Jobs Still the Key for a Full Housing Recovery

With all of the positive housing reports being released lately, the outlook appears to be positive. However, despite what reports show, jobs are still the key for a full housing recovery. Without a major improvement in jobs, a full recovery for both housing and the economy will most likely not happen. Jobs mean money in consumers' pockets and money in pockets means real economic growth.

For the first time in 3 1/2 years, the Gross Domestic Product shrank during the fourth quarter of 2012, according to the Commerce Department. Declining at an annual rate of 0.1% between October and December, GDP was below expectations of 1.0% growth. Further, the Feds revealed last week at the FOMC meeting that economic growth halted towards the end of last year 2012. With this news, the Feds confirmed that quantitative easing, also known as QE, will remain and the Feds will continue to buy $40 billion in mortgage backed securities and $45 billion in Treasuries per month as long as the jobs market does not show substantial improvement.

The latest report released by the Labor Department shows that January jobless claims increased by 38,000 to 368,000 for the week ending January 26th. Also released by the Labor Department was the January jobs report which showed an increase of 157,000 jobs in January. However, the unemployment rates rose to 7.9%. The Feds unemployment rate target is around 6%.

The purchase of MBS by the Feds is helping to keep mortgage rates down. Although rates are still at record lows, many consumers have not been able to take advantage of this opportunity because of strict lending guidelines. HARP refinances, the Home Affordable Refinance Program, has performed well for underwater homeowners who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. For the week ending January 25th, all mortgage applications were down except for HARP loan applications which increased to 26% from 25%. Traditional refinance applications fell 10% from the previous week and purchase loan apps fell 2% on a seasonally adjusted basis.

To help shore up FHA's finances, FHA announced changes to the popular FHA mortgage program. The FHA annual mortgage insurance premium for regular FHA mortgages will be increased by .10% to 1.3%. For FHA jumbo mortgages that are above $625,500, the annual MIP is increasing .05% to 1.35%. New MIP premiums are effective for case numbers assigned on or after April 1, 2013, but will not affect the FHA streamline refinance with reduced fees for loans that were endorsed prior to June 1, 2009. In addition, borrowers will now be required to pay the annual mortgage insurance premium for the life of the loan. This change affects all borrowers who have a down payment of less than 10% of the purchase price at closing. Most home buyers use FHA for the lower down payment requirements and will be affected by this latest rule which goes into effect for case numbers assigned on or after June 3, 2013. Another reason consumers use FHA financing is because they have been known for easier credit qualifying. This is no longer the case as guidelines are becoming stricter. Credit scores (FICO) that are below 620, as well as, debt to income ratios that are greater than 43% will require that the loan go through manual underwriting. For loans that fall into these categories, the lender will be required to show "compensating factors" and the reasons why the loan should be approved for closing. This is effective for case numbers assigned on or after April 1, 2013 and will not affect FHA streamline refinances. Even those FHA is getting stricter, these new rules are still easier than those for regular conforming mortgages sold to Fannie Mae and Freddie Mac.

Overall, the entire economy can be considered fragile. With not enough jobs to go around, growth will continue to be slow, if at all. Housing will move ahead due to investors purchasing homes for investment and the increase in the rental market. Homeowners will continue to refinance to save money. However, the goal is for a sustainable housing recovery that occurs because consumers are working and spending.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders' rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.