Archive for February, 2010

RateWatch 17 Feb – Just Hang On

Markets: We’re off 12bps, which is a bit less than what we gained yesterday.  Rates hang out right at 5% (fractionally more on some programs, fractionally less on others).  SOmething interesting to note: the 15-year loans are operating at their biggest spread in a decade – the 15 year fixed loan is currently selling at 4.25% and better, depending on your credit and equity position.

Analysis: We talked about this last time (and here as well, in greater depth), there just isn’t any good reason to believe that much is going to change here.  I got some push-back on my contention that politics is driving the market at the moment, but I’m sticking to my guns here.  Even if Obama is indifferent to a second term (and I’m not convinced that he is, all protestations to the contrary), the driver on this stuff is Congress, more than the President.  The retirement of Evan Bayh of Indiana is a black, black sail for the Democrats.  Having spent 25 years in the political arena, I’m quite sure that most of the sitting Congressmen want to keep their jobs, and that usually means tossing bread to the plebs as they go to the polls.  That argues against fiscal restraint and higher interest rates.  I’m just saying.

NEXT year, well, that’s a different story.  And please let me emphasize, I’m no prophet.  I’m just telling you what I think, and freely acknowledge that I’m often wrong.  But I’m never slow on the trigger, so right or wrong, you’ll have the benefit of someone watching what’s happening in the markets while you do the real work out there.

Action: The tax credit expires on April 30 if you do not have a home under contract.  Call your Realtor and get cracking.  The FOMC stops buying mortgage-backed securities in 42 days.  That’s going to have SOME impact on rates, and it isn’t likely to be good (although, as argued, I don’t think it will be very big).  Move expeditiously.  That is all.


On the Olympics, Specifically Figure Skating

This is one of a Series of Short Takes, an occasional series on the salient issues of the day, usually politics or religion, though this one takes on something even more dangerous.  In my family, this is a hot topic.  I’m certainly going to catch it.  But some things have to be asked.

I don’t drink.  But I do occasionally go to lunch with people that do, and one day at a relatively good restaurant one of my dinner companions ordered some wine.  He ordered the house wine, at about $25 a bottle, not the recommended wine, which was something French and about five times as much.  Figuring that I might not have a better chance than this, I asked a question I’ve always wanted to ask: can you tell the difference between the really good wine – or at least the really expensive one – and the house wine?

His answer was interesting.  “I can tell the difference,” he said, “between the very good wine and the wine in a box from the grocery store.  But I can’t tell the difference between the $25 wine and the $200 wine, and I don’t know anyone that can.”

I watched the pairs figure skating yesterday.  We watch almost everything Olympic at my house.  And while the figure skating is nothing like as exciting as the Snocross 4-man free-for-all roller derby on snowboards, it is still very entertaining in its own way.

Shen and Zhao won, and I think they should have, based on the storyline alone, if not their skating, which was good – very good – but not at the level I would have expected to see from the Olympic champions.  I watched Sale and Pelletier, and I remember clearly my hatred of Gordeeva and Grinkov, and both of those couples were better than this one.  I think.

But then, here comes my problem.  Figure skating is beautiful, and athletic, and difficult.  No one with a brain would argue otherwise.  But it is also complex.  It is so complex, in fact, that the average person cannot understand it.  More, it is so complex that the above-average fan of the sport cannot understand it.  It has reached the point where it is like wine competitions, where only a few of the anointed have the ability to distinguish between the awesome and the passable.

The Americans had two teams that I saw, Evora and Ladwig and Denney and Barrett, and they were very good.  They did not fall.  They had good artistic presence.  Their performances were, I thought, excellent.  They finished 123rd or something, so far out of it that they were never in contact with the lead group.

In the lead group, we had a couple of terrible, egregious falls.  Of the final four pairs, two of them fell twice apiece.  The other two did not fall, but bobbled badly – the champions bobbling on a very simple element (simple, that is, in championship skating – I’m not for one second suggesting that a mortal could do it) that nobody ever bobbles on at this level.

So I look at this, and I think there’s something terribly wrong with the scoring.  I LIKED the American (and especially the Canadian) performances, but more than that, I thought they were better.  They weren’t, clearly.  They must not have been as technically difficult.  Or something.  But I can’t tell.  I just can’t.  I’m not an idiot.  I can absolutely tell the difference between a good jump and a bad jump on a steal in baseball, a good seal block and a bad one in football, a good assist try and one pass too many in basketball.  But I can’t tell a triple toe loop from a triple lutz.  I’m not absolutely sure I can tell the difference between a double salcow and a triple loop.  I can’t tell which performances are technically more difficult than which others – at least, at the very highest levels.  Like my friend, I can tell a bad wine from a great wine.  But I can’t tell a good wine from a great wine.

