3rd December 2012
If you have watched the financial news over the last few weeks, you probably get a tinge of anxiety every time you hear the phrase “Fiscal Cliff”. The markets for Treasuries and mortgage bonds moved back and forth over the last week based on each rumor and news clip relating to who had the cards and what was going to be done politically to forge a solution in time. The phrase does sound ominous, and with grid lock built into the system in Washington, the odds of the Republicans and Democrats coming together on a compromise solution before the beginning of the year seems slim, so what will happen if we do go over this cliff? In reality probably not that much, at least at first. The biggest thing that will happen automatically, is that tax rates will rise for everyone after January 1st as the Bush tax cut hits it’s sunset provision, which was built into the original bill and extended for two years. This will be bad news for those in the highest tax brackets, but at some point everyone agrees that there will be a new bill retroactively lowering all the tax rates for everyone else. The rest of the cliff is made up of spending cuts that are again automatically kicking in because of the sequester, which was in a sense a gun being held to both party’s head’s in the hope that it would force them to come up with a workable plan. But the cuts for the sequester don’t kick in on January 1st, they are spread out over the year. Worst case, if no agreement is reached, the higher taxes and lower spending will mean a reduction in economic output, and with the economy still so fragile that would be bad news. At the same time, if nothing is done and all these things happen automatically, the national debt would plummet – which in the long term would be a good thing. I doubt we will ever reach that point. This fiscal cliff seems remarkably like what happened the last time the national spending authority came up for a vote (this will happen again in the first quarter of 2013). Back then we drove right off the cliff. Standard and Poors lowered the US credit rating for the first time in history, and everyone was sure this would lead to doom and gloom. Instead, interest rates fell as investors globally still felt the US was the safest place to put their money, and the economy has steadily and gradually shown signs of improvement. We may go over the cliff again this time, but if we do, the odds are that some kind of agreement (possibly kicking the can further down the road) will be reached sometime in January. Our dysfunctional political system is part of who we are now, but we are likely to continue muddling along in spite of it.
The housing market continues to improve and over the last month has made a true switch from being a buyer’s market to a more balanced market. This is a combination of pent up demand from buyers, and lower inventory of homes for sale. The housing market usually slows down at this time of year as the weather cools down and people focus on the holidays. This is strictly anecdotal, but I’m seeing the market heat up now. New contracts are coming in at a fast pace, and new buyers are coming out of the woodwork to be pre-approved. Part of this is because of what is happening on the sales side. The inventory for bank owned and distressed properties is at the lowest point in the last several years. New foreclosures are down and the banks have been steadily working through their backlog of properties. There are still a lot of homes that haven’t come on the market yet, and this could ease the inventory crunch if the banks start releasing them after the first of the year, but for now there is a little bit of a disconnect as buyers expecting screaming low prices, are getting pushback from sellers who are now often taking in multiple offers to buy. I expect we will have more homes coming on the market after the first of the year and I expect this will be a very active housing market here in the Chicago area.
Mortgage rates have been remarkably stable over the last few weeks, even as the day to day market is volatile. Besides the back and forth with the fiscal cliff, and there is always Europe, the big event will be the Jobs report which will be released Friday morning. This will be impacted by hurricane Sandy, so the economists will have to do more reading between the lines than normal. In the meantime, mortgage rates remain near all time lows.
These are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 640 Fico score, but loans are available with credit scores as low as 580. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan, including credit scores, property type, amount of down payment and a number of other factors. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:
Conventional loans up to $417,000
|30 year fixed rate||3.375%||3.568% APR|
|15 Year fixed Rate||2.75%||2.849% APR|
|5-1 A.R.M.||2.50%||2.639% APR|
|7-1 ARM||2.625%||2.752% APR|
For Jumbo loans over $417,000
|30 Year Fixed Rate*||4.125%||4.237% APR|
*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)
|3–1 ARM Jumbo||3.00% w/ 0 points||3.178%|
|5-1 ARM Jumbo||3.375% w/ 0 points||3.476%|
|7-1 ARM Jumbo||3.50% w/ 0 points||3.637%|
|5-5 A.R.M. **||2.75% w/ 0 points||2.865%** APR|
** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.
|FHA 30 year fixed||3.375% with 0Pt||4.036% APR|
|FHA 30 year fixed||3.25% with 1 Pts||4.059% APR|
|FHA 5-1 ARM||2.75% with 0Pt||3.236% APR|
|FHA 5-1 ARM||2.50% with 1 Pts||3.079% APR|
FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances
FHA 203K Rehab Loans – Call for Current Quote – FHA 203k Rehab and Renovation loans are now available as 30 year fixed or 5-1 ARMs.
VA Veterans Administration 0 Down Loans
|VA 30 Year Fixed Rate||3.50% with 0Pt Origination||3.876% APR|
|VA 30 Year Fixed Rate||3.375% with 1.00 Pts||4.064% APR|
These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.
You can trust in us to get the job done.
Peter Thompson 630-479-6424
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