Surprise Fed Cut fuels increase in mortgage apps: Week In Review, Jan. 20-27

Positive News: U.S. homebuilders had their biggest weekly gain since 1995 as investors and analysts say the market for new homes may have hit bottom. (Bloomberg, 1/25)

The Fed cut interest rates by 3/4 point this past Tuesday, the largest adjustment in recent memory. They meet this coming Tuesday and Wednesday. Some suspect they will cut interest rates a further 1/4-1/2 points. Remember that these rate cuts affect short-term loans, such as credit cards and lines of credit, but don’t have a direct effect on home mortgage rates, which is usually correlated with the bond market. (CNNMoney, AP, 1/22, personal interviews during this week)

Economic Stimulus Package: Leaders of the House of Representatives have struck an agreement with Treasury Secretary Paulson on the structure of this package. Now, bills need to be created in the House and the Senate for the President to sign and become law. The stimulus deal may face some resistance in the Senate. Some Democratic senators are unhappy that their House colleagues gave up on the party's push to extend unemployment benefits in addition to offering consumer rebates and business tax breaks. No matter, the earliest we will see these checks will likely be May or June. And until the bills are passed and signed, we won’t know exactly how much money we’ll get back. (CNNMoney, 1/26)

State of the Union Address: The President on Monday will likely spend a bit of time talking about the state of the slowing economy and how to energize it - now and beyond. "Look for a pitch for tax-related provisions, such as opening the door for states to use tax-free bonds to help homeowners refinance out of unaffordable subprime [adjustable-rate mortgages]," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm. Seiberg added that he believes Bush may endorse a real estate industry plan to offer $5,000 tax credits to first-time home buyers. (CNNMoney, 1/26)

Increasing Conforming Loan Limits: As part of the Economic Stimulus Package, they agreed to increase conforming loan limits from $417,000 to as high as $729,750 for one year. If this passes, some homeowners with loans within this range might want to refinance to take advantage of interest rate savings of up to 1% on their mortgages. (CAR, 1/23)

IRS Provides Tax Information on Home Foreclosures: The Internal Revenue Service has recently provided information to taxpayers about the possible tax consequences resulting from a home foreclosure. The general rule is that when a lender forgives a portion of a loan, the amount of debt cancelled constitutes taxable income for the taxpayer. The IRS highlights the exceptions to this rule, so taxpayers can consider their options before their property is foreclosed by the lender. Please contact me at changhomes@gmail.com for a copy of this information.

Save on your property taxes: Because home prices have gone down quite a bit since its highs, the LA County Assessors office is sponsoring several meetings to help homeowners who would like to reduce their property taxes on their homes due to the falling values. The meeting is at the Lancaster Public Library at 10am this Wednesday, January 31.

Jobless Claims Drop: The number of U.S. workers applying for jobless benefits fell unexpectedly last week to the lowest level in four months. This may be taken as a sign that the downturn in the economy is stabilizing. (Reuters, 1/24)

Home Loan Applications still rising: Applications for home mortgages soared for a third consecutive week Jan. 18 on top of plunging interest rates, resulting in a 16.9 percent spike in the number of refinancings. Refinancings accounted for two-thirds of all applications. The rise followed a drop in the average 30-year fixed mortgage rate to 5.49 percent last week from 5.62 percent in the previous week and 6.18 percent in mid-December. The 10-year Treasury yield that roughly guides long-term mortgage rates declined by more than 0.2 percentage point since the MBA survey was conducted, suggesting 30-year mortgage rates are below levels measured on Friday. Rates on short-term loans also fell. The average rate on a one-year adjustable mortgage declined to 5.51 percent last week from 5.77 percent in the prior period. (Reuters, 1/23)

California Foreclosure Activity still rising too: The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than 15 years. (unknown source, CAR?, 1/22)

Existing-home sales dropped in December: The median home price dropped for the entire year, the first time that has occurred in four decades. The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units. For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000. (AP, 1/24)

Fast Facts:
* Calif. median home price - November 07: $488,640 (Source: C.A.R.)
* Calif. highest median home price by C.A.R. region November 07: Santa Barbara So. Coast $1,075,000 (Source: C.A.R.)
* Calif. lowest median home price by C.A.R. region November 07: High Desert $262,650 (Source: C.A.R.)
* Calif. First-time Buyer Affordability Index - Third Quarter 07: 24 percent (Source: C.A.R.)


Sources: Associated Press, CNNMoney, California Association of REALTORS, National Association of REALTORS, Reuters