there is an amendment to H.R. 3126 - "The Consumer Financial Protection Act of 2009" that will allow originators to once again order their own appraisals on mortgage transactions. This amendment has been voted on and passed in committee and is now a part of a bill that is widely expected to pass into law.

Now, what's a gamut? A gamut is easily defined as "the complete range of something". The term gamut originally referred to the lowest note in the musical scale used in medieval times, and then to the entirety of the medieval musical scale. From this notion of a complete range, the term came to be applied to other fields, including as a completely general term. Now you know!