Tag Archives: interest rates

Energy Prices Rise 6.1% in Last Year While Food Prices Up 4.4%

Posted on February 21, 2012 by admin

On February 17 th the Bureau of Labor Statistics ( BLS ) released the Consumer Price Index for January.  The report for January showed an average 0.2% increase in the cost of goods, which was slightly less than the consensus of 0.3%.  The year-on-year index, or the trailing 12 months, shows an increase of 2.9%.  When looking more closely at the categories, the report shows that many of the prices rose by between 2% and 3% with the exception of food and energy.  These two rose by 4.4% and 6.1% respectively As can be seen, the indexes for food and energy prices are very volatile, they can swing because of a good crop year, changes in the weather, or a decision by OPEC.  Since the prices for such goods often change without regard to demand from consumers, they are left out of some of the CPI calculations.  This “core” inflation indicator is what the Fed watches.  As we can see in the latest FOMC Minutes , the Fed is seeking a modest 2% inflation for the year 2012 (average inflation since the BLS started collecting data in 1913 is just over 3%).  When we look at the change for just the core data (items less food and energy) there was a change of 2.3% for the trailing 12 months ending in January 2012.  As long as the Fed can keep things on track, they should have no problem meeting their goal of 2% inflation. This report, which is released every month, follows the prices of a set basket of goods.  The average change of the cost goods is reported in a month-to-month, and a year-to-year change.  This economic indicator is the most widely used indicator to determine inflation.  By looking at the basket of goods (made up of 40% commodities and 60% services), the BLS can see how the costs of living have changed.  The Fed will then use this information to adjust the monetary policy in order to encourage inflation, or encourage deflation. Besides determining how much buying power the dollar has (if the value of the dollar goes down, inflation goes up) the CPI can give investors and consumers a good picture of what the economy is doing.  In the event of rapid inflation there is too much money available, and the costs of good would be rising to meet the demand.  In the event of deflation, as seen in 2009, there is not enough money is available, and consumers are not able to keep buying and keep the economy moving.  In the event of hyperinflation (a very sharp rise in the price of goods) lending institutions would need to rapidly raise their rates to stay profitable, which would discourage borrowing.  In order to maintain order, and to keep the money moving, while keeping the cost of goods growing at a healthy rate, the Fed monitors the CPI and adjusts the money supply and interest rates as needed. Continue reading →

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U.S. Housing Market Starts Increase in January

Posted on February 18, 2012 by admin

Although the U.S. housing market has suffered extreme setbacks in the last few years, there is hope for a turnaround this year.  The U.S. Census Bureau, working with the U.S. Department of Commerce and U.S. Department of Housing and Urban Development, released a recent report citing a 1.5 percent increase in housing starts in the month of January 2012.  The economy and its housing market are seemingly moving in the right direction, albeit gradually, because more builders appear to be putting their labor crews to work, according to Barry Rutenberg , chairman of the National Association of Home Builders (NAHB). The recent increase followed December’s 1.9% drop. The increase in housing starts is most correlated with the multifamily component. Areas that increased in housing starts included the South, the West and the Northeast. On the other hand, however, the Midwest portion of the country saw a significant drop. Although this recent increase in housing starts is a positive indication of a healthy economy, analysts concur that housing starts are especially volatile during the winter and monitoring a five-month moving average is a more reliable indicator of the health of the economy. This data in this report is released nearly three weeks after the end of the previous month.  Nonetheless, this statistic is very descriptive of the economy.  Home buyers will not invest in the long process of home construction if they are not confident that they will be able to pay for the home.  This provides an indication of consumer confidence in terms of their financial stability and the current state of the economy. Home builders that have not yet secured a specific buyer will not initiate the project if they feel that the home will not sell. If home builders are building more homes, this indicates that there is a larger demand for homes. If more homes are built, more construction employees are hired and more money is expended for housing materials, home furnishings, appliances and related expenses. When housing starts increase, stocks for construction companies, mortgage lenders and appliance companies often rise in a direct correlation to the increasing number of homes that are being built. As is typical, when stocks increase, bonds decrease. When housing starts increase, bonds tend to decrease in value. Interest rates are also lowered so that investors will continue to invest in mortgages and construction projects. Continue reading →

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Denver Mortgage Rates Survey – Week of February 13, 2012

