Mortgage Market News and Insight
For the Weekend of June 8th, 2024
Hawaii’s Most Read Mortgage Publication for 16 Years
Volume 16 – Issue 39
Compliments of
Alan Van Zee
President | NMLS #: 297154
Hawaii Mortgage Company, Inc.
Company NMLS #: 232582
Alan Van Zee is one of the top producing Mortgage Originators in the state, originating over $2,000,000,000 to date. He has written and published this weekly newsletter for the past 16 years. It is the most widely read mortgage publication in Hawaii.
Hawaii Mortgage Company celebrates its 24th anniversary providing mortgages to the people of Hawaii and is proud to continuously earn an A+ rating from the BBB of Hawaii.
Something’s Funny with the Employment Numbers
The Bureau of Labor Statistics released their much-anticipated Jobs Report this past Friday. The Jobs Report, along with the two inflation reports (CPI and PCE) tell us just how healthy our economy is. While CPI and PCE measure inflation, the Jobs Report also measures wage pressure as a component of inflation. If businesses are growing and need more workers that will put pressure on offering higher wages and adding to inflation.
The Jobs Report is really two different reports with two very different ways of collecting their data. First is the business survey. That is the portion of the report where you hear the number of jobs created came from. I love government terminology, as the business survey is not a survey at all. BLS has devised a system that somehow determines each month both the number of new businesses that opened their doors or current businesses that closed. It’s called the Birth-Death Model. That computer program also determines the size of those companies that either opened or closed to assign the addition or loss of employees in the workforce.
The other half of the report is called the household survey. It is this half of the report where that unemployment percentage number comes from. Unlike the business survey, with this report, BLS really does survey people. BLS supposedly calls 60,000 households each month to ask if anyone started a job or lost one, if anyone is unemployed, and if unemployed, are they actively looking for work. The data gathered from this report determines the size of the US workforce and the percentage of people unemployed. The size of the workforce is measured by those actually working (either full-time or part-time) plus those unemployed and actively seeking work. People not looking for a job or those unemployed for more than 4 weeks are dropped from the total workforce number.
So how did the two reports compare this month? The business survey said that 272,000 jobs were added to the US economy last month. The household survey said we lost 408,000 jobs.
Which one is right? If you’re looking for a job and can’t find one, you would tend to believe the household survey. Yet we see stories in the news every day of businesses either cutting back on service or closing because they can’t find people to hire. They would tend to believe the business survey results.
It really doesn’t matter what we think anyway. The Federal Reserve is basing their monetary policy (raising or cutting rates) on inflation and the strength of the labor market. We have a Fed meeting this Wednesday. I’ll report back next week which set of data they believe.
Using Rental Income to Qualify
Using rental income from your primary residence is not as straightforward as you may think. In some cases, it can be counted, yet in other ways you can’t. Here’s some quick tips on the yes and no’s for using rental income from your primary residence.
Just to be clear, if you don’t live at the property and rent the entire property out, no matter how many different tenants or leases, in general, all that income counts – so long as what you are renting is legal and permitted.
The rules are different if you live at the property. If you own and live at the home and rent a portion, such as individual rooms or a downstairs enclosed area, that income is not eligible for consideration. That type of income is called border rent. Because they are renting a portion of your primary living space, it doesn’t qualify.
If you own a home with a legal ADU, the good news is that you can use the rental income to qualify for a mortgage. That ADU or as we like to call them, Ohanas, are not a portion of your living space. That is why you can use it to qualify for a mortgage. The one caveat is that the income received cannot exceed 30% of your total income. Also, this use of income only applies to loans sold to Freddie Mac. Fannie Mae still will not recognize income from a primary residence, no matter what portion of your property you rent out. If you are seeking a jumbo portfolio loan, or the lender you have chosen doesn’t sell loans to Freddie Mac, you can’t use it to qualify.
And now the week’s economic news…….
Strong Job Gains
The major labor market data released on Friday exceeded the forecasts of economists. Despite this unexpected strength, however, investors think that the economy is slowing, and mortgage rates ended the week slightly lower.
The economy added 272,000 jobs in May, well above the consensus forecast of 190,000. Particular strength was seen in the healthcare, leisure/hospitality, and government sectors. Another surprise was that the unemployment rate unexpectedly rose from 3.9% to 4.0%, the highest level since January 2022. Average hourly earnings were 4.1% higher than a year ago, above the consensus forecast, up from an annual rate of 4.0% last month.
Two other significant economic reports released this week from the Institute of Supply Management provided a mixed message. The ISM national services sector index rose to 53.8, handily beating the consensus, while the national manufacturing index unexpectedly dropped to 48.7. Readings above 50 indicate an expansion in the sector and below 50 a contraction. Since the economy emerged from the pandemic, consumers have shown a preference for services over goods.
As expected, the European Central Bank (ECB) reduced benchmark interest rates by 25 basis points to 3.75%, down from a record 4% where it had been since September 2023. This was its first rate cut since September 2019. The statement released after the meeting again emphasized that future monetary policy decisions will be based on incoming economic data. Investors anticipate that there will be one more rate cut by the ECB this year.
Next Week
The next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will look for officials to elaborate on their plans for future monetary policy. For economic reports, Wednesday also will be the big day with CPI. The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Import Prices will be released on Friday.
Until next week…….
*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Mondays and Tuesdays. The graph above is intended to shown rate trends, and not “today’s current rate”. ***
Featured Reviews of the Week
With every client, we promise to provide you with a comprehensive analysis of your mortgage needs, the best service possible, and the best rates we can find. We would like to share recent reviews our clients posted of their experience with us on one of the largest real estate review sites in the country:
Excellent service and smooth process
Alan and his team are knowledgeable and easy to communicate with regarding getting the best mortgage and understanding financing in our current market. They did an excellent job getting us the low-interest rate and financing ready before the closing date. They are responsive to various questions and are generous with their time, which we appreciated so much during the process. They made the transaction smooth and easy, with a positive spirit throughout the process. We will definitely work with Alan again and recommend him and his team to everyone.
Excellent…very smooth process and FAST!
I highly recommend Alan and his team. He is excellent at packaging my mortgage docs. Due to his experience and analytics in the business, they were able to complete the whole process FAST. Everything was just perfect. This is my 2nd loan through them and both times, the process just went smoothly. Although my 1st loan presented some challenging situations for them, Alan and his team found a way to make it work and completed the transaction. I highly recommend Hawaii Mortgage Company, Inc.
If you would like to read more reviews of what our clients think of our service, visit the following link:
Do you think all lenders are the same?
There is a difference when you use Hawaii Mortgage Company for your financing. Here’s a short video telling you why:
Click the link below to get a quick lesson on why working with a Mortgage Broker will benefit you on your next transaction.
