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The Real Unemployment Rate is 13%

You heard me correctly, the real unemployment rate of this country is 13%. So, when I say “Real” what do I mean. The U-6 rate is by far the broadest and most accurate depiction of that the unemployment rate truly is in this country. The reason I believe this is because the U-6 number includes the unemployed (those getting unemployment insurance benefits), the underemployed (those who are working but, only part time or for considerably less than before they became underemployed) and finally, the discouraged (those who have given up on looking).

My point is, the U-6 number includes a larger spectrum of what is really happening to the unemployed in this country and in my opinion, it’s why main street America isn’t feeling this economic recovery that the White House is telling us is going on. As a Realtor, I am faced each and every day with the stark reality of America’s hardship in this economy. You see, I specialize in helping homeowners try to keep their homes from foreclosure. Sure, the White House and media want to broadcast the word “recovery” but, the volume of homeowners that call me, looking for help, hasn’t slowed since 2008. In fact, it’s been rather steady.

From looking at this U-6 number, I can only summarize it’s because more and more people are just giving up. They see no hope, no light at the end of the tunnel. The number of discouraged people who have just stopped looking also explains why we see such a massive increase in the number of welfare recipients. Let’s face it, if you have given up and you feel hopeless, all your savings is gone, you used all your retirement, if you had any in the first place, you lost your home due to foreclosure….where else are you going to turn to?

All said and done, the next time you hear about the “unemployment rate” of this country, stop and take a second look at the U-6 unemployment rate, it may give you a much better understanding of what is really happening out there.  

Thousands of homes Foreclosed; Can you afford a Risky Loan?

The adjustable rate mortgage has been around for a number of years and it has helped a number of people afford the purchase of their first home. However, in the late 90’s and early part of the 2000’s some people took advantage of the low rates offered by ARMS and got in over their head. Before buying a home people should really look at all the factors involved with an adjustable rate loan and make sure it is right for them.

Fixed Period Varies

The vast majority of current ARM’s offer a well-defined period in which the interest rate is fixed. The defined period typically lasts from 3 to 7 years and can be as long as 10 years. After this defined period the interest rate will adjust based on the index used to calculate the interest rate.

Some people have well defined plans and can use the fixed period for meeting their goals. For instance, a military couple that has an assignment to a particular area could purchase a home using a 5 year ARM and use the time to live in the home with no worries about a change in interest rate.

However, people that are just looking at the low rates of the ARM’s and “hoping” that their income will rise in future years are taking a big gamble.

Rates Will Rise

Years ago when the ARM was first introduced it was always explained the same way. When the market took a dip the interest rate would lower accordingly and the opposite would happen when the market improved. However, the last few years have seen nothing but historically low rates. Getting an adjustable rate loan now ensures one thing; the interest rate will rise once the fixed period ends. The current rates cannot get much lower.

Thankfully, an adjustable rate mortgage will have some safeguards to protect borrowers. The amount of increase for the rate is usually capped each year as well as a cap for the duration of the loan. For instance, most ARM’s will not adjust more than 1% in one year and no more than 5% or 7% over the course of the loan. However, a 5% increase in rate on a $250,000 loan can increase a loan payment by over $700. Keep in mind that when the interest rate adjusts the new payment is factored over the remaining loan term. This can drive up the payment as well.

Plan Accordingly

All of this information points to one simple fact. People considering an adjustable rate loan need to plan accordingly. You should have some type of exit strategy in mind, whether it is selling or refinancing or paying off the loan in order to avoid some potentially hazardous conditions in the near future.

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New Employment Numbers has Negative Impact on Mortgage Rates

The recent good news for the job market had a less than desired effect on mortgage rates. Thanks to signs of an improvement in the economy the recent reports stating more people are back to work had an almost immediate impact on trading in the stock market. For years economists have pointed out the inverse relation between home mortgage rates and the general health of the economy. Usually, when investors are worried about risk, they will avoid the stock market and invest more money in to bonds and mortgage backed securities. This flow of cash makes the rates drive lower. However, when times are good and investors rush to the stock market, the opposite effect is felt.

But the Sky is Not Falling

However, this does not mean that any improvement in the stock market will automatically push mortgage rates up. And it also does not mean that the mortgage rates will move dramatically one way or the other. For example, back in the year 2007 the average 30 fixed rate hovered between 6.325% and 6.625%. Now, for the past 3 months, the average rate has moved between 4.345% and 3.875%. This shows roughly a 2% change in rates over the course of 5 years. Mortgage rates do move with the ebb and flow of the economy, but it is rare to see drastic jumps or drops.

What Does this Mean for Homeowners and Potential Homebuyers?

If the economy continues to slowly improve, this means that we may indeed have seen the lowest rates ever. Homeowners that have been wavering between refinancing and hoping for a slightly better rate would be well advised to lock in a rate suitable for their needs.

At the same time, potential homebuyers who are wondering if rates could possibly get any lower may wish to go ahead and put out a contract on a home. Locking in a good rate now for 30 or 60 days could provide a small cushion against any small uptick that will likely come in the next few weeks.

Locking in a Loan

Fortunately, the costs for doing a mortgage loan are still relatively low. Combined with the modest amount to lock in a loan, this is a great time to secure a solid rate. Most lenders are seeing quite a bit of pressure to keep the costs down so it is highly unlikely that the expense of ate locking will jump any time soon. Keep in mind that the current rates are around 3.875%. Rates cannot go to zero because that would mean the lenders are not making any money. Sooner or later, rates will go back up. How high will they go? That is the proverbial “big question” that no one really has an answer for at the moment. Better to get in on the low rates while you can rather than kicking yourself for waiting and missing out.

Original Post - Mortgage Rates Rise on new Employment Numbers