Two-too-tu-2 areas of mortgage/new home benefits to consider

First, is it time to do away with the discount point for corporate transferees? Or maybe you already have long ago. Here's an article which addresses how the point doesn't make much benefit for the consumer, so if that's the case, then why should companies continue to provide that benefit? You could use that somewhere else in your program with better ROI.

Second article, mortgage rates take a jump.

Hope either or both of these are of interest to you and your program managers.
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There's rarely a point in paying points, experts say
Saturday, January 6, 2007 - 12:00 AM
By Jeff BrownThe Philadelphia Inquirer

Pay points or not?
Anyone who's ever shopped for a mortgage has faced that question. And borrowers who expect to stay in their homes for some time generally have been advised to pay points to get a lower mortgage rate.
But new research turns the conventional wisdom on its head, showing paying points is a bad idea for most people.
For the most part, points benefit the lender, not the borrower.
Each point is an up-front payment equal to 1 percent of the loan. Paying one, two or three points gets you a lower interest rate and smaller monthly payments. With points, borrowers have more choices.
If you have the mortgage long enough, that saving will more than make up for the cost of the points. Once the break-even point is passed, you're ahead.
It's simple arithmetic.
The other day, for example, Wachovia advertised a 30-year, fixed-rate loan for 5.5 percent and 1.75 points. After paying $5,250 in points on a $300,000 loan, monthly payments would be $1,703.
The bank also had a 5.875 percent loan with just 0.125 points. Points on the same loan would be $375 — but monthly payments would be $1,775.
It would take 68 months for the $72 difference in payments to offset the extra $4,875 in points you'd pay to get the lower rate. After that, the decision to pay points would save you $72 a month for as long as you had the mortgage. You'd save $21,024 if you had the mortgage a full 30 years.
Seems simple enough.
But it turns out that most people get it wrong.
The problem, according to the study, is most homeowners don't keep their mortgages as long as they expect to when they get them, so they don't reach the break-even point.
Abdullah Yavas, a business professor at Penn State University, and Yan Chang of Freddie Mac, the mortgage-funding company, looked at 3,785 mortgages granted from 1996 through 2003.
They found the average homeowner paid off his or her mortgage three years before reaching the break-even point. Only 1.4 percent of borrowers kept their loans long enough to make paying points worthwhile.
The study also found that borrowers who declined to pay points almost always made the right decision. Only 1.5 percent of them would have saved money by paying points.
Disturbingly, borrowers who paid points tended to wait too long to refinance after rates dropped, missing chances to reduce their mortgage payments.
Apparently, this was because they mistakenly thought they should keep their loans long enough to "pay off" the points. In fact, the points should not enter into that decision. All that matters is whether the new mortgage would be held long enough for the reduction in monthly payments to offset the refinancing charges.
Points do have their place. After all, it is possible to save by paying them, if you keep the mortgage long enough.
But how do you judge that?
Most people probably focus on how long they expect to keep their home — until they start a family and need more room or until the kids move out or mom and pop retire.
But many of these events are not as predictable as we think.
Then there's another big unknown: Will rates rise or fall after you get your loan?
Even if you stay in your home as long as you'd expected, falling interest rates may make it worthwhile to refinance.
If that happens before the break-even date, much of what you'd paid for points may have been wasted. It becomes profit for the lender.
One last consideration: What else could you do with that money if you didn't pay points?
Taking the example above, imagine if the extra $4,875 spent on points instead was put in a bank account paying 5 percent interest. Imagine that if the higher points were paid, the $72 in monthly mortgage-payment savings could be deposited in the bank to earn 5 percent interest.
This postpones the break-even date by a year, to 80 months instead of 68. Because the bank account would be growing, it would take longer to catch up.