Posted on February 14, 2012 by admin

According to a recent Primerates.com survey of Denver mortgage rates offered by the largest area banks & credit unions, two Denver institutions offered relatively low interest rates at below 3.875% and 3.750%. Wells Fargo Bank ( www.wellsfargo.com ) offered rate at 3.875% and an Annual Percentage Rate of 4.014% while Compass Bank (www.bbvacompass.com) offered a rate at 3.750% and an Annual Percentage Rate of 3.931% on 30-year fixed-rate conforming loans in the Denver metro area for well-qualified borrowers. Four other Denver institutions offered rates at in the range of 4.080% to 4.500%; U.S. Bank National (www.usbank.com ) offered the highest rate at 4.500%, KeyBank National Association (www.key.com) offered rates at 4.080%, Bank of the West (www.bankofthewest.com ) offered a 4.125% rate and the UMB Bank Colorado (www.umb.com) offered rates at 4.080%. While most lenders will push one of the three products on the list below, there are other options for the borrower.  The 30-year fixed rate loan is the most popular since it offers the lowest monthly payment.  The trade-off is paying a higher interest rate.  For those who have a better cash flow, the 15-year product may be more suitable.  The 15-year fixed rate loan will allow the borrower to pay more toward principal with each payment, and since it has a lower interest rate the overall amount of money that is paid in interest will be much lower.  While many people steer clear of the 5/1 ARM it is beneficial to some borrowers.  For instance, a person with a smaller loan (usually due to refinancing) may have the cash flow to pay off their ARM in 5 years or less.  This person could save an extra 1% in interest payments over the 15-year product and never worry about the rate adjusting later in the life of the loan. Top Denver Area Banks and Credit Unions As of 30 Yr-Rate 30 Yr-APR 15 Yr- Rate 15 Yr- APR 5/1 ARM-IR 5/1 ARM-APR Wells Fargo Bank 02/12/2012 3.875% 4.014% 3.125% 3.368% 2.250% 3.118% U.S. Bank National 02/12/2012 4.500% 4.564% 3.750% 3.756% 2.845% 3.580% Bank of the West 02/12/2012 4.125% 4.158% 3.375% 3.432% 3.000% 3.276% KeyBank National Association 02/12/2012 4.080% 4.135% 3.440% 3.538% 2.750% 3.211% Compass Bank 02/12/2012 3.750% 3.931% 2.875% 3.137% 2.625% 3.248% UMB Bank Colorado 02/12/2012 4.080% 4.199% 3.350% 3.559% 2.875% 3.314%   Listed rates from banks, thrifts, and credit unions were listed on their websites on the date indicated for conforming loans with 0 points.  Data is believed accurate at time of collection, can change without notice, and will vary based on an individual’s credit history.  Contact a specific institution for current rates. Continue reading →

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Hidden Costs of Credit Card Balance Transfers

Posted on February 13, 2012 by admin

Credit card balance transfers can be a good way to help you to pay off higher interest debt faster.  However, balance transfers have some potential drawbacks to consider.  Before you use balance transfer checks that come in the mail from your existing credit card company or before you open a new balance transfer credit card, you need to consider carefully the pros and cons and make sure you understand what you are getting into. How Do Credit Card Balance Transfers Work? A credit card balance transfer is an offer from a credit card company to move the balance of other loans onto that credit card.  Typically, you must provide the account numbers of the credit cards or loans that have the balances you will be transferring. The new balance transfer card company then pays your old credit card company directly and you will owe the new company the money they paid. In other instances, the credit card balance transfer will simply be available via a check that you are sent.  You can deposit the money into your bank account and use it to pay off credit card debt or anything else, although you may be restricted from using the balance transfer to pay off a credit card from the same company that provided you with the transfer. Regardless of whether you receive a check or the new balance transfer company makes the payment directly, your old debt will be paid off and you will no longer owe it to the original creditor. You will instead have a new debt that you must pay to the new creditor according to the terms of your credit agreement. Interest Rate and Fees The reason that many people choose to take a balance transfer is that creditors often offer low promotional interest rates to entice customers to do so.  It is very common for a credit card company to offer a 0 percent interest rate on money transferred to the account using a balance transfer. This rate is offered to try to convince you to move your debt over and thus become a customer and cardholder of the new company. However, this low interest rate is typically a promotional rate only and will last only for a limited period of time.  You may receive 0 percent financing on balances transferred for the first six months or for the first year.  After your promotional interest period ends, the credit card company will then raise your interest rate, usually to a very high amount.  Before you take a balance transfer, therefore, you need to make sure you can pay off the entire transferred balance before the promotional rate expires. You also need to be aware that there is a cost associated with a balance transfer even though there is either no interest or minimal interest.  This cost is a balance transfer fee, which might be equal to as much as 3 to 5 percent of the total balance transferred. Is a Balance Transfer Right For You? Despite the fees, a balance transfer may be the best option in many different circumstances.  For instance, if you have a high balance on your cards, it might be advantageous to take a balance transfer and simply pay the 3-5 percent in fees.  If your promotional rate is good for one year and you will be able to pay the loan off in one year, this effectively would mean your annual “interest” was equal to the 3-5 percent fee… significantly less than the high rate on your old card. Before you take a balance transfer, just be sure to do the calculations and to make sure both that you can pay off the transferred cash and that the loan will pay off in the long run. Continue reading →

