According to the Mortgage Bankers Association (MBA), its seasonally adjusted index of mortgage applications – which includes both purchase and refinance loans – rose 0.5% for the week ended March 5. The rate on 30-year fixed-rate mortgages, excluding fees, rose 0.06% from the previous week to an average of 5.01%. Analysts expect mortgage rates to rise as the Federal Reserve stops buying mortgage securities end March. "The Fed will likely take a step back to see if the private sector steps up and starts purchasing the bonds," said Bill Emerson, CEO of Quicken Loans. "If they do not, mortgage rates could move significantly higher." Home prices may not rise significantly any time soon given the inventory overhang in the market. Emerson said the housing “inventory will pressure prices, so, many people are sidelined right now, waiting for prices to fall further." The MBA’s seasonally adjusted index of refinancing applications decreased 1.5% last week. The refinance share o
f mortgage activity dropped 67.2% from 69.1% the previous week. The fixed 15-year mortgage rate averaged 4.32%, up from 4.27% the previous week.

Foreclosures rise 6%

According to data released by RealtyTrac, foreclosures increased 6% from the year-ago level in February; this is the smallest annual increase in 4 years. Over 308,000 households with loans received a foreclosure filing in February; this was a drop of over 2% from January. Analysts say the drop in foreclosure rate does not necessarily mean that homeowners are seeing any better times. “This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity,” said James J. Saccacio, RealtyTrac Chief Executive Officer. Nevada saw the highest foreclosure rate in February with 1 in 102 households receiving a filing. Nevada was followed by Arizona, Florida, California and Michigan. Can we expect to see a further drop in foreclosure in the coming months? "It's premature to declare
victory just yet," said Rick Sharga, a senior vice president for RealtyTrac.

Borrowers unable to refinance at lower rates

Credit Suisse, an investment bank, says about 37% of all borrowers with 30-year fixed rate mortgages pay 6% or higher on their mortgage. The mortgage rates are currently at 5%. If only the borrowers can refinance their mortgage, they would save 0.50% to 0.75% on their mortgage cost. Given the outstanding loan amount of $1.2 trillion on mortgages with rates of 6% or more, the potential savings run into billions of dollars. "Traditionally, these borrowers would be aggressively refinancing," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse. But given the negative home equity (over 25% of mortgage holders are currently “underwater”) prevailing in the housing market, tightening of lending norms by banks, unemployment and declining incomes, homeowners are unable to take advantage of the fall in mortgage rates. Some analysts say hike in loan fees imposed by Fannie Mae and Freddie Mac after delinquencies rose has also deterred homeowners from going for refinan
cing. Alan Boyce, a mortgage-securities-market expert, says loan fees are partly "responsible for why there's been no refi boom."

Unemployment hits a record high in some states

The Labor Department says the jobless rate hit a record high in five states —California (12.5%), South Carolina (12.6%), Florida (11.9%), Georgia (10.4%) and North Carolina (11.1%) – in January. All told, 30 states and the District of Columbia saw a rise in jobless rate in January over the previous month. Nine states reported a decrease and 11 states had no change in unemployment. In January, fewer states showed an increase in unemployment rate compared to December, when 43 states showed an increase in jobless rates. "It shows that the labor market is virtually frozen," said Nick Colas, chief market strategist at the ConvergEx Group. Colas said that "there has not been any dramatic change in these past six weeks." The states with the highest jobless rate were Michigan (14.3%), Nevada (13%), Rhode Island (12.7%), South Carolina (12.6%) and California (12.5%). North Dakota had the lowest jobless rate at 4.2%, followed by Nebraska (4.6%) and South Dakota (4.8%). States which
  have a high industrial activity seem to be benefiting from a rebound in overseas demand. The “most stable economies are those more exposed to manufacturing,” said Steven Cochrane, director of regional economics at Moody’s Economy.com. “This is a recovery that’s really kind of concentrated.”

TARP watchdog finds fault with GMAC bailout

The Congressional Oversight Panel for the Troubled Asset Relief Program has questioned the Bush administration’s decision to rescue GMAC, the auto and home lender, in December 2008. The panel said GMAC received significant bailout money from the government though it was “a company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance.” The government now owns about 56.3% stake in GMAC and analysts estimate that the company may never repay $6.3 billion the company received as part of the bailout package. The panel also said that the Treasury Department treated GMAC with lot more lenience than it did General Motors and Chrysler. The panel said that “half-hearted attempts at saving an institution from insolvency that lack coordination among regulators” might be more costly than a full bailout or bankruptcy. The Treasury has defended its decision to res
cue GMAC, saying it was "the least costly and least disruptive of all the options available.

Now on to our real estate investing educational section...

Fiscal Survival of the Fittest

Survival of the fittest applies to economics as well as biology - in fact, some would argue the concept is better applied to the financial arena than any other area of study. Unfortunately, it's a fact few Americans want to face head on...it goes against the steady diet of "American ingenuity" and the (false) belief that any child born in the good old USA can grow up to be anything they want. While there are exceptions to every rule, survival of the fittest is an economic trend currently undergoing the equivalent of an ice-age extinction as one era gives rise to an entirely new one. Research by consulting firm McKinsey found a few unsettling statistics that demonstrate the depth of the problem:

Over 70 percent of currently employed Americans work in jobs for which there is low or declining demand. This includes both blue collar and white collar. Competition for jobs that cannot be shipped overseas (healthcare for example) has created high competition which is driving down wages and promoting part-time, per diem and other "job sharing" situations.
Mainstream stores are doing double-takes as consumers shift spending habits. Not only are brick and mortar stores under heavy competition from online retailers like Amazon but the bleak economy is finally taking a toll. Violating one of the core marketing principles 'never undercut your own product', heavy weight's ranging from Proctor & Gamble to Macy's are rolling out discount versions of their more expensive popular items. Cost of Tide got you down? Don't worry, you can now buy Tide Basic...a discount version. Research shows 1/2 of Americans have already reduced spending and 1/3 plan to do so permanently with 18 percent of consumer switching from name brands to generics in the past two years alone.

So, how are Americans spending their money both today and into the near future?

1. Nearly 34 percent of the average household income goes toward housing. Expect this trend to continue as people downsize into affordable housing options.
2. Just over 19 percent goes toward entertainment and/or miscellaneous items...however, as a discretionary item this is subject to volatility.
3. Roughly 17 percent goes toward transportation - a number experts expect to hold steady as people opt for more affordable options.
4. Just under 13 percent goes toward food; a necessity to be sure but one that is subject to "replacement" purchases as people opt for hamburger instead of steak during tough times.
5. Approximately 11 percent on retirement and personal insurance.
6. Nearly 6 percent on healthcare.

Even a precursory look at where Americans spend their money tells the average investor where to spend theirs...housing, entertainment, transportation, food, financial products and healthcare. Those are the big six that run the American economy. Now stop and consider which are available to the average "little guy" investor...stocks and bonds for healthcare, insurance and finance have been decimated in recent years. The auto industry?
Please! Now that's it's been nationalized you can count on the same efficiency that brought you the driver license office to run the auto industry. Food is notoriously volatile and forget direct intervention unless you have an unusual level of gardening know how. No, the answer remains the same today as it did 100 years ago...real estate. It's not easily outsourced, it's not subject to the market manipulations of stocks and bonds nor is it entirely dependent upon your ability to work yourself into an early grave. It simply requires a willingness to adapt to the new economic environment like all other species that learn to thrive or barely survive.