Entries from June 2010 ↓
June 30th, 2010 — Real Estate Information
Standard & Poors released its Case-Shiller Index Tuesday. The index is a monthly home valuation report from select cities and among the private sector’s most popular home pricing models.
In reviewing the April Case-Shiller Index and its accompanying analysis, it appears that the housing market’s rebound is gathering momentum.
In the index’s 20 tracked cities:
• 18 of 20 improved from March to April 2010
• Versus April 2009, home prices are up nearly 4 percent
• The two “down” cities from April — Miami and New York — are off just 0.5% and 1.0% annually, respectively
Furthermore, as another sign of strength, San Diego, a city in which homeowners have lost a lot of equity since 2007, has now shown 12 straight months of home price improvement.
However, the Case-Shiller Index must be kept in context. It’s far from perfect.
For one, the index reports on a 60-day delay; it’s only now showing data from the end of April, when the federal homebuyer tax credit was expiring. Home sales have been weak since then it’s been reported.
And second, the Case-Shiller Index is limited to just 20 cities nationwide. Therefore, the index doesn’t consider every home sale in every American city — it only considers a select few. Many more U.S. homes are excluded from the Case-Shiller Index than are included.
But, despite its flaws, the Case-Shiller Index remains important with respect to economic analysis. Much like the government’s Home Price Index, Case-Shiller helps to identify broader trends in housing that shape government and monetary policy.
June 28th, 2010 — Mortgage Industry News
Mortgage markets improved last week in response to mostly negative data about the U.S. economy, and the Federal Reserve’s acknowledgement that Eurozone financial ills could cross the Atlantic.
Conforming and FHA mortgage rates fell last week, extending a rate rally that dates to early-April. Mortgage rates have fallen to several, new, all-time lows during this period and last week was no different.
The best rates of last week hit Thursday morning.
This week, mortgage rates should be volatile, and may rise, too. There’s a bevy of data due for release, and market volume will be light with the long weekend looming.
Monday, the Personal Consumptions Expenditures Price Index is published. More commonly known as “PCE”, the index is the Federal Reserve’s preferred inflation gauge. When inflation is running higher than expected, mortgage rates tend to rise.
Conversely, when inflation is running lower than expected, mortgage rates tend to fall.
Tuesday, the Case-Shiller Index will be released for April’s home prices, along with two consumer confidence reports. As with PCE, strength tends to lead mortgage rates higher and weakness draws them lower.
Thursday, the National Association of REALTORS® releases its Pending Home Sales Index for May and the Department of Labor releases initial and continuing jobless claims number.
Then, Friday, the Bureau of Labor Statistics publishes June’s jobs report, including the Unemployment Rate. This number is always a market-mover, but with the long vacation weekend looming, it’s expected that Friday’s volume will be light on Wall Street, creating extra volatility.
Mortgage rates may be erratic, in other words.
June 23rd, 2010 — Mortgage Industry News
Today, in its first meeting in 5 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged.
The Fed Fund Rate remains within its target range of 0.000-0.250 percent.
In its press release, the FOMC said that, since April, “the economic recovery is proceeding” and that the jobs market “is improving gradually”. Business spending “has risen significantly”, too, with the exception of commercial real estate.
Today’s statement is the 8th straight press release in which the Fed shows optimism for the U.S. economy, dating back to June 2009. Since that time, the Fed has terminated all of the programs it created to support the economy through the economic crisis.
The recession is widely believed to be over.
And, although the Fed’s statement acknowledged economic growth, it did highlight lingering threats, too.
1. Employers are still reluctant to hire new workers
2. European debt concerns could spill-over to the U.S.
3. Bank lending is contracting
Also, as expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”, citing that “inflation has trended lower” recently.
Mortgage market reaction has been positive thus far. Mortgage rates are slightly improved post-FOMC.
The FOMC’s next scheduled meeting is August 10, 2010.
June 21st, 2010 — Mortgage Industry News
Mortgage markets improved last week on weaker-than-expected jobless figures, ongoing troubles in Europe, and a tame reading on domestic inflation.
As a result, conforming mortgage rates fell last week, drawing loads of new refinance applications.
For a brief moment Thursday afternoon, mortgage bond prices pierced a key support level, dropping rates to their best levels of the year.