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Houston Area Mortgage Rate Survey February 10, 2012

Posted on February 12, 2012 by admin

According to a recent Primerates.com survey of Houston area mortgage rates offered by the largest area banks & credit unions, several Houston area banks offered rates under 4%.  JP Morgan Chase ( www.jpmorganchase.com ), and Compass Bank ( www.bbvacompass.com ) both offered the rates at 3.75% on 30-year fixed -rate conforming loans in the Houston metro area for well-qualified borrowers.  Comerica Bank ( www.comerica.com ) remained the highest offer with rates a half a percentage point higher at 4.25%. One of the great ways the government encourages people to borrow money to buy a home is by allowing the interest payments to be deducted from taxes.  Many home owners are in the 25% tax bracket, so when figuring out interest rates and how they compare, they can actually figure that they are paying 25% less than what is listed.  For instance, a loan that has an interest rate of 4% really only feels like 3% after the write-off.   So if a person pays $2,000 over the course of a year on interest payments, they will be able to write that much off their taxes and see an immediate return of $500.  Many people like to use this write-off as a justification for carrying the debt.  However, it really does not make sense if the loan is only held for purposes of writing off interest payments.  Why spend $1 in order to save $.25?  If you are successful enough to be in the position to pay cash for the house, it would be better to give the extra money to charity and get the deduction, than to give the money to the bank and get the deduction. Top Houston Area Banks and Credit Unions 30-year Fixed 15-year Fixed 5/1 ARM JP Morgan Chase 3.75% 3.00% 2.38% Compass Bank 3.75% 2.75% 2.63% Wells Fargo 3.88% 3.13% 2.13% Capital One 3.97% 3.27% 2.84% Bank of America 4.25% 3.50% 3.00% Sterling Bank 4.25% 3.41% 2.94% Comerica Bank 4.25% 3.41% 2.94% Listed rates for Houston area mortgage rates come from banks, thrifts and credit union and were listed on their websites on the date indicated for conforming loans with 0 points.  Data is believed accurate at time of collection, can change without notice, and will vary based on an individual’s credit history.  Contact a specific institution for current rates. Continue reading →

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Jobless Claims Press Release

Posted on February 10, 2012 by admin

The U.S. Department of Labor has indicated that jobless claims decreased last week, providing yet another positive indication for the state of the economy. According to the jobless claims report , initial claims fell by 15,000 during the week of February 4. The total number of initial claims last week was 358,000. This statistic provides an important statistical figure that indicates a healthy economy. Economists typically look for jobless claims to be under 400,000. However, according to DailyFinance , it is rare for claims to be under 370,000.  When jobless claims are below 400,000 and maintain this low level, companies see enough demand that they wish to retain employees to meet this demand.  Moreover, the economy is more likely to grow and, as a result, companies are more likely to create additional jobs. The recent data demonstrates that jobless claims have dropped nine times during the last 10 weeks.  Although a weekly jobless claims report provides less reliability due to weekly fluctuations, the four-week average has also decreased to a rate of 375,750 claims. The decreasing number of jobless claims is an important indication of the health of the economy.  Lower unemployment rates indicate a stronger job market. When investors can gauge the state of the job market, they are more likely to invest when the job market seems positive.  A higher rate of employment is associated with a higher rate of demand. Additionally, when more workers are employed, people are more likely to spend the money that they receive because they are comfortable with their current income. In other words, a higher demand leads to a healthier, more stable and productive economy. From the data, analysts may speculate that the downside of a continuing decrease of jobless claims is that qualified employees may eventually run out and employers may have to increase wages to entice qualified employees to the job or to retain current qualified employees.  This situation can result in wage inflation, raised interest rates and a decrease in bond and stock prices. The jobless claims report is based on a weekly statistic.  However, when it is analyzed together with the four-week average, the new jobless claims information indicates an impending positive outlook and growth in the economy.  These data figures must always be looked at as a whole, rather than as a single unit in order to provide a clearer picture of the current state of the economy. Continue reading →

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Denver Mortgage Rates Survey – Week of February 6, 2012

