Economic Roundup: August 1, 2011
| Last week started off with news that consumer confidence had rebounded in July. The Conference Board’s Consumer Confidence Index, which had dropped in June, increased to 59.5 for July (1985=100), up from June’s 57.6, however, consumer sentiments for the month were a mixed bag. The Present Situation Index, how consumers feel about the economy’s current status, decreased to 35.7 from 36.6, while the Expectations Index, how they feel it will fare in the future, rose to 75.4 from 71.6 last month. An improving short-term outlook helped drive the overall confidence index, but consumers still have their doubts, said Lynn Franco, director of The Conference Board’s Consumer Research Center. |
| “Consumers’ appraisal of current business and employment conditions, however, was less favorable as concerns about the labor market continue to weigh on consumers’ attitudes,” she said. “Overall, consumers remain apprehensive about the future, but some of the concern expressed last month has abated.” Consumers stating business conditions are “good” decreased to 13.4 percent from 13.7 percent, while those claiming business conditions are “bad” increased to 39.0 percent from 38.4 percent. Consumers’ appraisal of the job market also fell, with those claiming jobs are “hard to get” increased to 44.1 percent from 43.2 percent, while those stating jobs are “plentiful” remained unchanged at 5.1 percent. In terms of short-term outlook, the proportion of consumers expecting business conditions to improve over the next six months increased to 17.7 percent from 16.5 percent, but those anticipating business conditions will worsen also increased, to 15.2 percent from 14.9 percent. New home sales took a slight dip in June, with sales of new single-family houses skirting downward to an annual rate of 312,000, according to estimates released last week by the Census Bureau and the Department of Housing and Urban Development. This marked a 1 percent drop from May’s revised rate of 315,000, but was 1.6 percent over June 2010′s estimate of 307,000. In terms of pricing, the median sales price of new houses sold in June was $235,200; and the average sales price was $269,000. The estimate of new homes for sale at the end of June was 164,000, which represents a supply of 6.3 months at the current sales rate. Looking at manufacturing, new orders for durable goods decreased $4.0 billion (2.1 percent) in June to $192.0 billion, according to an advanced report released by the Census Bureau last week. The decrease followed a 1.9 percent increase in May. Durable goods orders have been down two of the last three months, including June. Transportation, also down two of the last three months, took the largest hit, with transportation equipment dropping $4.2 billion (8.5 percent) to $45.4 billion. Excluding transportation, new orders actually increased 0.1 percent. Shipments of manufactured durable goods for June increased $1.0 billion (0.5 percent) to $196.0 billion, with machinery shipments, up four of the last five months, posting the largest gain, $0.7 billion (2.6 percent) to $29.1billion, the bureau reported. Unfilled orders for manufactured durable goods for June increased $2.1 billion or 0.2 percent to $862.7 billion, with machinery once again the strong performer; up $2.1 billion (2.0 percent) to $111.2 billion. Inventories of manufactured durable goods in June, increased $1.6 billion (0.4 percent) to $357.2 billion. Encouragingly, initial claims for jobless benefits for the week ending July 23 dropped to 398,000, a decrease of 24,000 from the previous week’s revised figure of 422,000, the Employment and Training Administration reported. The four-week moving average dipped to 413,750, a drop of 8,500 from the previous week’s revised average of 422,250. The total number of insured unemployment during the week ending July 16 dropped to 3,703,000, a decrease of 17,000 from the preceding week’s revised level of 3,720,000. The four-week moving average was 3,721,000, a decrease of 5,250 from the preceding week’s revised average of 3,726,250. This week will see a busy calendar of economic headlines, starting today with June’s construction spending figures from the Census Bureau. Tomorrow follows with June’s personal income and expenditures from the Bureau of Economic Analysis, as well as car and truck sales for July from the auto manufacturers. Wednesday, the Census Bureau will release June’s factory orders and on Thursday the Employment and Training Administration will release initial jobless claims data for last week. On Friday non-farm payrolls, hourly earnings, average workweek and the unemployment rate for July is released from the Bureau of Labor statistics, as well as June’s consumer credit figures from the Federal Reserve. |
Why should I buy instead of rent?
The long term financial benefits of buying are pretty clear to most people. You gain equity in your home, you have an asset rather than just giving money to your landlord each month. You also have free reign of your space to do with as you want, home improvement projects, painting, etc!