I have long wondered whether ANYONE can.  I expect, like everyone, that the judges can tell, and probably they can.  But there isn’t any way to know, not for sure.  I’d like to see a double-blind judging performance, where we have two panels of judges judge the same skating competition, one of the panels being composed of judges that have no connection whatever to the competitors and do not even know their names.  This would tell us how consistent and objective the judging actually is.  And this is also, unfortunately, impossible.  The list of top judges is so short, and the list of top competitors even shorter, and they all know each other very, very well.  In ANY OTHER SPORT, you might be able to get a group of judges together that could judge well enough to give you this comparison, so that you could tell, for sure, that the judging was based on objective criteria.  But you can’t.  So we’ll never know.

I like to assume, as the majority of skating fans do, that the judging is fair and unbiased.  But the fact is that it isn’t, not entirely, nor could it possibly be.  I’m an umpire and a referee.  I don’t play favorites.  No, that’s not true.  I try not to play favorites.  But my judgment is colored by emotion, because I am a human.  Skating judges are also humans, and in their sport, their judgment is absolute and final.  It not only affects the score, it IS the score.  In basketball, I can potentially influence the game by blowing a call, but only in rare circumstances.  Most of the time, the game isn’t close enough for my refereeing to change the outcome.  In skating, my call IS the outcome.

Perhaps nothing would have changed last night, or any night, because the judges were coloring their impressions of the skating based on previous performances and personal experiences.  Perhaps.  But I wonder.

For this reason, I am only a reluctant fan of sports where the judging and the scoring are the same thing.  I’d like to really get into skating, but I can’t, because it is just way too arcane for me.  Gymnastics is similar.  I can’t see any possible difference between ice dancing and ballroom dancing, from a sport standpoint.  They’re both very difficult, require great athletic ability, and are so impossible to understand from a scoring standpoint that an average panel of regular people would be totally unable to accurately rank the contestants.  I don’t like games where I can’t tell who is winning – or worse, games where obvious errors like falling down on the ice are of negligible importance or altogether irrelevant, so that I can’t even trust what seems perfectly clear.  At that point, we’re not talking about a game or a sport any more, we’re talking about art, which is almost always so arcane that regular guys like me can’t tell good from bad.  But then, oil painting is not called a sport, and nobody awards medals to Monet instead of Manet based on brush technique.

Defenders of skating will tell you that it doesn’t need my fandom, and that is surely true.  The art form survives quite without my support, as do many other things.  But I believe that there are a large number of people out there that are like me, that would love to be real fans of skating, because it is beautiful and looks like great fun, but who cannot, because our palates are simply too unrefined.  So we do Disney on Ice instead of Katarina Witt.  Or worse, we make Katarina skate in Disney on Ice, so that what she does is approachable enough for the unwashed to get it.


P.S. This caveat is only for those interested in solutions.  Purists will hate what I am about to say.

Music is an art form that I understand well enough to be able to tell the best from the rest.  When we have music competitions in the academic sense, we have judging just like skating or dancing, and I daresay the judging criteria are just as arcane.  In music, though, we have managed to capture a really BIG amount of interest by doing one simple thing – moving the judging out of the hands of the experts and into the hands of the audience.  It’s called American Idol – maybe you’ve heard of it.  Now, say what you will about the show itself (I’m not a watcher), the one thing you can say is that no skating competition, in fact, no artistic competition EVER has enjoyed the kids of ratings that this show has.  The judges do have criteria to judge from, and they do that, but most of the judging is done by the people that watch, the consumers of the product.  The audience.  I cannot believe that this would hurt the popularity of skating; contrariwise, I believe it would usher in an explosion for the sport.

But to adopt anything like this, skating (and gymnastics) would have to do what singing (and now dancing) has done, and that is abandon the pretense that it is a sport.  It isn’t.  It is athletic, and complicated, and difficult, and requires skill and training far beyond anything we can imagine as mere mortals.  I grant this freely.  But so does industrial sculpture.  So does dancing.  In order to demonstrate the magic of the art form, dancers have embraced the public and attempted to give them something that they can understand, and get excited about, and absolutely LOVE, without pretending that there is some sort of objective scale on which more than a handful of people can agree, on which they can be judged.  There is no such thing, or at least, dancers and singers have come to the understanding that that scale cannot be weighed as any more important than what people like.