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Mortgage rates jump on strong labor market, inflation pressuresPosted 1/11/2007 1:03 PM ET
WASHINGTON (Reuters)

Average interest rates on 30-year mortgages crept upward in the latest week to 6.21% from 6.18%, according to a survey by finance company Freddie Mac on Thursday.
Rates on 15-year mortgage rates also rose, to 5.96% from 5.94%. And one-year adjustable rate mortgages averaged 5.44% compared to 5.42%.
A year ago, 30-year mortgages averaged 6.15%, 15-year mortgages 5.71%, and the one-year ARM 5.15%.
Even with the slight increase, Freddie Mac expects rates on 30-year mortgages to stay below 6.5% throughout 2007, said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
It also expects home buyers to borrow fewer adjustable rate mortgages this year.
"The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy. But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates," Nothaft said.
Last week the Labor Department reported the United States added an unexpectedly large 167,000 non-farm jobs in December and average hourly earnings rose by 0.5% that month.
Freddie Mac said lenders charged an average of 0.4% in fees and points on 30- and 15-year mortgages, both unchanged from last week. They charged 0.5% on the one-year ARM, down from last week's 0.6%.
The "5/1" ARM, set at a fixed rate for five years and adjustable each following year, inched upward to 6.03% from 6.02%. Fees and points charged on the hybrid mortgage averaged 0.4%, the same as last week.
Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
Copyright 2007 Reuters Limited.

Find this article at: http://www.usatoday.com/money/perfi/housing/2007-01-11-mortgage-rates_x.htm

Mixed forecast from economists

Hmmm, take a look at some of these comments and decide for yourself. Hopefully we'll know by end of Q1 what the real estate market looks like since that's the biggest impact to our transferees and their ability to relocate easily.

January 2, 2007
ECONOMIC FORECASTING SURVEY

Economy Poised For '07 Rebound,Forecasters Say
Weakness in Housing, Manufacturing Is Likely To Take a Lighter Toll

By MARK WHITEHOUSE
January 2, 2007; Page A1

The U.S. economy is poised to shake off the housing slump and regain momentum by the end of this year, and the credit goes to techies, bankers, chefs and shoppers, according to a Wall Street Journal survey of economists.
The panel of 60 economists who participated in the Journal's latest semiannual economic forecasting survey offered an optimistic outlook for 2007: The service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates. That would allow the economy to expand at a rate fast enough to keep investors happy, but slow enough to keep inflation at bay. (See related article1.)
CHARTS AND FULL RESULTS
2
See and download forecasts3 for growth, housing, inflation and employment. Plus, views on the "Christmas Effect," the biggest risks to growth and predictions for the DJIA. Survey conducted Dec. 8-18.HITTING THE MARK

U.S. Trust's Robert McGee4 was the most accurate forecaster in the 2006 second half. How did he climb to the top?

Find More Online:6 Here is a sampling of other Web resources for tracking economists' predictions.
Even so, economists haven't stopped worrying about what could happen if the current slowdowns in housing and manufacturing spread further -- a pattern that has characterized previous recessions. In another potentially ominous sign, they increasingly differ about the economy's trajectory.
On average, the economists predict that inflation-adjusted gross domestic product, a broad measure of economic activity, will grow at an annualized rate of 2.3% in the first half of 2007 and 2.8% in the second half. That's up from a sluggish 2% in the third quarter of 2006, but still far below the robust annual growth rates of 3.2% for 2005 and 4.1% for early 2006.
"As long as you don't think the labor market is going to collapse or financial conditions are going to change, then you're starting to have the conditions for better growth down the road," says Bruce Kasman, head of economic research at J.P. Morgan Chase & Co. in New York.
The rapid expansion of technology companies such as Google Inc. and the huge bonuses lavished on New York investment bankers are just a couple of signs of the service sector's strength. Across the country, restaurants, hospitals, software makers and consulting firms are growing and hiring. All told, service businesses, which make up about 80% of the nation's economy, added 1.1 million jobs from May through November.