But beyond the obvious financial benefits you also have the security of your own home, pride of ownership and community that comes along with it! Now is a time that many people are being cautious and staying on the sidelines. Interestingly, it is times like these that people often look back at and say, “I should have done it then”.
What is one deal that fell through in the tough economy that you are able to do now?
The mortgage guidelines tightened up a lot, but recently they have begun to loosen – but not too far. The biggest change is that we are able to do 10% down on a high balance loan, not jumbo, without having to use FHA as our only financing option. It’s been quite awhile since we were able to do that!
We still have mortgage insurance on those deals, but no upfront FHA/MI fees. It’s nice to see that the market is improving, but the rates are already fluctuating and will be climbing soon so be sure your financing, and re-financing, is covered now!
The First Offer, the Counter Offer – What Works, What Doesn’t
In today’s real estate market, counter offers are pretty much the norm. Usually, the first offer is not the offer the seller is looking for and so they will issue a counter offer detailing the terms and conditions they want in the contract.
The first key is to understand whether you are in a negotiating environment, where you can set the terms and conditions, or a competing environment, where the highest and best offer wins. The type of environment makes a big difference in how you structure the first offer and subsequent counter offers.
The best approach is for your real estate agent to work with you in advance to determine what the environment is like (one or multiple offers), what your first price offer will be, and then what type of back up offers you are willing to make. That way you are prepared. Once you put in a first offer, be patient and wait until the seller counters.
Sometimes, it becomes a cat and mouse game and if the seller does not respond right away, it is okay to take a breather. In fact, sometimes it is best to let the listing sit on the market for a while and then put in another offer later. If you do this, make sure that you know that there are no other offers and that the risk to this approach is that another buyer could enter the picture who is willing to pay the seller’s price.
If you are trying to avoid a counter offer situation, be strong on the first offer – get a pre-approval letter, include your FICO score, and put in less terms and conditions with your offer. Include a letter to the seller thanking them for the opportunity to present the bid and tell them about yourself, your family, and what you like about their property. Show your financial strength with proof of funds for the down payment and your ability to close.
If there are multiple offers, remember that the seller can only accept one offer in primary position. Multiple offers are occurring today – even in the still correcting, low-inventory, high-demand markets like Palo Alto, Cupertino, some parts of San Francisco, parts of San Jose, Burlingame, Novato, Fremont, Richmond, Hayward, Gilroy, Sacramento, San Luis Obispo, Carmel, etc.
You will be able to pin point these areas via your real estate agent who will look at inventory levels, days on the market, recent sales, price to listing ratios, and finding out how many offers were placed on recently sold properties.
If it will be a multiple offer situation, you need to make your first offer your best offer and in an effort to protect yourself against having to bid too high, you might want to include an appraisal contingency in your purchase offer.
Generally, an appraisal contingency allows you to withdraw from your purchase contract if the property does not appraise for the purchase price. At the same time, remember that banks are very conservative today on appraised valuations, so if the property does not appraise for the purchase price, you may need to increase your cash contribution or down payment if you still want to purchase the property.
Expect that there will be two or three go arounds in a regular transaction and if it is a short sale or foreclosure property, it could take 2-3 months or more and many counter offer rounds to get to a common agreement over price and terms. In today’s market, values are still moving – some higher and some lower, so paying the right price is more complex and requires more time.
That is not bad or good. It is just a reflection of current market conditions. And, on the positive side, interest rates are the lowest in the last 58 years and valuations are on average 26% lower than in the peak in 2006.
The Beauty of Marmoleum
I LOVE this product!! One of the great perks that comes with home ownership is the ability to customize one’s home. As a 15+ year property owner/investor, I’ve had the chance to try out a few flooring products.
Marmoleum hands down is my favorite for easy clean up, durability, and scratch resistance. It’s held up extremely well to a busy household which includes 2 dogs and 2 cats. There is one scratch in the surface and that was caused by me being clumsy with a cabinet one hour post-installation (uuughhh!!). Otherwise, it’s been scratch free for 18 months.
Not only is the scratch resistance impressive, but Marmoleum is really comfortable to stand on for long periods of time (for those serious chefs!) since there is a layer of cork under each tile . This product is also an easy install for the do-it-yourselfer (I installed it myself with a few basic tools). Lastly, you can’t beat the reasonable price (~$4.50-5.50sf), the great colors and it’s environmentally friendly to boot!
