Mortgage Rate News

Jobless claims have been rather volatile in recent weeks. Last week, they dropped. This week, though, new unemployment claims are up by 30,000. The increase is in line with expectations, which means that things might be improving, despite the increase. The four-week moving average, though, is down by 132,000. That is good news for those who are looking for signs of economic recovery. The Financial Times reports on what analysts would consider a better indication of an economy moving out of recession:

“If by mid August, the four-week average of claims remains significantly below 600,000, we will be very encouraged that the recession has indeed ended,” noted John Ryding and Conrad DeQuadros, economists at RDQ Economics. “Nonetheless, claims still point to a significant drop in employment in July, although it looks as though the pace of increase in unemployment has slowed sharply.”

The news still remains doubtful, especially considering that Ben Bernanke thinks that unemployment still has yet to peak. Indeed, Bernanke feels that both unemployment and foreclosures will peak in the second half of this year.

Unemployment and the housing market

Jobs are related to the housing market, since as unemployment rises the number of people unable to make their mortgage payments also rises. Indeed, higher unemployment exacerbates the problem, making it clear that the tide of foreclosures won’t truly halt until unemployment slows and people can better remain in their homes.

Both unemployment and the housing market are considered vital cornerstones of the economy. These are two indicators that people are able to spend disposable income, as well as indications of stability and growth. Plus, these numbers are also important in terms of public perception of economic recovery. As long as jobs data and housing data remains weak, so to will economic recovery. If Bernanke is right, and foreclosures and unemployment peak soon, then there can be an end to the recession and a gradual economic recovery.

Yesterday, Ben Bernanke spoke to Congress about the economy, and about his plans to exit from economic stimulus measures with an eye on controlling inflation. However, he also made mention of his views of the housing market and foreclosures. HousingWire reports on Bernanke’s statement before Congress:

US and international efforts to stem the recession are starting to take hold and the pace of economic decline seems to have slowed, but foreclosures and unemployment won’t peak until the second half of 2009 (H209), according to Federal Reserve chairman Ben Bernanke.

Continued measures, like a extremely low federal funds rate, will be needed to get the economy back on track, Bernanke told the House Financial Services Committee on Tuesday.

“The [Federal Open Market Committee] anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period,” Bernanke said, according to prepared testimony.

Clearly, though, even after foreclosures peak, there will be a long recovery ahead. Many of our leaders have tried to make it clear that housing market recovery and economic recovery will not happen over night. In fact, it may take years before the housing market recovers. But the first step will be a peak in foreclosures. Once foreclosures peak, they can begin to reduce in number until the housing market begins to recover and excess inventory can be sold.

It is important, however, to realize that we need to learn from this crisis. The bottom line is that people were getting homes that they really couldn’t afford, and that triggered the problems we have now as that realization came crashing down. Let’s hope that this crisis has taught us a lesson about a more sober approach to home ownership, and that, going forward, we will make more of an effort as a society to be sure that we can afford the long-term costs of home mortgage loans.

One of the biggest rivalries in the money world is the renting vs. buying smackdown. The argument against renting is, of course, that it is a waste of money: You are throwing your money down a hole and you won’t get any of it back. At least with a mortgage, you can take a tax deduction for your mortgage interest. And, the argument goes, you get a return on your investment since real estate appreciates.

Before you decide that you have to buy, though, it is important to consider whether buying really is better than renting in your situation. Here are some things to think about before you commit to buying a home:

• True costs of home ownership: It is important to realize that home ownership is about more than your home mortgage loan payment. Rather, the true costs of home ownership include property taxes, maintenance, utilities and insurance. If the costs of renting are much lower than owning a home, you might consider renting for a little longer.
• Affordability: You also have to decide whether you can truly afford a home. Even though you might be able to get a good deal, if you can’t actually make the mortgage payment long term (you can practice making your mortgage payment), then you could end up in trouble.
• Length of time in the home: Depending on how long you plan to stay in the home, its appreciation and how much equity you build, you will have different experiences with the profitability of your home. It is also worth noting that if you keep a home mortgage loan for 30 years, by the time you have paid the interest, chances are that even if the home has doubled in value, you will still be behind.

If renting does cost significantly less than buying, and you are able to invest the difference, you might be better off. My husband and I bought our home because we knew that we would be here for about 6 years. We figured, using an amortization table, that even paying interest, we could break even at worst, due to the fact that the housing market in our area has remained reasonably stable. So, essentially, we are paying $0 for housing. Plus, we should have enough equity built up so that we can make a larger down payment — assuming we buy again.

The New York Times has a cool renting vs. buying calculator that allows you to easily see whether you might actually be better off renting.