ABOUT THE SURVEY

The Wall Street Journal surveys a group of 60 private-sector economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted semiannually, at midyear and at year-end. Between each semiannual survey, four monthly updates are conducted for the most closely watched forecasts. This is the semiannual survey that evaluates how economists fared in the second half of 2006 and looks ahead to 2007. For prior installments of the semiannual and monthly surveys, see: WSJ.com/Economists7.
"We've been extremely busy," says Anthony Kolton, president and chief executive of Logical Information Machines, a Chicago company that provides research software to hedge funds, trading firms and investment banks. "There's a lot of money out there, and people have to put it to work."
The upbeat attitude in services contrasts sharply with the recent pain in the housing and manufacturing sectors. Builders have been slashing prices and production as they attempt to get rid of a large backlog of unsold homes. Despite a rise in November, new-home construction was down 30% from its January peak.
Housing-related industries shed 145,000 jobs from May though November, according to Zoltan Pozsar, an economist at Moody's Economy.com. Falling home values have also left people with less power to extract cash from their homes through home-equity loans and refinancings, a factor that many economists expect to take a bite out of consumer spending.
Along with slumping auto sales, the drop in housing activity has affected all kinds of manufacturers, from drywall factories to furniture makers. The Institute for Supply Management, a purchasing managers' trade group, said that its index of manufacturing activity for November fell to 49.5, the lowest point since April 2003. (Any number below 50 indicates contraction.) By contrast, the ISM's index of service-sector activity for the same month rose.
"It's really two very different economies, depending on whether you're looking at the goods or service industries," says J.P. Morgan's Mr. Kasman.
The bottom line is that the strength in services will help to keep the job market relatively healthy. In the consensus scenario, nonfarm businesses will add about 100,000 jobs a month in 2007. That should be strong enough to slowly lift wages, but not to keep the unemployment rate from creeping up to 4.9% from 4.5% in November.
The economists surveyed expect year-to-year inflation to decline to 1.7% in May from 2.0% in November. As a result, they expect the Fed to shift its focus from fighting inflation to helping the economy grow, lowering short-term interest rates to 4.75% by the end of 2007 from the current 5.25%.
That's a big change from six months ago, when forecasters saw the Fed's battle with inflation as the greatest challenge facing the economy. "The Fed was hoping to slow the economy down enough to take the wind out of inflation without triggering a recession," says Nariman Behravesh, chief economist at consulting firm Global Insight in Waltham, Mass. "So far it looks like it has succeeded."
Most forecasters expect 2007 to be a good -- not great -- year for the economy. While six in 10 said they think the worst of the housing downturn's impact on the broader economy had passed, they still see a deeper housing slump as the biggest risk looming over the economy. That concern was reflected in the odds they placed on a recession in the next 12 months, which rose to 27% from 20% in June.
More so than in recent surveys, forecasters differ on the economic outlook. One measure of their disagreement -- the standard deviation of their forecasts for inflation-adjusted GDP for the coming half year -- widened to about 0.7 percentage point in December, up from a 20-year low of 0.5 percentage point in June. Each of the past two recessions have been preceded by sharp increases in the deviation measure -- to levels greater than one.
Ian Shepherdson, chief U.S. economist at consulting firm High Frequency Economics and one of the survey's most pessimistic forecasters, places the odds of a recession at one in two. He believes that home construction still has a long way to fall before it levels off with demand, and that the Fed's rate increases, which helped push corporate borrowing costs upward by about a full percentage point between fall 2005 and spring 2006, have yet to take their full toll on business activity. Mr. Shepherdson expects real GDP to grow at an annual rate of 0.5% in the first half of 2007 and 2.25% in the second half.
"It's going to be worse than the consensus expects," he says. "My guess is that we'll probably avoid a recession, but by the skin of our teeth."
Most other forecasters believe the economy will prove more resilient. For one, stronger growth abroad should help boost U.S. exports: More than three out of four forecasters pointed to Asia as the biggest contributor to global growth in 2007.
Beyond that, money remains easy to borrow despite the Fed's efforts to raise interest rates. Global investors' appetite for U.S. bonds has helped fuel a boom in mergers and acquisitions, and low long-term interest rates have kept mortgages accessible for potential home buyers. Even people with shaky credit, whose tendency to default has proved greater than many investors expected, still have access to money.
"We've had a remarkably benign credit environment," says Richard Berner, chief U.S. economist at Morgan Stanley in New York. "That's partly a tribute to our flexible and resilient capital markets, but I think it's also just plain good luck."
To some extent, the hit U.S. manufacturing has taken in recent years has made the sector's outlook less consequential today because there just aren't as many American manufacturing jobs left to lose, says Ed Leamer, head of the forecasting center at the University of California's Anderson School of Management. Manufacturing has been shedding jobs since the recession of 2001.
"There's no fat to trim," says Mr. Leamer. "And without the trimming of fat in manufacturing, you just can't get the job loss that can add up to a recession."

Write to Mark Whitehouse at mark.whitehouse@wsj.com8
URL for this article:http://online.wsj.com/article/SB116741731488562667.html