Dave Mingione East Bay Mortgage Bankers 533 ... - Ebaylending.com

Dave Mingione
East Bay Mortgage Bankers
533 Peters Avenue Suite 206
Pleasanton, CA 94566
dave@ebaylending.com
925-289-3454
www.ebaylending.com
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January 18, 2011
$100 Oil and What It Could Mean
In the past two weeks we presented a debate regarding the
strength of the real estate market during this coming year. However,
we left one major factor out of the equation. That is the price of oil.
Late last month, oil crossed over the $90 per barrel mark and that
means gas at the pumps also crossed over the $3.00 per gallon
level. Certainly higher gas prices represent bad news for the
consumer. But, what would the price of oil have to do with real
estate? Higher oil prices right now are indicative of higher demand
caused by a recovering economy. The same recovering economy
that will help the real estate market. In this sense, a strong market
for oil is good news for the fortunes of real estate. However, all the
news is not good.
If oil indeed does approach $100 this year as many analysts are
predicting and gas prices start approaching $3.50 per gallon, this
will have a negative effect upon consumer spending. The consumer
will have to spend more of their available dollars on gas and other
energy-based expenditures such as utilities. This would give the
consumer less money to spend elsewhere. The result? Higher
energy prices may be a result a stronger economy, but they can
also slow an economy down. Furthermore, higher energy prices

contribute to higher inflation which can then cause higher rates,
causing another drag upon economic growth. Oil prices can even
affect the pattern of real estate growth, making long commutes
more expensive and favoring real estate that is closer in to
population centers. Are higher oil prices a certainty? Most analysts
believe oil will continue to advance as long as the economic
recovery does not stall. If they are right, we need a gradual, orderly
advance so as not to adversely affect the pace of economic growth
this year. The latest employment statistics, including a recent jump
in first-time claims for unemployment, advances evidence of
continued slow growth. Of course, jobs data can be extremely
volatile from month-to-month.
The Markets. Rates fell back again in the past
week. Freddie Mac announced that for the week ending January
13, 30-year fixed rates averaged 4.71%, down from 4.77% the
previous week. The average for 15-year fixed also fell to 4.08%.
Adjustables were also down with the average for one-year
adjustables falling slightly to 3.23% and five-year adjustables
decreasing to 3.72%. A year ago 30-year fixed rates were at 5.06%.
Attributed to Frank Nothaft, vice president and chief economist,
Freddie Mac, “Bond yields drifted lower following the release of the
December employment, which was weaker than the market
consensus forecast and implied that the labor market is still in a
sluggish recovery. Fixed rates followed bond yields lower for a
second consecutive week, bringing them to a four-week low. In its
January 12th regional economic review, the Federal Reserve noted
that activity in residential real estate and new home construction
remained slow across all Districts over the last two months of 2010
due to concerns about the pace of economic recovery, especially in
employment." Rates indicated do not include fees and points and

are provided for evidence of trends only. They should not be used
for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 14, 2010
Daily Value Monthly Value
Jan 13 December
6-month Treasury Security 0.18% 0.19%
1-year Treasury Security 0.26% 0.29%
3-year Treasury Security 1.00% 0.99%
5-year Treasury Security 1.93% 1.93%
10-year Treasury Security 3.34% 3.29%
12-month LIBOR
12-month MTA
11th District Cost of Funds
Prime Rate
0.784% (Dec)
0.318% (Dec)
1.571% (Nov)
3.25%
Rents have surged as home prices have
dropped, which have prompted some to ponder whether
homeownership is really worth it. Moody’s Analytics data has
suggested that it makes more financial sense to rent than buy in
many U.S. cities, but Moody’s chief economist Mark Zandi now
says that is about to change. "By mid 2011 and certainly by end of
2011, buying will be superior to renting in most parts of the country,"
Zandi says. Home prices are expected to fall further, making more
homes affordable, whereas rent prices are expected to continue to

ise this year. Source: Fortune
Housing starts will probably reach a three-year high of 739,000 in
2011, creating about 500,000 jobs and helping trim the
unemployment rate to 9.1 percent, said David Crowe, chief
economist for the National Association of Home Builders, in an
interview with Bloomberg. “This is an ugly economic cycle,” he said.
“We need job creation to get people comfortable with buying a
home. If they do that, we’ll create jobs that will reinforce that home
buying and fuel additional job growth.” Job growth in other sectors,
as well as population growth, will also likely have an effect. The
number of U.S. households will rise 0.7 percent to 118.7 million in
2011, the largest annual gain since the beginning of the housing
crisis in 2007. Charles Lieberman, chief investment officer at
Advisors Capital Management LLC in Hasbrouck Heights, N.J.,
expects jobs to rise by an average of 200,000 per month in 2011.
The CEO of luxury home builder Toll Brothers is optimistic. “The
recovery is here to stay,” said Douglas Yearley. “I think 2011 will be
an improving year, but I think 2012 will be a big year for us.”
Source: Bloomberg
Reis Inc. reports that the amount of occupied U.S. office space rose
for the first time in almost three years during the last quarter of
2010. Rents are on the rise as more firms that had delayed real-
estate decisions return to leasing, with the biggest gains
materializing in Pittsburgh, New York and San Francisco — markets
where there is heavy demand for space from financial-services and
technology firms. Overall, though, the office-market recovery is
weak, with a national vacancy rate of 17.6 percent. Source: The
Wall Street Journal
Home prices are falling across the country, but many home owners
are paying more to insure their homes. So why is insurance going
up when a home’s value is going down? “The price of homeowners’
insurance is based on the cost to repair or rebuild your home. The
price of a home is based on the market value of that home and the

land upon which it sits,” Robert Hartwig, president of the Insurance
Information Institute, told MSNBC. But the cost of labor and
materials needed to rebuild a home has not necessarily gone down,
even though the home’s price has, Hartwig said. The premium for
homeowners’ insurance rose nearly 62 percent between 2000 and
2007. Prices did dip by nearly 4 percent in 2008 to $791, according
to the most recent data from the National Association of Insurance
Commissioners. However, Hartwig attributes the dip to home
owners dropping extra coverage options or increasing their
minimum deductible. The cost to rebuild a home actually could be
more than what you could sell it for, and insurance usually has to
cover how much is owed on a person’s home loan, even if it’s more
than the current value of the home, experts say. In certain regions
of the country, home owners may find their paying even more to
insure their homes. For example, Louisiana and other places hit by
hurricanes or other weather related disasters have seen increases
in average premiums. Florida, Texas, and Louisiana are the most
expensive states to buy homeowners’ insurance. Source: MSNBC