I hope that you had a wonderful Christmas holiday!  I will be the first to admit that it was particularly difficult to come in to the office this morning, especially considering the fact that I needed to shovel the driveway twice prior to egressing from the garage.

Europe is still seeing financial/political turmoil; Greece has held three parliamentary elections now and has failed to select a president for the storied country.  The markets are pretty quiet today though in the absence of economic reports, giving a guy a chance to reflect on what’s been done this year and to look ahead to 2015.

Like this chameleon who actually changes his color based on his attitude and uses his uncanny talents to eat, I am thinking about ways that I can run a better business in the year ahead.  I am pretty excited about formulating some attainable resolutions and meaningful goals this week that will help me become a better person 12 months hence.  I wish you the same.

The Decreasing Cost of Stuff.

Freddie Mac calculates that prices of homes across the country will have risen an average of 4.5% this year, and expects that gain to continue to moderate through 2015.  Home prices aren’t the only thing that have seen attenuation this year, the following graph shows how the cost of goods and services as a whole has declined over the last few months:



Thirty year rates for FHA are at 3.25% and conforming conventional loans are at 3.875% today, while 15 year rates are down at 3.0%. (APR will be higher, depending on the amortization term, and the loan and down payment amounts–as closing costs and the presence of mortgage insurance affect each loan differently). 

Mind the Sign

Yesterday the Fed gave the markets a sign that short-term interest rates are not going to be raised anytime soon: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the Federal Funds Rate for a considerable time following the end of its asset purchase program in October”.  Knowing that corporate America will have access to cheap money for the foreseeable future, the equity markets are on a bull run–the DOW is up 400 points from this time yesterday, prior to the Fed announcement.  So ironically, the policy to keep short-term rates low is actually putting upward pressure on our long-term mortgage rates.

Keeping Free the Home of the Brave

Seeking to build up the home of the brave can’t be an easy job.  The two day Federal Open Market Committee meeting concludes today at about noon our time.  The markets eagerly await the prepared statement by Fed Governors as well as the press conference following with the Chair Janet Yellen.  Pundits will be listening for any changes to the historical use of the phrase “considerable time” with regards to the duration that the FOMC intends to keep their rate at zero.  Some today decry the notion that the economy is ready to sustain any semblance of growth should rates increase and are calling for another year (making seven in total) of free money.

I am not so bold nor pessimistic and feel that we’ve just another six months or so at current levels.

The Future of Housing

New Building Permits reported this morning at a decline of 5%, and Housing Starts are lower by 1.6%, both compared to last month’s issuance.  That means that fewer new homes will be available 3-6 months hence.

Interest rates in Russia have risen from 10.5% yesterday to 17% today and their currency in plummeting.  In the land of the free however, interest rates are poised to take a dive lower if they can break through the ceiling of resistance.  Treasury Bonds are getting most of the “flight to safety” dollars (and rubles, etc.) as Russia melts down

Correlation Between Income and Health

I have been financing homes now for 17 years.  Most of the focus of the applicant’s ability to repay a loan is placed on his current earnings.  Sure, there are credit and appraisal requirements, but by and large, my time is spent analyzing income.  Hundreds of studies have been done to correlate income and credit, and guess what?  There is absolutely zero correlation (which is one of the reasons why the “stated income” loans just didn’t work out).  So most of the time spent crunching numbers by myself, my processor, my underwriter, and even the back-end auditors, is done so analyzing income.

So When a study comes out that shows an overwhelmingly convincing correlation between income and health, my interest is piqued.  This is not a study of causation, attempting to prove that people earn money because they are fit and vice versa, but merely noting a strong interrelationship between the two factors and their inverses as well.  You can click on the logo below to see the 148 page study by United Health Foundation. The one habit favoring low-wage individuals is that of binge drinking.


A Word From our Sponsor

This chart from Freddie Mac shows the history of interest rates over my lifetime and should be an encouragement to just about anyone to get a mortgage.

FHA just announced that they will not extend the “anti-flipping” law past the end of this year.  What that means is that FHA will no longer finance a property if the seller has not held title for longer than 90 days–unless of course the owner is them (HUD), Fannie, or Freddie, and certain non-profits.

On the economic reporting side, we have pretty good news out today across the board:

  • Import Prices decreased 1.5% while Export Prices only declined by 1.0%
  • 3,000 fewer people filed for unemployment last week than the week prior
  • Retail Sales bumps up 0.7%, more than double last month’s gain
All of this is helping stocks regain yesterday’s losses, causing bonds to give back yesterday’s gains.

Don’t Be Sad Lil’ Guy

No economic reports out today, but the demand for Bonds is keeping prices within 0.5% of YTD highs.  Why this lil’ elf looks this way is because of the financial outlook for his parents’ generation.  In 2010, households headed by those under age 35 (AKA: the Millennials), had median income of $37,600; four years later it’s dropped to $35,300. Worse, 41% of them have student loans, up from 34% in 2007 which was up from 23% in 1998, and the balances are up from $10,000 in 1988 to $17,300 in 2013.  And what matters to you and me, fewer and fewer of them are purchasing homes.

Speaking of depressing statistics: China overtook the U.S. as the world’s largest economy. National economic output for China, $17.6 trillion, U.S., $17.4 trillion.

But don’t let that get you down!  The weather today is supposed to be near December temperatures not seen here since 1939 and interest rates are outstanding!

FHA’s 2015 Loan Limits

FHA just announced the new loan limits for some of the counties in Utah starting 23 days hence.  It represents an almost 8% increase in Utah County and a paltry 1.5% increase in Salt Lake County.  The max loan amounts for SFRs in the respective counties are $293,250 and $304,750 respectively.  That means that your low-down buyers can purchase homes up to $303,886 in Utah County and $315,803 in Salt Lake County and still only come up with a 3.5% down payment.  Feel free to print out this picture and tape it to the back side of your car’s windshield visor so you can refer to it when you are talking to clients and driving at the same time.  And since we all work on commission, those of us who work both counties should expect a 4.75% raise in 2015 due to the increase in loan amounts.  Thank you FHA, and long live big government.

Food Drive + Jobs Report

I hope the holiday season is starting off well for you.  I want to help with crossing “pictures with Santa” off your to-do list.  This next Monday on December 8 from 4-6 p.m. Santa and Buddy the Elf will be in our building just for the kids.  There will also be fun activities and food.  And for you – there will be a chance to win a $500 gift card to Wal-Mart!  For every canned-good you bring to our food drive, you will receive one entry ticket into the drawing.  This party is for everyone!  I won’t be there in person, but Buddy the Elf will resemble yours truly. 🙂

Now for the boring part of my email (except that it really is great news). The U.S. saw 321,000 new jobs created last month, the highest since 2008.  This number is almost 50% higher than expectations and marks the 10th consecutive month of 200,000+ new jobs created.  Additionally, Average Earnings rose 0.4%, which doubled expectations.  The Labor Force Participation and Unemployment rates stayed put at 62.8% and 5.8% respectively.