Give it a try for your next project-you won’t be disappointed!
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Why is having a close relationship with your client’s lender important?
In this new market, many new regulations and guidelines are in place to protect the client in the lending world.
The biggest point here is full disclosure. The new Good Faith Estimates have to be very accurate, and in some cases, once things have been disclosed, there is no room to make changes. Any re-disclosing, for any reason, has to have enough time to be reviewed and approved and have documents re-drawn. This eliminates surprises at the closing table.
To me, a close relationship is defined by clear communication, from email to phone calls, on the side of both the lender and agent. Most of all, communication from the lender to the client and agent is paramount, as in most cases this transaction is the largest in the client’s life and can be daunting. Having a close relationship with your lender, and an open and communicative lender, puts your client at ease and makes you look good. We are the experts in this game, and we need to help our clients to understand everything that is going on and be sure that their best interest is our common goal.
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How Can I Prepare My Financials for Buying a Home?
The state of your financials is an important part of applying for a loan. Nowadays we are back to the basics of full disclosure of all income and assets. Stated income or overstating your income are not going to work and will not pass underwriting. This is actually a positive move in the right direction as recently there were too many people on all sides of transactions that did not disclose material facts, and because of this many people have lost or are losing their homes.
So, what do we need? Just remember the “two’s.”
Most lenders will need the last two years’ federal tax returns, with all schedules, W-2s and ALL pages. Next, they need your last two paycheck stubs and the last two months’ bank, brokerage and retirement account statements. Again, ALL pages must be included — including blank pages. If you are currently renting, we will contact your property management company to get the documentation we need, but if you pay an individual instead of a company, we will need copies of the front and back of the last 12 months of canceled checks.
With this information your loan process can begin.
Three most common errors when submitting documents:
1.All of the pages of the bank statements are not accounted for. Again, be sure to include blank pages and cover pages.
2.Faxed copies are often illegible. For better clarity, use a scanner to scan the documents. Do not mail! There’s lots of sensitive information in your documents and you do not want that lost in the mail.
3.The documents need to be the most current documents you can get. Two years of tax returns means the last two years, not any two years and the same goes for the other requirements!
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Why is pre-approval important? Do I have to go back to the same lender that originally approved me?
Pre-approval is the first step in looking for looking for a home. Yes, even before hiring a real estate agent! The pre-approval letter that you get from your lender shows that the lender has verified your income, pulled your credit, verified your assets to close and for reserves and deemed them all okay for a loan of a particular size.
Part of this process should be your lender sitting down with you and talking about your finances and the mortgage payments you would be comfortable with, based on your income and down payment. This conversation will help you determine a purchase price that will fit into your finances and future plans. We want to make sure any offer you put on a home is something that is comfortable for you to make and will not put you in a financially irresponsible place.
You do not have to work with the same lender that pre-approved you; however, it can speed up the process. Since the lender already has your documentation, credit report and other information and it has already been reviewed by an underwriter (which at some big banks could take weeks), you’re much closer to completing the loan application and receiving funding.
That being said, your relationship with your lender should be a personal one, since they are the ones with the knowledge and experience to make sure you are put in the best position. Resubmitting paperwork and an extra week of time is nothing if it gives you peace of mind and you are treated in a way that lets you know your lender has your best interest in mind.
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What Should I Expect from My Lender and My Real Estate Agent’s Relationship?
The relationship between your lender and agent is extremely important when purchasing a home. The new market environment has many more regulations, hoops and sharp turns and everything relating to your home purchase should be correct and accurate up front.
The lender doesn’t want any surprises, like a seller credit the day before the lender is supposed to draw loan documentation, since surprises can cause delays which can prevent meeting important deadlines. Not meeting these deadlines can have consequences for the buyer, from losing your deposit to not being able to purchase the home at all!
Having an agent and a lender who fully understand the process and have your best interest in mind when securing financing and finding a home makes the entire transaction run more smoothly and puts you in the best position possible.
Many details of your purchase are ones your lender and agent work together on to be sure the home you’re buying is in good shape. Insurance, inspections, appraisals and understanding your financial goals and future plans are just a few things that allow your agent and lender to be sure that you are buying the right home, at the right price, and that you’ll be in the best place to move forward with one of the biggest investments of your life.
Communication is the most important thing all around so that there are no surprises!
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