It didn’t last long, however. By Friday morning, pricing was worsening on profit-taking and in preparation for this week — a week that promises to be heavy on both data and rhetoric.
To mortgage markets, this can be a dangerous combination.
The biggest news of the week is the Federal Reserve’s 2-day meeting, scheduled for Tuesday and Wednesday in Washington D.C.
The Fed is expected to hold the Fed Funds Rate in its target range near 0.000-0.250 percent. It won’t be what the Fed does at its meeting that will matter to rates, though. It will be what the Fed says — about jobs, about growth, about inflation — in its post-meeting press release.
Remarks that reflect well upon the economy should lead mortgage rates higher. Remarks viewed as negative should lead mortgage rates down.
There’s key data due for release next week, too:
• Tuesday : Existing Home Sales and Home Price Index
• Wednesday : New Home Sales
• Thursday : Continuing Jobless Claims
• Friday : GDP and Consumer Sentiment
Mortgage rates remained relatively tame last week. This week, volatility should return. Your biggest risk is tied to the Fed’s adjournment Wednesday afternoon.
June 18th, 2010 — Mortgage Industry News
As its June 30, 2010 closing deadline approaches, the federal home buyer tax credit is back in the news.
Unfortunately, the headlines are misleading.
Contrary to what you may have read (or heard), the federal home buyer tax credit has not been extended past June 30, 2010. At least not yet. And here’s why there’s confusion.
Look at these headlines from earlier this week:
• Senate Extends Date On Home-Buying Tax Credit (Philadelphia Inquirer)
• U.S. Senate Approves Extension Of Home Buyer Tax Credit (NASDAQ)
• Senate Approves Home Tax Credit Extension (Reuters)
Now, nothing above is factually incorrect, but each neglects a key piece of the country’s law-making process — it takes more than the Senate to pass a law. For a bill to become a law, it must pass the Senate and the House of Representatives and then it must be ratified by the President.
To date, we’ve only cleared just one of those 3 steps.
This means that the federal home buyer tax credit has not been formally extended. As of now, it’s still in discussion. Ultimately, though, if the extension does pass, it’s expected to extend the closing date deadline for home buyers beyond the original June 30, 2010 date into September 2010.
Homeowners must still have been in contract as of April 30, 2010 to claim up to $8,000 in federal tax credits.
June 16th, 2010 — Mortgage Industry News
Starting next week, Fannie Mae is clamping down on the popular interest only loan product.
An “interest only” mortgage is exactly what its name implies — a mortgage for which the monthly payments consist entirely of interest with no principal reduction. Because there’s no amortization, payments are less costly on a month-to-month basis.
For example, assuming principal + interest payments at 5 percent, a $250,000 mortgage carries a monthly payment of $1,342. The payment on a comparable interest only mortgage, however, drops to $1,042. That’s a payment difference of $300 and the size of the cost savings, not surprisingly, is the biggest reason why Fannie Mae is making its changes.
In its official announcement, Fannie Mae says it wants the give the interest only option to “borrowers who are in a position to choose it as a financial management tool” rather than allowing homeowners use it as an affordability tool for their budgets.
Going forward, there are new minimum standards for interest only home loans.
• Applicants must have a 720 credit score or better
• Applicants must have at least 24 months of reserves
• The property type may not be a 2-unit, 3-unit or 4-unit
• The property must be a primary residence, or vacation home
Furthermore, only purchase and rate-and-term refinances are eligible. Cash out refinances are prohibited.
Interest only home loans aren’t for everyone, but if you plan to finance with a Fannie Mae mortgage and interest only is your preference, get your loan application submitted no later than Friday, June 18th. Starting Monday, approvals will be tougher to come by.
June 14th, 2010 — Mortgage Industry News
Mortgage markets posted four good days last week and one awful one. Unfortunately, that one bad day outweighed the gains of the other four and mortgage rates worsened on the week overall.
Despite re-touching all-time lows on Tuesday and Wednesday, Conforming and FHA mortgage rates moved higher on the week.
There wasn’t much domestic data on which for mortgage markets to move so rates took their cues from global economic activity. Strong data from Japan and China, plus an improving outlook from the Eurozone, sparked optimism among Wall Street investors. Cash poured into the stock market and it happened at the expense of bonds — including the mortgage-backed ones.