Posted on February 10, 2012 by admin

According to a recent Primerates.com survey of Denver mortgage rates offered by the largest area banks & credit unions, two Denver institutions offered relatively low interest rates at below 4.000%. Wells Fargo Bank ( www.wellsfargo.com ) offered 3.875% and Compass Bank (www.bbvacompass.com ) offered 3.750% on 30-year fixed -rate conforming loans in the Denver metro area for well-qualified borrowers. Three other Denver institutions offered rates at 4.000% to 4.250%; U.S. Bank National (www.usbank.com ) offered rates at 4.250%, KeyBank National Association (www.key.com ) offered rates at 4.040% and Bank of the West (www.bankofthewest.com ) offered a 4.000% rate. While most lenders will push one of the three products on the list below, there are other options for the borrower.  The 30-year fixed rate loan is the most popular since it offers the lowest monthly payment.  The trade-off is paying a higher interest rate.  For those who have a better cash flow, the 15-year product may be more suitable.  The 15-year fixed rate loan will allow the borrower to pay more toward principal with each payment, and since it has a lower interest rate the overall amount of money that is paid in interest will be much lower.  While many people steer clear of the 5/1 ARM it is beneficial to some borrowers.  For instance, a person with a smaller loan (usually due to refinancing) may have the cash flow to pay off their ARM in 5 years or less.  This person could save an extra 1% in interest payments over the 15-year product and never worry about the rate adjusting later in the life of the loan. Top Denver Area Banks and Credit Unions As of 30-year Fixed 15-year Fixed 5/1 ARM Wells Fargo Bank 02/05/2012 3.875% 3.125% 2.125% U.S. Bank National 02/05/2012 4.250% 3.500% 2.875% Bank of the West 02/05/2012 4.000% 3.375% 2.625% KeyBank National Association 02/05/2012 4.040% 3.375% 2.625% Compass Bank 02/05/2012 3.750% 2.750% 2.625%   Listed rates from banks, thrifts and credit unions were listed on their websites on the date indicated for conforming loans with 0 points.  Data is believed accurate at time of collection, can change without notice, and will vary based on an individual’s credit history.  Contact a specific institution for current rates. Continue reading →

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Making A Smart Offer on a Home

Posted on February 9, 2012 by admin

Conditions may be right for you to finally buy a house.  House prices are down in most parts of the country and interest rates are at historic lows.  However, your excitement may quickly turn to nerves as you go through the tense process of making an offer and waiting for the seller to (hopefully) accept it.  Be smart about the process and to understand exactly what you are getting yourself into so you can make a sound real estate investment. How Much to Offer Most people do not offer the exact amount that is listed for a home.  The specifics of how much you should offer will vary depending on what you believe the market value of the home is.  Your real estate agent should help you to determine how much is appropriate by looking at “comps” in the area.  If you aren’t working with a real estate agent, you can also look at comps yourself. Comps are simply sales of comparable homes in the same area where the house you are looking to buy is located.  You should take the time to determine what the reasonable value of the house is, as compared to the other houses on the market. Don’t forget to take into account and adjust for the age and condition of the home you are offering, adjusting upward or downward depending on whether your home is newer and in better condition or older and in need of more repairs. Making a Formal Offer When making a smart offer on a home, you typically must include an “earnest money” deposit with the offer that signifies to the seller that you are actually serious about buying the house and going through with the transaction.  You will lose this earnest money if you make an offer, the offer is accepted and you simply decide not to go ahead with the deal. Before you make an offer, make sure you are serious about buying the house and that you protect yourself with the proper contingencies in the paperwork you submit.  You also need to make sure that the offer is for an amount you are willing to pay, and is reasonable based on what the home is worth. Contingency Clauses The other key to making an offer on a piece of real estate is to include the correct contingency clauses.  These clauses allow you to get out of the purchase if it turns out that something is wrong or you cannot go through with the transaction. Typically contingency clauses include a financing contingency and a contingency on the property passing inspection.  By including these clauses, you can walk away from the deal and get your money back if you cannot get a mortgage to buy the home or if it turns out that the house is in poor condition. Your real estate agent may also suggest other contingencies depending on the type of property you are buying or the nature of the transaction.  Even in a simple transaction, however, you want to make sure you aren’t forced into going through with a deal if something goes awry- and contingencies protect you from this. Submitting Your Offer After you have reviewed all of the paperwork and included any necessary contingencies, you can submit your formal offer to the sellers of the home.  You will specify a certain period of time that the offer is good for.  The sellers must accept or counter within that period of time or you are no longer bound by the terms of your offer.  If the seller accepts, you will have to go through with the transaction or risk losing your deposit, unless one of your contingencies provides you with an out. Finally, a common result is that the seller will make a counter offer to change the terms or the price or to include contingencies.  If the seller makes a counter offer, the ball is back in your court and you’ll have a choice as to whether to accept or walk away from the deal. Continue reading →