Perhaps skaters wouldn’t like to have a show twice a year where some of the best of their kind perform for millions and win large prizes, instead of doing it once every four years as a warmup for hockey.  But I wonder about that, too.

Cj Takes on the Fed

Okay, well, it’s not that dramatic, but I do have a new post up on Zillow’s Mortgages Unzipped, with some in-depth commentary on why mortgage interest rates are not rising dramatically, pronouncements of doom to the contrary.

Thought you might like to see it.

A Primer on Federal Tax Credits

Many people have been asking recently how the Federal tax credit works for home purchases.  Here is the straight dope:

If you:

  1. Have not owned a home in the last 3 years (this means you have not been on the title of a primary residence)
  2. Have income less than $250,000 last year
  3. Are purchasing a home less than $720,000 in value
  4. Have your new home under contract (this means a written agreement signed by both parties) by April 30
  5. Close the purchase (this means sign the documents, fund the loan, and transfer the title into our name) by June 30

then you qualify for an $8000 tax credit on your federal taxes.  The credit is fully-refundable, meaning that you get it even if you owe no tax.  You may file it on your 2009 taxes.  You may also file your taxes now, close later, and file an amendment claiming the credit.  The rumor is that the IRS will audit everyone that takes this credit* (seems unlikely, but that’s the rumor), so be forewarned.

For the long-time homeowner tax credit:

If you:

  1. Have owned your primary residence for at least 5 years
  2. Have occupied that home as your primary residence for four consecutive years of the five
  3. Purchase a new home (new to you, it does not have to be new new)
  4. Get the new home under contract (see above) by April 30
  5. Close the purchase (see above) by June 30

then you qualify for a $6500 federal tax credit.  Same terms apply as those above, except that there is actually a way to document your qualifications, and you should expect to have to.  Ask for a copy of the title report on your current home; your mortgage lender should be happy to provide that.  We are, anyway.

*It being impossible to prove a negative – how, exactly, can you prove that you have NOT been on title on a home in the last three years? – I don’t know how the IRS will be able to dispute this.  They will surely ask for a credit report, and it would be a really good thing if there were no active mortgages on it in the last three years.  But if you own a home outright, it’s going to be complicated for the IRS to prove that, especially if you have some sort of rent that you claim on your taxes.  Not encouraging anyone to cheat, here; I’m just sayin’.

RateWatch 10 Feb – Now I’m starting to wonder

Markets: We’re down 12 bps (to explain again, this means that the 4.5% FNMA mortgage-backed bond is down .12 points (whoops, just ticked down to .06, so we’re moving in the right direction)).  As that bond moves, so move interest rates, in the opposite direction.  As the bond moves up, rates move down.  As the bond moves down, rates move up.  This move today is the third straight one in a negative direction, meaning that rates are edging higher.  The move is not strong, but it’s definite.

Analysis: Or is it?  Previous to this, we had three straight green days, or rates moving in a positive direction.  new home sales and existing home sales have been a bit weak as prices begin to rise (and folks, prices ARE beginning to rise, especially in places like LA and Las Vegas, where the crash has been especially severe.  I think that we’re seeing some artificial boost from the tax credit, so Heaven knows how bad the existing  home sales would be without that.  Any weakness in the economy right now means good things for bonds and good things for interest rates.

Everyone is looking for evidence that the Fed mortgage-backed security purchase phase-out (expected the end of March) is going to substantially boost interest rates.  As I’ve written in this space before, I’m not sure that’s going to happen.  Generally, bond traders are able to read the paper, and they know better than we do that the Fed move is coming.  Also generally, when news comes out, markets are really, really fast to price it in.  So why, if bonds are going to get crushed in April without the Fed to prop them up, are bonds not getting at least partially crushed NOW?

I keep looking for signs that the selloff is starting.  Is the last 3 days’ movement a sign of that?  I don’t know.  But I am starting to wonder.  If it continues all week, I’m going to get suspicious.

And, of course, I’ll report those suspicions to you.

Action: If you’re looking for a house or trying to get refinanced, you need to have the throttle wide open and be moving forward rapidly.  Get with your mortgage professional and get something in motion right now.  Do NOT wait on this.  As tight as lenders have been recently, and as much as things have changed with loan programs, assuming you’re going to walk in my office and walk out an hour later with a loan is delusional.

For those hoping to take advantage of the tax credit, I have a full cheat-sheet on how that credit works posted here.  Read carefully.

More as events warrant.