It’s the primary reasons rates rose and not even the worst Retail Sales report in 8 months could undue the damage.
Often, weak Retail Sales data causes mortgage rates to fall. Last week, however, that wasn’t the case.
This week, there’s cause for rates to rise again with Wednesday emerging as a “data day”.
First, at 8:30 AM ET, the government releases two key housing statistics and one major gauge for inflation — Housing Starts, Building Permits and Producer Price Index, respectively. Strength in any or all three should lead mortgage rates higher.
Then, at 5:45 PM ET, Fed Chairman Ben Bernanke makes a public speech and anytime Bernanke speaks, mortgage rates can move.
Mortgage rates remain unnaturally low and a lot of Americans have taken advantage already. Low rates like this can’t last forever so lock one in while you can.
June 11th, 2010 — Mortgage Industry News
Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise.
In a near-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers.
Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12. The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.
Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
• Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
• Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
• Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
A increase in monthly mortgage insurance premiums will reduce home affordability for buyers and strain household budgets.
The news isn’t all terrible, however.
Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, a move like that would reduce closing costs by $2,500.
The bill awaits companion legislation in Senate and final approval into law, but considering the House’s lopsided vote Thursday, it could happen rather quickly. If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.
The FHA insured close to 25% of all mortgages made in the first three months of 2010.
June 7th, 2010 — Mortgage Industry News
Mortgage markets improved last week on poor jobs data.
The May Non-Farm Payrolls report fell well short of expectations while ongoing jobless claims rose. The two combined to cast doubt on the speed of the U.S. economic recovery, hurting stocks and helping bonds.
Conforming and FHA mortgage rates dropped for the fifth time in six weeks and, once again, rates are trolling back near all-time lows.
No doubt you’ve heard that before — “mortgage rates at all-time lows”. Mortgage rates have dipped to these levels four times in the last 19 months. However, on each occasion, it wasn’t long after touching bottom before rates reversed higher.
• November 2008 : Roughly 90 minutes
• March 2009 : Roughly 6 hours
• May 2009 : Roughly 1 day
• May 2010 : Roughly 3 hours
This week, rates could stay low for a matter of hours, or days — we can’t really know, especially with no “major” data due for release. Instead, most of this week’s economic news is incidental. That means that mortgage markets will move based on trader sentiment and “gut feel”.
The good news is that the market momentum is currently in the borrowers favor. We entered the weekend with rates falling and they look poised to open Monday no worse.
Here’s a look at what’s ahead this week:
• Monday: Consumer credit, a critical piece of consumer spending
• Wednesday : The Beige Book, a regional economic report from the Fed
• Thursday : Initial and continuing jobless claims
• Friday : Retail Sales and the Consumer Sentiment report
Market sentiment is a strange animal. One minute it can be your friend and, the next, it can be your enemy. Opinions change swiftly on Wall Street and so do mortgage rates.
Rates have a lot farther to rise than they do to fall. You won’t want to be on the wrong side of the bet when rates start rising.
June 3rd, 2010 — Real Estate Information
The Pending Home Sales Index shot higher in April as low mortgage rates and a soon-to-expire federal tax credit spurred home buying across the county.
A “pending home sale” is a home that’s under contract to sell but not yet closed.
Region-by-region, April’s pending home sales varied versus March’s data:
• Northeast Region: +29.5%
• Midwest Region : +4.1%
• South Region : -0.6% (after a +15.9% posting in March)
• West Region : +7.5%
On an annual basis, the Pending Home Sales Index is higher by 22 percent.
April marks the third straight month that pending home sales are up and today’s buyers should take note. This is because, according to the National Association of Realtors®, 80% of homes under contract close within 60 days.
In other words, May and June’s existing home sales data should be similarly strong, causing the real estate market to gently shift in favor of sellers. In fact, already, we’re seeing home resales touch multi-year highs while new home supplies fall to multi-year lows.
All of it tends to push home prices higher while simultaneously reducing buyer negotiation leverage. That, coupled with the high probability of higher mortgage rates ahead, means that finding “deals” will get tougher for the average home buyer.
In looking at the housing market data, it appears that the best month in which to have bought a home this year was February. The next best time may be right now.
Talk to your loan officer if you’re planning to buy a home this year. It may be sensible to move up your time frame a few months.
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