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US Home Prices Continue Falling

Posted on February 2, 2012 by admin

According to S&P’s Case-Shiller Home Price index US home prices dropped 1.3% from October to November, continuing a several month decline in home prices.  The low numbers can be attributed to the colder months setting in.  Sales on homes do not move as quickly in the winter as they do in the summer, and often sellers are willing to sell for less rather than have the house sit on the market for an extended period of time.  However, the yearly report shows the decline is more of a long term problem.  Home prices have been steadily decreasing, and fell 3.7% between November 2010 and November 2011. S&P’s Case-Shiller Home Price index is a monthly report indicating the direction of home prices on a month-to-month and year-to-year basis.  The composite of 10 and 20 cities shows the value change relative to preceding months and years.  There is a two month lag to reporting, so the numbers released in January 2012 are reporting November 2011.  The index shows the values of single family homes that are offered for resale, and the latest report indicates yet another decline in home values. David M. Blitzer, chairman of the index committee at S&P indices says, “Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall.”  Out of the 20 cities surveyed only 2 reported positive growth (Detroit and Washington DC).  The rest reported some sort of decline in prices with Atlanta reporting the largest declination of -11.8% for 2010 to 2011.  Home prices have recovered since the worst part of the recession, but are back into a temporary decline indicating that the US economy is still very much in recovery mode. Like many of the similar reports, negative numbers have a big impact on investor sentiment.  All areas of the economy are linked to each other, and when existing home prices fall, the price for new homes fall as well.  This means builders are less likely to take on new projects, leading to fewer jobs.  But existing home prices not only affects the sales, it also affects those who have no intention of selling their home.  Those looking to obtain a home equity loan may not be able to due to the fact that their house is not worth as much as it used to be worth, and those looking to refinance may not be able to do so.  Dropping home prices can also lead to more mortgages that are underwater, and cause more foreclosures (if your home is underwater, you do have options through the Making Homes Affordable Act such as Principal Reduction ). There is a silver lining to the negative report.  Dropping home prices means that for those who are in the market to buy a new (or new to them) house can get a much better deal.  With interest rates at near record lows (Primerates.com collects mortgage data and releases a summary each week for major metropolitan areas around the country), and low home prices, buyers are in a great position to pick up real estate for cheaper than ever. Overall the economy is still slowly gaining momentum.  The housing index is still taking the slow road to recovery, and a good portion of the recovery is based on how many homes are being built, sold, and how much they are going for.  The latest reports of the Case Shiller Index confirm that the ride out of the recession is a bumpy one, but the overall trend of the economy is still positive. Continue reading →

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Government vs. Private Student Loan Program

Posted on February 1, 2012 by admin

Student loans have become a fact of life for many people as college has become increasingly expensive. However, not all student loans are created the same. It is vitally important that you understand the type of student loans you are taking on so you can make an informed choice. Government Student Loans Government student loans are the best type of student loans to get in almost every situation. Government student loans offer flexible repayment options, such as the ability to extend your payments over a long period of time or the ability to tie your payments to your income so your monthly debt obligation never becomes out of control. Government student loans take many forms, including Stafford Loans, parent or student Plus loans, and Perkins loans. These different loan come in two forms: subsidized and unsubsidized loans. When a loan is subsidized, the government will pay your interest during the time when you are in school or when you have a qualified reason for deferring payment on the loans (such as being in active duty military service or having an income below a certain level). Unsubsidized government loans, like subsidized ones, will not have payments due while you are in school and offer the opportunity to defer payment on your loans for other legitimate reasons, but interest will continue to accrue on those loans that will eventually have to be paid back. Government loans may be available directly from the Department of Education as well as through certain approved lenders, such as Sallie Mae.  In order to qualify for government loans, you generally will be required to fill out a document called the FAFSA (federal application for student aid). Those seeking undergraduate loans will need to include their parent’s income on the FAFSA unless they are emancipated, but those seeking graduate loans will generally not need to do so. Private Loans Private loans are different from government loans and are offered by banks and other lenders who have their own student loan programs. Private loans are not backed by the government and generally only come in unsubsidized forms. You cannot consolidate private student loans with government loans and you may have less flexibility in repaying them.  Private loans typically also have higher interest rates and other less advantageous terms than federally-backed loans do. While private loans can provide a last-resort option for those who need student loans, they should generally be avoided if it is at all possible to do so.  Consider private loans only after all options for government funding have been exhausted and use them only to supplement what can be obtained from lenders who participate in the federal student loan program. Continue reading →

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